BJ's Wholesale Club Holdings Inc Aktie

Hello, everyone. Thank you for joining us, and welcome to BJ's Wholesale Club Q1 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Diana Rashkow, Vice President of Investor Relations.

Good morning, and welcome to BJ's First Quarter Fiscal 2026 Earnings Call. Joining me today are Bob Eddy, Chairman and Chief Executive Officer; Laura Felice, Chief Financial Officer; and Bill Werner, Executive Vice President, Strategy and Development.

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 risks and uncertainties that could cause actual results to differ materially from what we say on this call. Please see the Risk Factors section of our most recent SEC filings for a description of these risks and uncertainties. Please also refer to today's press release and the latest investor presentation posted on our Investor Relations website for our cautionary statement regarding forward-looking statements and non-GAAP reconciliations. And now I'll turn the call over to Bob.

Good morning, everyone. Thank you for joining us. Our first quarter results represent a solid start to the year, enabled by doing what we do best, serving our members with value.

Membership remains a key strength driven by strong acquisition and retention and continued momentum in our higher tier memberships.

Our gas business continued to be a powerful proof point of our value proposition as families increasingly relied on BJ's for savings at the pump.

And our expansion efforts, including our progress in Texas are off to strong starts, reinforcing our confidence in the opportunity ahead. All of this reflects disciplined execution and a business built to take share.

With that foundation in mind, let me turn to the details of the quarter and how we deliver for our members. Net sales increased nearly 10% year-over-year, and our merchandise comps improved by 1.5%, and our 2-year stacked merchandise comps remain healthy. In a dynamic environment, our ability to stay focused on what we can control, supported consistent execution and performance this quarter.

We continue to see growth from perishables, grocery and sundries during the quarter. Our Fresh 2.0 efforts are showing up where it matters most with strong unit growth in categories like fresh fruit reinforcing our ability to win the weekly shop.

In an environment where members are being more deliberate with their spending, our value and assortment continue to resonate. General merchandise and services delivered mid-single-digit comparable growth, led by strength in consumer electronics. While discretionary categories remain uneven, we're encouraged by the progress we're making and the way our teams are managing assortments and inventory in this environment.

Gas prices increased dramatically during the quarter, putting additional pressure on member wallets. By the end of Q1, retail gas prices were up nearly 50% compared to the start of the quarter. In that environment, our role was clear, to help take care of our members by delivering value.

Our members responded by coming to see us in record numbers with comp gallon growth increasing from about 1% in February to more than 10% during both March and April. Same-store gallons in the broader market were down roughly 4% during the quarter, underscoring the share gains we are delivering.

While gas margins were pressured early in the quarter as prices rose quickly, our teams executed extremely well through periods of volatility and profit dollars for the quarter came in largely in line with our plan.

Gas prices remain elevated and that pressure is real for families. To put this in further context, in April alone, our members spent $143 million more at our pumps than they did a year ago. That's equivalent to approximately 3.5% in merchandise comp dollars.

As consumers adjusted to the higher prices, we did see some modest shifts in behavior with average gallons per fill up slightly lower reflecting the pressure higher prices put on household budgets as well as more members topping off their tanks more frequently. In a tough pricing environment, members leaned into BJ's for value and that showed up clearly in our continued share gains.

While the consumer in the broadest sense has been resilient in the face of continuing challenges, we continue to see a more pressured environment for the lower income households. Elevated costs are weighing more heavily on that segment, and we're seeing more value-seeking behavior as a result.

This quarter, the vast majority of our comparable sales growth was driven by our higher income members, who remain engaged and continue to shop with us consistently. At the same time, value matters across every income cohort and our focus remains on showing up for all of our members with the right assortment, the right prices and the right level of convenience.

We continue to make progress across our strategic priorities and the work our teams have been doing over the past several years is reflected in today's business performance.

Membership remains the foundation of our business and one of our greatest strengths. Members continue to show up this quarter with positive traffic year-over-year and continued share gains. Membership fee income increased approximately 10% to $132 million, reaching an all-time high driven by strength in acquisition, retention and higher tier penetration across both new and existing clubs.

As we've discussed before, what matters most to us is not just growing the number of members, but continuing to improve the quality of the membership base over time. Higher tier members remain more engaged, shop more frequently and deliver greater lifetime value, and we continue to see meaningful opportunity to build on that momentum.

While we expect membership fee income growth to moderate as we move through the year as we lap the prior year fee increase, the underlying health of the membership base gives us confidence in the durability of this engine.

Building on that strong membership foundation, we remain focused on continuously improving the experience we deliver to those members. Pricing is central to that experience and our club model is uniquely positioned to deliver compelling value. And in today's environment, value matters more than ever.

With that in mind, we invested considerably at value during the quarter by returning tariff refunds to our members through pricing. As a result, we saw roughly 0.5 point of deflation in our retail pricing and our price gaps improved as we lean into delivering meaningful savings for our members.

More broadly, delivering a great member experience also means continuing to strengthen the fundamentals of our merchandising organization for the long term. With that in mind, we're excited to have welcomed Stephanie Reibling to the team as Chief Merchandising Officer, and we're confident she will be a strong leader as we continue the merchandising work that's been underway for several years now. She brings deep experience across the club channel and broader retail with a strong track record of driving growth, evolving assortments and building compelling owned brand offerings.

Just as importantly, Stephanie understands how to operate merchandising in an omnichannel environment where value relevance and execution matter. Her experience and perspective will be important as we continue to sharpen our assortment, invest in our brands and deliver exciting products at unbeatable value for our members.

Alongside member experience, convenience continues to play an increasingly important role in how members engage with us. Digitally enabled comparable sales increased 28% year-over-year, reflecting growing adoption of tools like curbside pickup, same-day delivery and ExpressPay. We're seeing particularly strong adoption in our newer clubs where members are using tools like ExpressPay at higher rates and importantly, are spending more with us. Because most of that digital engagement is fulfilled through our clubs, we're able to deliver those conveniences in a way that saves members, both time and money.

We're also continuing to invest in AI capabilities, including [ Buddy ], a new tool designed to support our team members by answering a wide range of operational and training questions, including product availability and item location. These tools help our teams serve members more effectively and efficiently. Collectively, these efforts are making convenience a more integrated part of how members shop at BJ's.

Finally, we continue to make disciplined progress expanding our footprint and bringing the BJ's model to more communities. We opened our first club in Texas during the quarter, expanding BJ's to 22 states, followed by three additional Texas club openings in May. We also announced plans to open clubs later this year in Frankfort, Kentucky, Ocala, Lecanto and Port St. Lucie, Florida and Portage, Indiana.

Last year, we committed to opening 25 to 30 new clubs over a 2-year period. With 12 openings planned for this year, we expect to deliver 26 clubs against that plan, and we see the opportunity to continue at a similar pace in 2027 and 2028.

I want to take a few minutes to talk specifically about our new club openings in Texas, which represent an important milestone for BJ's as we enter a new high-growth market. We're executing our trusted new club playbook in Texas, and the execution from our teams has been outstanding. These openings reflect some of the best work we've done to date from how we build awareness ahead of opening to how we improved and showcase the value BJ is known for, to how we showed up for the community from day one.

That consistency reflects the culture we've built around New Club's success with a goal of making each new opening better than the last. We've made it clear from the start that we're there to invest for the long haul, and the response has been terrific.

Today, membership in our four Texas clubs is running 33% ahead of plan. And as of today, we have approximately 100,000 members in the Dallas-Fort Worth market.

While we're excited about our start in Texas, we're equally encouraged by the performance of our most recent classes of clubs. In the first quarter, clubs opened within the last 5 years, delivered comps of more than 6% and growing at over 4x the chain average. The newer markets we've entered, including Tennessee, Alabama, Indiana and the Pittsburgh market, continue to stand out. With those clubs comping more than 10% during the quarter. We've discussed in the past with the investment community that new club sales generally mature in 5 years, and part of our new club execution is to drive these new clubs towards that maturity ahead of plan when possible.

The team's strategy and execution across all areas of New Club operations is delivering on that idea with 2/3 of clubs opened in the last 2 years expected to have first year sales above their year 5 sales projection. These results are a testament to the team members across our clubs, supply chain, membership, property development and support functions who made these openings possible. The execution has been exceptional and it gives us confidence as we continue to expand our footprint. With that, I'll turn it over to Laura to walk through the financial details for the quarter.

Thank you, Bob. Before I get into the details, I want to thank our teams across the clubs, supply chain and support center for their continued focus and execution. Their work was critical to delivering our first quarter results.

Starting with sales. Net sales increased nearly 10% year-over-year to $5.5 billion. Total comparable club sales increased 6.3% and excluding gasoline, merchandise comparable sales increased 1.5%. Our 2-year stacked comps remain healthy, reflecting the consistency of the underlying business.

Looking at category performance. We continue to see growth across our core consumables business. Grocery, perishable and sundries comps increased 0.7%, with strength in grocery, reflecting the importance of the weekly shop in this environment. General Merchandise and services delivered 7.1% comparable sales growth driven primarily by strength in consumer electronics. While GM performance can be variable quarter-to-quarter, we are pleased with the strength we saw this quarter.

Membership fee income increased approximately 10% year-over-year to approximately $132 million, reflecting continued strength in acquisition retention and higher tier penetration. Total members reached an all-time high. And while we expect membership fee income growth to moderate as we move through the year, the underlying health of the membership base remains very strong.

Turning to margins. Merchandise gross margin decreased approximately 10 basis points year-over-year primarily driven by investments in price, partially offset by tariff refund benefits recognized in the quarter. Excluding the impact of tariff refund benefits, Merchandise margins were down 60 basis points year-over-year, largely consistent with the prior quarter. We remain committed to maintaining competitive price gaps particularly in this environment, and we will continue to invest in value where it makes sense for the long term.

SG&A expense was approximately $806 million and improved as a percentage of net sales year-over-year. The increase in absolute dollars was driven primarily by costs associated with new clubs and gas station openings as well as planned investments in the business.

Our gas business continues to be an important way to showcase value. Fuel volumes were strong in the quarter with comparable gallons up nearly 8%, reflecting continued share gains. Fuel profit dollars were largely in line with our expectations. Margins were pressured early in the period as prices moved higher but we were able to capture margin during periods of volatility as the quarter progressed, resulting in an overall outcome consistent with our plan.

Adjusted EBITDA increased approximately 4% year-over-year to $298 million. Our effective tax rate for the quarter was 27% and slightly below our statutory rate of roughly 28%.

Adjusted earnings per share were $1.10, down year-over-year as we lapped a tax benefit in the prior year quarter related to stock-based compensation.

Looking at the balance sheet. Inventory levels increased year-over-year in absolute terms, driven by additional new clubs opened since last year. Inventory per club increased 2.8% and In-stock levels were in line with last year, reflecting continued strong execution by our teams.

Turning to cash flow and capital allocation. We continue to invest in the business while maintaining a strong balance sheet. During the quarter, we repurchased approximately $207 million of shares and we ended the quarter with approximately $545 million remaining under our current authorization. Net leverage remains low, providing us with flexibility to continue investing in growth while returning capital to shareholders.

Looking ahead, based on what we know today, we are maintaining our full year guidance. We continue to expect comparable club sales, excluding gasoline, to grow in a range of 2% to 3% and adjusted earnings per share in the range of $4.40 to $4.60.

As always, the outlook reflects our current view of the consumer inflation and the broader operating environment, and we will continue to manage the business with discipline while investing for long-term growth. With that, I'll turn it back to Bob before we open the call for questions.

Thanks, Laura. Before we open up for questions, I want to take a step back and reinforce what this quarter says about our business. We delivered a solid start to the year by doing exactly what we said we would do, executing with discipline in a dynamic environment, while continuing to invest in the long-term strength of the model.

We're growing the quality of our membership base, reinforcing the value proposition across the club and at the pump and staying focused on the controllables that drive sustainable performance.

At the core of our strategy is membership, and we continue to see strength there. Members are showing up, engaging with our offering and responding to the value and convenience we provide. That engagement supports healthy traffic, share gains and a resilient revenue stream that gives us confidence as we look ahead.

We're also continuing to sharpen our value proposition. Across categories, we're focused on delivering compelling value that matters to our members, particularly in an environment where households remain thoughtful about how they spend. Our gas business remains an important part of that equation, reinforcing trust and engagement while supporting overall traffic and share gains.

Digital continues to enhance the member experience and improve convenience, and we're seeing that translate into stronger engagement across the business. At the same time, our new club expansion strategy is progressing well. We're executing our playbook consistently, opening clubs in attractive markets and setting them up for long-term success from day 1.

Importantly, we're doing all of this while maintaining strong financial discipline. Our balance sheet remains healthy. We're generating solid cash flow, and we're allocating capital in a way that supports both growth and shareholder returns. That discipline was recently recognized by Fitch initiated coverage with an investment-grade rating for BJ's, that combination of investment and discipline is a key differentiator for us.

Before I close, I want to recognize our team members across our clubs, supply chain, distribution centers and support functions. Their [ commitment ] to taking care of the families who depend on us is what enables our performance quarter after quarter. especially in a dynamic environment like this one, their dedication, focus and execution make a real difference, and I couldn't be more proud of the work they're doing every day.

As we move through the year, our focus doesn't change. We'll continue to control what we can control, invest in value for our members and execute against our long-term priorities. The consistency of our performance reinforces our confidence in the durability of our model and our ability to deliver a sustainable long-term value. With that, we're happy to take your questions.

[Operator Instructions] Your first question comes from the line of Peter Benedict with Baird.

I guess it relates to price investment tariffs and the merch margin outlook there kind of [ intertwine ]. Just curious how the outlook -- what you're planning in terms of future price investment, talk to us about the potential with tariff refunds, what is in the outlook? And how should we think about the cadence of merch margins over the next few quarters as you guys invest in value?

Thanks for the question, Pete. Maybe I'll start off and Laura can fill in any gaps. So I'm pleased to be with you this morning to discuss our Q1 results. We thought it was a solid start to the year, continued traffic and share gains, great MFI results. And as you said, continued investment in our members in terms of price.

Certainly, we had the tariff refunds that you noted, and we use that as a source of investment funds to really bring those dollars back to our members who paid higher prices as a result of the tariffs.

And so I won't get into the accounting or any of that, [ Jazz ], laura can do that if we really need to. But our aim there was really to appropriately balance hitting our numbers for the quarter as well as investing in value for our members. Our price gaps improved during the quarter. We're happy with where they are. We will continue to invest in those price gaps as we go forward.

Really because consumers are pressured. And the time to play offense is now. We need to keep our value. We will continue to use any source of gain that we can to really bring that value back to our members so that we can build the franchise for the long term. So happy with where we landed, and we'll certainly continue that in the future.

As far as the outlook goes, I'll let Laura talk about, but in a short form version, everything we know about today is built into our outlook. So Laura, what did I miss?

Yes. Pete, I think, like we said on the Q4 call, as we look at the margin or merch margin for the year, the labs certainly get easier as we progress through the year. And so we're thinking about that. There's -- as Bob said, we factored everything into our outlook that we know today. We're certainly watching the tariff environment that's continually moving.

And the other thing that I think I suspect we'll spend a little bit of time talking about as the call progresses is fuel costs and freight. Bob said it best, we'll continue to invest in price for our members. We think that is the best use of funds and deploying some of the tariff rebates this quarter into that investment, we think was the right thing for our members and for the business for the long term.

Your next question comes from the line of Kate McShane with Goldman Sachs.

Thanks for the detail on what you saw with the Texas openings. We just were curious about what that consumer looks like in terms of who is signing up for membership there? Are you seeing higher care penetration right out of the gate? And can you provide any more insight into trends that you're seeing? And competitive response?

Sure. Let me just start off, and I'll ask Bill to jump in since he's in charge of this whole effort for us.

Let me just say that our overall club growth strategy is very successful at this point. Bill and the team have done really tremendous work to identify where to put these buildings to revamp the processes by which we open the buildings and source members and put a great assortment and tremendous value into these buildings.

Bill's team is supplemented obviously by a tremendous amount of people in our supply chain and our operations team. They have done tremendous jobs as well to open the buildings as well as we are opening them.

So we got one in Texas in the first quarter and three in the second quarter. So we're very early here in our Texas journey. But they would appear to be the best openings that we've had the data, and we talked a little bit about that in the prepared remarks with membership about 33% ahead of our plans. Sales are similarly ahead of our plans.

And we went into this market to play to win. We've invested heavily. We will continue to do that to serve our members the right way, the best way that we can and then from an early perspective, it really seems like our strategy of getting into these high-growth low tax markets has been a winner.

So let me hand it over to Bill, and he can give you a little bit more context of what's going on in the detail.

Yes, I just want to echo Bob and share my sincere thanks to the entire team that brought the Texas market openings to life. Bob shared in the prepared remarks, but I really think they were the best openings in the company history in terms of how we executed across the board, and it takes functions across just about every discipline of the company to make that happen and it was just a great success from start to finish.

In terms of the members and what we're seeing in those communities, it's really the families in and around our clubs across the board. The membership response has been tremendous. Again, Bob shared that we're well ahead of plan on this point in membership. Early results like engagement in our gas business. And in those clubs, we've seen the highest ExpressPay penetration across the chain. So really getting those members off on the right foot in terms of what makes the best of BJ's brings it to life in terms of our value, our convenience and some of our higher-tier offerings. So across the board, we're really pleased with what we've seen.

In terms of competitive response, I would say it's -- listen, there are some of the best competitors in the world in the Texas market. And we've, again, brought the best of what BJ's Wholesale Club has to offer to these members. And we're doing a great job, and we're really proud and again, I would let the results speak for themselves in terms of whether it's resonating with the families there. So we feel really good so far.

And just as a quick follow-up to that, just with regards to memberships. How would you describe the membership sign-ups versus other new club openings?

