Good morning, and welcome to BJ's Wholesale Club Fourth Quarter Fiscal 2021 Earnings Conference Call. My name is Candice and I will be your moderator for today's call. I would now like to pass the conference call over to our host, Cathy Park. Your line is now open. Please go ahead.

Good morning, everyone, and thank you all for joining BJ's Wholesale Club's Fourth Quarter Fiscal 2021 Earnings Conference Call. Bob Eddy, President and Chief Executive Officer; Laura Felice, Chief Financial Officer; and Bill Werner, Executive Vice President, Strategy and Development, are on the call. 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. Please see the Risk Factors section of our most recent Form 10-K and Form 10-Q filed with the SEC for a description of those risks and uncertainties. Finally, please note that on today's call, we'll 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 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 Bob.

Good morning. Thank you for joining us today on our fourth quarter earnings call. Before we begin, I'd like to introduce Cathy Park, who just joined us as our Vice President of Investor Relations. We're excited to have Cathy on board. Please join us in welcoming her to BJ's. 2021 has been the best year in our history with tremendous financial results and impressive progress on our strategic priorities. 2021 was the most profitable year in the company's history, generating $880 million of adjusted EBITDA and $3.25 in adjusted EPS, above even the strong performance of 2020. Beyond profitability, we also made significant progress on our balance sheet, paying off $360 million of debt and bringing leverage to less than 1 turn versus nearly 3 turns just 3 years ago. We delivered over $500 million of free cash flow in 2021, and we have used this cash to invest in the business and return cash to shareholders, buying back 3.3 million shares and issuing a new $500 million share repurchase authorization. When looking at the company from an investment perspective, our collective efforts in building a more robust business have yielded shareholder returns that have been among the best in the industry over each of the past 3 years. We now have had consecutive years of considerable transformation in membership, merchandising, digital and our real estate portfolio. And there is still plenty of opportunity for us to capture as we look ahead to 2022 and beyond. Taking membership first. This part of our business has never been stronger. The improvements in the size and quality of our membership base is evidence of the value we offer to our members. Our member count has grown by 2% sequentially, 3% versus last year; and 15% over 2 years ago. Along with the size of our membership base, the quality has also improved. Our higher tier members now comprise 35% of our member base, an increase of 4 points over last year. Tying these improvements together, we are proud to report the highest renewal rates in our company's history, closing out the year at 89%, a 1 point improvement over last year's renewal rates, which had also been a record. The improvements in size and quality are not just a pandemic story. In the past 5 years, our membership has grown each year and by a compound annual growth rate of over 5%. As we've improved the size and quality of our membership base, we have also grown our membership fee income to new record highs. Our membership fee income per member is up 5% over last year. And over the last 5 years, MFI dollars per member have risen from just over $52 to just shy of $60. As a result, we reported full year MFI of $361 million, more than $100 million more than what we reported 5 years ago and representing a compound annual growth rate of approximately 7%. The gains we've made in our membership are lasting structural improvements in our business. To put it in context, when I began my tenure with the company nearly 15 years ago, our renewal rate had never exceeded 84% and now 90% is in sight. Think of that progress another way. In the last few years, we have grown the average member tenure by more than 50%, over 3 years more life. We are incredibly proud of all that we have accomplished across our membership initiatives. We expect to eclipse 6.5 million members likely in Q2 of this year. As I mentioned earlier, we are also targeting a 90% tenured renewal rate, which will be a very important marker of our success in becoming a different and better company. We will also continue to increase the quality of our membership base. Our co-branded MasterCard offering is an important part of this initiative. When we created this product several years ago, we set out to have our members directly benefit from the value created, knowing that they would reward us with more lifetime value. Our value prop, which continues to be among the best in the industry, has allowed us to grow to about 1.4 million cardholders. We have chosen Capital One to help us take this program to the next level. We will spend the next year designing a program that will pass even more value to our members, again, knowing that they will reward us. We believe that this will be very powerful over time, and we look forward to moving ahead with our new partner in the early days of next fiscal year. We've continued to make progress in improving our merchandising, such as the continuing simplification in our sundries categories. The affected categories have seen SKU reductions of over 40% and now feature much better presentation and shopability. We're seeing strong results in our efforts in sundries. The simplified categories are currently exceeding their pre-simplification comp performance despite having less SKUs. This effort has also allowed us to expand margin rate. We continue to see significant opportunities to improve our merchandising beginning with internal capability building and the additions of external talent. After announcing Rachael Vegas as our Chief Merchandising Officer last quarter, we added new Senior Vice Presidents of Own Brands and B2B sales. With increased focus on own brands, we will look to accelerate the steady improvements