Good morning, everyone, and welcome to the BJ's Wholesale Club Holdings, Inc. Fourth Quarter 2023 Earnings Conference Call. My name is Drew, and I'll be coordinating your call today. [Operator instructions] I'll now pass the call over to your host, Cathy Park. Please go ahead.

Good morning, and welcome to BJ's fourth 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 sections 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 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 to discuss our fourth quarter and full year results for 2023. We ended the year with strong results, highlighted by robust growth in the fourth quarter. This growth in membership, traffic, units, and market share capped off another dynamic year. I'm proud of how our team managed through the changing landscape while maintaining our focus on long-term priorities and never losing focus on delivering value to our members. We finished the year with momentum, and I believe we are well-positioned for long-term growth. Our comparable club sales, excluding gas sales, grew by half a point in the fourth quarter. This result was at the high end of our guidance range and landed us at 1.7% for the full year. Traffic, which has been positive all year, accelerated even further in the quarter, contributing about 3 percentage points to our comp. Critically, we also turned the corner on unit volumes in Q4 with positive comp units led by our consumables business. As a result, we continue to gain market share in the quarter as we have all year. We believe our strong commitment to value is resonating with our members as they increasingly rely on BJ's for their shopping needs. Our perishables, grocery, and sundries divisions delivered comp growth of nearly 1% in the fourth quarter. This was driven entirely by year-over-year volume growth unlike the rest of the market which continued to face unit declines. Household essentials, such as fresh fruits and vegetables, milk, water, paper, and laundry, were leading drivers of demand. Inflation continued to moderate during the quarter, as it has all year, with fourth quarter inflation about flat year over year. Many categories are still running slightly inflationary. Other perishable categories, such as eggs, underwent considerable swings in cost in fiscal 2023 with average pricing in the fourth quarter declining double digits year-over-year. I should note that we generally see elasticity as prices decline and comp egg units were up in the quarter. Amid the compounding impact of inflation over the past two years, we have relentlessly focused on delivering compelling pricing every day. In the fourth quarter, our pricing index against our grocery competitors improved against the same index a year ago. And for the full fiscal year, we improved by about 100 basis points. It's easy to see why our member base continues to grow. Consumers choose to shop at BJ's because we consistently save them money and time. I'd like to take a moment and talk about our strengthening general merchandise business, which accelerated significantly during the fourth quarter and delivered close to a positive 2% comp. This represents sequential acceleration of approximately 1,200 basis points over the third quarter and a 650 basis point acceleration when comparing the same two periods on a two year stack. Our entire commercial team, merchandising, marketing, ops, and supply chain has been focused heavily on reigniting growth in these categories, and I love the progress we are seeing. Remember, demand was especially strong for us during our Black Friday events. Our performance was driven by an enhanced assortment focused on great brands at great value. We reinforced this with an improved approach to product presentation and a competitive timing of offers. As a result, we delivered a positive 9% comp in consumer electronics led by double-digit unit growth in televisions, audio, and video games. We also produced another positive 5% comp and apparel, driven by an elevated, cleaner assortment and stronger partnerships with brands, such as Champion, Carter's, Levi's, and Skechers. In addition, Berkley Jensen apparel sales, our own brand, more than doubled year-over-year in the fourth quarter, meaningfully supporting our apparel strength. Our holiday set this past season consisted of vastly improved assortment and marketing. This created a much better shopping experience than I've seen in a very long time. We drove strong engagement through investments and quality and sharp price points designed to meet our members' needs, particularly in the current environment. Our toy category, for example, featured 90% new assortment, anchored by popular brands, including LEGO, Disney, Hot Wheels, and Barbie, generating sales that outpaced the market in the quarter. Our fourth quarter results demonstrate clear progress on our GM transformation and reinforce our confidence in sustainably growing this segment of our business over time. As we look ahead to the New Year, we will continue the evolution with higher levels of quality and exceptional value. Rebuilding credibility and GM remains a crucial part of our long-term strategy, and we will continue to innovate to realize the significant potential we see in the space. Gas is a daily necessity for many of our members, and it is another meaningful way in which we deliver great value. We gained share once again in the fourth quarter as we grew comp gallons by nearly 3% year-over-year versus the overall market, which was down about 5%. For the full year, our comp gallons grew about 1%, as expected, a top double-digit comp gallon growth in each of the past two years. This compares to the broader industry whose same-store volumes have decreased by double digits. This growth contributed to strong gas profits in the fourth quarter and for the year. We reported adjusted earnings per share of $1.11 for the fourth quarter at the high end of our expectations and $3.96 for the full year due to our strong fundamentals. Our four strategic priorities remain cornerstones of our long-term growth. These priorities are improving member loyalty, giving our members an unbeatable shopping experience, delivering value conveniently, and growing our footprint. We have a lot to be proud of in each of these areas. Membership delivered another milestone year with us delivering impressive growth and a 90% renewal rate. Membership is arguably the most important product that we sell, and it's worth considering the profound growth our team has delivered since our IPO. From fiscal 2018, our member count has grown by about 35%, and we currently serve well over 7 million members. While our strong value prop has certainly contributed to our success, we've also gotten better at acquiring members over the years. We are expanding membership in both new and existing markets with our digital platforms becoming a dominant source of that growth. Our focus on lifetime value has paid dividends in the form of membership quality, too. Higher tier membership penetration is now 38%, having grown over 13 points from fiscal 2018. 