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BJ's Wholesale Club Holdings, Inc. (BJ)

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BJ's Wholesale Club Holdings, Inc. (BJ)

Q1 2019 Results Earnings Conference Call

May 23, 2019, 08:30 AM ET

Company Participants

Faten Freiha - VP, Investor Relations

Christopher Baldwin - Chairman, President & Chief Executive Officer

Robert Eddy - Executive Vice President, Chief Financial and Administrative Officer

Bill Werner - Senior Vice President, Strategic Planning and Investor Relations

Conference Call Participants

Robby Ohmes - Bank of America Merrill Lynch

Chuck Grom - Gordon Haskett

Edward Kelly - Wells Fargo

Peter Benedict - Baird

Christopher Mandeville - Jefferies

Christopher Horvers - JPMorgan

Simeon Gutman - Morgan Stanley

Michael Montani - Evercore ISI

Steve McManus - Nomura Instinet

Rupesh Parikh - Oppenheimer

Mike Baker - Deutsche Bank

Chuck Cerankosky - Northcoast Research

Presentation

Operator

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the BJ's Wholesale Club First Quarter Fiscal 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I would now like to turn the call over to Faten Freiha, Vice President, Investor Relations. You may begin your conference.

Faten Freiha

Thank you. Good afternoon everyone. We appreciate you joining BJ's Wholesale Club's first quarter fiscal 2019 earnings conference call. Chris Baldwin, Chairman and CEO; Bob Eddy, Chief Financial and Administrative Officer; and Bill Werner, Senior Vice President, Strategic Planning and Investor Relations are on the call. Chris and Bob will provide you with an overview of our results, followed by a Q&A session.

Before we begin, please remember that during this call, we may make forward-looking statements within the meaning of the Federal Securities Laws. These statements are based on our current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations described on this call and in today's press release. Please see the risk factors section of our Form 10-K filed with the SEC on March 25, 2019, for a description of those risks and uncertainties.

Finally, please note that on today's call we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release and supplemental documents posted on the investors section of our website for a reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.

With that, I'll turn the call over to Chris.

Christopher Baldwin

Good morning. Thank you for joining us. Ahead of discussing our results for the quarter, I’d like to share that Robert Steele, who has served on our Board since 2016 has been appointed to serve as our Lead Independent Director. His extensive experience and knowledge of our industry and our business will be invaluable. This appointment enhances our corporate governance and we all look forward to working with Rob in his expanded role.

Let's turn to our results. Our first quarter results reflect a solid start to the year as we continued our transformation of our company. We're pleased with our performance in sales, earnings and cash flows.

For the quarter, we saw merchandise comp sales of 1.9%, representing a 3.9% 2-year stacked comp. Sales were affected by the timing shift of government assistance benefits, which we discussed last quarter. Without the shift, our comp sales would have been above the high end of our full year guidance range, which is 1.5% to 2.5%.

Adjusted EBITDA was $124 million, up 2% over last year, which exceeded our internal expectations. We continue to drive strong cash flows and expect to reach our goal of leverage below three times EBITDA in Q2, well ahead of our accelerated schedule.

My comments today will be focused on the work we are doing to transform our company for the long-term. Our investments are focused on building capabilities across our strategic priorities, which are, acquiring and retaining members, delivering value to get them shopping, make it more convenient to shop at BJ's, and of course, expanding our strategic footprint.

First, I'll give you an update on acquiring and retaining members. Our membership level remains as historic highs, and we delivered member – record membership fee income in the quarter. We continue to see increases in both new members and renewals. In addition, we experienced double-digit growth in members enrolling in our higher tier memberships.

Our co-brand credit card is a powerful tool for delivering value and engaging our members. As a group, our credit card holders are among our most loyal members with the highest lifetime value. Since we launched the program in 2014, enrollment in our credit card plan has quintupled and we continue to find new and innovative ways to improve this program.

As I mentioned on previous calls, last year, we invested in technology that enables credit card sign-ups through our in-lane POS system. Early results of this investment are encouraging, with new credit card enrollment up more than 20% over the same period last year, and we expect strong growth to continue during 2019.

Our second priority is to deliver value to get our members shopping. We started our assortment transformation in our general merchandise business several years ago. Our GM performance shows that members respond well to new categories, products and brands, obviously at unbeatable prices.

For the first quarter our GM comp sales were up 9%, a continuation of our strong third and fourth quarter performance. We saw growth during the quarter in a number of general merchandise categories, including consumer electronics, toys and home, which includes products such as gift cards, books and kitchen items.

Read the rest of this transcript on seekingalpha.com