Hello, everyone, and a warm welcome to BJ's Wholesale Club Q3 2023 Earnings Conference Call. My name is Emily, and I'll be coordinating your call today. [Operator Instructions] I will now turn the call over to Cathy Park. Please go ahead, Cathy.

Good morning, and welcome to BJ's third quarter fiscal 2023 earnings call. On the call with 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 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 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 the latest investor presentation posted on our Investor Relations website for a reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. And now I'll turn the call over to Bob.

Good morning, everyone. Thanks for joining us today. As I reflect on our business this year, I am proud of how our team has remained focused on executing our long-term priorities, and serving our members in an extremely dynamic macro environment. During these times, our advantaged business model and strong value proposition continue to resonate with our members who know they will always get great value at BJ's. During the third quarter, we posted accelerating membership growth, robust traffic and continued increases in market share. These gains reinforce the underlying strength of our business, and we remain confident in the long-term prospects of the company. In the third quarter, we reported net sales growth of approximately 3%. Our merchandise comparable sales, which exclude gas sales, were flat year-over-year. We were pleased with our traffic trends, which grew from last year and were consistent with our second quarter levels. Critically, we are consistently gaining market share. Third-party data shows that in the third quarter, we once again gained share over each of the prior 2 quarters as well as the last 3 years. This is an important marker of member value perception and loyalty. Our 52-week share is approximately 60 basis points above pre-COVID levels. We're taking share at the pump, too. In the third quarter, we grew comp gallons by nearly 3% at our gas stations on retail prices that were about flat year-over-year. Industry volumes are still down double digits versus pre-pandemic levels, and our share gains are a testament to the value that members gain from our low-priced gas offering. Our consumables business remains very healthy, delivering a 2% comp in the third quarter as members continue to rely on BJ's as a valuable destination for their grocery shopping. We see this in our volume trends for key categories such as fresh produce, milk, paper and laundry, where units have trended up year-over-year for us in the third quarter, unlike the rest of the market. As expected, inflationary trends, while still present, were significantly lower than last year and second quarter levels. We experienced more disinflation during the quarter than we expected, particularly in our perishable food business. For example, take a category like eggs, which has been on a wild ride. In the first quarter of the year, prices were 50% above the prior year. In the third quarter, we saw double-digit percentage deflation in eggs year-over-year. We sell a lot of eggs and we aim to offer the best value so that we can take the ups and the downs on the commodity and pass on the best value to our members. Lower inflation is a headwind to our reported comp, but it helps our members who have coped with higher prices for the better part of the last 2 years. We also regularly invest in our pricing to ensure that our members are getting amazing value. Our pricing index against our grocery competitors improved by about 100 basis points in the third quarter when compared against the same index a year ago. We continue to deliver best-in-market pricing every day and save our members' money and time. That's why they buy memberships and visit us so often, and our focus on value will not change. Also as expected, our general merchandise and services comps improved as we saw a mix shift away from summer seasonal categories and the beginnings of gains associated with our new assortments. If you'll permit me, I will simplify the story a bit and just talk about our general merchandise business, leaving aside the other components of this division. Third quarter GM comps improved by almost 500 basis points over Q2 levels, getting better as the quarter progressed. October GM comps improved by nearly 800 basis points over Q2 levels. We're encouraged by the early wins in a handful of important categories such as toys, TVs and apparel. In apparel, we further refreshed our presentation, showcasing a curated collection of national brands, such as Carter's, Levi's, Skechers, Champion and Nautica, which contribute to our positive 5% comp in the third quarter. Our TV sales also improved through the quarter, performing better than the industry with comp units growing in the third quarter by about 3%. With all of that said, members continue to be cautious in their discretionary spending and big ticket items. We are making tangible progress on our GM transformation, offering an elevated assortment at compelling price points. Our holiday gifting set is fantastic. This progress gives us confidence that we remain on the right path longer term to improve this segment of our business. While our overall consumer remains very healthy, growing macro challenges continue to pressure broader consumer sentiment. In the third quarter, our mid- and higher-income members continued to increase both spend and trips as they have likely been more insulated from these pressures. Waning government aid has been a strain on our lower income members this year. These members continue to exhibit similar shopping behavior, maintaining trip frequency versus last year as well as using other forms of tender to supplement their purchases. However, despite these underlying good behaviors, third quarter sales from our lower income cohort dipped below last year levels. Overall, our bottom line results in the third quarter landed slightly better than our expectations, driven by continued margin improvement and strong gas performance. We reported third quarter adjusted EBITDA of approximately $275 million and adjusted earnings per share of $0.98. Laura will walk through more of the details on the quarter later. As I step back and think more strategically about our business, I remain confident in our growth longer term. We continue to make meaningful progress on our key priorities. These 4 priorities are improving member loyalty, driving an unbeatable shopping experience, delivering value conveniently through digital and growing our footprint. Let me spend a few moments on each. I'm incredibly pleased with the progress that our teams are making in strengthening the size and quality of our membership. We currently serve over 7 million members with member