2023 was marked by the transition of our co-brand portfolio to Capital One, and we are already seeing the benefits of this change. With one of the best card value propositions in retail, we expect to deliver over $300 million in rewards back to our members in the program's first full year. This 35% increase in rewards has supported a double-digit percentage increase in $110 members in fiscal 2023 with a large majority of the growth happening in the highest tier credit card. These members' exhibit the highest spend and are our most loyal customers, contributing to our membership fee income growing by 6% in fiscal 2023. We believe that the growth this year and the expected growth to come will result in long-term value creation for both our members and shareholders. A great shopping experience keeps our members coming back to shop with us, deepening their loyalty and driving higher renewals. That's why we continually strive to improve the member experience through better merchandising, digital, and in-club conveniences, and of course, amazing value. As you already know, the advantages inherent in our warehouse club model allow us to deliver more value to our members compared to other less efficient forms of retail. In a low SKU count environment, members rely on us for a highly curated, well-presented assortment that delivers the most value. Over the years, we have built and refined a comprehensive process that optimizes our assortment with relevant brands and products and stronger value, resulting in profitable growth. This continuous improvement process requires data driven insights, strong relationships with our vendors, and discipline in execution. To put this into context, let's take a category like coffee where high levels of inflation have resulted in us breaking price cliffs across various articles last year. As costs moderated for the commodity, we took the opportunity to re-evaluate our assortment. As a result of this process, we are rolling out a refined assortment that will reduce duplicative roast offerings, expand and elevate our own brands, and introduce relevant local offerings. These changes helped our coffee unit performance exceed the market by over 100 basis points in the fourth quarter. We believe our new assignment will allow us to recapture margin and move more units at better values to our members, especially relative to our grocery competitors. This is just one example of how we're constantly improving our assortment to offer unbeatable member experiences and drive traffic, market share, and long-term growth. We will continue to invest our time and resources to deliver the best value for our members. Our own brands, Wellsley Farms and Berkley Jensen, provide our members with high-quality products and deep savings. I'm pleased to report another record year in fiscal 2023 as our own brand sales grew approximately three times faster than our broader business, outpacing the market's growth of own brands. This was led by our sundries categories. And for the year, our paper category alone delivered about 750 basis points of growth in dollar share and 850 basis points of growth in unit penetration. Remember, penetration and repeat purchase rates have grown nicely as well, signifying deeper loyalty to our brand. On the heels of this success, we are leaning into additional categories this year, including food storage, snacking nuts, and coffee, as I highlighted earlier. Home brand sales now make up over a quarter of our business, and we're confident in our goal of reaching 30% over time. Our digital comp sales grew by 28% in the fourth quarter with digital comprising over 11% of our business. Our digitally enabled sales have grown sevenfold since fiscal 2018 with more members leveraging our convenience offerings over the past five years. In fiscal 2023, members who shopped with us digitally spent about 90% more than those who solely shopped us in club. We believe we've only scratched the surface in our digital efforts and will continue to augment our conveniences in areas such as same-day delivery, in-app capabilities, and personalization to deliver even more value to our members. Finally, we are growing our real estate portfolio profitably and at a faster pace than recent history, having opened six new clubs since the third quarter. Our chain currently stands at 244 clubs and 175 gas stations. This fiscal year, we expect to open about 12 new clubs. This includes our third Tennessee club, which opened in Goodlettsville a few weeks ago, along with two relocations, and our exciting entry into our 21st state in Louisville, Kentucky. We're planning about 15 new gas stations as well as we open gas and existing clubs without a gas offering, in addition to new clubs. Looking beyond this year, we're also continuing to build our pipeline and currently have more units in the pipeline than any time in the last 20 years. As we assess the state of the consumer over the past year, our members have been incredibly resilient. We have, as always, remain committed to helping them stretch their dollars in this value-seeking backdrop. Our mid- to higher-income members, while choosier in their spending, are still exhibiting strong shopping behavior with trips and spend continuing to grow. Our lower-income members shopped us with greater frequency in the fourth quarter, even as their wallets remain pressured, particularly by lapping government aid. These members continued supplementing their purchases with other forms of tender and more so than in the third quarter, serving as another proof point of our growing wallet share. These crucial underlying behaviors drive member loyalty and retention, which is what we're after longer term. As we look ahead, there's no doubt that this year will have its own set of challenges for us to navigate. These include broad economic uncertainty, geopolitical risk, and ongoing disinflation. However, we remain confident in our ability to continue driving our business forward. Our operating model, intense focus on our long-term growth priorities, and dedication to delivering value keep us positioned to win no matter the macro. I'd like to close my remarks with my thanks to our team members who move mountains to take care of the families who depend on us. To any of our team members listening in today, thank you for your dedication and your hard work. I remain excited about our future as we continue to grow our company together. I'll now turn it over to Laura to provide more details on our results and outlook for the year.

