Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is intended to promote an understanding of the results of operations and financial condition of the Company and is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for fiscal year 2023. The following discussion may contain forward-looking statements that reflect our plans, estimates and assumptions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause such differences are discussed in the sections of this Quarterly Report on Form 10-Q titled "Forward-Looking Statements" and in Part I. "Item 1A. Risk Factors" in our Annual Report on Form 10-K for fiscal year 2023 and subsequent filings with the SEC.
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 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 third quarter of fiscal year 2024 ended on November 2, 2024, and the third quarter of fiscal year 2023 ended on October 28, 2023, and both include thirteen weeks.
Overview
BJ’s Wholesale Club is a leading operator of membership warehouse clubs concentrated primarily in the eastern half of the United States. We deliver significant value to our members, consistently offering up to 25% savings on a representative basket of manufacturer-branded groceries compared to traditional supermarket competitors. 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 coupons 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 247 large-format, high volume warehouse clubs and 182 gas stations spanning 20 states as of the date of this filing. 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. 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 goal is to offer our members significant value and a meaningful return in savings on their annual membership fee. We have over 7.5 million members p aying annual fees to gain access to savings on groceries, general merchandise, services, and gasoline. 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 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 $447.9 million for the trailing twelve-months ended November 2, 2024.
We announced plans to increase our membership fee effective January 1, 2025. The Club Card membership fee will increase by $5 to $60 a year. The Club+ membership fee will increase by $10 to $120 a year. We believe that these membership fee increases will allow us to invest in an even stronger value proposition for our growing member base.
Our business is moderately seasonal in nature. Historically, our business has realized a slightly higher portion of net sales, operating income, and cash flows from operations in the second and fourth fiscal quarters, attributable primarily to the impact of the summer and year-end holiday season, respectively. Our quarterly results have been, and will continue to be, affected by the timing of new club openings and their associated pre-opening expenses. As a result of these factors, our financial results for any single quarter or for periods of less than a year are not necessarily indicative of the results that may be achieved for a full fiscal year.
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Factors Affecting Our Business
Overall economic trends
The overall economic environment and related changes in consumer behavior have a significant impact on our business. 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 and inflation, tariffs, tax rates, and fuel and energy costs. In addition, unemployment rates and benefits may cause us to experience higher labor costs.
Size and loyalty of membership base
The membership model is a critical element of our business. Members drive our results of operations through their membership fee income and their purchases. The majority of members renew within six months following their renewal date. 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 over 25 consecutive 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 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
Our net sales and gross profit are affected by our ability to purchase our products in sufficient quantities at competitive prices. Further, our ability to maintain our appeal to existing customers and attract new customers primarily depends on our ability to originate, develop, and offer a compelling product assortment responsive to customer preferences. As a result, our level of net sales could be adversely affected due to constraints in our supply chain, including our inability to procure and stock sufficient quantities of some merchandise in a manner that is able to match market demand from our customers.
Infrastructure investment
Our historical operating results reflect the impact of our ongoing investments to support our growth. 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, 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.
Gasoline prices
The market price of gasoline impacts our net sales and comparable club sales, and large fluctuations in the price of gasoline may produce a short-term impact on our margins. Retail gasoline prices are driven by daily crude oil and wholesale commodity market changes and are volatile, as they are influenced by factors that include changes in demand and supply of oil and refined products, global geopolitical events, regional market conditions, and supply interruptions caused by severe weather conditions. Typically, the change in crude oil prices impacts the purchase price of wholesale petroleum fuel products, which in turn impacts retail gasoline prices at the pump. During times when prices are particularly volatile, differences in pricing and procurement strategies between the Company and its competitors may lead to temporary margin contraction or expansion, depending on whether prices are rising or falling, and this impact could affect our overall results for a fiscal quarter.
In addition, the relative level of gasoline prices from period to period may lead to differences in our net sales between those periods. Further, because we generally attempt to maintain a fairly stable gross profit per gallon, this variance in net sales, which may be substantial, may or may not have a significant impact on our operating income .
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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 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 Thirty-nine Weeks Ended
(dollars in thousands, except per share amounts) November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023
Net sales $ 4,984,385 $ 4,818,670 $ 14,883,793 $ 14,299,132
Membership fee income 114,979 106,053 339,485 312,273
Total revenues 5,099,364 4,924,723 15,223,278 14,611,405
Cost of sales 4,123,888 4,022,243 12,407,836 11,932,120
Selling, general and administrative expenses 733,580 697,104 2,205,674 2,081,392
Pre-opening expenses 12,513 6,001 15,955 11,479
Operating income 229,383 199,375 593,813 586,414
Interest expense, net 12,593 18,004 39,299 48,968
Income from continuing operations before income taxes 216,790 181,371 554,514 537,446
Provision for income taxes 61,042 50,904 142,759 159,666
Income from continuing operations 155,748 130,467 411,755 377,780
Income from discontinued operations, net of income taxes — — — 89
Net income $ 155,748 $ 130,467 $ 411,755 $ 377,869
Weighted-average shares outstanding—basic 132,083 133,069 132,304 133,232
Basic EPS (a)
$ 1.18 $ 0.98 $ 3.11 $ 2.84
Weighted-average shares outstanding—diluted 133,333 134,984 133,764 135,338
Diluted EPS (a)
$ 1.17 $ 0.97 $ 3.08 $ 2.79
Operational Data:
Total clubs at end of period 247
238
247 238
Comparable club sales (b)
1.5%
0.3%
2.0%
(1.2)%
Merchandise comparable club sales (b)
3.8%
(0.1)%
2.3%
2.1%
Adjusted net income (b) (c)
$ 157,254 $ 135,538 $ 416,994 $ 384,688
Adjusted EPS (b) (c)
1.18 1.00 3.12 2.84
Adjusted EBITDA (b) (d)
308,292 271,738 826,027 791,385
Net cash provided by operating activities 206,757 175,031 628,955 444,531
Adjusted free cash flow (b)
18,824 47,642 201,402 108,890
(a) Basic and diluted EPS are calculated using net income.
(b) See "Non-GAAP Financial Measures" and "Liquidity and Capital Resources" within Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for definitions.
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(c) Adjusted net income for the thirteen and thirty-nine weeks ended October 28, 2023 has been recast to include adjustments for restructuring charges, and the corresponding tax impact, to conform to the current period presentation.
(d) Adjusted EBITDA for the thirteen and thirty-nine weeks ended October 28, 2023 has been recast to exclude adjustments for pre-opening expenses and non-cash rent expense to conform to the current period definition, and to include adjustments for restructuring charges to conform to the current period presentation.
Net Sales
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 third quarter of fiscal year 2024 were $5.0 billion, a 3.4% increase from net sales reported for the third quarter of fiscal year 2023 of $4.8 billion.
Net sales for the first nine months of fiscal year 2024 were $14.9 billion, a 4.1% increase from net sales reported for the first nine months of fiscal year 2023 of $14.3 billion.
The increase for both comparative periods was due primarily to traffic and unit growth, particularly in the perishables, grocery, and sundries division, an increase of nine clubs from the prior year period, as well as gasoline sales 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, 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.
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 Thirty-nine Weeks Ended
November 2, 2024 November 2, 2024
Comparable club sales 1.5 % 2.0 %
Impact from gasoline sales 2.3 % 0.3 %
Merchandise comparable club sales 3.8 % 2.3 %
Merchandise comparable club sales represents comparable club sales from all merchandise other than our gasoline operations for the applicable period. Merchandise comparable club sales increased 3.8% in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023, primarily driven by increased sales of perishables with sales of general merchandise and services remaining relatively flat. Additionally, we estimate that an increase in sales, temporarily driven by a port strike and recent hurricanes, had a favorable impact of slightly less than one percentage point on its third quarter sales.
In the perishables, grocery, and sundries division, growth was led by fresh produce, dairy, fresh beef and poultry, beverages, candy, snacks, nutrition, vitamins, packaged goods, household cleaning, and paper categories when compared to the third quarter of fiscal year 2023, slightly offset by decreased demand for alcohol.
General merchandise and services remained flat in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023, with the continued strength in home and seasonal categories, offset by decreased sales in apparel and electronics.
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The impact of gasoline sales is a result of a decrease in retail prices year over year, partially offset by an increase in comparable gallons sold in the third quarter of fiscal 2024 as compared to the third quarter of fiscal year 2023.
Merchandise comparable club sales increased by 2.3% in the first nine months of fiscal year 2024 compared to the first nine months of fiscal year 2023 driven by increased sales of groceries, partially offset by decreased sales of general merchandise and services.
In the perishables, grocery, and sundries division, growth was led by fresh produce, dairy, nutrition, beverages, fresh beef, and paper categories when compared to the first nine months of fiscal year 2023, partially offset by a decrease in sales of candy, snacks, and alcohol.
General merchandise and services decreased in the first nine months of fiscal 2024 as compared to the first nine months of fiscal year 2023, primarily driven by the impact of our co-brand credit card economics as we cycled past the anniversary of the rebranded program launch in the first quarter of fiscal year 2023, as well as lower consumer spending in certain seasonal categories.
The impact of gasoline sales is a result of a decrease in retail prices year over year, partially offset by an increase in comparable gallons sold in the first nine months of fiscal 2024 as compared to the first nine months of fiscal year 2023.
Membership fee income
Membership fee income was $115.0 million in the third quarter of fiscal year 2024 compared to $106.1 million in the third quarter of fiscal year 2023, an 8.4% increase.
Membership fee income was $339.5 million in the first nine months of fiscal year 2024 compared to $312.3 million in the first nine months of fiscal year 2023, an 8.7% increase.
The increase for both comparative periods was primarily driven by strength in membership acquisition and retention across both new and existing clubs. We continued to add new members from our four new club openings in fiscal year 2024 as well as the five new clubs that opened in the fourth quarter of fiscal year 2023. As noted above, we announced an increase in membership fees effective January 1, 2025 which we anticipate will positively impact membership fee income in fiscal year 2025.
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; 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 82.7% of net sales, in the third quarter of fiscal year 2024 compared to $4.0 billion, or 83.5% of net sales, in the third quarter of fiscal year 2023. Merchandise gross margin rate, which excludes gasoline sales and membership fee income, increased 20 basis points compared to the prior year period, primarily driven by the continued execution of our long-term initiatives and improved cost management.
Cost of sales was $12.4 billion, or 83.4% of net sales, in the first nine months of fiscal year 2024 compared to $11.9 billion, or 83.4% of net sales, in the first nine months of fiscal year 2023. Merchandise gross margin rate, which excludes gasoline sales and membership fee income, remained flat compared to the first nine months of fiscal year 2023.
Selling, general and administrative expenses
SG&A consists of various expenses related to supporting and facilitating the sale of merchandise in our clubs, including the following: payroll and payroll benefits for team members; rent, depreciation, and other occupancy costs for retail and corporate locations; share-based compensation, advertising expenses; tender costs, including credit and debit card fees; amortization of intangible assets; and consulting, legal, insurance, restructuring charges, and other professional services expenses.
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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 drive 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 5.2% to $733.6 million in the third quarter of fiscal year 2024 from $697.1 million in the third quarter of fiscal year 2023.
SG&A increased by 6.0% to $2.2 billion in the first nine months of fiscal year 2024 from $2.1 billion in the first nine months of fiscal year 2023.
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 in addition to other investments to drive strategic priorities, such as the restructuring of certain corporate functions, and an increase in accrued incentive compensation. Additionally, an increase in the number of owned clubs has resulted in increased depreciation expense. The increases in SG&A were partially offset by the favorable net impact of legal settlements reached of approximately $20 million during the third quarter of fiscal year 2024. We remain focused on investing in member engagement, marketing and digital strategies.
Pre-opening expenses
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 $12.5 million in the third quarter of fiscal year 2024 compared to $6.0 million in the third quarter of fiscal year 2023.
Pre-opening expenses were $16.0 million in the first nine months of fiscal year 2024 compared to $11.5 million in the first nine months of fiscal year 2023.
Pre-opening expenses fluctuated due to timing of spend and the number of club openings year-over-year for both comparative periods.
Interest expense, net
Interest expense, net was $12.6 million in the third quarter of fiscal year 2024 compared to $18.0 million in the third quarter of fiscal year 2023.
Interest expense, net was $39.3 million in the first nine months of fiscal year 2024 compared to $49.0 million in the first nine months of fiscal year 2023.
The decrease for both comparative periods was primarily due to a reduction in outstanding borrowings, fluctuations in interest rates year-over-year, and a decrease in debt extinguishment charges as the third quarter of fiscal year 2023 included charges related to the Fourth Amendment of the First Lien Term Loan.
Provision for income taxes
The effective income tax rate from continuing operations was 28.2% and 28.1% for the third quarter of fiscal years 2024 and 2023, respectively. The increase in the effective income tax rate was primarily driven by lower tax benefits from stock-based compensation in the current year period.
The effective income tax rate from continuing operations was 25.7% and 29.7% for the first nine months of fiscal years 2024 and 2023, respectively. The decrease in the effective income tax rate was primarily driven by higher tax benefits from stock-based compensation in the current year period.
