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Item 2. Management’s Discussion and Analysis

2023-11-22 compared with 2023-08-25 · 93 added, 114 removed, 211 unchanged (50% of the section changed)

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Accordingly, references herein to "fiscal year 2023" relate to the 53 weeks ending February 03, 2024, and references herein to "fiscal year 2022" relate to the 52 weeks ended January 28, 2023.

The second quarter of fiscal year 2023 ended on July 29, 2023, and the second quarter of fiscal year 2022 ended on July 30, 2022, and both include thirteen weeks.

BJ’s Wholesale Club is a leading warehouse club operator concentrated primarily on the eastern half of the United States.

The third quarter of fiscal year 2023 ended on October 28, 2023, and the third quarter of fiscal year 2022 ended on October 29, 2022, and both include thirteen weeks.

BJ’s Wholesale Club is a leading operator of membership warehouse clubs concentrated primarily on the eastern half of the United States.

We deliver significant value to our members, consistently offering 25% or more savings on a representative basket of manufacturer-branded groceries compared to traditional supermarket competitors.

We provide a curated assortment focused on perishable products, continuously refreshed general merchandise, gasoline and other ancillary services, coupon books, and promotions to deliver a differentiated shopping experience that is further enhanced by our digital capabilities.

We provide a curated assortment focused on groceries, continuously refreshed general merchandise, gasoline and other ancillary services, coupon books, and promotions to deliver a differentiated shopping experience that is further enhanced by our omnichannel capabilities.

Since pioneering the warehouse club model in New England in 1984, we have grown our footprint to 239 large-format, high volume warehouse clubs and 169 gas stations spanning 20 states as of the date of this filing.

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gross domestic product, we operate almost three times the number of clubs compared to the next largest warehouse club competitor.

In addition to shopping in our clubs, members are able to shop when and how they want through our website, bjs.com, and our highly rated mobile app, which allows them to use our buy-online-pickup-in-club ("BOPIC") service, curbside delivery, same-day home delivery or traditional ship-to-home service, as well as through the DoorDash and Instacart marketplaces where members receive preferential pricing by linking their membership.

We also offer Same-Day Select, which offers BJ’s members the ability to pay a one-time fee for either unlimited or twelve same-day grocery deliveries over a one-year period.

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We have approximately 7.1 million members p aying annual fees to gain access to savings on groceries and general merchandise and services.

The annual membership fee for our Club Card membership is generally $55, and the annual membership fee for our BJ’s Club+ membership, which offers additional value-enhancing features, is generally $110.

The annual membership fee for our Club Card membership is generally $55, and the annual membership fee for our Club+ membership, which offers additional value-enhancing features, is generally $110.

We believe that members can save over ten times their $55 Club Card membership fee versus what they would otherwise pay at traditional supermarket competitors when they spend $2,500 or more per year at BJ’s on manufacturer-branded groceries.

In addition to providing significant savings on a representative basket of manufacturer-branded groceries, we accept all manufacturer coupons and also carry our own exclusive brands that enable members to save on price without compromising on quality.

Our two private label brands, Wellsley Farms® and Berkley Jensen®, represented over $3.7 billion in annual sales for fiscal year 2022 and are the largest brands we sell in terms of volume.

Our two private label brands, Wellsley Farms® and Berkley Jensen®, represented approximately $3.7 billion in annual sales for fiscal year 2022 and represented the largest brands we sell in terms of volume.

Our customers recognize the relevance of our value proposition across economic environments, as demonstrated by over 25 consecutive years of membership fee income growth.

Our membership fee income was $407.5 million for the trailing twelve-months ended July 29, 2023.

Our membership fee income was $414.1 million for the trailing twelve-months ended October 28, 2023.

Our business is moderately seasonal in nature.

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Therefore, our renewal rate is a trailing calculation that captures renewals during the period seven to eighteen months prior to the reporting date.