Yes. I would say, Kate, that we've seen that type of strength across the board in our new club openings. And I'd point back to, again, one of Bob's prepared remarks in terms of the success we've seen with our clubs that we've opened in the last couple of years exceeding their plans. That all starts with membership and then it moves from there to the engagement of our members.

And so across the board, as we looked at the clubs opened in the last year, I think we talked about in Q4 that we felt like the 2025 class of clubs was the best set of openings in the company's history, and the goal is to make '26 better than that. So when you look down across the results over the last handful of years, it starts with membership that's way ahead of plan and then move on from there. So Texas is following that exact same playbook so far.

Your next question comes from the line of Simeon Gutman with Morgan Stanley.

Good morning, everyone. Bob, I wanted to ask two parts. The percentage of incremental trips, I guess, gas trips that are driving club visits, if anything is changing right now. And then as you approach a new merchant, can you talk about some of the priorities, the gating factors either to widen the basket? And is the priority in some of the core categories are broadening out the wallet oil.

The gas business this quarter was kind of something behold, right, tremendous share gains, that obviously comes from value, value is the most important thing that we do, and gas is probably the most visible commodity out there, right? There's a price line on every street quarter. And so people know a great gas price. They know that we have great gas prices. And certainly, the volumes that we saw during the quarter clearly resonated there, right, with comp gallons up over 10% as the work progresses, total gallons up 20 some days with new stores in there, really just things we haven't seen before.

Tremendous volatility as well. Cost changes from a day-to-day basis, we're pretty wild swings around our average daily cost change in the last 2 months is about 2.5x what the last 5 years average daily cost change was. So considerable cost changes, which obviously result in retail changes, and I would say tremendous execution to get back to our profit plan during the quarter, typically in an increasing fuel cost market our margins go to or below 0.

And certainly, on some days, they did that, but Bill's team did a great job executing through that volatility to: number one, meet our members' needs from a value perspective; but number two, get back towards our plan from a profit perspective to reward our shareholders as well.

We did see some behavior changes, as I talked about a little bit in the prepared remarks. Typically, our average fill-up is around 12 gallons and it was down a little bit below that during the quarter. A couple of things there, people managing to a dollar amount as they filled up. And then clearly, more traffic coming in to top off their tanks. To try and almost arbitrage the increasing nature of the fuel cost. It wasn't meaningfully below 12, but certainly, this type of behavior happens in environments like this.

We also didn't see a ton of that incremental value get into the club as some of our competitors have talked about they are in our parking lot, some of them that come into our clubs, but we did not see our percentage of gas trips go into the club increased during the quarter as people manage through the pressure on their wallets from the increase in gas costs. Bill, anything I missed on the gas front?

No. I'd add on Simeon, one of the, I think, underappreciated aspects of our gas growth story is our station growth. So as you look back to the IPO, we've grown our gas station count 50% since then. So we have 205 stations today versus about 135 at the IPO.

So we're up to about 77% coverage versus 63% of the IPO. And it's all those collective investments that we've made over the last handful of years that have allowed us to capture this volume that drives long-term benefits mostly to our members in terms of delivering value in a situation like this.

So it's great to see all those collective investments that we've made over the last handful of years paying off in this type of environment.

And to your other question, Simeon, on the addition to our team, Stephanie [indiscernible], we are thrilled to have her with us. She's got a long and great track record of driving growth and building merchandising teams and driving great own brands and all the things that it will take to really get our company to the next level.

I would say her priorities are, first and foremost, to make sure that our team is as good as we can get it. She certainly knows what great looks like, both in broader retail and specifically in club. That's my favorite thing, that were showing already.

Certainly, we need to make some cultural changes and be a little bit more aggressive as we go forward. It's a dynamic environment and Stephanie brings that knowledge and that culture to help the merchandising team drive our business forward.

And I think lastly, you'll see us make changes in our assortment. Certainly, we want to take our assortment upmarket a little bit in the good, better, best construct. We have too much in the good level and we need more better and best. And so you will see Stephanie and the team drive that way.

And you'll also see us continue to drive the simplicity of our assortment where it makes sense to do so. And really make sure that we are making purchasing decisions for our members so that we can offer them the best assortment at the best cost truly in a club format going forward.

So that will take a while to really get through, because we want to make sure we do it with precision and discipline and not upset the apple cart, but we definitely want to make sure that we are serving our members with the things that they want. And given the comment that I made in the prepared remarks about most of our comps coming from our most affluent members, we want to make sure that we have the right assortment for the folks that are spending.

So again, thrilled to have Stephanie on the team and filling out our tremendously talented merchandising team and looking forward to our leadership in the continuing quarters.

Your next question comes from the line of Oliver Chen with Cowen.

The general merchandise number was impressive. And you also called out the potential for volatility there. What are your thoughts in terms of the innovation factors ahead with merchandise? And will you see the consumer electronics continue to be a benefit? And as we think about the grocery and perishables and sundries, you've had the multiyear fresh initiatives. Would love your thoughts on catalyst and engagement there as well. And underscoring this how things are going with the category management program as well as your private label as you unify that across categories.

Listen, let me give you a little category context and maybe Laura, Bill can fill in.

So start from a general merchandise perspective, that had a great number this quarter. We talked about that being led by consumer electronics, again, Underneath that category performance was a bit mixed. Home and Seasonal were positive during the quarter. Apparel was slightly negative during the quarter. So outside of the [ CE ] leadership, a little bit of a flip flop from where we were last quarter. And we'll continue to work on those assortments and work on our -- the consistency of our performance as we go forward.

I think, again, as I just said, you'll see some changes to the simplicity of our assortments, changes to the good, better, best construct of our assortments, making sure that we bring the right value all the time. And quite honestly, I think that's some of the things we've done well in [ CE ]. We're improving the brands that we bring in there. We're making sure we displayed them effectively during the quarter, and we're making sure that we try and put the right value on there. And that may be a little bit less margin rate, a little -- maybe a little bit of a different type of a product that may be all sorts of different things. But we know for sure that the right mix of products and price and promotion drives that business. And so we'll continue to make incremental improvements as we go forward there.

That includes your innovation point. We want to make sure that we have the right cool new products. And if you're walking our clubs recently, you've seen some things from SharkNinja and some other things that are new to us and new in the market, a little bit more buzzy product out in the market, and we'll continue to try and augment our assortment from that perspective.

Next Perishables. Perishables was a light comp this quarter, primarily driven by egg deflation. And some of our competitors have talked about that, so I won't belabor that point. You know what that is. Underneath the covers there, perishables continues to be a very healthy business, driven by Fresh 2.0, as you talked about.

We highlighted the growth in fresh fruit in the prepared remarks. And now that we have lapped the full chain in the initial rounds of Fresh 2.0 investments, we are very pleased to see that units continue to grow, member interaction in those categories continues to grow. And if not for that egg deflation, we would have seen a fantastic comp number there.

Grocery and sundries, I think, are a mix at this point. Grocery was pretty strong during the quarter, sundries needs to get a little bit better. the things that we've done in grocery are again assortment and value, and we need to bring that magic over to the sundry side and get all the cylinders going at the same time.

So we're pleased with pieces of our business. We need to continue to improve going forward and really bring those brands, those products and that value that our members love.

Oliver, this is Laura. I think the thing I'd add on to what Bob talked about is maybe I'll tie in our private label. And so we continue to make progress there. We're really happy with how our private labels are resonating with our members. And they are absolutely a great place for our members to seek value. And so the thing that I tie in as Bob's comment about eggs. And so eggs are a big SKU for us from a private label perspective and similar to some commentary from our competitors that's out in the market they did drag down our private label penetration a little bit in the quarter. But everything from that perspective looks great, except for eggs.

So really great value there. I'm happy with the progress. And I think having Stephanie on board, as Bob talked about, she will continue to focus on private label innovation and making sure our members are getting great products from us.

One follow-up, Bob. You mentioned the affluent customer and that productivity and that engagement factor. What's happening across the different touch points with the affluent customer in terms of loyalty and/or pricing and/or categories. It does -- it sounds like you have a continued focus on making sure you have the best brands and the good better best matrix is where it can be to optimize to that opportunity?

Yes. Look, I think we've talked about in past quarters, the [ K curve ] is obviously a real thing. Overall, we've seen a resilient consumer. But as you look under the covers, there's considerable pressure on the lower-income consumers and the middle income consumers are trading sideways a bit, and the only growth is from the affluent customers. So we want to make sure that we are aware where the money is and bringing the right products for those folks.

So I think I said it earlier, we want to make sure we go up market from a product positioning perspective, but we always want to make sure we have the right value as well. And so we'll continue to feed those folks that are spending and go forward from there.

Your next question comes from the line of Steven Zaccone with Citi.

I wanted to follow up just on the price deflation commentary. Obviously, you chose to reinvest some of the tariff refund. So how do we think that plays out over the course of the year? Has your view on pricing inflation, deflation change. Obviously, there's been some headlines with some other retailers talking about making some price investments. Curious for your assessment.

Yes. Steve, thanks for your question. So yes, we flipped from inflation last quarter to deflation this quarter. Some of that was the deflation in eggs and the rest of it was the investments in price that we made.

We made the investments in price not really in response to any particular competitor, but really just to use the opportunity we had from the tariff refund to invest in our membership for the long term.

So I would imagine that we will continue to do that, as I said earlier, any source of game that we can come up with. We will always try and give it back to our members so that they reward us in the future. There's certainly some potential for that as we go forward.

As for instance, if the gas market were to retreat, we could make some extra dollars as we typically do in a down market, and we would likely give that back to our members.

There's also some potential for greater inflation as we go forward, right? I don't think exert deflating as much today as they were during the quarter, so that will mute that a little bit. And as Laura mentioned earlier, the impact of fuel costs being so high, rippling through the economy, I think will provide some inflationary momentum as we go through the back half from a cost perspective and from a pricing perspective, not just in our business, but I think in everybody's business. And the potential for that is greater. The longer this disruption in gas and diesel prices goes. We certainly did not have $6 diesel in our plan at the beginning of the year. I doubt the consumer did either and I doubt many of our manufacturers did. And so as that all plays out, I would assume that as a general inflationary source.

So we'll balance going forward. We're trying to do the right thing for the member, trying to do that first before we reward the shareholder, because we're trying to play offense. So that's what we're trying to do with these price changes that we made in the end of Q4 and into Q1. We were spending into the beat with this tariff refund opportunity that we had, and we decided to play offense rather than defense. And we will continue to try and do that for the betterment of our members and the long-term betterment of our shareholders.

Okay. Great. That's helpful. That's helpful detail. The follow-up I had is just it's a bit nuanced, but the monthly cadence in the quarter, was there any differences? Obviously, gas prices were very volatile, right? But did you notice any change in customer behavior from a traffic perspective or spending behavior, that's worth calling out?

Well, look, I guess what I would say, we previously talked to you about February being very light from a comp and a traffic perspective as we experienced the weather events at the end of the fourth quarter last year and the giant pull-forward we saw into Q4. It came out of February. February was the was a pretty terrible comp result and traffic results.

Certainly, March and April were better. You had the Easter shift in there. So it's very odd to look at. But if you look at the 2 months of March and April together against February, those 2 months were much better from a comp perspective than February.

And as we look at May today, today May has improved a little bit versus that March and April trend, it's obviously early in the quarter, so I don't want to get over our [ SKUs ] at all, but certainly, traffic, the traffic trend is better Q2 to date than it was in the first quarter as well.

Your next question comes from the line of Edward Kelly with Wells Fargo.

Bob, I wanted to ask you, maybe just taking a step back, investments been a theme at BJ's for a while now. And clearly, you've been leaning in here. But can you talk a little bit about the return on the investment that you are seeing from a customer perspective?

And then as we think about moving forward, is there any additional tariff benefit that you potentially may see from a refund perspective, I'm not sure if you just booked all of that in Q1. And I think you said also if gas prices begin to fall off, you could see some headwind there. I think you did see that in [ '25 ] books. So I'm just curious as if you have other buckets of investment, but I'm just curious as to how you're thinking about all that?

Yes, for sure. You're right, we've been investing in this business for a while. Certainly, that started before we were public in 2018. We have reaped I think, tremendous benefit from that investment given just looking at one metric, our stock price on the day we started and where it is today. I think our members quite honestly, have benefited more than that as we try to give them value almost across the board.

There are tons of different things you could look at maybe the most easy thing to think about is our co-brand credit card program where we went from a relatively small program that didn't give a ton of value back to our members to a pretty giant program that rewards our members with a couple of hundred million dollars of rewards every year. That is emblematic of what we're trying to do with this business is pass value back to the members so that they reward us with lifetime value over time. And certainly, that's what we're trying to do with price investments any quarter, but this quarter is no different.

I should also highlight the investment in our growth in terms of the number of stores. We've talked about 25 to 30 in the past couple of years, we're spending somewhere in the neighborhood of $700 million to $800 million in capital every year now. And the returns on those stores for our shareholders has been pretty fantastic high-teens ROIs, better returns on capital than the S&P 500. And we're only getting better from that perspective.

So I think you can expect us to use sources of value to invest in our membership. I think you can expect to use our cash flow first, to continue to invest in our business through opening new stores, opening new gas stations, remodeling the fleet as we go through the next couple of years to really make sure we're showing our comp members, the same experience that our new members get. And then rewarding our shareholders with buybacks after we use funds for growth.

So listen, we're playing the long game here a little bit, too. And so the momentum builds over time, but we want to make sure we are playing offense and building the franchise for the long term rather than responding to any competitive influence or any short-term economic disruption or opportunity that may happen. And so we're proud of where we've come from, and we need to continue to get better over time.

Do you have an additional tariff refund coming?

Yes, that's -- let me pass that over to Laura. She can talk a little bit about the tariffs.

You're right. I think there will be a little bit of additional tariff dollars that flow into Q2, certainly that we have line of sight to. I would expect the tariff environment, as I talked about a little bit earlier, continues to move. And so we'll monitor that and make sure we're getting all the dollars back that were owed whether they're kind of -- whether we paid them directly or working with our suppliers on cost going forward or dollars that we paid to them.

So I would expect that will be one pool of dollars that we look to in the future. In addition, Bob already talked a little bit about gas and the potential on that as we progress through the year, the year depending on how the markets move. So the playbook is still intact. The investment theme is intact, with the goal of giving that value back to our members for the long-term lifetime value that we see in them.

Your next question comes from the line of Chuck Grom with Gordon Haskett.

Just three quick ones for me. One, can you guys quantify traffic and ticket in the first quarter. Second, I think last time we talked, you guys thought 2Q to 4Q comps should be in the 2% to 3% range for the core business. I just wanted to confirm that's still a good setup. And then three, I think back of the envelope, it looks like tariffs are about a $30 million tailwind in the first quarter. Just want to see if that math pencils out.

I think they're quite honestly, more for Laura, but let me start. Certainly, our -- this is our -- I think, our 17th consecutive quarter of traffic growth, but the quarter was led by ticket. We don't break all that out, but it was certainly more of a ticket-driven quarter than anything.

You heard the guidance on the range I don't think we've really changed that. I think certainly, as we've talked about a little bit today, we could do a little bit better if inflation were to perk up a little bit, we would always look to invest as well, and that could drive it down like it did in the first quarter. And tariffs was a little shy of the $30 million. Let me Laura comment on that.

Chuck, I think the only thing I'd add on your second question on the 2% to 3% range for the full year is we see Q2 through Q4 in that range. And we were -- I think when we started out the year, we said that the first quarter would be outside. And so that we delivered what we said we were going to deliver. And so the answer is yes to your question.

And then the tariff was 50 bos on the quarter for merch margin, which was a little bit less than the $30 million you quoted, it's somewhere closer to $20 million.

Your next question comes from the line of Chris Nardone with Bank of America.

So it sounds like the Texas openings are off to an encouraging start. Just for our modeling purposes, can you remind us how we should think about the shape of preopening expense through this year and into next year? And then bigger picture more structurally, are there any other cost increases that we should be aware of on expanding into these new markets? And just remind us how you incorporated higher freight into your outlook?

We talked a little bit about when we gave our guidance for the full year in Q4 about the shape of preopening for the year. And that -- the starting point is it's higher and the big -- there's a big piece of that, that is our Texas investment.

And so we've talked a lot about our success in Texas and how our membership, our sales, everything is off to a great start. We continue to view $1 invested in preopening as a great return from an investment perspective. And so we did invest more dollars into Texas to make sure that it was a success.

We have all of our Texas stores open now. Well, we have four open, three opened in Q2. So I would expect that there are some Texas preopening dollars in Q2.

And then as we thought about Texas and opening those clubs, we certainly factored into our initial estimates and returns when we were looking at our capital deployment. Cost of freight and incremental things for that market. We talked a little bit about how delivering our fresh offering with a third party, with a [ 3PL ] to make sure that we have our best product on the shelves for our members. We think that's important.

And so all of that's factored into our estimates. We are ahead, as we talked about in the prepared remarks. And so happy with the progress we've made there.

Bill, I don't know if you'd add anything else on -- from a Texas perspective.

No, Chris, I would maybe just on cadence of openings for the year. So we had the one Texan [indiscernible] in the first quarter, we had three open now here in the second quarter. We'll have three openings in the third quarter, including the relocation of our Rotterdam, New York Club and then finish the year with five openings in the fourth quarter. So that will help you sequence preopening in your model as well.

We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone, and welcome to the BJ's Fourth Quarter Fiscal 2025 Earnings Call. My name is James, and I will be your operator for today. [Operator Instructions] The conference call will now start, and I'll hand it over to Diana Rashkow. Please go ahead.

Good morning, and welcome to BJ's Fourth Quarter Fiscal 2025 Earnings Call. Joining me today are Bob Eddy, Chairman and Chief Executive Officer; Laura Felice, Chief Financial Officer; and Bill Werner, Executive Vice President, Strategy and Development. 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 risks and uncertainties that could cause actual results to differ materially from what we say on this call. Please see the Risk Factors section of our most recent SEC filings for a description of these risks and uncertainties. Please also refer to today's press release and latest investor presentation posted on our investor website for our cautionary statement regarding forward-looking statements and non-GAAP reconciliations.

