BJ's Wholesale Club Holdings Inc Stock

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

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

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

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

Good morning, everyone. Thank you for joining us today. I'm very pleased to share that we delivered a strong second quarter, one that came in ahead of our expectations and reflects the continued momentum in our business. Net sales were up nearly 16% year-over-year and merchandise comps grew 3.1%, with traffic accelerating during the quarter. This marks our 18th consecutive quarter of traffic growth and our 15th consecutive quarter of market share gains. On a 2-year stack basis, merchandise comps were 5.4%, in line with where we were last quarter, which speaks to the durability of our momentum. The comp was driven by a healthy balance of traffic and ticket and we've delivered for our members when it mattered most, including during events like the World Cup and America 250. Simply put, our value proposition continued to resonate, and I want to thank our teams for their commitment to executing at a high level across our company.

Our perishables, grocery and sundries division delivered solid comp growth of 2.8% in the quarter, led by grocery. We saw particular strength in beverages and Active Nutrition, where assortment updates through our category management process have been resonating well with members, and we're pleased with the momentum we're building in this part of the business. Our general merchandise and services division sustained comp growth of 5.3% in the quarter, and I'm pleased with the breadth of performance across the division. Consumer electronics continue to lead the way and Home was a strong contributor. The results reflect the work our teams have been doing to put the right products at the right value in front of our members.

Gas prices remained elevated during the quarter, and our members continued to seek us out for the value we offer at the pump. Comp gallons were up double digits, accelerating from the strong results we saw in Q1 and a clear signal of the share we continue to take. Gas prices are about as visible as it gets for consumers. There's a price on every street corner, and our members know that we offer great value. Strong volume growth, combined with favorable pullback from peak gas prices drove fuel profit dollars ahead of plan, which was a meaningful contributor to our overall results.

Taking a step back to assess the consumer environment, the K-shaped economy persists, though we did see some sequential improvement during the quarter. We drove comp growth across all income cohorts, which is encouraging, and our value proposition continues to resonate broadly. That said, the vast majority of our growth continues to be driven by our higher income members, which is consistent with what we've seen for some time now. In an environment where consumers remain discerning with their dollars, we know our job is to make sure we're putting the right products at the right value in front of every member who walks through our doors. All told, it was a strong quarter across the board. Sales, membership, margin dollars and the bottom line all came in ahead of our expectations. Adjusted EPS was $1.36, up 19% year-over-year. And to put that in perspective, we earned more in this single quarter than we did in the entire year we went public back in 2018. That's a remarkable statement about how far this business has come.

With that as a backdrop, let me turn to the progress we're making on our strategic priorities. Let me start where I always do with membership, which remains the foundation of everything we do. We reached a new milestone of 8.5 million members this quarter, and that's worth pausing on. Over the last 25 years, we've grown our membership fee income at an 8% CAGR. Since our IPO, we've added more than 3 million members. And in just the past 2 years, we've added over 1 million members. That kind of compounding growth is earned by consistently delivering the value and convenience our members expect from us. The current quarter was no exception. Membership fee income grew nearly 10% year-over-year. And what matters most to us isn't just the number, it's the quality of the membership base we're building. One of the best measures of that quality is MFI per member, which has grown consistently year-over-year, reflecting the strength of our acquisition, retention and higher tier penetration across both new and existing clubs.

On experience, our price gaps continue to improve and the market dynamics are working in our favor. Traditional grocers have been raising prices, creating an even more favorable backdrop for our value proposition. We continue to gain share. And as our price gaps improve, unit share has become an even clearer signal a member preference. Based on industry data in the markets where we operate, the rest of the market saw unit sales decline while we saw unit gains with units growing more than 300 basis points faster than the market in the quarter. And that's not just a Q2 story. We've outpaced the market on units over the past year as well. That's an important distinction. Our model is built to grow both sales and units by delivering value, and that's exactly what we're doing.

Delivering great value isn't just about price though. It's about making sure that we have the right products on the shelf at the right pace. Part of delivering great value is knowing when to lean into a moment, and our merchants did just that this quarter. America turned 250 this year, and our team found a great way to celebrate with our members. We brought in truckloads of water melons at $3.99, while many other retailers were charging $5.99 and about 1 in 5 of our members had [ 1 in 5 ] charging $5.99 and about 1 in 5 of our members had 1 in their basket during this promotion. It's a simple example of what we do well, finding the right product at the right price and delivering real value to our members. We're building that capability systematically across our entire assortment through our category management process. CMP is about going deep on what our members want from us, category by category and making sure we have the right assortment at the right cost. And we're already seeing it show up in our results. The strength we saw in beverages and active attrition this quarter is a direct reflection of that work. And in Home, we've seen strong member response to renovated assortments across several categories, including housewares, textiles and refrigeration where we've made meaningful changes to our assortment and value positioning. We'll keep going systematically and over time will become embedded in how our merchandising team goes to work every day.

Turning to convenience. The investments we've been making here continue to pay off. Digitally enabled comp sales grew 30% in the quarter, reflecting 2-year stacked comp growth of 64%, and our members are telling us loud and clear they love what we're doing. What we're really focused on is saving our members' time in addition to saving them money, and that combination is powerful. Our members are engaging less digitally in many ways from buy online, pick up in club and same-day delivery to Express Pay in the club and growth is strong across all of them. Express Pay penetration, in particular, continues to grow and members who engage with our digital conveniences spend significantly more with us and are more loyal over time. Bev, our AI-powered shopping assistant is live and gaining momentum. She's now had over 100,000 conversations with members, helping them find products, check club hours and get more out of their membership. It's a great example of how we're using technology to take care of our members in new ways. And finally, our footprint. New clubs are a key engine of long-term growth for our business, and our team is delivering. We're making excellent progress on our footprint expansion.

In the second quarter, we opened 3 new clubs in Texas, Waxahachie, Fort Worth and Grande Prairie, bringing our total in the state to 4. We also added a new gas station in Edison, New Jersey. We have 7 additional club openings and 1 relocation planned for the remainder of the year, and we remain committed to our pace of 25 to 30 new clubs every 2 years. We also announced a new club coming to Tyler, Texas, further expanding our presence in the greater Dallas market. The performance of our new club portfolio remains very strong and is a key piece of our long-term strategy. For Texas specifically, we're very pleased with what we're seeing. Membership continues to track more than 30% ahead of plan. Member behavior is consistent with what we see in the other new clubs strong engagement across the box with higher GM penetration. And our gas volumes have been outstanding. To put a finer point on the value of gas to our members in Texas, all 4 gas stations are in the top 30% of our chain for gallons with 2 of the stations cracking the top 10%. This performance in Texas should not be a surprise as it follows the track record of success we've built with expansion in both new and existing markets.

Last quarter, 22 of the 23 clubs we opened across 2022 to 2024, comped above the chain average, with the 2024 class of 7 clubs comping double digits last quarter. The consistency of our performance is a testament to the teams who show up with the goal to make the next opening the best one yet, and I'm proud to say our teams are delivering on that promise. Before I turn it over to Laura, I just wanted to say that this was a quarter we can all be proud of, and it doesn't happen without an incredible team. Our team members across the clubs, distribution centers, supply chain and Club Support Center show up every single day to take care of the families who depend on us. And results like these are a reflection of their hard work and dedication. I'm proud of what we've accomplished together.

I'll now turn it over to Laura.

Thank you, Bob. I'd like to echo Bob's gratitude for our team members across our clubs, supply chain and Club Support Center, whose dedication to our members and our purpose made this quarter possible. Let's dig into the results. Net sales in the second quarter were $6.1 billion, increasing 15.9% year-over-year. Total comparable club sales increased 11.9%, and excluding the impact of gasoline sales, merchandise comparable sales increased 3.1%, driven by a balance of traffic and ticket. Inflation was just under 1 point in the quarter.

Our perishable, grocery and sundries division comps up 2.8%, led by grocery, general merchandise and services grew 5.3%, driven by strength in consumer electronics and home. Membership fee income grew 9.9% to $136 million, reaching a new milestone of 8.5 million members. Please note that we continue to expect MFI growth to moderate throughout the year as the impact of last year's fee increase normalizes. Gross profit increased 10.3% to $1.11 billion, and merchandise gross margin rate decreased approximately 20 basis points year-over-year reflecting the balance of our continued investments in value for our members and our commitment to delivering for our shareholders. Fuel profit exceeded plan, supported by strong execution and favorable market conditions during the quarter. Comp gallons increased 10.5%, and we continue to take share as industry data indicates overall comp fuel gallons declined by approximately 5% during the period.

SG&A was $851 million and improved as a percentage of net sales year-over-year. The increase in absolute dollars was largely driven by the costs that come with opening new clubs and gas stations, including labor, occupancy and depreciation and as we continue to grow our owned club base. This is partially offset by a gain from a sale leaseback transaction on our new ambient distribution center in Ohio. Adjusted EBITDA increased 14.3% to $347 million, and adjusted EPS was $1.36, up 19.3% and ahead of our expectations, largely driven by the outperformance in our gas business.

Turning to the balance sheet. We ended the quarter with inventory levels up 2% year-over-year on a per club basis with in-stock levels approximately flat year-over-year reflecting the team's continued focus on getting the right product in the right clubs at the right time. Cash flow remained healthy in the quarter with adjusted free cash flow of $266 million, well ahead of the $87 million we generated in the second quarter of last year. reflecting the strong operating performance of the business. Our capital allocation strategy remains consistent. We believe the best use of our cash is applying it towards profitably growing the business, including investments in membership, merchandising, digital capabilities and real estate. We ended the quarter with net leverage of 0.5 turns, which continues to provide us with meaningful flexibility to invest in long-term growth. In the second quarter, we repurchased $124 million of shares, and we have approximately $422 million remaining under our existing repurchase authorization. We will continue to take a disciplined approach to deploying our capital to maximize shareholder value.

