BJ's Wholesale Club Holdings, Inc. Announces Third Quarter Fiscal 2019 Results

BJ's Wholesale Club Holdings, Inc. (NYSE: BJ) (the "Company") today announced its financial results for the thirteen and thirty-nine weeks ended November 2, 2019.

"We delivered solid margin improvement and continued earnings growth in the third quarter " said Christopher J. Baldwin, Chairman and Chief Executive Officer, BJ's Wholesale Club. "We remain focused on executing against our strategic plan and transforming our business to be well positioned for the long-term. The board's decision to authorize a stock repurchase program reflects the strength of our cash flow and confidence in our growth strategy and long-term outlook."

Key Measures for the Thirteen Weeks Ended November 2, 2019 (Third Quarter of Fiscal 2019) and for the Thirty-Nine Weeks Ended November 2, 2019 (First Nine Months of Fiscal 2019):

Additional Highlights:

• Comparable club sales for the third quarter of fiscal 2019 decreased 0.4%, compared to the third quarter of fiscal 2018. Comparable club sales, excluding the impact of gasoline sales increased 1.1%. Comparable club sales for the first nine months of fiscal 2019 increased 0.7%, compared to the first nine months of fiscal 2018. Excluding the impact of gasoline sales, comparable club sales increased 1.5%.
• Gross profit increased to $617.6 million in the third quarter of fiscal 2019 from $592.1 million in the third quarter of fiscal 2018. Gross profit increased to $1,804.6 million in the first nine months of fiscal 2019 from $1,732.0 million in the first nine months of fiscal 2018. Excluding the impact of gasoline sales and membership fee income, merchandise gross margin rate increased by approximately 50 basis points over the third quarter of fiscal 2018 and by approximately 40 basis points over the first nine months of fiscal 2018. The improvement was primarily driven by continued progress in our category profitability improvement program.
• Selling, general and administrative expenses ("SG&A") increased to $510.4 million in the third quarter of fiscal 2019, compared to $499.6 million in the third quarter of fiscal 2018. In the first nine months of fiscal 2019, SG&A decreased to $1,523.5 million, compared to $1,534.3 million in the first nine months of fiscal 2018. Excluding charges associated with stock-based compensation related to the Company's initial public offering ("IPO"), costs related to our IPO and the registered offerings by selling stockholders (such offering costs, collectively, "offering costs"), club asset impairment and management fees⁽¹⁾, SG&A was $510.4 million in the third quarter of fiscal 2019 compared to $496.2 million in the prior year period and $1,521.6 million in the first nine months of fiscal 2019 compared to $1,474.9 million in the prior year period. The increase in SG&A reflects continued investments to drive the Company's strategic priorities.
• Operating income increased to $100.9 million, or 3.1% of total revenues in the third quarter of fiscal 2019, compared to $90.3 million, or 2.8% of total revenues in the third quarter of fiscal 2018. Operating income increased to $270.4 million, or 2.8% of total revenues, in the first nine months of fiscal 2019, compared to $193.6 million, or 2.0% of total revenues in the first nine months of fiscal 2018. Excluding charges associated with stock-based compensation related to the IPO, offering costs, club asset impairment and management fees⁽¹⁾, operating income was $100.9 million, or 3.1% of total revenues in the third quarter of fiscal 2019, compared to $93.7 million, or 2.9% of total revenues in the prior year period and $272.3 million, or 2.8% of total revenues, in the first nine months of fiscal 2019, compared to $252.9 million, or 2.6% of total revenues in the prior year period.
• Interest expense, net, decreased to $27.7 million in the third quarter of fiscal 2019, compared to $33.0 million in the third quarter of fiscal 2018. Excluding $2.0 million of write-off of deferred fees and the original issue discount associated with the 2019 partial payoff of our first lien term loan facility (the "First Lien Term Loan"), interest expense would have been $25.7 million in the third quarter of fiscal 2019. During the third quarter of fiscal 2018, the Company repriced its First Lien Term Loan and senior secured asset based revolving credit and term facility (the "ABL Facility"). Excluding $6.2 million in fees and write-off of deferred financing fees associated with the repricing, interest expense would have been $26.8 million for the third quarter of fiscal 2018. In the first nine months of fiscal 2019, interest expense, net, decreased to $82.3 million, compared to $137.8 million in the first nine months of fiscal 2018. Excluding $24.3 million in interest expense, $6.2 million in a prepayment penalty and $13.0 million in a write-off of deferred financing costs related to the Second Lien Term Loan that occurred during the second quarter of fiscal 2018 and excluding $6.2 million of expenses associated with the repricing of the First Lien Term Loan and ABL Facility in third quarter of fiscal 2018, interest expense for the first nine months of fiscal 2018 would have been $88.0 million.
• Income tax expense was $18.0 million in the third quarter of fiscal 2019, compared to income tax expense of $2.7 million in the third quarter of fiscal 2018. The third quarter of fiscal 2019 included a benefit of $1.8 million from windfall tax benefits related to stock compensation awards compared to $7.6 million in the third quarter of fiscal 2018. Income tax expense was $42.5 million in the first nine months of fiscal 2019, compared to an income tax benefit of $7.6 million in the first nine months of fiscal 2018. The first nine months of fiscal 2019 included a benefit of $8.4 million from windfall tax benefits related to stock compensation awards, compared to $17.4 million in the first nine months of fiscal 2018.

(1) See reconciliation to Adjusted Net Income table

Stock Repurchase Program

• On November 20, 2019, the Company's Board of Directors approved a stock repurchase program, effective immediately. The authorization allows the Company to repurchase up to $250.0 million of its outstanding common stock. The stock repurchase program expires in January 2022 and gives management the flexibility to determine the terms and conditions under which shares may be purchased. The amount and timing of any repurchases made under the stock repurchase program will depend on a variety of factors, including available liquidity, cash flow and market conditions. The stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares of common stock, and the program may be suspended or discontinued at any time.

Fiscal Year (FY) 2019 Outlook

Conference Call Details

A conference call to discuss the third quarter of fiscal 2019 financial results is scheduled for today, November 21, 2019, at 8:30 a.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial 877-274-0290 (international callers please dial 647-689-5405) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at https://investors.bjs.com.

A recorded replay of the conference call will be available within two hours of the conclusion of the call and can be accessed both online at https://investors.bjs.com and by dialing 416-621-4642 and entering the access code 9697299. The recorded replay will be available until November 28, 2019 and an online archive of the webcast will be available for one year.

About BJ's Wholesale Club Holdings, Inc.

Headquartered in Westborough, Massachusetts, BJ's Wholesale Club Holdings, Inc. is a leading operator of membership warehouse clubs in the Eastern United States. The company currently operates 219 clubs and 144 BJ's Gas^® locations in 17 states.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements, including, without limitation, statements regarding our strategic priorities; our anticipated fiscal 2019 outlook and longer-term position and outlook; and our future progress, as well as statements that include the words "will", "could", "predict", "continue", "would", "expect," "intend," "plan," "believe," "project," "forecast," "estimate," "may," "should," "anticipate" or the negative of these terms or other similar expressions. These forward-looking statements are based on management's current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause 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, consumer and small business spending patterns and debt levels; our dependence on having a large and loyal membership; domestic and international economic conditions, including exchange rates; our ability to procure the merchandise we sell at the best possible prices; the effects of competition and regulation; our dependence on vendors to supply us with quality merchandise at the right time and at the right price; breaches of security or privacy of member or business information; conditions affecting the acquisition and development; our ability to attract and retain a qualified management team and other team members; costs associated with employees (generally including health care costs), energy and certain commodities, geopolitical conditions (including tariffs); disruptions in merchandise distribution; our ability to identify and respond effectively to consumer trends; the effects of payment related risks, including risks to the security of payment card information; changes in laws related to, or the governments administration of the Supplemental Nutrition Assistance Program or its electronic benefit transfer systems; union attempts to organize our team members; failure or disruption of our primary and back-up systems; our ability to attract and retain a qualified management team and other team members; fluctuation of our comparable club sales and quarterly operating results; changes in our product mix or in our revenues from gasoline sales; the effects of product recalls; our failure to successfully maintain a relevant omnichannel experience for our members; risks related to our growth strategy to open new clubs; risks related to our e-commerce business; and other important factors discussed under the captions "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019 filed with the United States Securities and Exchange Commission ("SEC") on March 25, 2019, as such factors may be updated from time to time in our other filings with the SEC, which are accessible on the SEC's website at www.sec.gov. These and other important factors could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. Any such forward-looking statements represent management's estimates as of the date of this press release. While we may elect to update such forward-looking statements at some point in the future, unless required by law, we disclaim any obligation to do so, even if subsequent events cause our views to change. Thus, one should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

Non-GAAP Financial Measures

We refer to certain financial measures that are not recognized under United States generally accepted accounting principles ("GAAP"). Please see "Note Regarding Non-GAAP Financial Information" and "Reconciliation of GAAP to Non-GAAP Financial Information" below for additional information and a reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures.

Note Regarding Non-GAAP Financial Information

This press release includes financial measures that are not calculated in accordance with GAAP, including adjusted net income, adjusted net income per diluted share, adjusted EBITDA, free cash flow and net debt and net debt to LTM adjusted EBITDA.

We define adjusted net income as net income attributable to common stockholders adjusted for: stock-based compensation related to the IPO; offering costs; management fees; club asset impairment; charges related to debt restructurings and retirements; the windfall tax benefit from stock exercises; and the tax impact of the foregoing adjustments on net income.

We define adjusted net income per diluted share as adjusted net income divided by the weighted average diluted shares outstanding for the thirteen weeks and thirty-nine weeks ended on the last day of the latest periods presented.

We define adjusted EBITDA as income from continuing operations before interest expense, net, provision (benefit) for income taxes and depreciation and amortization, adjusted for the impact of certain other items, including: stock-based compensation expense; pre-opening expenses; management fees; non-cash rent; strategic consulting; offering costs; and other adjustments.

We define free cash flow as net cash provided by operating activities net of capital expenditures.

We define net debt as total debt outstanding less cash and cash equivalents.

We define net debt to LTM adjusted EBITDA as net debt at the balance sheet date divided by adjusted EBITDA for the trailing twelve-month period.

We present adjusted net income, adjusted net income per diluted share and adjusted EBITDA, which are not recognized financial measures under GAAP, because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, adjusted EBITDA excludes preopening expenses, because we do not believe these expenses are indicative of the underlying operating performance of our stores. The amount and timing of preopening expenses are dependent on, among other things, the size of new stores opened and the number of new stores opened during any given period.

Management believes that adjusted net income, adjusted net income per diluted share and adjusted EBITDA are 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 net income, adjusted net income per diluted share and 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 discretionary annual incentive compensation.

We present free cash flow, which is not a recognized financial measure under GAAP, because we use it to report to our board of directors and we believe it assists investors and analysts in evaluating our liquidity. Free cash flow should not be considered as an alternative to cash flows from operations as a liquidity measure. We present net debt and net debt to LTM adjusted EBITDA, which are not recognized as financial measures under GAAP, because we use them to report to our board of directors and we believe they assist investors and analysts in evaluating our borrowing capacity. Net debt to LTM adjusted EBITDA is a key financial measure that is used by management to assess the borrowing capacity of the Company.

You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating adjusted net income, adjusted net income per diluted share, adjusted EBITDA and net debt to LTM adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or like some of the adjustments in our presentation of these metrics. Our presentation of adjusted net income, adjusted net income per diluted share, adjusted EBITDA, free cash flow, net debt and net debt to LTM adjusted EBITDA should not be considered as alternatives to any other measure derived in accordance with GAAP and they should not be construed as an inference that the Company's future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of adjusted net income, adjusted net income per diluted share, adjusted EBITDA or net debt to LTM adjusted EBITDA in the future, and any such modification may be material. In addition, adjusted net income, adjusted net income per diluted share, adjusted EBITDA, free cash flow, net debt and net debt to LTM adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries. Additionally, adjusted net income, adjusted net income per diluted share, adjusted EBITDA, free cash flow, net debt and net debt to LTM adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.

Reconciliation of GAAP to Non-GAAP Financial Information