And now I'll turn the call over to Bob.

Good morning, and thank you all for joining us. We're pleased to share that we closed out fiscal 2025 with strong momentum, delivering solid comparable club sales growth and strong profitability. Throughout the year, we navigated a dynamic environment marked by a more cautious value-seeking consumer, tariff-related and geopolitical uncertainties and broader macroeconomic volatility. Even with these challenges, our team remained focused and resilient consistently delivering value, convenience and quality for our members.

We also achieved several meaningful milestones in 2025 that strengthened our business and reinforced the momentum we are carrying into the year ahead. We grew our membership base by more than 500,000 members, the largest annual increase in recent years, underscoring the relevance of our value proposition and the loyalty of the families who rely on us. We successfully opened 14 new clubs, the most we've ever opened in a single year, expanding our reach into new markets with sales, membership and profit performance, all well above expectations.

We also advanced our digital capabilities with digitally enabled sales penetration reaching 16% as more members embraced the convenience of omnichannel services. All of these are material accomplishments that create a structurally higher lifetime value for both members and shareholders. And ultimately, these achievements helped drive record full year earnings per share reflecting the strength of our model and disciplined execution across the business.

As always, our team demonstrated an incredible commitment to our purpose to take care of the families that depend on us. This purpose guided our decision-making and enabled us to deliver the dependable experience our members count on, no matter the conditions. That was especially evident late in the quarter when winter storm Fern, one of the largest storms in recent years, brought significant snow and ice across much of the U.S., impacting nearly our entire club footprints. We pride ourselves on being open and in stock for our members when they need us most. In the days leading up to the storm, we set a daily record for gas volume that was 20% higher than our previous daily record, reinforcing that we are a destination in times like these.

Our team worked tirelessly to keep our clubs open and ensure that our members had access to the essential supplies they needed from groceries and household goods to ice melt and emergency items. Their remarkable efforts really showed our purpose of taking care of the families that depend on us, and I'm incredibly proud of the way that they showed up for our members and communities.

Turning to our fourth quarter sales performance. We delivered merchandise comparable club sales growth of 2.6%, reflecting our 13th consecutive quarter of market share gains and 16th consecutive quarter of traffic growth. Our perishables, grocery and sundries division grew comps by 2.3%, driven by solid unit growth supported by improvements in assortment and merchandising. Even after lapping the chain-wide rollout of Fresh 2.0, we're still seeing strong steady comp performance in perishables, clear proof that this isn't a onetime lift, but a real lasting shift in how our members shop with us. These results reinforce the importance of our core consumables franchise, which continues to demonstrate consistency, even in a volatile operating environment.

In general merchandise and services, comps increased by 4.3%, which outperformed our expectations for the quarter, driven by changes in merchandise mix. While we are pleased with our progress, it's important to note that general merchandise can be variable quarter-to-quarter, given the discretionary nature of many of these categories. As such, we would not expect performance at this level every quarter, but we are encouraged by the traction we're seeing as our broader transformation efforts take hold.

Turning to membership. The foundation of our business and one of our greatest strengths. We ended the year with over 8 million members, a new high for our company. In comp clubs, this growth reflects strong acquisition, continued loyalty from our long tenured members and the ongoing relevance of our value proposition. Our growth was also the result of opening our 14 new clubs this year. Growing both the comp and total member basis is incredibly important to our future success.

For the fourth consecutive year, we achieved a 90% tenured renewal rate. This level of loyalty is rare in retail and speaks directly to the consistency of the experience we deliver and the relevance of the BJ's membership model. We also saw continued strength in our higher tier memberships. Penetration increased to 42% this year, demonstrating strong adoption of the enhanced benefits in our higher-tier offerings. These members are among our most engaged and the highest spending cohorts, and we see meaningful opportunity for continued growth here.

What stands out this year is not just the growth of membership, but the quality of that growth. The combination of more members, exceptionally high renewal rates and deeper engagement among our most loyal tiers reinforces the health of our model. It also gives us tremendous confidence as we look ahead, because strong membership is the engine that powers everything else: traffic, share gains and long-term profitable growth.

As our membership base grows in both size and quality, we continue to make it easier for members to shop with us whenever and however they choose. Digital engagement remains a major unlock for convenience. And this quarter, digitally enabled sales grew by 31%, driven by strong adoption of BOPIC, Same-day Delivery and ExpressPay. These services have consistently been among the most meaningful drivers of digital growth with more than 90% of digital orders fulfilled directly from our clubs, an efficient and member-friendly model that has contributed significantly to our momentum.

Our digital business also achieved a milestone this quarter, posting its highest sales day ever on Black Friday and then surpassing that record again on Cyber Monday. This performance reflects not only high engagement, but the continued maturation of our digital portfolio. We're increasingly seeing members tap into our digital conveniences for different shopping occasions, underscoring how ingrained these capabilities have become. For example, a member stocking up in club ahead of a winter storm may be more inclined to use ExpressPay to make that shopping trip faster and easier.

We're also continuing to lean into AI to create even more seamless and intuitive experiences for our members. Our AI shopping assistant Ask Bev is designed to enhance the member experience through more personalized, intuitive and efficient product discovery and support. And behind the scenes, AI is enhancing our merchandising enrichment and platform reliability.

Value remains foundational to how we serve our members, and we continue to see that resonate across all income levels, particularly in a period where my consumers are becoming more selective with their spending. Our strong pricing position is central to our model. Our advantage structure allows us to consistently deliver meaningful savings up to 25% better than traditional grocery, and we are relentless about maintaining that edge for members. This commitment to value is one of the reasons we continue to see steady renewal rates, strong traffic and healthy unit growth in our core businesses.

Our own brands are another important way we help members manage their budgets without compromising on quality. In fiscal 2025, own brands represented 27% of our merchandise sales, and we remain on track toward our long-term goal of 30%. These products offer significant savings and are an increasingly important part of how families shop for our clubs. That loyalty, combined with higher margins, makes this effort powerful for our company.

We also create value through compelling discounts and promotions. A recent example is our big game event, where members who spent over $150 got a $15 digital bounce-back coupon, providing members with a high-impact way to save during a key seasonal moment. At a time when members are making careful decisions with every dollar, our focus on great prices, quality products and highly curated assortments ensures we remain a trusted destination for families looking to get more value out of every trip.

We continue to make meaningful progress on expanding our footprint and bringing the BJ's model to more communities. In the fourth quarter, we opened 7 new clubs, a great finish to a year that saw us open 14 new clubs. We are so proud of our 2025 class of club openings, which saw us open clubs in 8 different states. These clubs as a whole are delivering sales, membership and profit that are well above expectations, and we're very excited for our continued accelerated club growth.

The success in our new clubs and new markets is a testament to the team working on new clubs whose mission is to make the next opening even better than the last. The team is ready for our first half of the year openings in the Dallas-Fort Worth area, and I have a tremendous amount of confidence that we will deliver for these new members and communities as we have proven time and again in our new club program. We remain on track to deliver our commitment of 25 to 30 new clubs over 2025 and 2026. And as we look out at the new club pipeline, we would expect this pace of openings to continue over coming years.

Our sustained expansion reflects our confidence in the relevance of our model, our ability to serve more members across more geographies and our long-term commitment to profitable growth.

Before I hand things over, I want to take a moment to recognize our team members across our clubs, our supply chain and our Club Support Center. Their commitment to taking care of the families who depend on us is what enables our performance quarter after quarter. Their hard work, especially in dynamic environments like this one continues to inspire me every day.

As we look ahead, we remain confident in the strength of our model and our ability to execute on our long-term priorities. Our business is built to win in both stable and uncertain environments and the investments we're making today put us in a strong position to continue delivering value for our members and sustainable growth for our shareholders.

With that, I'll now turn it over to Laura to walk you through the financial results in more detail.

Thank you, Bob. Before I dive into the numbers, I wanted to acknowledge the exceptional work that our teams across our clubs, distribution centers and support functions. Their continued focus on serving our members and strengthening our operations played a major role in delivering our fourth quarter results.

Now let me walk through the financial highlights for the quarter. Net sales for the fourth quarter were approximately $5.4 billion, an increase of 5.5% over last year. Full comparable club sales, including gasoline, rose 1.6% with fuel prices continuing to run down mid-single digits year-over-year. Excluding gas, merchandise comparable sales increased 2.6%, and we were pleased to see growth in both traffic and units. Traffic strengthened as the quarter progressed, helped in part by members stocking up ahead of the late January winter storm.

Within our grocery, perishables and sundries business, comps were up 2.3% supported by strong performance in categories like nonalcoholic beverage, candy and snacks. Unit growth was approximately 1.5% and price remained up year-over-year though we have seen inflation continue to moderate. Our general merchandise and services division comp increased 4.3% in the fourth quarter, driven by strength in consumer electronics and apparel even as home and seasonal remained a drag on the business.

Membership fee income rose 10.9% to roughly $129.8 million supported by healthy acquisition and retention trends across the chain as well as an annual fee increase in January 2025. Our membership base remains vibrant, and we continue making progress in improving member mix quality. As we look ahead, we expect membership fee income growth to moderate as we fully lap the fee increase and return to a more normalized run rate.

Turning to our gross margins. Excluding gasoline, our merchandise margin rate was down about 50 basis points year-over-year driven by changes in merchandise mix. SG&A expenses totaled $818.2 million, representing slight deleverage as a percentage of sales, primarily due to new club openings and continued investment in our key strategic initiatives. Our gas business outpaced the broader industry. Comparable gallons were up 0.1%, significantly better than the low single-digit declines seen elsewhere. Fuel margins were generally stable during the quarter, resulting in profitability, modestly ahead of expectations.

Adjusted EBITDA for the quarter increased 1% to $266.5 million, supported by steady cost discipline. Our effective tax rate for the quarter was 25%, slightly below our statutory rate of roughly 28%. Altogether, fourth quarter adjusted EPS of $0.96 increased 3.2% year-over-year. For the full fiscal year, we delivered adjusted EPS of $4.40 reaching the high end of our revised guidance range.

Looking at the balance sheet. Inventory levels increased 3.1% year-over-year in absolute terms and were down 2% on a per club basis reflecting strong execution by our teams. In-stock levels improved about 40 basis points versus last year and reached record highs, a testament to better merchandising alignment and operational efficiency.

Our capital priorities remain unchanged. We continue to invest in areas that drive long-term value: membership, merchandising, digital capabilities and real estate. We ended the quarter with net leverage of 0.4x giving us substantial flexibility. During the quarter, we bought back approximately 1.3 million shares for $117.7 million, bringing the full year repurchases to roughly 2.6 million shares for $252.4 million. This accelerated pace of repurchases underscores our confidence in the long-term strength of the business and our ability to generate consistent cash flow. We ended the year with approximately $750 million remaining under our current authorization and expect to remain thoughtful and opportunistic with future repurchases.

Looking ahead to fiscal 2026, we expect comparable sales, excluding gas, to grow 2% to 3%, and we are guiding to adjusted EPS of $4.40 to $4.60. Our multiyear focus on building a stronger, more efficient and high-quality business is yielding real progress, and we remain confident in our ability to deliver sustainable long-term growth. We expect slight deleverage in our SG&A driven by accelerated new club openings, particularly with continued outsized growth in depreciation. We will also continue to invest to ensure our new market growth performs at or ahead of our expectations as well as making sure we deliver unbeatable value to our members every day.

We plan to further invest in our supply chain network to support the long-term growth and are excited to open our automated distribution center in Ohio in 2027. We are planning for an effective tax rate of approximately 27% for the year with the lowest rate in the first quarter when we typically experience a windfall from stock compensation.

Given the evolving landscape, we are not contemplating the impact of recent tariff news and evolving macro uncertainty on our current assumptions. Tariffs may shape the trajectory of inflation and broader consumer demand and ultimately influence our results this year. We continue to believe we are well positioned to offer our members value that they are seeking every day. 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 of delivering in a dynamic environment.

Bob, back to you.

Thanks, Laura. Before I wrap up, I just want to take this opportunity to reflect on the incredible progress our team has made on behalf of our shareholders. Looking back over the last 3 years, we have grown our member count by 1.5 million members, that's over 20%, and increased our annual MFI run rate by more than $100 million, while delivering 90% tenured renewal rates.

We've driven digital penetration from 9% to 16%, generated $3.3 billion in adjusted EBITDA. We produced more than $2.6 billion in operating cash flow, including over $1 billion this year. We opened 29 clubs as part of a $1.7 billion capital investment into our business with returns on new clubs well into the double digits. We've accelerated the pace at which we're expanding and have a pipeline to support this level of growth going forward. As part of this effort, we've also added about $500 million of owned real estate onto our balance sheet.

On top of this capital investment, we paid down well over $300 million of debt, bringing our net debt ratio down to 0.4x, and repurchased well over $0.5 billion worth of shares, retiring about 5% of our share count in the process. The club business is a long-term share gainer and great business to be invested in because value wins. By delivering the assortment, value, convenience and membership experience our members love, we will be rewarded with growth in the lifetime value of our members. This lifetime value is the foundation of the equity value that accrues to our shareholders.

As we look out towards this year and beyond, we're more excited than ever for both the progress we've made and for the opportunity to create even more value for our shareholders by investing for the long term and delivering value to our members in everything we do. We're at a unique moment in time as it relates to the growth of the club channel. Now more than ever, we are here to play to win.

[Operator Instructions]

And we now have Michael Baker from D.A. Davidson.

Great. I wanted to ask about merchandise margins down 50 basis points. In the press release, you said mix. I guess I heard strength in consumer electronics and TVs, I suppose that was probably part of it. But what else drove the lower merchandise margin. Can you talk about sort of inflation -- cost inflation versus price inflation? I know one of the hallmarks has been trying to give value back to customers. Just how that whole pricing dynamic is playing out, please? And what should we expect for 2026?

Mike, maybe I'll take the lead here and Laura can fill in behind me. So we're pretty proud of our quarter. You brought up margins in your question and our pricing stance and a few other things. So let me just talk a little bit about it in the broadest sense, and Laura can add in some details or she sees fit.

The largest contributor to our margin performance against our expectations during the quarter was the mix of the business, and it's mix towards general merchandise. You remember that for us, general merchandise is slightly lower margin than some of the other parts of our business. And within general merchandise, consumer electronics tends to be the lowest gross margin within general merchandise.

You remember when we talked about how Q4 might roll out for us. We had restricted buys in a lot of our general merchandise categories to try and manage exposure to tariffs and markdowns and things. And that played out exactly the way that we thought it would. So within the 4 big businesses in general merchandise, we had a good quarter from a CE perspective. Our apparel business continues to grow. It's been growing for a few years now pretty steadily and had another good quarter there.

And then as expected, we had a tougher quarter in our home and our seasonal businesses. Those were more subject to tariffs. That's where much of our inventory cuts happened. And those 2 businesses had negative comps. So the mix issues associated with that were the predominant cause of the 50 basis point decline in merchandise margins.

We also made considerable investments in value during the quarter in our grocery business, and we will continue to do that in the future. As you know, value is the most important thing that we provide our members every day. We take our pricing gaps very seriously. They improved during Q4 because of these investments that we made. And we'll continue to do that as we can to provide our members the best value every day. We always try and spend into the beat, so we saw that we were having a quarter where we could do that and decided to take that option on our members' behalf. So we're very happy with our quarterly performance and made all the numbers work out in our shareholders' behalf.

Yes. Great. If I could ask one more. You talked about continuing the pace of openings, 25 to 30 every 2 years. You're only in 21 states right now. Have you -- how long can you grow 25 to 30? I guess what I'm getting at is, have you looked at the art of the possible? Could this be a nationwide concept? How many stores could you have over time?

Yes. Let me start out and then Bill Werner can fill in. He obviously, as you know, runs our real estate portfolio. This year was a fantastic year for us from a real estate growth perspective, opening 14 new clubs, a bunch of new states, a bunch of existing markets for us as well. And I would tell you that this new class of clubs is the best class of clubs we've opened in any of the years since we've gone public.

Just a couple of data points. Our membership in these clubs is up over 30% versus what we planned. Our on-time renewal rates in our new clubs are about 900 basis points higher than our chain average at this point. And I talked about in our prepared remarks that our new clubs are well into double-digit return on capital. So we're really excited about the performance we've had so far. The team has done a fantastic job getting these clubs open on time this year. We've got another 12 or so to go in this new year and a really robust pipeline. So let me hand it over to Bill, and he can address the rest of your question.

Yes, Mike, maybe the one simple idea I'll give for you and the investment community to think about as it relates to our growth is as we continue to take share, the models continue to update the viability that we have to open up in new markets. And we've seen that this year with markets like Selma, North Carolina; and Sumter, South Carolina. They probably wouldn't have been on our radar a handful of years ago and in pretty short order, not only were they on our radar, but we were able to go there, execute and those clubs are both off to amazing starts, which gives us a lot of confidence in terms of going into new and different markets into the future.

And so I would tell you that we enter the Dallas-Fort Worth market later next month. Our team is confident, but certainly not complacent as we go into these in terms of how we execute with the success that we've seen. And if anything, the early engagement and the hustle of the team on the ground there has been -- in the Dallas market has been pretty awesome. We had -- I was down there last week and spent some time with the team and with some community leaders, and we heard feedback across the board of the way that we've engaged with the community down there. It's something that they've never seen before.

And so we're really excited to get those clubs open. It will be a nice milestone for the company as we show the success that we'll have down there. And that success creates opportunity for the future. So as we sit here today, we're really excited, we're really confident and more to come.

Next up, we have Peter Benedict from Baird.