Turning to our outlook. We are pleased with our outperformance in the second quarter. We are maintaining our full year guidance of 2% to 3% comparable club sales growth, excluding gasoline. For adjusted EPS, we are raising our range and now expect $4.60 to $4.80 for the full year, reflecting the strong results we delivered in the second quarter, particularly in our gas business. As always, our outlook reflects our current view of the consumer and the broader operating environment, and we will continue to manage the business with discipline while investing for long-term growth.

With that, I'll turn it back to Bob.

Thanks, Laura. Before we open it up for questions, I just want to take a step back and reflect on what this quarter represents. We came in ahead of our expectations on nearly every dimension, sales, membership and the bottom line. This is not a coincidence. It's due to a talented team figuring out new ways to invest in our members. Our members continue to reward us for the value and convenience we provide, and that shows up in the traffic growth, the share gains and the membership momentum we've sustained. Our strategic priorities are working. The investments we've made in experience, convenience in our footprint are bearing fruit, and we are as excited as we've ever been about the road ahead.

As we wrap up, I want to talk about our purpose. We take care of the families who depend on us. We live this purpose every day. In Q3, we launched a chain-wide initiative that will let our members help live our purpose. Members can round up at the registers and club with donations going to the Dana-Farber Cancer Institute, a world-renowned organization at the forefront of cancer care and research. This campaign is a first for us, and we look forward to making a difference in the communities where we live and work. I also want to take a moment to recognize someone who has been a huge part of building what we have here. Paul Cichocki, our Chief Commercial Officer, is retiring after an incredible career and a great run with this company. Paul has been instrumental in so many of the merchandising and commercial advances that have made BJ's a stronger business, including building a great team ready to take over for him. Paul, you always drove with your heart, and it showed in everything you built here. Thank you for everything.

With that, let's take some questions.

[Operator Instructions] Your first question comes from the line of Edward Kelly with Wells Fargo.

I wanted to ask you about investment and you had the tax refund benefit, which you've been talking about playing into the business. Fuel has been strong as well. Can you just talk about how much of this is getting put back into the business? And then what do you think the return on that investment is as you think about sort of like the sales and the traffic?

Yes. Thanks for your question, and thanks for everybody's attention this morning. I understand there were some technical difficulties on the beginning of the call. I just know that we are going to post a copy of our prepared remarks on our Investor Relations website to hopefully clear that up and the recording should come out clear. But I wanted to apologize for that, certainly put a little bit of a damper on what I think are fantastic numbers for our company as we report those this morning, with overperformance in sales and margins and gasoline and membership on the bottom line, what was just a wonderful quarter that our team put together.

And I think, Ed, to get to your question, it is because of the investments we continue to make in our member. It's really our job to provide great products but most particularly great value on those great products, and we will take every opportunity we can to make investments in that idea. Certainly, we need to balance that with all of our other constituencies. But I know the team did a fantastic job this quarter. Doing so, we obviously had the tariff refunds that you mentioned for the past couple of quarters, and we're just about through those as we see today. And then we had a great quarter from a fuel profit perspective and invested some of those dollars in our membership as well. And the idea there is not necessarily short-term payback, it's long-term lifetime value.

And the idea is that the better people feel about our prices and our products and the value that they get from their membership, the more they come to see us. And we know that the frequency with which they come to see us as the biggest predictor of their ability or their willingness to renew their membership, and the biggest contributor to lifetime value. And so as we continue to invest in our member, it really does become the flywheel of the company. as we are trying to make sure that they enjoy their visits with us, and they feel the value every single day while we're doing other things like improving our convenience efforts and our merchandising and our real estate footprint. So we're not necessarily looking for returns within one particular quarter. Sometimes those happen, but we're looking for an effort that builds over time that really underpins the value of BJ's membership.

And it's just a follow-up, I guess, for -- maybe for Laura. Can you just parse out operating expense a little bit. You talked about a sale leaseback gain, but then the dollar growth in operating expense is higher than it's in a while. So I don't know if there was some offset to that, but any color around the magnitude of sale leaseback and what the offsets were on that?

Yes. Ed, thanks for your question. I think you brought up a good point about the sale leaseback that we did in the quarter. I would say, before I get to the numbers that, that being able to do a transaction like that, I think, speaks to the strength of the company and where we've come from to where we are today. And so we've spent a lot of time working on our -- working with the strength of our balance sheet as we've paid down debt. And so that's offered us the opportunity to be able to buy locations versus a straight lease like we would have historically done. As we've done that, we find opportunities in our portfolio where we're able to create value and long-term growth that we can put back into the company. And so that the transaction that happened this quarter was our Ohio distribution center is an example of just that.

From a numbers perspective, the gain on that was relatively small in the grand scheme of things is about $11 million to the P&L. But we're happy with that transaction. And again, I think where we've come from a company perspective, I think just speaks to us to be able -- speaks to how we've been able to add transactions like that, that add value and are accretive over the long term.

Your next question comes from the line of Peter Benedict with Baird.

My first is just is on MFI, the membership fee income grew 10% kind of sequentially stable there. I'm curious, I mean you gave the member numbers, so the sign-up sound like they're good. I'm just curious with the benefits of the fee increase, tailing off, we would expect that -- we would have expected that to slow. So is there something happening in the core that's reaccelerating here? I'm just curious kind of maybe the trends around higher tier membership and roles that type of thing. That's my first question, and then I have a follow-up.

Yes. Pete, look, I think our membership team continues to do a fantastic job really growing our company. It's the backbone of what we do here. It's the foundation of everything, and they had a very, very strong quarter. As you know, we had about 10% growth in the quarter. That pretty much mirrored what we saw in the first quarter. And our plan for the year would have seen that 10% slide down to about 6% at the end of the year. And so the Q2 performance, in particular, was very strong. And really, I think it just highlights the value of what we're giving our members and our strength in our new clubs as well.

So if you think about the building blocks to MFI, the number of members. We had a strong acquisition quarter. And the team continues to innovate and figure out new ways to get in front of prospective members and to come up with offer constructs that make sense to people. We certainly want to renew all those members, and we had a fantastic renewal rate performance during the quarter as well. We now are at another all-time high from an easy renewal perspective. in terms of the number of members that participate in that automatic renewal program. If you think about the quality of those members, you mentioned higher tier. We're at an all-time high there as well at about 43% of our membership in higher tier members. That's far and away the best number that we've had and we continue to grow those folks. And you know they spend more. They renew at higher rates. They are active in many categories, all the things that we like to see.

And -- and so I think it was a fantastic quarter for the membership team. I still do think you're going to see the benefits of the fee increase wane over the year. So we are, again, sort of guiding to finish the year at that 6% exit rate. But hopefully, we can continue to put up good quarters as we go through and explain the value of BJ's membership to folks. And have them join our franchise. It's been a great run for our membership team. And you and I have talked a lot about the big differentiators and where we were 5 or 10 years ago versus where we are today. And I would tell you that the biggest differentiator I see is our ability to grow membership in comp clubs. And once we're not very good at that. And today, we do it very consistently, and we were up 2% to 3% during the quarter. So it was a really fantastic result and congratulations to that team.

That's great color, Bob. Good to hear. And then I guess maybe just on the traffic acceleration you talked about during the quarter. I'm curious I mean how much of that you think was related maybe to the price investments you started to take earlier? How quick is the response mechanism there? And as you think about the 2% to 3% merch comp plan for the year, how much of that do you think is kind of traffic versus ticket just at a high level?

Yes. No worries. Good traffic number during the quarter, about half of the comp was driven by traffic. That was a pretty significant acceleration from what we saw in the first quarter. It's hard to tell whether it's related directly to the investments we made in the first quarter. I would like to say some of it is, that's certainly the idea. We would certainly see traffic before we would see sales dollar benefits just given the math of lowering prices. But that is really the idea of what we're trying to do and invest in our members, put the best products on the shelf for them to see, talk to them in the ways that resonate with them, and they reward us with traffic. And so I think the team did a nice job on all of those fronts during the quarter.

As far as the 2% to 3% guide, we left that alone. I think we'll be in that bracket, hopefully towards the high end of that bracket for the full year. We sit comfortably right in the middle of that bracket at this point. And as I see, hopefully, our traffic continues through the back half, we've got some laps to think about in terms of the 3-year stack on the port strike and the general merchandise build from last year, but in Q4. But I think if you think about the base of our business, it is how many members we have and how active are those members. And we just talked about MFI and the number of members being fantastic. And now we're seeing great continued traffic growth, right, our 18th consecutive quarter, we said in the prepared remarks and -- and hopefully, we can keep that streak alive.

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

Our question is just on the sustainability of some of the price investments that you have been able to make over the last 2 quarters, given that they were driven and financed by tariff refund. How do you think about these price investments and lapping them when there aren't necessarily tariff refunds to fund them?

Yes. Good question. It is our endeavor to match our investments with continuing sources of funding. And so while the tariffs have been -- Bev refunds have been funding them in the first half of this year. We have other initiatives that will fund them in the back half of the year. And so I think the worry that margin rates will decline precipitously when we don't have the tariff funding. It is misplaced. I do think we've identified other places to source funding. And that -- you can think about what those might be. The tariff reasons we've talked about are all first-person tariffs. So the things that we paid and gotten refunded, we are now working with our suppliers to get our fair share of their refunds. We are working with our suppliers to figure out the optimal assortments and in some cases, that make margin benefits there.

We've got other sources of margin like others do with retail media and some other things. And certainly, gas plays in there as well. We would always take some portion of any one quarter's gas beat and invest those as well. And so we understand our job is to deliver margin dollars globally, not necessarily a particular rate. Within reason, I don't really care about any particular rate. I know my job is to deliver profit dollar growth. And that's, frankly, what our members expect from us, too. They want the right prices, and that means we got to go get the right cost. And -- so we will continue to find ways to invest in our membership and take every opportunity we can to do so.

And just a follow-up question is on general merchandise. I wondered if you could kind of talk through what we can expect from that category in Q3 and Q4, given what we're lapping last year and just given new leadership within merchandising.

Yes, sure. I mean Jim has been on a little bit of a run late, which is great to see. It was once I would argue our weakest business. And now we're starting to make some progress. That progress started in our consumer electronics area, which has probably been our strongest area, and that's the easiest to impact, but our team has done a nice job improving our assortment at home. We talked a little bit about that in our prepared remarks in some of those categories. And -- and our seasonal business was positive comp during the quarter as well. That is a big business in the second quarter, and it was nice to see that get positive. We've got some room to improve there for sure. and we've got some room to approve in apparel in the rest of the categories. But for me, nice to see a continued positive comp trend. It might be nice to see the breadth of the comp.

And under the covers, you mentioned the changes in merchandising leadership. Stephanie Reibling has done a fantastic job. You know general merchandise is where the core of her experience lies. She's got her fingerprints on some of these early wins, but now they are early. We will go through this assortment ruthlessly and make sure we're offering the right products at the right value. And we've also added some talent beneath Stephanie in this area with a new GMM of general merchandise and a couple of new DMMs as well. So it starts with the team, right? We've got a fantastic team, and they are all on the ground and working hard to make sure that the next quarter is better than better than Q2. And I guess I would just again say just keep in mind the big lap we have in Q4 from a GM perspective, and other than that, we're very pleased with where we ended the quarter.

Your next question comes from the line of Mike Baker with D.A. Davidson.

I wanted to focus on Texas a little bit. You said you were 30% ahead of plan. What is the plan relative to sort of company average or typical openings? How big can Texas be? What are you seeing competitively or others reacting to you guys moving there? Just a little bit more color on Texas, please.

Maybe I'll just -- a couple of words, Mike, and then kick it over to Bill. I just wanted to thank, Bill. He's done a fantastic job really creating this whole growth engine within real estate that we have. It's a big effort His team has done fantastic work, and I couldn't be more proud of him and the team for what we've accomplished. And Texas is just one point in that journey, and it's going very well. But I just wanted to thank Bill publicly for all the things he's done. So Bill, tell us about Texas.

Thanks, Bob. I appreciate that. Mike, good to talk to you. Yes, so Texas, as we offered in some of the prepared remarks, we're seeing exactly what we'd hope we would see. We're seeing outside membership gains. We're seeing the membership engaged throughout the club across categories, and we shared some data in terms of the gas program down there and what we're seeing in terms of gas gallons. When we look at something like engagement of gas. We know that, that is a strong indicator of a likelihood to renew. And so when we look at something that early on, we feel really good about the prospects of being really successful down there with the membership base. So really excited, but more to do. We'll open up our club and Mesquite later this year. We announced our next club in Tyler, which is just outside the DFW metroplex for early next year, and we have a lot more to come that you'll hear about in the future. And -- yes, as we think about Texas, it's just part of the broader real estate story.

As I reflect back on -- we're probably having the same conversation when we opened up in the Michigan market back in 2019. And as we sit here today, those investments that we've made in Michigan have led to an expanding footprint there and where the gateway opening up throughout the adjacent Midwest markets when I think about Nashville, Indianapolis, Columbus, Pittsburgh, and so this is just a continuation of the long-term story. And so we're really proud of what we're seeing down there. We're excited for the Q3 clubs to get our Rotterdam club relocated and open for our members and as well as opening up our second Alabama club down in Foley on the Gulf Shores as well as expansion in Florida, which has been an amazing market for us with our club in Ocala with both the Q3 new clubs showing, again, great early membership results. And Bob talked about the membership engine earlier. It's certainly hitting in comp clubs, but it's certainly working super hard in our new club effort. So Texas is really important. We're doing great. We're really proud of the results. It's a continuation of the broader new club story and all part of this engine that we've built over the last 7 or 8 years. So really excited about the future.

Yes. Great. Thanks for all that detail. I'll ask -- we'll call it a follow-up, but candidly a different topic. But would you guys be willing to talk about the pace of sales throughout the quarter by month?

Mike, it was pretty ratable through the month. So nothing really to call out from a variability perspective.

We are currently experiencing technical difficulties. Please hold. [Technical Difficulty]

Team apologies for the technical disconnect, we're going to move to the next question. Chuck Grom with Gordon Gasket.

Can you guys hear me?

Yes, Chuck.

So great quarter. My question is on CMP or CRAP. I know it's something that the company has done in the past and it's coming on over the years. But just can you maybe, Bob, just double click on the opportunity here, how you see the SKU count in the store. Maybe give us some perspective on when you're opening up these new stores in Texas and elsewhere, how many items you're opening up with relative to the total chain. It's been a long-standing opportunity, in my opinion. So just curious if you could flesh that out for us.

Yes, I'd be happy to. Again, everybody, sorry for the technical difficulties. CMPs have been a good part of our strategy for the past several years. And candidly, in the last couple of quarters, they've taken on a bit of a different tenor particularly with Stephanie's arrival. I mentioned earlier, we're using CMPs to source margin, but they really serve a much broader purpose than that and get -- they get directly at what you're asking about. So we find ourselves overskewed, as you point out, it has been a long-standing opportunity. We have had efforts to cut SKU count in the past. And I would argue we didn't -- we didn't prosecute that opportunity in the right way. We just cut SKUs, we got sales and then we added some SKUs back.

And so really, what we're doing now is removing unnecessary choice. So I think multiple flavors of body wash, pushing all the volume into the remaining body wash flavors and then adding new innovative products and white space categories. And the addition of those new products, those new need states those -- that new white space categories that is sourcing sales growth as well and for giving us the formula where we can cut SKUs and see sales go up and see margin dollars go up. And so our goal really is to take about 20% of our SKUs out over the next couple of years. And that will sort of happen ratably, that will largely get the chain down to where we find ourselves in new clubs, maybe a little bit lower than that. So our average number of SKUs in the legacy club is about 7,500 or so at this point. And the new clubs come with a 6 handle on them. And so I'd like to get it down to about 6,000, 6500 SKUs, I think, is the right place for us over time.

We've seen some of the benefits so far. We talked about it in the prepared remarks a bit if it wasn't blocked out some benefits in beverages and active nutrition, where we're really taking out some unnecessary duplication, adding some new cool stuff. So think about in traditional soda. We don't carry cans and 1 leaders and 2 leaders of the same product anymore we would add and we're adding in healthy soda like Poppy and things like that. That's the idea around the building. So we've set some categories in the second quarter. We saw some good results. We'll set some more in September. And then our next wave will happen around the end of the year. So this is an ongoing effort. I think it will be powerful. Stephanie has brought up a great member focus to it. where we're trying to be sensitive to what the members' needs are. And that my color what we might cut but also my color what we what we might add into the mix as well. And the early results are good in this wave. So we'll keep it going, and hopefully, we'll see some more good results.

That's great. And then I guess my follow-up, just on the gas business. 10.5% gallon growth in [indiscernible], which is much better than the industry. I guess, how are you using that as an opportunity to acquire new customers? Obviously, I was much better than expected. General in health is really good. But are you using gas to drive new customer growth? And just flush that upwards?

Yes. Of course, let me pass that over to Bill and see runs gas for us.

Yes. Thanks, Chuck. Absolutely, we use it to drive membership. We've seen members talk to us with the 10.5% comp the value of gas is -- we offer to our members is just as important now as it's ever been. And yes, so we've definitely tested acquisition offers with gas discounts that our members have responded to in an outsized way. And it's been a great partnership with our membership acquisition team as we've tested and quickly learned into offers and then expand them when we see great results.

But Chuck, I want to take a moment just to come back to the gas business because the 10.5% comp that we delivered is certainly a testament to the team that is offering to our members every day. but also to the structural investments that we've made. So we've talked a bunch about this call about both short-term investments that we're making in price, but also long-term investments that we've made into something like real estate. And when we think about the overall gallon growth we delivered that in an environment like this allows us to deliver outsized value for our members and source outsized EPS for our shareholders, that's only because of some of these big structural long-term investments that we've made.

So as I think about on the real estate side, we have 50% more stations than we did at IDO. We couldn't have delivered the gallons that we delivered in Q2 without those continued investments over time. And then I also think about something like our co-branded credit card program, where you say we have over 2 million members that are getting either a $0.10 or $0.15 per gallon discount every day at the pumps, right? And that you don't grow it to $2 million over time without working at it every single day. And the team that does that has been extremely successful in growing credit card base. So these big long-term decisions that we've made to invest in the value for our members come home and pay dividends in an environment like Q2. And so it's just a really cool example of where how the company invested in like value can come back to payback. Again, both to our members through an increased outsized value in the quarter like this as well as to our shareholders.

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

This is Pedro on for Simeon. Nice quarter. I meant to ask you about our merch margins and price investments. we've seen merch margin rate down 20 basis points this quarter, driven by continued price investments some of it from tariff refund benefits. How should we think about the cadence of merch margin in the back half of the year as some of the tariff refund tailwinds potentially diminished on how you think about price investments for the rest of the year?

Pedro, I'll take that one. Look, I think we've talked a lot on this call already about price investments and how we view them over the long term and important for lifetime value of our members. We don't guide to merch margins. And so I think what you will see us do as we continue to travel through the year is balance investments with sources of funds, right? So use and source of funds in quarters. and also look to continue to deliver value to our members. And so we think it's important to look at some of the milestones and some of the metrics in our business. We think about traffic in our clubs. We've talked about that already. Continued positive traffic momentum. That means our members are seeing the value. We've talked about market share and some of our -- how we continue to gain market share on both dollars and units. And so all of those are important as we look out into the back half, you'll see us continue to manage, I think, for the short term and also for the long term.

Okay. Great. That's helpful. And if I could ask you a follow-up about membership fee income and renewal rates. Nice job growing membership fee income this quarter. Could you break down for us the key drivers of that growth? How much is attributable to the fee increase versus member count from new clubs, number count at existing clubs?

Yes. Maybe I'll take that one, too, Pedro. Look, we don't give specific numbers on how much is coming from new clubs. But maybe I'll give you some context and a little bit more color on the things we talked about. We're really happy with the overall member base growth. We hit a milestone of 8.5 million members. And so we continue to grow our overall member count I think, faster than we've ever seen in the history of the company. We're happy with where our members are from a higher tier penetration our members that are engaged with the co-branded credit card. Bill just talked a little bit about that. We have over 2 million members in our co-branded credit card product. And all of that is important to the short-term MFI results as well as the long-term lifetime value of members and their propensity to renew, which is what we like.

You know we talk about MFI as a leading indicator in our business. And so, we view the results that we put up this quarter as a marker of the continued success that the membership team has made. I'd like to thank them for all their work. We're certainly in a different place than we were even 5 years ago from a membership perspective and acquiring members and the quality of members. So we'll look to continue to do that as we continue into the back half of the year.

Your next question comes from the line Steven Zaccone with Citigroup.

Stores look great in Texas, by the way. Laura, a question for you. How do you break down the EPS guidance rates? So how much of it is the fuel exceeding plan? It seems like the sale leaseback is $0.06 if we did the math right? How do we think about the guidance rate as it seems like the second half expectations are pretty much unchanged despite you tracking towards the higher end of your same-store sales outlook?

Steve, I think you're looking at that the way we think about it. We talked a little bit about this, Bill talked a little bit about our gas business and how we view it long term, certainly successful in the quarter. And so as we step back and think about the raise on EPS, that is a result largely of our gas business, we did invest some of that in the quarter, but really just taking the beat and raising on it. So we feel great about our guidance range for the back half and where we'll land for the full year. Bob already talked about the top line and why we left the comp guidance alone, but that's the story on the EPS guide.

Okay. And then a follow-up just on Texas. How do we think about the time line for these stores to reach maturity? I know it's a new market for you, but are there learnings from Michigan in the past from Nashville how do we think about the time line to reach maturity?

Steve, so it's been pretty consistent across both new and existing markets where we see membership growth throughout the first couple of years. And then generally, a member grows into their sales potential over the first couple of years. So generally, within 3 to 5 years, you're seeing the club mature up towards its -- towards its regular potential and then it would kind of grow with the chain from there. And so there's no better proof point than that than some of the data we gave on -- in the prepared remarks on the comps of the new clubs where they continue to outperform the chain both individually and as a cohort.

And as you look at the data point that we gave on something like our 2024 class, comping double digits, right? That's the magic of the math coming to life of membership growth combined with spend growth leading to outsized performance of these clubs and so we've seen it across the board. It's been widespread. It's been consistent. It's a testament to the teams that are working on this every day and to give our members unbelievable experience and deliver amazing value to these new communities, and we see the results. And I have no -- I know that we'll see the same thing whether it's in the Texas clubs or whether it's in Foley or Ocala or any one of our new clubs is opening in [indiscernible] we've had a demonstrated history of success now across the board.

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

Bob and Laura, this is Gabriela Algar on for Oliver. I had 2 questions. The first one is on the digitally enabled sales. I know you saw a nice 30% growth this quarter. I wanted to ask as digital becomes a larger part of your business. What are you seeing in terms of member spend, frequency, retention and other important metrics compared to members who shop primarily in clubs?

Gabriela, it's certainly a great quarter from a digital growth perspective on top of great Q1, a great Q2 last year. I think our 2-year stack is over 60. So the team has done a nice job of putting things in front of our members that they enjoy save them time in addition to saving dollars. And we're investing in this. We have been for a while because of the question you're asking, the folks that engage with each of these digital properties become more valuable over time. They interact with us more. They come to see us more physically they buy more and they renew at higher rates. And that is a compounding thing. The more digital properties, they interact with, the better they are.

So if they click coupons, they become better. If they order something to be shipped to their home, they become better. If they order BOPAC or same-day delivery, they become better. If they use Express Pay, where you check out in the clubs, they become even better than that. And so the more ways we can get them to engage with us, whether it be through our desktop app or our desktop website or our app, they really change their behavior for the better over time. And so I think we're around 19% penetration of our business at this point. And I hope that, that continues to grow. It is really one of the great stories within our company at this point. and we'll continue to place investment dollars here. We'll continue to talk to our members and source ideas from them on how we do this and we've got a concentrated effort right now to grow our Express Pay penetration, and that's been going well as well. So good results this quarter and more to come.

That's helpful color. And then just as a follow-up question. As we think about value perception, price gaps and as well as the merchandising improvements that you guys are making, can you shed some on how private label is playing a role in all of this, both in success today and then maybe categories where you see opportunities to expand penetration of your own brands?

Yes. We haven't talked about own brands in a while, but certainly a big business for us, several billion dollars of our sales are done in our 2 owned bands. And it really comes down to quality and value. We put good quality products in front of our members, and we place a fantastic price on them. And that is even more relevant these days in pressure economic circumstances, right, where we're giving our members a terrific value. Think about our Berkley Jensen [indiscernible], for instance, I think we're 35% lower price than the comparable national brand on a fantastic towel. And we make a little bit more margin than we would have if we were selling a comparable national brand. So we make up 2. We've grown that business to be about 65% unit share.

We're putting a great product in front of people at a fantastic value. and they come back to get it from us. And we need to do more of that. We need to continue to improve our own brands. But as we think about the overall value that we provide our members, we understand that, that is our job. We're supposed to provide them terrific value and own brands is a great a great way to do that. You mentioned our price gaps. We haven't talked about that. Our price gaps got better during the quarter. And so our investments are paying off. It's a tough market out there from a cost increase perspective and our -- some of our competitors are having to raise prices faster than we might, and we've been making investments there. all of that comes back to that central theme of offering the right value, and we'll continue to do that day in and day out for our members. That is our job. That's what they pay us to do. And we love to do that. We are always pleased to make investments in our members because we know it pays off in the long term.

Your next question comes from the line of Greg Melich with Evercore ISI.

Sorry if I missed it in the opening comments, but Laura, could you help us with the ticket expansion, which I guess was around 1.5 points. How much of that was unit growth items and basket versus inflation, which if I remember correctly, it was slightly negative in 1Q?

Yes. Greg, thanks for the question. We talked a little bit about inflation in the prepared remarks. It was close to 1% in the quarter. And so certainly, a step move off of where we were in the first quarter. And so I think as we step back and think about our comps that we delivered for the quarter, we're really pleased with the [ 3.1 ] equally balanced roughly between traffic and basket. And so we like that. Our members are certainly seeing the value in what we're offering them every day.

That's super helpful. And Bob, I'd love to follow up on the openings. Given the success in Texas, just update us on how many clubs you're opening this year or next year? And do you think there's an opportunity to accelerate that going forward?

Yes. Thanks for the question, Greg. I'll kick it off, and Bill can talk about the specifics. As you point out, our real estate growth has been fantastic. We've gone from not opening clubs a few years ago to opening a sort of a 12 to 15 clip at this point. And we committed to maintaining that [ 25 ] to [ 30 ] every couple of years cadence, and we've challenged ourselves to think about going faster as well. And so that will take a couple of years to sort of make its way into the pipeline. But the more good clubs we can open, the better for us. And so -- so we're pleased with where we are and we'd love to go faster. Let me hand it over to Bill.

Yes. I think, Greg, that's exactly right. We're -- at this point, as we look out on the horizon, the pipeline for plus or minus in the next 2 years is pretty baked, and we're working on projects for '28, '29 and '30 right now. And the greatest is that the success that we've seen in the market is paying off in terms of our opportunities as we're out in the market having conversations with developers and other partners within the real estate world. We've seen more opportunities come to us. We've seen the cap rates come down on our buildings, which improve the overall economics that are available and improve our returns. And so again, I come back to -- we've made a series of long-term investments over the last few years that are paying off. And the investments that we make today in a market like Texas, we're going to look back 5 years now and be really happy that we made them. And as we look forward to the clubs in the pipeline, again, as we look at decade half, now we're going to be really proud of the footprint that we have built. So more to come in terms of the [indiscernible] of the growth, but we feel like we're in a really great spot to continue to deliver value to the members and the communities that depend on us.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Do you have an additional tariff refund coming?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Given the evolving landscape, we are not contemplating the impact of recent tariff news and evolving macro uncertainty on our current assumptions. Tariffs may shape the trajectory of inflation and broader consumer demand and ultimately influence our results this year. We continue to believe we are well positioned to offer our members value that they are seeking every day. Before I hand it back to Bob, I'd like to thank our team members for their continued dedication to our company, purpose and communities and their contributions to another great year of delivering in a dynamic environment.

Bob, back to you.

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

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

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

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

[Operator Instructions]

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

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

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

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

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

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

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

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

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

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

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

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

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

Next up, we have Peter Benedict from Baird.

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

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

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

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

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

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

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

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

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

[Operator Instructions]

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

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

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

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

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

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

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

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

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

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

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

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

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

Moving on, we now have Steven Zaccone from Citi.

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

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

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

Moving on, we now have Mark Carden from UBS.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Next up, we have Rupesh Parikh from Oppenheimer.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our next question comes from Kate McShane from Goldman Sachs.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our next question comes from Ed Kelly from Wells Fargo.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our next question comes from Rupesh Parikh from Oppenheimer.

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

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

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

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

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

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