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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 net income, adjusted net income per diluted share ("adjusted EPS"), adjusted EBITDA, adjusted free cash flow, and other key performance indicators, including comparable club sales, 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 net income, adjusted EPS, adjusted EBITDA, adjusted free cash flow, and comparable club sales 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. 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. We also use adjusted EPS in connection with establishing long-term incentive compensation.
Thirteen Weeks Ended Thirty-nine Weeks Ended
(in thousands, except per share amounts) November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023
Net income as reported $ 155,748 $ 130,467 $ 411,755 $ 377,869
Adjustments:
Charges related to debt (a)
— 1,830 — 1,830
Restructuring (b)
2,091 5,213 7,276 8,427
Other adjustments (c)
— — — (786)
Tax impact of adjustments to net income (d)
(585) (1,972) (2,037) (2,652)
Adjusted net income (e)
$ 157,254 $ 135,538 $ 416,994 $ 384,688
Weighted-average diluted shares outstanding 133,333 134,984 133,764 135,338
Adjusted EPS (e) (f)
$ 1.18 $ 1.00 $ 3.12 $ 2.84
(a) Represents the expensing of fees and deferred fees and original issue discount associated with the amendment of the senior secured first lien term loan in fiscal 2023.
(b) Represents charges related to the restructuring of certain corporate functions, including costs for severance, retention, outplacement, consulting fees, and other third-party fees.
(c) 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) Represents the tax effect of the above adjustments at a statutory tax rate of approximately 28%.
(e) Adjusted net income for the thirteen and thirty-nine weeks ended October 28, 2023 has been recast to include adjustments for restructuring charges, and the corresponding tax impact, to conform to the current period presentation.
(f) Adjusted EPS is measured using weighted-average diluted shares outstanding.
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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, restructuring, and other adjustments.
We believe that adjusted EBITDA is helpful in highlighting trends in our core operating performance compared to other measures, which can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We use adjusted EBITDA to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies; to make budgeting decisions; and to compare our performance against that of other peer companies using similar measures. We also use adjusted EBITDA in connection with establishing annual incentive compensation.
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) November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023
Income from continuing operations $ 155,748 $ 130,467 $ 411,755 $ 377,780
Interest expense, net 12,593 18,004 39,299 48,968
Provision for income taxes 61,042 50,904 142,759 159,666
Depreciation and amortization 65,679 57,406 194,238 166,421
Stock-based compensation expense 10,714 9,380 29,640 29,011
Restructuring (a)
2,091 5,213 7,276 8,427
Other adjustments (b)
425 364 1,060 1,112
Adjusted EBITDA (c)
$ 308,292 $ 271,738 $ 826,027 $ 791,385
Adjusted EBITDA as a percentage of net sales 6.2 % 5.6 % 5.5 % 5.5 %
( a) Represents charges related to the restructuring of certain corporate functions, including costs for severance, retention, outplacement, consulting fees, and other third-party fees. Adjusted EBITDA for the thirteen and thirty-nine weeks ended October 28, 2023 has been recast to include adjustments for restructuring charges to conform to the current period presentation.
(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 and thirty-nine weeks ended October 28, 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 November 2, 2024, cash and cash equivalents totaled $33.9 million and we had $942.2 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 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 2024, we repurchased 1,536,591 shares under the 2021 Repurchase Program for a total purchase price of $129.3 million, inclusive of associated costs.
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. We do, however, enter into letters of credit and purchase obligations in the normal course of our operations.
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Summary of Cash Flows
A summary of our cash flows from operating, investing and financing activities is presented in the following table:
Thirty-nine Weeks Ended
(in thousands) November 2, 2024 October 28, 2023
Net cash provided by operating activities $ 628,955 $ 444,531
Net cash used in investing activities (427,553) (335,641)
Net cash used in financing activities (203,578) (109,254)
Net decrease in cash and cash equivalents $ (2,176) $ (364)
Net Operating Cash Flows
Net cash provided by operating activities was $629.0 million for the first nine months of fiscal year 2024 compared to $444.5 million for the first nine months of fiscal year 2023. The $184.4 million increase was primarily due to fluctuations in working capital, including $113.9 million related to accounts payable as a result of timing of inventory receipts and vendor payments; $51.6 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; $18.1 million related to merchandise inventories, primarily driven by changes in inventory levels in our perishables, grocery, and sundries divisions; partially offset by $56.2 million related to accounts receivable due to timing of vendor and customer cash receipts. Also contributing to the increase in net operating cash flows was an $33.9 million increase in net income, inclusive of a $27.8 million increase in depreciation and amortization and a net decrease in deferred income tax provisions of $22.3 million.
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
Net cash used in investing activities was $427.6 million for the first nine months of fiscal year 2024, compared to $335.6 million for the first nine months of fiscal year 2023. This fluctuation is primarily driven by an increase in capital spending of $79.6 million primarily due to an increase in the number clubs under construction.
Net Financing Cash Flows
Net cash used in financing activities for the first nine months of fiscal year 2024 was $203.6 million, compared to $109.3 million for the first nine months of fiscal year 2023. The increase in cash used is primarily due to a $103.0 million increase in net payments on our ABL Revolving Facility , as well as an increased outflow of $56.2 million for the acquisition of treasury stock compared to the prior year period; partially offset by a $50.0 million net decrease in principal payments on our First Lien Term Loan, and by an increase in net cash received from stock option exercises of $13.1 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.
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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 Thirty-nine Weeks Ended
(in thousands) November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023
Net cash provided by operating activities $ 206,757 $ 175,031 $ 628,955 $ 444,531
Less: Additions to property and equipment, net of disposals (187,933) (133,711) (427,553) (347,951)
Plus: Proceeds from sale-leaseback transactions — 6,322 — 12,310
Adjusted free cash flow $ 18,824 $ 47,642 $ 201,402 $ 108,890
Adjusted free cash flow decreased to $18.8 million for the third quarter of fiscal year 2024 compared to $47.6 million for the third quarter of fiscal year 2023. This decrease in adjusted free cash flow is primarily the result of an increase in capital spending, partially offset by higher cash flows from operating activities due to favorable fluctuations in working capital and higher net income. Adjusted free cash flow increased to $201.4 million for the first nine months of fiscal year 2024 compared to $108.9 million for the first nine months of fiscal year 2023. This increase is primarily the result of higher cash flows from operating activities due to favorable fluctuations in working capital and higher net income, partially offset by an increase in capital spending.
Debt and Borrowing Capacity
Our primary sources of borrowing capacity are the ABL Revolving Facility and the First Lien Term Loan, which are further discussed in Note 4 , "Debt and Credit Arrangements," included in this Quarterly Report on Form 10-Q.
On July 28, 2022, we entered into the ABL Revolving Facility with an aggregate ABL Revolving Commitment of $1.2 billion pursuant to that certain credit agreement with Bank of America, N.A., as administrative agent and collateral agent, and other lenders party thereto. The maturity date of the ABL Revolving Facility is July 28, 2027.
On October 12, 2023, we 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.
At November 2, 2024, there was $245.0 million outstanding in loans under the ABL Revolving Facility and $12.8 million in outstanding letters of credit. The interest rate on the revolving credit facility was 5.77% and unused capacity was $942.2 million.
At November 2, 2024, the interest rate for the First Lien Term Loan was 6.76% and there was $400.0 million outstanding.
On November 4, 2024, we entered into the Fifth Amendment with Nomura Corporate Funding Americas, LLC, as administrative agent and collateral agent, and the lenders party thereto.
The Fifth Amendment, among other things, provided for a new tranche of term loans in an aggregate principal amount of $400.0 million, which refinanced and replaced in full the existing Tranche B term loans outstanding under the First Lien Term Loan Credit Agreement immediately prior to the effectiveness of the Fifth Amendment. In addition, the Fifth Amendment reduced applicable margin in respect of the interest rate from SOFR plus 200 basis points per annum to SOFR plus 175 basis points per annum.
Material Cash Commitments
Our material cash commitments consist primarily of debt obligations, interest payments, leases, and purchase orders for merchandise inventory, agreements for capital items, gasoline, products and services used in our business, information technology, and executive employment. These material cash commitments impact our short-term and long-term liquidity and capital needs. As of November 2, 2024, other than those items related to the ordinary course of operations of our business such as inventory purchases, agreements for capital items, and 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 fiscal year 2023.
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Critical Accounting Policies and Use of Estimates
This discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. There were no material changes in critical accounting policies and estimates during the period covered by this Quarterly Report on Form 10-Q. Refer to Item 7., "Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies and Estimates," in our Annual Report on Form 10-K for fiscal year 2023 for a complete list of our Critical Accounting Policies and Estimates.
Recent Accounting Pronouncements
Our 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.
Refer to " Note 2 . Summary of Significant Accounting Policies" included in this Quarterly Report on Form 10-Q for additional information regarding recently issued accounting pronouncements.