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) May 4, 2024 February 3, 2024 April 29, 2023 ASSETS Current assets: Cash and cash equivalents $ 35,094 $ 36,049 $ 23,387 Accounts receivable, net 225,199 234,769 217,866 Merchandise inventories 1,533,310 1,454,822 1,532,006 Prepaid expenses and other current assets 85,048 68,366 69,048 Total current assets 1,878,651 1,794,006 1,842,307 Operating lease right-of-use assets, net 2,159,955 2,140,482 2,124,621 Property and equipment, net 1,620,255 1,578,792 1,364,815 Goodwill 1,008,816 1,008,816 1,008,816 Intangibles, net 106,001 107,632 113,536 Deferred income taxes 2,693 4,071 6,728 Other assets 48,356 43,823 33,672 Total assets $ 6,824,727 $ 6,677,622 $ 6,494,495 LIABILITIES Current liabilities: Short-term debt $ 270,000 $ 319,000 $ 400,000 Current portion of operating lease liabilities 156,914 153,631 178,939 Accounts payable 1,264,873 1,183,281 1,281,676 Accrued expenses and other current liabilities 834,053 812,136 758,724 Total current liabilities 2,525,840 2,468,048 2,619,339 Long-term operating lease liabilities 2,069,587 2,050,883 2,037,844 Long-term debt 398,509 398,432 448,004 Deferred income taxes 74,804 74,773 66,699 Other non-current liabilities 228,567 226,635 190,883 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, 148,247 shares issued and 132,708 outstanding at May 4, 2024; 147,544 shares issued and 132,768 outstanding at February 3, 2024; and 147,380 shares issued and 134,376 outstanding at April 29, 2023 1,482 1,475 1,473 Additional paid-in capital 1,020,857 1,006,409 970,227 Retained earnings 1,279,250 1,168,231 760,567 Accumulated other comprehensive income 501 501 1,049 Treasury stock, at cost, 15,539 shares at May 4, 2024; 14,776 shares at February 3, 2024; and 13,004 shares at April 29, 2023 ( 774,670 ) ( 717,765 ) ( 601,590 ) Total stockholders’ equity 1,527,420 1,458,851 1,131,726 Total liabilities and stockholders’ equity $ 6,824,727 $ 6,677,622 $ 6,494,495 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 May 4, 2024 April 29, 2023 Net sales $ 4,807,129 $ 4,620,620 Membership fee income 111,390 102,522 Total revenues 4,918,519 4,723,142 Cost of sales 4,035,129 3,843,150 Selling, general and administrative expenses 721,771 689,328 Pre-opening expenses 864 3,894 Operating income 160,755 186,770 Interest expense, net 13,951 14,690 Income from continuing operations before income taxes 146,804 172,080 Provision for income taxes 35,785 56,092 Income from continuing operations 111,019 115,988 Income from discontinued operations, net of income taxes — 89 Net income $ 111,019 $ 116,077 Income per share attributable to common stockholders—basic: Income from continuing operations $ 0.84 $ 0.87 Income from discontinued operations — — Net income $ 0.84 $ 0.87 Income per share attributable to common stockholders—diluted: Income from continuing operations $ 0.83 $ 0.85 Income from discontinued operations — — Net income $ 0.83 $ 0.85 Weighted-average shares of common stock outstanding: Basic 132,397 133,312 Diluted 134,111 135,902 Other comprehensive loss: Amounts reclassified from accumulated other comprehensive income, net of tax $ — $ ( 501 ) Total other comprehensive loss — ( 501 ) Total comprehensive income $ 111,019 $ 115,576 The accompanying notes are an integral part of the condensed consolidated financial statements. 5 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, February 3, 2024 147,544 $ 1,475 $ 1,006,409 $ 1,168,231 $ 501 ( 14,776 ) $ ( 717,765 ) $ 1,458,851 Net income — — — 111,019 — — — 111,019 Common stock issued under stock incentive plans 703 7 ( 7 ) — — — — — Stock-based compensation expense — — 8,590 — — — — 8,590 Exercise of stock options — — 5,865 — — — — 5,865 Acquisition of treasury stock — — — — — ( 763 ) ( 56,905 ) ( 56,905 ) Balance, May 4, 2024 148,247 $ 1,482 $ 1,020,857 $ 1,279,250 $ 501 ( 15,539 ) $ ( 774,670 ) $ 1,527,420 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 Other comprehensive loss, 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 The accompanying notes are an integral part of the condensed consolidated financial statements. 6 BJ’S WHOLESALE CLUB HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited) Thirteen Weeks Ended May 4, 2024 April 29, 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 111,019 $ 116,077 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 63,422 54,190 Amortization of debt issuance costs and accretion of original issue discount 277 324 Stock-based compensation expense 8,590 10,007 Deferred income tax provision 1,409 14,445 Changes in operating leases and other non-cash items 2,922 ( 750 ) Increase (decrease) in cash due to changes in: Accounts receivable, net 3,491 21,871 Merchandise inventories ( 78,488 ) ( 153,455 ) Prepaid expenses and other current assets ( 11,083 ) ( 18,016 ) Other assets ( 4,733 ) ( 2,933 ) Accounts payable 81,592 85,979 Accrued expenses and other current liabilities 19,316 ( 4,977 ) Other non-current liabilities 3,113 ( 3,630 ) Net cash provided by operating activities 200,847 119,132 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment, net of disposals ( 105,741 ) ( 92,084 ) Net cash used in investing activities ( 105,741 ) ( 92,084 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from revolving lines of credit 193,000 149,000 Payments on revolving lines of credit ( 242,000 ) ( 154,000 ) Net cash received from stock option exercises 5,865 1,675 Acquisition of treasury stock ( 57,256 ) ( 42,369 ) Proceeds from financing obligations 6,044 9,104 Other financing activities ( 1,714 ) ( 986 ) Net cash used in financing activities ( 96,061 ) ( 37,576 ) Net decrease in cash and cash equivalents ( 955 ) ( 10,528 ) Cash and cash equivalents at beginning of period 36,049 33,915 Cash and cash equivalents at end of period $ 35,094 $ 23,387 Supplemental cash flow information: Interest paid $ 12,112 $ 14,540 Income taxes paid 13,688 11,875 Operating lease liabilities arising from obtaining right-of-use assets and other non-cash lease-related operating items 65,905 26,189 Non-cash financing and investing activities: Finance lease liabilities arising from obtaining right-of-use assets 345 — Property additions included in accrued expenses 35,456 24,754 Treasury stock repurchases included in accrued expenses 3,013 — The accompanying notes are an integral part of the condensed consolidated financial statements. 7 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 operator of membership warehouse clubs concentrated primarily in the eastern half of the United States. 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. As of May 4, 2024, the Company operated 244 warehouse clubs and 175 gas stations in 20 states. 2. Summary of Significant Accounting Policies (a) 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 February 3, 2024 is derived from the audited consolidated balance sheet as of that date. The Company’s business, as is 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 2023, as filed with the Securities and Exchange Commission on March 18, 2024. (b) Fiscal Year The Company follows the National Retail Federation’s fiscal calendar and reports financial information on a 52- or 53-week year ending on the Saturday closest to January 31. The thirteen-week periods ended May 4, 2024 and April 29, 2023 are referred to herein as the "first quarter of fiscal year 2024" and the "first quarter of fiscal year 2023," respectively. Operating results for the thirteen week period ended May 4, 2024 are not necessarily indicative of the results that may be expected for the 52-week fiscal year ending February 1, 2025. (c) 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 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 8 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. 3. Revenue Recognition 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, 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. Rewards 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 in BJ’s clubs or online at bjs.com, 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 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. Earned rewards under the Club+ program do not expire. 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 the co-branded credit card program 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. Earned awards may be redeemed on future purchases made at the Company. The Company recognizes revenue related to 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. The Company recognizes royalty revenue related to the outstanding My BJ's Perks and BJ's One and BJ's One+ credit card programs based upon actual customer activities, such as reward redemptions. Additionally, the Company deferred revenue for funds received related to marketing and other integration costs in connection with the new co-brand credit card program and will recognize these funds into revenue as performance obligations are satisfied. 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. In addition, members have access to other ancillary services, coupons, and promotions. 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. Gift Card Programs 9 The Company sells BJ’s gift cards that allow customers to redeem the cards 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 cards and control of the purchased goods or services is transferred to the customer. Contract Balances The following table summarizes the Company's deferred revenue balance related to outstanding performance obligations for contracts with customers (in thousands): May 4, 2024 February 3, 2024 April 29, 2023 Current: Rewards programs: Earned award dollars $ 53,334 $ 49,135 $ 36,573 Royalty revenue 4,982 4,593 4,053 Co-brand marketing & integration 3,710 4,181 7,409 Total rewards programs 62,026 57,909 48,035 Membership 234,411 231,440 192,723 Gift card programs 14,484 15,290 13,140 E-commerce sales 5,723 6,757 8,620 Long-term: Rewards programs: Co-brand marketing & integration 5,910 6,216 7,311 Total deferred revenue $ 322,554 $ 317,612 $ 269,829 Current and long-term deferred revenue balances are included within accrued expenses and other current liabilities and other non-current liabilities, respectively, in the condensed consolidated balance sheets. The following table summarizes the Company's revenue recognized during the period that was included in the opening deferred balance as of February 3, 2024 and January 28, 2023 (in thousands) : Thirteen Weeks Ended May 4, 2024 April 29, 2023 Rewards programs: Earned award dollars $ 49,135 34,676 Royalty revenue 4,593 17,877 Co-brand marketing & integration 776 3,889 Total rewards programs 54,504 56,442 Membership 97,790 83,082 Gift card programs 2,799 2,933 E-commerce sales 6,757 2,731 Total revenue $ 161,850 $ 145,188 Performance obligations related to earned award dollars, royalty revenue and membership fees are typically satisfied over a period of twelve months or less. Funds received related to marketing and other integration costs in connection with our co-brand credit card program are recognized as performance obligations are satisfied. The timing and recognition of gift card redemptions varies depending on consumer behavior and spending patterns. 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. 10 Substantially all of the Company’s identifiable assets are located 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 May 4, 2024 April 29, 2023 Grocery 71 % 71 % General Merchandise and Services 10 % 10 % Gasoline and Other 19 % 19 % 4. Debt and Credit Arrangements The following table summarizes the Company’s debt (in thousands): May 4, 2024 February 3, 2024 April 29, 2023 ABL Revolving Facility $ 270,000 $ 319,000 $ 400,000 First Lien Term Loan 400,000 400,000 450,000 Unamortized original issue discount and debt issuance costs ( 1,491 ) ( 1,568 ) ( 1,996 ) Less: Short-term debt ( 270,000 ) ( 319,000 ) ( 400,000 ) Long-term debt $ 398,509 $ 398,432 $ 448,004 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. 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 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 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 our 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 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 ABL Revolving Facility was 6.41 % and unused capacity was $ 911.6 million. As of February 3, 2024 and April 29, 2023, the interest rate on the ABL Revolving Facility was 6.44 % and 6.08 %, respectively. First Lien Term Loan On October 12, 2023, the Company entered into an amendment (the “Fourth Amendment”) to the First Lien Term Loan Credit Agreement, with Nomura Corporate Funding Americas, LLC, as administrative agent and collateral agent and the 11 lenders party thereto. Deutsche Bank Securities Inc. acted as the left lead arranger and bookrunner, and Nomura Securities International, Inc., BofA Securities, Inc. and Wells Fargo Securities LLC acted as joint lead arrangers and joint bookrunners of the Fourth Amendment. The Fourth 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, 2027 to February 3, 2029. In addition, the Fourth Amendment reduced applicable margin in respect of the interest rate from SOFR plus 275 basis points per annum to SOFR plus 200 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 May 4, 2024, 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. 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 $ 400.0 million, $ 400.0 million, and $ 450.0 million outstanding under the First Lien Term Loan as of May 4, 2024, February 3, 2024, and April 29, 2023, respectively. The interest rate on the First Lien Term Loan was 7.32 %, 7.33 %, and 7.58 % at May 4, 2024, February 3, 2024, and April 29, 2023, 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. The 2018 Plan authorizes the issuance of 13,148,058 shares. If an award under the 2018 Plan is forfeited, expires, or is settled for cash, any shares subject to such award may, to the extent of such forfeiture, expiration, or 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 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. As of May 4, 2024, there were 4,519,493 shares available for future issuance under the 2018 Plan. The following table summarizes the Company’s stock award activity during the thirteen weeks ended May 4, 2024 (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 (a) Weighted- Average Grant Date Fair Value Outstanding, February 3, 2024 1,655 $ 20.53 621 $ 67.35 22 $ 62.13 677 $ 58.84 Granted (b) — — — — 358 74.65 425 76.65 Forfeited/canceled — — ( 11 ) 72.23 ( 1 ) 74.64 ( 7 ) 70.12 Exercised/vested ( 258 ) 22.74 ( 305 ) 61.65 — — ( 458 ) 44.31 Outstanding, May 4, 2024 1,397 $ 20.13 305 $ 72.86 379 $ 73.93 637 $ 69.44 12 (a) Shares presented reflect a 100 % payout, however, the actual payout for the remaining performance stock awards granted in fiscal year 2021 is expected to be 200 %. Actual payout for the performance stock awards granted in each of fiscal year 2022 and 2023, which vest in fiscal year 2025 and 2026, respectively, could be below 100 % or up to 200 %. Actual payout for the performance stock awards granted in fiscal year 2024, which vest in fiscal year 2027, could be below 100 % or up to 300 %. (b) Includes 229 incremental performance stock awards granted in fiscal year 2021 with a weighted-average grant date fair value of $ 44.31 , that vested in fiscal year 2024 at greater than 100 % of target payout based on performance. Stock-based compensation expense was $ 8.6 million and $ 10.0 million for the thirteen weeks ended May 4, 2024 and April 29, 2023, 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 reserved for issuance under the ESPP is 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 May 4, 2024 and April 29, 2023, respectively. As of May 4, 2024, there were 2,894,011 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 357,451 shares to satisfy employees’ tax withholding obligations upon the vesting of restricted stock and performance stock awards in the thirteen weeks ended May 4, 2024, which was recorded as $ 26.7 million of treasury stock. The Company acquired 356,202 shares to satisfy employees' tax withholding obligations upon the vesting of restricted stock and performance stock awards in the thirteen weeks ended April 29, 2023, which was recorded as $ 27.1 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 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 awards granted by the Company, in addition to enhancing shareholder value. The Company repurchased 405,110 shares for $ 30.2 million and 204,040 shares for $ 15.3 million during the thirteen weeks ended May 4, 2024 and April 29, 2023, respectively. The Company accounts for treasury stock under the cost method based on the fair market value of the shares on the dates of repurchase plus any direct costs incurred. As of May 4, 2024, $ 159.1 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 2024 to be 27.9 %, 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 24.4 % and 32.6 % for the thirteen weeks ended May 4, 2024 and April 29, 2023, respectively. The decrease in income tax expense is primarily driven by higher tax benefits from stock-based compensation. The Company is subject to taxation in the U.S. federal and various state taxing jurisdictions. The Company’s tax years from 2019 forward remain open and subject to examination by the Internal Revenue Service and various state taxing authorities. 13 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. 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 May 4, 2024 are as follows (in thousands): Carrying Amount Fair Value ABL Revolving Facility $ 270,000 $ 270,000 First Lien Term Loan 400,000 402,000 Total Debt $ 670,000 $ 672,000 The gross carrying amount and fair value of the Company’s debt at February 3, 2024 are as follows (in thousands): Carrying Amount Fair Value ABL Revolving Facility $ 319,000 $ 319,000 First Lien Term Loan 400,000 401,168 Total Debt $ 719,000 $ 720,168 The gross carrying amount and fair value of the Company’s debt at April 29, 2023 are as follows (in thousands): Carrying Amount Fair Value ABL Revolving Facility $ 400,000 $ 400,000 First Lien Term Loan 450,000 450,734 Total Debt $ 850,000 $ 850,734 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. 14 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 weeks ended May 4, 2024 and April 29, 2023 (in thousands): Thirteen Weeks Ended May 4, 2024 April 29, 2023 Weighted-average shares of common stock outstanding, used for basic computation 132,397 133,312 Plus: Incremental shares of potentially dilutive securities 1,714 2,590 Weighted-average shares of common stock and dilutive potential shares of common stock outstanding 134,111 135,902 The table below summarizes awards that were excluded from the computation of diluted earnings for the thirteen weeks ended May 4, 2024 and April 29, 2023, as their inclusion would have been anti-dilutive (in thousands): Thirteen Weeks Ended May 4, 2024 April 29, 2023 Stock-based awards 328 103 15 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 (the "Securities Act"), 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, share repurchases, 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 including, without limitation, as a result of disruptions and instability in the banking and financial services industries or as a result of wars and global political conflicts, 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 on the U.S., regional and global economies and on our business, financial condition and results of operations; • 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 February 3, 2024 (the "Annual Report on Form 10-K for the fiscal year 2023") and our other filings with the Securities and Exchange Commission. 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. 16