So I guess, first would just be kind of just around the merch comps. Any way to kind of quantify maybe how impactful Fern was, maybe some of the stock-up activity that happened at the end of the quarter in 4Q? And then as you're thinking about the year ahead here, any cadence we should think about? I know there's a lot of puts and takes. Maybe your view on SNAP and the changes there. Just anything that you're contemplating that we should be aware of in terms of the cadence of comp in '26? That's my first question.

Yes. Thanks. Good question. So obviously, Winter Storm Fern was a big deal, particularly in our footprint along the East Coast. I guess what I would say is start out with our -- our feeling is largely storms are a net push. You get the buildup on the front side of it, and that can be a little buildup or a big buildup depending on the size of the storm and how well forecasted it is. And then you obviously suffer the downside of storm effects closing stores and power losses and people not driving and deloading the pantry that they just loaded up.

So I think on the whole, the storms are generally a push. Fern was very big and impacted most of our footprint, and it was certainly very well forecasted. A week out, everybody was saying we were going to get a big storm. So we did have a pretty large buildup in front of the storm. And obviously, it was big and impactful. And so we had a pretty large falloff after the storm.

And so I think the thing to think about is what the net impact of it was. And I would say it was a slight positive to the quarter. The downside of the pantry deloading and the travel effects and such and the supply chain effects actually crossed the fiscal year a little bit. And so we saw some of the downside leak into February. And I think this is a normal effect. I mean we've seen some weather in the Northeast in February as well. And so February's comps were a little lower than our plan, but all of that is normal weather stuff.

So look, I think our team did a great job serving our members. Certainly, we proved our destination status. That stat that we put in the prepared remarks of beating our daily fuel volume record by 20% was pretty insane to do that. Our supply chain team really was pretty heroic, beating records of how many cases we moved day after day as the buildup happened. And our club teams did a wonderful job staying open when we could and keeping everybody safe and serving our members. So overall, a very slight impact to the quarter, and I would say a slight impact to Q1 on the negative side as well. From a guidance perspective, maybe I'll give that question to Laura. There's certainly a lot to balance in the stacks and what's going on. So Laura, what do you say about guidance?

Yes. Pete, Look, I think from a comp perspective, obviously, we put out a range of 2% to 3% for the full year. I think what we didn't talk about in the prepared remarks is the cadence of the 2-year stacks, and those accelerated slightly in Q4 as they did in Q3. And so when we look at the year coming up, I I'd point towards the 2-year stacks as a starting position. Remember that the first quarter of last year was the high watermark from a comp perspective. And so we've built the plan on that, which would imply kind of lowest comps in the beginning of the year and growth as we progress through the year.

Okay. That's helpful. And then my follow-up is just maybe a little longer-term picture. The return to kind of the algo that you guys have, this year, there's obviously a lot of puts and takes. You've got the investments that are going on. I'm just curious, as you -- once you get a bunch of these new clubs up and running, when do you start to kind of maybe return the business, the model to the algo? Is that something that could occur in '27? Is it '28? Just conceptually, how does that work in your mind?

Yes. Thanks, Pete. I mean we are really taking a very long-term approach to what we're doing here. Obviously, we talked a lot about our real estate growth. That impacts our depreciation and our EPS performance. But with all that said, I thought this is a pretty good year. We're very proud of our progress, the growth of our entire franchise last year, growing total merch sales by more than 6%, membership by 7%, MFI by 9.5%, adjusted EBITDA by 6%, EPS by 9%. Those are all fantastic results.

And then in the prepared remarks, all the 3-year stats, I think, are even more impressive. And so while we're not satisfied and we still want to grow faster, we really have a lot to be proud of. We think our shareholders should be happy with our performance, and we'll continue to make long-term investments like in real estate and like in value to really get our franchise flywheel moving faster for the future.

[Operator Instructions]

And let's move on to Ed Kelly from Wells Fargo.

This is John Park, on for Ed. I guess can you talk a little bit more about the underlying membership trends? How much of the MFI increase was from the fee increase? And I guess, any changes in discounting lately that you guys are doing?

Thanks for your question. Certainly, a lot to be proud of in our membership growth. We talked about a little bit of that in our prepared remarks, but 500,000 member growth this year, 1.5 million over the past 3 years, 10% MFI growth for the year, a little bit more than that for the quarter, another year of 90% renewal rates, improvements in our higher tier, really just sustained fantastic performance in our membership base.

This continued growth in member count will continue, including with as many as 12 new clubs next year. And obviously, some of that MFI growth was the fee increase, as you pointed out. We're quite optimistic on our ability to continue to grow our membership franchise. And as we do, we'll continue to optimize for the best mix of acquisition and retention and rate and MFI dollar growth. And as you might imagine, those things somewhat compete with one another. And so we're trying to optimize the best result for our overall business.

When you think about the concept of discounting, I would take you all the way back to many years ago when our chief acquisition model was a free trial model, and we moved away from that towards a discounted membership model tied to easy renewals. So folks that get a discount have to sign up for automatic renewal and they pay full freight in the second year and beyond.

Most membership models use a discounting model at this point, including our 2 club competitors. And the team has done a really nice job, again, optimizing those 3 things, member count and the rate that the members pay and the renewal rate. Team also does a nice job varying and trying to optimizing the channels in which we offer these discounted offers. And they obviously change offer constructs and things as we go, really trying to figure out what the best value is for each segment of membership and again, trying to optimize the overall business for us and for our shareholders.

So as we move forward, we'll do a lot of the same, just trying to optimize what we offer and when we offer it and who we offer it to. And I expect we'll see continued growth in total membership and MFI dollars and renewal rates.

The one thing I might add on to that is Bob talked about the new club growth and members we're acquiring in the new clubs. As we step back and we look under the numbers, we've talked about this in prior quarters, we're also really proud of the membership growth in comp clubs which, as you know, is really important to the long term of our business. And so think about kind of 2% to 3% comp club member growth, which is a fantastic set that we're proud of.

Moving on, we now have Kate McShane from Goldman Sachs.

We had a longer-term question as well. Just with the success that you're seeing with your digital growth, do you think your stores are able to keep up with this level of fulfillment? And are there any investments that need to be made going forward to further support this growth either in the tech stack or with assets?

Yes. Kate, so it's a good question. We've had sustained fantastic growth in our digital business. I think it was 31% this quarter and somewhere near 60% on the 2-year stack, obviously, even bigger going backwards. And it's really been the engine of convenience that our members love, whether it's Buy Online, Pick Up in Club or Same-day Delivery or ExpressPay. Getting that penetration up to 16% of our business has been a big win, and I expect it to go even further as we go because our members, quite frankly, love all these offerings.

And as you know, about 90% of our entire digital business is fulfilled by our clubs. And so you're right to ask the question. I would tell you that we are relatively unconstrained from this perspective. We can pump a lot more volume through our average boxes. In certain very high-volume clubs, we have constraints. We are working around those constraints by investing capital, by investing in labor, by moving volume around the chain by using different providers to help us do it. But I don't really see a ceiling on our digital growth going forward, and we will work hard to make sure we don't have a ceiling there.

We continue to invest in all of our digital properties. Our digital team is fantastic at really improving the experience every day on a relatively inexpensive basis. And they do it day in and day out. And when they say something is going to be done, it gets done. And so we've come to very much value that as we talk to our members, as we offer new things to our members. And obviously, our members are reacting well to that. So I don't really see that changing in the future. We're happy to take all the digital growth that comes to us.

Moving on, we now have Steven Zaccone from Citi.

I wanted to follow up on the earnings guidance for the year. Laura, you mentioned some SG&A investments. Can you help us understand how big they are? And then on the merchandise margin outlook, I want to follow up there. How should we think about that for '26? Obviously, mix was a factor in the fourth quarter, but you did reference earlier last year making some price investments or investments in general to provide value for consumers. How do you see that playing out in 2026?

Steve, thanks for the question. Maybe I'll start on your SG&A question. We spoke a little bit about that in the prepared remarks. And so slight deleverage. I think we are continuing to invest in the new club growth and ramp that growth. Going into Texas at the end of the first quarter, as Bill talked about and into the second quarter, we are certainly investing to win there. We know we are off to a strong start, as Bill already talked about as well, but we want to make sure we set ourselves up for success. So some deleverage largely as we look on the new club ramp and it's largely D&A.

From a merch margin perspective, we don't guide to merch margins on an annual basis. I would say the fourth quarter was certainly the low mark on a year-over-year basis as we went backwards a little bit. But remember that the full year, we rounded it out flat. So I think what we're after this year is continuing to manage the business, make sure we're making price investments where they make sense, all after kind of going towards our long-term lifetime value of membership and the guidance we've set forth.

Moving on, we now have Mark Carden from UBS.

I want to ask a bit about the Texas ramp. I know the stores are yet to open, but you've been doing some initial promos. How has the interest been just relative to what you've seen in other markets? And then how have you handled any supply chain challenges just given distance from current DCs? Is there a certain number of clubs you need to open before it makes sense to add a new DC to that region?

Mark, why don't I ask Bill to take over that question?

Yes. Mark, listen, the -- maybe I'll start with the engagement down in the Texas market, and then we'll come back to some of the infrastructure. The engagement has been amazing out of the gate. I mentioned earlier, I was down there with the team last week. We've had a team on the ground for many, many months right now already engaging with the community. And we have a ton of data given the acceleration of all the recent openings in terms of what we expect from engagement and membership from the clubs that we opened so far.

And as we sit here and look kind of 8 to 10 weeks out from the openings, we're seeing exactly what we thought we would see in terms of overall engagement and membership sign-ups. So all signs are positive. We sit here so far in terms of the entry. I'm really excited. The team has just done such an amazing job. I'm really proud of everything they've done, and I'm really excited to see the results of all their hard work.

In terms of the infrastructure, we've been planning for this investment for a while now. And so we'll serve the market with a combination of distribution from our existing distribution infrastructure as well as some hyperlocal support on the ground. And then we'll continue to scale as we've done all along. So as I think about -- as we've moved over the last handful of years to some of the adjacent Western markets where we are today, as we moved into Columbus and Indianapolis and Nashville and Detroit, that certainly has created a new distribution footprint for us, and we've served that along the way. And we'll continue to amplify how we serve that with the new distribution center that we're building out in Columbus as we speak. That's a major investment for us, and it will yield significant both operational efficiencies for us as well as savings as we get it open.

So the opportunities that we have to invest in the expansion have been driven by the success of the new clubs, and it's a great challenge to work through, and we're excited for everything that we're doing.

Yes. And we're really bullish, as Bill said, about our ability to be successful in Texas. I'll offer you one statistic we heard this week that there are more homes being built in the Dallas-Fort Worth market than in the entire state of California. So certainly a place with very, very high growth. Our team has been doing fantastic work on the ground. The initial membership sign-ups are well ahead of our preopening plan. Obviously, the numbers are small until the box is actually open.

But the engagement we've seen with the folks in these communities that we will enter has been very strong. We're obviously respectful of this challenge. It's certainly got great competition in the neighborhood, and we want to make sure we offer Texans products and experience that they like. But I think we're off to a pretty good start so far. And we will invest heavily in this market to try and get it right, and we will give it our best shot every day.

Moving on to the next participant. We have Oliver Chen from TD Cowen.

Regarding general merchandise and the variability that you're seeing, what should we expect in terms of guidance with home and seasonal? And related to that, the category management program as well as Fresh in the year ahead. Any major catalysts there or changes or more innovation that you're doing there that will underpin some of the comp guidance?

Yes. Oliver, thanks for your question. Again, maybe I'll start and Laura can fill in whatever I missed. If you look at the complexion of our business in the fourth quarter, you saw quite a mix. Our grocery business performed very, very well. Certainly, perishables is the most important part of that business. So we lapped the full chain rollout of Fresh 2.0 during the quarter, and we continue to see steady gains in our perishables business. That's been impacted by some food deflation in that category.

But even without that, perishables had a good quarter. We saw some improvement in our grocery business. And hopefully, that translates into our sundries business as well as we start to pull some of the same levers there. And general merchandise, we've talked a little bit about where we had a good quarter from a CE perspective where we could chase some inventory and sell it.

And I think the prospects for our home and seasonal businesses are kind of varied at this point in time. We need to continue to improve our merchandise mix and our assortment and our value in those categories. Our merchandising team has made strides. They continue to get better. We obviously are still working on our merchandising team at this point, and we hope to have some news to announce in the next couple of weeks from that standpoint.

So I would look at home and seasonal as a longer-term growth initiative. We will continue to grow CE. We will continue to grow apparel. We know what to do in those categories. And in the future, we hope to build on that growth in home and apparel.

And with respect to CMPs, that program is still going on. It's been a successful program for us. As you know, it -- versus our older program, we called CPI, which was much more margin focused. This has been much more assortment focused. And I think what you'll see from us in the future is a better mix of those 2 thoughts, trying to put the right thing on the shelf, but also trying to get some more margin performance so that we can make some further investments in value, making sure that we are offering the right everyday price, the right promo, the right product.

And obviously, paying the right cost for that product is a fundamental part of the retail equation and making sure we can run the business in the best way for our members and our shareholders. So lots of good stuff to be proud of in the merchandising world and lots of work to come in the future.

Next up, we have Rupesh Parikh from Oppenheimer.

So just going back to inventory. I know last year, your team planned conservatively on the discretionary front, just given some of the tariff headwinds and uncertainty out there. Just curious how you're thinking about inventory over this year? Do you feel like you have sufficient inventory on the discretionary side? So just high-level thoughts there.

Yes. Rupesh, I think our inventory is in great shape. Let me first congratulate our supply chain team and our merchandising team for their -- another great performance this quarter, where although total inventory was up 3% on a per club basis, it was down and our in-stocks improved by 40 basis points. So team continues to do a great job getting better and more efficient for our members. We need continued gains on that front, and our team has got some great plans to keep pushing in that regard.

With respect to total inventory levels in the business going forward, nothing really to think about from a grocery business perspective. That is just about optimizing what we're doing there. From a general merchandise perspective, we have ramped up our inventory in the coming year. We've made bigger buys to support both the new clubs that we're bringing on and hopefully, comp growth in our general merchandise business as well. So where we were very conservative last year from an inventory buy perspective, we are being slightly more aggressive this year. Nothing crazy, but we do have plans to buy more inventory. And hopefully, we've picked the right items and our members love the assortment and the value that we offer.

And that's it for the questions queue. And with that, it concludes today's call. Thank you all for joining. We appreciate your time. You may now disconnect your lines, and have a great day.

Hello, and welcome to BJ's Wholesale Holdings, Inc. Third Quarter Fiscal [ 2024-'25 ] Earnings Conference Call. [Operator Instructions].

I now pass the call over to our host, [indiscernible], VP of FP&A. Please go ahead.

Good morning, and welcome to BJ's Third Quarter Fiscal 2025 Earnings Call. Joining me today are Bob Eddy, Chairman and Chief Executive Officer; Laura Felice, Chief Financial Officer; and Bill Werner, Executive Vice President, Strategy and Development.

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 risks and uncertainties that could cause actual results to differ materially from what we say on this call. Please see the Risk Factors sections of our most recent SEC filings for a description of these risks and uncertainties. Please also refer to today's press release and latest investor presentation posted in our Investor Relations website for a cautionary statement regarding forward-looking statements and non-GAAP reconciliations.

And now I'll turn the call over to Bob.

Good morning. Thank you for joining us to discuss our third quarter results. Our business delivered strong results in Q3 and performed well in an incredibly dynamic environment. Once again, we gained share and grew traffic, marking the 12th consecutive quarter of market share growth and the 15th consecutive quarter of traffic growth. These consistent results are a testament to the value that we provide to our members each day as we are guided by our purpose of taking care of the families who depend on us. This purpose has never been more relevant as many of our members are dealing with a considerable level of unpredictability in their everyday lives. This has impacted consumer confidence, which has been at low levels for much of this year. And we are taking these conditions as a call to action to lean even further into value for our members everyday needs.

Some of our actions include incremental offers to those members that may need a little bit more help in the current environment. In addition, we're rolling out reduced delivery fees to make our most convenient shopping channel even more accessible. The combination of value and convenience is a powerful unlock for us, and this will help our members realize even more value from their BJ's membership.

We've also launched a 10% discount for our team members as a way of thanking those who are on the front lines living our purpose every day.

For the quarter, we delivered merchandise comparable comp sales growth of 1.8% and adjusted earnings per share of $1.16. It's helpful to evaluate the performance on a 2-year stack basis to normalize for the impact of last year's port strike and hurricane activity. Our 2-year stack comp was 5.5%, an acceleration of nearly 1 point versus the first half.

Our Q3 comp performance was evenly balanced across our 2 reportable divisions. Our perishables Grocery and Sundries division grew comp sales by 1.8% with a 2-year stack that accelerated sequentially of 6%. The investments we've made in both Fresh 2.0 and our category management process have driven continued share gains across our consumables franchise. We saw the most strength in perishable categories such as fresh meat, dairy and produce, aided by our Fresh 2.0 investments.

We also saw strength in nonalcoholic beverages and candy and snacking driven by enhanced assortment and more prominent placement in our clubs. Our general merchandise and services business also grew by 1.8% on a comp basis in the quarter. Consumer electronics comped in the high single digits on success in computer equipment and tablets. Apparel, which we've highlighted on several recent calls, continues to grow, comping in the low single digits. The offsets we saw this quarter were in home and seasonal, which continued to be impacted by lower discretionary demand and consumer confidence, as well as some of the decisions we made earlier this year to tighten our inventories in light of the anticipated impact of tariffs. Our services business also contributed to the improved performance in this division during the quarter.