counts growing nearly 6% year-over-year in the third quarter. In fact, new paid enrollments in the third quarter were the highest we've delivered since the height of the pandemic with successful acquisition efforts across our new and existing markets as well as our digital platforms, which now contribute to half of our acquisition. Our co-brand credit card, which presents an outstanding way for members to get even more value is also attracting new members and incenting existing ones to upgrade into higher tiers. We're pleased to have maintained our higher tier penetration at 38% in the third quarter with pronounced growth in our One+ tier. Members in this highest tier have historically exhibited the greatest spend and strongest loyalty, which we believe will contribute to us holding our record 90% renewal rate this year. We will continue to invest into our membership value prop to further strengthen member loyalty and lifetime value going forward. Member loyalty is dictated by the quality of the experience we provide. As such, we are continually working to improve the member experience through our merchandising, digital and in-club conveniences and, of course, great value. Getting these elements right is crucial to our success year round, and it's especially important as we head into the holidays. During our Investor Day earlier this year, you heard us talk about our member-centric approach to last year's Thanksgiving shop. We built our strategy around presenting seasonally relevant merchandise in our high-value space for an easier shopping experience, leveraging our data to identify the most compelling offers and marketing these offers in an impactful way. A great example is our turkey promotion. Members love the way that this program stretches their dollars, and we are continuing the tradition this year. Members who spend $150 or more in early November, receive a bounce-back offer to get a free turkey before the Thanksgiving holiday. Between our usual 25% savings on their basket and the free turkey, they can save the equivalent of their entire membership fee with this one promotion alone. As you know, general merchandise transformation is what's especially new and exciting this holiday season. I previously mentioned that GM is an area where we can make a profound impact in showcasing value to our members, yet it's less than 15% of our business today. We believe we have significant opportunity to profitably grow this division over the next few years. We are early in this journey, but I believe we have the right talent, strategy and focus to drive this growth. I'd encourage you to walk our clubs this holiday season and see the changes. It's meaningfully different and a better experience from prior years. Nearly 90% of our toy offering is completely new this year. This is a category that we typically set earlier than the rest of holiday and early reads have shown that 8% more members are shopping the toy category at BJ's this year. We're seeing great reactions to our featured brands, which include LEGO, Disney, Hot Wheels and Barbie. Approximately 80% of our holiday home assortment is also new, where we've invested in quality and enhance the value. We're making our treasure hunt stronger, too, with highly curated trend-driven giftable items such as retro video game station, Sur La Tab Kitchenware and a home movie theater pop-up kit. Finally, we are enhancing the way our general merchandise is marketed and presented in our clubs for a better member experience. We've taken the member mindset to deliver cohesive storytelling across our marketing platforms, cleaner pathways in our clubs and the right timing of offers throughout the holiday season. This holiday season marks an important step forward in building our credibility in this space. These efforts remain a crucial part of our long-term growth strategy, and we will continue to innovate to realize the significant potential we see in GM. Our own brands, Wellsley Farms and Berkley Jensen, provide our members with high-quality products at meaningful value. Members who engage in our own brands spend more, visit us more often and are better members. We are strengthening our offering and our members are taking notice. We've previously discussed the profound impact that it's had on our paper category. In the third quarter, our own brand sales and sundries were up 20% year-over-year, led by Paper. Our own brand strategy is also playing a key role in our general merchandise transformation as well. In apparel, we cleaned up the assortment, upgraded the quality and expanded into children's and women's. We also put extra care into the presentation highlighting key features and making the items more appealing for our members. These efforts resulted in a 700 basis point increase in own brands apparel sales penetration in the third quarter. We believe our own brand sales penetration is on pace to grow to 25% for the full year and remain confident in our goal of reaching 30% over time. Our digital comp sales have grown double digits all year, up 16% in the third quarter alone. And digital now comprises over 10% of our business. This holiday season, we've made it even more convenient than ever to shop with us, reducing friction and applying greater personalization in our approach. We're making progress on our automation efforts as well. By the end of this month, we will have our fully autonomous AI-powered robots in all of our clubs. The benefits of this automation include in-club inventory tracking, pricing precision, faster restocking and more efficient and accurate buy online, pick up in club and curbside orders. We will continue to lean into investments that make our business more efficient and convenient while delivering outsized value to our members. Finally, we remain pleased with the performance of our newer clubs, and we are further growing our footprint. The clubs that we've opened in the last 12 months are ramping nicely with LTM sales collectively running over 30% ahead of our plan on the back of strong membership growth. Just last week, we entered our 20th state in Madison, Alabama. I love the energy and the enthusiasm both from the community and our team members. We expect to open 5 more clubs in the fourth quarter, bringing us to 9 new clubs for the fiscal year. I'd like to close my remarks with sincere gratitude for our team members who remain dedicated to our members and our communities, especially as we head into the busiest time of the year. I'm especially proud of the work our team has done to partner with local food banks and schools in both new and existing markets to help our communities thrive. To our team members who are listening in today, thank you for your hard work. I'll now turn it over to Laura to provide more details on our results and outlook for the rest of the year.