Thank you, Bob. I'd like to join Bob in thanking our team members across our Clubs, Club Support Center, and Distribution Centers whose efforts delivered another year of strong financial results amid a challenging operating environment. Let's now discuss the fourth quarter results. Net sales in the quarter were approximately $5.2 billion, growing 8.7% over the prior year. Total comparable club sales in the fourth quarter, including gas sales, decreased by 0.4% year-over-year as average retail gas prices fell below $3 a gallon. Merchandise comp sales, which exclude gas sales, increased by 0.5% year-over-year and by over 9% on a two year stack. As Bob mentioned, we are pleased to see traffic accelerate. Continued disinflation pressured our overall basket, but we were excited to see units turn positive in the quarter. Our fourth quarter comps in our grocery, perishables, and sundries division grew by nearly 1% year-over-year and 13% on a two year stack. We drove gains in market share during every single quarter this year, which supports our belief in a growing and loyal member base that relies on BJ's for its shopping needs. Our general merchandise and services division comp decreased by about 1% in the fourth quarter. But as Bob mentioned, our general merchandise comp was positive as our improvement efforts continued to gain traction, particularly around the holidays. Other components of our business unfavorably impacted the overall divisional comp, partially due to a strong year in our home improvement business, creating a tougher lap this year, in addition to a ramping new co-brand business. Digitally enabled comp sales in the fourth quarter grew 28% year-over-year, reaching over 11% of our net merchandise sales in the quarter. About 90% of our digitally enabled sales are fulfilled by our clubs with services like buy online, pick up in club, as well as same-day delivery which remain the primary drivers of our digital growth. In fact, BO pick [ph] alone contribute to about half of our digital business today. We believe that digital convenience is a key advantage for us, and we will continue to enhance member conveniences to expand our reach. Membership fee income, or MFI, grew 6.5% to approximately $108.4 million in the fourth quarter, delivering another record year in overall member counts, higher tier penetration, and MFI. We're also pleased to have maintained our strength in retaining our members with another 90% in tenured renewal rate this year on top of a growing new member base. Moving to our gross margins, excluding the gasoline business, our merchandise gross margin rate declined by approximately 40 basis points year over year. We continued to invest across the business, and similar to the past couple of quarters, experienced some unfavorable lapping of co-brand financial flows in the wake of our transition. On a full-year basis, merchandise gross margins grew year-over-year by approximately 50 basis points. Our fiscal 2023 merchandise gross margin rate remains higher than each of the prior three years. SG&A expenses for the quarter were approximately $741.1 million. The year-over-year increase was primarily attributable to our new unit growth and other investments to drive our strategic priorities. We drove slight SG&A leverage as a percentage of net sales, driven by lower variable compensation compared to prior year. We reported fourth quarter and full year adjusted EBITDA of approximately $290.7 million and $1.1 billion, respectively. These exclude approximately $5.5 million and $13.9 million of fourth quarter and fiscal year 2023 restructuring costs, respectively, incurred to streamline our organizational structure to drive efficiencies at our Club Support Center. After several years of significant growth, we have taken a step back to reassess what the appropriate org structure should be to facilitate our future growth. As part of this work, we are reorganizing certain functions and centralizing processes to reallocate more of our resources to executing our key strategic priorities. This will be a multiyear efficiency effort that we expect will ultimately yield up to $50 million in annual savings, most of which would be reinvested in the business to fuel profitable growth. Returning to our adjusted EBITDA for a moment, please note that we have amended our adjusted EBITDA definition in consultation with the SEC and are no longer adding back preopening and noncash rent expense to the calculation. Specifically, our fourth quarter and full-year fiscal 2023 adjusted EBITDA reported within this morning's press release are approximately $10 million and $28 million lower, respectively, than what we would have reported