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Item 7. Management’s Discussion and Analysis

2025-03-14 compared with 2024-03-18 · 97 added, 103 removed, 221 unchanged (48% 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", "fiscal year 2022" and "fiscal year 2021" relate to the 53-weeks ended February 3, 2024 and to the 52-weeks ended January 28, 2023 and January 29, 2022, respectively.

Accordingly, references herein to "fiscal year 2024" and "fiscal year 2022" relate to the 52 weeks ended February 1, 2025 and January 28, 2023, respectively, and references herein to "fiscal year 2023" relate to the 53 weeks ended February 3, 2024.

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.

Since pioneering the warehouse club model in New England in 1984, we have grown our footprint to 253 large-format, high volume warehouse clubs and 189 gas stations spanning 21 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.

GDP, 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 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.

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 BOPIC service, curbside delivery, same-day 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 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 million members paying 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.

We have over 7.5 million members paying annual fees to gain access to savings on groceries, general merchandise, services, and gasoline.

Through December 31, 2024, the annual membership fee for our Club Card membership was generally $55, and the annual membership fee for our Club+ membership, which offers additional value-enhancing features, was generally $110.

Effective January 1, 2025, the Club Card membership fee increased to $60 per year and the Club+ membership fee increased to $120 per year.

We believe that these membership fee increases will allow us to invest in an even stronger value proposition for our growing member base.

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®, represent approximately $4.1 billion in annual sales.

Our two private label brands, Wellsley Farms® and Berkley Jensen®, represent approximately 26% of the Company's annual sales.

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

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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, among others, 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, 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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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, curbside pickup, same-day delivery, and ExpressPay 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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Changes in commodity prices and changes in inflation rates have impacted several categories of our business in fiscal year 2024 and may continue to do so.

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

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

Information pertaining to fiscal year 2022 was included in the Company’s Annual Report on Form 10-K for the year ended January 28, 2023 in Part II.

Information pertaining to fiscal year 2023 was included in the Company’s Annual Report on Form 10-K for the year ended February 3, 2024 in Part II.

Management’s Discussion and Analysis of Financial Position and Results of Operations," which was filed with the SEC on March 18, 2024.

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Statement of Operations Data Fiscal Year Ended

(dollars in thousands, except per share amounts) February 3, 2024 January 28, 2023

(dollars in thousands, except per share amounts) February 1, 2025 February 3, 2024

Net sales $ 20,045,329 $ 19,548,011

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Income from continuing operations 534,417 523,652

Income (loss) from discontinued operations, net of income taxes 89 (1,085)

Income from discontinued operations, net of income taxes — 89

Net income $ 534,417 $ 523,741

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Merchandise comparable club sales (b)

Adjusted EBITDA (b) (c)

Adjusted net income (b)

$ 541,111 $ 534,537

Adjusted EPS (b)

Adjusted EBITDA (b)

1,090,595 1,082,129

Net cash provided by operating activities 900,872 718,883

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

(c) Adjusted EBITDA for the fiscal year ended January 28, 2023 has been recast to exclude adjustments for pre-opening expenses and non-cash rent expense to conform to the current period definition.

Fiscal Year 2024 Compared to Fiscal Year 2023

Full year results for fiscal year 2023 included one additional week (the "53rd week") compared to the full year results for fiscal year 2024.

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 comparable club sales.

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

Net sales for fiscal year 2024 were $20.0 billion, a 2.5% increase from net sales reported for fiscal year 2023 of $19.5 billion.

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

The increase was due primarily to strength in the perishables, grocery, and sundries division, an increase in gasoline sales, and seven club openings during fiscal 2024.

Comparable Club Sales and Merchandise Comparable Club Sales

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Merchandise comparable club sales 2.8 %

Merchandise comparable club sales increased by 1.7% in fiscal year 2023 driven by an increase in sales of groceries of approximately 3.5%, partially offset by a decrease in sales of general merchandise and services of approximately 8.2%.

Sales of groceries increased during fiscal year 2023 as demand for paper products, beverages, candy, snacks, fresh fruit and vegetables, dairy and bakery categories increased compared to fiscal year 2022, partially offset by a decrease in demand for meat and seafood categories.

General merchandise and service sales decreased during fiscal year 2023 due to decreased demand for home goods and seasonal merchandise, as well as lower ancillary income, compared to fiscal year 2022.

The impact of gasoline sales is a result of lower retail prices during fiscal year 2023 as compared to fiscal year 2022, as total gallons sold grew year-over-year.

Merchandise comparable club sales increased by 2.8% in fiscal year 2024 compared to fiscal year 2023 driven by increased sales of perishables, of approximately 3.2% as well as increased sales of general merchandise and services of approximately 0.7%.