Thank you, Bob. I'd like to start by also thanking our team members across our clubs, club support center and distribution centers for their commitment to our members and to the company. Let's dig in to our third quarter results. Net sales in the third quarter were approximately $4.8 billion, growing nearly 3% over the prior year. Total comparable club sales in the third quarter, including gas sales, increased by 0.3% year-over-year. Merchandise comp sales, which exclude gas sales, decreased by 0.1% year-over-year, an increase by over 5% on a 2-year stack. As Bob mentioned, we delivered positive traffic gains year-over-year, which were offset by lower basket due to continued disinflation. Our third quarter comp in our grocery, perishables and sundry division grew by 2% year-over-year and 7% on a 2-year stack. We drove strong gains in market share in the third quarter, which supports our belief in a healthy, growing and loyal member base that relies on BJ's for its shopping needs. Our general merchandise and services comp decreased by 11% in the third quarter. As Bob noted, GM performance strengthened over the second quarter as sales skewed away from weather-sensitive categories, and we made further progress on our GM improvement efforts. While members remain selective in their discretionary shopping, we believe we are well positioned to capture share this holiday season. Digitally enabled comp sales in the third quarter grew 16% year-over-year reaching over 10% of our net merchandise sales. Approximately 90% of our digitally enabled sales are fulfilled by our clubs with services like BOPIC and same-day delivery, which remain the primary drivers of our digital growth. We believe that digital convenience is a key advantage for us, and we will continue to lean into driving better digital engagement over time. In our gasoline business, we delivered comp gallon growth of nearly 3% in the third quarter which compares to the industry running negative in the same period. Our third quarter profit per gallon, while lower than last year, came in above our expectations, resulting in upside to our bottom line. Membership fee income, or MFI, grew nearly 7% to approximately $106.1 million in the third quarter and we remain pleased with our membership trends, including an overall member counts, higher tier penetration as well as first year and tenured renewal rates. Moving on to gross margin. Excluding the gasoline business, our merchandise gross margin rate improved by 30 basis points year-over-year as we lap the tail end of last year's supply chain headwinds in the third quarter. We also continue to manage our inventory well with our general merchandise mix skewing towards margin-accretive sales. SG&A expenses for the quarter were $697.1 million. The year-over-year increase was primarily attributable to our new unit growth and other investments to drive strategic priorities. Our net interest expense in the quarter was approximately $18 million and included $1.8 million of charges related to fees and the write-off of prior deferred fees, which have been adjusted for in our adjusted EBITDA. We reported third quarter adjusted EBITDA of $274.9 million and adjusted EPS of $0.98, which reflects our sales and margin growth bolstered by membership strength and healthy fuel profits. Moving on to our balance sheet. Our merchandising, finance and planning and allocation teams remain diligent in optimizing our inventory for the current environment, and we continue to feel good about our position today. We ended the third quarter with inventory up about 10% year-over-year, which is driven by inflation and strategic investments in our business including supporting new clubs and in-stock improvements in our consumable categories. Turning to our capital structure. We ended the third quarter with $832.3 million of debt and 0.7 turns of net leverage, which remains consistent with our long-term target of sub 1 turn. In October, we amended our term loan opportunistically, repricing and reducing our interest spread by 75 basis points. We also simultaneously repaid $50 million through a partial drawdown on our ABL, resulting in approximately $3.5 million of collective annual interest savings. Our capital allocation strategy is consistent with the framework we set forth on our Investor Day. 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 also continue to return excess cash to shareholders through our share repurchases. Year-to-date, we bought back nearly 1.2 million shares for approximately $77 million and we have approximately $242 million remaining under our current authorization. Let me now address our outlook for the rest of the year. Our business and the broader industry continue to navigate high levels of uncertainty in an environment influenced by disinflation, geopolitics and high interest rates as well as government aid and discretionary demand that is still normalizing from the pandemic. As members become more resourceful on tighter budgets, they are increasingly turning to BJ's due to our strong value prop, and this continues to show in our traffic counts and market share. We don't see that changing. We are also confident in our long-term plans for general merchandise and are excited about our holiday strategy. While we continue to drive improvements in key categories, we also recognize that near-term trends are uncertain and are planning our business accordingly. Finally, year-over-year inflation moderated faster than anticipated in the third quarter. As we think about the fourth quarter, a reminder that the comparison is much easier. Last year, inflation remained flat between Q3 and Q4. And while we expect some continued disinflation, we are maintaining our expectation of net year-over-year inflation, not deflation in the fourth quarter of this year. Starting at the top of the P&L, we now expect our fourth quarter comp sales, excluding gas, to range from down 2% to positive 1%, which equates to comp growth of approximately 1% to 1.8% for the full fiscal year 2023. Our expectations reflect a wider range of outcomes given the near-term retail environment and continued disinflation. Our expectations to deliver fiscal 2023 GAAP and adjusted EPS of $3.80 to $3.92 remain unchanged with the fourth quarter benefiting from a 53rd week. In our gas business, we continue to expect growth in comp gallons for the full year. We have embedded slightly higher profit per gallon expectations in the fourth quarter given current trends. Longer-term assumptions for normal gas profit per gallon remain in the low teens range. Longer term, we remain confident in the underlying strength of our business and believe we are well positioned to deliver sustainable growth to maximize shareholder value. With that, I will turn it back over to Bob for closing remarks.

