UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________

FORM 10-Q

_________________

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 1, 2020

OR

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-38559

_________________

BJ’S WHOLESALE CLUB HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

_________________

Delaware		45-2936287
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
25 Research Drive
Westborough,	Massachusetts	01581
(Address of principal executive offices)		(Zip Code)

(774) 512-7400

(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
Common Stock, par value $0.01	BJ	New York Stock Exchange

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.    Yes  ☒    No  ☐

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).    Yes  ☒    No  ☐

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.

Large accelerated filer	ý	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  ☐    No  ☒

As of August 21, 2020, the registrant had 137,942,895 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	6
Item 1.	Financial Statements (Unaudited)	6
	Consolidated Balance Sheets	6
	Consolidated Statements of Operations and Comprehensive Income	7
	Consolidated Statements of Stockholders’ Equity (Deficit)	9
	Consolidated Statements of Cash Flows	11
	Notes to Unaudited Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION	32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	34
Item 6.	Exhibits	34
	Signatures	35

3

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:

•uncertainties in the financial markets and the effect of certain economic conditions or events on consumer and small business spending patterns and debt levels;

•risks related to our dependence on having a large and loyal membership;

•the effects of competition in, and regulation of, the retail industry;

•our dependence on vendors to supply us with quality merchandise at the right time and at the right price;

•risks related to our substantial indebtedness;

•changes in laws related to, or the governments administration of, the Supplemental Nutrition Assistance Program or its electronic benefit transfer systems;

•the risks and uncertainties related to the impact of 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;

•risks related to climate change and natural disasters;

•our ability to identify and respond effectively to consumer trends, including our ability to successfully maintain a relevant omnichannel experience for our members;

•risks related to cybersecurity, which may be heightened due to our e-commerce business, including our ability to protect the privacy of member or business information and the security of payment card information;

•our ability to attract and retain a qualified management team and other team members;

•our ability to implement our growth strategy by opening new clubs and gasoline stations; and

•the other risk factors identified in our filings with the Securities and Exchange Commission, including in particular those set forth under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020 (the "Annual Report on Form 10-K for the fiscal year 2019"), our Quarterly Report on Form 10-Q for the quarter ended May 2, 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.

4

TRADEMARKS

BJ’s Wholesale Club^®, BJ’s^®, Wellsley 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:

•"the Company," "BJ’s," "we," "us" and "our" mean BJ’s Wholesale Club Holdings, Inc. and, unless the context otherwise requires, its consolidated subsidiaries;

•"Sponsors" means investment funds affiliated with or advised by CVC Capital Partners ("CVC") and Leonard Green & Partners, L.P;

•"ABL Facility" means the Company's senior secured asset based revolving credit and term facility;

•"First Lien Term Loan" means the Company's senior secured first lien term loan facility;

•"fiscal year 2019" means the 52 weeks ended February 1, 2020; and

•"fiscal year 2020" means the 52 weeks ended January 30, 2021.

5

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

BJ’S WHOLESALE CLUB HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

	August 1, 2020		February 1, 2020		August 3, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	168,811	$	30,204	$	29,092
Accounts receivable, net	170,595		206,353		162,278
Merchandise inventories	1,005,274		1,081,502		1,026,541
Prepaid expenses and other current assets	64,074		41,961		47,353
Total current assets	1,408,754		1,360,020		1,265,264
Operating lease right-of-use assets, net	2,043,713		2,060,059		2,040,834
Property and equipment:
Land and buildings	395,706		375,375		388,399
Leasehold costs and improvements	217,528		214,209		208,978
Furniture, fixtures and equipment	1,208,151		1,135,892		1,096,179
Construction in progress	26,604		51,741		31,685
	1,847,989		1,777,217		1,725,241
Less: accumulated depreciation and amortization	(1,092,311)		(1,017,009)		(974,525)
Total property and equipment, net	755,678		760,208		750,716
Goodwill	924,134		924,134		924,134
Intangibles, net	141,054		146,985		153,730
Other assets	20,687		18,374		17,409
Total assets	$	5,294,020	$	5,269,780	$	5,152,087
LIABILITIES
Current liabilities:
Current portion of long-term debt	$	—	$	343,377	$	195,377
Current portion of operating lease liabilities	128,010		123,751		118,035
Accounts payable	1,004,725		786,412		798,504
Accrued expenses and other current liabilities	631,500		547,876		499,149
Total current liabilities	1,764,235		1,801,416		1,611,065
Long-term operating lease liabilities	1,971,634		1,986,790		1,957,934
Long-term debt	1,202,209		1,337,308		1,540,602
Deferred income taxes	43,111		46,200		46,508
Other non-current liabilities	193,730		152,410		160,564
Commitments and Contingencies (see Note 7)
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock; par value $0.01; 5,000 shares authorized, and no shares issued or outstanding	—		—		—
Common stock, par value $0.01; 300,000 shares authorized, 142,653 shares issued and 137,923 outstanding at August 1, 2020; 140,723 shares issued and 137,298 outstanding at February 1, 2020; and 140,185 shares issued and 136,762 outstanding at August 3, 2019	1,427		1,407		1,402
Additional paid-in capital	798,288		773,618		760,191
Accumulated deficit	(514,017)		(716,369)		(813,223)
Accumulated other comprehensive loss	(35,650)		(26,586)		(26,610)
Treasury stock, at cost, 4,730 shares at August 1, 2020; 3,425 shares at February 1, 2020; 3,423 shares at August 3, 2019	(130,947)		(86,414)		(86,346)
Total stockholders’ equity (deficit)	119,101		(54,344)		(164,586)
Total liabilities and stockholders’ equity (deficit)	$	5,294,020	$	5,269,780	$	5,152,087

The accompanying notes are an integral part of the consolidated financial statements.

6

BJ’S WHOLESALE CLUB HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share amounts)

(Unaudited)

	Thirteen Weeks Ended
	August 1, 2020		August 3, 2019
Net sales	$	3,871,640	$	3,271,145
Membership fee income	82,490		74,697
Total revenues	3,954,130		3,345,842
Cost of sales	3,197,752		2,733,085
Selling, general and administrative expenses	590,814		511,889
Pre-opening expense	1,969		2,127
Operating income	163,595		98,741
Interest expense, net	20,741		26,783
Income from continuing operations before income taxes	142,854		71,958
Provision for income taxes	36,186		17,665
Income from continuing operations	106,668		54,293
Income (loss) from discontinued operations, net of income taxes	(50)		230
Net income	$	106,618	$	54,523
Income per share attributable to common stockholders—basic:
Income from continuing operations	$	0.78	$	0.40
Loss from discontinued operations	—		—
Net income	$	0.78	$	0.40
Income per share attributable to common stockholders—diluted:
Income from continuing operations	$	0.76	$	0.39
Loss from discontinued operations	—		—
Net income	$	0.76	$	0.39
Weighted average number of common shares outstanding:
Basic	136,706		136,571
Diluted	139,522		139,516
Other comprehensive income (loss):
Unrealized gain (loss) on cash flow hedge, net of income tax benefit of $1,897 and income tax provision of $4,488, respectively	$	4,878	$	(11,540)
Total other comprehensive income (loss)	$	4,878	$	(11,540)
Total comprehensive income	$	111,496	$	42,983

The accompanying notes are an integral part of the consolidated financial statements.

7

BJ’S WHOLESALE CLUB HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share amounts)

(Unaudited)

	Twenty-Six Weeks Ended
	August 1, 2020		August 3, 2019
Net sales	$	7,589,680	$	6,340,908
Membership fee income	162,055		148,070
Total revenues	7,751,735		6,488,978
Cost of sales	6,258,645		5,302,062
Selling, general and administrative expenses	1,181,175		1,013,070
Pre-opening expense	4,570		4,423
Operating income	307,345		169,423
Interest expense, net	42,585		54,572
Income from continuing operations before income taxes	264,760		114,851
Provision for income taxes	62,350		24,473
Income from continuing operations	202,410		90,378
Loss from discontinued operations, net of income taxes	(58)		(57)
Net income	$	202,352	$	90,321
Income per share attributable to common stockholders—basic:
Income from continuing operations	$	1.48	$	0.66
Loss from discontinued operations	—		—
Net income	$	1.48	$	0.66
Income per share attributable to common stockholders—diluted:
Income from continuing operations	$	1.46	$	0.65
Loss from discontinued operations	—		—
Net income	$	1.46	$	0.65
Weighted average number of common shares outstanding:
Basic	136,398		136,690
Diluted	138,975		139,989
Other comprehensive loss:
Unrealized loss on cash flow hedge, net of income tax of $3,524 and $5,948, respectively	$	(9,064)	$	(15,295)
Total other comprehensive loss	$	(9,064)	$	(15,295)
Total comprehensive income	$	193,288	$	75,026

The accompanying notes are an integral part of the consolidated financial statements.

8

BJ’S WHOLESALE CLUB HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Amounts in thousands)

(Unaudited)

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock			Total Stockholders’ Equity (Deficit)
	Shares	Amount								Shares	Amount
Balance, February 1, 2020	140,723	$	1,407	$	773,618	$	(716,369)	$	(26,586)	(3,425)	$	(86,414)	$	(54,344)
Net income	—	—		—		95,734		—		—	—		95,734
Unrealized loss on cash flow hedge, net of tax	—	—		—		—		(13,942)		—	—		(13,942)
Common stock issued under stock incentive plans	1,626	16		(16)		—		—		—	—		—
Stock compensation expense	—	—		5,514		—		—		—	—		5,514
Net cash received on option exercises	—	—		5,608		—		—		—	—		5,608
Treasury stock purchases	—	—		—		—		—		(258)	(6,073)		(6,073)
Balance, May 2, 2020	142,349	$	1,423	$	784,724	$	(620,635)	$	(40,528)	(3,683)	$	(92,487)	$	32,497
Net income	—	—		—		106,618		—		—	—		106,618
Unrealized gain on cash flow hedge, net of tax	—	—		—		—		4,878		—	—		4,878
Common stock issued under stock incentive plans	246	3		(3)		—		—		—	—		—
Common stock issued under Employee Stock Purchase Plan (ESPP)	58	1		1,106		—		—		—	—		1,107
Stock compensation expense	—	—		9,064		—		—		—	—		9,064
Net cash received on option expenses	—	—		3,397		—		—		—	—		3,397
Treasury stock purchases	—	—		—		—		—		(1,047)	(38,460)		(38,460)
Balance, August 1, 2020	142,653	$	1,427	$	798,288	$	(514,017)	$	(35,650)	(4,730)	$	(130,947)	$	119,101

The accompanying notes are an integral part of the consolidated financial statements.

9

BJ’S WHOLESALE CLUB HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Amounts in thousands)

(Unaudited)

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock			Total Stockholders’ Equity (Deficit)
	Shares	Amount								Shares	Amount
Balance, February 2, 2019	138,099	$	1,381	$	742,072	$	(915,113)	$	(11,315)	(782)	$	(19,109)	$	(202,084)
Net income	—	—		—		35,798		—		—	—		35,798
Unrealized loss on cash flow, net of tax	—	—		—		—		(3,755)		—	—		(3,755)
Common stock issued under stock incentive plans	1,737	17		(17)		—		—		—	—		—
Stock compensation expense	—	—		3,844		—		—		—	—		3,844
Net cash received on option exercises	—	—		6,319		—		—		—	—		6,319
Cumulative effect of change in accounting principle	—	—		—		11,569		—		—	—		11,569
Balance, May 4, 2019	139,836	$	1,398	$	752,218	$	(867,746)	$	(15,070)	(782)	$	(19,109)	$	(148,309)
Net income	—	—		—		54,523		—		—	—		54,523
Unrealized loss on cash flow hedge, net of tax	—	—		—		—		(11,540)		—	—		(11,540)
Common stock issued under stock incentive plans	312	4		(4)		—		—		—	—		—
Common stock issued under ESPP plan	37	—		726		—		—		—	—		726
Stock compensation expense	—	—		4,952		—		—		—	—		4,952
Net cash received on option exercises	—	—		2,299		—		—		—	—		2,299
Treasury stock purchases	—	—		—		—		—		(2,641)	(67,237)		(67,237)
Balance, August 3, 2019	140,185	$	1,402	$	760,191	$	(813,223)	$	(26,610)	(3,423)	$	(86,346)	$	(164,586)

The accompanying notes are an integral part of the consolidated financial statements.

10

BJ’S WHOLESALE CLUB HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Twenty-Six Weeks Ended
	August 1, 2020		August 3, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	202,352	$	90,321
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	82,171		77,671
Amortization of debt issuance costs and accretion of original issue discount	2,363		2,646
Debt extinguishment charges	1,283		—
Other non-cash items, net	4,175		2,733
Stock-based compensation expense	14,578		8,796
Deferred income tax provision	438		10,563
Increase (decrease) in cash due to changes in:
Accounts receivable	35,758		32,022
Merchandise inventories	76,228		25,765
Prepaid expenses and other current assets	(1,063)		20,980
Other assets	(2,138)		(498)
Accounts payable	218,313		(18,376)
Accrued expenses	70,971		(37,618)
Other non-current liabilities	28,263		119
Net cash provided by operating activities	733,692		215,124
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment, net of disposals	(82,962)		(88,298)
Proceeds from sale leaseback transaction	4,061		—
Net cash used in investing activities	(78,901)		(88,298)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long term debt	(3,297)		(7,689)
Paydown of First Lien Term Loan	(150,000)		—
Proceeds from ABL Facility	736,000		596,000
Payments on ABL Facility	(1,064,000)		(655,000)
Net cash received from stock option exercises	9,005		8,618
Net cash received from ESPP	1,107		726
Acquisition of treasury stock	(44,533)		(67,237)
Other financing activities	(466)		(298)
Net cash used in financing activities	(516,184)		(124,880)
Net increase in cash and cash equivalents	138,607		1,946
Cash and cash equivalents at beginning of period	30,204		27,146
Cash and cash equivalents at end of period	$	168,811	$	29,092
Supplemental cash flow information:
Interest paid	$	35,627	$	50,844
Income taxes paid	60,757		17,094
Non-cash financing and investing activities:
Lease liabilities arising from obtaining right-of-use assets	60,116		—
Property additions included in accrued expenses	70,037		15,981

The accompanying notes are an integral part of the consolidated financial statements.

11

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 in the eastern United States. As of August 1, 2020, the Company operated 219 warehouse clubs and 147 gas stations in 17 states.

The Company follows, and reports based on the National Retail Federation’s fiscal calendar. The thirteen week periods ended August 1, 2020 and August 3, 2019 are referred to as the "second quarter of fiscal year 2020" and the "second quarter of fiscal year 2019," 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 February 1, 2020 is derived from the audited consolidated balance sheet as of that date. The unaudited results of operations for the second quarter of fiscal year 2020 are not necessarily indicative of future results or results to be expected for fiscal year 2020. 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 2019, as filed with the Securities and Exchange Commission on March 19, 2020.

Reclassification

We adjusted the statement of cash flows for the first half of fiscal year 2019 to reclassify the change in book overdraft amounts into the accounts payable and accrued expenses line items, all within net cash provided by operating activities.    

Recently Adopted Accounting Pronouncements

The accounting policies the Company follows are set forth in its audited financial statements for fiscal year 2019. 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 2020.

Fair Value Measurement (ASU 2018-13)

In August 2018, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2018-13 Changes to the Disclosure Requirements for Fair Value Measurement which updates the guidance to Fair Value Measurement (Topic 820). The updated guidance modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted ASU 2018-13 at the beginning of fiscal year 2020 on a prospective basis and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.

12

Intangibles-Goodwill and Other-Internal-Use Software (ASU 2018-15)

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). The update related to accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The update allows entities who are customers in hosting arrangements that are service contracts to apply the existing internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The update specifies classification for capitalizing implementation costs and related amortization expense within the financial statements and requires additional disclosures. The updated guidance is effective for fiscal reporting periods, including interim reporting within those periods, beginning after December 15, 2019. The Company adopted this standard at the beginning of fiscal year 2020 on a prospective basis. The adoption of this standard had no material impact on the Company's consolidated financial statements.

Goodwill Impairment (ASU 2017-04)

In January 2017, the FASB issued ASU 2017-04, which provides amendments to Accounting Standards Codification 350, Intangibles - Goodwill and Other, to eliminate Step 2 from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The Company adopted ASU 2017-04 at the beginning of fiscal year 2020 on a prospective basis and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Credit Losses (ASU 2016-13)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). This new guidance changes how entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments. ASU 2016-13 replaces the current "incurred loss" model with an "expected loss" model. Under the "incurred loss" model, a loss (or allowance) is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been "incurred"). Under the "expected loss" model, an entity recognizes a loss (or allowance) upon initial recognition of the asset that reflects all future events that will lead to a loss being realized, regardless of whether it is probable that the future event will occur. The "incurred loss" model considers past events and current conditions, while the "expected loss" model includes expectations for the future which have yet to occur. The Company adopted ASU 2016-13 at the beginning of fiscal year 2020 and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements

Reference Rate Reform (ASU 2020-04)

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating the impact of the new guidance 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.

Merchandise sales—The Company recognizes sales of merchandise at clubs and gas stations when the customer takes possession of the goods and tenders payment. Sales of merchandise at the Company’s clubs and gas stations, excluding sales taxes, represented approximately 96% of the Company’s net sales and approximately 94% of the Company’s total revenues for the twenty-six weeks ended August 1, 2020. Sales taxes are recorded as a liability at the point of sale. Revenue is recorded at the point of sale based on the transaction price on the shelf sign, net of any applicable discounts, sales taxes and expected refunds. For e-commerce sales, the Company recognizes sales when control of the merchandise is transferred to the customer, which is typically at the shipping point.

13

BJ’s Perks Rewards and My BJ's Perks programs—The Company’s BJ’s Perks Rewards^® membership program allows participating members to earn 2% cash back, up to a maximum of $500 per year, on qualified purchases made at BJ’s. The Company also offers a co-branded credit card program, the My BJ’s Perks^® program, which allows My BJ's Perks^® Mastercard credit card holders to earn up to 5% cash back on eligible purchases made at BJ’s and up to 2% cash back on purchases made with the card outside of BJ’s. Cash back has been in the form of electronic awards issued in $20 increments that may be used online or in-club at the register and expire six months from the date issued. Subsequent to August 1, 2020, electronic awards are being issued in increments of $10.

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 $29.9 million at August 1, 2020, $26.7 million at February 1, 2020 and $28.4 million at August 3, 2019.

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 $15.0 million, $14.8 million and $13.2 million at August 1, 2020, February 1, 2020 and August 3, 2019, respectively. The timing of revenue recognition of these awards dollars is driven by actual customer activities, such as redemptions and expirations. As of August 1, 2020, the Company expects to recognize $12.2 million of the deferred revenue in fiscal year 2020, and expects the remainder will be recognized in the years thereafter.

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 12 months. Because the Company has the obligation to provide access to its clubs, website and gas stations for the duration of the membership term, the Company recognizes membership fees on a straight-line basis over the life of the membership. The Company’s deferred revenue related to membership fees was $156.6 million, $144.0 million and $138.4 million at August 1, 2020, February 1, 2020 and August 3, 2019, respectively.

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 $9.6 million, $10.3 million and $8.1 million at August 1, 2020, February 1, 2020 and August 3, 2019, respectively. The Company recognized $9.4 million and $11.4 million of revenue from gift card redemptions in the second quarter of fiscal year 2020 and second quarter of fiscal year 2019, respectively. The Company recognized $19.5 million and $22.5 million of revenue from gift card redemptions in the twenty-six weeks ended August 1, 2020 and the twenty-six weeks ended August 3, 2019, respectively.

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 tables summarize the Company's percentage of net sales disaggregated by category:

	Thirteen Weeks Ended
	August 1, 2020	August 3, 2019
Grocery (1)	76%	72%
General Merchandise & Services	16%	15%
Gasoline and Other	8%	13%

14

	Twenty-Six Weeks Ended
	August 1, 2020	August 3, 2019
Grocery (1)	79%	73%
General Merchandise & Services	13%	14%
Gasoline and Other	8%	13%

(1)Grocery division includes the legacy perishables, edible grocery and non-edible grocery division.

4. Related Party Transactions

One of the Company’s suppliers, Advantage Solutions Inc., is controlled by affiliates of the Sponsors. Advantage Solutions Inc. is principally a provider of in-club product demonstration and sampling services, and the Company also engages them from time to time to provide ancillary support services, including temporary club labor as needed. The Company incurred approximately $7.4 million and $10.6 million of costs payable to Advantage Solutions Inc. for services rendered during the thirteen weeks ended August 1, 2020 and August 3, 2019, respectively. The Company incurred approximately $12.2 million and $22.4 million of costs payable to Advantage Solutions Inc. for services rendered during the twenty-six weeks ended August 1, 2020 and August 3, 2019, respectively. The demonstration and sampling service fees are fully funded by merchandise vendors who participate in the program.

The Company believes the terms obtained or consideration paid or received, as applicable, in connection with the transactions were comparable to terms available or amounts that would be paid or received, as applicable, in arms’-length transactions with unrelated parties.

5. Debt and Credit Arrangements

Debt consisted of the following at August 1, 2020, February 1, 2020 and August 3, 2019 (in thousands):

	August 1, 2020		February 1, 2020		August 3, 2019
ABL Facility	$	50,000	$	378,000	$	230,000
First Lien Term Loan	1,161,920		1,315,216		1,522,356
Unamortized debt discount and debt issuance cost	(9,711)		(12,531)		(16,377)
Less: current portion	—		(343,377)		(195,377)
Long-term debt	$	1,202,209	$	1,337,308	$	1,540,602

ABL Facility

The ABL Facility is comprised of a $950.0 million revolving credit facility and a $50.0 million term loan. The ABL Facility is secured on a senior basis by certain "liquid assets" of the Company and secured on a junior basis by certain "fixed assets" of the Company. The $50.0 million term loan payment terms are restricted in that the term loan cannot be repaid unless all loans