BJ's Wholesale Club Holdings, Inc. 10-Q

Item 1. Financial Statements. BJ’S WHOLESALE CLUB HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except par value) (Unaudited) July 29, 2023 January 28, 2023 July 30, 2022 ASSETS Current assets: Cash and cash equivalents $ 26,210 $ 33,915 $ 163,681 Accounts receivable, net 200,279 239,746 204,495 Merchandise inventories 1,540,508 1,378,551 1,376,526 Prepaid expenses and other current assets 76,309 51,033 57,844 Total current assets 1,843,306 1,703,245 1,802,546 Operating lease right-of-use assets, net 2,165,125 2,142,925 2,192,548 Property and equipment, net 1,428,576 1,337,029 1,232,103 Goodwill 1,008,816 1,008,816 1,008,816 Intangibles, net 111,568 115,505 120,123 Deferred income taxes 7,928 11,498 4,525 Other assets 38,577 30,938 26,583 Total assets $ 6,603,896 $ 6,349,956 $ 6,387,244 LIABILITIES Current liabilities: Short-term debt $ 411,000 $ 405,000 $ 350,000 Current portion of operating lease liabilities 179,423 177,233 171,568 Accounts payable 1,226,490 1,195,697 1,243,286 Accrued expenses and other current liabilities 774,235 767,411 719,291 Total current liabilities 2,591,148 2,545,341 2,484,145 Long-term operating lease liabilities 2,075,058 2,058,797 2,118,467 Long-term debt 448,135 447,880 699,406 Deferred income taxes 64,095 57,024 64,354 Other non-current liabilities 194,171 194,077 167,281 Commitments and contingencies (see Note 5 ) STOCKHOLDERS’ EQUITY Preferred stock; par value $ 0.01 ; 5,000 shares authorized, and no shares issued — — — Common stock, par value $ 0.01 ; 300,000 shares authorized, 147,443 shares issued and 133,720 outstanding at July 29, 2023; 146,347 shares issued and 133,903 outstanding at January 28, 2023; and 146,157 shares issued and 135,052 outstanding at July 30, 2022 1,474 1,463 1,461 Additional paid-in capital 983,366 958,555 928,548 Retained earnings 891,892 644,490 384,770 Accumulated other comprehensive income 1,049 1,550 2,010 Treasury stock, at cost, 13,723 shares at July 29, 2023; 12,444 shares at January 28, 2023; and 11,105 shares at July 30, 2022 ( 646,492 ) ( 559,221 ) ( 463,198 ) Total stockholders’ equity 1,231,289 1,046,837 853,591 Total liabilities and stockholders’ equity $ 6,603,896 $ 6,349,956 $ 6,387,244 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 BJ’S WHOLESALE CLUB HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Amounts in thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended July 29, 2023 July 30, 2022 Net sales $ 4,859,842 $ 5,005,030 Membership fee income 103,698 98,786 Total revenues 4,963,540 5,103,816 Cost of sales 4,066,727 4,243,769 Selling, general and administrative expenses 694,960 651,236 Pre-opening expenses 1,584 5,901 Operating income 200,269 202,910 Interest expense, net 16,274 10,874 Income from continuing operations before income taxes 183,995 192,036 Provision for income taxes 52,670 51,022 Income from continuing operations 131,325 141,014 Loss from discontinued operations, net of income taxes — ( 7 ) Net income $ 131,325 $ 141,007 Income per share attributable to common stockholders—basic: Income from continuing operations $ 0.99 $ 1.05 Loss from discontinued operations — — Net income $ 0.99 $ 1.05 Income per share attributable to common stockholders—diluted: Income from continuing operations $ 0.97 $ 1.03 Loss from discontinued operations — — Net income $ 0.97 $ 1.03 Weighted-average shares of common stock outstanding: Basic 133,317 134,341 Diluted 135,129 136,567 Other comprehensive income: Total other comprehensive income — — Total comprehensive income $ 131,325 $ 141,007 The accompanying notes are an integral part of the condensed consolidated financial statements. 5 BJ’S WHOLESALE CLUB HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Amounts in thousands, except per share amounts) (Unaudited) Twenty-six Weeks Ended July 29, 2023 July 30, 2022 Net sales $ 9,480,462 $ 9,404,840 Membership fee income 206,220 195,411 Total revenues 9,686,682 9,600,251 Cost of sales 7,909,877 7,949,043 Selling, general and administrative expenses 1,384,288 1,287,180 Pre-opening expenses 5,478 10,801 Operating income 387,039 353,227 Interest expense, net 30,964 18,715 Income from continuing operations before income taxes 356,075 334,512 Provision for income taxes 108,762 81,041 Income from continuing operations 247,313 253,471 Income (loss) from discontinued operations, net of income taxes 89 ( 14 ) Net income $ 247,402 $ 253,457 Income per share attributable to common stockholders—basic: Income from continuing operations $ 1.86 $ 1.89 Income (loss) from discontinued operations — — Net income $ 1.86 $ 1.89 Income per share attributable to common stockholders—diluted: Income from continuing operations $ 1.82 $ 1.86 Income (loss) from discontinued operations 0.01 ( 0.01 ) Net income $ 1.83 $ 1.85 Weighted-average shares of common stock outstanding: Basic 133,314 134,293 Diluted 135,515 136,635 Other comprehensive income (loss): Amounts released from other comprehensive income, net of tax $ ( 501 ) $ 117 Unrealized gain on cash flow hedge, net of income tax provision of $ 229 , at July 30, 2022 — 588 Total other comprehensive income (loss) ( 501 ) 705 Total comprehensive income $ 246,901 $ 254,162 The accompanying notes are an integral part of the consolidated financial statements. 