Thanks, Laura. In closing, our team executed well this quarter and our growth in membership traffic and market share caused me to continue to be optimistic about the long-term trajectory of our company. The operating environment continues to be incredibly dynamic and challenging to predict, but we will focus on controlling what we can control, investing in the long term and managing the short term. We've considerably improved our business over the years and we will keep that momentum going. We will not lose sight of our strategic growth priorities, which are inspired by our purpose of taking care of the family should depend on us. We will work to grow the size and quality of our membership. We will work to offer an unbeatable member experience through our merchandising improvements. We will work to grow our digital business and profitably expand our footprint. Above all, we will not compromise delivering the best value for our members. I'm proud of our entire team, and I'm excited for our future. Thanks again for joining us today and for your support of BJ's Wholesale Club. I'll now turn it back over to the operator to take your questions.

[Operator Instructions] We'll start with our first question, which comes from the line of Mike Baker with D.A. Davidson. Mike, please go ahead. Your line is now open.

Okay. Great. So I'll jump. And I think with a question that's on everyone's mind, and you alluded to it a little bit, but -- forget about inflation, let's talk about deflation. That's going to be the new theme. I think you talked about your expectations for the fourth quarter, not being deflationary, but what happens next year if we continue down this road, do we see deflation next year? How does your business react in that environment? And I guess one more as part of that, what are you seeing in terms of general merchandise pricing, inflation, deflation, disinflation.

Mike, thanks for your question and for your time this morning. We're pretty proud of the quarter we put up from a number of angles. We're in the lifetime value business. So we look at it from a long-term perspective. All the things from that perspective went well during the quarter, membership traffic, market share all those things augur to the benefit of our company over the long term. As we think about comps, right, traffic was very strong. Unit trends are stable. We saw a nice improvement in our general merchandise business. But certainly, we did see increasing disinflation during the quarter as we predicted, in fact a little stronger than what we predicted. I think as we said in the prepared remarks, we expect some more disinflation as we go through the rest of this fiscal year and probably into the front part of next fiscal year. I've really sort of thrown out the crystal ball at this point on what's going to go on. We focus really on taking care of our members every single day. Value wins. And as I said, we operate in the long term. So no matter what happens from a pricing perspective, we will always do the right thing for our member from a value perspective. We want to grow our membership, we want to grow the size and quality of that membership and grow our renewal rate. We've been focused on doing that from a long time from a long-term perspective, have been very successful, and it starts with that value. So no matter what happens in the commodity market, we will always make the right long-term decision for our members. As you think about general merchandise, it's really a category-by-category perspective. And some categories are typically deflationary like TVs and electronics are always typically deflationary. So it's a little bit hard to answer in the general merchandise business because it's category by category. But again, even there, as we remake that business we will -- we are really dramatically focused on getting the right items on the shelf at compelling values and doing that over and over and over again to build the credibility in those categories for our members, again, for the long-term value of their memberships.

Okay. Makes sense. If I could ask one more follow-up on the same subject. Have you seen -- you said units stable. Any examples or how do you think elasticity works as price disinflates or maybe deflates, any examples or any signs of units potentially getting better in any areas?

Yes. Certainly some categories have more elasticity than others, right? We talked in the prepared remarks about eggs as an example. As the prices there came down, certainly, units went up in that category. So we don't just take all the downside as prices go down. We get unit traction as well. We saw nice unit gains in many categories and most of the critical categories that we care about. So think about the stock up categories, paper and laundry detergent and some of the other ones we mentioned, we saw nice unit increases and we've seen some nice unit increases in general merchandise categories as well as we've remade those. So we're pretty pleased with what we saw in the things that matter in our business.

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

Bob and Lauren, I was wondering if you could talk about the acceleration in the membership dollar growth. I don't think we were expecting that. It looks really strong. And also, we've seen -- I think, at least on digital, we've seen some discounting in the membership down to $20 from the $55. Can you kind of walk through what drove that acceleration in membership growth? And should we expect that to continue in 4Q and into next year?

Thanks for your question. We're delighted with the progress in membership this quarter, much stronger than the internal plans that we had much stronger than the performance we put up in Q2 that seemed to surprise everybody. Our team did a great job really managing the flow of offers out into the market, figuring out and iterating on what we're doing and driving quality memberships as well. So as we look at the membership performance during the quarter. Really, everything that we care about was strong. The number of bodies was great. The dollars per member, we are happy with. The higher tier penetration at 38% was great. Within that number, we saw a big shift into the highest tier, as we talked about in the prepared remarks. That's our One+ tier. So folks that pay $110 and have our co-brand and Mastercard product, those folks tend to be our best members. They visit us the most and they spend the most. They renew well north of 95% on average. So even underneath the covers of that number was very strong. And we continue to project hitting a 90% renewal rate for this year again. So we are very pleased the team did a wonderful job really getting after it. I don't think they were happy with the Q2 performance, even though it was just slightly below our plans in Q2. So they hit the gas nicely in the third quarter, and I would hope that we can continue to put up good numbers there. As you know, that's the lifeblood of our business and something that we've been working very hard on. As I think about the last 5, 6, 7 years here, it was not exactly a given that we would grow our membership quarter-to-quarter or year-to-year in comp clubs and in the full chain with new clubs 6 or 7 years ago, and we are routinely growing the membership every quarter in new members in new markets, in existing markets. So it's quite a neat dynamic, quite a neat marker of our progress as a company over a big chunk of time that we've been working on. To get to your question on discounting, I don't know that, that really matters to us, Robbie. Really, we're trying to find the right members with the right offer. And the fact of the matter is, we have a bunch of different offers out in the market at any one point in time. We are trying to target different segments with different offers. We are trying to find the right portfolio of members. And I guess I would point you back to the fact that we have grown our dollars per member consistently over the past several years. Really, you've heard us talk about a fee increase without a fee increase. Our dollars per member is up well over $5 over the last 5 years and continues to be even as we try different offer structures out there in the market. So again, we're very pleased with our membership. It was the highlight of the quarter in our view because it will drive long-term health of the business.

And Bob, maybe just a quick follow-up. Can you remind us on a member that you bring in on a discount, if you bring somebody into a $20 special instead of $55 or $65 instead of $110, what's the -- is the renewal rate dramatically different for someone brought in that way? Can you remind us what you guys have said about that?

Yes. Look, I guess I would answer this way, Robbie. Everybody that comes in on a discount is put into our automatic renewal program as renewal. And so they renew through that function at full rates in the second year. And we continue to have about 80% of our entire portfolio in easy renewal and that grew a little bit during the quarter, and we'll continue to try and grow that piece as well. It's a nice piece of bedrock underneath the membership and obviously, the cash flows of the company.

Our next question comes from Peter Benedict with Baird. Peter, please go ahead. Your line is open.

Talk a little bit more about the general merchandise and services category, down 11% in the third quarter, a little better than 2Q. Of course, it sounds like the general merchandise component, and that got better sequentially. Just maybe talk a little bit more about what your view is there as you head into the fourth quarter. How you're thinking about grocery versus general merchandise in that comp view that you guys laid out for the fourth quarter? That's my first question.

Peter, thanks for the question. It's a good one. We tried to -- so as I said, simplify the story line a little bit because there's a bunch of stuff in that GM services comp of down 11% that we that we talked about. The general merchandise business, as you know, is one of our big strategic focus points for this year and the next several years. It's a place that we are definitely underpenetrated in. We can considerably grow that business, we believe, and it will be key to the lifetime value equation to our members as we go forward. It's very much the treasure hunt aspect, the emotional aspect of shopping in our clubs is finding a great general merchandise item when you're in shopping for something a little less exciting like paper tolls or laundry detergent. Our team has done an astounding amount of work to really start the process of reinvigorating our general merchandise business. We've reset the talent. We've reset many of the categories. The way that we design assortments, design the value proposition to the members and deliver it in the clubs. As I walk our buildings in the last few weeks and months, I see a dramatic transformation. I don't how you could see it any other way. The quality of the products we have on the floor is compelling. The values are fantastic, the way that our operations team members are putting them on the floor for our members to see has dramatically improved over prior years. And our members are reacting in the categories that we have really redone, and we talked about TVs and toys and apparel and gift wear. Those are the ones that are most visible to me when I walk the clubs. As I said, we saw some nice results, again, a little bit under the covers in that business with comps in GM improving 500 bps quarter-to-quarter. And if you just looked at Q2 versus October, 800 bps. That gives us a lot of confidence in what we're doing because we're operating candidly in an environment that's a little tough to sell general merchandise at this point. It's a market where folks are buying a little bit closer to need. They are being particularly stubborn in buying big-ticket items still. But when they are faced with compelling assortments at great price points, they are certainly, certainly putting things in their basket. So we're pretty bullish on our long-term prospects from a general merchandise perspective within Q4, our compares get a little bit easier within general merchandise. And so we're hopeful from that standpoint, but we're operating in a pretty cautious consumer environment as well, and we recognize that. Our grocery business is running strong, right, plus 2 comps in the face of disinflation. Traffic was great, unit trends were okay. Our members are continuing to come to us for that business. And if we can convince them to get into our GM categories as they're buying their groceries even better. We talked a lot about our market share already in the prepared remarks. And again, that's a pretty compelling data point, third-party data. So this is not our own data, but we continue to grow in the categories that we care about far in excess of what the rest of the market is growing. And so I think we'll see continued strength in our grocery business, even though we might see some more disinflation, and hopefully, we can see continued growth in the general merchandise business as we go forward. It's one of our biggest strategic initiatives, and it's critical to our long-term picture of our company.