Looking at the behavior of our membership base this quarter, we continue to see members across all income levels remain cautious, which tracks with what we broadly see in the consumer confidence data. We saw members exhibiting value-seeking behavior, including higher sensitivity to promotions, increasing purchasing of private label items and some trade down. For example, given the high price of beef, we saw higher purchasing of ground beef versus more expensive cuts. Despite this type of behavior, member trends exhibited stability quarter-over-quarter across all cohorts when adjusting for the noise from the port strike. While value-sensitive members remain more exposed to the macro backdrop, we did not see any incremental pullback from them. That resilience reinforces BJ's position as a trusted destination for strong value and convenience when it matters most.

The environment continues to move quickly, but our teams haven't lost sight of the fundamentals. By zeroing in on our controllables, they're advancing our strategic agenda, increasing member stickiness, making our clubs better places to shop, expanding convenience and growing our physical footprint. These elements are central to creating value over time, and we built further momentum in each this quarter.

I'll now provide an update on how those pieces are evolving. Our membership results continue to be robust, and we grew membership fee income by nearly 10% this quarter, driven by strong member counts, mix benefits and the effects of our recent fee increase. We expect the growth rate to show further improvement into the fourth quarter and to once again deliver a 90% tenured renewal rate for the full year. The core of our membership health is driven by growing the number of members as well as improving the mix of those members.

In the third quarter, our higher tier membership penetration reached another new record, improving by 50 basis points sequentially. And we continue to see more opportunity to push here. We would not be able to deliver sustainable membership growth without parallel improvements in our merchandise. We are launching many new owned brands products, which are aimed at improving the member experience by offering excellent quality at an unbeatable price. Some of the products we are excited about include Wellsley Farms branded tortilla and potato chips, protein shakes, frozen poultry and coffee pods. This is just a small list of many new high-quality products that we plan to launch at amazing price points.

Owned brands products have a multitude of benefits as they are typically priced at about 30% below national brands while offering comparable quality of national branded items. This gives our members even more compelling value for their hard-earned dollars, which in turn drives loyalty and higher lifetime value. Home Brands products also deliver higher penny profit for us, which we can use to invest back into the member experience, further propelling the flywheel that drives our business. We're excited to see how our customers respond to our improved offerings.

Our efforts to continue to improve the convenience of shopping our clubs can be seen in the digital growth of 30% this quarter and 61% on a 2-year stack basis, driven by strength in BOPIC, same-day delivery and Express Pay. We're looking to further drive innovation by utilizing AI to deliver enhanced content highlights and attributes making shopping even easier for our members. We also recently beta launched an AI shopping assistant and personalized member shopping lists, and we're looking forward to taking these live to our members soon.

Last but not least, our new club footprint expansion. We opened our club in Warner Robins Georgia during Q3 and just last week, we opened our fifth Tennessee club in [indiscernible]. I'm pleased to report that both clubs are off to a great start joining the class of 2025 clubs that have outperformed expectations, with membership counts 25% ahead of plan. The community reaction at all of our recent openings has been nothing short of phenomenal, and we are proud to serve these communities.

Our expansion strategy has been a sustained and accelerating success with clubs opened over the last 5 years delivering comp performance about 3x the chain average. [ OnDeck ] for new club openings; our Springfield, Massachusetts; [indiscernible], South Carolina; Castleberry, Florida; Chattanooga, Tennessee; Soma, North Carolina and Delray, Florida. That will make 14 new clubs for the year, the most we've had in many years. We remain on track to add 25 to 30 new clubs in 2 years, and our pipeline of new clubs is as large as it has ever been.

Speaking of our pipeline, we are excited to announce 2 more 2026 openings in Foley, Alabama and Mesquite, Texas as well as a relocation of our club in Rotterdam, New York. Mesquite will be our fifth Dallas-Fort Worth Club opening in 2026. We've been impressed with the warm welcome we've received as we've introduced the BJ's brand to the market over the past few months, including our Friday night life sponsorships, which was capped off with South Grand Prairie taking home the trophy and the Prairie Ball sponsored by BJ's Wholesale Club. The enthusiasm we've seen in these new markets has been awesome, and we can't wait to bring the value of BJ's Wholesale Club to Texas families early next year.

As I look at our business, I see improving momentum. Our membership is growing in size and quality. We are making improvements in merchandising and continue to capitalize on the convenience of our digital offerings. And as I just said, our footprint expansion is accelerating and successful. While the short term may be somewhat unpredictable, I'm confident that our company is in an excellent position to deliver value to our members and make good on our commitments to shareholders. We will continue to act with purpose in building our structurally advantaged business for the long term, and you should continue to expect that we will run the business with lifetime value at the core of our actions.

Before I turn it over to Laura, I want to thank our team members. Your dedication to serving the families who depend on us and your commitment to supporting one another, make BJ's a great place to shop and a truly special place to work. I'm proud of all that we are accomplishing together.

Thank you, Bob. I'd like to start by recognizing the outstanding efforts of our team members in our clubs at our Club Support Center and throughout our distribution network. Your hard work and commitment to serving our members and communities are instrumental in delivering a solid quarter and advancing our long-term growth agenda. Let's look at our third quarter results.

Net sales for the quarter were approximately $5.2 billion, growing 4.8% over the prior year. Total comparable club sales in the third quarter, including gas sales, increased 1.1% year-over-year as the average price of gas declined mid-single digits year-over-year. Merchandise comp sales, which exclude gas sales increased by 1.8% year-over-year and by 5.5% on a 2-year stack. We are pleased to grow traffic and units in the quarter.

This quarter, we lapped the surge of business brought by last year's port strike. At this time last year, we estimated it to have contributed about 1 point of comp in September. Moving to this year, September was by far the weakest month as we comped the strike with August and October generally performing in line with our expectations. We believe it may be helpful to evaluate trends on a 2-year stack basis to assess the business, and I'll reference this metric in my overview.

Our third quarter comp in our Grocery, Perishables and Sundries division grew 1.8% year-over-year with a 2-year stack of 6%, showing slight acceleration versus the first half. Our General Merchandise and Services division comp also increased by 1.8% in the third quarter with a 2-year stack of about 2%, an improvement versus the declines seen in the first half. As Bob noted earlier, traffic and market share grew again in this quarter, and we experienced approximately 1 point of inflation. Digitally enabled comp sales for the third quarter grew 30% year-over-year and 61% on a 2-year stack.

Our digital businesses performance is an affirmation of the values our members find in the improved and dramatically more convenient shopping experience. We find that the members that engage with us the most digitally and utilize all of our offerings, end up being the most valuable members with the highest lifetime value. We will continue to invest in our digital capabilities to gain even more wallet share of our members. Membership fee income, or MFI, grew 9.8% to approximately $126.3 million in the third quarter on strong membership acquisition and retention across the gene. We also continued to benefit from the fee increase that went into effect at the beginning of the year. Our underlying member growth remains healthy, and we continue to improve the member mix.

Moving on to gross margins. Excluding the gasoline business, our merchandise gross margin rate was flat on a year-over-year basis as we continue to invest in our business and in our members, along with execution towards our longer-term objectives. We expect to continue to invest in Q4 and beyond as we lean into our purpose and do the right thing for our members, which will be the right thing for us in the long term.

SG&A expenses for the quarter were approximately $788.2 million and deleveraged slightly as a percentage of net sales year-over-year. Adjusting for the legal settlement benefit that we realized last year, SG&A as a percentage of net sales was about flat year-over-year. We continue to grow comp gallons and gain share in our gas business. Our comp gallons in the quarter grew 2% year-over-year, a nice improvement versus Q2's flat performance and again significantly outpaced the industry, which declined low single digits on a comp basis over the same time frame. We have been in a much less volatile gas margin environment this year with profitability just modestly ahead of our expectations in Q3.

Our third quarter adjusted EBITDA was down about 2% year-over-year to $301.4 million, owing largely to lapping the benefit of a legal sentiment last year. Adjusting for the settlement, adjusted EBITDA grew approximately 5% year-over-year on higher top line and strong cost discipline. Our third quarter effective tax rate was 26.9%, slightly lower than our statutory rate of approximately 28%.

All in, our third quarter adjusted earnings per share of $1.16 decreased approximately 2% year-over-year due to the legal settlement. Adjusted earnings per share grew approximately 8% year-over-year, normalizing for the settlement benefit last year.

Moving to our balance sheet. We ended the third quarter with total and per club inventory levels down 1.5% and 5% year-over-year, respectively, while our in-stock levels increased by 90 basis points. Note that we are operating 9 more clubs in our chain compared to a year ago. The favorability in our inventory investment continues to be related to reduced inventory buys.

I am proud of our team's hard work to stock even more of our merchandise our members want while improving the operating efficiency of our business. This is yet another driver of the flywheel with which we can pass along even more savings to our loyal members.

Our capital allocation strategy remains consistent. We believe profitably growing the business is our best use of cash and investments to support membership, merchandising, digital and real estate initiatives will continue to be funded by our cash flows. We ended the third quarter with net leverage of 0.5x.

Share buybacks are a key component of our capital allocation framework and in Q3, we took advantage of the lower share price and repurchased approximately 905,000 shares for $87.3 million. As of quarter end, we have approximately $866 million remaining under our recently renewed repurchase authorization. We will continue to take a disciplined and balanced approach to deploying our capital to maximize shareholder value.

Looking ahead to the remainder of the year, we are confident in the momentum of our business and our ability to deliver sustained growth, especially in an uncertain economic backdrop. Our teams are focused on controlling the controllables while executing towards our long-term objectives.

With regards to guidance and as we have been speaking to on this call, the macro environment is challenging. We have made decisions to be prudent with inventories in the face of this environment, challenging our ability to grow general merchandise sales. We made that choice in order to allow continued investment in member value in the rest of the business. While it will hamper sales in the short term, we remain confident that this was the right decision.

With that in mind, we are narrowing our guidance for the full year merchandise comp sales to a range of 2% to 3% for the full year. We are also increasing our range of expected adjusted earnings per share to be $4.30 to $4.40.

The actions we've taken to support stronger, more sustainable growth are working, and our long-term road map is solid. With a resilient business model and clear strategic direction, we're well equipped to keep building on our success and deliver substantial value to our shareholders in the years ahead. Bob, back over to you.

Thanks, Laura. As I noted earlier, we are making progress in building momentum. We're elevating the quality of our membership base while it grows. We're curating a stronger, more relevant assortment at prices that reinforce our value promise. Our digital tools are improving member experience and our expansion strategy is bringing the BJ's model to new high potential markets.

Looking forward, our commitment doesn't change. We will keep living our purpose and focusing on the people and communities who rely on us every day while executing on the long-term priorities that drive our growth.

Thanks again for joining us today and for your support of BJ's Wholesale Club. We will now take your questions.

[Operator Instructions] Our first question comes from Peter Benedict of Baird.

I wanted to ask about some of the income demographics and the behavior. It sounded like it was relatively stable. And I think we're hearing a lot this week about kind of that lower and facing some struggles. Can you remind us maybe your exposure to maybe the SNAP program, talk about the renewal rates you're seeing maybe across these income demographics, just anything further below the surface in terms of behavior across income demographics, both in the third quarter and then as you're kind of entering here into the holiday season?

Pete, maybe I'll kick this one off and Laura can add to it if she sees fit. Our prepared remarks tried to tackle this question because we knew it would be out there. Certainly, everybody is concerned about the low-income consumer, the continued inflation provides clear pressure on that segment of all consumers and certainly that segment of our members. With that said, removing the noise from the port strike and the hurricanes and stuff last year, we saw their performance in Q3 as being pretty resilient. The purchasing habits were very stable, and we're pleased to see that. There certainly was a lot of noise at the end of the quarter and the beginning of the fourth quarter around the SNAP program and the government shutdown.

I guess I would say there was a slight disruption in the end of Q3, a more meaningful disruption in the opening days of Q4. But now that, that program is back on track, we're recovering. Those participants as they get access to their benefits are choosing to come to see us and as they have more opportunity to spend. So we're encouraged by that showing from those members and from the members in the medium and high income cohorts that we saw during the quarter as well.

And maybe 1 final point. We're also encouraged going forward by the administration's help recently on the tariff front and reducing the cost of things that are not made or grown in the United States. And so that should be helpful to all consumers, but most pressingly, the low-end consumers that you referenced.

Yes, I think I'd just add on top of it from a membership perspective, we're really proud of our member -- our continued membership results throughout the year. We are acquiring members in our existing clubs, so comp clubs in our new markets and our new clubs that we've opened at the beginning of this year. And there isn't anything when we look at the details of membership to your question about kind of cohorts, that looks different. We're acquiring members across all the cohorts. And so we're really happy with our continued strength from a membership perspective.

Our next question comes from Kate McShane from Goldman Sachs.

We wanted to ask if you believe that the right long-term same-store sales growth for this business is in the 3% to 4% range. If so, why? And what do you think is holding you back from achieving this comp over the last several quarters?

Kate, as you know, we've been transforming our business over the last several years with the idea of really 4 things: one, growing and maintaining a stickier membership; two, improving our merchandising; three, improving our convenience through digital; and then finally, increasing our footprint through real estate expansion. And as we talked about in the prepared remarks, all those things are heading in the right direction.

Certainly, the things that we're doing sometimes conflict with what happens in the outside world. We certainly have the luxury of competing against great competition, and it's certainly been a choppy economic backdrop out there. So we have tremendous confidence in our long-term ability to grow this business from a top line perspective. We're showing signs of that in all 4 of those pillars. And we'll continue to work on each of those to get to that point.

The thing that we try hardest to do, obviously, is put the right products on the shelf at the right value. And we made tremendous strides, I think, during Q3 to do that. Our merchandising team has put a lot of effort this year into that idea of greater products, greater values. And we made considerable investments in Q3 with that in mind.

We'll continue to do that because that's what we believe wins. Value and convenience are really what we're after for our members. And we'll keep plugging. We're very optimistic in our long-term aspirations.

And if I could just follow up with 1 question. You just mentioned the competitive environment. We were curious about what the competitive response has been when you open in some of these new markets, particularly Dallas, which has a really strong grocery offering and other club offering already. It sounds like things are going well there, but I wondered if you had any more details with the fifth store opening?

Sure. The real estate growth story, and I'll let Bill talk about it since he is the architect of it, he is a great one. It's certainly a continuing sustained success and getting even faster with 14 clubs this year in lots of great markets. Those clubs are doing really well. And so we're very enthusiastic about this ability to grow our company. And we've been received well in the markets that we've entered. So why don't I let Bill talk a little bit more about it.

Kate, I think as Bob mentioned, we're really proud and excited about the success of the new clubs this year thus far and what's left to come for this year. And then as we look forward into Dallas next year, the prospect of going in and winning in that market is really important to the team. We've talked about it a couple of times on these calls that the culture that we've built around new clubs is really important. And the team is actually at a high level. As we look back at this year so far, I think 2025 will go down as the best class of new clubs as far back as I can remember, with the success we've had with our 8 openings to date now and 6 more to go for the rest of the year, what we're seeing so far in those new clubs that haven't opened yet with preopening membership and the engagement of the community. We know that they're going to be outperformers as well.

And so as we take that momentum from this best class of openings into next year into Dallas, combined with the work that we've done in the market of raising awareness for our brand and engaging with the community, we have a ton of confidence that not only will we compete, but we'll be in a position to have great success there.

Our next question comes from Robby Ohmes from Bank of America.

I wanted to follow up on the inventory positioning that Laura talked about. I just wanted to understand how you're thinking about that for the fourth quarter. Is it the positioning that sort of limits sales upside, but supports margins? Just how -- what's the pluses and minuses of the tight inventory and semi-related Fresh 2.0 was like a great tailwind in comp driver, the benefit, the tailwind has slowed here. Is there anything that can reaccelerate? Is there a Fresh 3.0 or something like that, that's in the work here to kind of get that -- to reaccelerate?

Robby, maybe I'll take a shot at starting off and Laura can fill in. I think what you're referencing is Laura's comments around proactively managing our general merchandise inventory. When we were in the beginning part of the year, I'm trying to understand where prices would go and costs would go as a result of tariffs. We made some proactive decisions to manage potential markdowns to allow us to fund greater investment in overall value for our members.

And I think that was the right decision. I think you want us to do that every day. That is really why we're here. We've taken those dollars and, in fact, invested them across the rest of the business. In Q3, significantly reduced pricing on own brands, water, on several other beverages, on some paper products across our produce assortment. So we are really trying to balance those 2 things. And so we do have a more conservative inventory position from a general merchandise perspective, that was true in Q3. It remains true for the fourth quarter. And I do think it will limit the upside of the general merchandise business. But again, allow us to continue investing for the overall value for our members.

I think the other story within inventory is really an absolutely terrific performance in managing the overall inventory levels of the company. The team has done a really masterful job in the whole business to have our in-stock rates go up 90 basis points into inventories that are down. We are doing a much better job allocating inventory throughout our chain, making sure that things are where they need to be, when they need to be there and to be in stock for our members every day. We need to keep turning that handle and get better and better every day, but I couldn't be more proud of the team to make a performance like that happen. Anything else, Laura, on inventory? No?

Fresh 2.0, I think it was another terrific program continues to yield benefits. You know that started out in our produce business. We had terrific produce results during the quarter. Again, and what you're seeing from the perishables business overall is some of the reduced benefits from egg inflation and things that are offsetting some of that great performance. So with that said, we've talked about the next iteration of Fresh 2.0 and call it what you want, 2.1 or 3.0. We have made another set of considerable improvements in meat and seafood. And we're looking to doing the same in bakery and other categories as we go forward.

The mission there is the same, right? Our best members interact with us in these categories. If we can show them the greatest product, the freshest product at compelling value is displayed in a way that is compelling, freeing our team members so that they are experts in all these disciplines we can provide a better experience for our members, get more people into those categories and grow the overall traffic of the business. That is certainly the result that we saw from Fresh 2.0 in the produce segment.

The early returns on meat and seafood are good as well. And so we're very optimistic about that program and its ability to drive sales within those categories, but also to get to that further bigger goal of driving traffic in the whole business, which obviously drives lifetime value. So some of these investments are expensive, but they're very much worth it in terms of driving the top line and the overall value of membership to BJ's.

[Operator Instructions] Our next question comes from Steven Zaccone from Citi.

I wanted to ask about the implied fourth quarter same-store sales as you referenced in the release that you've also seen some holiday momentum -- or excuse me, start momentum to start the holiday season. Can you just talk through your category assumptions in the fourth quarter? And then how you think about low end versus high end of the range?

Sure. Again, maybe I'll start, and Laura can fill in, Steve. We certainly, I think, had a good performance in the third quarter. I keep using that word resilient, but into the face of the port strike and the hurricane activity and all that stuff, our sales were a bit higher than we thought they might be in the range of outcomes. And the team's preparation for the holiday season, I think, has been fantastic. We've been investing in value. We've got incremental promotions out there. We're continuing our really successful Free Turkey promotion, where if you spend $150 in 1 basket, you can get a free turkey for your family for Christmas. We're doing a lot of these things to really build on the momentum we saw in Q3 and get our members in our clubs and make them happy.

With that said, it's a choppy economic backdrop out there, right? We talked about the low-end consumer at this point. And we certainly have a little bit of a harder hill to climb from a comparative perspective. We had a good Q4 last year. But net-net, while it's a wide range of outcomes that can happen in any quarter, most notably the fourth quarter, we are cautiously optimistic about our ability to put up some good numbers in the fourth quarter.

Steve, the only thing I might add to all the commentary, Bob just said is I'd remind you about our inventory positioning that would be already talked about for general merchandise. So we've factored that into the range of outcomes. That doesn't mean that we will be out of stock in general merchandise. It just means that we've tightened up the buys and we've picked the best of the best assortment. So we're ready for Thanksgiving, like Bob talked about, and we're ready for our members for holiday kind of as we roll into December.

Okay. The follow-up I have then is on that general merchandise. So when we think about the inventory planning assumptions and maybe just talk about the buying environment, how does that look for the first half of next year, right? Because you made changes to the second half, presumably based on tariff uncertainty, but how does that apply to general merchandise plan as we kind of glance into 2026?

Yes. Look, it's -- I don't want to get too far over skis and talk about next year. But obviously, the fourth quarter seasonal merchandise was bought in the spring when there was considerably more uncertainty around what the tariff exposures might be and what the consumer's response might be to any increase in prices. Every quarter we go through, we get more and more clarity and we get more information from our members as well. And so we obviously alter our buys accordingly.

I guess the other thing I would say is Q4 typically is a higher general merchandise penetration and obviously lower in the first quarter. And so this question becomes a little bit less important as we get into the beginning of the year.

Our next question comes from Mike Baker from D.A. Davidson.

I hate to focus on the short term -- so -- myopically. But the guidance, your fourth quarter implied guidance, to me, I'm calculating around 2, 2.5 or something in that range. Correct me if I'm wrong on that, at least at the midpoint of the outlook. But if you are in that range, that's a pretty big pickup on a 2-year basis against the 4.6% last year. So given all the caution you're talking about, can you square that? Or is it more reasonable to think about maybe the low end of the implied fourth quarter guidance? In other words, consistent on a 2-year basis?

Mike. Look, let's just focus on the fact that we're cautiously optimistic, as I said earlier. We've done a lot of planning a lot of action around providing our members the right products at the right value. We talked about incremental promotion and building into that. We're certainly where we need to be from a digital perspective. People are loving interacting with our digital properties to get what they need from a convenience perspective. And we just -- we are trying to act within our purpose and take care of the families that depend on us.

And that is all those things, right, getting those -- getting the products on the shelf. We're doing a fantastic job doing that in an improved way, putting sharper prices on things, which we, again, had considerable improvements in during the quarter. And really trying to take care of all the different communities within our membership. And we talked a little bit in our prepared remarks about our team members, maybe I'd take 1 minute to thank those team members out there every day, taking care of our members. They have the hardest job in our company. And guys, I'd really like to thank you for all your efforts. We initiated for the first time in our company's history, a 10% discount for our team members to really say thank you to acknowledge that it's tough out there for everybody and to help our team members through their holiday season purchasing as well.

So I think we have a lot to be proud of. I think we have some momentum coming out of the quarter. The early days of Q4 have been reflective of that momentum. But we understand that there's a lot of road to go throughout the quarter. We're only a couple of weeks in. Next week -- this weekend and next week are huge for the quarter as are the remaining weeks in December. So we feel like we're in a good spot, but it's very, very early. And so that thought process really is what drove us to have the guidance that we put out there.

Our next question comes from Ed Kelly from Wells Fargo.

This is John Parke on for Ed. It sounds like the messaging is that you've been investing in price, but I guess merchant margins were flat. So I guess, what are some of the offsets in gross margin that helps you get there? And then anything on Q4 merch margins and how we should think about that?

John. We certainly have invested -- we widened our price gaps in Q3 considerably with those investments versus competition. So I'd like to say thanks to our merchandising team for making those moves. It's important to our company, important to our members for sure. And we have many different levers to offset that throughout the business, not just within the margin construct. We will try and be as efficient as possible throughout the business to fund investments in member value.

Certainly, some of the offsets that you might think about within the merchandising world would be being more efficient in the distribution centers, trying to be more efficient from a trends perspective, growing our retail media program, which has been growing very, very nicely. The team is doing a great job there. There are many different things that we've tried to do so we can pass more value back to our members, and we'll continue to do that.

[Operator Instructions] Our next question comes from Simeon Gutman from Morgan Stanley.

This is Pedro Gil on for Simeon. Nice job continuing to grow your digital business, really impressive. Could you comment on the work you're doing in retail media there? And also more broadly, we've heard some of your peers recently announcing partnerships and [indiscernible]. Could you give us an update how you're thinking about the AI opportunity in e-commerce?

Sure. As we've talked about, our digital business is an important part of our strategy. It has been growing by leaps and bounds for years now. So 30% during the quarter, over 60% on a 2-year stack. It is approaching 17% of our sales at this point. We are at a point that, frankly, a few of us didn't think we'd ever get to. And so we have a lot to be proud of there. It all comes on the back of convenience. We have an incredibly talented digital team that builds these capabilities for our members to help them get access to tremendous value in a more convenient way than they otherwise might.

Most of our business, as you know, is in what we call BOPIC, Buy Online, Pickup In Club as well as same-day delivery as well as Express Pay, where you check out in the club using your phone. Well over 90% of our total digital sales are fulfilled by our clubs. So we are efficiently building this business. It is certainly a moneymaking opportunity for us. We are really pleased with the way that it's growing. Included in there is our retail media program that you referenced, and I talked a bit about it a few seconds ago, while still small, our team has been growing that quite nicely as well as we improve our website, as we improve the way that we partner out there with our advertisers, the way that we really coordinate between our different properties, whether it's our website or our app, we are coming up with more ways to engage our members and allow our advertising partners to reach our members with compelling values that first and foremost, to help our members but also help us and our advertising partners. So we will continue to invest in that business in the future.

Again, it's still small, but is growing quite nicely and allows us to make other investments in member value as we go forward.

Everyone talks about AI. We are no different. AI is a big part of our future. It is most notably used in our digital group at this point. And the use cases would not surprise you. They were on the vanguard of using it to make coding more efficient, making testing code more efficient and they will continue to use AI in consumer-facing avenues as well. And so I'll give you a couple of examples. As we talked about in the prepared remarks, we've got beta launched AI shopping assistants and are using AI to do predictive shopping lists for folks. Probably the thing that's most well along, however, is partnering AI with the robotics that we have in our stores. We have a robot that roams our stores named Tally. And initially, Tally was just helping us with inventory accuracy and price line accuracy. And now we have taken that much farther where Tally's imagery creates a digital twin of each of our buildings, something that we've never had before because our buildings don't have warehouse management systems.

And that has enabled really cool things from an operational perspective where not only are we getting better inventories and better pricing accuracy, but we are efficiently spotting problems for our team members to take care of. We are efficiently generating to do list for our team members in the clubs [indiscernible] what should they be doing first we're going to build them, reusing it to make help us spot quality issues in our Fresh businesses as well, so we can make sure that our standards there are tiptop every day. We're finding new ways to use Tally and the data that provides every day.

I think the thing that's been most effective so far has been using those digital twins to predict the most efficient pick path for our team members to pick orders for BOPIC or curbside or same day, where they are about 40% more efficient today than they were before.

So we'll continue to build on the use of AI. We'll continue to focus on long-term investments that really will allow us to continue our mission, which is to offer our folks the best products at the best prices. Probably the next thing up from a robotics and AI perspective will be our automated distribution center in Ohio that will go live next year. That will be when it gets going far more efficient than a traditional distribution center, and we'll operate almost entirely in a robotic fashion.

So it will be fun to see that. I've been out there to see it recently, and I can't wait to see it with all the machinery going in there to see how it works. But it's all in the same spirit of providing even greater value for our members.

Pedro, I'd just add all that commentary that Bob just said about Tally and the robotics we have in our club, there is a closed tie to that with the work that our planning and allocation teams are doing that we already spoke about in our prepared remarks. And that is producing our in-stock levels that have improved kind of year-over-year. So there is a tie beyond some of the digital efforts into how we're putting product on our shelves and how our teams internally are using the data from Tally as well.

Awesome. Fantastic. And as a follow-up, if I could ask you, if you could comment on the competitive environment. You had a nice improvement in merch margin in the first half, a little more even this quarter. To the extent that you can comment, and I totally get it, it's still early, how should we think about the level of investments next year? Are there any particular areas within grocery or gen merch that you're looking to prioritize?

Look, I don't want to talk too much about next year, but I would just echo the comments that I've already made around the fact that our job is to provide our members great value every day. We've made considerable investments all year in doing so and have been pretty creative to find ways to fund it, having the merch margin results that we had in Q3, while making the investments that we made was a good result. I would anticipate further investment going forward. As the competitive environment out there is, I think, consistent, but it's consistently competitive, and we need to continue to do our jobs to reward our members for their faith in us and the membership fees that they pay.

So we will continue to try and ride that balance between margin and value, but we will always err on the side of value to try and operate the business for the long term.

[Operator Instructions] Our next question comes from Chuck Grom from Gordon Haskett.

On the margin front, just to move down the P&L a little bit. Your SG&A per square foot levels have been really tight, which is good, but your peers are up a lot, suggesting maybe some investment in technology and other areas. So I guess my question is, how sustainable do you think maintaining that SG&A per square foot at that level over the next couple of years, particularly as you move into Texas?

Yes, it's a good question, Chuck. Our teams have done a good job over time being very efficient with our buildings, making sure that, that they're in good shape. They're in far better shape today than they were 5 years ago. With that said, we need to continue to do that and maybe even accelerate it. I think one of the things that we're seeing out there is our competitors getting sharper with their boxes. And so we will have to continue to do that, not just because of the competitive environment, but we want to show our members the best box we can every day. And so I would imagine we'll spend some capital going forward, remodeling our boxes. We will obviously continue to spend into our new club pipeline as well. And we'll do that as efficiently as we can, but obviously, with an eye for the long term.

Chuck, it's Bill. I'll just tack on to that as well. In addition to our existing clubs for the first time ever, we've really started to build a relocation program for some of our older clubs as well. So we had great success with our recent relocation in [ Mechanicsburg PA ]. We announced this morning that we're going to relocate Rotterdam next year. And so it's not just an eye to our existing clubs, but also to the long-term future of these strong markets where we may have buildings out a little bit on the older side, we're taking the opportunity to invest into the future there as well.

Got you. Great. And then on general merchandise, right, like up 1.8% on the stocks much better than front half of the year, even with limiting inventory. You talked a little bit about the category improvement. I guess what do you think it's going to take to get home and seasonal to catch up to CE and apparel and other areas? And then I guess anything that you guys are excited about as we walk stores over the next couple of months into the holidays?

Yes, sure. Maybe I'll start, and you guys can pick up. Look, I think we've -- we've done some great things from a general merchandise perspective. As we talked about, we had a strong showing in Q3 from a consumer electronics perspective and from an apparel perspective. Consumer electronics has been a hallmark of GM for a while. It's always been a pretty good business for us, and it gets better. We have very talented merchants in that group. Our apparel team has done a great job over the past few years. Really, making sure that we simplify our assortment and bring in better brands, put great value out in front of our members every day. We need to continue to do those things, right? We might need to simplify our assortment a bit more. We need to continue to put great brands out there and put fantastic values on there as well.

We need to apply those same lessons to the rest of the business. And we are actively at work on those things. We've seen some green shoots in previous quarters. We've talked about those with you like toys and some of our gifting in previous quarters. I like our toy assortment this year as well. And I'm excited about the way our gifting looks in the front of our clubs as well. But we need to have more sustained transformation in home and then seasonal going forward. These are probably the toughest categories, particularly the seasonal categories, maybe in the building. But certainly, among the GM categories, these are really tough categories. You need to be right on trend. You need to be right on style and color, on price point, all sorts of different things. And while we've made strides, we're not done. We're not satisfied with where we are. We need to continue to turn the crank and get better going forward.

So we were under no illusions that renovating general merchandise would be easy or short in tenure. We've had nice success in the past, and we need to keep investing in that business because it is such an important part of the wholesale club model, where provides that treasure hunt, that emotional connection, those cool wow items that are so important to driving incremental trips. And quite honestly, that question around membership renewal is not only tightly linked with the grocery business, but it's really tightly linked with our general merchandise business when you can have more opportunity to save your entire membership fee in 1 purchase rather than stacking up just good values on smaller ring items. You can save a couple of hundred bucks on a television or a mattress or a great seasonal item. That becomes a really important part of our overall long-term growth of our company.

So let me see if the guys want to file on, No? All right? So we're happy with our GM so far. We've got to get better and we'll continue to work at it.

Our next question comes from Rupesh Parikh from Oppenheimer.

Just going back to your commentary about 2025 clubs, the membership count is 25% ahead of plan. What do you think is contributing to that significant outperformance?

Rupesh, it's Bill. I always come back to the success with the new club program comes back to the culture that the team has built. I think I've mentioned this a couple of times on previous calls that everyone that has evolved within new club program internally is fully engaged and fully bought in and want to see us be successful. So we started this program way back in 2016 and the reps that we've built along the way. We talked about the goal of making the next opening, the best opening in the history of the company. Opening a new club where you have to build up, especially in the new market, membership base entirely from scratch is not easy to do, and it takes a lot of practice and a lot of learnings to do it right.

And we're executing at a higher level than we've ever executed. And as we think about going into the Dallas-Fort Worth market next year as well as all the other markets, a market like Foley, Alabama that we announced this morning is a really cool, unique market, and we're going to be really excited to be there. And we wouldn't be able to do that. We wouldn't have the confidence to do that without all the success that we've built up to this point. So -- like I said, we're really pleased with what we've done here in 2025. It really has been probably the best class that we've ever opened in at least as far as I've been here. And it gives us a lot of confidence going forward. So more to come, but excited about what we've accomplished.

Thank you very much. This marks the end of the Q&A session. I'd like to hand back to Bob Eddy for any closing remarks.

Thanks, Carl. Thanks, everybody, for your attention this morning, for your thoughtful questions, for your interaction, your support of our company. I wish you all a happy Thanksgiving, and we'll talk to you at the end of the fourth quarter. Thanks so much.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.

Good morning, all, and thank you for joining us for BJ Wholesale Club's Q2 2025 Earnings Conference Call. My name is Carlin, I'll be coordinating today's call. [Operator Instructions]

I'd now like to hand over to our host, [ Arnes Singh ], to begin. The floor is yours.

Good morning, and welcome to BJ's second quarter fiscal 2025 earnings call. Joining me today are Bob Eddy, Chairman and Chief Executive Officer; Laura Felice, Chief Financial Officer; and Bill Werner, Executive Vice President, Strategy and Development.

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 risks and uncertainties that could cause actual results to differ materially from what we say on this call. Please see the Risk Factors sections of our most recent SEC filings for a description of these risks and uncertainties.

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 reconciliations.

And now I'll turn the call over to Bob.

Good morning, everyone. Thanks for joining us today to discuss our second quarter results. Our business delivered solid results in Q2 as we continued to provide our members unbeatable value along with exceptional convenience, in an environment that remains very dynamic. Our commitment to taking care of the families who depend on us is more than just a slogan, and we view the performance this quarter as demonstrable proof of the power and relevance of our business model in a volatile backdrop. Now more than ever, we will maintain an unwavering focus on the priorities that will drive value for our members both now and into the future.

Our Q2 results included comparable club sales, excluding gas, of 2.3%, led by our 14th consecutive quarter of traffic growth and our 11th consecutive quarter of market share growth. Our membership base continues to grow, and I'm happy to announce that we reached the 8 million member milestone this quarter, representing 55% growth in our membership base since our IPO 7 years ago.

Our digital business continues to shine and represents a generational unlock for us as we deliver value to our members how and where they want. This business grew 34% during the quarter.

These results were solid in the face of market environment influenced by both macro uncertainty as well as the unseasonably wet and cold weather to start the quarter, especially in our core Northeast and Mid-Atlantic markets. We saw our business accelerate as the weather improved.

Our Perishables Grocery and Sundries division led our Q2 performance with healthy 3% comp growth and a 2-year stack that held steady with Q1. The investments we've made in both Fresh 2.0 and our category management process have driven continued share gains across our consumables franchise. We saw the most strength in perishable categories like dairy, meat and fresh produce. The investments we've made in our Fresh 2.0 capabilities continue to deliver value for the company and our members, and we're building on these gains as we expand our efforts to our meat and seafood franchises.

Our GM and services business declined 2.2% on a comp basis in the quarter, with the results being impacted by both the weather and macro factors that I noted earlier. Certain higher-ticket discretionary categories in GM such as recreation and lawn and garden experienced double-digit declines in comp sales. Our team was quick to react to these early quarter trends, and we aggressively managed orders and markdowns to ensure we exited the quarter in a prudent inventory position. I'll share more about our inventory results and strategy later in the call.

