UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM
_________________
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
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BJ’S WHOLESALE CLUB HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer |
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(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth Company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 21, 2021, the registrant had
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| PART I. |
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| Item 1. |
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| Consolidated Statements of Operations and Comprehensive Income |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q should be considered forward-looking statements, including, without limitation, statements regarding our future results of operations and financial position, business strategy, transformation, strategic priorities and future progress, including expectations regarding deferred revenue, lease commencement dates, impact of infrastructure investments on our operating model and selling, general and administrative expenses, sales of gasoline and gross profit margin rates, and new club and gas station openings, as well as statements that include terms such as "may", "will", "should", "expect", "plan", "anticipate", "could", "intend", "project", "believe", "estimate", "predict", "continue", "forecast", "would", or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to:
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uncertainties in the financial markets and the effect of certain economic conditions or events on consumer and small business spending patterns and debt levels; |
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risks related to our dependence on having a large and loyal membership; |
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the effects of competition in, and regulation of, the retail industry; |
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our dependence on vendors to supply us with quality merchandise at the right time and at the right price; |
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risks related to our substantial indebtedness; |
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changes in laws related to, or the governments administration of, the Supplemental Nutrition Assistance Program or its electronic benefit transfer systems; |
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the risks and uncertainties related to the impact of the novel coronavirus (COVID-19) pandemic, including the duration, scope and severity of the pandemic, federal, state and local government actions or restrictive measures implemented in response to COVID-19, the effectiveness of such measures, as well as the effect of any relaxation or revocation of current restrictions, and the direct and indirect impact of such measures; |
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risks related to climate change and natural disasters; |
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our ability to identify and respond effectively to consumer trends, including our ability to successfully maintain a relevant omnichannel experience for our members; |
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risks related to cybersecurity, which may be heightened due to our e-commerce business, including our ability to protect the privacy of member or business information and the security of payment card information; |
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our ability to attract and retain a qualified management team and other team members; |
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our ability to implement our growth strategy by opening new clubs and gasoline stations; and |
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the other risk factors identified in our filings with the Securities and Exchange Commission, including in particular those set forth under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021 (the "Annual Report on Form 10-K for the fiscal year 2020") and this Quarterly Report on Form 10-Q. |
Given these uncertainties, you should not place undue reliance on any forward-looking statements. Except as required by applicable law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future, and you should not rely upon these forward-looking statements after the date of this Quarterly Report on Form 10-Q.
TRADEMARKS
BJ’s Wholesale Club®, BJ’s®, Wellesley Farms®, Berkley Jensen®, My BJ’s Perks®, BJ’s Easy Renewal®, BJ’s Gas®, BJ’s Perks Elite®, BJ’s Perks Plus®, Inner Circle® and BJ’s Perks Rewards® are all registered trademarks of BJ’s Wholesale Club, Inc. Other trademarks, tradenames and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. We do not intend our use or display of those other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties. Solely for convenience, trademarks, trade names and service marks referred to in this Quarterly Report on Form 10-Q may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks.
DEFINED TERMS
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires:
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"the Company", "BJ’s", "we", "us" and "our" mean BJ’s Wholesale Club Holdings, Inc. and, unless the context otherwise requires, its consolidated subsidiaries; |
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"ABL Facility" means the Company's senior secured asset based revolving credit and term facility; |
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"First Lien Term Loan" means the Company's senior secured first lien term loan facility; |
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"fiscal year 2020" means the 52 weeks ended January 30, 2021; and |
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"fiscal year 2021" means the 52 weeks ended January 29, 2022. |
Item 1. Financial Statements.
BJ’S WHOLESALE CLUB HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
| May 1, 2021 | January 30, 2021 | May 2, 2020 | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Accounts receivable, net | ||||||||||||
| Merchandise inventories | ||||||||||||
| Prepaid expenses and other current assets | ||||||||||||
| Total current assets | ||||||||||||
| Operating lease right-of-use assets, net | ||||||||||||
| Property and equipment: | ||||||||||||
| Land and buildings | ||||||||||||
| Leasehold costs and improvements | ||||||||||||
| Furniture, fixtures and equipment | ||||||||||||
| Construction in progress | ||||||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ( | ) | ||||||
| Total property and equipment, net | ||||||||||||
| Goodwill | ||||||||||||
| Intangibles, net | ||||||||||||
| Deferred income taxes | ||||||||||||
| Other assets | ||||||||||||
| Total assets | $ | $ | $ | |||||||||
| LIABILITIES | ||||||||||||
| Current liabilities: | ||||||||||||
| Current portion of long-term debt | $ | $ | $ | |||||||||
| Current portion of operating lease liabilities | ||||||||||||
| Accounts payable | ||||||||||||
| Accrued expenses and other current liabilities | ||||||||||||
| Total current liabilities | ||||||||||||
| Long-term operating lease liabilities | ||||||||||||
| Long-term debt | ||||||||||||
| Deferred income taxes | ||||||||||||
| Other non-current liabilities | ||||||||||||
| Commitments and Contingencies (see Note 6) | ||||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||
| Preferred stock; par value $; shares authorized, and shares issued or outstanding | ||||||||||||
| Common stock, par value $; shares authorized, shares issued and outstanding at May 1, 2021; shares issued and outstanding at January 30, 2021; and shares issued and outstanding at May 2, 2020 | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Treasury stock, at cost, shares at May 1, 2021; shares at January 30, 2021; shares at May 2, 2020 | ( | ) | ( | ) | ( | ) | ||||||