That's helpful. And then my follow-up would be just around the merchandise margins up again in the third quarter. Maybe an update on two things. One, your CPI efforts that have been ongoing for a long time, but just what's the latest there? And then secondly, if we're in an environment where there is more deflation that sits in maybe across more categories, how do you think that impacts your margin going forward?

Yes, it's a great question. thanks for bringing it up. This is a muscle that we have. We've developed several years ago. It's been critical in the reinvigoration of this company over the past 6 or 7 years, is really making sure that we are not only buying the right things but buying them at the right cost in the right margin profile. And that CPI effort has been going on since, about 2016 or '17 at this point. It ebbed and flowed. Certainly, we saw great initial games. And then in the midst of COVID. We're spending more time just trying to get inventory to satisfy the humongous growth that we've had rather than cost. But as we sit here in the market that we see today, it becomes more important that we manage our margins effectively. We've shown great capacity to do that over the past quarters and years with CPI as a great tool to deploy. We have a big effort underway right now to make sure that we do that. A number of our key categories go through the process every quarter. We have an aim to go through all the categories, all the consumable categories at least every year and make sure that we are designing the right assortment for our members, first and foremost, but also to get the right margin profile. So our merchandising team and our analytics team partner together on that effort. They've done a tremendous job. That's one of the reasons you saw the margin performance that we put up this quarter. That effort will continue. Deflation provides a little bit of -- a little bit more opportunity to do that. And we're certainly finding success in the categories that we've reviewed recently. So glad we developed this muscle several years ago. We are putting it out there at this point in time, and we're seeing some great results.

Our next question comes from Edward Kelly with Wells Fargo.

Hi. Good morning, everyone. I wanted to ask you about just comp cadence. I wanted to ask you about the comp cadence. How did you see comps playing out during the quarter? We've heard about some choppiness elsewhere. I was curious as to how Q4 has started so far in November. And then within the guidance, you open the door to some potential reacceleration with the high end of the comp guide in Q4. I'm curious as to what's behind that and what you think could potentially drive that?

Yes. Thanks for the question. It's a good one. I don't think my answer will surprise anybody. Some of the other participants in the market have talked about Q3 being a choppy quarter. For us, it was pretty stable in August and September and October was definitely choppy, particularly in the last couple of weeks in October. I don't think that statement will make any headlines given what's out in the market already. So we tended to see the same things that others are seeing. Without getting into what we're seeing in Q4, our guide is a little bit lower than our previous guide for the quarter, and that's really reflective of the disinflation trends that we saw during third quarter and the recognition of the last couple of weeks in October, we are operating in a pretty cautious consumer environment, and we took the opportunity to put a little of that caution into our guidance. We're hopeful to perform to the high end of that guidance, that would -- that would really mean we need to improve our general merchandise business and continue to do that during the quarter and continue to have a good traffic trends in our grocery business. We're cautiously optimistic that we can make that happen. But obviously, the key word is cautious at this point. That's how our consumer is acting and given the importance of Q4 to the trend of the company. We're certainly operating in that environment. We're aiming to grow. We are doing the things that we need to do from a product selection, from a pricing, from a promotion standpoint to do so, but we can only control what we can control. So we'll continue to put a great assortment out in front of our members. We'll continue to price it effectively. Importantly, we're not pricing for comps or pricing for value and for market share and for the long term of the business. No matter what happens in Q4, we will always do that. We'd love to have a better company next year, 2 years, 3 years from now rather than just hit any one particular quarterly number. So I think you can call us cautiously optimistic on the fourth quarter and on the future.

Great. And then just a quick follow-up. Any early thoughts on 2024? I mean there's obviously growing uncertainty out there. I'm sure, as a company, you've got a lot of good underlying progress in the business, right? So I'm sure you don't want to cut corners around some temporary period of deflation. Just thoughts on how you're thinking about planning the year and how we should be thinking about your expectations? The Street is up about 5%, I think, next year with 1 less week, which looks a little high. But just any thoughts there?

We are incredibly bullish on the long term of the company. I think next year, aside I think 3 or 5 years from now, we are -- we've been in a much better place than we are today as we continue to build our membership, capitalize on the market share gains, convert GM into a much better business and a lot of things we've talked about. As we get through this fourth quarter, we're concentrating on the right assortment at the right value and executing well every day to give our members what they're looking for. As we think about next year, I think you're going to see a little bit of a continuation of some of these trends quite candidly. I think you'll see a little bit more disinflation. I'm not sure you get to net deflation in the business based on what we know today, but we haven't really finalized our plans for next year, our views for next year. We are really just focused on the long term of the business and the short term kind of takes care of itself. So I can't overstate how excited we are for the future and how bullish we are for the future. We really think we're doing the right things for the long term of the company. And in the short term, we'll manage through the dynamic environment that we're facing.

Our next question comes from Rupesh Parikh with Oppenheimer Oppenheimer.

So just going back to your commentary on new stores. You indicated that your new stores are 30% above plan in the last 12 months. Just curious what's contributing to that upside. And as you look at some of these newer states that you've entered, how those are performing versus expectations?

Yes. Thanks, Rupesh. Maybe I'll start it off and hand it over to Bill Werner, who's running that effort for us. I'm incredibly proud of what we've done in this area. Each new store that we open looks better and performs better than the last one. And the team has done a wonderful job getting great pieces of where to put boxes on in places that are growing. We just opened Madison, Alabama last week. It's done phenomenally well in its first week. And that's really because we opened a great-looking box with a tremendous amount of members, a fantastic team serving those members. And a great assortment on the floor when those new members walk in. We've built a lot of apparatus around this accelerated new club opening schedule that we have. We have an all-star team from around the chain that helps these new stores get ready to open and then and then come out of the box hot. We're very proud of that team as they help their new team members and these new stores open up. We've got 5 more to come in this year. We'll have a full slate for next year as well. We're just very pleased with what's going on. So Bill, what did I miss?

No. I would just reiterate what Bob said, we've spent the last 5 or 6 years now building the muscle on how to open up a club store in a new market. And as you think about the success that we've had in the national market earlier this year, and then as Bob mentioned, with our first state in Alabama now just a couple of weeks ago, we're starting membership from scratch in those new markets. And we've spent a lot of time over the past couple of years, learning how to do it right. And it's everything from how we sell memberships, how we tell people our story, how we build the team to make sure the members on day 1 have the experience as if they've been a member for 20 years, and we've done a great job with it. So we're excited about the future. We have 5 more clubs here in the next couple weeks and through the end of this year, and we're excited to get those underway too.

And then maybe just one follow-up question. Just given concerns on the top line for next year. In your current growth environment, what type of comp do you think you need to leverage expenses or SG&A?

I think it's a little bit over 2% at this point, somewhere between 2% and 3% Rupesh, that's -- you think about our expense model, the biggest component of expenses after cost of goods sold is labor, and that's about what we average from a wage increase rate. So somewhere between 2% and 3% would be a good way to think about it.

Our next question comes from Simeon Gutman with Morgan Stanley.

Bob, I wanted to follow up on general merchandise. So the rate of change sounds like it's improving. But overall, still I think, down in the high single digits despite that. So I was trying to put the pieces together. I guess, when do we -- when does GM -- could we get to an inflection? I guess this backdrop may not get us there quick. But all the data points that you're citing, the sequential improvement, the change versus October sounds pretty good, but the overall rate is still not there. So what needs to change? And then what time frame does that happen in?

Yes. It's a really good question, Simeon. I think what we're seeing in this consumer environment is certainly blunting the impact of what our team has done. We were very pleased with what we saw in Q3 in terms of the rate of change. It was just about what we were projecting maybe a tiny bit shy. And the places that it was shy, it was in our estimation just the consumer environment that was really getting in the way there. The team has done a fantastic job designing new assortments, getting them on the floor, getting compelling products and price points out there. I think if you think about it from a long-term perspective, the thing that we're looking for really is credibility in this business. There are places in GM that we have great credibility. One of those might be TVs and electronics. People know that we carry the right brands. We carry them at compelling prices. And that business has always been a pretty good business for us. There are many, many other categories where we've had confused assortments, not presented in the right way, not the right brands on the floor. And we've tried to, in the last few calls, give a lot of context around what we're trying to do there when we talk about categories like toys or home appliances or things like that. It's something that we'll have to do over and over and over again. We are incredibly pleased with what we saw in Q3 because it tells us that our members will react when we put great assortments on the floor. I think we're at that point now where -- we have the stuff that we need in some of these categories, but we have to make our members, number one, understand that we have those things. They're not used to us having great assortments in general merchandise. And number two, we have to do it repetitively, right? We need to build that -- that appearance and that credibility with our members so that we become more of a destination from a general merchandise perspective, right? I would tell you, last year and the years before that, we were a grocery shop with some general merchandise that was really opportunistic. Our mission is to broaden our members' trip missions to include general merchandise destination trips, right, coming to us for GM and maybe getting some grocery while they're there. And we're finally starting to see the green shoots on that stuff. So we've talked a lot about toys. We talked a lot about home. Apparel is probably the thing that is most mature from that perspective. We've seen 2 or 3 new assortments there. The apparel sales were positive in Q3 as we continue to make that assortment better and gain that sort of repeat traffic and credibility factor from our members that's what we're after in all of these general merchandise categories. So the consumer environment makes it a little bit tough to tell you when we'll turn the corner. Again, with a long-term focus, we're incredibly pleased with what the team is doing, what our early reactions are. And we'll just keep our nose to the grindstone and keep pushing to try and get that credibility and get that destination factor.

And then a quick follow-up on what you're thinking, the latest thoughts on membership fee hikes, how you think about it. If sort of needed for the P&L given, I don't know, for various reasons, if SG&A is rising, do you use it as a lever? Or is it the consumer environment trumps everything else right now, the way you think about it?

Yes. Look, I think, again, we're focused on doing the right thing for our members for the lifetime value. And I think there's a good case that our members save even more money today than they did several years ago. So you could think about us justifying a membership fee income hike with the fact that our members get more from us than they did 4 or 5 years ago. But we want to be very cognizant of the fact that, we are in an interesting consumer environment, and we don't want to derail the progress that we're making, right? And go back to some of the earlier comments that I made. We're thrilled with our progress in Q3 and over the last several years, we've had a fee increase without a fee increase. So I think we can keep up the momentum. I don't want to do anything to derail that. That's not saying I'll never do it, but we haven't given any thought to doing it in the very near term.

Our next question comes from Mark Carden with UBS.

So to start on fuel, you noted that profits came in higher than anticipated and that you're boosting your 4Q expectations. But at the same time, you're keeping your longer-term profitability expectations steady. And so just curious if you're seeing any signs that the industry may be getting structurally stronger from a profitability standpoint? Are you looking to lighten your gaps here at all? Or are you expecting price competition to basically just step back up as fuel prices normalize?

Mark, that's a great question. Certainly, gas was good profit performer for us in the third quarter. We expect it to be in the remainder of the year as well. That really all is a function of two things. First and foremost, our gains and market share, we continue to grow our gallons. Our gallons are up 3% in Q3. And the market is double-digit down in our markets. So we are garnering tons of share. Part of that is just our low pricing. Part of it is our co-brand credit card that gives you another $0.15 off per gallon and is a really great way to show value to our members on an everyday basis on top of the already fantastic pricing that we have. Second, really, behind market share is just the volatility of the cost of the commodity. So with not one but two wars going on in the world, that provided a little bit of sadly extra volatility. And that provides some extra profit for us. So I think that will continue through the fourth quarter. I don't think -- I think you can probably predict my answer on the long term. I don't think we're looking to widen any gaps here. We're not trying to make any extra money off of gas while acknowledging that we have gotten structurally more profitable and the market has gotten structurally more profitable, we're not trying to float that up overall. What we're trying to do is put great pricing on our fuel, build the lifetime value of our memberships, get people in our parking lots through the gas business, so they come in and buy some general merchandise and some grocery items from us. We'll continue to focus on that. It's a great way to build the membership, great way to build traffic, and price perception. So our team has done a wonderful job operating the gas business in a quite dynamic environment, and it's a key to our long-term future of our company. So good performance. We're looking for some more good performance. And over the long term, it will continue to drive our business.

Got it. That's helpful. And then just as a quick follow-up. What are you guys anticipating on the labor front over the next few quarters? Do you see much of a risk for another round of investments?

Look, Mark, I think labor is always on our mind. Our team is obviously a critical component of what we do every day. They do a great job taking care of our members. As part of our mission, taking care of the families that depend on us, obviously, our team members or some of those families that depend on us. We pay great wages. We made huge investments over the past few years. With that said, we are fully staffed today. We're seeing reduced turnover in the clubs, so that would tell me that we're in the right neighborhood from a labor pricing perspective. There are certain pockets that are harder than others. But overall, I don't see the need to make giant investments going forward. We will try to do the best thing to take care of our members by getting the team members that we need and take care of those team members so that they take care of our members. So we don't anticipate it being a larger-than-normal structural headwind going forward.

Those are all the questions we have time for today. So I'll turn the call over to Bob for closing remarks.

Wonderful. Thank you so much for being with us this morning. Thanks for your interest and your support of BJ's Wholesale Club. Hope you all have a safe and happy holiday season, and we will talk to you soon. Thanks so much.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.