Q4 2024 BJ's Wholesale Club Holdings Inc Earnings Call
Good morning. Oh, and thank you for joining us to the BJ Wholesale Club Holdings, Inc. Fourth Court to fiscal 2024 and his conference school.
Carly: My name is Carly, and I'll be coordinating the call today. After the company's remarks, there'll be a question asked session. Inferno's to all participants today, we are asking you to limit yourself to one question and return to any additional questions to the key. I'd like to turn it over to your host, Kathy Park, VP of Investor Relations. The floor is yours. [inaudible]
Cathy Park: Good morning and welcome to BJ's fourth quarter fiscal 2024 earnings call. With me today, our Bob Eddy Chairman and Chief Executive Officer, Laura Felice, Chief Financial Officer, and Bill Werner, Executive Vice President, Strategy and Development.
Cathy Park: Please remember that we may make forward-looking statements on this call that are based on our current expectations. Forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from what we say on this call.
Cathy Park: Please see the risk factor sections of our most recent SEC filings for a description of these risks and uncertainties.
Cathy Park: Please also refer to today's press release and latest investor presentation posted on our investor relations website for our cautionary statement regarding forward-looking statements and non-GAAP reconciliation. With that, I'll turn the call over to Bob.
Bob Eddy: Good morning everyone, and thank you for joining us. This morning we are proud to report terrific results with fourth quarter comps and profits that were higher than anticipated.
Bob Eddy: Fiscal 2024 was another milestone year for us marked by record net sales, membership, and adjusted earnings per share.
Bob Eddy: We consistently drove robust traffic and market share gains both in our clubs and at our gas pumps.
Bob Eddy: These results are a testament to our team's dedication to delivering exceptional value to our members, as well as outstanding execution of our strategic priorities.
Bob Eddy: Membership is at an all-time high above seven and a half million members, with another impressive renewal rate performance of 90%.
Bob Eddy: Our merchandising initiatives and digital conveniences are driving greater member engagement.
Bob Eddy: And our new club performance is proof of the power of our Accelerating Expansion Strategy.
Bob Eddy: Our investments in the business are bearing fruit, and we are confident in our ability to grow long-term.
Bob Eddy: In the fourth quarter, our comparable club sales, excluding gas sales, grew by 4.6%.
Bob Eddy: We are pleased with the continued strength and traffic which contributed over 3 percentage points to our comp in the quarter. This was our 12th consecutive quarter of traffic growth. [inaudible]
Growth in Units also drove increased basket size. [inaudible]
Bob Eddy: Our perishables grocery and sundry's division delivered over 4% compost in the fourth quarter with perishables leading the way.
Bob Eddy: Our strength and perishables has been a recurring theme all year, as more members make us their weekly destination for quality essentials, such as produce, dairy and meat.
Bob Eddy: Our General merchandise and services division comps grew by more than five percent in the fourth quarter, outpacing our consumables business for the first time since the pandemic.
Bob Eddy: Our refined and expanded assortment in our gifting categories built on last year's success. This approach amplified our broader GM offering and drove strong member engagement, especially during the holiday season.
Bob Eddy: Notably, Consumer Electronics produced high single-digit comps in the quarter led by video games, tablets, and audio.
Bob Eddy: They're proud of this performance in light of the industry's soft performance.
Bob Eddy: Toys let our seasonal sales with low double-digit comp growth in the quarter. As you know, we significantly improved our toy assortment last year, offering top brands a great value.
And we further leaned into that strategy this year.
Bob Eddy: In apparel, our fantastic children's assortment drove the growth, supported by the cold winter weather.
Bob Eddy: We know there's still more to do in general merchandise, but I'm proud of the teams continued progress in differentiating ourselves and growing this important part of our business.
Thank you for watching!
Our four strategic priorities are critical to our long-term growth.
Bob Eddy: As a reminder, these priorities are improving member loyalty, giving our members an unbeatable shopping experience.
Delivering value conveniently and growing our footprint.
Let me touch on our progress in each. [inaudible]
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Membership is the cornerstone of our business. We reported another record membership year with full-year membership fee income increasing by 8.5%, and our renewal rate remaining strong at 90%.
Speaker Change: Over the past couple of years, we enhanced our credit card program, invested in a gas discount for our club plus members, and most recently added benefits for plus members by giving them two, three same day deliveries every year.
Speaker Change: As a result, we are growing overall member counts and upgrading war members into our higher tiers.
Prior to your membership penetration is now nearly 40 percent.
Thank you for watching!
Speaker Change: We have much to be excited about in membership, but perhaps our greatest achievement in recent memory is the ability to consistently grow members in comp clubs. This has been years in the making.
Speaker Change: We enhance our tools and strategies around member acquisition to open new avenues for growth.
Speaker Change: Our focus on post-acquisition engagement and member retention has been critical to maximizing lifetime value, alleviating the pressure of replenishing churn.
Speaker Change: Our strength in membership is what gives us confidence and our ability to sustainably grow the business long term. We're focused on maintaining this strength in the future.
Speaker Change: Our thriving membership is also a direct reflection of the unbeatable shopping experience we aim to deliver at BJ's.
Speaker Change: Simply put, satisfied members are more likely to renew. That's why our merchandising strategy is deeply rooted in providing the best value for our members.
Speaker Change: A strong pricing position is fundamental to our value-driven model. Our advantage structure allows us to consistently offer up to 25% better pricing than our grocery competitors, and we are relentless in maintaining this edge.
Speaker Change: While pricing is crucial to delivering great member experiences, the value we provide extends beyond cost, encompassing a highly curated assortment and digital convenience.
Speaker Change: We're enhancing our assortment across the entire box. As I mentioned earlier, we're making significant strides in improving our general merchandise business and strengthening the treasure hunt at BJ's.
Speaker Change: Our category management process introduced the more rigorous member-centric mindset to our assortment planning strategy.