under our prior methodology. All in, our fourth quarter adjusted EPS was $1.11, reflecting growth led by our strategic priorities in membership, merchandising, digital, and new clubs, as well as a 53rd week benefit of approximately $13.4 million in net income, equating to approximately $0.10 of earnings per share. Moving to our balance sheet, we continue to feel good about our inventory position. We ended the fourth quarter with inventory up 5.5% year over year, which was driven by strategic investments in our business, including supporting new clubs and in-stock improvements in our consumable categories. Our capital allocation strategy is consistent with the framework we set forth a year ago at our investor day. We continue to believe that the best use of our cash is applying it toward 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. Our fiscal 2023 capital expenditures, net of sale-leasebacks, were approximately $455 million as we continued to invest in these priorities. In recognition of the choppy rate environment this year, we also opportunistically repriced our debt agreements and proactively reduced our debt levels to minimize interest expense. We ended the fourth quarter with 0.6 turns of net leverage, which remains consistent with our long-term target of sub-one turn. We are returning excess cash to shareholders, too. In fiscal 2023, we repurchased nearly 2 million shares for approximately $130 million, and we now have $189 million remaining under our current authorization. We will continue to take a disciplined and balanced approach to deploying our capital to maximize shareholder value. Let me now address our outlook for fiscal-year 2024. While we are mindful that our business and the broader industry continue to navigate uncertainty, we believe our structural advantages and value prop will continue to translate to strength in membership, traffic, and market share. This year, we expect our general merchandise improvements will drive incremental member engagement to a strong consumable base. Starting at the top of the P&L, we expect our fiscal 2024 comp sales, excluding gas, range from 1% to 2%. We are currently planning for fiscal 2024 to be slightly inflationary overall with slight deflation in Q1 as we lap high single-digit inflation from Q1 of last year and also proactively work to bring stronger value to our members. We expect to return to inflation for the rest of the year and also expect the quarterly flow of comps to follow a similar trajectory, getting closer to our long-term algorithm toward the back half. We expect to deliver merchandise gross margin rate improvement of approximately 20 basis points for fiscal 2024, driven by strong cost management and continued growth in our own brand penetration. From a cadence perspective, we expect the dynamics and timing of our co-brand credit card transition to continue into the first quarter with impacts easing as the program continues to ramp through the year. We are planning for continued SG&A deleverage in fiscal 2024 as we invest in our growth initiatives, particularly in unit growth, as new club sales continue to ramp over a multiyear period. Note that we are also lapping a previously mentioned variable compensation tailwind from fiscal 2023. Our strong value in gas has become even stronger with our new co-brand program, and we expect to continue to drive share gains with slight comp gallon growth in fiscal 2024. Our gas business has also become structurally more profitable, and we are planning for profit per gallon in the mid-teens range this year. We are planning for an effective tax rate of approximately 28% this year. Putting all this together, we expect to deliver adjusted EPS in the $3.75 to $4 range. This year, we also expect capital expenditures of approximately $500 million, the majority of which will be put toward new clubs and gas stations. 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. We have considerably improved our business over the years, and our team executed well this past year. We maintained our focus on the important drivers of long-term success, resulting in consistent growth in membership, traffic, and market share. Our strategic growth priorities continue to guide our future with delivering the best value as our North Star. We will grow the size and quality of our membership. We will offer an unbeatable members experience through our merchandising improvements. We will grow our digital business and profitably expand our footprint. Above all, we will continue delivering value to our members. I'm proud of our entire team, and I'm excited for the future of our business. 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.

