BJ's Wholesale Club Holdings, Inc. (BJ) Q2 2027 Earnings Call Transcript

Hello, everyone. Thank you for joining us and welcome to BJ's Wholesale Club quarter two, 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Diana Rashko, VP of Investor Relations. Diana, please go ahead.

Good morning, and welcome to BJ's second quarter fiscal 2026 earnings call. Joining me today are Bob Eddy, Chairman and Chief Executive Officer, Laura Felice, Chief Financial Officer, and Bill Werner, Executive Vice President, Strategy and Development. Please remember that we may make forward-looking statements on this call that are based on our current expectations. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from what we say on this call. Please see the risk factors section of our most recent SEC filings for a description of these risks and uncertainties. Please also refer to today's press release and latest investor presentation posted on our investor relations website for our cautionary statement regarding forward-looking statements and non-GAAP reconciliation. And now, I'll turn the call over to Bob.

Good morning, everyone. Thank you for joining us today. I'm very pleased to share that we delivered a strong second quarter, one that came in ahead of our expectations and reflects the continued momentum in our business. Net sales were up nearly 16% year-over-year, and merchandise comps grew 3.1%, with traffic accelerating during the quarter. This marks our 18th consecutive quarter of traffic growth and our 15th consecutive quarter of market share gains. On a two-year stacked basis, merchandise comps were 5.4%, in line with where we were last quarter, which speaks to the durability of our momentum. The comp was driven by a healthy balance of traffic and ticket, and we delivered for our members when it mattered most, including during events like the World Cup and America 250. Simply put, our value proposition continued to resonate, and I want to thank our teams for their commitment to executing at a high level across our company. Our Perishables Grocery and Sundries division delivered solid comp growth of 2.8% in the quarter, led by grocery. We saw particular strength in beverages and active nutrition, where assortment updates through our category management process have been resonating well with members, and we're pleased with the momentum we're building in this part of the business. Our General Merchandise and Services Division sustained comp growth of 5.3% in the quarter, and I'm pleased with the breadth of performance across the division. Consumer Electronics continued to lead the way, and Home was a strong contributor. The results reflect the work our teams have been doing to put the right products at the right value in front of our members. Gas prices remained elevated during the quarter, and our members continued to seek us out for the value we offer at the pump. Pump gallons were up double digits, accelerating from the strong results we saw in Q1, and a clear signal of the share we continue to take. Gas prices are about as visible as it gets for consumers. There's a price on every street corner, and our members know that we offer great value. Strong volume growth, combined with favorable pullback from peak gas prices, drove fuel profit dollars ahead of plan, which was a meaningful contributor to our overall results. Taking a step back to assess the consumer environment, the K-shaped economy persists, though we did see some sequential improvement during the quarter. We drove comp growth across all income cohorts, which is encouraging, and our value proposition continues to resonate broadly. That said, the vast majority of our growth continues to be driven by our higher income members, which is consistent with what we've seen for some time now. In an environment where consumers remain discerning with their dollars, we know our job is to make sure we're putting the right products at the right value in front of every member who walks through our doors. All told, it was a strong quarter across the board. Sales, membership, margin dollars, and the bottom line all came in ahead of our expectations. Adjusted EPS was $1.36, up 19% year over year. And to put that in perspective, we earned more in this single quarter than we did in the entire year we went public back in 2018. That's a remarkable statement about how far this business has come. With that as a backdrop, let me turn to the progress we're making on our strategic priorities. Let me start where I always do, with membership, which remains the foundation of everything we do. We reached a new milestone of 8.5 million members this quarter, and that's worth pausing on. Over the last 25 years, we've grown our membership fee income at an 8% CAGR. Since our IPO, we've added more than 3 million members, and in just the past two years, we've added over a million members. That kind of compounding growth is earned by consistently delivering the value and convenience our members expect from us. The current quarter was no exception. Membership fee income grew nearly 10% year over year. And what matters most to us isn't just the number, it's the quality of the membership base we're building. One of the best measures of that quality is MFI per member, which has grown consistently year over year, reflecting the strength of our acquisition, retention, and higher tier penetration across both new and existing clubs. On experience, our price gaps continue to improve, and the market dynamics are working in our favor. Traditional grocers have been raising prices, creating an even more favorable backdrop for our value proposition. We continue to gain share, and as our price gaps improve, unit share has become an even clearer signal of member preference. Based on industry data in the markets where we operate, the rest of the market saw unit sales decline while we saw unit gains, with units growing more than 300 basis points faster than the market in the quarter. And that's not just a Q2 story. We've outpaced the market on units over the past year as well. That's an important distinction. Our model is built to grow both sales and units by delivering value, and that's exactly what we're doing. Delivering great value isn't just about price, though. It's about making sure that we have the right products on the shelf at the right price. Part of delivering great value is knowing when to lean into a moment, and our merchants did just that this quarter. America turned $2.50 this year, and our team found a great way to celebrate with our members. We brought in truckloads of watermelons at $3.99, while many other retailers were charging $5.99, and about one in five of our members had one in their basket during this promotion. It's a simple example of what we do well, finding the right product at the right price and delivering real value to our members. We're building that capability systematically across our entire assortment through our category management process. CMP is about going deep on what our members want from us category by category making sure we have the right assortment at the right cost and we're already seeing it show up in our results the strength we saw in beverages and active nutrition this quarter is a direct reflection of that work and in home we've seen strong member response to renovated assortments across several categories including housewares textiles and refrigeration where we've made meaningful changes to our assortment and value positioning. We'll keep going systematically, and over time, this will become embedded in how our merchandising team goes to work every day. Turning to convenience, the investments we've been making here continue to pay off. Digitally enabled comp sales grew 30% in the quarter, reflecting two-year stacked comp growth of 64%, and our members are telling us loud and clear they love what we're doing. What we're really focused on is saving our members time in addition to saving them money, and that combination is powerful. Our members are engaging with us digitally in many ways, from buy online pickup in club and same-day delivery to express pay in the club, and growth is strong across all of them. Express pay penetration in particular continues to grow, and members who engage with our digital conveniences spend significantly more with us and are more loyal over time. Bev, our AI-powered shopping assistant, is live and gaining momentum. She's now had over 100,000 conversations with members, helping them find products, check club hours, and get more out of their membership. It's a great example of how we're using technology to take care of our members in new ways. And finally, our footprint. New clubs are a key engine of long-term growth for our business, and our team is delivering. We're making excellent progress on our footprint expansion. In the second quarter, we opened three new clubs in Texas, Waxahachie, Fort Worth, and Grand Prairie, bringing our total in the state to four. We also added a new gas station in Edison, New Jersey. We have seven additional club openings and one relocation planned for the remainder of the year, and we remain committed to our pace of 25 to 30 new clubs every two years. We also announced a new club coming to Tyler, Texas, further expanding our presence in the greater Dallas market. The performance of our new club portfolio remains very strong and is a key piece of our long-term strategy. For Texas specifically, we're very pleased with what we're seeing. Membership continues to track more than 30 percent ahead of plan. Member behavior is consistent with what we see in the other new clubs, strong engagement across the box with higher GM penetration, and our gas volumes have been outstanding. To put a finer point on the value of gas to our members in Texas, all four gas stations are in the top 30 percent of our chain for gallons, with two of the stations cracking the top 10 percent. This performance in Texas should not be a surprise as it follows the track record of success we've built with expansion in both new and existing markets. Last quarter, 22 of the 23 clubs we opened across 2022 to 2024 comped above the chain average, with the 2024 class of seven clubs comping double digits last quarter. The consistency of our performance is a testament to the teams who show up with the goal to make the next opening the best one yet, and I'm proud to say our teams are delivering on that promise. Before I turn it over to Laura, I just wanted to say that this was a quarter we can all be proud of, and it doesn't happen without an incredible team. Our team members across the clubs, distribution centers, supply chain, and club support center show up every single day to take care of the families who depend on us, and results like these are a reflection of their hard work and dedication. I'm proud of what we've accomplished together. I'll now turn it over to Laura.

Thank you, Bob. I'd like to echo Bob's gratitude for our team members across our clubs, supply chain, and club support center, whose dedication to our members and our purpose made this quarter possible. Let's dig into the results. Net sales in the second quarter were $6.1 billion, increasing 15.9% year over year. Total comparable club sales increased 11.9% and excluding the impact of gasoline sales, merchandise comparable sales increased 3.1%, driven by a balance of traffic and tickets. Inflation was just under a point in the quarter. Our perishable grocery and sundries division comped up 2.8% led by grocery. General Merchandise and Services grew 5.3%, driven by strength in consumer electronics and home. Membership fee income grew 9.9% to $136 million, reaching a new milestone of 8.5 million members. Please note that we continue to expect MFI growth to moderate throughout the year as the impact of last year's fee increase normalizes. Gross profit increased 10.3% to $1.11 billion in merchandise gross margin rate decreased approximately 20 basis points year over year, reflecting the balance of our continued investments in value for our members and our commitment to delivering for our shareholders. Fuel profit exceeded plan, supported by strong execution and favorable market conditions during the quarter. Comp gallons increased 10.5%, and we continue to take share, as industry data indicates overall comp fuel gallons declined by approximately 5% during the period. SG&A was $851 million and improved as a percentage of net sales year over year. The increase in absolute dollars was largely driven by the costs that come with opening new clubs and gas stations, including labor, occupancy, and depreciation, as we continue to grow our owned club base. This was partially offset by a gain from a sale-leaseback transaction on our new ambient distribution center in Ohio. Adjusted EBITDA increased 14.3% to $347 million, and adjusted EPS was $1.36, up 19.3% and ahead of our expectations, largely driven by the outperformance in our gas business. Turning to the balance sheet, we ended the quarter with inventory levels up 2% year-over-year on a per-club basis, with in-stock levels approximately flat year-over-year, reflecting the team's continued focus on getting the right product in the right clubs at the right time. Cash flow remained healthy in the quarter with adjusted free cash flow of $266 million dollars, well ahead of the $87 million we generated in the second quarter of last year, reflecting the strong operating performance of the business. Our capital allocation strategy remains consistent. We believe the best use of our cash is applying it towards profitably growing the business, including investments in membership, merchandising, digital capabilities, and real estate. We ended the quarter with net leverage of 0.5 terms, which continues to provide us with meaningful flexibility to invest in long-term growth. In the second quarter, we repurchased $124 million of shares, and we have approximately $422 million remaining under our existing repurchase authorization. We will continue to take a disciplined approach to deploying our capital to maximize shareholder value. Turning to our outlook, we are pleased with our outperformance in the second quarter. We are maintaining our full year guidance of 2% to 3% comparable club sales growth, excluding gasoline. For adjusted EPS, we are raising our range and now expect $4.60 to $4.80 for the full year, reflecting the strong results we delivered in the second quarter, particularly in our gas business. As always, our outlook reflects our current view of the consumer and the broader operating environment, and we will continue to manage the business with discipline while investing for long-term growth. With that, I'll turn it back to Bob.

Thanks, Laura. Before we open it up for questions, I just want to take a step back and reflect on what this quarter represents. We came in ahead of our expectations on nearly every dimension, sales, membership, and the bottom line. This is not a coincidence. It's due to a talented team figuring out new ways to invest in our members. Our members continue to reward us for the value and convenience we provide, and that shows up in the traffic growth, the share gains, and the membership momentum we've sustained. Our strategic priorities are working. The investments we've made in experience, convenience, and our footprint are bearing fruit, and we are as excited as we've ever been about the road ahead. As we wrap up, I want to talk about our purpose. We take care of the families who depend on us. We live this purpose every day. In Q3, we launched a chain-wide initiative that will let our members help live our purpose. Members can round up at the registers and club with donations going to the Dana-Farber Cancer Institute, a world-renowned organization at the forefront of cancer care and research. This campaign is a first for us and we look forward to making a difference in the communities where we live and work. I also want to take a moment to recognize someone who has been a huge part of building what we have here. Paul Chahaki, our Chief Commercial Officer, is retiring after an incredible career and a great run with this company. Paul has been instrumental in so many of the merchandising and commercial advances that have made BJ's a stronger business, including building a great team ready to take over for him. Paul, you always drove with your heart, and it showed in everything you built here.

Thank you for everything.

With that, let's take some questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Edward Kelly with Wells Fargo. Your line is open. Please go ahead.

Yeah. Hi. Good morning. Thank you for taking my question. Bob, I wanted to ask you about investment and you had the tax refund benefit, which you've been talking about putting into the business. Puel has been strong as well. Can you just talk about how much of this is getting put back into the business and then what you think the return on that investment is as you think about sort of like the sales and the traffic?

Yeah. Good morning, Ed. Thanks for your question, and thanks for everybody's attention this morning. I understand there were some technical difficulties on the beginning of the call. Just know that we are going to post a copy of our prepared remarks on our investor relations website to hopefully clear that up, and the recording should come out clear. But I wanted to apologize for that. Certainly put a little bit of a damper on what I think are fantastic numbers for our company as we report those this morning with, you know, overperformance and sales and margins and gasoline and membership on the bottom line, just a wonderful quarter that our team put together. And I think, Ed, to get to your question, it is because of the investments we continue to make in our member. You know, it's really our job to provide great products, but most particularly great value on those great products. And we will take every opportunity we can to make investments in that idea. Certainly, we need to balance that with all of our other constituencies. But I know the team did a fantastic job this quarter doing so. We obviously had the tariff refunds that you mentioned for the past couple of quarters. And we're just about through those as we sit here today. And then we had a great quarter from a fuel profit perspective. perspective and invested some of those dollars in our membership as well.

And the idea there is not necessarily short-term payback.

It's long-term lifetime value. And the idea is that the better people feel about our prices on our products and the value that they get from their membership, the more they come to see us. And we know that the frequency with which they come to see us is the biggest predictor of their ability or their willingness to renew their membership and the biggest contributor to lifetime value. And so as we continue to invest in our member, it really does become the flywheel of the company as we are trying to make sure that they enjoy their visits with us and they feel the value every single day while we're doing other things like improving our convenience efforts and our merchandising and our real estate footprint. So we're not necessarily looking for returns within one particular quarter. Sometimes those happen, but we're looking for an effort that builds over time that really, you know, underpins the value of BJ's membership.

And it's just a follow-up, I guess, for me, for Laura. Can you just parse out operating expense a little bit? You talked about a sell-leaseback gain, but then the dollar growth and operating expense is higher than it's been in a while. So I don't know if there was some offset to that, but any color around the magnitude of the sell-leaseback and what the offsets were on that?

Yeah. Good morning, Ed. Thanks for your question. You know, I think you brought up a good point about the sales back that we did in the quarter. You know, I would say before I get to the numbers that that, you know, being able to do a transaction like that, I think speaks to the strength of the company and, you know, where we've come from to where we are today. And so, you know, we've spent a lot of time working with the strength of our balance sheet as we've paid down debt. And so that's offered us the opportunity to be able to buy locations versus a straight lease like we would have historically done. And, you know, as we've done that, we find opportunities in our portfolio where we're able to create value and long-term growth that we can put back into the company. And so that the transaction that happened this quarter with our Ohio Distribution Center is an example of just that. You know, from a numbers perspective, the gain on that was relatively small in the grand scheme of things. It was about $11 million to the P&L. But we're happy with that transaction. And again, I think, you know, where we've come from a company perspective, I think just speaks to us to be able, speaks to how we've been able to add transactions like that, that add value and are accretive over the long term.

Thank you.

Your next question comes from the line of Peter Benedict with Baird. Your line is open. Please go ahead.

Oh, hey, guys. Thanks for taking the questions. Um, my first is just, is, is on MSI, the membership fee income, um, grew 10% kind of sequentially stable there. I'm curious when you gave the member numbers to the signups sound like they're good. I'm just curious, um, you know, with the, with the, the benefits of the fee increase, uh, tailing off, we would expect that we would have expected that to slow. So is there something happening in the core that's, that's re-accelerating here? I'm just curious, kind of maybe the trends around higher tier membership renewals, that type of thing. That's my first question. Then I have a follow-up.

Yeah. Hi, Pete. Look, I think our membership team continues to do a fantastic job really growing our company. It's the backbone of what we do here. It's the foundation of everything. And they had a very, very strong quarter. As you know, we had about 10% growth in the quarter. That pretty much mirrored what we saw in the first quarter. And our plan for the year, you know, would have seen that 10% slide down to about six at the end of the year. And so the Q2 performance in particular was very strong. And, you know, really, I think it just highlights the value of what we're giving our members and our strength and our new clubs as well. So if you think about the building blocks to MFI. It's the number of members. We had a strong acquisition quarter, and the team continues to innovate and figure out new ways to get in front of prospective members and to come up with offer constructs that make sense to people. We certainly want to renew all those members, and we had a fantastic renewal rate performance during the quarter as well. We now are at another all-time high from an easy renewal perspective in terms of the number of members that participate in that automatic renewal program if you think about the quality of those members you mentioned higher tier we're at an all-time high there as well about 43 of our membership in in higher tier members that's that's far and away the best number that we've had and we continue to grow So those folks, and you know, they spend more, they renew at higher rates. They are active in many categories, all the things that we like to see. And so I think it was a fantastic quarter for the membership team. I still do think you're going to see the benefits of the fee increase wane over the year. So we are, again, sort of guiding to finish the year at that 6% exit rate. but hopefully we can continue to put up good quarters as we go through and explain the value of a BJ's membership to folks and have them join our franchise. It's been a great run for our membership team, and you and I have talked a lot about the big differentiators and where we were five or ten years ago versus where we are today, and I would tell you that the biggest differentiator I see is our ability to grow membership in comp clubs and we once were not very good at that and today we do it very consistently and we were up two to three percent during the during the quarter so there's a there's a really fantastic result and congratulations to that team now that's great color bob thanks good to hear and then i guess maybe just on the traffic acceleration you talked about during the quarter i'm curious um i mean and if you think how much

that you think was related maybe to the price investments you started to take earlier um how quick is the response mechanism there um and as you think about you know the two to three percent merge comp plan for the year you know how much of that you think is is kind of traffic versus ticket just uh at a high level thanks so much yeah no worries uh good good traffic number during the quarter about half of the comp was driven by traffic that was a pretty significant acceleration from what we saw in the first quarter, you know, it's hard to tell whether it's related directly to the investments we made in the first quarter.

I would like to say some of it is. That's certainly the idea. We would certainly see traffic before we would see sales dollar benefits, just given the math of lowering prices. But that is really the idea of what we're trying to do, invest in our members, put the best products on the shelf for them to see, talk to them in the ways that resonate with them, and they reward us with traffic. And so I think the team did a nice job on all of those fronts during the quarter. As far as the two to three guide, we left that alone. I think we'll be in that bracket, hopefully towards the high end of that bracket for the full year. We sit comfortably right in the middle of that bracket at this point. And, you know, as I see it, hopefully our traffic continues through the back half. We've got some laps to think about, you know, in terms of, you know, the three-year stack on the port strike and the general merchandise build from last year in Q4. But I think if you think about the base of our business, it is how many members we have and how active are those members. And we just talked about MFI and the number of members being fantastic. And now we're seeing great continued traffic growth, right? Our 18th consecutive quarter, we said in the prepared remarks. And hopefully we can keep that streak alive.

Great. Good luck. Thank you.

Thanks, Pete.

Your next question comes from the line of Kate McShane with Goldman Sachs. Your line is open. Please go ahead.

Thanks for taking our question. Our question is just on the sustainability of some of the price investments that you have been able to make over the last two quarters, given that they were driven and financed by tariff refunds. how do you think about these price investments and lapping them when there aren't necessarily tariff refunds to fund them?

Yeah, good morning, Kate. Good question. You know, it is our endeavor to match our investments with continuing sources of funding. And so while the tariffs had been, tariff refunds had been funding them in the first half of this year, we have other initiatives that will fund them in the back half of the year. And so I think the worry that margin rates will decline precipitously when we don't have the tariff funding is misplaced. I do think we've identified other places funding and that you can you can think about what those might be. The tariff refunds we we've talked about are all first person tariffs. So the things that we paid and gotten refunded, we we are now working with our suppliers to get our fair share of their refunds. We are working with our suppliers to figure out the optimal assortments. And in some cases, that may come with margin benefits there. We've got other sources of margin like others do with retail media and some other things. And certainly gas plays in there as well. We would always take some portion of any one quarter's gas beat and invest. We understand our job is to deliver margin dollars globally, not necessarily a particular rate. Within reason, I don't really care about any particular rate. I know my job is to deliver profit dollar growth. And that's frankly what our members expect from us, too. They want the right prices, and that means we've got to go get the right cost. So we will continue to find ways to invest in our membership and take every opportunity we can to do so.

Thank you. And just our follow-up question is on general merchandise. I wondered if you could kind of talk through what we can expect from that category in Q3 and Q4, given what we're lapping last year and just given new leadership within merchandising.

Yeah, sure. I mean, GM has been on a little bit of a run lately, which is great to see. It was once, I would argue, our weakest business, and now we're starting to make some progress. That progress started in our consumer electronics. It's probably been our strongest area, and that's the easiest to impact. But, you know, our team has done a nice job improving our assortment at home. We talked a little bit about that in our prepared remarks in some of those categories. And our seasonal business was positive comp during the quarter as well. Well, that's a big business in the second quarter, and it was nice to see that get positive. We've got some room to improve there for sure, and we've got some room to improve in apparel and the rest of the categories. But, you know, for me, it's nice to see a continued positive comp trend. It's nice to see the breadth of the comp. And, you know, under the covers, you know, you mentioned the changes in merchandising leadership. Stephanie Reiling's done a fantastic job. you know general merchandise is where the core of her experience lies. She's got her fingerprints on some of these early wins, but know that they are early. We will go through this assortment ruthlessly and make sure we're offering the right products at the right value. And we've also added some talent beneath Stephanie in this area with a new GMM of general merchandise and a couple of new DMMs as well. So it starts with the team, right? We've got a fantastic team and they are all on the ground and working hard to make sure that the next quarter is better than Q2. And I guess I would just, again, say just keep in mind the big lap we have in Q2. And other than that, we're very pleased with where we landed the quarter.

Thank you. your next question comes from the line of mike baker with da davidson your line is open please go ahead uh thank you uh i wanted to focus on texas a little bit you said you were 30 ahead of plan uh what is the plan relative to sort of company average or typical openings uh how big can texas be what are you seeing competitively or others reacting to to you guys uh moving there Just a little bit more color on Texas, please.

A couple of words, Mike, and then kick it over to Bill. I just wanted to thank Bill. He's done a fantastic job really creating this whole growth engine within real estate that we have. It's a big, big effort. His team has done fantastic work. And, you know, I couldn't be more proud of him and the team for what we've accomplished. And Texas is just one point in that journey. And it's going very well. But I just want to thank Bill publicly for all the things he's done. So Bill, tell us about Texas.

Thanks, Bob. I appreciate that. Hey, Mike, good to talk to you. Yeah, so Texas, as we offered in some of the preparer remarks, we're seeing exactly what we'd hoped we would see. We're seeing outside membership gains. We're seeing the membership engaged throughout the club across categories. and we shared some data in terms of the gas program down there and what we're seeing in terms of gas gallons. When we look at something like engagement of gas, we know that that is a strong indicator of a likelihood to renew. And so when we look at something like that early on, we feel really good about the prospects of being really successful down there with the membership base. So, you know, really excited, but more to go do. We'll open up our club in Mesquite later this year. We announced our next club in Tyler, which is just outside the DFW Metroplex, for early next year. And we have a lot more to come that you'll hear about in the future. And the thing about Texas is just part of the broader real estate story. As I reflect back on, we were probably having the same conversation when we opened up in the Michigan market back in 2019. And as we sit here today, those investments that we've made in Michigan have led to an expanding footprint there and were the gateway to opening up throughout the adjacent Midwest markets when I think about Nashville, Indianapolis, Columbus, Pittsburgh. And so, yeah, this is just a continuation of the long-term story. And so we're really proud of what we're seeing down there. We're excited for the Q3 clubs to get our Rotterdam Club relocated and open for our members. And as well as opening up our second Alabama club down in Foley on the Gulf Shores, as well as expansion in Florida, which has been an amazing market for us with our club in Ocala, with both the Q3 new clubs showing, again, great early membership results. And Bob talked about the membership engine earlier. It's certainly hitting in comp clubs, but it's certainly working super hard in our new club effort. So, you know, Texas is really important. We're doing great. We're really proud of the results. It's a continuation of the broader new club story and all part of this engine that we've built over the last seven or eight years. So, you know, really excited about the future.

Yeah, great. Thanks for all that detail. I'll ask, we'll call it a follow-up, but can't really, a different topic. But would you guys be willing to talk about the pace of sales throughout the quarter by month?

Mike, it was pretty ratable through the month. So nothing really to call out from a variability perspective. Thanks, Mike.

Your next question comes from the line of Chuck Grom with Gordon Haskett. Your line is open. Please go ahead.

Hey. Thanks a lot. So great quarter. My question is on CMP or SKU RAT. I know it's something that the company has done in the past, and it's come and gone over the years. But just maybe, Bob, just double-click on the opportunity here, you know, how you see the skew count in the store, you know, maybe give some perspective on when you're opening up these new stores in Texas and elsewhere, you know, how many items you're opening up with relative to the total chain. It's been a long-standing opportunity, in my opinion, so just curious if you could flush that out for us.

Yeah, I'd be happy to. Again, everybody, sorry for the technical difficulties. CMPs have been a good part of our strategy for the past several years, and candidly, in the last couple of quarters, they've taken on a bit of a different tenor, particularly with Stephanie's arrival. I mentioned earlier we're using CMPs to source margin, but they really serve a much broader purpose than that. We find ourselves over-skewed, as you point out. It has been a longstanding opportunity. We have had efforts to cut skew count in the past. And I would argue we didn't prosecute that opportunity in the right way. We just cut skews, which cut sales. And so really what we're doing now is removing unnecessary choice so think multiple flavors of body wash you know pushing all the the volume into the remaining body wash flavors and then adding new innovative products and white space category addition of those new products those new need states those that new white space category that is sort of giving us the the formula where we can cut SKUs and see sales go up and see margin. And so our goal really is to take about 20% of our SKUs out over the next couple of years. And that will sort of happen rattably. That will largely get the chain down to where we find ourselves in new clubs, maybe a little bit lower than that. SKUs in a legacy club is about 7,500 or so at this point. and that the new clubs come with a six handle on them. And so I'd like to get it down to about the right place for us over time. You know, we've seen some of the benefits so far. We talked about it in the prepared remarks a bit. If it wasn't blocked out, some benefits in beverages and active nutrition where we're really, you know, taking out some unnecessary duplication, adding some new cool stuff. So think about, you know, in traditional soda, we don't carry cans and one liters and two liters of the same product. And we would add and we're adding in healthy soda. That's the idea around the building. So we've set some categories in the second quarter. We saw some good results. We'll set some more in September and then our next wave will happen around the end of the year. So, this is an ongoing effort. I think it will be powerful. Stephanie's brought a great member focus to it, where we're trying to be sensitive to what the members' needs are, and that might color what we might cut.

It also might color what we might add into the mix as well.

And the early results are good in this wave. So, we'll keep it going, and hopefully we'll see some more good results.

That's great. Thanks, Bob. And then I guess my follow-up is just on the gas business. You know, 10.5% gallon growth, I think you cited, which is much better than the industry. I guess, how are you using that as an opportunity to acquire new customers? Obviously, the MFI was much better than expected. The underlying health is really good. But are you using gas to drive new customer growth? And can you just flush that out for us?

Yeah, of course. Let me pass that over to Bill since he runs gas for us.

Yeah, thanks, Chuck. Absolutely. We're using it to drive membership. We've seen members flock to us with the 10.5% comp. The value of gas that we offer to our members is just as important now as it's ever been. We've definitely tested acquisition offers with gas discounts that our members have responded to in an outsized way. It's been a great partnership with our membership acquisition as we've tested and quickly learned into offers and then expanded them when we've seen great results. But Chuck, I want to take a moment just to come back to the gas business because the 10.5 comp that we delivered is certainly a testament to the team that is offering the value to our members every day, but also to the structural investments that we've made. So we've talked a bunch about this call about both short-term investments that we're making in price, but also long-term investments that we've made into something like real estate. And when we think about the overall gallon growth that we've delivered, that in an environment like this allows us to deliver outsized value for our members and source outsized EPS for our shareholders, that's only because of some of these big structural long-term investments that we've made. So as I think about on the real estate side, we have 50% more stations than we did at the IPO. So we couldn't have delivered the gallons that we delivered in Q2 without those continued investments over time. And then I also think about something like our co-branded credit card program, where you'd say we have over 2 million members that are getting either a 10% or 15% per gallon discount every day at the pumps, right? And you don't grow to 2 million over time without working at it every single day. And the team that does that has been extremely successful in growing the credit card base. So these big long-term decisions that we've made to invest in, you know, the value for our members, you know, come home and pay dividends in an environment like Q2. And so it's just a really cool example of where, you know, how the company invests in lifetime value can come back to pay back, you know, again, both to our members through an increased outsized value in a quarter like this, as well as to our shareholders. Great. Thank you both.

Thanks, Chuck.

Your next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open. Please go ahead.

Good morning. This is Pedro on for Simeon. Thank you for taking our question. Nice quarter. I meant to ask you about our merge margins and price investments. We've seen merge margin rate down 20 basis points this quarter driven by continued price investments, some offset from tariff refund benefits. How should we think about the cadence of merge margin in the back half of the year as some of the tariff refund tailwinds potentially diminish and how you think about price investments for the rest of the year?

Hey, good morning, Pedro. I'll take that one. Look, I think we've talked a lot on this call already about price investments and how we view them over the long term and important for lifetime value of our members. You know, we don't guide to merge margins. And so, you know, I think what you will see us do as we continue to travel through the year is balance investments with, you know, sources of funds, right? So use and source of funds in quarters, and also look to continue to deliver value to our members. And so, you know, we think it's important to look at some of the milestones and some of the metrics in our business. You know, we think about traffic in our clubs. We've talked about that already. Continued positive traffic momentum. That means our members are seeing the value. We've talked about market share and some of our, how we continue to gain market share on both dollars and units. And so all of those are important as we look out into the back half. You'll see us continue to manage, I think, for the short term and also for the long term.

Okay, great. That's helpful. And if I could ask you a follow-up about membership fee income and renewal rates. Nice job growing a membership to the income this quarter. Could you break down for us the key drivers of that growth? How much is attributable to the free increase versus member count from new clubs, number count at existing clubs?

Yeah, maybe I'll take that one too, Pedro. Look, we don't give specific numbers on how much is coming from new clubs, but maybe I'll give you some context and a little bit more color on the things we talked about. We're really happy with the overall member-based growth. You know, we hit a milestone of 8.5 million members, and so we continue to grow our overall member count, I think, faster than we've ever seen in the history of the company. We're happy with where our members are from a higher tier penetration, our members that are engaged with the co-branded credit card. Bill just talked a little bit about that. We have over 2 million members in our co-branded credit card product. And all of that is important to the short-term MFI results, as well as the long-term lifetime value of members and their propensity to renew, which is what we like. You know, we talk about MFI as the leading indicator in our business. And so, you know, we view the results that we put up this quarter as a marker of the continued success that the membership team has made. You know, I'd like to thank them for all their work. We're certainly in a different place than we were, you know, even five years ago from a membership perspective and acquiring members and the quality of members. So we'll look to continue to do that as we continue into the back half of the year.

Thank you, Laura.

Your next question comes from the line of Stephen Zaccone with Citigroup. Your line is open. Please go ahead.

Great, good morning. Thanks very much for taking my question. Stores look great in Texas, by the way. Laura, question for you. How do you break down EPS guidance rates? So how much of it is the fuel exceeding plan? Seems like the sale leads back at $0.06 if we did the math right. How do we think about the guidance rates? It seems like the second half expectations are pretty much unchanged despite you tracking towards the higher end of your seamstress sales outlook.

Morning, Steve. Yep, I think you're looking at that the way we think about it. You know, we talked a little bit about this. Bill talked a little bit about our gas business and how we view it long term, certainly successful in the quarter. And so, you know, as we step back and think about the raise on EPS, that is a result largely of our gas business. We did invest some of that in the quarter, but really just taking the B and raising on it. So, we feel great about our guidance range for the back half and where we'll land for the full year. Bob already talked about the top line and why we left the comp guidance alone, but that's the story on the EPS guide.

Okay. And then thoughts just on Texas. How do we think about the timeline for these stores to reach maturity? I know it's a new market for you, but are there learnings from Michigan in the past, from Nashville, like how do we think about the timeline to reach maturity?

So, you know, it's been pretty consistent across both, you know, new and existing markets where we see, you know, membership growth throughout the first couple of years, and then, you know, generally a member grows into their, you know, their sales potential over the first couple of years. So generally within, you know, three to five years, you're seeing the club mature up towards its, you know, towards its, you know, its regular potential, and then it would kind of grow with the chain from there. And so, you know, there's no better proof point than that than some of the data we gave on in the prepared remarks on the comps of the new clubs, where they continue to outperform the chain, you know, both individually and as a cohort. And, you know, you look at the data point that we gave on something like our 2024 class, comping double digits, right? That's the magic of the math coming to life of membership growth combined with spend growth, you know, leading to outsized performance of these clubs. And so, you know, we've seen it across the board. It's been widespread. It's been consistent. It's a testament to the teams that, you know, are working on this every day and to give our members an unbelievable experience and deliver amazing value to these new communities. And, and we see the results and, um, you know, I have no, uh, um, you know, I have no doubts that we'll see the same thing, you know, whether it's in the Texas clubs or whether it's in Foley or Ocala or any one of our new clubs is opening because we've had, we've had a demonstrated history of success now across the board.

Okay, great. Thanks for that tea, Tom. That's a block.

Your next question comes from the line of Oliver Chen with TD Cowan. Your line is open. Please go ahead.

Hi, Bob and Laura. Good morning. This is Gabriela Gahr on for Oliver. I had two questions. The first one is on the digitally enabled sales. I know you saw a nice 30% growth this quarter. I wanted to ask if digital becomes a larger part of your business, what are you seeing in terms of member spend, frequency, retention, and other important metrics compared to members who shop primarily in clubs?

Yeah, good morning, Gabriela. Certainly a great quarter from a digital growth perspective on top of grade Q1 and grade Q2 last year. I think our two-year stack is over 60. So the team's done a nice job of putting things in front of our members that they enjoy that save them time in addition to saving them some dollars. And we're investing in this. We have been for a while because of the question you're asking. The folks that engage with each of these digital properties uh become more valuable over time they interact with us more they come to see us more physically uh they they buy more and they renew at higher rates uh and and that is uh that is a compounding thing the more digital properties they uh they interact with the coupons they become like something to be shipped to their home they become better if they order a bill pick or same day delivery they become better if they use express pay where you check out in the clubs they become even better than that. And so the more ways we can get them to engage with us, whether it be through our desktop app, they really change their behavior for the better over time. And so I think we're around 19% penetration of our business at this point. And I hope that that continues to grow. It is really one of the great stories within our company at this point. And we'll continue to place investment dollars here. We'll continue to talk to our members and source ideas from them on how we do this. And we've got a concentrated effort right now to grow our express pay penetration. And that's been going well as well. So good results this quarter and more to come.

Thank you. That's helpful, Keller. And then just as a follow-up question, as we think about value perception, price gaps, and as well as the merchandising improvements that you guys are making, can you shed some light on how private label is playing a role in all of this, both in success today and then maybe categories where you see opportunities to expand penetration of your own brands?

Yeah, we haven't talked about own brands in a while, but certainly a big business for us, several billion dollars of our sales are done in our two own brands. And it really comes down to quality and value. We put good quality products in front of our members and we place a fantastic price on them. And that is even more relevant these days in pressured economic circumstances, right, where we're giving our members a terrific value. Think about our Berkeley Jensen paper towels, for instance. I think we're 35% lower priced than the comparable national brand on a fantastic. We make a little bit more margin than we would if we were selling the comparable national brand. So we make up, too, we've grown that business to be about 65% unit share. We're putting a great product in front of people at a fantastic value, and they come back to get it from us. And we need to do more of that. We need to continue to improve our own brands. But as we think about the overall value that we provide our members, we understand that that is our job. We're supposed to provide them terrific value, and own brands is a great way to do that. You mentioned our price gaps. We haven't talked about that. Our price gaps got better during the quarter, and so our investments are paying off. It's a tough market out there from a cost-increase perspective. and our competitors are having to raise prices faster than we might. And all of that comes back to that central theme of offering the right value. And we'll continue to do that day in and day out. It's our job. That's what they pay us to do. You know, we love to do that. We invest in our members because we know it pays off in the long run.

Your next question comes from the line of Greg Malich with Evercore ISI. Your line is open. Please go ahead.

Thanks. Sorry if I missed it in the opening comments, but Laura, could you help us with that ticket expansion, which I guess was around one and a half points? How much of that was unit growth items in basket versus inflation, which if I remember correctly was slightly negative in 1Q?

Yep. Good morning, Greg, and thanks for the question. We talked a little bit about inflation in the prepared remarks, it was close to 1% in the quarter. And so certainly a step move off of where we were in the first quarter. And so, you know, I think as we step back and think about our comp that we delivered for the quarter, we're really pleased with the 3.1, equally balanced roughly between traffic and basket. And so we like that our members are certainly seeing the value in what we're offering them every day.

Thanks. That's super helpful. And Bob, I'd love to follow up on the openings. Given the success in Texas, just update us on how many clubs you're opening this year and next year. And do you think there's an opportunity to accelerate that going forward.

Yeah, thanks for the question, Greg. I'll kick it off and Bill can talk about the specifics. As you point out, our real estate growth has been fantastic. We've gone from not opening clubs a few years ago to opening sort of a 12 to 15 clip at this point. And we've committed to maintaining that 25 to 30 every couple of years cadence. and we've challenged ourselves to think about going faster as well. And so that will take a couple of years to sort of make its way into the pipeline. But the more good clubs we can open, the better for us. And so we're pleased with where we are and we'd love to go faster. But let me hand it over to Bill.

Yeah, I think, Greg, that's exactly right. We're, you know, at this point, you know, as we look at that on the horizon, the pipeline for, you know, plus or minus the next two years is pretty baked And we're working on projects for, you know, 28, 29, and 30 right now. And, you know, the great news is that the success that we've seen in the market, you know, is paying off in terms of our opportunities. You know, as we're out in the market having conversations with developers, you know, and other parties within the real estate world, we've seen more opportunities come to us. We've seen, you know, the cap rates come down on our buildings, which improve the overall economics that are available and improve our returns. And so, you know, again, I come back to we've made a series of long term investments over the last few years, you know, that are paying off and the investments that, you know, that we make today in a market like Texas, we're going to look back five years now and be really happy that we made them. And, you know, as we look forward to the clubs in the pipeline, you know, again, as we look at a decade after now, we're going to be really proud of the footprint that we have built. So more to come in terms of the acceleration of the growth. But we feel like we're in a really great spot to continue to deliver value to the members and the communities that depend on us.

Great. Thanks and good luck. Thanks, Greg.

We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.