Speaker Change: We also continue to innovate our own brands offering high-quality products at significant savings to help members stretch their budgets.
Speaker Change: Our own brands comprise 26% of our merchandise sales in fiscal 2024, and we remain on track to ultimately reach our goal of 30%.
Speaker Change: Finally, our fresh initiatives have sparked meaningful produce demand since the full roll-out in the second quarter.
Speaker Change: We launch trust through by no based on a simple yet powerful observation.
Speaker Change: Members who rely on BJ's as their primary fresh destination are among our most loyal members.
Speaker Change: As a result, we believe that winning more members fresh produce shop would lead to greater trip frequency and larger overall baskets.
Speaker Change: Our fresh 2.0 journey started with gaining full control of our perishable supply chain several years ago.
Speaker Change: From there, we enhanced every aspect of our produce business, from logistics and team member training to in-club presentation and marketing.
Speaker Change: Our efforts have boosted our credibility and fresh, exhibited by our double-digit produce comps in each of the past three-quarters.
Speaker Change: In fiscal 2024, our fresh business grew at a rate that was ten percentage points greater than the rest of the market.
Speaker Change: While our performance and produce alone validates our work, we are especially encouraged by the positive ripple effects on overall member behavior.
Speaker Change: Early indications since launching Fresh 2.0 show that tenured members who are completely new to buying fresh produce at BJ's are making more trips and on average, shopping across four more categories than they have in the past.
Speaker Change: Said differently, our members who are neuter fresh produce are beginning to trend toward the same strong behaviors as our most loyal members.
Speaker Change: It's still early, but we're pleased with the initial results and inspired to broaden our efforts beyond produce to bring even greater value to our members.
Speaker Change: We are also winning in digital conveniences. These have fueled double-digit, digitally enabled CompSales growth each year for the past four years.
Speaker Change: In the fourth quarter, visually enabled Comp Sales Group by 26% year-over-year, and 53% on a two-year stack.
Speaker Change: Today, our members have multiple ways to save time in addition to money with BJ's, such as double-picked, curbside pickup and same-day delivery.
Speaker Change: Our mobile app supplements the shopping experience when members are in our clubs, allowing them to clip and use coupons digitally, identify the location of products they need, and skip the lines with Express Pay Checkout.
Speaker Change: We enhance the app experience to foster member engagement in between trips as well, incorporating personalized messaging, product returns functionality, an AI-powered search engine to facilitate shopping list creation, and other touch points to prompt the next BJ's visit.
Speaker Change: Today, about 60% of members engage with us digitally in some shape or form.
Speaker Change: And while Bo Peck has historically been the largest contributor of our digital growth, remember adoption rates for Express Pay and Same Day Delivery have also been growing nicely to add more profitable growth to the business.
[inaudible]
Speaker Change: As members increasingly embrace our digital conveniences and reward us with their spending and loyalty, we will continue investing to drive lifetime value.
Thank you for watching!
Speaker Change: Finally, we are making meaningful progress on our real estate strategy, having open seven new clubs and 12 gas stations in fiscal 2024.
Speaker Change: We opened our 250th Club in Louisville, Kentucky, at the end of the fourth quarter, marking entry into our 21st state. [inaudible]
Speaker Change: Since the end of our fiscal year, we have opened two additional clubs in Brookville, Florida, and
Speaker Change: We expect to open our new club in Southern Pine's North Carolina this Friday, and clubs in Whitman, New Jersey, and Staten Island, New York will follow in the coming weeks.
Speaker Change: While some of our plans, 2024 openings slipped into the early days of fiscal 2025, our growth agenda remains robust and we ended the year with the largest pipeline of approved new clubs in the company's history.
Speaker Change: Inclusive of our five new units in the first quarter, we expect to open 25 to 30 clubs across the next two fiscal years.
Speaker Change: The performance of our new clubs continues to be strong, with clubs open since 2020 contributing to comp sales at a rate of over two times the chain.
Speaker Change: This performance continues to give us confidence in our growth plans and our strategy of bringing the value of a BJ's Wholesale Club to communities in our existing and adjacent geographies, in order to serve new members who are tired of paying high grocery store prices.
Thank you for watching!
Speaker Change: We recently announced our plans to build a fourth ambient distribution center.
Speaker Change: We've grown meaningfully over the years both organically and with new club openings. Our new DC is strategically placed to drive efficiencies in our current footprint while supporting our continued expansion.
Speaker Change: Over the past two years, we've expanded into Tennessee, Alabama, and Kentucky.
Speaker Change: In 2026, we have plans to enter Texas in the Dallas-Fort Worth region.
DFW is a high growth market with favorable demographics.
Speaker Change: There's intense competition as well, but we're confident that our strong offering and value focus will resonate with the broader community.
Speaker Change: We are eager to serve the families in this exciting market soon.
Thank you.
Speaker Change: As we assess the health of the consumer today, members remain highly value-conscious and especially discerning in any discretionary purchases, as we've seen all year.
Speaker Change: In these times, members are relying on BJ's as their one-stop shopping destination. [inaudible]
Speaker Change: as exhibited by the growth and spend and trips across all income levels in the fourth quarter.
Speaker Change: We expect these dynamics to continue into fiscal 2025 and our teams remain vigilant and ready to navigate the uncertainties that the year will certainly bring.
Speaker Change: We have an enduring business model that wins in both good times and in times of uncertainty.
Speaker Change: I'm confident that the advantages inherent in our business combined with our focus on our long-term priorities continue to position us well for the future.
Thank you for watching!
Speaker Change: Above all, I'm grateful for our team members, who bring our purpose to life every day, taking care of the families who depend on us.
Speaker Change: I look forward to continuing this journey with you as we grow the company together.
Speaker Change: I'll now turn it over to Laura to provide more details on our results and outlook for fiscal year 2025.
Laura Felice: Thanks, Bob. Net sales in the quarter were $5.1 billion, increasing 5.4% year-over-year on a comparable 13-week basis.
Laura Felice: merchandise comp sales, which exclude gas sales increased by 4.6 percent year-over-year led by traffic.
Laura Felice: We delivered strong traffic and comp unit growth all year, which we believe serve as a testament to members finding significant value in their BJ's membership.
Laura Felice: Total comparable club sales for the fourth quarter, including gas sales grew 4% year-over-year.
Laura Felice: Lower retail gas price per gallon was partially offset by our market share gains with our cop gallons growing 3% year-over-year in the quarter.
Laura Felice: This compares to continued year-over-year volume declines across the broader industry in the US.
Laura Felice: Digitally-enabled comp sales for the fourth quarter grew 26% year over year, contributing significantly to our overall growth.
Laura Felice: Over 90% of our digital sales are fulfilled by our clubs with services like Bowel Pick, Express Pay, and Same Day Delivery, which remained meaningful drivers of our digital growth.
Laura Felice: Over 60% of our members are now engaging with us through our app today, which we have grown steadily over the past several years.
Laura Felice: We will continue to leverage our digital conveniences to drive member loyalty in the future.
Laura Felice: Membership fee income or MFI grew 7.9% to approximately $117 million in the fourth quarter, led by strong membership acquisition and retention across the chain.
Laura Felice: Our MFI in the quarter included minimal impact from our fee increase that went into effect January 1, 2025.
Laura Felice: Fourth quarter, merchandise gross margins decreased by approximately 10 basis points year-over-year.
Laura Felice: Our members trust us to deliver outstanding value, and we continue to manage our margins prudently to maintain that trust in a dynamic cost environment.
Laura Felice: While our category management process is yielding profitable growth across broader assortment, our continued strong fresh produce performance and rising costs in products with outsized impacts to our members, like eggs, contributed to our margin rate for the quarter.
Laura Felice: Our top line growth affords us the flexibility to invest in our position of strength, and we will continue to manage the business for the long-term success.
Laura Felice: SDNA expenses for the fourth quarter were approximately $758.2 million. The year-to-year increase was primarily due to our new unit growth and other investments to drive our strategic priorities.
Laura Felice: As a result of the company's performance this year, incentive compensation was also higher on a year-over-year basis.
Thank you for watching!
Laura Felice: In our fuel business, fourth quarter profit per gallon normalized from last year's higher levels.
Laura Felice: This resulted in lower year-over-year gas profits as expected, partially mitigated by strong gallon growth in the quarter.
Laura Felice: All in, we reported fourth-quarter earnings per share of 92 cents.
Laura Felice: Adjusted earnings per share for the quarter was 93 cents, including an effective tax rate of 26.3% driven by on-plan tax windfall.
Laura Felice: Our fourth quarter performance reflects our strong membership and traffic, merchandising improvements, and digital conveniences, all reinforced by our investments in the business to drive long-term growth.
Laura Felice: I'd like to remind you that last fiscal year's results include in an extra week, which contributed approximately $350 million of net sales and approximately $0.10 of earnings per share.
Laura Felice: Let's move on to our balance sheet. We ended the fourth quarter with absolute inventory levels up 4% year-over-year and approximately flat on a per-club basis.
Laura Felice: Instox also improved your year thanks to our team's great work in allocating the right amount of product to the right clubs at the right time.
Laura Felice: Our capital allocation strategy is consistent with our historical framework as we continue to take a disciplined approach to maximizing shareholder value.
Laura Felice: We believe the best use of cash is applying it towards profitably growing the business.
Laura Felice: As such, investments to support membership, merchandising, digital, and real estate initiatives continue to be funded by our cash flows and enabled by our strong balance sheet.
Laura Felice: We ended the fourth quarter with the lowest levels of debt since our IPO, no near-term maturities, and half a turn of net leverage.
Laura Felice: We also continue to return excess cash to our shareholders. In the fourth quarter, we repurchased 645,000 shares for approximately $62 million.
Laura Felice: Capital expenditures were approximately $588 million in fiscal 2024, supporting our growing real estate pipeline.
Laura Felice: Approximately $16 million was related to our new highly automated ambient DC that will aid our footprint expansion strategy and drive efficiencies in our broader supply chain.
Laura Felice: We expect our new DC to cost approximately $200 million in aggregate over the next two years.
Turning to our outlook for fiscal year 2025.
Laura Felice: Our business, like the broader industry, continues to face economic and geopolitical uncertainty and on predictability in conditions that influence costs.
Laura Felice: Despite the pressure on consumers and operators alike, we remain confident in our drivers of growth that are within our control keeping us cautiously optimistic about the year.
Laura Felice: We will leverage our model and remain focused on our long-term priorities to deliver great value to our members and drive continued traffic and market share games.
Starting at the top of our P&L, we expect.
Laura Felice: To grow our fiscal 2025 Comp Sales, excluding gas by 2% to 3.5%. Our guidance aligns with a long-term although of our low to mid-single-digit growth while acknowledging the macro uncertainties impacting consumer behavior.
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Laura Felice: We are proud of our achievements in membership which has performed better than Algo last year.
Laura Felice: Our long-term framework for MFI has not changed at mid-single-digit growth, but we do anticipate MFI to outpace that goal in fiscal 2025 due to the fee increase.
Laura Felice: Please also remember the encountering considerations as the roughly $20 million of fee increase impact will build through fiscal 2025, benefiting Q1 the least and Q4 the most.
Laura Felice: From a margin perspective, we continue to exercise strong, cost, discipline, and leverage merchandising strategies such as our own brands to drive improvement in our gross margin profile as we deliver exceptional value to our members.
Laura Felice: Moving on to S-GNA, a few reminders. First, we expect to reinvest the fee-increase-related MFI into our value prompt.
Laura Felice: Much of this will be in the form of team member wages and our new plus-tier benefit of Free Same Day deliveries, both of which will impact our S-GNA line this year.
Laura Felice: Please also remember we are lapping the approximately $20 million benefit from the net impact of legal settlements in the third quarter of last year.
Laura Felice: Finally, we continue to expect slight delivery in our S-G-N-A driven by our accelerated new club openings.
Laura Felice: Particularly with continued outside growth in depreciation as we opt on more of our clubs that we open.
Thank you for watching!
Laura Felice: We are planning for an effective tax rate of approximately 27 percent for the year with the lowest rate in the first quarter, which we typically see stock compensation related windfall.
Laura Felice: Putting all of this together, we expect to deliver adjusted EPS in the $4.10 to $4.30 range.
Laura Felice: Re-basing last year's S-GNA to exclude the net legal settlements impact would imply us making considerable progress in getting closer to our long-term EPS algo this year.
Laura Felice: Given the evolving landscape, we are not contemplating the impact of tariff on our current assumptions. Tariff could shape the trajectory of inflation and broader consumer demand and ultimately influence our results for the year.
Laura Felice: As Bob mentioned earlier, we believe BJ's is better positioned than most retailers to weather times of uncertainty. This is due to our strong focus on delivering value to our members.
Laura Felice: In fiscal 2025, we expect capital expenditures of approximately $800 million, the majority of which will deploy towards this year's new club and gas stations.
Laura Felice: This also includes investments in our pipelines for future years, including Texas and our new GC that we mentioned earlier.
Laura Felice: Longer term, we remain competent in the underlying strength of the company, as we believe we're well positioned to deliver sustainable growth to maximize shareholder value.
Laura Felice: Before I hand it back to Bob, I'd like to thank our team members for their continued dedication to our company, purpose, and communities and their contributions to another great year.
Bob, back over to you.
Thanks, Laura.
Speaker Change: We've transformed our business over the years, investing in the best talent to execute our strategic priorities.
and deliver increasing value and convenience to our members.
Our membership is reaching new heights.
Speaker Change: We have a lot of exciting merchandising initiatives and motion to take out performance to the next level. [inaudible]
Speaker Change: Our digital business is contributing profoundly to our growth as we help members maximize both cost and time savings.
Speaker Change: We're applying our new playbook to successfully open new clubs and profitably grow our footprint.
Speaker Change: We are at a pivotal point where our efforts across each priority are coming together to deliver tangible results, and we're excited.
Our phenomenal progress validates our ongoing investments in the business.
Speaker Change: We know we're on the right path for the future, and we're focused on keeping the momentum going.
Speaker Change: Thanks again for joining us today and for your support of BJ's Wholesale Club. We will now take your questions.
Speaker Change: Thank you very much. We're now at the Open Alliance for Q&A. As a reminder, we ask all participants to limit themselves to one question and return any follow-ups to the queue.
Speaker Change: If you'd like to ask a question, please press star flow by one on your telephone keypad now. If you'd like to remove yourself at line of questioning, we'll be star flow by two. Our first question comes from Edward Kelly of Wells Fargo. Edward, your line is not opened.
Thank you for watching!
Edward Kelly: Yeah, hi, good morning everyone, and nice quarter. I wanted to start on the comp and the outlook. I guess, you know, first maybe could you provide a little bit more color around, you know, the cadence of the comp throughout.
Edward Kelly: The fourth quarter, and then I think more importantly, how you're looking at 2025.
Edward Kelly: Given the implied slowdown, I'm curious around what you're seeing so far in Q1, how you're thinking about the cadence of the year, and then how you factored in some of the variables that are out there that are obviously uncertain.
[inaudible]
Speaker Change: Hi Ed. Thanks for your question. You'll look at it before I get going. Thanks for everybody's attention and for your support of our company. You know, we had a great fourth quarter as you see in the results.
Speaker Change: and it couldn't be more proud of the team for pulling together and putting those results out there for our members most particularly. Thank you very much.
Speaker Change: You know, the comp cadence through the quarter was strong throughout November , December . We're very good months for us in January was our strongest month. So, you know, really no. We'll, uh,
No concerning trends in the quarter, then. [inaudible]
Speaker Change: A very, very strong traffic, as we noted in the release and in our prepared remarks, you know, finishing at our 12th consecutive quarter of traffic growth. I'll let Laura talk a little bit about any context she wants to give on...
Speaker Change: on 2025 Quarters, but I guess what I would say about the performance thus far in Q1 is we've seen that traffic momentum continue in our business so far, obviously early. And we've seen a little bit of...
Speaker Change: A little bit more sensitivity to discretionary purchasing, and I think that just...
Speaker Change: You're opposed to the uncertainty out there that's coming from the news headlines.
Speaker Change: But we're very pleased with our membership trends, with the traffic coming out of that, and with the greater assortments being put on the shelves by our merchants and…
Speaker Change: And I'm sure at some point in the in the call here we'll talk about our digital business, but that was screaming hot and in and keep for as well. So we're very pleased overall.
Speaker Change: Yeah, hey, maybe I'll give you a little bit of color on the cadence and how we're thinking about the year.
Speaker Change: So I think the first half will be a little bit stronger than the second half, how we're looking at it right now.
Bob Eddy: Like Bob said, and we said in the prepared remarks, there's a bunch of variables out there, but the business right now is trending quite well from a traffic perspective. And so, so that's kind of how we're looking at it. [inaudible]
Thank you.
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Thank you very much.
Speaker Change: Our next question comes from Robbie Ohmes, the Bank of America. Robbie, your line is not opened.
Speaker Change: Oh, hey, Bob. My first question, I know you, you know, there's not a lot you're going to say about tariffs, but can you just, you know, sort of remind us how you managed it last time and why it could be similar, you know, or different this time? Can you just give us some, you know, context about how you're generally, you know, thinking about the tariff risk and then ever follow up. [inaudible]
Thanks for watching!
Speaker Change: Yeah, good morning, Robbie. Thanks for the question. Here's what I would say on tariffs. We all participate and live in a consumer-led economy, and tariffs, well potentially useful in some regards are likely to raise prices for Americans.
In fact, costs of key commodities are already moving up.
Speaker Change: Tarris also risks some supply chain disruption as the market moves production around to mitigate tariff exposures.
Speaker Change: Here at BJ's we believe our purpose is to take care of the families that depend on us. We take that honor and responsibility seriously. We work very hard every day to present the best values to our members. Thank you very much.
Speaker Change: And so, tariffs and the resulting rise in prices run counter to our purpose and may disrupt consumer spending and the greater economy in general. You know, after all, consumers have tolerated a lot in the last few years.
Speaker Change: With that said, periods of rising prices and supply and chain disruption have often been good for our company.
Speaker Change: You know, when consumer wallets are stretched, those consumer search for value, they come to our channel and they come to BJ's.
Speaker Change: We also have lesser exposure to tariffs than many retailers out there. And to your point of your question, we have robust muscle around dealing with inflation in our cogs base. It's one of the things our merchants do very, very well. [inaudible]
Speaker Change: So these structural benefits give us confidence that we can make our way through the uncertain times ahead and we will focus on what we do best and that's delivering outstanding value to our members every day.
Speaker Change: You know, is it just people using their app more when they're shopping the store? How are you guys driving that strength?
Thanks for watching!
Speaker Change: Look, it's all the above and more, right? We are-
Speaker Change: You know, we start out with just trying to save our members time, right? They're saving money just by shopping no matter what they do with us, but...
Speaker Change: We love the idea of making the shop more convenient to our members. You know, the club shop is...
Speaker Change: It can be kind of a pain in the butt sometimes, right? You're roaming around a big club. You're lifting up big heavy things. You're putting those in your car. You're in the car.
It's a big basket.
Speaker Change: And so anything we can do to make that shop more convenient, accrues back to us, those members that shop with us digitally spend more, they are reinvesting that time.
Speaker Change: with us and putting more things in their basket. And so, you know, the team continues to iterate on our digital business and adding capabilities.
The basic services are the same.
Speaker Change: with Bo Peck and Terbside Pickup and San Bay Delivery and Express Pay and online coupons and that thing, those things that we've all talked about before but the way in which we invest in those things continues to...
Get better and better. So,
Speaker Change: You think about our push into same day delivery as part of the membership changes that we made earlier this year and giving people to free same day deliveries.
Speaker Change: That's, again, founded in convenience, right, trying to get people to save that time with their money, and is a simple principle where we can deliver it to your house for cheaper than you can go to a grocery store and buy it. [inaudible] you're, you're, you're, you're,
Speaker Change: And, you know, then you think about, you know, just changing the way our app and our website work, you know, making sure that people can understand where a particular item is by looking at their app. They know which aisle and which bay and the store it's in.
Speaker Change: You know, we've fully rebuilt the search functionality in the app so that it is intuitive.
Speaker Change: I put it in a term like Super Bowl, and it will come up with all sorts of Super Bowl snacks and televisions and anything you might need for your Super Bowl party. So the team has done incredible work.
Speaker Change: To just get more and more relevant in this regard to our members, and our members love it. They tell us all the time that we should continue to invest here, and we will do that in the future.
Speaker Change: I think the one thing I'd add on there is 90% of our digital business is fulfilled through our clubs.
Speaker Change: And so it's all coming out of our clubs through Bopek and Curbside and Same Day and Express Pay, which is really part of the structural advantage that we have not shipping it to homes and out of clubs. It's really our members coming into CS.
and using those conveniences every day. [inaudible]
Thanks for watching!
Great. Thanks so much.
Thanks, Robert.
Thank you very much.
Speaker Change: Our next question comes from Peter Benedict of Baird, Peter, your line is not open.
Peter Benedict: Hi, guys. Good morning. Thanks for taking the question. Just follow up on a previous question and then my real question. The fog would just be, are you able to frame for us, the remind us the exposure you guys have to China, but also to Mexico, given all what's going on there and around the food business. That would be just the follow up. But then my other questions really surround the new club. Thank you very much.
Peter Benedict: Performance. Obviously you sound pleased with that. I don't know what else you could share in terms of performance metrics or anything that kind of gives you the confidence in accelerating this growth rate in new clubs over the next couple of years. Thank you.
Thanks for watching!
Yeah, sure. Good morning Pete. [inaudible]
Speaker Change: You know, good question on the new club performance. I will mostly take that to Bill. He drives that for us. But let me talk about our exposure to China in particular. It's a few percent of our business, right? Most of our business obviously is...
Speaker Change: Our grocery segment, and then, you know, about 15-16% of our business is General Merchandise.
Speaker Change: Only a couple of points of our business is imported directly from China, so that's markedly different than many other retailers of general merchandise products, and so overall we believe we have.
Speaker Change: Lessor exposure than others. There's who do what we do, might have.
Speaker Change: Certainly the exposure to Canada Mexico is greater given the variety of products that they bring in and it does touch our grocery business for sure. We don't believe we're differentially affected. We're differentially affected.
Negatively.
Speaker Change: by any exposure in Canada or Mexico at this point, and hopefully we're able to get our way through those tariffs as well. We'll use that same muscle that I talked about.
Speaker Change: In negotiating with our suppliers, moving things around, doing all the things that we know how to do to buy things at the lowest cost so we can give that value to our members.
Speaker Change: Why don't we switch over to the new club performance? I'll let Bill talk about it all, I'll say, as we're incredibly pleased with.
Speaker Change: The size of the quality of our pipeline with the new clubs that have opened so far and we're rare and to go on the 25 to 30 that we expect to open in the next couple of years. So with that, I'm going to hand over to Bill.
Bill Werner: Thanks Bob. Hey Peter. Yeah, maybe I'll offer a couple points on on the new clubs. First of all the
Speaker Change: You know, for the clubs that we've opened not only this past year, but the past couple of years where we're really happy with the performance as a whole. We're well above our plans, both on the top line and the bottom line. And that goes for both the new markets that we've entered as well as the infill market, so across the board.
Speaker Change: We've seen really great results and it's really driven by the confidence we have in our model.
Speaker Change: Bob touched on this a little bit, whether it's the digital conveniences or the value that we're bringing to the members. People want a wholesale club in their community. [inaudible]
Speaker Change: And we've seen that across the board, again, both in the new market, so we've entered into, as well as our existing markets. And it's a little bit, you know, as we think about the Real City game, and we've talked about this a little bit as we've been on the road. [inaudible]
Speaker Change: The models that we use to identify new markets are changing pretty rapidly as we gain share.
Speaker Change: And especially when you look at areas where populations expanding as well, like the convergence of those two things continue to open up more and more opportunities where we see attractive communities for us to bring the value of the BJ's Wholesale Club. [inaudible]
Speaker Change: to those markets. And so, you know, as we look down the road, we highlight today 25 to 30 new clubs over the next two years. You know, we've talked about a little bit about two, you know, the investment that will come with that, the CapEx number that we've shown is a little bit higher than where it's been the past.
Speaker Change: driven by both the new clubs and the DCs, but put that perspective.
Speaker Change: We now have probably about close to a billion dollars of real estate on our balance sheet. We've added 10 new clubs onto our balance sheet in the last three years, and over the next two years, we'll add another 16 clubs onto our balance sheet. [inaudible]
Speaker Change: And so, you know, we're using the flexibility we have on our balance sheet to help us be more aggressive on the real estate side. But as you think about that capex number, it's really an investment in the future. We'll continue to evaluate, you know, whether we want to continue to hold that level of real estate on our balance sheet or potentially look at opportunities to liquidate it through something like a cell lease pack.
Speaker Change: But the fact that we have the flexibility to go fast and use our balance sheet to grow the company is a great asset that we have. So, you know, overall as we sit here today, we're really excited for the future. And maybe the last point I'll make Peter, because this is probably the most important. [inaudible]
Speaker Change: is, you know, the confidence in our growth comes from the culture that we've built.
Speaker Change: Everyone across the company wants to be involved in the new club process because they see the growth, they should accept the success, and they see the opportunity that creates for both the new members and the value that it brings as well as the opportunity for our team members. Thank you very much.
Speaker Change: So, it's really that last point, the culture that may be the most important in all this as we go forward, the muscle that we've built to really drive the success of the long term.
[inaudible]
Thanks, guys, for coming.
[inaudible]
Thanks, Peter.
Speaker Change: Thank you very much. As a reminder, he would like to raise a question, please press staff for the number one on your telephone keypad, and to really start the line of questioning, we'll be staffed for the number two. And as I start the reminder, we do ask all participants to limit themselves to one question and return any follow-ups to the queue. Our next question comes from Mike Baker at the A. Davidson. Mike, your line is not open.
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Mike Baker: How many clubs do you think you can have over time? Is there any hindrance to this being a nationwide concept during 21 states now? Is there any reason why it can't work everywhere? What happens when you use a third player and you said, Mark, it's long clubs. There's probably a Costco or a Sam's Closer, every place where you're opening, but just wondering what the long term could be. Thanks.
Mike Baker: Mike, I referenced this in the last question a little bit.
Mike Baker: You know, as we think about the market in Tolerall. [inaudible]
Mike Baker: Right. Our current success across our existing portfolio ultimately drives our models. And as we continue to gain share, we look at our models and we see more and more opportunities for BJ's to be really successful in different markets.
Mike Baker: And so, you know, as you think about that opportunity set, whether it's in our existing markets or as we look to adjacent markets and talk about entering a major new market like the Dallas Fort Worth area. Yeah.
Mike Baker: We see opportunities across the board, and we've been really successful, and I think as a company we've been pretty thoughtful in having measured growth both in our existing footprint as well as we've expanded into adjacent markets, and I think that's what you can continue to expect from us. [inaudible]
Mike Baker: And so, you know, as we look at the long term, everything from, you know, the Bob and Lauren, and we've talked about today from our shared growth to, you know, our fresh business to our digital business, which is really transforming how members in new markets think about the club business. [inaudible]
Mike Baker: It all points towards the ability to be really successful with our growth over the long term.
Mike Baker: Yeah, Mike, I'll just add on to that. The SharePoint is really important. It's not just us gaining share, but the whole club industry is gaining share. And that's really because consumers are tired of paying high grocery store prices.
Mike Baker: So we are trying to be prudent with how we allocate capital and not get out over our skis despite the big CapEx number that we have in the budget for this year.
Mike Baker: We could try and grow even faster, but to do it all out of free cash is our goal. But we continue to see opportunities in almost every market that we look at going forward. So we'll continue to do it in a reasonable and irrational pace.
Mike Baker: But there's nothing that we see today that would tell us to slow down.
Thank you. Thank you very much.
Speaker Change: Our next question comes to Oliver Chen, the TD Cowan. Oliver, your light is now open.
Oliver Chen: Hi, Bob and Laura. As we think about the Com guidance, you have really nice general merchandise momentum. What's embedded in terms of the general merchandise as well as thoughts on fresh momentum and then overall pricing within the Com guidance. Thank you very much.
Oliver Chen: The news store commentary is very helpful as well. Would love your thoughts on how news store productivity is trending with the latest ventages relative to present and any strategies are learning because I know you have initiatives around optimizing the news store opening as well. Thank you.
Sure, good morning, Oliver.
Oliver Chen: Listen, the comp was very strong in Q4, as we've talked about, we had traffic and unit growth for the year and…
Oliver Chen: Lots of good participation in our fresh business, and then GM really.
Um...
You know, really shined in the fourth quarter. [inaudible]
on top of a good two-four last year. And so...
Communicating those things effectively to our members through...
Great storytelling, great visual merchandising, great promotional.
efforts.
Oliver Chen: And I don't see any of that changing. Certainly the outside world could change on us a little bit. I don't think that means really anything bad for our grocery business. It could...
Oliver Chen: It could soften consumer demand for discretionary items and maybe hold back our job merchandise growth a bit.
Oliver Chen: But, you know, even there, we're not slowing down on the efforts to continue to modernize and brighten our merchandise assortment. As you know, that's the emotional part of the shop. That's the treasure hunt part of the shop.
Oliver Chen: People love to wander around and see things, and for years we didn't give that opportunity to our members as well as we could have, and the team's doing a wonderful job today, putting things out on the floor that it's fun to look at, it's fun to shop, it's great stuff to put in your basket when you're there on your grocery shop.
Speaker Change: And we're trending towards becoming a general merchandise destination again. We saw that certainly in toys and gifting this year in Q4.
Speaker Change: So, I'd love to see that continue. We certainly have the effort and the expertise to allow continue.
Speaker Change: And we'll just continue to focus on what we can control and provide the best assortment at the best value to our members every day.
Speaker Change: You know, on the new club performance, you know, I feel like we've...
We sort of answered that question, but I… Oh.
Speaker Change: I think the incremental thing that I'll say is probably gets at the heart of your question on is there further room to optimize the new club model? The answer to that is absolutely yes.
Speaker Change: You know, we are in a great place relative to our not so-
Speaker Change: Distant tasks from a new club opening perspective. We have figured out how to do it effectively. We've figured out how to get new members in those clubs to build excitement in front of a launch to get it open and looking great to operate it effectively afterwards.
Speaker Change: You know, we operate it at a somewhat lesser efficiency than an established club, right? It builds its way into its cost base over time.
Speaker Change: You know, to minimize payroll as it grows, or to better match payroll to the sales trend. Are there other ways to...
Better match other expenses to the sales trend without...
Speaker Change: Importantly, without disrupting that growth of the sales trend over time.
and so.
Speaker Change: We're really pleased with where we are, certainly opening, I don't even know how many we've opened since 2018, but it's got to be a little bit more than 30. To be able to open potentially another 30 in the next two years, you know, should highlight our confidence in the program.
Speaker Change: But we're by no means done. We really want to continue to build the best BJ's clubs and the best chain for our members. And Bill and his team and teams across the company have really done a great job doing that. But we're not done at all. [inaudible]
Bill Werner: Yeah, I'll just add on to that and Bob mentioned it. I touched on early the team and the culture and I feel like that we've gotten really really good about how we open the building. [inaudible]
Speaker Change: And there are continued opportunities in terms of how we optimize it. So as a team we talk about how do we drive the club to its mature or run rate as soon as possible.
Speaker Change: And this is where, again, team in the culture, as we think about the lifetime value and the things that drive that for new members, especially in new markets.
Speaker Change: Something like digital, we spend in an ornament amount of time. [inaudible]
Speaker Change: In the new markets, trying to get people engaged in the app, engage in the express pay, engage in digital coupons, engage in curbsides.
Speaker Change: to drive those behaviors that we know will drive value over the long term. And even something like our partners at Capone have been tremendous in helping us think about how to drive credit card adoption of new clubs, as we know that drives long term lifetime value. [inaudible]
Speaker Change: So again, there are a ton of opportunities that the team are working on, but we're proud of what we've done, but more to go do. And we can see it. We can see it in every new club getting a little bit better and the one that we opened. [inaudible]
Speaker Change: We could go in Merrill Beach. I think was the best new club opening I've ever seen. You know, if Ryan and the team, or anybody from the team are listening, you know, congratulations to you guys. It really...
Speaker Change: It looked special, and I noticed it 10 feet inside the door. There was just something a little extra about it.
Speaker Change: And that's this idea where we know we're not done. We know we can get better. We know we want to present a wonderful experience to our members. And we just keep grinding on it and getting better and better.
Congrats on the innovation, best regards.
Thanks, Oliver. Thank you very much.
Speaker Change: Our next question comes from Chuck Grump of Gordon Haskett. Chuck, your line is not open.
Chuck Grom: Hey, thanks very much, good quarter. Bob, can you talk about the success of Fresh 2.0?
Speaker Change: And the maturation of that effort and maybe talk about the basket size before and after.
Speaker Change: I'm saying the state of Florida where I believe you first rolled it out. And then, Laura, just on the, you talked about the com phase and throughout the year. Is there anything on the earnings side that we should be mindful of as we build out our models? Thank you.
Yeah, good question, sir.
Speaker Change: Why don't we just take them in order here? You know, look, Fresh 2.0 has been really to an unmitigated success so far, based on a simple idea that...
Speaker Change: Our best members interact with our produce category, and if we can...
Speaker Change: I get more people into that category. We might get more of those best members and…
Speaker Change: You know, importantly, and probably not surprisingly, those best members visit us more often. They put more things in their basket. They renew a marketly higher rates.
Speaker Change: They interact with categories all over the building, not just our fresh categories. So the idea behind the fresh 2.0 is really...
Speaker Change: To take a good business and make it great. We feel like we ran a good produce business, but we could all spot opportunities as we walked around. And then...
Speaker Change: The product selection and the execution, the way we promote it, the way we communicate, the way we display things, making sure that we get things as fresh as possible to the clubs.
Speaker Change: And it's been a long time in the making, right? It was part of the reason why we decided to buy our partial supply chain from our former partner who was wonderful to us. But we knew we wanted to do it a little bit differently and tilted more towards freshness.
Speaker Change: We spent forever resourcing tons of produce products. We spent forever training our team across the building, not just in the back of the club, but across the building in what a great produce experience looks like and what it takes to get there.
Speaker Change: And again, we're not done. We continue to try and improve that offering, introducing new skews, making sure they're the right skews, making sure they're the right pack size, making sure we have the right price on things every day.
The...
Speaker Change: The test clubs in Florida last year obviously showed great growth in the perishable business, but they started to show overall traffic growth in the box, and that's what pays the bill. The traffic growth and the increase purchasing in produce just pays for.
Speaker Change: That's supply chain and the training and all those types of things. We need to get graphic in the rest of the box to really get a return on all the investment we're putting in there. And that's what we saw in the test clubs and that's what we're really beginning to see.
Speaker Change: in the chain now. So, we're looking forward to continued great momentum in our produce business and for it to drive traffic across the clubs. We're also going to take it a little wider and look at the rest of our fresh business, which are also good businesses, but
Speaker Change: They can likely get better as well. And if you want to talk about the tippity top of the best members in the company, they are folks that interact with all of our fresh businesses.
Speaker Change: and so if we can really get those folks that now have increased confidence and comfort with our our produce business and get them into our meat business and our bakery business and our dairy business.
Speaker Change: They are going to become unstoppable members, and so we're really pleased about it. Those folks, like I said, come in more often, they put more stuff in their cart, and they renew.
Speaker Change: You know, way better than the average member. So I really think we're on to something here. It's, it's. Time.
Speaker Change: It's really fun to look at. It's certainly challenging for our operators and our merchants to keep up with the volume anytime, volume spikes in double digits and units. You've got a little running around to do to keep up with it, but all growth is good growth, and so we're really pleased with it.
Speaker Change: Laura, I want you to talk about the second question on earnings. Yeah, I think we called out the two biggest things for consideration, so just as a reminder.
You know, from a tax rate perspective. [inaudible]
Speaker Change: And then the second thing in Q3, we are lapping the net legal settlements, so about ten and sense of earnings in the mirror from last year that we should think about from a cadence perspective.
Okay, great. Thank you.
Yep.
Thank you very much.
Speaker Change: Our next question comes from Rufesh Ferry, call it Oppenheimer. Rufesh, your line is now open.
Rupesh Parikh: Good morning, and thanks for taking my question and Karatza, they're a really nice quarter. I just want to, I guess, just go back to the merchandise margins. Just want to get a sense of what your expectations are for the year and then any key puts and takes you highlight to us to think about. Thank you.
Thank you for watching!
Yeah, good morning, Rupesh.
Rupesh Parikh: Like you've heard us say before, we will always invest in price. We will always do the right thing for our member. We knew we had the quarter in hand in doing that, but even if we didn't, we would always take that opportunity to...
Rupesh Parikh: You know, take key commodities and keep the prices where they need to be for our membership. So we didn't really see anything in the fourth quarter that would... [inaudible]
Rupesh Parikh: You know, co-brand and owned brands and, you know, efficiencies in our supply chain. A bunch of different irons in the fire to allow us to not only make a little bit more money on each sale, but to continue to invest across the business, continue to invest in price.
Rupesh Parikh: You know, we've talked a little bit so far about the effect of tariffs. That's clouding.
Rupesh Parikh: You know, sort of the near-term view of what merchandise margins might look like.
Rupesh Parikh: In terms of just the cost, that will increase because of that and then then...
Rupesh Parikh: The anticipated consumer response, but I think we will, we have that muscle as we've talked about, we will do our damnedest to mitigate any cost increases and continue to provide outstanding value to our members every day.
Rupesh Parikh: And over the long term, we're very bullish on our business and our ability to drive margin but also to drive the right value for our members.
I'm sorry, I'm sorry, I'm sorry.
Thank you for watching!
Great. Thank you all for your time.
Speaker Change: Thank you. Thank you very much. Our next question comes from Simeon Gutman of Morgan Stanley . Simeon, you're [inaudible]
Simeon Gitman: Hey, good morning team and great job on the results. My question, it's a little follow-up on the real estate. So if you take the next few years of openings...
Speaker Change: Bill mentioned some infilvers do market. Can you give us a sense of what that 25 to 30 looks like for infilvers do market and related? You said there'll be some the leverage because of store opening costs this year. It might be because also of ownership. Can you tell us is there a point at which?
Speaker Change: You get enough new stores that they're ramping, that the comp contribution is great enough, such that you lever those expenses even as this new expansion rolls out.
Thank you for watching!
Speaker Change: Yeah, good morning, Simeon. Let me hand it over to Bill.
Bill Werner: Yeah, sure. I mean, I think, you know, as we think about the long-term leverage,
Speaker Change: We think we'll hit that pace once we level out a consistent cadence of news to our openings.
Bill Werner: Over a couple of year period, right? So we're still in a period where we're ramping the growth. And as we're doing that, we will still have a touch of de-leverage as we do that.
Bill Werner: Once we get a point to where we're at a steady state of openings.
Bill Werner: So whether that's 10 or 12 a year for three or four years in a row, you know, that's the point where we feel like we'll have essentially a consistent basin and then we should start to see some of that leverage come to life.
Bill Werner: In terms of the comp contribution, we've shared on the previous calls that we continue to see the new clubs.
Bill Werner: Competerate, that's two to three X, the Chain Rate, and we certainly saw that in Q4.
Bill Werner: And so in terms of the new club starting to contribute to the bottom line comp.
Bill Werner: We're starting to see that. It's in there a little bit, but as we've now ramped.
Bill Werner: and increased the club base. You know, as we look forward out into the into the out years and how that contributes to the long-term algorithm that we presented at that investor day, you know, last year. We think that I'll continue to become a bigger piece of it. [inaudible]
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Thank you.
Bill Werner: Thank you very much. This is the little time we have left for questions, so I'd now like to turn it back to Bob Eddy in the closing remarks.
[inaudible]
Bob Eddy: Thanks, Carly. And thanks everybody for your attention, your support of our company. As you heard today, we're very pleased with our fourth quarter results. We've got a lot of irons in the fire going forward for the long term, and we will do what's prudent for our members in the short term. So thank you so much for your attention, and we will talk to you in the first quarter.
Bob Eddy: As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.
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