Thank you [Operator instructions] Our first question today comes from Robby Ohmes from Bank of America. Your line is now open. Please go ahead.

Great quarter, and thanks for the outlook commentary. Bob, Laura, maybe the traffic comps of almost 3% sounds great. It does imply a good ticket pressure still. Can you maybe give more color on sort of the expectations for ticket versus traffic in your comp guidance you gave and a little more color on general merchandise versus the food side? And then I have a quick follow-up.

All right. Good morning, Robby. Look, I think we're pretty pleased with the complexion underneath the comp during the quarter. As we talked about 3% gains in traffic and turn the corner on units, obviously, that means there's some pricing pressure, as you mentioned, that's about, I don't know, 10 percentage points of this inflation year-over-year in the quarter. So knowing that that's out there, we spent more time making sure that our members are visiting us, engaging with us, putting things in their basket. And we saw a great performance from that perspective during the quarter. And certainly, the acceleration in traffic was, I think, probably the thing that we were most proud of during the quarter as it really number ne shows of engagement. From a long-term perspective, it's the biggest predictor of membership renewal as we've told you a lot. And you brought up the split between food and general merchandise, it really reflected the progress that we made during the quarter in our general merchandise business. As we talked about GM comps led the entire business. And that's a new thing for us. Hopefully, that continues. We're certainly expecting it to -- GM to have a good year in this New Year as we look to really grow that segment of our business over time, it's an incredibly important part of our strategy. Nobody that I know really loves to shop for groceries even when they come to us and save 25%, but they do love to buy electronics and apparel and home goods and things, particularly quality that we're seeing now at the values that we're putting forth as well. So we're pretty happy with the complexion of the business during the quarter, and it made us feel like we have a lot of momentum going into the next year.

That's really helpful. And just a quick follow-up. I think I saw you guys and also Sam's Club doing some membership discounting in the fourth quarter. I'm not sure a lot of that's going on anymore. But just curious how -- if you have any thoughts on how you think members gotten on discount, will they behave? Will you hold them similar as other members? Any thoughts on how that will work for you guys?

Yes. It's a good question. Membership underlies the entire business. We had a strong year from our membership perspective and Q4 was better than the full year, all the metrics that we care about, our ability to attract members, our ability to attract the right members in terms of their quality. Our long-term renewal rate, as we talked about, still at 90%. Our higher tier members are at 38% and the co-brand has really helped us lever up that portfolio into the highest levels of our tiers. So lots to be proud of there. We're very judicious from a discounting perspective. It is something that we do. It is something our competitors do. As we've talked about, to avail yourself of a discount, we ask you to participate in our Easy Renewal program. So discounting is an important way to catch somebody's attention and get them in, in the first year. It's up to us to properly engage you during that first year and then you renew at full freight through our Easy Renewal program in the second year. So again, very proud of our membership progress. It, again, is part of why we feel bullish about the business. And built upon several years now of growth in members. This is not just the COVID phenomenon. This is something we've been able to stack membership gains on membership gains for a few years now, and we don't see any reason why that would slow down.

That's great. Thank you.

Thanks, Robby.

Our next question today comes from Simeon Gutman from Morgan Stanley. Your line is now open. Please go ahead.

Hey, good morning, everyone. Bob, I wanted to ask you first, the top-line environment has been constrained, and we've seen that across retail. You're talking a lot about investments and thinking about where the business could be in a couple of years from now. Is there any degree to which you're holding back to manage short term profitability? Or are some of these changes you're making, some of the cost saves designed so that you don't have to hold back over the interim?

Yeah. Good morning, Simeon. It's a really good question. We talk a lot about here investing for the long term. And -- so very few conversations around here about investment for a quarter or for a year. It's where we're going to be in two years, three years, five years. And that's really the point of the membership business. We want to create a franchise for the next five or 10 years. So certainly, we have opportunities for in-period investments. We tend to make those as they come. But the more important ones to us are other long-term ones. And those tend to fall in the membership arena. So we're really proud of what we've been able to do. It's certainly one of the things that has really transformed the business over time. And in a quarter like this past one, where we had a great bottom line number, you've heard us talk about spending into the beat a little bit as well. Every time we know we have a good quarter going, we ramp up the investment a little bit, not necessarily for this particular quarter but for the next year, the next two years, the next five years. And that won't change. So probably the best example of that is the co-brand credit card certainly was a more lucrative deal than our prior deal with our prior bank, but we took all of those additional monies and invested them back into the value proposition for our members. And we talked about in the prepared remarks, 35% more rewards in the first year than in last year. That's an incredibly powerful thing for our members, whether it's 5% back on what they buy or $0.15 back on every gallon of gas that they pump. That really drives people's behavior in a lucrative fashion over the long term. It's not particularly accretive in the first year, as we've seen here in this first year of that new program. But it allows the program to grow so that it will be really a juggernaut in two or three or five years. So we will continue to invest in the business for the long term. That's really our job is to create that long-term value for our shareholders.

Thanks. And then one follow-up on general merchandise. How well do you know the customer who's buying it? Meaning, is it the most loyal? Is it a new member? And then the breadth across the different categories in general merchandise. And anything that's observable between a mature center or an existing market versus new markets?

GM was a great story during the quarter, as we talked about, so led the business almost at a positive 2% comp and a huge acceleration off of the third quarter. This was the first quarter where you could really see the new and better assortment across many categories in GM. As you know, we started to renovate in apparel last year and saw some great results. And a lot of the Q4 categories were long lead time categories. The first time to really see that benefit was in the fourth quarter. The great news is it really resonated with our members. We took huge important categories like consumer electronics and just knocked them out of the park. Apparel continued to do well. We had great business in other categories as well. And you brought up the point of member engagement. We're not just looking at the sales for these things or the margin for these things. We're looking at how many members are participating, what's the growth in those members, what are they look like and they are members from across our portfolio. It doesn't surprise me to see that, right? If you put a fantastic brand with a fantastic value in front of somebody, their tenure as a member doesn't really matter. It's really about that great quality item at a great value. So we are very pleased with what we saw. It's one inning in a long game. We need to continue to do this over and over and over to rebuild the credibility and general merchandise with our members. But for the first time in a long time, just hearing from friends neighbors, and colleagues that our assortment was much, much better than in the past. It was a really good first step for our team, and I couldn't be more proud of what they did during the quarter.

Thanks. Good luck.

Thanks, Simeon.

Our next question today comes from Michael Baker from D.A. Davidson. Your line is now open. Please go ahead.

Okay. Thanks. I wanted to ask Bill about real estate. Can you update us on how you're doing in some of the newer markets and intrigued with another new state in Kentucky, just overall, what you're seeing from new markets and why that gives you continued confidence to continue to grow the footprint?

Hey, Mike, thanks for the question. Yes, we feel great about the real estate program. We -- as we talked about in the release, we did eight clubs last year. We opened up a ninth just last month. And as we look forward to this year, we see continued growth on the horizon. And as Bob said in the prepared remarks, as we step back and look across the club growth plus what we now have in the pipeline, with the pipeline the strong it's been at any point in my tenure at the company. We feel really good about what's ahead. In terms of the recent club performance, I think this past year, we've seen what we've seen over the last couple of years is that the clubs are outperforming on the sell side, and we see really great member acquisition, member engagement. So we continue to work hard. Bob reminds me every day to go a little bit faster on real estate, and we've done a great job in adding to the pipeline this year. So I think more club growth ahead.

And it's an important reflection, Mike. It wasn't too long ago that we stopped opening clubs because we really didn't know how to do it well. We weren't doing it profitably. We didn't have enough members when we opened the clubs. And now the recent results are just spectacular over the last couple of years. And as Bill said, I'm pushing pretty hard to go even faster than where we are today. I'm proud of where we are going from no club growth to about 10 a year. That's no terrible performance there. It's fantastic. But this is really clubs time, right? You think about the shopping environment that's out there where value is paramount, there's no better value than the club business. And so we need to be as aggressive as possible in bringing what we offer to new markets and to really extending our reach in existing markets as well.

Yeah, makes sense. If I could ask one, I guess, follow-up but admittedly unrelated. You talked about the strength in general merchandise, particularly over the holidays, that opens the door, maybe wondering if you're willing to make any comments on monthly trend during the fourth quarter and then into early first quarter where it sounds like there's a little bit of disinflation? Does that mean maybe a negative comp in the first quarter? Or should all quarters perhaps comp positively?

Well, look, we had a fantastic November. We were very proud of as we talked about the new GM assortment and all the offers that we put out there. It was really a great 360-degree program that our team put together and executed very, very well. That resonated early in the quarter. December was slightly less than November, January came back a little bit. So there were slight differences from month to month. But all through the quarter, we saw really good performance. I'll refrain from getting into the first quarter all that much other than to say and Laura can build on this, however she'd like. I feel like the first quarter, given the pretty significant pricing lap year over year, the first quarter should look a lot like the fourth quarter of last year, and then the comps should build as we go as that comp lap gets a little bit easier from a disinflation perspective. And we also expect some easing pressure on the low-end consumer as we go through the year as well. So by the end of the year, we made sure to put this in the prepared remarks. By the end of the year, we feel like we should be at or near our long-term comp algorithm.

Yeah. Okay, appreciate the caller. Thank you.

Thanks, Mike.

Our next question comes from Oliver Chen from Cowen. Your line is now open. Please go ahead.

Hi, Bob and Laura. As we think about what's ahead with the merchandise margin opportunity, what's underlying the cost management opportunity, and also what you see with the own brands helping the merchandise margins and this quarter on the merchandise margins, that headwind, which has left some detail on us that relates to anything going forward. Follow-up is on your articulation on reorganizational functions and centralization. I was curious about why this was the right time for that and how it will help your business in terms of customer centricity, et cetera. Thank you.

Yeah, thanks, Oliver. Maybe I'll take a shot, and Laura and Bill can fill in. I guess spend time thinking about gross margins, you really kind of three things to think about that impacted Q4 and that will impact next year and a few years in front of us. First is our ability to field the right assortment and the margin profile that that provides. For those that have been following the story for a while, we have this muscle built. We used to call it CPI. Now it's probably a more wholesome assortment-driven process we call CMP, category management process. And that's along the lines of what we talked about in the prepared remarks around coffee, making sure that we take these categories that might have cost opportunity, margin opportunity and making sure that we carry the right assortment and the right -- make the right investments in our value proposition and balance out the margin. That's a particularly strong effort at this point, the merchandising team and our analytics team have done fantastic work that will benefit us in the next year. Own brands you mentioned, that's been a continuing growth effort for us now over 25% of our business with 30 in our sites. Obviously, that comes at a tremendous value to our members with savings for them, and it comes with loyalty for us and arguably better margins somewhere near 1,000 basis points better margins when you compare a typical own brands item against a typical national brand equivalent. So as we continue to grow that that should provide opportunity for margin rate growth. And then the third thing is co-brand, right? We saw some pressure in the last year on margin rate and frankly, on comps the way that the accounting works. From the first year of the co-brand program, that will continue until that lapse. So the first part of this year, this New Year, we expect to be pressured a little bit from a margin rate perspective. And that's continuing investment in the business, right? As I talked about earlier, we take all of the -- we decided to take all the flows from the deal and put it into the value prop. And that's what grew us from zero to 1.5 million cardholders, and that's what we expect to grow us to 2.5 million or 3 million cardholders in the future. So that's really what we think. We do think a margin rate will grow for the next year as we talked about. And it really should be CMPs and own brands offset by some co-brand pressure in the beginning of the year. Anything else, Laura, on that one?

No. I think the only thing I'd pile on related to the co-brand card is despite that margin pressure that Bob just talked about, as we step back and look at the program, we are incredibly proud of what we accomplished this year during the transition, the new members we brought into the card product, and the long-term prospects for the program with Capital One as our partner.

Yeah. We didn't make the decision to move based on economics. We made it based on member service and our ability to grow the program. And if you talk to our members, if you talked about general managers out in the field, we are very confident that our members are having a much better service experience with capital on a much better overall experience with the value prop, and that will yield benefits going forward. Your follow-up on the reorganization that we put forward. I think the best way to think about this is we've just finished five years of tremendous growth going through COVID and post-COVID. And we didn't say no to a lot of investments in those years. And so it's the right time for me and for our team to really look at the next five years and make sure that we were putting our bets in the right places. And a lot of that was in our Club Support Center here at our headquarters, trying to make sure that after years of adding headcount that we have it in the right places for the go forward. And so that yielded this effort that added a bunch of jobs, changed a bunch of jobs, and unfortunately, removed some jobs. But we're really confident in the long term of our business, if you can't tell, I'd just say that for effect. And we just wanted to make sure that our underlying administrative structure serves all of the different investments and initiatives that we have going forward.

Thanks, Bob and Laura. Best regards.

Thanks.

Thanks.

Our next question comes from Ed Kelly from Wells Fargo. Your line is now open. Please go ahead.

Hi, everyone. Good morning. I wanted to ask about SG&A. As we think about Q4, if you could quantify or maybe help frame the incentive comp benefit, I guess, in Q4? And then I guess as we move through '24, should we think about more normalized operating expense growth, I guess, how do you think about the comp needed to leverage, I guess? And as it pertains to that, CapEx over the last couple of years have risen pretty good, and D&A was up quite a bit in Q4. I'm kind of curious as to how we should be thinking about D&A growth over '24 as well related to this.

Look, I think why don't we start in reverse? CapEx this past year was, I think, the highest CapEx budget in our history and the new year will be even higher, and that is really reflecting our confidence in our ability to grow our chain through additional stores. So you look at about $0.5 billion of CapEx in the New Year, about 80% of that, maybe 75% of that is in our real estate portfolio as we try and extend our reach and get into markets that are growing quite quickly. I think that's a great story. That's not something we take lightly. It's a lot of money, but we have tremendous confidence in our ability to spend that money effectively for the long term. And certainly, you're absolutely right, we did face a sort of favorability in incentive comps this year, which turns into a headwind for next year. And maybe I'll let Laura talk about SG&A in general.

Yeah. Thanks, Bob. The thing I'd add, Ed, on CapEx being our largest plan, you're right in that. I think the thing I'd say to think about is that $500 million is largely new clubs and gas stations. And there is a little bit of build that is two years out, right? So as we think about our new club openings. For this year, Bill talked about, we've already opened one in Goodlettsville, And the remainder of our new clubs this year are back-weighted in Q3 and Q4. And the CapEx plan contemplates the start of new club builds for the following year. So a little bit of that is in this year's plan. But you should expect us to continue on that same trajectory going forward. I think we're really proud of the work we've made on our real estate portfolio and then think those are great investments of our dollars. You asked about the comp to leverage the business, and that hasn't changed. It's roughly 2% to 3%. So we will continue down that path. I think the thing you're seeing on SG&A, which I talked about in the prepared remarks is there still is a little bit of deleverage as we continue to build out our real estate portfolio. So there is some ramp time, which we've talked about historically as expenses ramp differently than the top line. So think about kind of year three to four when a club hits maturity. So we're in our third year, this will be our third year of 10 club growth. So it's just kind of the layering in. And I think over time, we see SG&A kind of hitting a level playing field from a leverage perspective.

Got it. And Bob, could you just remind us how you're thinking about membership fee increase philosophy? Obviously, you're providing really good value, generating good growth in membership. Are you at the point where you just would not want to disrupt that? Or if you see competition do that? You may be interested in following, just curious on updated thoughts there.

Yeah. It's a good and recurring question. My view on it hasn't changed. We've had such tremendous momentum in the business. I'm a little leery to disrupt that. We will certainly be mindful of what goes on out in the industry. But as we sit here and consider the best way to grow our chain and grow the number of members and the quality of those members. We take that MFI question into that calculus a little bit. I do think the math around it is fairly compelling from a perspective of the dollars that it would yield. If I were you, I would be considering that as an investment pool for us to play with, not so much that it would fall to the bottom line. So I don't think it would really initially impact our EBITDA or EPS all that much because we would look to reinvest that to further grow our chain, so we'll see how the year plays out, how the future plays out, but there are no plans today. Nothing is embedded in our guidance from a fee increase perspective.

Great. Thank you.

Thanks, Ed.

Our next question comes from Kate McShane from Goldman Sachs. Your line is now open. Please go ahead.

Hi. Good morning. Thanks for taking our question. We noticed that there wasn't much discussion or talk around promotions during the fourth quarter. And I just wondered if you could maybe talk to that what you saw with regards to the promotional environment in Q4. And how you're thinking about it for 2024?

Yeah, okay. Look, I think the promotional environment is fairly normal, right? It was certainly a little bit more promotional than prior quarters. I think as we look at it, it sort of feels like pre-COVID promotional environment at this point, maybe slightly less than that. But the brands, as you know, most of our promotion is funded by our supplier partners. They're certainly more interested in driving units today than they were two years ago. They are investing behind places, I think, that they can grow, and we're certainly willing and able to help them do that as well. So we did see a slight increase in promotion in the quarter and the full year last year. Probably the biggest and most impactful area for us was in general merchandise trying to make sure that we held that story of improved quality, improved experience, improved value in general merchandise as we renovate that business. That -- our Black Friday promotions, our Thanksgiving promotions were incredibly powerful as I talked to earlier. And we'll look to do a little bit more of those. I think as we as we look back on the past couple of years when we do the promo schedule correctly and invest behind some weight, we get disproportionate results. And so we won't look to raise our overall level of promotions. We'll probably look to reallocate from one period to another. But our team has done a fantastic job using promotions in a smart way to drive the business.

Thank you. And as a follow-up question, I know there's been a lot discussed already on your thoughts around gross margin and SG&A. But if you could talk specifically to the EPS range given today, how do you think about the drivers of the lower end of the range versus the higher end of the range?

Look, I think there's a couple of big things. One is obviously the sales trend, right? If we see -- we could see more or less inflation or deflation, and that would certainly impact the bottom line. And the other part is the gas business. You know that that is -- has a tendency to be pretty volatile. It's certainly structurally more profitable today than it ever has been. Embedded in the guidance is some normalization in that from last year's results, which were sort of high double-digit cents per gallon toward $0.15, $0.16 per gallon. That could be better or worse than that assumption there, too. Those are the two big ones that I would play around with. We're pretty comfortable in the comp guidance that we've got out there. We're pretty comfortable with the margin rate guidance we've got out there. I mean I think we've got multiple levers to hit the EPS guidance. But every year is a little different at the end of the year from the beginning of the year. So we tend to, as we talked about, invest for the long term and manage the short term.

Thank you.

Thanks, Kate.

That concludes the Q&A portion of today's call. I will now turn the session back over to Bob Eddy for any final comments.

Great. Thank you. Look, we had a great fourth quarter, a great fiscal year, and that concludes a great five-year period for us as well. We're very bullish in our future at BJ's Wholesale Club, and we have a lot of irons in the fire to make those dreams come true. So we appreciate your time and effort in attending the call today, and we will talk to you at the end of the first quarter. Thanks so much.

That brings us to the end. You may now disconnect your lines.+