Our GM business did show bright spots, validating the fruits of our transformation efforts. For example, our apparel business grew comp in the low single digits despite the weather headwinds, and further built on the positive trend in this business with a 2-year comp stack in the high single digits.

As we step out of the discrete quarterly results and evaluate the state of our membership base more broadly, we did see members across all income levels turn a bit more cautious during the quarter, driven by the uncertain macro environment. Despite this change in consumer sentiment, our members continue to count on BJ's and total spending increased in total and on a per member basis, with low-income households demonstrating incredible loyalty.

This is a clear validation of our value proposition at a time when families are under a seemingly endless cost pressure.

In what is an exceptionally dynamic environment, I'm proud of how our teams are laser-focused on controlling what we can control and continuing to execute our strategy with discipline. We are improving member loyalty, giving our members an unbeatable shopping experience, delivering value conveniently and growing our footprint. These are the pillars that will drive long-term value creation, and we made further progress this quarter. Let me now take a minute to provide an update on each.

We continue to put up robust results in membership growing total member counts, all while maintaining our strong renewal rates. Reaching the 8 million member milestone this quarter is a significant achievement with growth coming not only from the new clubs that we've added to our chain but also from our legacy comp clubs.

Growing the number of members and retaining them at high levels is an impressive feat, but we are also improving the member mix, signing up a greater percentage of higher tier members who qualify for our best-in-class rewards, both in the club and at the pump. In the second quarter, higher tier membership penetration continued to set records, improving 50 basis points sequentially to an all-time high of 41%, and we continue to see more upside going forward.

Our membership growth is the result of our focus on delivering an unbeatable shopping experience. Our merchandising transformation is focused on offering the right products at the right price. A fantastic example of this is the sustained success of Fresh 2.0, which we rolled out to win our member shop and grow frequency of trips. As a proof point to the sustainable nature of this effort, I'm pleased to report that our Fresh 2.0 pilot clubs, now in their second year, are continuing to see perishables comp at chain levels. It's clear that this transformation has driven a significant and durable improvement in these members' behavior. We're now taking our lessons learned and applying this data-driven approach to our meat and seafood categories. Let me talk a little about what we are doing in these key categories.

We're using our internal number data along with demographic data and competitive insights to inform complex fresh meat and seafood assortment decisions, providing members more of what they want and making it easier for them to shop these categories. We're also looking to be more regionally relevant to our members as we align offerings with trade area intelligence focusing on ethnic and cultural preferences, all while we continue to deliver outstanding value and quality. In early days, we're seeing exciting results with substantial improvements in sales and salvage expense for these categories.

Our focus on convenience is shown in our digital results with growth of 34% this quarter and 56% on a 2-year stack basis, driven by consistently robust BOPIC and same-day delivery expansion and rapidly increasing penetration of Express Pay. Our digital adoption sets new records every quarter and our app usage continues to grow with more than half of our active members now regularly using the app. When we can leverage the convenience of digital to unlock the value of our club, the value creation opportunity for both our company and our members is tremendous.

And last but not least, our new club footprint expansion. We started our fiscal year '25 strong, opening 5 clubs in the first quarter. This quarter, we completed our first relocation since our IPO, opening our new club in Mechanicsburg, Pennsylvania on August 1. Our teams did an amazing job executing the transition plan and early feedback is that our members love their brand new home. Mechanicsburg joins a class of new clubs that continue to exceed expectations, with the clubs on the maturity curve comping about 3x the rate of the tenured base.

Looking forward to the rest of the year, we plan to open 8 more clubs with our club in Warner Robins, Georgia in early September and 7 more clubs in Q4. As we look out to 2026 and beyond, our pipeline of clubs remain stronger than it has been in years, and the team is hard at work both building our pipeline and planning for our future openings, including our entry into the Dallas-Fort Worth market early next year. We remain on track to add 25 to 30 new clubs in 2 years.

As we look forward to the rest of the year and especially the external factors that will impact our business, the tariff situation and its impact on the broader macro environment and consumer mindset continues to be ever changing. In a difficult backdrop for all parties, we believe that our business becomes increasingly relevant to consumers, and we are better insulated from the impact of imports than most of our competitors.

We're proud of our team members helping us chart through a turbulent environment and allowing us to stand tall for our members as we extend our value proposition. More specifically, our teams are running a playbook that we've successfully used in the past to navigate inflation, and we are dynamically changing our sourcing according to the fluid situation. We took a deep look at our buys for the back half, we repointed the country of origin where applicable, and then we rightsized our orders to balance the impact on our business while still standing tall for our members.

I'd be remiss if I did not call out that these decisions likely limit our upside versus original expectations for the year. While we always want to sell more and buying less may hamper that ability if consumer sentiment improves rapidly, we believe prudence is the better part of valor in this constantly changing risky environment.

Despite some of the uncertainties I've highlighted today, as we look towards the back half of this year, we do so with confidence. We have record-high membership metrics and we're building on that strength every quarter. We're steadily gaining share against our competitors even as volatility remains pervasive. We're entering the fall season with healthy inventory levels and do not anticipate any markdown risk of significance. Our teams are energized and we are focused on carrying our momentum into the fall and holiday seasons, being there for our members when they need us most.

Before I turn it over to Laura, I want to thank our team members across the organization for their continued commitment to serving our members and delivering unbeatable value while living our purpose day in and day out.

Thanks, Bob. I want to begin by expressing my appreciation of incredible team members in our clubs, club support center and distribution centers. Your commitment to our company and the communities we serve has helped deliver another solid quarter, showing sustained momentum towards our long-term story.

Let's now review our second quarter results. Net sales in the quarter were approximately $5.3 billion, growing 3.2% over the prior year. Total comparable club sales in the second quarter, including gas sales, decreased 0.3% year-over-year as the average price of gas declined low double digits over -- year-over-year. Merchandise comp sales, which exclude gas sales, increased by 2.3% year-over-year and by 4.7% on a 2-year stack.

We were pleased to grow both traffic and units in the quarter.

Our second quarter comp in our grocery, perishables and sundry division grew 3% year-over-year driven primarily by strength in comp units, which outpaced the broader market. Our general merchandise and services division comp decreased 2.2% in the second quarter, with general merchandise driving the decline and services about flat for the period.

Digitally enabled comp sales in the second quarter grew 34% year-over-year and 56% on a 2-year stack. Over 90% of our digital sales are fulfilled by our clubs with services like BOPIC, Express Pay or same-day delivery. All of our digital offerings are intended to deliver value by maximizing convenience. Members who engage with us digitally have a better and more convenient shopping experience, and they in turn become some of our best members. We will continue to focus on augmenting our digital capabilities to increase convenience for our members.

Membership fee income, or MFI, grew 9% to approximately $123.3 million in the second quarter on strong membership acquisition and retention across the team. We also continued to benefit from the recent fee increase, which went into effect at the beginning of the year. While the fee increase is certainly a component of growing MFI, we are also improving the quality of our member base, improving the mix as well as the size of our member base while keeping retention rates at high levels. We see upside on all of these levers to drive more MFI growth in the future.

Moving on to gross margins. Excluding the gasoline business, our merchandise gross margin rate increased by approximately 10 basis points year-over-year, led by disciplined cost management and continued execution of our long-term initiatives.

SG&A expenses for the quarter were approximately $786.4 million and deleveraged slightly as a percent of net sales year-over-year. This was primarily attributable to our new unit growth and other investments to drive our strategic priorities.

As Bob mentioned earlier, we continue to gain share in our gas business. Our comp gallons in the quarter were flat year-over-year, significantly outpacing the industry, which declined low single digits on a comp basis over that same time frame. A reminder that gas gallons can also be affected by wet and colder weather at the beginning of the quarter as people curtail their driving patterns. Elevated market volatility in June contributed to overall gas profits that slightly exceeded our expectations in the quarter.

Our second quarter adjusted EBITDA grew approximately 8% year-over-year to $303.9 million, reflecting our growing top line, increase in merchandise margins and membership trends that remain robust. The growth here underscores the durability and consistency of our business and financial model.

Our second quarter effective tax rate was 26.9%, slightly lower than our statutory tax rate of approximately 28%. All in, our second quarter adjusted earnings per share of $1.14 increased 4.6% year-over-year.

Moving to our balance sheet. We ended the second quarter with absolute inventory levels down about 2% year-over-year and down 6% year-over-year on a per club basis. Note that we are operating 11 more clubs in our chain today compared to a year ago. While some of this decrease relates to tighter inventory buys for the back half, most of it is us doing a much better job allocating inventory for our members. Despite the inventory declines, our in-stock levels improved by approximately 50 basis points over the same period last year and are at the highest levels we've seen in some time.

For some longer-term perspective, if we look at the growth in inventory levels versus net sales since pre-pandemic times, we have seen our inventories grow approximately 45%, with net sales having grown by roughly 60%. Said another way, we are managing our inventories as well as we ever have. This great result is a testament to our investments in our supply chain team and the systems that support our efficient operating model.

Our capital allocation strategy remains consistent. We believe the best use of our cash is applying it towards profitably growing the business. As such, investments to support membership, merchandising, digital and real estate initiatives will continue to be funded by our cash flows and enabled by our strong balance sheet. We ended the second quarter with net leverage of 0.4x.

Share buybacks are an integral part of our capital allocation framework and, in Q2, we repurchased approximately 375,000 shares for $41.2 million. As of quarter-end, we have approximately $953 million remaining under our recently renewed repurchase authorization. We will continue to take a disciplined and balanced approach to deploying our capital to maximize shareholder value.

Looking ahead to the back half, we are maintaining our balanced and thoughtful approach to guidance. The uncertainty and volatility in the macro environment remains elevated and we expect it to influence cost and consumer spending patterns. But we also remain confident in the underlying strength of our business and our ability to deliver sustained growth. We will continue to be focused on the things that we can control while executing towards our long-term priorities.

More specifically, as it relates to top line guidance, while we had contemplated the lap of the port strike in Q3 and the strong general merchandise performance in Q4 when we initially set guidance, we had not anticipated the tariff-related macro volatility. While we believe these to be headwinds versus our original expectations for our full year outcome, we do not anticipate them impacting us in delivering towards the ranges shared earlier.

As it relates to earnings, we similarly expect there could be some volatility as we manage investments through the back half. But our year-to-date earnings performance allows us to approach those investments from a position of strength, while also increasing our full year earnings guidance.

The result is we are maintaining our guidance of [ comp sales ] growth, excluding gas, to be in the range of 2% to 3.5% for the full year. We are also updating our adjusted earnings per share guide to be in the range of $4.20 to $4.35.

It is admittedly challenging to provide guidance as the headlines have been changing rapidly. As we go through the rest of the year, know that we will do the right thing for our franchise for the long term, which likely means investing in the short term. Our efforts to deliver sustainable growth at elevated levels are generating results and our longer-term vision is on track. We remain confident in the underlying strength of our business and believe we are well positioned to build on our momentum and maximize shareholder value in the future.

Bob, back over to you.

Thanks, Laura. In closing, I wanted to remark on the undeniable momentum in our business as we evaluate progress against our strategic objectives. We are improving the quality of our membership base while growing it to an ever larger scale. We are making our merchandise increasingly more compelling in terms of both the product and price. Our digital capabilities are improving the convenience of shopping our clubs. And we are well on our path to growing our footprint at an elevated pace in attractive high-growth markets.

As we continue to execute on our long-term priorities, we will continue to remain focused on taking care of the families that depend on us, as well as our members, our teams and our communities. Thanks again for joining us today and for your support of BJ's Wholesale Club. We will now take your questions.

[Operator Instructions] Our first question comes from Peter Benedict from Baird.

Maybe just 2 questions here. First, just can you give us a sense of maybe how the second quarter played out? It sounded like, obviously, the [indiscernible] the first half the quarter, maybe how you exited would be kind of an interesting [indiscernible] you to get for you guys what that weather impact was overall. And then as you think about the back half, 3Q, 4Q, recognizing that there's a lot of puts and takes there, just how would you love in terms of comps and earnings. Any digital color you can give on that? You've got the port strike to lap in 3Q, you've also got the legal benefit. So just want to make sure we're all on the same page as we're thinking about the back half of the year.

Peter, it's Bob. Thanks for your question. Thanks to everybody listening today. Happy to talk about our good Q2 results this morning. I think the second quarter comp that you pointed out was a little bit interesting to look at given the tough start from a weather perspective and notably better weather in the back half. So certainly, we saw the quarter strengthen as we went through it. May was a pretty weak month and June got better as well as July. And much of that, I think, we think relates to that weather. I think we had 14 or 15 consecutive rainy weekends here in Boston. So you're not out there shopping for cookouts or [indiscernible] games or buying patio sets or whatever you do when it's warm. And to some degree, that stuff doesn't sell if you don't sell it early in the season.

And so I think our team did a phenomenal job navigating through the quarter and ending where we did from an inventory perspective. They took action early and often to try and, number one, motivate our members to shop, but number two, make sure we ended in a clean inventory position. I think our inventory is in the best shape it's been in 5 years or so. We talked a little bit about that in the prepared remarks with the per club inventory down about 6% while raising in-stock levels 50 basis points. That's a huge achievement. It's a great testament to our planning and allocation team and our supply chain team to make sure that we're doing the right thing every single day for our members and, obviously, has financial benefits as we go forward.

So I think we're in good shape, but it was sort of an interesting quarter to wade through from a sales cadence perspective.

And as to your second question, maybe I'll let Laura comment on some of the puts and takes in the back half. But I think you summarized them nicely. I think in the third quarter, we've got port strike, and we've got some other stuff in fourth quarter. But let me hand that over to Laura.

Peter, Bob hit the big pieces as we enter into the back half and we're looking at the business. I think in Q3 we've got the port strike that you called out. In Q4, remember, we had very strong results that we were proud of from our general merchandise transformation last year. And so we're thinking about those things as well as the legal settlements that you raised on earnings.

I think Bob's comments that he said earlier on the comp cadence in the quarter and as weather improved gives us confidence as we enter into the back half. And so we'll continue to watch it and make the right decisions for our members to make sure we're offering them value and getting them into our clubs and shopping digitally. But I think all of that said and all of that put together, we are confident as we head into the back half.

That's great. And I guess my follow-up would be around membership. Really encouraging adds in terms of new member adds. It seems like that pace in the first half of the year has been, I guess, [ even ] historically has been. But just curious kind of where you're sourcing these new members. What's the profile there? And then as you think about membership fee income over the balance of the year, just kind of level-set us and [indiscernible] where you think you can end the year in terms of your membership fee income.

Yes, it's a good question. That's another bright spot for the quarter, for the year-to-date period, Peter. So thank you for bringing that up. We're very proud of our membership results over the past quarter, the past 2 quarters, the past few years. Certainly, we continue to grow it nicely. We were very pleased to tip over the 8 million member threshold this quarter. And we thought it was fun to look at how fast we achieved that versus hitting the last 500,000 number threshold, we achieved it a lot faster this time. And a lot of that is obviously opening new clubs at a faster pace, that I'm sure we'll talk about today.

But it's also the good work that our teams are doing from an acquisition perspective and from a renewal perspective. We've got -- continuing to have very high renewal rates in our franchise. It obviously is among the most important financial statistics. And our team continues to iterate to figure out new ways to acquire members in our comp clubs as well.

Certainly, we had the fee increase this year that has gone through, really still 2 quarters in here and no surprises to think about on how that has rolled through. It's played out almost exactly the way the team modeled it. So we're very grateful for that one as well.

And then the last bright spot to talk about there is higher tier, right? 41%. It's the highest we've ever seen from that penetration perspective, grew at 50 bps this quarter. And that continues to be a goal of ours. We know some of our competitors have higher numbers than that and we've got a lot of work to do to get to where they are, but we're pleased that our members are hearing the value from us at the desk and in the communications that we send out, and they're reacting to that and signing up for those higher-tier memberships. We now have to make sure that we show them that value every day and we convert them to spend into those higher tier memberships in the way that they should. But it's a great initial vote of confidence from our new members and those existing members that are upgrading into the higher tier memberships.

Yes. I think I'd just add, on a quarter-by-quarter basis, we expect the rate of growth to accelerate through the year. That's largely the fee increase coming in, but it's also coupled with all of the things Bob touched on, the great work that the team is doing from an acquisition and retention perspective.

Our next question comes from Kate McShane from Goldman Sachs.

I just wanted to ask a little bit more about your comment on the change in consumer behavior that you saw during the quarter. I think you mentioned it was in each income cohort. Obviously, there's been a lot with regards to inflation and other items that are impacting the consumer. But I wondered if you had any additional insight there. And just what are you exactly seeing when it comes to the behavior?

Yes. Kate, I think we're seeing overall a pretty resilient consumer in the face of everything going on with the tariffs and the news cycle and the resulting inflation that's come through. As a side note, the inflation that's come through wasn't all that much yet in the quarter. It was about 1 point of inflation, very similar to what you've heard from our competitors that have reported this week.

But I do think you're seeing a consumer that is really frustrated by the whole thing. And when we look at the economic cohorts that we talked to you all about, the high, medium and low segments, all of them look like they're a little bit concerned about what they're seeing out there and what they're hearing. Although total spending increased in each of those cohorts and on a per member basis within each of those cohorts, you could definitely see behaviors that indicate that they're on the lookout for value. Their propensity to use coupons or to react to deals is a bit higher. Certainly, looking at private label a little bit more than they have in the past, which may be good for us in the long term, but it certainly could be an indication of consumer stress out there.

Discretionary categories were more impacted than the nondiscretionary, which, again, was not too much different from the first quarter, but all these are indications of a consumer that's a little bit more choosy with their dollars. And it's what I think we'll see for the remainder of the year until we get through this cycle.

But this is what we do, right? I mean our whole business is taking care of the members that depend on us, and that requires us to put the right thing in front of them at the right value. Our teams are working very hard to do that. I'm extremely proud of our of our merchant team, and our general merchandise team, in particular, they've had a heck of a time trying to figure out how to source their way through this past couple of months. And we're confident on the posture with which we go into the back half. But certainly, the consumer is a little bit more challenged at this point. And we'll have to make sure that we're -- the offers that we have out there are on point to make sure that we do our jobs and take care of the members.

And then I just wanted to ask a quick follow-up question. Is there any we can measure what kind of impact weather had on the general merchandise category during the quarter?

There are a bunch of different ways to measure it. I don't know that any of them are wonderful. The best way that we look at it is really the simplest way, sort of the beginning half of the quarter and the back half of the quarter. And it was pretty noticeable. We've looked at it sort of North versus South as well, as the southern clubs did better than the northern clubs. And it's important to note, Kate, it doesn't just impact the general merchandise business. When you have a continuous rainy, cold cycle, it impacted our whole traffic trend. And so I think that was about half of the difference between where we thought we would land and where we ended up landing. And certainly, I think we tried to do our best to operate through it, but there's only so much you could do when it's 20 degrees colder than it should have been in June.

So we'll take that as it comes. Some years, it's great; some years, it's bad. Certainly, there was a plus and minus during the quarter because we went from terrible weather to pretty great weather in July. But it's a difficult thing to really measure it with any terrific accuracy.

Our next question comes from at Edward Kelly from Wells Fargo.

I wanted to ask you about -- I guess, just a follow-up on comp and the back half guidance. The range is -- it looks a little wide. I mean I guess if you rounded it, it's sort of like 1% to 4%. And I get that there's uncertainty and some tougher compares. But zooming out, you're taking share, you've got a big grocery offering. There's inflation out there in sort of like both sides of the business, which seems like it might accelerate. I'm just kind of curious as to how you're thinking about the back half and maybe what it would take for you to be at the high end versus the low end. And I guess, probably most importantly, where are you running today versus that range?

Thanks for your question. It's certainly a good one. It's one that we think a lot about. And I think you highlighted a lot of the things that we think about. Certainly, there are tougher compares as we go through the rest of the year. We highlighted that in the guidance initially for the year. I don't think any of that's changed, obviously. And as we go forward through the year, I do think you'll see more inflation as more suppliers pass on increasing tariff costs and some of that makes its way to the consumer.

But I do think, as I've said all along, building on your comment of our growing market share, I do think as times get tougher, the relevance of our channel increases, and I think you'll see consumers come to us. We have to do our jobs and make sure that we're taking care of those members and investing behind the prices and promotions and things that we show them. But I think that we have the right plan, we're in the right segment of retail, and our team is doing good things.

We left the range alone really because we still think we'll fall within the range. And to your point, it's a fairly wide range at this point. And given the level of uncertainty out there, we thought that that was prudent. So I think we've got a lot of places to go and to win. But this year of all years, I think, was probably the right move to just leave it as a pretty wide range.

Okay. And then maybe, Laura, could you expand on your commentary around the potential for -- I think you said maybe even likely second half investments and what that potentially means for the second half gross margin? And what are the factors that would dictate the level of investment that you're contemplating?

Yes. Ed, you hit it, my commentary was really on the margin part of the story. And so you know and we consistently talk about delivering the right price and value to our members and making sure we are in the business of taking care of the families that depend on us. They pay to show up at our clubs and shop. And so delivering them great value is important every day and continues to be important.

And so as we think about the uncertainty that Bob touched on a little bit earlier, as we head into the back half and some of the behaviors we're seeing from our cohorts that we talked about earlier and some sensitivity, I think that's really all we're getting at. So we will potentially make short-term investments, but that is important for the long-term health of the business and for our membership.

And then maybe I'll just add a little bit of color. I think with the complexion of the guidance that we put forward this quarter, I think, should indicate a little bit of confidence to you, right? We raised the bottom line into a fairly choppy environment. And we've had 2 pretty profitable quarters here. So we're pretty bullish from a bottom line perspective.

In spite of those investments, we will and we do have plans to make more investments in the back half than we did in the front half. And we're going to try and be aggressive and lean into those things that we talked to you about in gaining share and the relevance of our model and speaking to our members in a way that better illustrates that. Because I do think this is the time for club. It is what we do, is to try and save our members money. And so that requires us to put really sharp price points on things. And in an inflationary environment, that's tough. It requires investment. That's no different than what we saw in 2022, which we navigated very, very effectively.

And so we know what to do. We just got to go out and do it. That's what's gotten us here from 2022, and we're going to continue to do that going forward because it will drive us into the future.

Our next question comes from Robbie Ohmes with Bank of America.

This is Maddie on for Robbie. Your Fresh 2.0 initiative in meat and seafood launched in May. How did meat and seafood perform versus your expectations? And now that you've fully lapsed the rollout of Fresh 2.0 in produce, and recognizing it's still early days, are you seeing signs of a multiplier effect of members shopping you for more of both produce and meat?

Maddie, thanks for the question. Fresh 2.0 is perhaps the best illustration of our transformation in the past couple of years. Really was a true 360-degree program where we looked at our entire produce business and tried to say, how do we make this thing the best we can? And obviously, as we've talked to you about it before, we made changes across the business in terms of the spec and quality of what we provide and how we merchandise it, how we talk to our members about the value, how we promote it, how we train our team members, where we locate it in the clubs, all sorts of different things change. And I would call it an overwhelming success in the first year.

We find ourselves now, as you say, starting to lap that. And we still see perishables driving the business, which is fantastic. Grocery had a good quarter for us with a [ 3 ] comp. Perishables led that and was roughly double that comp. And it was a tremendous unit growth story embedded in there that was really driven by the Fresh 2.0 initiative in large degree.

And as I talked about in my prepared remarks, I think the really cool proof point is to look at our Florida clubs which were our pilot clubs a couple of years ago and to see what's happening there. And they're still comping at the chain level, right? They're doing the same thing in year 2 that they did in -- changed in year 1, which tells you it has that multiplier effect within the perishables business particularly, but we believe it's driving trips in those clubs as well.

So as we move forward in the meat and seafood, we're sort of in the early innings of those changes, we've redesigned assortments, we're still testing a few things here and there. But we are seeing benefits. Our meat business was great during the quarter. Our seafood business improved. We're seeing units move. And the whole idea behind this is if we can stack a bunch of these categories one on top of the other that are real important weekly shop categories, that they will benefit us in the long term through member engagement and trips and on overall spend and then obviously renewal rates.

So we're really pleased with Fresh 2.0 overall. Early results on meat and seafood are good. But they're early. We need to continue to iterate on that and make sure that we continue to build on the power of this program going forward.

Our next question comes from Chuck Brom from Gordon Haskett.

This is Ryan Bulger on for Chuck here. I do want to ask about your general merchandise outlook for the back half of the year. I know you guys gave us some color on some of the categories in 2Q, but just how you're thinking about it overall and then both on a category basis. Any color you could provide there would be great.

Look, GM lost a little bit of ground in the second quarter, but into some really tough headwinds that we've talked about. I still think our transformation is underway and on track. And I think the GM team has done a nice job, both to manage through the quarter and to prepare for the back half.

We talked a little bit about how we're thinking about managing through the tariffs and resourcing things and repointing to different countries of origin. I think our team has done a great job doing that. And I think they've taken a prudent stance from an inventory buying perspective. We're certainly in a low-margin business, so we need to be careful from an inventory perspective, particularly when prices rise in a considerable way, because you need to understand the elasticity of those categories and some of the tariffs could put changes on prices that would be tough to understand from an elasticity perspective.

And so I think we've chosen to be conservative in some categories that we think are more discretionary. But other categories we're being very aggressive in. And you saw a little bit of that in Q2, despite the fact that we had overall headwinds on the GM business, you still saw apparel do incredibly well. And that's a great market of our continuing relevance to our consumer and general merchandise.

So obviously, the first category, I know we've talked about this a few times, the first category, we started from a transformation perspective, and it continues to grow quarter in, quarter out. We're putting the right stuff on the shelf and a clean assortment with great values and that resonates with our members. We need to continue to do that category by category going through the back half. And hopefully, our members react to it.

Our next question comes from Michael Baker from D.A. Davidson.

Great. Just wanted to follow up. It seems like in some ways you keep talking about being aggressive and going after share, but also it feels like inventory ordering is a little bit more cautious. I guess my question is, are you a bit more cautious today in terms of back-half inventory in your ordering than you were 3 months ago? And how do you square that with, again, it sounds like the quarter ended great and the beginning of this quarter is strong. So why taking what seems like a more cautious approach to the second half of the year?

Yes, Mike, look, I think it's 2 issues you talk about. Certainly, we want to be aggressive, and we are being aggressive to continue to gain market share. To me, that's more of a pricing question than anything, right? It's an overall value question. And we'll continue to do the things that we've always done and hold prices as long as we can and make sure that our members understand that we're trying to do the right thing for them. That's how we've operated for the past few years. That's how we'll continue to operate for the next few years. And that may get bigger or smaller from an investment perspective going forward, but that's the north star in our business. We need to present the right value to our members every single day.

I think you're right that we're being a bit cautious from an inventory perspective, but only in those categories that we think are really discretionary and that have higher tariffs associated with them. And so a good category to think about might be seasonal holiday decor where the vast, vast majority of that stuff is built in China and obviously comes with a steep tariff on it, maybe a little less of a tariff today than we thought a couple of months ago when you're really placing those orders. But regardless, I think the prices are going to rise on things like that.

And so we'll still be there. We'll have a great assortment for our members. But we've ordered less units this year than we have in the past. And the math there is really simple to think about. Given the low margins at which we operate, you need to sell 4 or 5 units at full price to pay off 1 that you mark down to 0. So we're just trying to better balance the economic equation in our business. I don't think it's an issue of really being cautious from our members not liking what we have or they're not going to come in and see us or they don't like us anymore. I think we're just really trying to understand and, to some degree, guess at what their reaction to any inflation that comes down the pipe might be.

So we want to make sure that we meet our promise to our members every day, right? We have to provide that value. We have to provide good products and great brands. But we also understand we have responsibility to the bottom line of the company. And so we're trying to make the right decisions on both of those and mix out the business the way that we think is best.

Good luck. Sounds challenging. Can I ask one other question, just as it relates to trade down from lower income customers. In this kind of environment, it makes sense that the low-income customer is stressed, so in a way that hurts your customer. But could it also drive increased traffic as shoppers who weren't necessarily BJ's members now look to BJ's because they try to -- because they need to save money? And have you seen that in the past?

Yes. It's a good point, Mike. Certainly, lower income consumers are, I think, are a bit more stressed than higher-income consumers. That obviously makes sense given their economic position. But the interesting thing we saw during the quarter and we've seen for the past few now is those lower-income consumers for us are performing a little bit better than we would have thought.

In a long view of our company's history, the lower-income consumer went up or went down based on the economy or based on federal EBT budgets. And that hasn't been happening for us lately, which tells me that we've done a nice job convincing them of our value. We're showing them what they want to see from a brand and quality perspective, and we're delivering a great service. And importantly, we haven't talked about digital yet, but we're delivering it conveniently.

So look, I think those folks obviously have less money than everybody else, but that makes them -- that makes us even more relevant to them to your point. So I do think what we're seeing portends good things from that consumer, I think the ones that we have will continue to shop us. And hopefully, they'll tell their friends and we can get more of those consumers into our business.

Our next question comes from Steven Zaccone from Citi.

Question on general merchandise. So we've talked a lot about the second half. But can you just help us understand the bigger picture opportunity here for gen merch? What inning are we in when it comes to driving stronger growth from that side of the business?

Yes. Steve, this is Bob. Good question. I like the fact that you pulled it back to the overall transformation question, which is the most important thing. I mean we all focus on quarter-by-quarter stuff. But when I think about where our company needs to go, we need to continue to build on the success of our grocery business and doing things like Fresh 2.0. We need to do it conveniently with our digital business, and we need to be more relevant to our consumer from a general merchandise perspective. If we look at our competitors, that's what they're able to do. And some of them do it the reverse way that we do it, meaning I would argue that our members come in for the weekly grocery shop and sometimes shop general merchandise, some of our competitors have the opposite happen, their consumers are coming in for general merchandise and maybe buying some grocery items when they're there.

And I think we're seeking a better balance from that perspective. We have, over a long period of time, not done a wonderful job building the relevance of our general merchandise business. In the last couple of years, that's been the goal, going through systematically category by category and making sure that we have the best brands at a great value, presented the right way, and letting people know that we should be a destination for these categories.

The only category that I can think of that has been a consistent destination for us over a long period of time is consumer electronics. That business did okay for us in Q2. And consumers know that we're a great place to get a great price on television, as an example. But when you think about other key categories, like seasonal goods, like small appliances, like home, and there are a bunch of others, we had huge opportunities when we looked at what our competitors were doing and what our members were telling us they wanted. 5 years ago, they were walking past our general merchandise assortment and going to buy their groceries. And in the last few quarters, we've seen increasing engagement with our members in our general merchandise business. And that, again, is just quarter after quarter trying to turn the crank a little bit and get better brands and get better values and put them out there for people to see it.

We knew this was going to be a long -- not going to be an overnight build, that was going to be a long build. And no transformation goes in a straight line. Certainly, there's been some waviness in our line to think about. But I think that's more due to the outside forces than what we're doing internally.

I still think we have a ton of opportunity to improve our general merchandise assortment. We have our folks hard at work doing that every day. And we're optimistic that showing our members better assortment and better value day after day, month after month, quarter after quarter, over a long period of time, will grow that franchise to be much bigger than it is today and grow our relevance to our members overall.

Great. Then Laura, just to follow up on Ed's question earlier, merchandise margin expectations in the second half of the year. Is there any differences to be mindful of third quarter versus fourth quarter just given your comments about general merchandise?

Yes. You'd remember we didn't specifically give any guidance this year on merch margin. And so as we think about the back half, it's the same story as I talked about a little bit earlier, which is less focus on the absolute rate, more on making sure we're delivering the right value to our members every day. And so we may make some investments in the short term to stay true to that. We think that's important. But we will continue to manage the bottom line and make sure we're delivering overall results. .

Our next question comes from Rupesh Parikh from Oppenheimer.

So I just wanted to just go to expenses. You guys had a really strong performance during Q2. Just curious if there's anything unsustainable in that performance, especially with the strong unit growth out there, you guys did control expenses extremely well.

Rupesh, thanks for the question. We are -- as we step back from the quarter, we are really proud of the work we did on controlling expenses and the results we delivered. I don't think there's anything unique in that in the quarter other than, as we continue to expand on our footprint and add more clubs in the back half, that will likely put a little bit of incremental pressure on the cost base. And we've talked about that before as slight deleverage from the footprint. We think that's the right decision for the long term of the business. And so I think what you'll see us do in the back half is continue to manage that and make sure we're delivering results.

Great. And then just a quick follow-up. Just on the inventory front. So just given some of the tariff dynamics out there, have you guys had to make any meaningful changes to assortment? It sounds like you definitely cut back on the amount of ordering in GM, but just curious if that's led to a meaningful change in the GM assortment.

Rupesh, I don't know that it's made a huge difference in what we're ordering. It's more about the quantities in which we're ordering it at this point.

Our next question comes from Mark Carden from UBS.

So to start, just it sounds like another solid quarter on gasoline gallon market share, which is encouraging, especially as gas prices have come down a bit recently. Just curious, in weeks where gas prices were lowest, did you see any meaningful changes in the frequency in which customers are driving to your stations to fill up? Just do customers become any less likely to travel further to save on gas? And by extension, do you see any impacts to club traffic in those weeks?

Mark, why don't I let Bill talk about gas since he runs that division for us?

Mark, thanks for the question. I would say in terms of the correlation to gas traffic to club traffic, we've seen pretty consistent performance across the quarter. And as we look back in total, we've seen flat gallons at our comp stations, which is probably a couple 100 basis points above what's going on out there in the market. So we continue to gain share in gas. And as we pull the lens back a little bit more, our total gas gallons were up about 7%, and that's attributable to both the stations that we've added, our new clubs, as well as some of our existing clubs as well. So we've continued to increase the gas penetration across our franchise.

So as we think about gas as a way to add value, we're saving our members about $0.20 on average on a gallon of gas out there, so as we grow the gallon base, it's just more and more value that we're delivering back out there to our members. So as we think about the plus 7% total gallon growth in total, that's a lot more money in our members' pockets. So we're proud of that aspect of it.

Makes sense. That's helpful. And then as a follow-up, just on the back of some of the tariff questions, you talked about buying less in certain tariff-impacted categories like holiday decor. Just curious, are there any categories where you've been buying more aggressively and just in light of some change in customer demand?

Nothing comes to mind, Mark. I think certainly every category is a little dynamic. Where we're going through this transformation within general merchandise, it's a category-by-category rebuild, as I talked about. So I'm sure there are a few in there that we're buying more than we have in the past, but there are a few that we're buying less given the tariff exposure.

We currently have my further questions. So I'd like to hand to Bobby Eddy for any further remarks.

Thanks, everybody, for your attention this morning. I appreciate your support of our company. And I'd just like to note the one thing we didn't talk about is our digital business and the strength there. And I wanted to thank that team for the fantastic performance with a plus 34% comp and our 2-year stack over 50. That is a huge mark of relevance to our member. It's been a ton of work for that team. And I want to thank the field team who obviously picks all those digital orders and delivers them to our members as well.

So we will continue to do the right thing for our members for the rest of the year and each quarter in and out. And I'm confident that we will see good results from our members as we go through the back half of the year. So thanks for your attention. I appreciate your support. And we'll talk to you next quarter.

As we conclude today's call, we'd like to thank everyone for joining. You may disconnect your lines.