6 BJ’S WHOLESALE CLUB HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Amounts in thousands) (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount Balance, January 28, 2023 146,347 $ 1,463 $ 958,555 $ 644,490 $ 1,550 ( 12,444 ) $ ( 559,221 ) $ 1,046,837 Net income — — — 116,077 — — — 116,077 Amounts reclassified from accumulated other comprehensive income, net of tax — — — — ( 501 ) — — ( 501 ) Common stock issued under stock incentive plans 1,033 10 ( 10 ) — — — — — Stock-based compensation expense — — 10,007 — — — — 10,007 Exercise of stock options — — 1,675 — — — — 1,675 Acquisition of treasury stock — — — — — ( 560 ) ( 42,369 ) ( 42,369 ) Balance, April 29, 2023 147,380 1,473 970,227 760,567 1,049 ( 13,004 ) ( 601,590 ) 1,131,726 Net income — — — 131,325 — — — 131,325 Common stock issued under stock incentive plans 2 — — — — — — — Common stock issued under ESPP 61 1 3,254 — — — — 3,255 Stock-based compensation expense — — 9,624 — — — — 9,624 Exercise of stock options — — 261 — — — — 261 Acquisition of treasury stock — — — — — ( 719 ) ( 44,902 ) ( 44,902 ) Balance, July 29, 2023 147,443 $ 1,474 $ 983,366 $ 891,892 $ 1,049 ( 13,723 ) $ ( 646,492 ) $ 1,231,289 7 BJ’S WHOLESALE CLUB HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Amounts in thousands) (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount Balance, January 29, 2022 145,451 $ 1,454 $ 902,704 $ 131,313 $ 1,305 ( 9,945 ) $ ( 388,668 ) $ 648,108 Net income — — — 112,450 — — — 112,450 Amounts reclassified from accumulated other comprehensive income, net of tax — — — — 117 — — 117 Unrealized gain on cash flow hedge, net of tax — — — — 588 — — 588 Common stock issued under stock incentive plans 490 5 ( 5 ) — — — — — Stock-based compensation expense — — 9,115 — — — — 9,115 Exercise of stock options — — 2,306 — — — — 2,306 Acquisition of treasury stock — — — — — ( 801 ) ( 51,342 ) ( 51,342 ) Balance, April 30, 2022 145,941 1,459 914,120 243,763 2,010 ( 10,746 ) ( 440,010 ) 721,342 Net income — — — 141,007 — — — 141,007 Common stock issued under stock incentive plans 172 2 ( 2 ) — — — — — Common stock issued under ESPP 44 — 2,331 — — — — 2,331 Stock-based compensation expense — — 9,387 — — — — 9,387 Exercise of stock options — — 2,712 — — — — 2,712 Acquisition of treasury stock — — — — — ( 359 ) ( 23,188 ) ( 23,188 ) Balance, July 30, 2022 146,157 $ 1,461 $ 928,548 $ 384,770 $ 2,010 ( 11,105 ) $ ( 463,198 ) $ 853,591 The accompanying notes are an integral part of the condensed consolidated financial statements. 8 BJ’S WHOLESALE CLUB HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited) Twenty-six Weeks Ended July 29, 2023 July 30, 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 247,402 $ 253,457 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 109,015 97,093 Amortization of debt issuance costs and accretion of original issue discount 655 1,663 Debt extinguishment charges — 389 Stock-based compensation expense 19,631 18,502 Deferred income tax provision 10,641 12,212 Changes in operating leases and other non-cash items 762 32,067 Increase (decrease) in cash due to changes in: Accounts receivable 39,797 ( 29,605 ) Merchandise inventories ( 161,957 ) ( 45,519 ) Prepaid expenses and other current assets ( 14,083 ) 1,097 Other assets ( 8,038 ) ( 1,858 ) Accounts payable 30,793 130,503 Accrued expenses and other current liabilities ( 3,606 ) ( 31,019 ) Other non-current liabilities ( 1,512 ) 4,070 Net cash provided by operating activities 269,500 443,052 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment, net of disposals ( 214,240 ) ( 191,534 ) Proceeds from sale-leaseback transactions 5,988 2,674 Acquisitions — ( 376,521 ) Net cash used in investing activities ( 208,252 ) ( 565,381 ) CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term debt — ( 50,000 ) Proceeds from revolving lines of credit 312,000 905,000 Payments on revolving lines of credit ( 306,000 ) ( 555,000 ) Debt issuance costs paid — ( 2,701 ) Net cash received from stock option exercises 1,571 5,018 Net cash received from ESPP 3,255 2,331 Acquisition of treasury stock ( 87,271 ) ( 74,530 ) Proceeds from financing obligations 9,058 13,083 Other financing activities ( 1,566 ) ( 2,627 ) Net cash (used in) provided by financing activities ( 68,953 ) 240,574 Net (decrease) increase in cash and cash equivalents ( 7,705 ) 118,245 Cash and cash equivalents at beginning of period 33,915 45,436 Cash and cash equivalents at end of period $ 26,210 $ 163,681 Supplemental cash flow information: Interest paid $ 28,509 $ 15,689 Income taxes paid 113,016 81,512 Operating lease liabilities arising from obtaining right-of-use assets and other non-cash lease-related operating items 111,465 181,411 Non-cash financing and investing activities: Finance lease liabilities arising from obtaining right-of-use assets 1,449 — Property additions included in accrued expenses 30,535 19,489 The accompanying notes are an integral part of the condensed consolidated financial statements. 9 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business BJ’s Wholesale Club Holdings, Inc. and its wholly-owned subsidiaries is a leading warehouse club operator concentrated primarily in the eastern half of the United States. As of July 29, 2023, the Company operated 238 warehouse clubs and 168 gas stations in 19 states. The Company follows and reports based on the National Retail Federation’s fiscal calendar. The thirteen-week periods ended July 29, 2023 and July 30, 2022 are referred to herein as the "second quarter of fiscal year 2023" and the "second quarter of fiscal year 2022," respectively. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying interim financial statements of BJ’s Wholesale Club Holdings, Inc. are unaudited and, in the opinion of management, reflect all normal recurring adjustments considered necessary for a fair statement of the Company’s financial statements in accordance with GAAP. The condensed consolidated balance sheet as of January 28, 2023 is derived from the audited consolidated balance sheet as of that date. The unaudited results of operations for the second quarter of fiscal year 2023 are not necessarily indicative of future results or results to be expected for fiscal year 2023. The Company’s business, in common with the business of retailers generally, is subject to seasonal influences. The Company’s sales and operating income have typically been highest in the fourth quarter holiday season and lowest in the first quarter of each fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year 2022, as filed with the Securities and Exchange Commission on March 16, 2023. Recent Accounting Pronouncements and Policies The Company’s accounting policies are set forth in the audited financial statements included in the Company’s Annual Report on Form 10-K for fiscal year 2022. There have been no material changes to these accounting policies and no accounting pronouncements adopted that had a material impact on the Company’s financial statements. 3. Revenue Recognition Performance Obligations The Company identifies each distinct performance obligation to transfer goods (or bundle of goods) or services. The Company recognizes revenue as it satisfies a performance obligation by transferring control of the goods or services to the customer. Net sales—The Company recognizes net sales at clubs and gas stations when the customer takes possession of the goods and tenders payment. Sales tax is recorded as a liability at the point of sale. Revenue is recorded at the point of sale based on the transaction price on the shelf sign, net of any applicable discounts, sales tax and expected refunds. For e-commerce sales, the Company recognizes sales when control of the merchandise is transferred to the customer, which is typically at the time of shipment. The following table summarizes the Company’s point of sale transactions at clubs and gas stations, excluding sales tax, as a percentage of both net sales and total revenues: 10 Thirteen Weeks Ended Twenty-six Weeks Ended July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022 Point of sale transactions, excluding sales tax, as a percent of net sales 92 % 92 % 91 % 92 % Point of sale transactions, excluding sales tax, as a percent of total revenues 90 % 90 % 89 % 90 % BJ’s Perks Rewards and My BJ’s Perks programs—The Company’s BJ’s Perks Rewards membership program which was in place in fiscal year 2022 and the first month of fiscal year 2023, allowed participating members to earn 2 % cash back, up to a maximum of $ 500 per year, on qualified purchases made at BJ’s. The Company also offered a co-branded credit card program, the My BJ’s Perks program, which allowed My BJ’s Perks Mastercard credit card holders to earn up to a 10 cent-per-gallon discount on gasoline, up to 5 % cash back on eligible purchases made at BJ’s and up to 2 % cash back on purchases made with the card outside of BJ’s. Cash back was in the form of electronic awards issued in $ 10 increments that could be used online or in-club at the register and expired six months from the date issued. In the first quarter of fiscal year 2023, the Company rebranded the rewards program. The former BJ's Perks Rewards membership program is now the Club+ program, whereby participating members earn 2 % cash back, up to a maximum of $ 500 per year, on qualified purchases made at BJs and a 5 cent-per-gallon discount at BJ's gas locations. Cash back is in the form of electronic awards issued to each member once $ 10 in rewards have been earned. The Company's co-branded credit card program is now the BJ's One and BJ's One+ program, which allows cardholders with the opportunity to earn up to 5 % cash back on purchases made in BJ's clubs or online at bjs.com and up to a 15 cent-per-gallon discount on gasoline when paying with a BJ's One or BJ's One+ Mastercard at our BJ’s gas locations. Cash back is in the form of electronic awards issued to each member monthly on their credit card statement date. Earned rewards under these two programs do not expire. The Company accounts for these transactions as multiple element arrangements and allocates the transaction price to separate performance obligations using their relative fair values. The Company includes the fair value of award dollars earned in deferred revenue at the time the award dollars are earned. This liability was $ 43.1 million at July 29, 2023, $ 34.7 million at January 28, 2023, and $ 40.0 million at July 30, 2022 and is included in accrued expenses and other current liabilities in the condensed consolidated balance sheets. Earned awards may be redeemed on future purchases made at the Company. The Company recognizes revenue for earned awards when customers redeem such awards as part of a purchase at one of the Company’s clubs or on the Company’s website or mobile app. During the twenty-six weeks ended July 29, 2023, the Company recognized $ 34.7 million of revenue that was included in the deferred liability as of January 28, 2023. The Company expects to recognize $ 43.1 million of deferred revenue during the remainder of fiscal year 2023. During the twenty-six weeks ended July 30, 2022, the Company recognized $ 30.3 million that was included in the deferred liability as of January 29, 2022. The Company’s total deferred royalty revenue related to the outstanding My BJ's Perks and BJ's One and BJ's One+ credit card program was $ 5.6 million, $ 17.9 million, and $ 28.5 million at July 29, 2023, January 28, 2023, and July 30, 2022, respectively, and is included in accrued expenses and other current liabilities in the condensed consolidated balance sheets. The timing of revenue recognition of these awards is driven by actual customer activities, such as reward redemptions and expirations. During the twenty-six weeks ended July 29, 2023, the Company recognized $ 17.9 million of revenue that was included in the deferred liability as of January 28, 2023. As of July 29, 2023, the Company expects to recognize $ 5.6 million of deferred revenue during the remainder of fiscal year 2023. In connection with the new co-brand credit card program, the Company had deferred revenue of approximately $ 11.9 million and $ 18.9 million for funds received related to marketing and other integration costs as of July 29, 2023 and January 28, 2023, respectively. During the twenty-six weeks ended July 29, 2023, the Company recognized $ 5.0 million of revenue that was included in the deferred liability as of January 28, 2023, related to these marketing and other integration costs. The Company expects to recognize approximately $ 2.1 million of deferred revenue during the remainder of fiscal year 2023, which is included in accrued expenses and other current liabilities. The Company expects to recognize approximately $ 9.8 million thereafter, of which $ 2.6 million is included in accrued expenses and other current liabilities and $ 7.2 million is included in other non-current liabilities in the condensed consolidated balance sheets. Membership—The Company charges a membership fee to its customers, which allows customers to shop in the Company’s clubs, shop on the Company’s website, and purchase gasoline at the Company’s gas stations for the duration of the membership, which is generally 12 months. As the Company has the obligation to provide access to its clubs, website, and gas stations for the duration of the membership term, the Company recognizes membership fees on a straight-line basis over the life of the membership. The Company’s deferred revenue related to membership fees was $ 195.3 million, $ 183.7 million, and 11 $ 185.4 million at July 29, 2023, January 28, 2023, and July 30, 2022, respectively, and is included in accrued expenses and other current liabilities in the condensed consolidated balance sheets. Gift Card Programs—The Company sells BJ’s gift cards that allow customers to redeem the card for future purchases equal to the amount of the face value of the gift card. Revenue from gift card sales is recognized upon redemption of the gift card because the Company’s performance obligation to redeem the gift card for merchandise is satisfied when the gift card is redeemed. Deferred revenue related to gift cards was $ 13.4 million, $ 14.1 million, and $ 11.9 million at July 29, 2023, January 28, 2023, and July 30, 2022, respectively. The Company recognized $ 10.9 million and $ 12.7 million of revenue from gift card redemptions in the second quarters of fiscal years 2023 and 2022, respectively. The Company recognized $ 22.5 million and $ 23.2 million of revenue from gift card redemptions in the twenty-six weeks ended July 29, 2023 and July 30, 2022, respectively. Disaggregation of Revenue The Company’s club retail operations, which include retail club and other sales procured from our clubs and distribution centers, represent substantially all of its consolidated total revenues, and are the Company’s only reportable segment. All the Company’s identifiable assets are in the United States. The Company does not have significant sales outside the United States, nor does any customer represent more than 10% of total revenues for any period presented. The following table summarizes the Company’s percentage of net sales disaggregated by category: Thirteen Weeks Ended Twenty-six Weeks Ended July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022 Grocery 70 % 64 % 71 % 65 % General Merchandise and Services 11 % 12 % 10 % 12 % Gasoline and Other 19 % 24 % 19 % 23 % 4. Debt and Credit Arrangements The following table summarizes the Company’s debt (in thousands): July 29, 2023 January 28, 2023 July 30, 2022 ABL Revolving Facility $ 411,000 $ 405,000 $ 350,000 First Lien Term Loan 450,000 450,000 701,920 Unamortized original issue discount and debt issuance costs ( 1,865 ) ( 2,120 ) ( 2,514 ) Less: Short-term debt ( 411,000 ) ( 405,000 ) ( 350,000 ) Long-term debt $ 448,135 $ 447,880 $ 699,406 ABL Revolving Facility On July 28, 2022, the Company entered into the ABL Revolving Facility with an ABL Revolving Commitment of $ 1.2 billion pursuant to that certain credit agreement (the "Credit Agreement") with Bank of America, N.A., as administrative agent and collateral agent, and the other lenders party thereto. The maturity date of the ABL Revolving Facility is July 28, 2027. In connection with this transaction, the Company extinguished the previous senior secured asset based revolving credit and term facility. Revolving loans under the ABL Revolving Facility are available in an aggregate amount equal to the lesser of the aggregate ABL Revolving Commitment or a borrowing base based on the value of certain inventory, accounts and credit card receivables, subject to specified advance rebates and reserves as set forth in the Credit Agreement. Indebtedness under the ABL Revolving Facility is secured by substantially all of the assets (other than real estate) of the Company and its subsidiaries, subject to customary exceptions. As amended, interest on the ABL Revolving Facility is calculated either at the SOFR plus a range of 100 to 125 basis points or a base rate plus 0 to 25 basis points, based on excess availability. The Company will also pay an unused commitment fee of 20 basis points per annum on the unused ABL Revolving Commitment. Each borrowing is 12 for a period of one , three , or six months , as selected by the Company, or for such other period that is twelve months or less requested by the Company and consented to by the lenders and administrative agent. The ABL Revolving Facility places certain restrictions (i.e., covenants) upon the Borrower’s, and its subsidiaries’, ability to, among other things, incur additional indebtedness, pay dividends and make certain loans, investments, and divestitures. The ABL Revolving Facility contains customary events of default (including payment defaults, cross-defaults to certain of the Company's other indebtedness, breach of representations and covenants and change of control). The occurrence of an event of default under the ABL Revolving Facility would permit the lenders to accelerate the indebtedness and terminate the ABL Revolving Facility. As of July 29, 2023, there was $ 411.0 million outstanding in loans under the ABL Revolving Facility and $ 11.3 million in outstanding letters of credit. The interest rate on the ABL Revolving Facility was 6.42 % and unused capacity was $ 726.2 million. First Lien Term Loan On January 5, 2023, the Company entered into the Third Amendment to the First Lien Term Loan Credit Agreement, with Nomura Corporate Funding Americas, LLC, as administrative agent and collateral agent and the lenders party thereto. BofA Securities, Inc., Deutsche Bank Securities Inc., and Wells Fargo Securities LLC acted as joint lead arrangers and joint bookrunners of the Third Amendment. The Third Amendment, among other things, extended the maturity date with respect to the term loans outstanding under the First Lien Term Loan Credit Agreement from February 3, 2024 to February 3, 2027. In addition, the Third Amendment transitioned the interest rate, immediately, from LIBOR to SOFR and changed the applicable margin from LIBOR plus 200 – 225 basis points per annum to SOFR plus 275 basis points per annum. Voluntary prepayments are permitted. Principal payments must be made on the First Lien Term Loan pursuant to an annual excess cash flow calculation when the net leverage ratio exceeds 3.50 to 1.00. As of July 29, 2023, the Company's net leverage ratio did not exceed 3.50 to 1.00, and therefore, no incremental principal payments were required. The First Lien Term Loan is subject to certain affirmative and negative covenants but no financial covenants. It is secured on a senior basis by certain "fixed assets" of the Company and on a junior basis by certain "liquid" assets of the Company. There was $ 450.0 million outstanding on the First Lien Term Loan at July 29, 2023 and January 28, 2023, and $ 701.9 million outstanding at July 30, 2022. The interest rates were 7.89 %, 7.11 %, and 3.96 % at July 29, 2023, January 28, 2023, and July 30, 2022, respectively. 5. Commitments and Contingencies The Company is involved in various legal proceedings that are typical of a retail business. In accordance with applicable accounting guidance, an accrual will be established for legal proceedings if and when those matters present loss contingencies that are both probable and estimable. The Company does not believe the resolution of any current proceedings will result in a material loss to the condensed consolidated financial statements. 6. Stock Incentive Plans On June 13, 2018, the Company’s board of directors adopted, and its stockholders approved, the BJ’s Wholesale Club Holdings, Inc. 2018 Incentive Award Plan (the "2018 Plan"). The 2018 Plan provides for the grant of stock options, restricted stock, dividend equivalents, stock payments, restricted stock units, performance shares, other incentive awards, stock appreciation rights, and cash awards. Prior to the adoption of the 2018 Plan, the Company granted stock-based compensation to employees and non-employee directors under the Fourth Amended and Restated 2011 Stock Option Plan of BJ’s Wholesale Club, Inc. (f/k/a Beacon Holding Inc.), as amended (the "2011 Plan") and the 2012 Director Stock Option Plan of BJ’s Wholesale Club Holdings, Inc. (f/k/a Beacon Holding, Inc.), as amended (the "2012 Director Plan"). No further grants will be made under the 2011 Plan or the 2012 Director Plan. The 2018 Plan authorizes the issuance of 13,148,058 shares, including 985,369 shares that were reserved but not issued under the 2011 Plan and the 2012 Director Plan. If an award under the 2018 Plan, the 2011 Plan, or the 2012 Director Plan is forfeited, expires, or is settled for cash, any shares subject to such award may, to the extent of such forfeiture, expiration, or 13 cash settlement, be used again for new grants under the 2018 Plan. Additionally, shares tendered or withheld to satisfy grant or exercise price, or tax withholding obligations associated with an award under the 2018 Plan, the 2011 Plan, or the 2012 Director Plan will be added to the shares authorized for grant under the 2018 Plan. The following shares may not be used again for grant under the 2018 Plan: (1) shares subject to a stock appreciation right ("SAR") that are not issued in connection with the stock settlement of the SAR upon its exercise and (2) shares purchased on the open market with the cash proceeds from the exercise of options under the 2018 Plan, 2011 Plan, or 2012 Director Plan. As of July 29, 2023, there were 4,916,649 shares available for future issuance under the 2018 Plan. The following table summarizes the Company’s stock award activity during the twenty-six weeks ended July 29, 2023 (shares in thousands): Stock Options Restricted Stock Restricted Stock Units Performance Stock Shares Weighted- Average Exercise Price Shares Weighted- Average Grant Date Fair Value Shares Weighted- Average Grant Date Fair Value Shares Weighted- Average Grant Date Fair Value Outstanding, January 28, 2023 1,788 $ 20.35 750 $ 50.10 24 $ 58.61 854 $ 45.70 Granted (a) — — 322 76.07 22 62.13 503 76.07 Forfeited/canceled — — ( 39 ) 63.09 ( 5 ) 58.61 ( 40 ) 58.81 Exercised/vested ( 93 ) 20.85 ( 386 ) 42.94 ( 19 ) 58.61 ( 640 ) 24.35 Outstanding, July 29, 2023 1,695 $ 20.33 647 $ 66.50 22 $ 62.13 677 $ 58.84 (a) Includes 320 incremental Performance Stock awards granted in fiscal year 2020 with a weighted-average grant date fair value of $ 24.35 , that vested in fiscal year 2023 at greater than 100 % of target based on performance. Stock-based compensation expense was $ 9.6 million and $ 9.4 million for the thirteen weeks ended July 29, 2023 and July 30, 2022, respectively, and $ 19.6 million and $ 18.5 million for the twenty-six weeks ended July 29, 2023 and July 30, 2022, respectively. On June 14, 2018, the Company’s board of directors adopted, and its stockholders approved, the ESPP, which became effective July 1, 2018. The aggregate number of shares of common stock that were to be reserved for issuance under the ESPP was to be equal to the sum of (i) 973,014 shares and (ii) an annual increase on the first day of each calendar year beginning in 2019 and ending in 2028 equal to the lesser of (A) 486,507 shares, (B) 0.5 % of the shares outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (C) such smaller number of shares as determined by the Company's board of directors. The amount of expense recognized related to the ESPP was $ 0.4 million and $ 0.3 million for the thirteen weeks ended July 29, 2023 and July 30, 2022, respectively, and $ 0.7 million and $ 0.5 million for the twenty-six weeks ended July 29, 2023 and July 30, 2022, respectively. As of July 29, 2023, there were 2,463,889 shares available for issuance under the ESPP. 7. Treasury Shares and Share Repurchase Program Treasury Shares Acquired on Restricted Stock and Performance Stock Awards The Company acquired 3,625 shares to satisfy employees’ tax withholding obligations upon the vesting of restricted stock awards in the thirteen weeks ended July 29, 2023, which was recorded as $ 0.3 million of treasury stock. The Company acquired 5,945 shares to satisfy employees' tax withholding obligations upon the vesting of restricted stock awards in the thirteen weeks ended July 30, 2022, which was recorded as $ 0.3 million of treasury stock. The Company acquired 359,827 shares to satisfy employees’ tax withholding obligations upon the vesting of restricted stock and performance stock awards in the twenty-six weeks ended July 29, 2023, which was recorded as $ 27.4 million of treasury stock. The Company acquired 235,845 shares to satisfy employees' tax withholding obligations upon the vesting of restricted stock awards in the twenty-six weeks ended July 30, 2022, which was recorded as $ 15.9 million of treasury stock. Share Repurchase Program On November 16, 2021, the Company's board of directors approved a share repurchase program (the "2021 Repurchase Program") that allows the Company to repurchase up to $ 500.0 million of its outstanding common stock from time to time as 14 market conditions warrant. The 2021 Repurchase Program expires in January 2025. The Company initiated the 2021 Repurchase Program to mitigate potentially dilutive effects of stock options and shares of restricted stock granted by the Company, in addition to enhancing shareholder value. The Company repurchased 715,122 shares for $ 44.6 million and 353,000 shares for $ 22.8 million during the thirteen weeks ended July 29, 2023 and July 30, 2022, respectively . The Company repurchased 919,162 shares for $ 59.9 million and 923,506 shares for $ 58.6 million during the twenty-six weeks ended July 29, 2023 and July 30, 2022, respectively . As of July 29, 2023, $ 258.8 million remained available to purchase under the 2021 Repurchase Program. 8. Income Taxes The Company projects the estimated annual effective tax rate for fiscal year 2023 to be 28.3 %, excluding the tax effect of discrete events, such as excess tax benefits from stock-based compensation, changes in tax legislation, settlements of tax audits and changes in uncertain tax positions, among others. The Company’s effective income tax rate from continuing operations was 28.6 % and 26.6 % for the thirteen weeks ended July 29, 2023 and July 30, 2022, respectively, primarily due to a reduction in excess tax benefits from stock-based compensation and tax credits in the current period. For the twenty-six weeks ended July 29, 2023 and July 30, 2022, the Company's effective tax rate from continuing operations was and 30.5 % and 24.2 %, respectively, and the increase was primarily due to an immaterial adjustment to certain deferred tax assets related to prior periods, as well as lower excess tax benefits from stock-based compensation and lower tax credits in the current period. The Company is subject to taxation in the U.S. federal and various state taxing jurisdictions. The Company’s tax years from 2018 forward remain open and subject to examination by the Internal Revenue Service and various state taxing authorities. On August 16, 2022, the Inflation Reduction Act was signed into law in the United States. We currently do not expect the legislation to have a material impact on our financial statements. 9. Fair Value Measurements Certain assets and liabilities are required to be carried at fair value in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable inputs other than quoted market prices included in Level 1 such as quoted market prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data. Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. 15 Financial Assets and Liabilities The fair value of the Company's long-term debt is estimated based on current market rates for our specific debt instrument. Judgment is required to develop these estimates. As such, the estimated fair value of long-term debt is classified within Level 2, as defined under U.S. GAAP. The gross carrying amount and fair value of the Company’s debt at July 29, 2023 are as follows (in thousands): Carrying Amount Fair Value First Lien Term Loan $ 450,000 $ 450,311 ABL Revolving Facility 411,000 411,000 Total Debt $ 861,000 $ 861,311 The gross carrying amount and fair value of the Company’s debt at January 28, 2023 are as follows (in thousands): Carrying Amount Fair Value First Lien Term Loan $ 450,000 $ 450,482 ABL Revolving Facility 405,000 405,000 Total Debt $ 855,000 $ 855,482 The gross carrying amount and fair value of the Company’s debt at July 30, 2022 are as follows (in thousands): Carrying Amount Fair Value First Lien Term Loan $ 701,920 $ 700,797 ABL Revolving Facility 350,000 350,000 Total Debt $ 1,051,920 $ 1,050,797 Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis The Company measures certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis. The Company believes that the carrying amounts of its other financial instruments, including cash, accounts receivable, and accounts payable, approximate their fair values due to the short-term maturities of these instruments. 10. Earnings Per Share The table below reconciles basic weighted-average shares of common stock outstanding to diluted weighted-average shares of common stock outstanding for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022 (in thousands): Thirteen Weeks Ended Twenty-six Weeks Ended July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022 Weighted-average shares of common stock outstanding, used for basic computation 133,317 134,341 133,314 134,293 Plus: Incremental shares of potentially dilutive securities: 1,812 2,226 2,201 2,342 Weighted-average shares of common stock and dilutive potential shares of common stock outstanding 135,129 136,567 135,515 136,635 The table below summarizes awards that were excluded from the computation of diluted earnings for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022, as their inclusion would have been anti-dilutive (in thousands): 16 Thirteen Weeks Ended Twenty-six Weeks Ended July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022 Restricted shares 304 193 203 145 Restricted stock units 11 12 5 6 17 FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q should be considered forward-looking statements, including, without limitation, statements regarding our future results of operations and financial position, business strategy, transformation, strategic priorities and future progress, including expectations regarding deferred revenue, lease commencement dates, impact of infrastructure investments on our operating model and selling, general and administrative expenses, sales of gasoline and gross profit margin rates, and new club and gas station openings, as well as statements that include terms such as "may", "will", "should", "expect", "plan", "anticipate", "could", "intend", "project", "believe", "estimate", "predict", "continue", "forecast", "would", or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: • uncertainties in the financial markets and the effect of certain economic conditions or events on consumer and small business spending patterns and debt levels; • risks related to our dependence on having a large and loyal membership; • domestic and international economic conditions, including volatility in inflation or interest rates, supply chain disruptions, construction delays and exchange rates; • our ability to procure the merchandise we sell at the best possible prices; • the effects of competition in, and regulation of, the retail industry; • our dependence on vendors to supply us with quality merchandise at the right time and at the right price; • risks related to our indebtedness; • changes in laws related to, or the governments administration of, the Supplemental Nutrition Assistance Program or its electronic benefit transfer systems; • the risks and uncertainties related to the impact of any future pandemic, epidemic or outbreak of any other highly infectious disease; • risks related to climate change and natural disasters; • our ability to identify and respond effectively to consumer trends, including our ability to successfully maintain a relevant omnichannel experience for our members; • risks related to cybersecurity, which may be heightened due to our e-commerce business, including our ability to protect the privacy of member or business information and the security of payment card information; • risks relating to our ability to attract and retain a qualified management team and other team members; • risks relating to our ability to implement our growth strategy by opening new clubs, and gasoline stations; and • the other risk factors identified in our filings with the Securities and Exchange Commission, including in particular those set forth under "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 (the "Annual Report on Form 10-K for the fiscal year 2022"). Given these uncertainties, you should not place undue reliance on any forward-looking statements. Except as required by applicable law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future, and you should not rely upon these forward-looking statements after the date of this Quarterly Report on Form 10-Q. 18