In the perishables, grocery, and sundries division, growth was led by fresh produce, dairy, fresh beef, nutrition, beverages, and paper categories compared to fiscal year 2023, partially offset by a decrease in sales of alcohol.

General merchandise and services increased during fiscal year 2024 due to increased demand for toys and electronics, including video games, apparel, and home categories compared to fiscal year 2023, partially offset by a decrease in consumer spending in certain seasonal categories.

The impact of gasoline sales on comparable club sales is due to a decrease in retail prices year-over-year, partially offset by an increase in comparable gallons sold in fiscal year 2024 compared to fiscal year 2023 and an increase of twelve gas stations.

Membership fee income

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

Membership fee income was $420.7 million in fiscal year 2023, compared to $396.7 million in fiscal year 2022, a 6.0% increase.

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

Membership fee income was $456.5 million in fiscal year 2024, compared to $420.7 million in fiscal year 2023, an 8.5% increase.

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

We continued to add new members from our seven 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 increased our membership fees effective January 1, 2025 which we anticipate will positively impact membership fee income in fiscal year 2025, and had a minimal impact on fiscal year 2024 results.

Cost of sales

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Cost of sales was $16.7 billion, or 83.5% of net sales, in fiscal year 2024, compared to $16.3 billion, or 83.5% of net sales, in fiscal year 2023.

Merchandise gross margin rate, which excludes gasoline sales and membership fee income, increased 50 basis points compared to fiscal year 2022.

Merchandise margins were positively impacted by our category management process, moderated supply chain costs, and the mix of sales .

Merchandise gross margin rate, which excludes gasoline sales and membership fee income, decreased approximately 10 basis points compared to fiscal year 2023.

Merchandise margins were negatively impacted by the mix of sales, as well as our continued investments in the business.

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.

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 and distribution centers.

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

SG&A increased by 5.0% to $3.0 billion in fiscal year 2024 from $2.8 billion in fiscal year 2023.

The year-over-year increase in SG&A was primarily driven by increased labor, occupancy, and depreciation expenses 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.

Our growth profile this year was weighted toward owned clubs as opposed to leased clubs, elevating our depreciation expense.

We expect to continue to invest in member engagement, marketing and digital strategies.

The year-over-year increase in SG&A was primarily driven by increased labor and occupancy costs as a result of new club and gas station openings and an increase in incentive compensation.

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

The increase in SG&A was partially offset by the favorable net impact of legal settlements reached of approximately $20 million during the third quarter of fiscal year 2024, as well as the impact of the 53rd week in fiscal year 2023.

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.

Pre-opening expenses include startup costs for new clubs and distribution centers 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 $28.3 million in fiscal year 2024 compared to $19.6 million in fiscal year 2023.

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

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

Interest expense, net

Interest expense, net was $51.4 million for fiscal year 2024 compared to $64.5 million for fiscal year 2023.

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

The decrease was primarily due to a reduction in average outstanding borrowings and fluctuations in interest rates, partially offset by an increase in expense related to finance leases and failed sale-leaseback transactions year-over-year.

Provision for income taxes

The Company’s effective income tax rate from continuing operations was 25.9% for fiscal year 2024 and 28.8% for fiscal year 2023.

The increases in the effective tax rate and income tax expense were driven by lower tax benefits from stock-based compensation as well as an immaterial adjustment to certain deferred tax assets related to prior periods.

The decrease in the effective income tax rate was primarily driven by higher tax benefits from stock-based compensation year-over-year.

Non-GAAP Financial Measures

The accompanying Consolidated Financial Statements, including the related notes, are presented in accordance with generally accepted accounting principles ("GAAP").

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.

The accompanying 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 EBITDA, comparable club sales, adjusted free cash flow, adjusted net income, and adjusted EPS may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

Adjusted Net Income

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 Liquidity and Capital Resources section below.

Adjusted Net Income and Adjusted EPS

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, net of the tax impact of such adjustments.

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.

Fiscal Year Ended

(in thousands, except per share amounts) February 3, 2024 January 28, 2023

(in thousands, except per share amounts) February 1, 2025 February 3, 2024

Net income as reported $ 534,417 $ 523,741

Acquisition and integration costs (a)

Home office transition costs (b)

Loss on termination and impairment of discontinued operations club lease — 662

Charges related to debt (c)

Restructuring (d)

Other adjustments (e)

Tax impact of adjustments to net income (f)

Charges related to debt (a)

Restructuring (b)

Other adjustments (c)

Tax impact of adjustments to net income (d)

(2,603) (4,188)

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Weighted-average diluted shares outstanding 133,605 135,118

Adjusted EPS (g)

Adjusted EPS (e)

$ 4.05 $ 3.96

Represents costs related to the acquisition and integration of assets of Burris Logistics, including due diligence, legal, and other consulting expenses.

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

Represents the expensing of fees, deferred fees, and original issue discount associated with the extinguishment of the ABL Facility in fiscal 2022 and amendment of the senior secured first lien term loan in fiscal 2022 and 2023.

Represents charges related to the restructuring of certain corporate functions including, costs for severance, retention, outplacement, and consulting fees.

Represents the expensing of fees, deferred fees, and original issue discount associated with the amendment of the senior secured first lien term loan.

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

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

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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;

acquisition and integration costs;

home office transition costs;

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:

The following is a reconciliation of our income from continuing operations to adjusted EBITDA for the periods presented:

Fiscal Year Ended

February 3, 2024 January 28, 2023

February 1, 2025 February 3, 2024

(In thousands)

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47,798 39,021

Acquisition and integration costs (a)

Home office transition costs (b)

Restructuring (c)

Other adjustments (d)

Adjusted EBITDA (e)

Restructuring (a)

Other adjustments (b)

Adjusted EBITDA

$ 1,090,595 $ 1,082,129

Adjusted EBITDA as a percentage of net sales

Represents costs related to the acquisition and integration of assets from Burris Logistics, including due diligence, legal, and other consulting expenses.

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

Represents charges related to the restructuring of certain corporate functions, including costs for severance, retention, outplacement, and consulting fees.

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

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

Adjusted EBITDA for the fiscal year ended January 28, 2023 has been recast to exclude adjustments for pre-opening expenses and non-cash rent expense 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 February 3, 2024, cash and cash equivalents totaled $36.0 million and we had $802.3 million of unused capacity under our ABL Revolving Facility.

As of February 1, 2025, cash and cash equivalents totaled $28.3 million and we had $1.0 billion 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.

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.

During fiscal year 2023, we repurchased 1,958,218 shares under the 2021 Repurchase Program for a total purchase price of $130.2 million.

During fiscal year 2024, we repurchased 2,181,885 shares under the 2021 Repurchase Program for a total purchase price of $190.9 million, inclusive of associated costs, fully exhausting the $500.0 million authorization under such program.

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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Fiscal Year Ended

February 3, 2024 January 28, 2023

February 1, 2025 February 3, 2024

(In thousands)

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Net cash used in financing activities (319,083) (261,984)

Net increase (decrease) in cash and cash equivalents $ 2,134 $ (11,521)

Net (decrease) increase in cash and cash equivalents $ (7,777) $ 2,134

Net Operating Cash Flows

Net cash provided by operating activities was $900.9 million for fiscal year 2024, compared to $718.9 million for fiscal year 2023.

The $69.3 million decrease was primarily due to $95.3 million related to accounts payable as a result of timing of inventory receipts and payments, as well as commodity and fuel costs;

$49.4 million of lease-related activity primarily due to prepaid rent based on the timing of year-end;

$28.7 million related to an increase in merchandise inventory due to the increase in club counts and fuel stations;

and $18.7 million related to prepaid expenses and other current assets driven by prepaid advertising and IT maintenance contracts due to the timing of year-end.

The decrease in net operating cash flows was partially offset by a $71.7 million reduction in accounts receivable due to favorable timing of vendor and customer cash receipts, as well as a $10.6 million increase in net income, inclusive of increases of $26.8 million of depreciation and amortization expense and $27.5 million of deferred income tax expense.

The $182.0 million increase was primarily due to fluctuations in working capital, including $82.6 million related to accounts payable as a result of timing of inventory receipts and vendor payments;

$64.3 million of lease-related activity primarily due to a decrease in prepaid rent based on the timing of year-end;

$61.3 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;

$22.1 million related to merchandise inventories, primarily driven by changes in inventory levels in our perishables and general merchandise divisions;

$15.9 million related to prepaid expenses and other current assets, primarily driven by prepaid advertising and IT maintenance contracts;

partially offset by $62.4 million related to accounts receivable due to timing of vendor and customer cash receipts.

Also contributing to the increase in net operating cash flow was a $10.7 million increase in net income, inclusive of a $34.4 million increase in depreciation and amortization and a net decrease in deferred income tax provisions of $44.1 million.

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

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Net Investing Cash Flows

Cash used in investing activities was $454.8 million in fiscal year 2023, compared to $747.1 million in 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, net of proceeds from sale-leaseback transactions, of $84.2 million as our growth profile in fiscal year 2023 was weighted toward owned clubs as opposed to leased clubs.

Net cash used in investing activities was $589.6 million in fiscal year 2024, compared to $454.8 million in fiscal year 2023.

This fluctuation is primarily driven by an increase in capital spending of $120.9 million as our growth profile includes a greater mix of owned clubs as opposed to leased clubs.

Net Financing Cash Flows

Cash used in financing activities in fiscal year 2023 was $262.0 million, compared to $52.6 million in fiscal year 2022.

The increase in cash used in fiscal year 2023 is primarily due to a $491.0 million reduction in net proceeds from our ABL Revolving Facility, partially offset by a net decrease of $253.0 million of principal payments on long-term debt, a decrease of $17.1 million for the acquisition of treasury stock, and an increase of $11.3 million of proceeds from financing obligations compared to the prior year.

Net cash used in financing activities in fiscal year 2024 was $319.1 million compared to $262.0 million in fiscal year 2023.

The increase in cash used in fiscal year 2024 is primarily due to a $58.0 million increase in net payments on our ABL Revolving Facility, as well as an increased outflow of $64.5 million for the acquisition of treasury stock which exhausted the authorization on our previous share repurchase program;

partially offset by a $50.0 million net decrease in principal payments on our First Lien Term Loan and an increase in net cash received from stock option exercises of $15.7 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.

We present adjusted free cash flow because 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.

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Fiscal Year Ended

February 3, 2024 January 28, 2023

February 1, 2025 February 3, 2024

(In thousands)

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Proceeds from sale-leaseback transactions

12,310 27,266

Adjusted free cash flow

$ 312,889 $ 264,118

Adjusted free cash flow decreased to $264.1 million for fiscal year 2023 compared to $417.6 million for fiscal year 2022.

The decrease is primarily the result of lower cash flows from operating activities primarily due to unfavorable fluctuations in working capital, an increase in capital spending as we open new clubs, and lower proceeds from sale-leaseback transactions.

Adjusted free cash flow increased to $312.9 million for fiscal year 2024 compared to $264.1 million for fiscal year 2023.

The increase is driven by higher cash flows from operating activities primarily due to favorable fluctuations in working capital, timing of lease payments, and higher net income, partially offset by an increase in capital spending.

Debt and Borrowing Capacity

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

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

On January 5, 2023, the Company amended the First Lien Term Loan to extend the maturity date from February 3, 2024 to February 3, 2027 and transition the interest rate, from LIBOR to SOFR and change the applicable margin from LIBOR plus 200 – 225 basis points per annum to SOFR plus 275 basis points per annum.

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

On January 28, 2023, there was $405.0 million outstanding in loans under the ABL Revolving Facility and $11.5 million in outstanding letters of credit.

The interest rate on the revolving credit facility was 5.63%.

On January 28, 2023, the interest rate for the First Lien Term Loan was 7.11% and there was $450.0 million outstanding.

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.

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 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.

On February 3, 2024, there was $319.0 million outstanding in loans under the ABL Revolving Facility and $18.2 million in outstanding letters of credit.

The interest rate on the revolving credit facility was 6.44%.

On February 3, 2024, the interest rate for the First Lien Term Loan was 7.33% and there was $400.0 million outstanding.

On November 4, 2024, the Company amended the First Lien Term Loan to reduce applicable margin in respect of the interest rate from SOFR plus 200 basis points per annum to SOFR plus 175 basis points per annum.

At February 1, 2025, there was $175.0 million outstanding in loans under the ABL Revolving Facility and $11.1 million in outstanding letters of credit.

The interest rate on the revolving credit facility was 6.44%, and unused capacity was $802.3 million.

The interest rate on the revolving credit facility was 5.41%, and unused capacity was $1.0 billion.

At February 1, 2025, the interest rate for the First Lien Term Loan was 6.08% and there was $400.0 million outstanding.

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Other Non-current Liabilities” for long-term liabilities for which it is not reasonably possible for us to predict when they may be paid, including insurance reserves and asset retirement obligations, as well as financing obligations arising from sale-leaseback transactions.

We also have cancellable and non-cancellable purchase obligations under purchase orders for merchandise, agreements for capital items, gasoline, products and services used in our business, information technology, executive employment, and other agreements.

We also have cancellable and non-cancellable purchase obligations under purchase orders for merchandise inventory, agreements for capital items, gasoline, products and services used in our business, information technology, executive employment, and other agreements.

Critical Accounting Policies and Estimates

5 unchanged sentences

Workers’ Compensation and General Liability Self-insurance Reserves

We are primarily self-insured for workers’ compensation and general liability claims.

Amounts in excess of certain levels, which range from $0.3 million to $1.0 million per occurrence for workers' compensation and general liability, and up to $2.0 million per occurrence for auto liability, are insured as a risk reduction strategy to mitigate the impact of catastrophic losses on net income.

We are primarily self-insured for workers’ compensation, general liability claims, and auto liability claims.

Reported reserves for claims are derived from estimated ultimate costs based upon individual claim file reserves and estimates for incurred but not reported claims.

7 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis