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Item 2. Management’s Discussion and Analysis

2024-05-30 compared with 2023-11-22 · 132 added, 146 removed, 158 unchanged (64% of the section changed)

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We report on the basis of a 52- or 53-week fiscal year, which ends on the Saturday closest to the last day of January.

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 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.

Accordingly, references herein to "fiscal year 2024" relate to the 52 weeks ending February 1, 2025, and references herein to "fiscal year 2023" relate to the 53 weeks ended February 3, 2024.

The first quarter of fiscal year 2024 ended on May 4, 2024, and the first quarter of fiscal year 2023 ended on April 29, 2023, 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 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.

The Company provides a curated assortment focused on groceries, fresh foods, general merchandise, gasoline, and other ancillary services to deliver a differentiated shopping experience that is further enhanced by our omnichannel capabilities.

Additionally, the Company provides access to coupon books and promotions to deliver further value to our members.

Since pioneering the warehouse club model in New England in 1984, we have grown our footprint to 244 large-format, high volume warehouse clubs and 176 gas stations spanning 20 states as of the date of this filing.

In our core New England markets, which have high population density and generate a disproportionate part of U.S.

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

In our core New England market, which has high population density and generates a disproportionate part of U.S.

gross domestic product, we operate more than 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 the same preferential pricing as in-club shoppers 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.

Our leadership team continues to focus on utilizing data to improve member experience, instilling a culture of cost discipline, adopting a more proactive approach to growing our membership base and building an omnichannel offering oriented towards making shopping at BJ’s more convenient.

Our goal is to offer our members significant value and a meaningful return in savings on their annual membership fee.

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

We have over 7 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 Club+ membership, which offers additional value-enhancing features, is generally $110.

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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 approximately $3.7 billion in annual sales for fiscal year 2022 and represented the largest brands we sell in terms of volume.

Our two private label brands, Wellsley Farms® and Berkley Jensen®, represented approximately $4.1 billion in annual sales for fiscal year 2023.

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 $414.1 million for the trailing twelve-months ended October 28, 2023.

Our membership fee income was $429.5 million for the trailing twelve-months ended May 4, 2024.

Our business is moderately seasonal in nature.

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In general, positive conditions in the broader economy promote customer spending in our clubs, while economic weakness, which generally results in a reduction of customer spending, may have a different or more extreme effect on spending at our clubs.

Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include employment rates, changes to the Supplemental Nutrition Assistance Program (SNAP), government stimulus programs, tax legislation, business conditions, changes in the housing market, the availability of credit, interest rates, tax rates and fuel and energy costs.

In addition, unemployment rates and benefits may cause us to experience higher labor costs.

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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 thirty-nine 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.

We have grown our membership fee income each year for over 25 consecutive years and the quality of our membership mix is strong as evidenced by our higher tier penetration growth in the first thirteen weeks of fiscal year 2024.

Our tenured membership renewal rate, a key indicator of membership engagement, satisfaction and loyalty, was 90% at the end of fiscal year 2023.

Effective sourcing and distribution of products and consumer demands

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We have made significant investments in our business that we believe have laid the foundation for continued profitable growth.

We believe that expanding our club footprint, bringing substantially all of our end-to-end perishable supply chain in-house, enhancing our information systems, including our distribution center and transportation management systems, and investing in hardware and digitally enabled shopping capabilities for convenience, such as BOPIC, curbside pickup, and same day home delivery will enable us to replicate our profitable club format and provide a differentiated shopping experience.

We believe that expanding our club footprint, bringing substantially all of our end-to-end perishable supply chain in-house, enhancing our information systems, including our distribution center and transportation management systems, and investing in hardware, software, and digitally enabled shopping capabilities for convenience, such as BOPIC, ExpressPay, curbside pickup, and same day home delivery will enable us to replicate our profitable club format and provide a differentiated shopping experience.

We expect these infrastructure investments to support our successful operating model across our club operations.

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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.

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 Thirty-Nine Weeks Ended

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

Statement of Operations Data Thirteen Weeks Ended

(dollars in thousands, except per share amounts) May 4, 2024 April 29, 2023

Net sales $ 4,807,129 $ 4,620,620

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Income from continuing operations 111,019 115,988

Income (loss) from discontinued operations, net of income taxes — (1,452) 89 (1,466)

Income from discontinued operations, net of income taxes — 89

Net income $ 111,019 $ 116,077

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Merchandise comparable club sales (b)

Adjusted EBITDA (b)

Adjusted net income (b)

$ 113,408 $ 115,646

Free cash flow (b)

Adjusted EPS (b)

Adjusted EBITDA (b) (c)

236,386 251,538

Net cash provided by operating activities 200,847 119,132

Adjusted free cash flow (b)

95,106 27,048

(a) Basic and diluted EPS are calculated using net income.

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

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 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.

(c) Adjusted EBITDA for the thirteen weeks ended April 29, 2023 has been recast to exclude adjustments for pre-opening expenses and non-cash rent expense to conform to the current period definition.

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

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

Net sales for the first quarter of fiscal year 2024 were $4.8 billion, a 4.0% increase from net sales reported for the first quarter of fiscal year 2023 of $4.6 billion.

The increase was due primarily to growth in units sold, particularly in perishables and the grocery division, as well as gallons sold at our gas stations.

Comparable Club Sales and Merchandise Comparable Club Sales

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

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, a key performance indicator, 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.

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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 Thirty-Nine Weeks Ended

October 28, 2023 October 28, 2023

Thirteen Weeks Ended

Comparable club sales 1.6 %

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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.

Merchandise comparable club sales increased 0.6% in the first quarter of fiscal year 2024 compared to the first quarter of fiscal year 2023, primarily driven by an increase in sales of groceries of 1.4%, partially offset by a decrease in sales of general merchandise and services of approximately 4.8%.

In the grocery division, growth was led by fresh produce, dairy, nutrition, fresh beef, vitamins, paper, and household cleaning categories when compared to the first quarter of fiscal year 2023, partially offset by a decrease in sales of beverages and snacks.

General merchandise and services decreased in the first quarter of fiscal year 2024 compared to the first quarter of fiscal year 2023, primarily driven by the impact of our co-brand credit card economics as we cycle past the anniversary of the rebranded program launch in the first quarter of fiscal year 2023, as well as lower consumer spending in seasonal categories.

The overall decrease was partially offset by increased demand for certain general merchandise categories, including home merchandise, consumer electronics, and apparel.

The impact of gasoline sales is a result of an increase in comparable gallons sold in the first quarter of fiscal 2024 as compared to the first quarter of fiscal year 2023, partially offset by a decline in retail prices.

Membership fee income

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

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.

Membership fee income was $111.4 million in the first quarter of fiscal year 2024 compared to $102.5 million in the first quarter of fiscal year 2023, an 8.6% increase.

The increase was primarily driven by strength in membership acquisition and retention across both new and existing clubs.

In addition to our new club opening in the first quarter of fiscal year 2024, we also continued to add new members from the five new clubs that opened in the fourth quarter of fiscal year 2023.

Cost of sales

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and vendor allowances, rebates, and cash discounts.

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.

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.

Cost of sales was $4.0 billion, or 83.9% of net sales, in the first quarter of fiscal year 2024 compared to $3.8 billion, or 83.2% of net sales, in the first quarter of fiscal year 2023.

Merchandise gross margin rate, which excludes gasoline sales and membership fee income, decreased 50 basis points compared to the prior year period, primarily driven by the impact of our co-brand credit card economics as we cycle past the anniversary of the rebranded program launch in the first quarter of fiscal year 2023.

Selling, general and administrative expenses

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amortization of intangible assets;

and consulting, legal, insurance, acquisition and integration costs, and other professional services expenses.

and consulting, legal, insurance, restructuring charges, and other professional services expenses.

SG&A includes both fixed and variable components and, therefore, is not directly correlated with net sales.

We expect that our SG&A will increase in future periods due to investments to spur comparable club sales growth and our expanding footprint as we open new clubs.

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

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.

We expect that our SG&A will increase in future periods due to investments in comparable club sales growth and our expanding footprint as we open new clubs.

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

SG&A increased by 4.7% to $721.8 million in the first quarter of fiscal year 2024 from $689.3 million in the first quarter of fiscal year 2023.

The 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, such as the restructuring of certain corporate functions.

Additionally, an increase in the number of owned clubs has resulted in increased depreciation expense.

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

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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.

Pre-opening expenses were $0.9 million in the first quarter of fiscal year 2024 compared to $3.9 million in the first quarter of fiscal year 2023.

Pre-opening expenses decreased due to timing of spend and the number of club openings year-over-year.

Interest expense, net

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.

Interest expense, net was $14.0 million in the first quarter of fiscal year 2024 compared to $14.7 million in the first quarter of fiscal year 2023.

The decrease was primarily due to a reduction in outstanding borrowings as well as fluctuations in interest rates year-over-year.

Provision for income taxes

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.

Income tax expense decreased to $35.8 million in the first quarter of fiscal 2024 compared to $56.1 million in the first quarter of fiscal 2023.

The decrease in income tax expense is primarily driven by higher tax benefits from stock-based compensation.

Non-GAAP Financial Measures

The accompanying Condensed Consolidated Financial Statements, including the related notes, are presented in accordance with GAAP.

In addition to relevant GAAP measures we also provide non-GAAP measures, including adjusted EBITDA, comparable club sales, free cash flow, adjusted net income and adjusted net income per diluted share because management believes these metrics are useful to investors and analysts by excluding items that we do not believe are indicative of our core operating performance.

In addition to relevant GAAP measures we also provide non-GAAP measures, including adjusted EBITDA, comparable club sales, adjusted free cash flow, adjusted net income and adjusted net income per diluted share ("adjusted EPS") because management believes these metrics are useful to investors and analysts by excluding items that we do not believe are indicative of our core operating performance.

These measures are customary for our industry and commonly used by competitors.

These non-GAAP financial measures should not be reviewed in isolation or considered as an alternative to any other performance measure derived in accordance with GAAP and should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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.

In addition, adjusted EBITDA, comparable club sales, adjusted free cash flow, adjusted net income and adjusted EPS 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.

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

Adjusted Net Income

The adjusted net income and adjusted EPS metrics are important measures used by management to compare the performance of core operating results between periods.

We define adjusted net income as net income as reported, adjusted for non-recurring, infrequent, or unusual charges, including restructuring charges, and other adjustments that the Company believes appropriate, net of the tax impact of such adjustments.

We define adjusted EPS as adjusted net income divided by the weighted-average diluted shares outstanding.

We believe adjusted net income and adjusted EPS 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

(in thousands, except per share amounts) May 4, 2024 April 29, 2023

Net income as reported $ 111,019 $ 116,077

Restructuring (a)

Other adjustments (b)

Tax impact of adjustments to net income (c)

Adjusted net income $ 113,408 $ 115,646

Weighted-average shares outstanding—diluted 134,111 135,902

Adjusted EPS (d)

$ 0.85 $ 0.85

(a) Represents charges related to the restructuring of certain corporate functions, including costs for severance, retention, outplacement, consulting fees, and other third-party fees.

(b) 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.

(d) Adjusted EPS is measured using weighted-average diluted shares outstanding.

Adjusted EBITDA

Adjusted EBITDA is defined as income from continuing operations before interest expense, net, provision for income taxes and depreciation and amortization, adjusted for the impact of certain other items, including stock-based compensation expense;

pre-opening expenses;

non-cash rent;

acquisition and integration costs;

and other adjustments.

restructuring and other adjustments.

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 Thirty-Nine Weeks Ended

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

Thirteen Weeks Ended

(in thousands) May 4, 2024 April 29, 2023

Income from continuing operations $ 111,019 $ 115,988

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Stock-based compensation expense 8,590 10,007

Pre-opening expenses (a)

6,001 10,707 11,479 21,508

Non-cash rent (b)

2,394 1,025 6,226 3,127

Acquisition and integration costs (c)

— 857 — 12,324

Home office transition costs (d)

— 5,897 — 7,096

Other adjustments (e)

Restructuring (a)

Other adjustments (b)

Adjusted EBITDA (c)

$ 236,386 $ 251,538

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

Adjusted EBITDA as a percentage of net sales 4.9 % 5.4 %

(a) Represents direct incremental costs of opening or relocating a facility that are charged to operations as incurred.

(b) Consists of an adjustment to remove the non-cash portion of rent expense.

(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) 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

The adjusted net income and adjusted net income per diluted share metrics are important measures used by management to compare the performance of core operating results between periods.

We define adjusted net income as net income as reported, adjusted for non-recurring, infrequent, or unusual charges, net of the tax impact of such adjustments.

We define adjusted net income per diluted share as adjusted net income divided by the weighted-average diluted shares outstanding.

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 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

Acquisition and integration costs (a)

— 857 — 12,324

Home office transition costs (b)

— 5,897 — 7,096

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

Charges related to debt (c)

1,830 298 1,830 687

Other adjustments (d)

— — (786) (165)

Tax impact of adjustments to net income (e)

(518) (2,363) (296) (5,987)

Adjusted net income $ 131,779 $ 135,830 $ 378,617 $ 398,550

Weighted-average shares outstanding—diluted 134,984 136,621 135,338 136,630

Adjusted EPS (f)

$ 0.98 $ 0.99 $ 2.80 $ 2.92

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

(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.

(e) Represents the tax effect of the above adjustments at a statutory tax rate of approximately 28%.

(f) Adjusted EPS is measured using weighted-average diluted shares outstanding.

(a) Represents charges related to the restructuring of certain corporate functions, including costs for severance, retention, outplacement, consulting fees, and other third-party fees.

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

(c) Adjusted EBITDA for the thirteen weeks ended April 29, 2023 has been recast to exclude adjustments for pre-opening expenses and non-cash rent to conform to the current period definition.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows generated from club operations and borrowings from 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.

As of May 4, 2024, cash and cash equivalents totaled $35.1 million and we had $911.6 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;

fund possible acquisitions;

fund share repurchases;

and meet debt service and principal repayment obligations.

fund share repurchases and meet debt service and principal repayment obligations.

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

In the first three months of fiscal year 2024, we repurchased 405,110 shares under the 2021 Repurchase Program for a total purchase price of $30.2 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:

Thirty-Nine Weeks Ended

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

Thirteen Weeks Ended

(in thousands) May 4, 2024 April 29, 2023

Net cash provided by operating activities $ 200,847 $ 119,132

Net cash used in investing activities (105,741) (92,084)

Net cash (used in) provided by financing activities

(109,254) 36,088

Net cash used in financing activities (96,061) (37,576)

Net decrease in cash and cash equivalents $ (955) $ (10,528)

Net Operating Cash Flows

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, partially offset by favorable fluctuations due to accounts receivable and accrued expenses and other current liabilities.

Net cash provided by operating activities was $200.8 million for the first three months of fiscal year 2024 compared to $119.1 million for the first three months of fiscal year 2023.

The $81.7 million increase was primarily due to fluctuations in working capital including $75.0 million related to merchandise inventories as well as $24.3 million related to accrued expenses, primarily driven by the change in accrued incentive compensation as a result of differences in the expected achievement from

period-to-period.

The increase in net operating cash flows was partially offset by $18.4 million related to accounts receivable due to timing of vendor and customer cash receipts, as well as a $5.1 million decrease in net income.

Our net cash from operating activities can fluctuate from period to period due to several factors, including:

the timing and mix of sales, which are typically higher in the second and fourth quarters due to seasonality;

the timing of inventory purchases as the Company prepares for holiday seasons;

lease-related activity;

and income tax and other payments.

Net Investing Cash Flows

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 cash used in investing activities was $105.7 million for the first three months of fiscal year 2024, compared to $92.1 million for the first three months of fiscal year 2023.

This fluctuation is driven by an increase in capital spending of $13.7 million due to an increase in the number of owned clubs.

Net Financing Cash Flows

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

We present free cash flow because we use it to report to our board of directors and we believe it assists investors and analysts in evaluating our liquidity.

Free cash flow should not be considered as an alternative to cash flows from operations as a liquidity measure.

We define free cash flow as net cash provided by operating activities less additions to property and equipment, net of disposals, plus proceeds from sale-leaseback transactions.

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

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

Net cash used in financing activities for the first three months of fiscal year 2024 was $96.1 million, compared to $37.6 million for the first three months of fiscal year 2023.

The increase in cash used is primarily due to a $44.0 million increase in net payments on our ABL Revolving Facility due to our increased borrowings as well as an increase of $14.9 million for the acquisition of treasury stock compared to the prior year period, partially offset by an increase in net cash received from stock option exercises of $4.2 million.

Adjusted Free Cash Flow

We present adjusted free cash flow because we use it to report to our board of directors and we believe it assists investors and analysts in evaluating our liquidity.

Adjusted free cash flow should not be considered as an alternative to cash flows from operations as a liquidity measure.

We define adjusted free cash flow as net cash provided by operating activities less additions to property and equipment, net of disposals, plus proceeds from sale-leaseback transactions.

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

Thirteen Weeks Ended

(in thousands) May 4, 2024 April 29, 2023

Net cash provided by operating activities $ 200,847 $ 119,132

1 unchanged sentence

Proceeds from sale-leaseback transactions — —

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

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 .

Adjusted free cash flow $ 95,106 $ 27,048

Adjusted free cash flow increased to $95.1 million for the first quarter of fiscal year 2024 compared to $27.0 million for the first quarter of fiscal year 2023.

The increase is primarily the result of increased cash flows from operating activities due to fluctuations in working capital, partially offset by an increase in capital spending compared to the prior year.

Debt and Borrowing Capacity

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

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.

At May 4, 2024, there was $270.0 million outstanding in loans under the ABL Revolving Facility and $18.4 million in outstanding letters of credit.

The interest rate on the revolving credit facility was 6.41% and unused capacity was $911.6 million.

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

At May 4, 2024, the interest rate for the First Lien Term Loan was 7.32% and there was $400.0 million outstanding.

Material Cash Commitments

1 unchanged sentence

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

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.

As of May 4, 2024, 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 2023.

Critical Accounting Policies and Use of Estimates

4 unchanged sentences

Recent Accounting Pronouncements

There have been no recent accounting pronouncements since those disclosed in our Annual Report on Form 10-K for the fiscal year 2022 that have had a material impact on our financial statements.

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 2023.

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.

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

ASU 2023-09 will require public companies to disclose, on an annual basis, a tabular reconciliation, using both percentages and amounts, broken out into specific categories with certain reconciling items at or above 5% of the statutory tax, further broken out by nature and/or jurisdiction.

ASU 2023-09 requires all entities to disclose, on an annual basis, the amount of income taxes paid (net of refunds received), disaggregated between federal, state/local and foreign, and amounts paid to an individual jurisdiction when 5% or more of the total income taxes paid.

The new standard is effective for fiscal years beginning after December 15, 2024, on a prospective basis.

Early adoption and retrospective application are permitted.

The Company is currently evaluating the impact the adoption of this new pronouncement will have on its financial statement disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which expands the segment reporting disclosures and requires disclosure of segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, amounts and description of its composition for other segment items, and interim disclosure of a reportable segment’s profit or loss and assets.

Additionally, the amendments require the disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing performance and deciding how to allocate resources.

The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis.

Early adoption is permitted.

The Company is currently evaluating the impact the adoption of this new pronouncement will have on its financial statement disclosures.

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