we've been making, and we think we have good runway here. Our penetration this quarter was 23%, up 200 basis points year-over-year driven by strength in our perishable and sundries divisions. Our members are reacting well to our brands, and we find that members that shop own brands are among our most valuable. The number of baskets, including at least 1 owned brands item was up this year and repeat purchase rates improved by approximately 400 basis points during the year. In addition to completing the sundries simplification and increasing own brands penetration, we will also begin the reinvention of our fresh offering to ensure that we're providing a higher quality and better value version of the products our members want most. Fresh is already the anchor of our business, yet we see considerable opportunity here, too, and we will update you more as we make progress. And finally, we will place a renewed focus on increasing the share of general merchandise in our business. We need to have a better, more relevant assortment to take GM where we think it can go. Turning to our objective of improving convenience for our members. The performance of our digital business this year shows our success. For the first time, we generated over $1 billion in digitally enabled sales in 2021. And these sales now comprise almost 8% of our total business, having grown 22% year-over-year and over 250% on a stacked basis. Approximately 80% of our digitally enabled sales are fulfilled by our clubs with services like BOPIC, curbside and same-day delivery. This has increased from about 45% over the last year. We are finding that our members are engaging with all of our digital offerings, and this is exciting because we also know that members who increasingly engaged digitally are younger, visit us more often and purchase more when they visit. We also continue to launch new products like ExpressPay, the ability to skip the checkout lines using your phone. That went live across our chain in Q4. We know that leveraging technology to deliver a more convenient experience for our members is a long-term game changer for our business. The club channel has never been thought of as the most convenient place to shop. Our digital assets are changing that paradigm, and we believe our members will increasingly reward us for that. To that end, we now have our DoorDash marketplace live in the chain in just the last few days, and we're excited about the convenience and value this will bring to our members. We're continuing to work on the new model of same-day delivery, driven by bj.com and expect this to be live in April. Under this model, our team members will pick orders and our delivery partners will make deliveries to our members. This model will allow for a better experience and better value for our members and better economics for us. We will also launch an unlimited deliveries package, which will allow members to get unlimited same-day deliveries for a fixed price for 1 year. In our testing, we've seen an encouraging response and results from our members, and we'll share more as our program specifics crystallize. Moving to real estate. I'm proud to report that we continue to accelerate our efforts. We opened 5 new clubs and 7 new gas stations in 2021. Our confidence here continues to increase as new clubs opened in the last few years have performed better than expectations with stronger sales and operating performance leading to faster paybacks than had initially been contemplated. We expect to open 11 clubs in 2022 in new and existing markets. New markets are expected to include Columbus, Indianapolis and Nashville, with existing markets being Atlanta, Miami, Richmond, Orlando, Detroit and New York Metro. We will also significantly increase our gas station footprint with a total of 12 new gas stations expected in the year. This would bring our percentage of clubs with gas stations to nearly 75% at the end of 2022. Fuel is an important value driver in its own right but becomes an even more important when paired with our co-branded MasterCard, which offers those members a $0.10 per gallon discount on our already great prices. As we look ahead at the various ways we can grow new units, we will also open a small box pilot this year. While this could become a new expansion vector for us, it will initially function as an innovation lab for us to test out new assortments, displays, product demonstrations and convenience initiatives. Our financial performance and strategic progress is also evident in how we use our cash flow. In Q4, we made 2 key investments underpinning our business, both in the logistics area. First, we opened our fourth perishable distribution center in independents Kentucky. This facility currently operated by Burris Logistics, will serve our new markets in the Midwest, but also take some of our core market volume to allow us to better balance our facilities. Second, and most importantly, we announced the acquisition of all of our perishable distribution centers from Burris Logistics. The Burris family and team members have been phenomenal partners to us for over 20 years. We're excited to welcome the over 800 Burris team members to our family. One thing we've learned over the past 2 years is that the food supply chain is not as resilient as once thought. This purchase allows us direct control over the most important and complex part of our supply chain. And once complete, derisks the business considerably. While risk reduction is important, this deal also has strategic merit. Our perishable foods are a critical reason why our members shop our clubs, and we can do much better in terms of the assortment, quality and freshness of these items. I mentioned earlier a new effort to improve our fresh offerings. Controlling our distribution will allow us to more aggressively optimize our network for freshness and to be more flexible in assortment in areas in which we lag like prepared foods. This deal should provide a great foundation on which to build our future business. And with that, I'll turn it over to Laura to discuss our financial results in more detail.

Thank you, Bob, and good morning, everyone. We delivered another year of very strong results, and it is enabled by the fantastic work of our team members. The fourth quarter was an incredibly challenging operating environment. Omicron infections drove significant disruptions in our facilities as well as our suppliers' facilities and resulted in shortages of team members and products as well as changing member purchase habits that were hard to keep at bay. I am thankful for the contributions and hard work of our team members this year, and I'm proud of the business we are building together. I'm excited to share the results of their hard work with you today. As Bob mentioned earlier, this year has been the best and most transformational year in our company's history. We have record membership and renewal rates, a relevant and growing digital business, a revamped balance sheet and robust real estate pipeline. The health of our membership base is poised to deliver long-term future growth. BJ's is a company that is stronger today than it has ever been, and we will look to extend and grow this position. Now let's turn to the results of our fourth quarter. Net sales for the quarter were $3.6 billion. Merchandise comp sales, which exclude sales of gasoline, increased by 0.9% and were driven by ticket. On a 2-year stack, comp sales grew by 16.8%. Our food business continued to be very strong in the quarter, while sales of sundries and general merchandise lagged our plans. Comps in our grocery, perishables and sundries division grew by 2% and 19% on a stacked basis. Delving deeper into the top line results, we saw perishable and dry grocery items, continuing to perform well, generating a 5% comp and a 2-year stack of 23% in the quarter. But this strength was offset by weaker sales in sundries. In the rear-view mirror, it is clear that our sundries business was impacted by a pull-forward of purchasing into the third quarter. Members made outside purchases in September and October that impacted November and December sales. We are confident that our Q4 results in sundries were not caused by the recent assortment work. Combining the third and fourth quarters in sundries shows an acceleration in the 2-year stack in the second half of about 60 basis points. Our general merchandise and services division declined 3% on a comp basis and generated a 7% 2-year stacked comp. This performance was due to supply chain driven headwinds in inventory availability, product assortment and promotional cadence. We suffered from product shortages in key holiday categories such as televisions and electronics and seasonal items. Our digitally enabled sales grew by approximately 20% in the quarter and nearly 190% on a 2-year stack. We continue to invest behind digital platforms, particularly in BOPIC, curbside pickup and same-day delivery, which together drove more than 2/3 of our digital growth during the fourth quarter. In our gasoline business, we continued to gain significant market share as retail prices increased more than 50% on average versus a year ago. Comp gas gallons in the fourth quarter grew by approximately 17%, outpacing overall market performance. Over the course of the year and this past quarter, we delivered industry-leading results that demonstrated strong market share gains in our gasoline business. Membership fee income, or MFI, grew by 10% during the fourth quarter to $94 million and underscores the progress we have made in improving business. Healthy growth in new members with renewals trending strongly and favorable membership mix during the quarter. We delivered a new all-time high renewal rate of 89% for our tenured members along with increasing our first-year member retention by over 400 basis points relative to prior year. Our penetration of higher-tier memberships increased to an all-time high of 35% and easy renewal enrollment is over 75%. Now let's move to gross margins. Excluding the gasoline business, our merchandise gross margin rate increased by 10 basis points, much better than our expectation of down 50 basis points that we shared with you last quarter. Our merchandise team did a great job managing margins in the face of inflation and we also saw a benefit from mix. SG&A expenses for the quarter were $631 million, a year-over-year increase was primarily attributable to the increased labor costs associated with the wage investment we made earlier this year as well as higher occupancy expenses and costs associated with our pending Burris acquisition. Our adjusted EBITDA grew by 12% to $229 million, reflecting sales growth and margin expansion. This quarter, we incurred $3.5 million of onetime deal costs related to our pending acquisition of the Burris facilities. These costs were adjusted for in our adjusted EBITDA metric. Adjusted net income for the fourth quarter was $110 million or $0.80 per share and reflected a 14% year-over-year growth on a per share basis. Tax rate within the quarter was about 26%, higher than it was in the prior quarter due to relative lack of tax windfall from equity awards. Our earnings growth highlights our ability to manage costs throughout our P&L prudently in a highly inflationary environment as well as the benefits of a lower leverage and share count. With the most formidable prior year in our history as the comparable and considering how we initially planned for the year, we are very pleased with how this year shook out from both a top line and bottom-line perspective. During 2021, we had merchandise comp sales growth of 21% on a 2-year stack and we generated more than $16 billion in net sales. Membership fee income was $361 million, an increase of more than 8%. Margin rate grew by 20 basis points despite price investments and elevated distribution costs. Adjusted EBITDA of $880 million, growing 3% and 50% on a stacked basis. And we grew adjusted EPS by 5%, which was 117% on a stacked basis. We also generated $527 million of free cash flow this year. This cash flow has allowed us to transform our balance sheet, with a 0.8x funded leverage versus 1.2x last year by repaying more than $350 million in debt. More importantly, this reduced level of debt will allow us greater flexibility to invest in the future with the Burris deal being a good example. As we allocate capital going forward, our first and foremost priority is to grow our business. Investments to support membership, digital and our real estate growth plan will be funded by these cash flows and enabled by our new found flexibility. We also plan to opportunistically buy back shares with the remaining free cash flow. At the end of 2021, we had $471 million remaining under our $500 million buyback authorization. While we can all likely agree that things are starting to return to normal, there continues to be several unknowns that make for significant variability as we look to frame guidance for the coming year. Among the most significant are headwinds that could materialize as we anniversary unprecedented levels of government aid and stimulus efforts. We are also experiencing some of the highest levels of inflation that we've seen in several decades. Given these uncertainties, we offer the following full year guidance details. We expect 2022 merchandise comp sales to increase in the low-single-digit range and total revenue to increase in the mid-single-digit range. From a membership standpoint, we expect MFI to grow in the mid-single-digit range. We expect merchandise margins to remain flat. 2021 market conditions provided approximately $40 million of gasoline profit greater than a typical year. We have planned for this to unwind in 2022, but we will retain the market share gains that we have captured. We expect EPS will be flat year-over-year after giving effect for the pending Burris d acquisition. The deal is currently anticipated to close in Q2 and will yield $0.07 of EPS for the full year. We also anticipate capital expenditures of approximately $350 million. We currently expect our quarterly comp cadence to be weighted towards the first and fourth quarters. We continue to remain confident that we will be able to generate a much better growth profile than we had done prior to the pandemic resulting in a long-term algorithm of mid-single-digit revenue growth. Now I'll turn it back to Bob to conclude our prepared remarks.

Thanks, Laura. The last 2 years were the best years in the company's history back to back, and I'm confident that the outlook is bright for this company. The transformation we began years ago enabled us to deliver that performance and also put us in the position to take advantage of opportunities to continue to transform this company. We are providing more value and convenience than ever to our members and our price gaps are better than they have been in a while. As a result, our flywheel is spinning faster. We are growing membership size and quality. We are improving our merchandising. We are delivering value conveniently. We are broadening our reach into new markets. We are also taking chances that this company has never taken and doing things we've never done, acquiring businesses with key capabilities, pursuing critical partnerships innovating around membership structures like co-brand and offering new ones like unlimited delivery. Our business is better today than ever, and we have tremendous confidence in our future. We've demonstrated an ability to grow shareholder value over a long period of time by playing the long game. We will keep our eyes less on any 1 quarter and more on the many long-term opportunities that we see. Those opportunities are underpinned by several strategic advantages. We offer tremendous value even more so in inflationary times. That value becomes more important when wallets are stretched thin. And we've made that value easier than ever to access with our digital capabilities. We also have a lower labor model than many of our competitors. As labor costs rise, we are less affected than those competitors. We are confident that the structural advantages of the club business are right for these times and have never been stronger. Finally, I would like to thank our team members for their service to our company and to our members. I'm incredibly proud of their efforts and the results that they provided, and I look forward to all that we will accomplish together in the new fiscal year. Now I'll turn the call back over to the operator to begin the Q&A session.

Our first question comes from the line of Peter Benedict of Baird.

Maybe 2 questions. One, just kind of on the comp cadence for this coming year, first quarter. Fourth quarter weighted, should we be assuming merch comps or are you assuming at this point, merch comps would be down in this second quarter and third quarter on a year-over-year basis? And then my second question, as you transition to Capital One, just curious maybe what the benefits are, you think, going to be that will accrue to BJ's from P&L perspective? And then how do you manage that transition to limit the friction or potential friction with your members?

Peter, thanks for the question. As we think about the coming year, we're pretty bullish on the company overall. The quarterly cadence, as you point out, will be a little bit weird to figure out. So we gave that guidance that the comp should be weighted towards Q1 and Q4. We don't really necessarily believe Q2 will be negative. Q3 may be negative. It's the highest hill to climb from a lapping perspective. And given how we see the sales shaking out, I think that's certainly possible. It's how we plan the business. We're incredibly bullish about our partnership with Capital One going forward. I think this program has been probably the best example of how we'd like to run the business going forward. And that is the more value we can transmit and show to our members, the more they reward us in purchasing habits and membership gains and lifetime value. And our current co-brand program is still 7 years after we announced it, still among the best in the industry from a value prop perspective, but we know we can do better. And we've been able to grow it from a pretty nascent program to $1.4 million in cards at this point. We're really looking forward to taking that to the next level with our new partner. We're still in the early days of ironing out what the new value prop might be. So not a whole lot of news to share there. But think about it loosely, that as we did the old program, any gains we might make in the economics of our new deal, we will look to pass those on to our members know that they'll reward us over time. So we're not building in additional profit directly from the new deal. And you're right to point out, the fact that this process needs to be managed. We're trying to take a deliberate approach to it, try not to do it quickly. We want to make sure that we do it correctly and really overmanage the process so that we deliver a seamless transition for our members and for our shareholders.

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

Actually, a couple of quick questions. The first, just in terms of how are you thinking about the sort of comparisons against stimulus. So it sounds like the comps would be strongest in the first quarter. I think that's when peak stemming was hit, do you think you have a lot of exposure to that or more lower income exposure than some of the other warehouse competitors. And then the other question is just any comment on how traffic comp was in the fourth quarter versus previous trends getting change, there was a very similar?

As I said, in the prepared remarks, we're pretty bullish about our long-term prospects, we've made incredible strategic progress over the past couple of years. And we're excited about taking advantage of that as we go forward. Your question on stimulus and EBT is a good one. Certainly, as we've gone through the last couple of years, our penetration of EBT members has increased and they were given outside dollars through the stimulus programs over the past couple of years. So we do anticipate a laughing effect of that. However, these members are good members in any environment. They even without the extra stimulus of the pandemic, they visit us often, they shop a lot, they renew their memberships. And so it's important that we try and focus on retaining these members, focus on getting them into our buildings. And many of the -- these members, although they use EBT as a tender, they also use other tenders. And so we are understanding of the fact that they will not have as many dollars next year as they did last year. But there are still great members that we intend to try and keep in our franchise and keep them motivated and shopping and renewing their memberships going forward. If you think about your traffic question, I assume you mean it in the Q4 sense, it was slightly negative during the fourth quarter, and that hangs together with the pressure on our sundries business and our general merchandise business that we noted in our prepared remarks.

Our next question comes from Chuck Grom of Gordon Haskett.

Bob, just curious on general merchandise, where you are on fixing that business, how you're feeling about the supply chain? And I guess the cadence of GM over the next few quarters?

Thanks for the question. It's a good one. Q4 was a little rocky for our general merchandise business. We suffered from some supply chain challenges in key categories like televisions and electronics and some seasonal categories. I don't think those are anything but supply chain challenges in those categories. We do face a big opportunity in general merchandise and that is really to increase the penetration of that business in -- within our overall business. I'd love to get it to be 1/4 of our merchandise sales over time. That's what it was when I started with the business, and we needed to get it back there. That -- to me, that is about presenting a relevant and timely assortment to our members every day. And that is not something we do in the best way we can do it. We've started that process. We've added to our team with our new Chief Merchandising Officer, Rachael Vegas. Rachael is spending an incredible amount of time directly with the general merchandise team, and we've made some other changes on the team as well that will help us do this over time. The reality is there are lots of categories within general merchandise that have longer lead times. And so it will be easier to fix categories like televisions that were mainly just supply chain issues. It will be harder to fix categories like seasonal which we buy out 6 to 12 months ahead of time. So I would look for this to improve over time, over a number of years. And for the -- hopefully, the second half of this new year to be better than the first half.

And then just in the near term, sundries sounds like it was an issue in the fourth quarter. I guess has it rectified itself in the first quarter? I'm just trying to connect the dots on your comment that 1Q is expected to be towards the upper end of the range for the quarter, which would, I think, imply a nice uptick on the 3-year stack relative to what the fourth quarter that you just reported.

Yes, that's -- it's a great point you make on the 3-year stacks. You should really look at the 3-year stacks and the 2-year stacks as you're thinking about how to plan the quarters given how many strange things have happened over the past couple of years. Sundries is nicely positive at this point in the first quarter. So it has recovered. The preponderance of the softness in Q4 was really in 3 categories, paper and cleaning and personal protective equipment. Most of that is really because we had spectacular in-stocks in Q3 relative to some of our competition, and our members took advantage of that and made outsized buys. Laura noted that the combined Q3 and Q4, we actually accelerated in the second half. And I think that sort of proves the case together with the fact that we're back to positive comps here in February. So hopefully, it was just a Q4 blip, and we can continue to build that business as it's an incredibly important part of our overall value proposition to our members.

Thank you. Our next question comes from Mike Baker of D.A. Davidson.

A couple questions on the all important membership issues. So can you just talk about bigger picture what you've seen from the member that joined in 2020, early in 2020, with the pandemic now we're about two years out from that? How or they renewing, simply how are their spending going? I know that they start off spending more than a typical new member. There was some concern that that might fall or be flat or maybe not grow as much as it has for past new members. Can you talk about that curve as they're now relatively tenured members?

I have -- I talked about in my prepared remarks. Our membership has never been stronger in terms of size and quality. We've continued to grow it over the past five years. Let me quickly recap some of the key points their membership counts up 2 points sequentially, up 3 points over last year and up 15 points over the two year and growing at a 5% CAGR. Dollars remember growing nicely five from last year of almost $8 over the over the past five years. And MFI overall growing at a 7% CAGR, which is which is incredible. And another all-time high from a renewal rate perspective in our tenured base and in our first-year base for that matter but 89% is incredible. We would love to get to 90 in this next new year. That will be personally a great marker for us as a better business. We've always looked at that number and admired our largest competitor's number that starts with the 9%. And so personally, that will be a big achievement when we get there. As we look under the covers, all the cohorts of members are doing well. They're all visiting nicely, renewing nicely, renewing more on time than ever which is an important thing. And that includes the COVID members that you're referencing. So we continue to see great things within the membership. That's what really gives us that bullish feeling coming into this new year and then building for the long term as well.

Well, then let me follow up on that, if I could. Your guidance for mid-single-digit MFI growth. Can you break that down into -- first of all, I think your average club count is going to be up 3.5%. So I presume some of it's from there, but how much from just adding new members versus MFI per member? Can you sort of break down that mid-single-digit increase if you would?

Yes. You've got the right things. I mean go back to the fact that we've been growing bodies and dollars per member going forward. That's basically what we're thinking of with the ting of potential conservatism on top of it. So trying to under promise and over deliver that I think we can continue the run that we've been on, where we've been growing MFI in the mid-single-digits and that's the guidance that we've issued.

Our next question comes from Steph Wissink of Jefferies.

We had 2 areas we wanted to unpack. The first is your new innovation lab in Rhode Island. If you could talk a little bit about just the strategy behind that? Is it a true prototype test? Or are you testing things for your larger format stores?

Yes. So let me talk a little bit about it and maybe I'll ask Bill Werner to fill in any gaps that I have. We're, first and foremost, looking at it really as an innovation lab. So of the things we're trying to do here in this company is install a culture of growth. And that means we need to up the innovation quotient in the business. And one of the ways to do that is to give people the freedom to do it. And having a place to do it, that's a safe place, the way we can tinker and try new things. is really what we're after. And so it will be a different assortment initially than at any particular club that we have today will be presented differently. We'll have a different way to do product demonstrations, different labor model, different front-end model with a focus on getting people out of the building more quickly than they might get out of the building today in a traditional club, all sorts of different things that we'd like to try out, see what works and then take what works and port it back to the mothership. If it becomes a new growth vector for us, if it really works in its own right, that would be wonderful. It would be a real asymmetric growth chance where if this thing doesn't work, we lose a few million dollars in trying new things. If it does work, we can open a whole lot more new boxes. That's not really what we're thinking of at this point, but it could end up that way. All we think it's a stellar success if we can learn a few things about how to show our members new assortments, how to do product demos the right way, how to be more efficient at the front end, how does it deliver value in a truly convenient fashion. If we can learn things about that to bring back to the chain, we will think it's very, very successful. I don't know if you want to add anything, Bill?

Yes. No. I would just add, stuff, it's all around convenience, right? And as I step back and think about our digital business, we talked about $1 billion of digital sales with 80% being fulfilled either BOPIC, curbside or same day. This becomes a little bit of a test around how -- what are the other ways that we can bring convenience to our members. And if we could do it with a smaller format, so think about the ability for a member to quickly get in and out to get everything they need for the lunch box while you'll still be able to access all the other value that we offer through our full-size boxes, there could be something there. So we're excited to get it open. We're excited, as Bob mentioned, to get some testing and learning done, and we'll see how it goes here.

Right. That's helpful. And one for Laura, just on the relativity between sales guidance and earnings guidance. I'm wondering if you can help us a little bit kind of in the middle of the P&L. How you're thinking about labor cost pressures, any sort of supply chain carryover pressures into the year. And I think you mentioned Omicron in your remarks just that it was disruptive to both customer flow and some of your labor absenteeism. Just talk a little bit about what you're seeing as we kind of emerge on the backside of Omicron.

Yes. Thanks, Steph. So the way you should think about it is just as we guided, if you break that apart, is certainly a bit of deleverage in the business. Part of that is our wage investment that we've talked to you in prior quarters. And part of that is really a growth story and the ramp-up of our new clubs. So we're at a cadence that we haven't been at in the recent years. So as you think about adding 10 new clubs or 11 with the one that carried over from this year, compared to where we performed this year with adding 5, that's a relative increase. And you would know that our stores don't scale until future years. So you've got a little bit of a drag from just our investment in the growth going forward.

And maybe I'll put a finer point on that stuff. So you've got a $14 million or $15 million headwind just in preopening costs going from 5 new clubs to 11, and then you have what Laura is referencing, which is actually a very good story, right? We will open 11 boxes. Those boxes open with full occupancy costs, full labor, full utilities, all those types of things, but not full sales as the sales scale over a couple of years. So what you're seeing there is that labor investment, partially but also partially this growth story, which is going to unfold over the next few years.

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

I want to just go back to the Q4 comp, just quickly. I don't want to be the dead horse here. But just any more color on the supply chain issues and how that evolves and then how it got fixed so quickly so that it doesn't seem to be impacting in Q1. You mentioned the confidence in that the weakness is not assortment-driven. Maybe just kind of elaborate on that. And then in food, the underlying comp also decelerated there despite sort of Omicron and inflation. So just thoughts on that side as well?

Yes. Thanks for the question. Our food business did incredibly well during Q4, and it was up 5 and had a 23 stack on it. So we're very, very happy with the way that business is continuing to run. It's been the core of the business for a long time. And Q4 was another great quarter for it. As we talked about the softness in sundries and GM were really 2 different stories. Sundries was really a pull forward for the most part and GM was supply chain and assortment and a little bit of promotional cadence. So let me pull that apart for you. So key Q4 categories like TVs and electronics and seasonal suffered from some supply chain challenges. When we talked to you all in Q3, we pointed out we had more inventory going into Q4 than we did in the prior year, but we weren't sure if we had the right inventory. I think what we found out is we didn't have the right inventory. So take TVs as an example of that. We had plenty of big expensive TVs and not enough of smaller value TVs and that seems to be what the consumer wanted from us in Q4. So we were a little bit running behind trying to squeeze some of those TVs out of our suppliers, and we're not as successful as we would have liked to have been. We can fix that. I think the market will fix that over time, just as supply chain challenges start to resolve. And TVs becomes lesser important category in Q1, for instance, than it is in Q4. Seasonal will be a continuing, I think, a continuing issue as we try to make sure that we have the right assortment and the right levels of assortment. And then the rest of GM, I think, is a long-term build as we install new talent and new processes and get the assortment to where we want to be. So as I said earlier, I think that's a little bit of a long-term story, and we'll continue to work to get it from where it is to be about 1/4 of our business. Sundries as we talked about in a couple of other questions, it was really that pull forward and has gotten back to positive comps here in the first quarter. So I think that's just a 1-quarter blip in that business, and we can look forward to having a good first quarter here.

Great. And just one follow-up for you. So on Burris and Fresh, I guess, right? I mean Fresh for, I think, a long time has been a big opportunity for you. Can you just talk about how virus sort of changes things for you? And how quickly can you progress down the road of sort of leveraging that into the Fresh category?

Yes. Look, this is another long-term build for us. So our first priority with Burris is to make the acquisition happen without any disruption in our business. That's the direction that I've given the team. That's what they're working on. We're really trying to make it invisible to the member, to our team members, to our entire business. We're incredibly excited to bring the Burris facilities and their team members into our family. They've been wonderful partners. They've really been a partner that highlights a culture of service to us as their client and to our members, they really try and look through us to our members. So they are very much aligned from a culture perspective with our company, and we're thrilled to bring them in and allow us some flexibility and some lesser risk profile as we go forward. Here's how we're thinking about the upside for it. There are certainly some financial reasons to do the deal. Certainly, some synergies that are out there, but that's not why we did it. We did it to derisk the business, and we did it to help ourselves grow. Fresh is the core of the business. It is the reason why people come to our buildings. It's the reason why we get them into buy general merchandise and every other thing we sell them. But we have tremendous opportunities to make our assortment, our selection, our pack sizes, our freshness, all better. They're all good today, but they can be better. And having control of the supply chain, as far back in the supply chain as we can get it, will help us do everything we want to do in those businesses. So here's an example. Our clubs currently order on a 2-day basis. So they order today and they get it 2 days from now. We can trigger the supply chain to go to 1-day ordering, which we've already started to do. We can take categories that are particularly sensitive to freshness issues like berries and optimize the supply chain so that our members are getting the best strawberries that we can possibly give them. It also has some opportunities to go even further back in the supply chain. So think about Prepared Foods. I mentioned that quickly in my prepared remarks. That is a small business for us. It is a big business for some of our competitors. We've had trouble in doing it in the past and not losing a tremendous amount of money from a salvage perspective. If we can do it at facilities close by to Burris in a commissary format and run it through our existing supply chain. We can do it in a way that is cost effective and also gets the product to our members much sooner than the way that we do it in the past. And so we will look for those opportunities to do that over time. None of them are easy or quick. So I don't think that we will make tremendous changes in this fiscal year. But over time, this will really give us a foundation on which to build.

Our next question comes from the line of Paul Lejuez of Citi.

This is Brandon Cheatham on for Paul. I wanted to get into the sundries. And I was just wondering, what do you see that gives you the confidence to say the adjustment and assortment did drive some sort of at least temporary decline. And maybe if you could talk about how does that work? Do you test some clubs and then roll out to others? And you saw kind of similar results there? And then I have a follow-up.

Yes, sure. Thanks for the question. So as we talked about, we did have some some significant simplification in several sundries categories during the quarter. Let me back up and tell you what we're trying to do there. We are trying to set our assortment in a way that makes it easy for our members to shop it, makes it easy for them to see our selection, makes it easy to see the value that we offer. The reality is, in many of our sundries categories, the assortment is too cluttered. We don't get credit for the assortment that we have, and we don't get credit for the value that we have. Almost every piece of math that I've ever seen on this subject has said the closer we get our assortment to our club competitors’ assortments, the better our category closure rate gets, meaning the more members participate in the category and the more sales that we get. That's what we're after. We're trying to get more credit for the assortment that we have. We have done extensive testing on what we need to do in many categories. These first categories that we've done, we certainly tested in a number of clubs and saw a benefit after we made these changes. And that's effectively what's happened here in the wake of those simplification efforts that we put forward at the end of Q3 and now into Q4. So that does come with a touch of softness as we make the initial changes, and we did see some of that in the fourth quarter. It wasn't the primary driver of Q4 comps, but certainly was there. But the longer we go out from those initial simplification efforts, the better the sales are getting there. Certainly, these categories are outperforming their pre-simplification comp, and they are outperforming unsimplified comparable categories. And so we're confident that this is the right thing to do to get our assortments to be in the right place. There's 1 great by-product to do it, too, which is our margin rate is much stronger in these categories that have been simplified. So over time, if we can get more sales and more margin, that's a winning proposition. And that's really what we're after.

Got it. Could you break out some of that margin unlock potential? I know we have some inflation headwinds that may be modeling that story. And then what is considered in that SKU reduction, margin unlock in 2020 guidance -- 2022 guidance, sorry?

So I don't want to get too far in the weeds on the margin point. But certainly, we did see some uptick on margin rate that did help us in the fourth quarter. It was not a primary driver of our outperformance in margin in the fourth quarter, and we don't expect it to be that way going forward. What we're trying to do is get the assortment in the right shape so that we can show the right value to our members. We're not really trying to mix up as a primary objective of this effort. It's really about getting the assortment to be the right place so that we get the credit for the selection and the value that we provide.

Our next question comes from the line of Rupesh Parikh of Oppenheimer.

So I want to go back to your full year comp outlook for low-single-digit growth. You guys are building in for inflation and then how you're thinking about potentially some food away from home normalization as well for the year. And just from a category perspective, would you expect growth on both the grocery and GM side for the year?

Thanks for the question. So let me tell you in big building blocks, how we're thinking about the comp. We've got one significant headwind, which is the reduction of stimulus, and we've got 1 huge tailwind, which is inflation. Those 2 things we've planned to more or less offset during the year. So that's a point of clarity we should make. Our guidance does include the effect of inflation. We've not done that in the past. And so as you think about that, please don't layer on some giant inflation assumption on top of the low-single digits. We've already built that in. We have a number of things underneath those 2 headwinds and tailwinds. You brought up food at home normalization. We do have something built in for that. We're not seeing that as a tremendous headwind at this point. We do think we've gone through enough of the pandemic that people's purchasing habits are largely going to be sticky. We do have a low-single-digit headwind associated with that, but not anything dramatic. We do see a great tailwind from the continuing growth and strength of our membership base that will more than offset the food-at-home normalization that we see. And then the continuing improvement in our merchandising efforts that we've talked about along with new efforts like co-brand and unlimited deliveries and all the things we talked about in our prepared remarks. So all of that mixes out to low-single digits to us, and it's probably more weighted towards food and sundries business and less so towards the general merchandise business for this year.

That's all questions we have time for today. So I'll pass the conference over to the management team for closing remarks.

Great. Thank you, everybody, for your attention, for your support and your questions today. If I would leave you well on thought of this company is better than ever has been. We've made great strategic progress in our membership and our merchandising in offering our value conveniently through digital, we’ve got the best real estate portfolio we've ever had. And moreover, we didn't talk about it at all today, but I believe we have one of the best management teams in retail. Our talent level at the top of this company is incredible. And I'd like to thank that team for all the things they've done so far together and all the things they'll do in the future. So with that, I wish you good luck. Thank you so much.

Thank you. This concludes today's conference call. You may now disconnect your lines.