| Total stockholders’ equity | ||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | $ | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
BJ’S WHOLESALE CLUB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
| Thirteen Weeks Ended | ||||||||
| May 1, 2021 | May 2, 2020 | |||||||
| Net sales | $ | $ | ||||||
| Membership fee income | ||||||||
| Total revenues | ||||||||
| Cost of sales | ||||||||
| Selling, general and administrative expenses | ||||||||
| Pre-opening expense | ||||||||
| Operating income | ||||||||
| Interest expense, net | ||||||||
| Income from continuing operations before income taxes | ||||||||
| Provision for income taxes | ||||||||
| Income from continuing operations | ||||||||
| Loss from discontinued operations, net of income taxes | ( | ) | ( | ) | ||||
| Net income | $ | $ | ||||||
| Income per share attributable to common stockholders—basic: | ||||||||
| Income from continuing operations | $ | $ | ||||||
| Loss from discontinued operations | ||||||||
| Net income | $ | $ | ||||||
| Income per share attributable to common stockholders—diluted: | ||||||||
| Income from continuing operations | $ | $ | ||||||
| Loss from discontinued operations | ||||||||
| Net income | $ | $ | ||||||
| Weighted average number of common shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| Other comprehensive income (loss): | ||||||||
| Amounts reclassified from other comprehensive income (loss), net of tax | $ | $ | ||||||
| Unrealized gain (loss) on cash flow hedge, net of income tax provision of $ and income tax benefit of $, respectively | $ | ( | ) | |||||
| Total other comprehensive income (loss) | $ | $ | ( | ) | ||||
| Total comprehensive income | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
BJ’S WHOLESALE CLUB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Amounts in thousands)
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Comprehensive | Treasury Stock | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | Shares | Amount | Equity | |||||||||||||||||||||||||
| Balance, January 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Amount reclassified from other comprehensive income (loss), net of tax | — | — | ||||||||||||||||||||||||||||||
| Unrealized gain on cash flow hedge, net of tax | — | — | ||||||||||||||||||||||||||||||
| Common stock issued under stock incentive plans | ( | ) | ||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | ||||||||||||||||||||||||||||||
| Net cash received on option exercises | — | — | ||||||||||||||||||||||||||||||
| Treasury stock purchases | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, May 1, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Accumulated | Total | |||||||||||||||||||||||||||||||
| Additional | Other | Stockholders’ | ||||||||||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Comprehensive | Treasury Stock | Equity | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | Shares | Amount | (Deficit) | |||||||||||||||||||||||||
| Balance, February 1, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Unrealized loss on cash flow, net of tax | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||||
| Common stock issued under stock incentive plans | ( | ) | ||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | ||||||||||||||||||||||||||||||
| Net cash received on option exercises | — | — | ||||||||||||||||||||||||||||||
| Treasury stock purchases | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, May 2, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
BJ’S WHOLESALE CLUB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| Thirteen Weeks Ended | ||||||||
| May 1, 2021 | May 2, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt issuance costs and accretion of original issue discount | ||||||||
| Debt extinguishment charges | ||||||||
| Stock-based compensation expense | ||||||||
| Deferred income tax provision (benefit) | ( | ) | ||||||
| Changes in operating leases and other non-cash items | ||||||||
| Increase (decrease) in cash due to changes in: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Merchandise inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Other non-current liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Additions to property and equipment, net of disposals | ( | ) | ( | ) | ||||
| Proceeds from sale leaseback transaction | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payments on long term debt | ( | ) | ( | ) | ||||
| Proceeds from ABL Facility | ||||||||
| Payments on ABL Facility | ( | ) | ( | ) | ||||
| Net cash received from stock option exercises | ||||||||
| Acquisition of treasury stock | ( | ) | ( | ) | ||||
| Proceeds from financing obligations | ||||||||
| Other financing activities | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | ||||||||
| Non-cash financing and investing activities: | ||||||||
| Lease liabilities arising from obtaining right-of-use assets | ||||||||
| Property additions included in accrued expenses | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
BJ’s Wholesale Club Holdings, Inc. and its wholly-owned subsidiaries is a leading warehouse club operator primarily on the east coast of the United States. As of May 1, 2021, the Company operated
The Company follows, and reports based on the National Retail Federation’s fiscal calendar. The thirteen week periods ended May 1, 2021 and May 2, 2020 are referred to as the "first quarter of fiscal year 2021" and the "first quarter of fiscal year 2020," respectively.
The novel coronavirus ("COVID-19") pandemic has severely impacted the economies of the U.S. and other countries around the world. In the preparation of these financial statements and related disclosures we have assessed the impact that COVID-19 has had on our estimates, assumptions and accounting policies and made additional disclosures, as necessary.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim financial statements of BJ’s Wholesale Club Holdings, Inc. are unaudited and, in the opinion of management, reflect all normal recurring adjustments considered necessary for a fair statement of the Company’s financial statements in accordance with generally accepted accounting principles in the United States of America ("GAAP").
The consolidated balance sheet as of January 30, 2021 is derived from the audited consolidated balance sheet as of that date. The unaudited results of operations for the first quarter of fiscal year 2021 are not necessarily indicative of future results or results to be expected for fiscal year 2021. The Company’s business, in common with the business of retailers generally, is subject to seasonal influences. The Company’s sales and operating income have typically been highest in the fourth quarter holiday season and lowest in the first quarter of each fiscal year.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year 2020, as filed with the Securities and Exchange Commission on March 19, 2021.
Recently Adopted Accounting Pronouncements
The accounting policies the Company follows are set forth in its audited financial statements for fiscal year 2020. There have been no material changes to these accounting policies, except as noted below for new accounting pronouncements adopted at the beginning of fiscal year 2021.
Income Taxes (ASU 2019-12)
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this standard as of January 31, 2021. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
3. Revenue Recognition
Performance Obligations
The Company identifies each distinct performance obligation to transfer goods (or bundle of goods) or services. The Company recognizes revenue as it satisfies a performance obligation by transferring control of the goods or services to the customer.
Net sales—The Company recognizes net sales at clubs and gas stations when the customer takes possession of the goods and tenders payment. Point of sale transactions at the Company’s clubs and gas stations, excluding sales taxes, represented approximately
BJ’s Perks Rewards and My BJ's Perks programs—The Company’s BJ’s Perks Rewards® membership program allows participating members to earn
Earned awards may be redeemed on future purchases made at the Company. The Company recognizes revenue for earned awards when customers redeem such awards as part of a purchase at one of the Company’s clubs or the Company’s website. The Company accounts for these transactions as multiple element arrangements and allocates the transaction price to separate performance obligations using their relative fair values. The Company includes the fair value of award dollars earned in deferred revenue at the time the award dollars are earned. This liability was $
Royalty revenue received in connection with the My BJ's Perks co-brand credit card program is variable consideration and is considered deferred until the card holder makes a purchase. The Company’s total deferred royalty revenue related to the outstanding My BJ’s Perks Rewards was $
Membership—The Company charges a membership fee to its customers. That fee allows customers to shop in the Company’s clubs, shop on the Company’s website and purchase gasoline at the Company’s gas stations for the duration of the membership, which is generally
Gift Card Program—The Company sells BJ’s gift cards in both physical and digital format, which allow customers to redeem the card for future purchases equal to the amount of the original purchase price of the gift card. Revenue from gift card sales is recognized in proportion to its rate of gift card redemptions because the Company’s performance obligation to redeem the gift card for merchandise is satisfied when the gift card is redeemed. The Company also recognizes breakage in proportion to its rate of gift card redemptions. Deferred revenue related to gift cards was $
Disaggregation of Revenue
The Company’s club retail operations, which represent substantially all of its consolidated total revenues, are the Company’s only reportable segment. All the Company’s identifiable assets are in the United States. The Company does not have significant sales outside the United States, nor does any customer represent more than 10% of total revenues for any period presented.
The following table summarizes the Company's percentage of net sales disaggregated by category:
| Thirteen Weeks Ended | ||||||||
| May 1, 2021 | May 2, 2020 | |||||||
| Grocery | % | % | ||||||
| General Merchandise & Services | % | % | ||||||
| Gasoline and Other | % | % | ||||||
4. Debt and Credit Arrangements
The following table summarizes the Company's debt (in thousands):
| May 1, 2021 | January 30, 2021 | May 2, 2020 | ||||||||||
| ABL Facility | $ | $ | $ | |||||||||
| First Lien Term Loan | ||||||||||||
| Unamortized debt discount and debt issuance cost | ( | ) | ( | ) | ( | ) | ||||||
| Less: current portion | ( | ) | ( | ) | ( | ) | ||||||
| Long-term debt | $ | $ | $ | |||||||||
ABL Facility
The ABL Facility is comprised of a $
At May 1, 2021, there was $
At January 30, 2021, there was $
At May 2, 2020, there was $
First Lien Term Loan
The Company's First Lien Term Loan matures on February 3, 2024. Voluntary prepayments are permitted. Principal payments must be made on the First Lien Term Loan pursuant to an annual excess cash flow calculation when the net leverage ratio exceeds
On January 29, 2020, the Company amended its First Lien Term Loan to reduce the applicable interest rates. As amended, the First Lien Term Loan had an initial principal amount of $
On July 13, 2020, the Company paid $
On October 30, 2020, the Company borrowed $
On April 30, 2021, the Company used $
There was $
5. Interest Expense, net
The following details the components of interest expense for the periods presented (in thousands):
| Thirteen Weeks Ended |
||||||||
| May 1, 2021 |
May 2, 2020 |
|||||||
| Interest on debt |
$ | $ | ||||||
| Interest on capital lease and financing obligations |
||||||||
| Debt issuance costs amortization |
||||||||
| Original issue discount amortization |
||||||||
| Loss on debt extinguishment |
||||||||
| Loss on cash flow hedge |
||||||||
| Capitalized interest |
( |
) | ( |
) | ||||
| Interest expense, net |
$ | $ | ||||||
Interest expense decreased due to lower debt balances outstanding and lower interest rates, partially offset by a $
6. Commitments and Contingencies
The Company is involved in various legal proceedings that are typical of a retail business. In accordance with applicable accounting guidance, an accrual will be established for legal proceedings if and when those matters present loss contingencies that are both probable and estimable. The Company does not believe the resolution of any current proceedings will result in a material loss to the consolidated financial statements.
7. Stock Incentive Plans
On June 13, 2018, the Company’s board of directors adopted, and its stockholders approved, the BJ's Wholesale Club Holdings, Inc. 2018 Incentive Award Plan (the "2018 Plan"). The 2018 Plan provides for the grant of stock options, restricted stock, dividend equivalents, stock payments, restricted stock units, performance shares, other incentive awards, stock appreciation rights, and cash awards. Prior to the adoption of the 2018 Plan, the Company granted stock-based compensation to employees and non-employee directors, respectively, under the Fourth Amended and Restated 2011 Stock Option Plan of BJ's Wholesale Club, Inc. (f/k/a Beacon Holding Inc.), as amended (the "2011 Plan") and the 2012 Director Stock Option Plan of BJ’s Wholesale Club Holdings, Inc. (f/k/a Beacon Holding, Inc.), as amended (the "2012 Director Plan"). No further grants will be made under the 2011 Plan or the 2012 Director Plan.
The 2018 Plan authorizes the issuance of
On April 16, 2021, the Compensation Committee approved a modification to the equity awards agreements under the 2011 Plan, 2012 Director Plan and 2018 Plan. In the event that an employee is terminated due to death, or disability, the modified equity award agreements provide for: (i) full vesting of all time-based awards, including restricted stock awards and stock options, (ii) pro-rata vesting of all performance-based awards, including performance share units, based on actual performance as of the end of the applicable performance period, pro-rated based on the period of employment during the applicable performance period, and (iii) the extension of the post-termination exercise window for vested stock options.
The following table summarizes the Company’s stock award activity during the thirteen weeks ended May 1, 2021 (shares in thousands):
| Stock Options | Restricted Stock | Restricted Stock Units | Performance Stock | |||||||||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||||||||||
| Weighted | Average | Average | Average | |||||||||||||||||||||||||||||
| Average | Grant | Grant | Grant | |||||||||||||||||||||||||||||
| Exercise | Date Fair | Date Fair | Date Fair | |||||||||||||||||||||||||||||
| Shares | Price | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||
| Outstanding, January 30, 2021 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||||||||
| Forfeited/canceled | ( | ) | ||||||||||||||||||||||||||||||
| Exercised/vested | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Outstanding, May 1, 2021 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Stock-based compensation expense was $
On June 14, 2018, the Company’s board of directors adopted, and its stockholders approved, the BJ's Wholesale Club Holdings, Inc. Employee Stock Purchase Plan (the "ESPP"), which became effective the day prior to the first day of public trading of the Company’s equity securities. The aggregate number of shares of common stock that were to be reserved for issuance under the ESPP was to be equal to the sum of (i)
Treasury Shares Acquired
The Company reacquired
Share Repurchase Program
On December 19, 2019, the Company's board of directors authorized the repurchase of up to $
8. Income Taxes
The effective income tax rate is based on estimated income from continuing operations for the fiscal year, as well as discrete adjustments, if any, in the applicable quarterly periods. The Company projects the estimated annual effective tax rate for fiscal year 2021 to be
The Company’s effective income tax rate from continuing operations was
We are subject to taxation in the U.S. federal and various state taxing jurisdictions. In general, the Company’s tax years from forward remain open and subject to examination by the Internal Revenue Service and various state taxing authorities; however, certain ongoing state audits and appeals relate to periods prior to 2016.
9. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date or “exit price.” The inputs used to measure fair value are generally classified into the following hierarchy:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not observable for the asset or liability.
Level 3: Unobservable inputs for the asset or liability.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The fair values of the Company’s derivative instruments are based on quotes received from third-party banks and represent the estimated amount the Company would pay to terminate the agreements taking into consideration current interest rates as well as the creditworthiness of the counterparties. These inputs are considered to be Level 2.
Financial Assets and Liabilities
The gross carrying amount and fair value of the Company’s debt at May 1, 2021 are as follows (in thousands):
| Carrying Amount |
Fair Value |
|||||||
| First Lien Term Loan |
$ | $ | ||||||
| ABL Facility |
||||||||
| Total Debt |
$ | $ | ||||||
The gross carrying amount and fair value of the Company’s debt at January 30, 2021 are as follows (in thousands):
| Carrying Amount |
Fair Value |
|||||||
| First Lien Term Loan |
$ | $ | ||||||
| ABL Facility |
||||||||
| Total Debt |
$ | $ | ||||||
The gross carrying amount and fair value of the Company’s debt at May 2, 2020 are as follows (in thousands):
| Carrying Amount |
Fair Value |
|||||||
| First Lien Term Loan |
$ | $ | ||||||
| ABL Facility |
||||||||
| Total Debt |
$ | $ | ||||||
The fair value of debt was based on quoted market prices and on borrowing rates available to the Company as of May 1, 2021, January 30, 2021 and May 2, 2020. These inputs are considered to be Level 2.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company measures certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis.
The Company believes that the carrying amounts of its other financial instruments, including cash, accounts receivable, and accounts payable, approximates their carrying value due to the short-term maturities of these instruments.
10. Earnings Per Share
The table below reconciles basic weighted-average common shares outstanding to diluted weighted-average common shares outstanding for the thirteen weeks ended May 1, 2021 and May 2, 2020:
| Thirteen Weeks Ended |
||||||||
| May 1, 2021 |
May 2, 2020 |
|||||||
| Weighted-average common shares outstanding, used for basic computation |
||||||||
| Plus: Incremental shares of potentially dilutive securities |
||||||||
| Weighted-average number of common and dilutive potential common shares outstanding |
||||||||
11. Derivative Financial Instruments
Interest Rate Swaps
On November 13, 2018, the Company entered into
On October 30, 2020, the Company borrowed $
On November 10, 2020, the Company terminated one of the interest rate swaps, which fixed $
On April 30, 2021, the Company used $
The interest rate swaps were recorded as a liability of $
The Company elected hedge accounting for the interest rate swap agreements, and as such, the effective portion of the gains or losses was recorded as a component of other comprehensive income (loss) and the ineffective portion of gains or losses were recorded as interest expense. There were $
The fair values of derivative instruments included on the consolidated balance sheets are as follows (in thousands):
| Fair Value at | |||||||||||||||||||||
| Accounting for cash flow hedges | Notional Amount | Fixed Rate | Balance Sheet Classification | May 1, 2021 | January 30, 2021 | May 2, 2020 | |||||||||||||||
| Interest rate swap | $ | % | Other current liabilities | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||
| Interest rate swap | % | Other current liabilities | ( | ) | |||||||||||||||||
| Interest rate swap | % | Other current liabilities | ( | ) | ( | ) | ( | ) | |||||||||||||
| Net carrying amount | $ | Total liabilities | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our 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 the fiscal year 2020. 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 the fiscal year 2020.
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 2021" relate to the 52 weeks ending January 29, 2022, and references herein to "fiscal year 2020" relate to the 52 weeks ended January 30, 2021. The first quarter of fiscal year 2021 ended on May 1, 2021, and the first quarter of fiscal year 2020 ended on May 2, 2020, and both include thirteen weeks.
Overview
BJ’s Wholesale Club Holdings, Inc. and its wholly-owned subsidiaries is a leading warehouse club operator primarily on the east coast 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 perishable products, continuously refreshed general merchandise, services and gasoline 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 221 large-format, high volume warehouse clubs spanning 17 states. In our core New England markets, which have high population density and generate a disproportionate part of U.S. gross domestic product, we operate almost three times the number of clubs compared to the next largest warehouse club competitor. In addition to shopping in our clubs, members are able to shop when and how they want through our website, www.bjs.com; our buy-online-pickup-in-club ("BOPIC") service, our highly-rated mobile app and our integrated same-day delivery offering.
Over the last five years, we have made multiple senior management hires and changes, adding consumer packaged goods, digital and consulting experience to our leadership team. Most recently, due to the unexpected passing of our former President and Chief Executive Officer (CEO) Lee Delaney, Bob Eddy was appointed Chief Executive Officer and President, assuming the day-to-day leadership of the Company and joining the Board of Directors. Mr. Eddy had been serving as our Executive Vice President, Chief Financial and Administrative Officer at the time of his appointment. Accordingly, Laura Felice has been appointed Executive Vice President, Chief Financial Officer, replacing Mr. Eddy in this role. The Company also announced additional appointments to further strengthen its management team and accelerate its growth. Paul Cichocki was named Executive Vice President, Chief Commercial Officer, and oversees merchandising, membership, marketing, and analytics and Bill Werner was promoted to the office of Executive Vice President, Strategy and Development and leads the Company’s market expansion and key strategic initiatives to create value for members and for shareholders.
Our leadership team, has implemented significant cultural and operational changes to our business, including transforming how we use data to improve member experience, instilling a culture of cost discipline, adopting a more proactive approach to growing our membership base and building an omnichannel offering oriented towards making shopping at BJ's more convenient.
Our 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.
Factors Affecting Our Business
COVID-19 Impact. As the impact of the COVID-19 pandemic has evolved, we have continued to experience strong sales at a rate reflective of the national trend. In the first quarter of fiscal year 2021 we saw increased demand in our general merchandise and services divisions, driven by sales in seasonal categories, apparel and home-related categories such as furniture and electronics. Demand decreased for our grocery products such as paper products, cleaning essentials, packaged goods and beverages, which were at an all-time high in the first quarter of fiscal year 2020, due to the onset of the COVID-19 pandemic. The COVID-19 pandemic is unprecedented and demand may change in the future if consumer purchasing behavior changes as the COVID-19 pandemic continues to evolve, and the long-term impacts to our financial condition and results of operations are still uncertain.
The COVID-19 pandemic may impact many of the factors discussed in this section, including, among others, overall economic trends, consumer preferences and demand, product mix, quarterly fluctuations and sourcing, which in turn could adversely affect our business, financial condition and results of operations.
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, business conditions, changes in the housing market, the availability of credit, interest rates, tax rates and fuel and energy costs. In addition, during periods of low unemployment, we may 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 the past two decades. Our membership fee income totaled $333.1 million in fiscal year 2020. Our membership renewal rate, a key indicator of membership engagement, satisfaction and loyalty, was 88% at the end of fiscal year 2020.
Consumer preferences and demand. 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. If we misjudge the market for our products, fail to adjust to changes in our member needs, or there is otherwise a decrease in consumer spending and confidence, including in response to the COVID-19 pandemic, we may be faced with excess inventories for some products and may be required to become more promotional in our selling activities, which would impact our net sales and gross profit.
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 strengthening our management team and enhancing our information systems, including our distribution center management and point-of-sale systems and investment in hardware and digitally enabled shopping capabilities for convenience, such as BOPIC and curbside pickup, 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.
Product mix. Changes in our product mix affect our performance. For example, we have continued to add private label products to our assortment of product offerings at our clubs, which we generally price lower than the manufacturer branded products of comparable quality that we also offer. Accordingly, a shift in our sales mix in which we sell more units of our private label products and fewer units of our manufacturer branded products would generally have a positive impact on our profit margins but an adverse impact on our overall net sales. Changes in our revenues from gasoline sales may also negatively affect our performance. Since gasoline generates lower profit margins than the remainder of our business, we could expect to see our overall gross profit margin rates decline as sales of gasoline increase.
Effective sourcing and distribution of products. Our net sales and gross profit are affected by our ability to purchase our products in sufficient quantities at competitive prices. While we believe our vendors have adequate capacity to meet our current and anticipated demand, our level of net sales could be adversely affected in the event of 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, leading to lost sales.
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.
Fluctuation in quarterly results. Our quarterly results have historically varied depending upon a variety of factors, including our product offerings, promotional events, club openings, weather related events and shifts in the timing of holidays, among other things. As a result of these factors, our working capital requirements and demands on our product distribution and delivery network may fluctuate during the year.
Inflation and deflation trends. Our financial results can be expected to be directly impacted by substantial increases in product costs due to commodity cost increases or general inflation, 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 general inflation have not materially impacted our business. In response to increasing commodity prices or general inflation, 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.
Tariffs. We are implementing a variety of mitigation measures in order to reduce the risk associated with our direct exposure to tariffs. We have diversified our global supply chain to reduce our reliance on China by sourcing high-quality products from other markets in both Asia and Africa. Chinese-sourced goods represent approximately 3% of our cost of sales during the first quarter of fiscal year 2021.
How We Assess the Performance of Our Business
In assessing our performance, we consider a variety of performance and financial measures. The key generally accepted accounting principles in the United States of America ("GAAP") measures include net sales, membership fee income, cost of sales, SG&A and net income. In addition, we also review other important metrics such as Adjusted EBITDA, comparable club sales and merchandise comparable club sales.
Net sales
Net sales are derived from direct retail sales to customers in our clubs and online, net of merchandise returns and discounts. Growth in net sales is impacted by opening new clubs and increases in comparable club sales.
Comparable club sales
Comparable club sales, also known as same-store sales, is an important measure throughout the retail industry. In determining comparable club sales, we include all clubs that were open for at least thirteen months at the beginning of the period and were in operation during the entirety of both periods being compared, including relocated clubs and expansions. There may be variations in the way in which some of our competitors and other retailers calculate comparable club or same store sales. As a result, data in this Quarterly Report on Form 10-Q regarding our comparable club sales may not be comparable to similar data made available by other retailers.
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 consumer preferences and trends, product sourcing, promotional offerings and pricing, customer experience and purchase amounts, weather and holiday shopping period timing and length.
Merchandise comparable club sales
Merchandise comparable club sales represents comparable club sales from all merchandise other than our gasoline operations for the applicable period.
Membership fee income
Membership fee income reflects the amount collected from our customers to be a member of our clubs. Membership fee income is recognized in revenue on a straight-line basis over the life of the membership, which is typically twelve months.
Cost of sales
Cost of sales consists primarily of the direct cost of merchandise and gasoline sold at our clubs, including the following:
| • |
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 our distribution centers to our clubs; and |
| • |
vendor allowances, rebates and cash discounts. |
Selling, general and administrative expenses ("SG&A")
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 club and corporate employees; |
| • |
rent, depreciation and other occupancy costs for retail and corporate locations; |
| • |
advertising expenses; |
| • |
tender costs, including credit and debit card fees; |
| • |
amortization of intangible assets; and |
| • |
consulting, legal, insurance and other professional services expenses. |
SG&A includes both fixed and variable components and, therefore, is not directly correlated with net sales. In addition, the components of our SG&A may not be comparable to those of other retailers. We expect that our SG&A will increase in future periods due to investments to spur comparable club sales growth and our continuing club growth. In addition, any increase in future stock option or other stock-based grants or modifications will increase our stock-based compensation expense included in SG&A.
Net Income
Net income reflects the Company's net sales, less cost of sales, SG&A, interest, taxes and other expenses.
Adjusted EBITDA
Adjusted EBITDA is defined as income from continuing operations before interest expense, net, provision for income taxes and depreciation and amortization, adjusted for the impact of certain other items, including stock-based compensation expense; pre-opening expenses; non-cash rent; severance and other adjustments. For a reconciliation of Adjusted EBITDA to income from continuing operations, the most directly comparable GAAP measure, see "Non-GAAP Financial Measures."
Non-GAAP Financial Measures
Adjusted EBITDA
We present Adjusted EBITDA, which is not a recognized financial measure 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, including pre-opening expenses. The amount and timing of pre-opening expenses are dependent on, among other things, the size and number of new clubs opening during any given period. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in our presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be considered as an alternative to any other performance measures 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. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in the future, and any such modification may be material. In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries. Further, Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for any analysis of our results as reported under GAAP.
Management believes 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 in connection with establishing discretionary annual incentive compensation; 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.
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 |
||||||||
| May 1, 2021 |
May 2, 2020 |
|||||||
| (dollars in thousands) |
||||||||
| Income from continuing operations |
$ | 81,586 | $ | 95,742 | ||||
| Interest expense, net |
19,285 | 21,844 | ||||||
| Provision for income taxes |
25,383 | 26,164 | ||||||
| Depreciation and amortization |
44,386 | 40,839 | ||||||
| Stock-based compensation expense (a) |
27,300 | 5,514 | ||||||
| Pre-opening expenses (b) |
561 | 2,601 | ||||||
| Non-cash rent (c) |
1,417 | 1,504 | ||||||
| Severance charges (d) |
2,300 | — | ||||||
| Other adjustments (e) |
192 | (293 | ) | |||||
| Adjusted EBITDA |
$ | 202,410 | $ | 193,915 | ||||
| Adjusted EBITDA as a percentage of net sales |
5.4 | % | 5.2 | % | ||||
(a) Represents total stock-based compensation expense.
(b) Represents direct incremental costs of opening or relocating a facility that are charged to operations as incurred.
(c) Consists of an adjustment to remove the non-cash portion of rent expense.
(d) Represents severance charges associated with labor reductions that resulted from the realignment of our field operations.
(e) Other non-cash items, including non-cash accretion on asset retirement obligations and obligations associated with our post-retirement medical plan.
Free cash flow
We present free cash flow, which is not a recognized financial measure under GAAP, as we believe it assists investors and analysts in evaluating our liquidity. Free cash flow should not be considered as an alternative to cash flows from operations as a liquidity measure. We define free cash flow as net cash provided by operating activities less additions to property and equipment, net of disposals, plus proceeds from sale leaseback transactions.
Our presentation of free cash flow should not be considered as an alternative to any other measure derived in accordance with GAAP and should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-recurring items. In addition, free cash flow may not be comparable to similarly titled measures used by other companies in our industry or across different industries. Further, free cash flow has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
The following is a reconciliation of our net cash provided by operating activities to free cash flow for the periods presented:
| Thirteen Weeks Ended |
||||||||
| (dollars in thousands) |
May 1, 2021 |
May 2, 2020 |
||||||
| Net cash provided by operating activities |
$ | 248,965 | $ | 469,902 | ||||
| Less: Additions to property and equipment, net of disposals |
74,690 | 35,212 | ||||||
| Plus: Proceeds from sale leaseback transaction |
16,630 | — | ||||||
| Free cash flow |
$ | 190,905 | $ | 434,690 | ||||
Thirteen Weeks Ended May 1, 2021 (First Quarter of Fiscal Year 2021) Compared to Thirteen Weeks Ended May 2, 2020 (First Quarter of Fiscal Year 2020)
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 |
|||||||
| (dollars in thousands) |
May 1, 2021 |
May 2, 2020 |
||||||
| Net sales |
$ | 3,781,834 | $ | 3,718,040 | ||||
| Membership fee income |
86,388 | 79,565 | ||||||
| Total revenues |
3,868,222 | 3,797,605 | ||||||
| Cost of sales |
3,141,497 | 3,060,893 | ||||||
| Selling, general and administrative expenses |
599,910 | 590,361 | ||||||
| Pre-opening expenses |
561 | 2,601 | ||||||
| Operating income |
126,254 | 143,750 | ||||||
| Interest expense, net |
19,285 | 21,844 | ||||||
| Income from continuing operations before income taxes |
106,969 | 121,906 | ||||||
| Provision for income taxes |
25,383 | 26,164 | ||||||
| Income from continuing operations |
81,586 | 95,742 | ||||||
| Loss from discontinued operations, net of income taxes |
(7 | ) | (8 | ) | ||||
| Net income |
$ | 81,579 | $ | 95,734 | ||||
| Operational Data: |
||||||||
| Total clubs at end of period |
221 | 218 | ||||||
| Comparable club sales |
0.3 | % | 19.9 | % | ||||
| Merchandise comparable club sales |
(5.0 | )% | 27.0 | % | ||||
| Adjusted EBITDA |
$ | 202,410 | $ | 193,915 | ||||
| Free cash flow |
190,905 | 434,690 | ||||||
Net Sales
Net sales for the first quarter of fiscal year 2021 were $3,781.8 million, a 1.7% increase from net sales reported for the first quarter of fiscal year 2020 of $3,718.0 million. The increase was due primarily to a 0.3% increase in comparable club sales with gasoline sales increasing 63% year-over-year.
Comparable club sales
| Thirteen Weeks Ended |
||||
| May 1, 2021 |
||||
| Comparable club sales |
0.3 | % | ||
| Less: contribution from gasoline sales |
5.3 | % | ||
| Merchandise comparable club sales |
(5.0 | )% | ||
Merchandise comparable club sales decreased by 5.0% in the first quarter of fiscal year 2021 due to a decline in our grocery division of approximately 10% offset by growth in our general merchandise and services division of approximately 32%. In grocery, sales declined, as demand for paper products, cleaning essentials, packaged goods and beverages have normalized compared to the first quarter of fiscal year 2020, at the onset of the pandemic. In general merchandise and services, sales were strongest in seasonal categories such as patio sets, apparel and home-related categories such as furniture and consumer electronics.
Membership fee income
Membership fee income was $86.4 million in the first quarter of fiscal year 2021, compared to $79.6 million in the first quarter of fiscal year 2020, reflecting an 8.6% increase. The increase in membership fee income was primarily driven by growth in members, membership renewals and increased penetration of higher tier membership levels.
Cost of sales
Cost of sales was $3,141.5 million, or 83.1% of net sales, in the first quarter of fiscal year 2021, compared to $3,060.9, or 82.3% of net sales, in the first quarter of fiscal year 2020. The increase as a percentage of net sales was driven by the increase in gasoline sales, which contributed at a higher cost per gallon, partially offset by an 80 basis point increase in merchandise margin due to continued progress in our category profitability improvement program, general merchandise sales and private label penetration.
Selling, general and administrative expenses
SG&A increased by 1.6% to $599.9 million in the first quarter of fiscal year 2021 from $590.4 million in the first quarter of fiscal year 2020. The year-over-year increase in SG&A was primarily driven by $17.5 million of stock-based compensation expense related to the modification of stock awards associated with the passing of our former President and CEO, Lee Delaney. In addition, SG&A included $2.3 million of severance charges associated with labor reductions that resulted from the realignment of our field operations. The increases were partially offset by lower advertising and supplies expenses in the first quarter of fiscal year 2021.
Pre-opening expenses
Pre-opening expenses were $0.6 million in the first quarter of fiscal year 2021, compared to $2.6 million in the first quarter of fiscal year 2020. Pre-opening expenses decreased due to the timing of club and gas station openings year-over-year.
Interest expense
Interest expense was $19.3 million for the first quarter of fiscal year 2021, compared to $21.8 million for the first quarter of fiscal year 2020. The decrease is due to lower debt balances outstanding and lower interest rates, partially offset by $4.7 million of losses on our cash flow hedge and a $0.7 million loss on the debt extinguishment.
Provision for income taxes
The Company’s effective income tax rate from continuing operations was 23.7% and 21.5% for the thirteen weeks ended May 1, 2021 and May 2, 2020, respectively. The increase in the effective tax rate is due to lower excess tax benefits from stock-based compensation in the first quarter of fiscal year 2021 and favorable, permanent true-ups in the first quarter of fiscal year 2020.
Liquidity and Capital Resources
Historically, the strength and stability of our operations, supplemented with our debt borrowings under the ABL Facility, have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our operations. In the first quarter of fiscal year 2021, $14.0 million of available cash flow was used to repurchase shares under our share repurchase program. As of May 1, 2021, cash and cash equivalents totaled $63.0 million and we had $650.4 million of unused capacity under our ABL Facility. In the current environment, we believe our sources of liquidity will continue to be adequate to fund operations, meet our current debt obligations and finance investment and expansion activities for the foreseeable future.
Summary of Cash Flows
A summary of our cash flows from operating, investing and financing activities is presented in the following table:
| Thirteen Weeks |
||||||||
| May 1, 2021 |
May 2, 2020 |
|||||||
| (in thousands) |
||||||||
| Net cash provided by operating activities |
$ | 248,965 | $ | 469,902 | ||||
| Net cash used in investing activities |
(58,060 | ) | (35,212 | ) | ||||
| Net cash used in financing activities |
(171,469 | ) | (331,979 | ) | ||||
| Net increase in cash and cash equivalents |
$ | 19,436 | $ | 102,711 | ||||
Net Cash from Operating Activities
Net cash provided by operating activities was $249.0 million for the first quarter of fiscal year 2021, compared to $469.9 million for the first quarter of fiscal year 2020. The decrease in operating cash flow was primarily due to the impact of the lag in payments for merchandise related to increased sales at the beginning of the COVID-19 pandemic in 2020.
Net Cash from Investing Activities
Cash used for capital expenditures was $58.1 million for the first quarter of fiscal year 2021, compared to $35.2 million for the first quarter of fiscal year 2020. The increase is primarily due to the timing of property, plant and equipment additions, offset by proceeds from a sale-leaseback transaction for one of our clubs in the first quarter of fiscal year 2021.
Net Cash from Financing Activities
Net cash used in financing activities for the first quarter of fiscal year 2021 was $171.5 million, compared to $332.0 million for the first quarter of fiscal year 2020. The decrease is due primarily to lower repayments of outstanding borrowings on our First Lien Term Loan and ABL Facility, offset by higher payments to acquire treasury shares in the first quarter of fiscal year 2021.
Debt and Borrowing Capacity
On January 29, 2020, we amended the First Lien Term Loan to reduce the applicable interest rates. As amended, the First Lien Term Loan had an initial principal amount of $1,315.2 million and interest is calculated either at LIBOR plus 225 basis points or a base rate plus 125 basis points. Total fees associated with the refinancing were approximately $1.7 million. The Company expensed $0.1 million of previously capitalized debt issuance costs and original issue discount and expensed $1.7 million of new third-party fees.
On July 13, 2020, the Company paid $150.0 million of the principal amount due on the First Lien Term Loan. In connection with the payment, the Company expensed $1.3 million of previously capitalized deferred debt issuance costs and original issue discount. On July 29, 2020, upon the achievement of certain debt ratings upgrades, the base rate was reduced to LIBOR plus 200 basis points.
On October 30, 2020, the Company borrowed $260.0 million from the ABL Facility. The proceeds from the Company's borrowing, as well as $100.0 million of the Company's cash and cash equivalents, were used to pay $360.0 million of the principal amount due on the First Lien Term Loan. In connection with the payment, the Company expensed $2.8 million of previously capitalized deferred debt issuance costs and original issue discount.
On November 10, 2020, the Company terminated one of the interest rate swaps, which fixed $360.0 million of its floating rate debt at a rate of approximately 3.0%. An additional interest rate swap, which fixed $240.0 million of its floating rate debt at a rate of 3.0% was determined to be ineffective. Gains and losses on the ineffective interest rate swap agreement will be recorded as interest expense.
On April 30, 2021, the Company used $150.0 million of cash and cash equivalents on hand to pay $100.0 million of the principal amount due on the First Lien Term Loan and $50.0 million of the principal amount due on the ABL Facility. In connection with the payment, the Company expensed $0.7 million of previously capitalized debt issuance costs and original issue discount.
At May 1, 2021, the interest rate for the First Lien Term Loan before the effect of interest rate swaps was 2.11% and there was $701.9 million outstanding. See Note 4, "Debt and Credit Arrangements" of our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.
Contractual Obligations
Our contractual obligations consist primarily of long-term debt obligations, interest payments, operating leases and purchase orders for merchandise inventory. These contractual obligations impact our short-term and long-term liquidity and capital needs. As of May 1, 2021, other than those items related to the ordinary course of operations of our business such as inventory purchases, and lease amendments, there were no material changes to our contractual obligations from those described in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.
Off-Balance Sheet Arrangements
We have not entered into off-balance sheet arrangements. We do enter into operating lease commitments, letters of credit and purchase obligations in the ordinary course of our operations.
Critical Accounting Policies and Use of Estimates
This discussion and analysis of our financial condition and results of operations is based on our 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. Our critical accounting policies are described under the heading "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 the fiscal year 2020. For a full discussion of our significant accounting policies, see Note 2 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
There were no recently issued accounting pronouncements which had an impact on the Company's financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to changes in market interest rates and these changes in rates will impact our net interest expense and our cash flow from operations. Substantially all of our borrowings carry variable interest rates. There have been no material changes in our market risk from the disclosure included in Part II. "Item 7A. Quantitative and Qualitative Disclosures of Market Risk" in the Annual Report on Form 10-K for the fiscal year 2020.
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of May 1, 2021.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings.
We are subject to various litigations, claims and other proceedings that arise from time to time in the ordinary course of business. We believe these actions are routine and incidental to the business. While the outcome of these actions cannot be predicted with certainty, we do not believe that any will have a material adverse impact on our business, financial condition or results of operations.
There have been no material changes to the risk factors relating to the Company set forth under the caption "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended January 30, 2021
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table sets forth information regarding our purchases of shares of our common stock during the first quarter of fiscal year 2021.
| Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
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| January 31, 2021 to February 27, 2021 |
— | $ | — | — | $ | 150,334,866 | |||||||||||
| February 28, 2021 to April 3, 2021 |
322,875 | (2) | 44.17 | 115,000 | 145,314,011 | ||||||||||||
| April 4, 2021 to May 1, 2021 |
218,529 | (3) | 44.71 | 200,000 | 136,381,856 | ||||||||||||
| Total |
541,404 | $ | 44.39 | 315,000 | $ | 136,381,856 | |||||||||||
(1) On December 19, 2019, our board of directors authorized the repurchase of up to $250.0 million of our outstanding common stock from time to time as market conditions warrant. The share repurchase program expires at the end of fiscal year 2021 and may be suspended or discontinued at any time without notice.
(2) Includes 207,875 shares of common stock surrendered to the Company by employees to satisfy their tax withholding obligations in connection with the vesting of restricted stock awards. See Note 7 "Stock Incentive Plans" in the Notes to Unaudited Consolidated Financial Statements included in this report.
(3) Includes 18,529 shares of common stock surrendered to the Company by employees to satisfy their tax withholding obligations in connection with the vesting of restricted stock awards. See Note 7 "Stock Incentive Plans" in the Notes to Unaudited Consolidated Financial Statements included in this report.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable
None.
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| Exhibit |
Exhibit Description |
| 10.1# |
Employment Agreement between Robert W. Eddy and BJ’s Wholesale Club, Inc., dated as of May 10, 2021 (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 14, 2021 and incorporated herein by reference). |
| 10.2# |
Employment Agreement between Laura Felice and BJ’s Wholesale Club, Inc., dated as of May 10, 2021 (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 14, 2021 and incorporated herein by reference). |
| 10.3# |
Employment Agreement between William Werner and BJ’s Wholesale Club, Inc., dated as of May 10, 2021 (previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 14, 2021 and incorporated herein by reference). |
| 10.4# | Employment Agreement between Christopher J. Baldwin, BJ’s Wholesale Club, Inc. and the Company (f/k/a Beacon Holding Inc.), dated as of September 1, 2015 (previously filed as Exhibit 10.4 to the Company’s Registration Statement on Form S-1 (File No. 333-229593) filed on February 11, 2019 and incorporated herein by reference). |
| 10.5# | Amendment No. 1 to Employment Agreement between Christopher J. Baldwin, BJ’s Wholesale Club, Inc. and the Company (f/k/a Beacon Holding Inc.), dated as of February 1, 2016 (previously filed as Exhibit 10.4(a) to the Company’s Registration Statement on Form S-1 (File No. 333-229593) filed on February 11, 2019 and incorporated herein by reference). |
| 10.6# | Amendment No. 2 to Employment Agreement between Christopher J. Baldwin, BJ’s Wholesale Club, Inc. and the Company (f/k/a Beacon Holding Inc.), dated as of January 30, 2020 (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 4, 2020 and incorporated herein by reference). |
| 101.INS |
Inline XBRL Instance Document (filed herewith) |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document (filed herewith) |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) |
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith) |
| 101.PRE |
Inline XBRL Taxonomy Extension Linkbase Document (filed herewith) |
| 104 |
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) (filed herewith) |
# Represents management compensation plan, contract or arrangement.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BJ’S WHOLESALE CLUB HOLDINGS, INC. |
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| Date: May 28, 2021 |
By: |
/s/ Laura L. Felice |
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| Laura L. Felice |
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| Executive Vice President, Chief Financial Officer |
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