We have grown our membership fee income each year for the past 25 years and the quality of our membership mix is strong as evidenced by our higher tier penetration growth in the first twenty-six weeks of fiscal year 2023.

Our membership renewal rate, a key indicator of membership engagement, satisfaction and loyalty, was 90% at the end of fiscal year 2022.

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Inflation and deflation trends

Our financial results can be directly impacted by substantial changes in product costs due to commodity cost increases or general inflation, which could lead to a reduction in our sales, as well as greater margin pressure, as costs may not be able to be passed on to consumers.

Changes in commodity prices and general inflation have impacted several categories of our business.

Inflationary pressures can be attributed to macro economic factors including supply chain disruptions, government stimulus, interest rates, and other factors.

In response to increasing commodity prices or general inflation, we seek to minimize the impact of such events by sourcing our merchandise from different vendors, changing our product mix or increasing our pricing when necessary.

Our financial results can be directly impacted by substantial changes in product costs due to commodity cost fluctuations or general inflation, disinflation or deflation, which could lead to a reduction in our sales, as well as greater margin pressure, as costs may not be able to be passed on to consumers.

Changes in commodity prices and changes in inflation rates have impacted several categories of our business.

Inflationary volatility can be attributed to macro economic factors including supply chain disruptions, government stimulus, interest rates, and other factors.

In response to general inflationary volatility, we seek to minimize the impact of such events by sourcing our merchandise from different vendors, changing our product mix or increasing our pricing when necessary.

Results of Operations

The following table summarizes key components of our results of operations for the periods indicated:

Statement of Operations Data Thirteen Weeks Ended Twenty-six Weeks Ended

(dollars in thousands, except per share amounts) July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022

Statement of Operations Data Thirteen Weeks Ended Thirty-Nine Weeks Ended

(dollars in thousands, except per share amounts) October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022

Net sales $ 4,818,670 $ 4,685,834 $ 14,299,132 $ 14,090,673

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Management’s Discussion and Analysis of Financial Condition and Results of Operations for definitions.

Thirteen Weeks Ended July 29, 2023 (Second Quarter of Fiscal Year 2023) Compared to Thirteen Weeks Ended July 30, 2022 (Second Quarter of Fiscal Year 2022)

Net sales are derived from direct retail sales to customers, net of merchandise returns and discounts.

Fluctuations in net sales are impacted by opening new clubs and comparable club sales.

Net sales for the second quarter of fiscal year 2023 were $4.9 billion, a 2.9% decrease from net sales reported for the second quarter of fiscal year 2022 of $5.0 billion.

The decrease was due primarily to a decrease in gasoline sales during the second quarter of fiscal year 2023.

Net sales for the third quarter of fiscal year 2023 were $4.8 billion, a 2.8% increase from net sales reported for the third quarter of fiscal year 2022 of $4.7 billion.

The increase was due primarily to growth in traffic and market share, particularly in the grocery division as well as comparable gallons at our gas stations.

Net sales for the first nine months of fiscal year 2023 were $14.3 billion, a 1.5% increase from net sales reported for the first nine months of fiscal year 2022 of $14.1 billion.

The increase was due primarily to strength in the grocery division and an increase of six clubs, partially offset by lower gasoline sales.

Comparable Club Sales and Merchandise Comparable Club Sales

We believe net sales is an important driver of our profitability, particularly comparable club sales.

Changes in comparable sales are driven by variations in shopping frequency from new and existing members and the amount they spend on each visit.

Comparable club sales, which is a non-GAAP metric, also known as same-store sales in the retail industry, includes all clubs that were open for at least 13 months at the beginning of the period and were in operation during the entirety of both periods being compared, including relocated clubs and expansions.

Comparable club sales allow us to evaluate how our club base is performing by measuring the change in period-over-period net sales in clubs that have been open for the applicable period.

Various factors affect comparable club sales, including customer preferences and trends, product sourcing, promotional offerings and pricing, shopping frequency from new and existing members and the amount they spend on each visit, weather and holiday shopping period timing and length.

Sales comparisons can be influenced by certain factors that are beyond our control such as changes in the cost of gasoline and macro-economic factors such as inflation.

The higher comparable club sales, the more we can leverage certain of our selling, general and administrative (SG&A) expenses, reducing them as a percentage of sales and enhancing profitability.

Thirteen Weeks Ended

July 29, 2023

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 28, 2023 October 28, 2023

Comparable club sales 0.3 % (1.2) %

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Merchandise comparable club sales (0.1) % 2.1 %

Merchandise comparable club sales increased by 1.1% in the second quarter of fiscal year 2023 compared to the second quarter of fiscal year 2022 primarily driven by an increase in sales of groceries of 4.1%, partially offset by a decrease in sales of general merchandise and services of approximately 13.3%.

In grocery, sales increased for snacks, beverages, breakfast items, dairy, frozen, and bakery categories compared to the second quarter of fiscal year 2022, partially offset by a decrease in sales of fresh meat, vitamins, and household categories.

Sales of general merchandise decreased in the second quarter of fiscal year 2023 due to decreased demand for electronics, home, and seasonal merchandise compared to the second quarter of fiscal year 2022, driven by the unfavorable impact of weather and macroeconomic factors.

The impact of gasoline sales is a result of lower retail prices in the second quarter of fiscal 2023 as compared to the second quarter of fiscal year 2022, as well as a slight decline in comparable gallons.

Merchandise comparable club sales represents comparable club sales from all merchandise other than our gasoline operations for the applicable period.

Merchandise comparable club sales remained approximately flat, with a decrease of 0.1% in the third quarter of fiscal year 2023 compared to the third quarter of fiscal year 2022, primarily driven by a decrease in sales of general merchandise and services of approximately 10.9%, partially offset by an increase in sales of groceries of 1.6%.

In the grocery division, growth was led by the breakfast, nutrition, candy, snack, fresh produce and bakery categories when compared to the third quarter of fiscal year 2022, partially offset by a decrease in sales of fresh meat and seafood categories.

Sales of general merchandise decreased in the third quarter of fiscal year 2023 due to decreased demand for electronics, home, and seasonal merchandise compared to the third quarter of fiscal year 2022, driven by the unfavorable impact of weather and macroeconomic conditions with consumers generally spending less on larger ticket items.

The impact of gasoline sales is a result of an increase in comparable gallons in the third quarter of fiscal 2023 as compared to the third quarter of fiscal year 2022, as retail prices remained approximately flat.

Merchandise comparable club sales increased by 2.1% in the first nine months of fiscal year 2023 compared to the first nine months of fiscal year 2022 driven by an increase in sales of groceries of approximately 4.5%, partially offset by a decrease in sales of general merchandise and services of approximately 11.0%.

Sales increased during the first nine months as demand for beverages, candy, snacks, packaged goods, dairy, and bakery categories increased compared to the first nine months of fiscal year 2022, partially offset by a decrease in demand for fresh meat and seafood categories.

General merchandise decreased during the first nine months due to decreased demand for electronics and seasonal merchandise compared to the first nine months of fiscal year 2022.

The impact of gasoline sales is primarily a result of lower retail prices through the first nine months of fiscal 2023 as compared to the first nine months of fiscal year 2022.

Membership fee income

We continue to see growth in the size of our membership base and continued quality.

Membership fee income was $103.7 million in the second quarter of fiscal year 2023 compared to $98.8 million in the second quarter of fiscal year 2022, a 5.0% increase.

The increase was primarily driven by membership renewals, new members, and greater penetration of higher-tier membership levels, evidencing the strength of our membership quality.

In connection with our co-brand credit card transition in the first quarter of fiscal year 2023, we offered a 5 cent-per-gallon discount on gasoline purchases to our Club+ members.

We believe the new program has helped drive continued growth in our higher-tier membership penetration.

Membership fee income was $106.1 million in the third quarter of fiscal year 2023 compared to $99.5 million in the third quarter of fiscal year 2022, a 6.6% increase.

Membership fee income was $312.3 million in the first nine months of fiscal year 2023 compared to $294.9 million in the first nine months of fiscal year 2022, a 5.9% increase.

The increase for both comparative periods was primarily driven by membership renewals, new members, and increased penetration of higher-tier membership levels, evidencing the strength of our membership quality.

Cost of sales

Cost of sales consists primarily of the direct cost of merchandise and gasoline sold at our clubs, including costs associated with operating our distribution centers, including payroll, payroll benefits, occupancy costs, and depreciation;

expenses associated with moving merchandise from vendors to our distribution centers and from distribution centers to our clubs;

freight expenses associated with moving merchandise from vendors to our distribution centers and from distribution centers to our clubs;

and vendor allowances, rebates, and cash discounts.

Cost of sales was $4.1 billion, or 83.7% of net sales, in the second quarter of fiscal year 2023 compared to $4.2 billion, or 84.8% of net sales, in the second quarter of fiscal year 2022.

Cost of sales was $4.0 billion, or 83.5% of net sales, in the third quarter of fiscal year 2023 compared to $3.9 billion, or 83.4% of net sales, in the third quarter of fiscal year 2022.

Merchandise gross margin rate, which excludes gasoline sales and membership fee income, increased 30 basis points over the prior year period.

The improvement in merchandise margins was primarily due to disinflation, moderated supply chain costs, and improvement of inventory management.

Cost of sales was $11.9 billion, or 83.4% of net sales, in the first nine months of fiscal year 2023, remaining flat compared to $11.9 billion, or 84.1% of net sales, in the first nine months of fiscal year 2022.

Merchandise gross margin rate, which excludes gasoline sales and membership fee income, increased 70 basis points compared to the first nine months of fiscal year 2022.

Merchandise margins were positively impacted by moderated supply chain costs and improved inventory cost management for both comparative periods.

Selling, general and administrative expenses

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In addition, any future increases in wages, stock-based grants or modifications will increase our SG&A.

SG&A increased by 6.7% to $695.0 million in the second quarter of fiscal year 2023 from $651.2 million in the second quarter of fiscal year 2022.

The year-over-year increase in SG&A was primarily driven by increased labor and occupancy costs as a result of new club and gas station openings, as well as other continued investments to drive strategic priorities.

Our growth profile this year is weighted toward owned clubs, elevating our depreciation expense.

We remain focused on investing in member engagement, marketing and digital strategies.

Pre-opening expenses

Pre-opening expenses include startup costs for new clubs.

Expenses will vary based on the number of new club openings, geography of the club, whether the club is owned or leased, and timing of the opening relative to our period end.

Pre-opening expenses were $1.6 million in the second quarter of fiscal year 2023 compared to $5.9 million in the second quarter of fiscal year 2022.

Pre-opening expenses decreased due to timing of spend for club openings year-over-year.

Interest expense, net

Interest expense, net was $16.3 million in the second quarter of fiscal year 2023 compared to $10.9 million in the second quarter of fiscal year 2022.

The increase was primarily due to rising interest rates year-over-year.

Provision for income taxes

The Company’s effective income tax rate from continuing operations was 28.6% and 26.6% for the second quarters of fiscal years 2023 and 2022, respectively.

The increase in the effective tax rate is primarily due to a reduction in excess tax benefits from stock-based compensation and lower tax credits in the current period.

Twenty-six Weeks Ended July 29, 2023 (First Six Months of Fiscal Year 2023) Compared to Twenty-six Weeks Ended July 30, 2022 (First Six Months of Fiscal Year 2022)

Net sales for the first six months of fiscal year 2023 were $9.5 billion, a 0.8% increase from net sales reported for the first six months of fiscal year 2022 of $9.4 billion.

The increase was due primarily to a net increase of nine club openings, partially offset by lower gasoline sales.

Comparable club sales

Twenty-six Weeks Ended

July 29, 2023

Comparable club sales (1.9) %

impact from gasoline sales (5.2) %

Merchandise comparable club sales 3.3 %

Merchandise comparable club sales increased by 3.3% in the first six months of fiscal year 2023 compared to the first six months of fiscal year 2022 driven by an increase in s ales of groceries of approximately 6.0%, partially offset by a decrease in sales of general merchandise and services of approximately 11.0%.

In grocery, sales increased in the current year period as demand for beverages, candy, snacks, dairy, and bakery categories increased compared to the first six months of fiscal year 2022 , partially offset by a decrease in demand for fresh meat and household categories .

General merchandise decreased in the current year period due to decreased demand for electronics and seasonal merchandise compared to the first six months of fiscal year 2022.

The impact of gasoline sales is a result of lower retail prices through the first six months of fiscal 2023 as compared to the first six months of fiscal year 2022.

Gallons remained relatively flat period over period.

Membership fee income

Membership fee income was $206.2 million in the first six months of fiscal year 2023 compared to $195.4 million in the first six months of fiscal year 2022, a 5.5% increase.

The increase was primarily driven by membership renewals, new members, and increased penetration of higher-tier membership levels, evidencing the strength of our membership quality.

Cost of sales

Cost of sales was $7.9 billion, or 83.4% of net sales, in the first six months of fiscal year 2023, remaining flat compared to $7.9 billion, or 84.5% of net sales, in the first six months of fiscal year 2022.

Merchandise gross margin rate, which excludes gasoline sales and membership fee income, increased 100 basis points in the current year period over the first six months of fiscal year 2022.

The improvement in merchandise margins was primarily due to disinflation, moderated supply chain costs, and improved inventory management.

Selling, general and administrative expenses

SG&A increased by 7.5% to $1.4 billion in the first six months of fiscal year 2023 from $1.3 billion in the first six months of fiscal year 2022.

SG&A increased by 3.4% to $697.1 million in the third quarter of fiscal year 2023 from $674.4 million in the third quarter of fiscal year 2022.

SG&A increased by 6.1% to $2.1 billion in the first nine months of fiscal year 2023 from $2.0 billion in the first nine months of fiscal year 2022.

The increase in SG&A for both comparative periods was primarily driven by increased labor and occupancy costs as a result of new club and gas station openings, as well as other continued investments to drive strategic priorities.

Our growth profile this year is weighted toward owned clubs, elevating our depreciation expense.

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Pre-opening expenses

Pre-opening expenses were $5.5 million in the first six months of fiscal year 2023 compared to $10.8 million in the first six months of fiscal year 2022.

Pre-opening expenses decreased due to timing of spend for club openings year-over-year.

Pre-opening expenses include startup costs for new clubs and costs for relocated clubs.

Expenses will vary based on the number of club openings, geography of the club, whether the club is owned or leased, and timing of the opening relative to our period end.

Pre-opening expenses were $6.0 million in the third quarter of fiscal year 2023 compared to $10.7 million in the third quarter of fiscal year 2022.

Pre-opening expenses were $11.5 million in the first nine months of fiscal year 2023 compared to $21.5 million in the first nine months of fiscal year 2022.

Pre-opening expenses decreased due to timing of spend for club openings year-over-year for both comparative periods.

Interest expense, net

Interest expense, net was $31.0 million in the first six months of fiscal year 2023 compared to $18.7 million in the first six months of fiscal year 2022.

The increase was primarily due to rising interest rates year-over-year.

Interest expense, net was $18.0 million in the third quarter of fiscal year 2023 compared to $12.5 million in the third quarter of fiscal year 2022.

Interest expense, net was $49.0 million in the first nine months of fiscal year 2023 compared to $31.2 million in the first nine months of fiscal year 2022.

The increase for both comparative periods was primarily due to rising interest rates year-over-year as well as an increase in debt extinguishment charges due to entering into the Fourth Amendment of the First Lien Term Loan.

Provision for income taxes

The Company’s effective income tax rate from continuing operations was 30.5% and 24.2% for the first six months of fiscal years 2023 and 2022, respectively.

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’s effective income tax rate from continuing operations was 28.1% and 26.8% for the third quarters of fiscal years 2023 and 2022, respectively.

The Company’s effective income tax rate from continuing operations was 29.7% and 25.1% for the first nine months of fiscal years 2023 and 2022, respectively.

The increases in the effective tax rate and income tax expense for both comparative periods are driven by lower tax benefits from stock-based compensation.

The effective tax rate for the first nine months of fiscal 2023 was also increased due to an immaterial adjustment to certain deferred tax assets related to prior periods.

Non-GAAP Financial Measures

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In addition, adjusted EBITDA, comparable club sales, free cash flow, adjusted net income and adjusted net income per diluted share may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

See Results of Operations above for our comparable club sales and merchandise comparable club sales results.

Free cash flow is discussed within the Liquidity and Capital Resources section below.

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The following is a reconciliation of our income from continuing operations to Adjusted EBITDA and Adjusted EBITDA as a percentage of net sales for the periods presented:

Thirteen Weeks Ended Twenty-six Weeks Ended

(in thousands) July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022

Thirteen Weeks Ended Thirty-Nine Weeks Ended

(in thousands) October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022

Income from continuing operations $ 130,467 $ 131,394 $ 377,780 $ 384,862

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— 857 — 12,324

Other adjustments (d)

Home office transition costs (d)

— 5,897 — 7,096

Other adjustments (e)

364 222 1,112 332

Adjusted EBITDA $ 274,920 $ 272,305 $ 800,663 $ 766,804

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(c) Represents costs related to the acquisition of four distribution centers and the related private transportation fleet from Burris Logistics on May 2, 2022 ("the Acquisition"), including due diligence, legal, and other consulting expenses.

(d) Other non-cash items, including non-cash accretion on asset retirement obligations, obligations associated with our post-retirement medical plan and incremental rent expense as the Company transitioned home office locations in fiscal 2022.

Comparable Club Sales and Merchandise Comparable Club Sales

Comparable club sales, also known as same-store sales, includes all clubs that were open for at least 13 months at the beginning of the period and were in operation during the entirety of both periods being compared, including relocated clubs and expansions.

Comparable club sales allow us to evaluate how our club base is performing by measuring the change in period-over-period net sales in clubs that have been open for the applicable period.

Various factors affect comparable club sales, including

consumer preferences and trends, product sourcing, promotional offerings and pricing, customer experience and purchase amounts, weather and holiday shopping period timing and length.

Merchandise comparable club sales represents comparable club sales from all merchandise other than our gasoline operations for the applicable period.

(d) Represents incremental rent expense, other non-recurring lease costs, and write-off of impaired assets as the Company transitioned home office locations in fiscal 2022.

(e) Other non-cash items, including non-cash accretion on asset retirement obligations and obligations associated with our post-retirement medical plan.

Adjusted Net Income

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We believe adjusted net income and adjusted net income per diluted share are useful metrics to investors and analysts because they present more accurate year-over-year comparisons for our net income and net income per diluted share because adjusted items are not the result of our normal operations.

Thirteen Weeks Ended Twenty-six Weeks Ended

(in thousands, except per share amounts) July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022

Thirteen Weeks Ended Thirty-Nine Weeks Ended

(in thousands, except per share amounts) October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022

Net income as reported $ 130,467 $ 129,942 $ 377,869 $ 383,396

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— 5,897 — 7,096

Charges related to debt payments (c)

Impairment expense on discontinued operations — 1,199 — 1,199

Charges related to debt (c)

1,830 298 1,830 687

Other adjustments (d)

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(a) Represents costs related to the Acquisition, including due diligence, legal, and other consulting expenses.

(b) Represents incremental rent expense as the Company transitioned home office locations in fiscal 2022.

(c) Represents the expensing of fees and deferred fees associated with the extinguishment of the Company's senior secured asset based revolving credit and term facility ("ABL Facility") in fiscal 2022.

(b) Represents incremental rent expense, other non-recurring lease costs and write-off of impaired assets as the Company transitioned home office locations in fiscal 2022.

(c) Represents the expensing of fees and deferred fees and original issue discount associated with the extinguishment of the Company's senior secured asset based revolving credit and term facility ("ABL Facility") in fiscal 2022 and the Fourth Amendment in fiscal 2023.

(d) Other non-cash items related to the reclassification into earnings of accumulated other comprehensive income / loss associated with the de-designation of hedge accounting and other adjustments.

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Our primary sources of liquidity are cash flows generated from club operations and borrowings from our ABL Revolving Facility.

As of July 29, 2023, cash and cash equivalents totaled $26.2 million and we had $726.2 million of unused capacity under our ABL Revolving Facility.

As of October 28, 2023, cash and cash equivalents totaled $33.6 million and we had $753.7 million of unused capacity under our ABL Revolving Facility.

Our principal liquidity needs for the next twelve months and beyond are to fund normal recurring operational expenses and anticipated capital expenditures;

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We believe that our current resources, together with anticipated cash flows from operations and borrowing capacity under our ABL Revolving Facility, will be sufficient to finance our operations for at least the next twelve months.

In the first six months of fiscal year 2023, we used $59.9 million of available cash to repurchase 919,162 shares under the 2021 Repurchase Program.

In the first nine months of fiscal year 2023, we repurchased 1,161,162 shares under the 2021 Repurchase Program totaling $77.0 million.

We do not have any off-balance sheet arrangements that have, or are, in the opinion of management, reasonably likely to have, a current or future material effect on our results of operations or financial position.

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A summary of our cash flows from operating, investing and financing activities is presented in the following table:

Twenty-six Weeks Ended

(in thousands) July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

(in thousands) October 28, 2023 October 29, 2022

Net cash provided by operating activities $ 444,531 $ 612,857

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(109,254) 36,088

Net (decrease) increase in cash and cash equivalents $ (7,705) $ 118,245

Net decrease in cash and cash equivalents $ (364) $ (10,792)

Net Operating Cash Flows

Net cash provided by operating activities was $269.5 million for the first half of fiscal year 2023 compared to $443.1 million for the first half of fiscal year 2022.

Net cash provided by operating activities was $444.5 million for the first nine months of fiscal year 2023 compared to $612.9 million for the first nine months of fiscal year 2022.

The decrease in operating cash flow was primarily due to unfavorable fluctuations in working capital and a decrease in pre-tax net income.

The unfavorable fluctuations in working capital were primarily due to merchandise inventories and accounts payable.

The unfavorable fluctuations in working capital were primarily due to merchandise inventories and accounts payable, partially offset by favorable fluctuations due to accounts receivable and accrued expenses and other current liabilities.

Net Investing Cash Flows

Cash used in investing activities was $208.3 million for the first half of fiscal year 2023, compared to $565.4 million for the first half of fiscal year 2022.

The decrease is primarily due to $376.5 million of cash outflows in the prior year related to the Acquisition.

Cash used in investing activities was $335.6 million for the first nine months of fiscal year 2023, compared to $659.7 million for the first nine months of fiscal year 2022.

The decrease is primarily due to $376.5 million of cash outflows in the prior year related to the Acquisition, partially offset by an increase in capital spending of $53.6 million as our growth profile this year is weighted toward owned clubs.

Net Financing Cash Flows

Net cash used in financing activities for the first half of fiscal year 2023 was $69.0 million compared to net cash provided by financing activities of $240.6 million for the first half of fiscal year 2022.

The $309.5 million net increase in financing cash outflows was primarily due to a $344.0 million reduction in net proceeds from our ABL Revolving Facility in the first half of fiscal year 2023 compared to the first half of fiscal year 2022, as well as an incremental $12.7 million outflow for the acquisition of treasury stock, partially offset by a $50.0 million payment on long-term debt in the prior year.

Net cash used in financing activities for the first nine months of fiscal year 2023 was $109.3 million compared to net cash provided by financing activities of $36.1 million for the first nine months of fiscal year 2022.

The $145.3 million net increase in financing cash outflows was primarily due to a $266.0 million reduction in net proceeds from our ABL Revolving

Facility , partially offset by a net decrease of $100.0 million of principal payments on long-term debt and a decrease of $25.6 million for the acquisition of treasury stock compared to the prior year.

Free Cash Flow

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The following is a reconciliation of our net cash provided by operating activities to free cash flow for the periods presented:

Thirteen Weeks Ended Twenty-six Weeks Ended

(in thousands) July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022

Thirteen Weeks Ended Thirty-Nine Weeks Ended

(in thousands) October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022

Net cash provided by operating activities $ 175,031 $ 169,805 $ 444,531 $ 612,857

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Free cash flow $ 47,642 $ 75,449 $ 108,890 $ 329,641

Free cash flow decreased to $34.2 million for the second quarter of fiscal year 2023 compared to $300.4 million for the second quarter of fiscal year 2022.

Free cash flow decreased to $61.2 million for the first half of fiscal year 2023 compared to $254.2 million for the first half of fiscal year 2022.

For each comparative period, t he decrease is the primary result of lower cash flows from operating activities as a result of fluctuations in working capital.

Free cash flow decreased to $47.6 million for the third quarter of fiscal year 2023 compared to $75.4 million for the third quarter of fiscal year 2022 primarily due to an increase in capital spending.

Free cash flow decreased to $108.9 million for the first nine months of fiscal year 2023 compared to $329.6 million for the first nine months of fiscal year 2022.

T he decrease is primarily the result of lower cash flows from operating activities due to unfavorable fluctuations in working capital and an increase capital spending .

Debt and Borrowing Capacity

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The maturity date of the ABL Revolving Facility is July 28, 2027.

As part of this transaction, the Company extinguished the ABL Facility.

On January 5, 2023, the Company amended the First Lien Term Loan to extend the maturity date from February 3, 2024 to February 3, 2027 and transition the interest rate from London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”) and changes the applicable margin from LIBOR plus 200 – 225 basis points per annum to SOFR plus 275 basis points per annum.

In connection with the amendment the Company made a paid approximately $151.9 million of the principal amount.

At 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.

On December 20, 2022, the Company repaid $151.9 million of the principal amount outstanding under the First Lien Term Loan.

On October 12, 2023, the Company amended the First Lien Term Loan to extend the maturity date from February 3, 2027 to February 3, 2029 and reduce applicable margin in respect of the interest rate, effective immediately, from SOFR plus 275 basis points per annum to SOFR plus 200 basis points per annum.

Prior to the amendment, the Company repaid $50.0 million of the principal amount outstanding under the First Lien Term Loan.

At October 28, 2023, there was $434.0 million outstanding in loans under the ABL Revolving Facility and $12.3 million in outstanding letters of credit.

The interest rate on the revolving credit facility was 6.43% and unused capacity was $753.7 million.

At July 29, 2023, the interest rate for the First Lien Term Loan was 7.89% and there was $450.0 million outstanding.

At October 28, 2023, the interest rate for the First Lien Term Loan was 7.35% and there was $400.0 million outstanding.

Material Cash Commitments

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These material cash commitments impact our short-term and long-term liquidity and capital needs.

As of July 29, 2023, other than those items related to the ordinary course of operations of our business such as inventory purchases, new leases and lease amendments, there were no material changes to our material cash commitments from those described in our Annual Report on Form 10-K for the fiscal year 2022.

As of October 28, 2023, other than those items related to the ordinary course of operations of our business such as inventory purchases, new leases and lease amendments, there were no material changes to our material cash commitments from those described in our Annual Report on Form 10-K for the fiscal year 2022.

Critical Accounting Policies and Use of Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis