BJs Wholesale Club Holdings Inc

5. 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 condensed consolidated financial statements.

6. 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.

The 2018 Plan authorizes the issuance of 13,148,058 shares. If an award under the 2018 Plan is forfeited, expires, or is settled for cash, any shares subject to such award may, to the extent of such forfeiture, expiration, or cash settlement, be used again for new grants under the 2018 Plan. Additionally, shares tendered or withheld to satisfy grant or exercise price, or tax withholding obligations associated with an award under the 2018 Plan will be added to the shares authorized for grant under the 2018 Plan. The following shares may not be used again for grant under the 2018 Plan: (1) shares subject to a stock appreciation right ("SAR") that are not issued in connection with the stock settlement of the SAR upon its exercise and (2) shares purchased on the open market with the cash proceeds from the exercise of options under the 2018 Plan. As of August 3, 2024, there were 4,517,210 shares available for future issuance under the 2018 Plan.

The following table summarizes the Company’s stock award activity during the twenty-six weeks ended August 3, 2024 (shares in thousands):

(a) Shares outstanding reflect a 100% payout, however, the actual payout for the remaining performance stock awards granted in fiscal year 2021 is expected to be 200%. Actual payout for the performance stock awards granted in each of fiscal year 2022 and 2023, which vest in fiscal year 2025 and 2026, respectively, could be below 100% or up to 200%. Actual payout for the performance stock awards granted in fiscal year 2024, which vest in fiscal year 2027, could be below 100% or up to 300%.

(b) Includes 229 incremental performance stock awards granted in fiscal year 2021 with a weighted-average grant date fair value of $44.31, that vested in fiscal year 2024 at greater than 100% of target payout based on performance.

Stock-based compensation expense was $10.3 million and $9.6 million for the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively, and $18.9 million and $19.6 million for the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively.

On June 14, 2018, the Company’s board of directors adopted, and its stockholders approved, the ESPP, which became effective July 1, 2018. The aggregate number of shares of common stock reserved for issuance under the ESPP is equal to the sum of (i)973,014 shares and (ii) an annual increase on the first day of each calendar year beginning in 2019 and ending in 2028 equal to the lesser of (A)486,507 shares, (B)0.5% of the shares outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (C) such smaller number of shares as determined by the Company's board of directors. The amount of expense recognized related to the ESPP was $0.3 million and $0.4 million for the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively, and $0.8 million and $0.7 million for the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively. As of August 3, 2024, there were 2,834,406 shares available for issuance under the ESPP.

7. Treasury Shares and Share Repurchase Program

Treasury Shares Acquired on Restricted Stock and Performance Stock Awards

The Company acquired 545 shares to satisfy employees’ tax withholding obligations upon the vesting of restricted stock awards in the thirteen weeks ended August 3, 2024, which was recorded as animmaterial amount of treasury stock. The Company acquired 3,625 shares to satisfy employees' tax withholding obligations upon the vesting of restricted stock awards in the thirteen weeks ended July 29, 2023, which was recorded as $0.3 million of treasury stock.

The Company acquired 357,996 shares to satisfy employees’ tax withholding obligations upon the vesting of restricted stock and performance stock awards in the twenty-six weeks ended August 3, 2024, which was recorded as $26.7 million of treasury stock. The Company acquired 359,827 shares to satisfy employees' tax withholding obligations upon the vesting of restricted stock and performance stock awards in the twenty-six weeks ended July 29, 2023, which was recorded as $27.4 million of treasury stock.

Share Repurchase Program

On November 16, 2021, the Company's board of directors approved a share repurchase program (the "2021 Repurchase Program") that allows the Company to repurchase up to $500.0 million of its outstanding common stock from time to time as market conditions warrant. The 2021 Repurchase Program expires in January 2025. The Company initiated the 2021 Repurchase Program to mitigate potentially dilutive effects of stock awards granted by the Company, in addition to enhancing shareholder value.

The Company repurchased 451,982 shares for $40.8 million and 715,122 shares for $44.6 million during the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively. The Company repurchased 857,092 shares for $71.0 million and 919,162 shares for $59.9 million during the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively. The Company accounts for treasury stock under the cost method based on the fair market value of the shares on the dates of repurchase plus any direct costs incurred.

As of August 3, 2024, $118.7 million remained available to purchase under the 2021 Repurchase Program.

8. Income Taxes

The Company projects the estimated annual effective tax rate for fiscal year 2024 to be 28.0%, excluding the tax effect of discrete events, such as excess tax benefits from stock-based compensation, changes in tax legislation, settlements of tax audits and changes in uncertain tax positions, among others.

The Company’s effective income tax rate from continuing operations was 24.1% and 28.6% for the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively. For the twenty-six weeks ended August 3, 2024 and July 29, 2023, the Company's effective tax rate from continuing operations was 24.2% and 30.5%, respectively. The decrease in income tax expense for both comparative periods is primarily driven by higher tax benefits from stock-based compensation in the current period.

The Company is subject to taxation in the U.S. federal and various state taxing jurisdictions. The Company’s tax years from 2019 forward remain open and subject to examination by the Internal Revenue Service and various state taxing authorities.

9. Fair Value Measurements

Certain assets and liabilities are required to be carried at fair value in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company uses a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than quoted market prices included in Level 1 such as quoted market prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Financial Assets and Liabilities

The fair value of the Company's long-term debt is estimated based on current market rates for our specific debt instrument. Judgment is required to develop these estimates. As such, the estimated fair value of long-term debt is classified within Level 2, as defined under U.S. GAAP.

The gross carrying amount and fair value of the Company’s debt at August 3, 2024 are as follows (in thousands):

The gross carrying amount and fair value of the Company’s debt at February 3, 2024 are as follows (in thousands):

The gross carrying amount and fair value of the Company’s debt at July 29, 2023 are as follows (in thousands):

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, approximate their fair values due to the short-term maturities of these instruments.

10. Earnings Per Share

The table below reconciles basic weighted-average shares of common stock outstanding to diluted weighted-average shares of common stock outstanding for the thirteen and twenty-six weeks ended August 3, 2024 and July 29, 2023 (in thousands):

The table below summarizes awards that were excluded from the computation of diluted earnings for the thirteen and twenty-six weeks ended August 3, 2024 and July 29, 2023, as their inclusion would have been anti-dilutive (in thousands):

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 (the "Securities Act"), 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, share repurchases, 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 including, without limitation, as a result of disruptions and instability in the banking and financial services industries or as a result of the upcoming U.S. Presidential Election, wars and global political conflicts, 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;

• domestic and international economic conditions, including volatility in inflation or interest rates, supply chain disruptions, construction delays and exchange rates;

• our ability to procure the merchandise we sell at the best possible prices;

• 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 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 any future pandemic, epidemic or outbreak of any other highly infectious disease on the U.S., regional and global economies and on our business, financial condition and results of operations;

• 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;

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

• risks relating to 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 (the "SEC"), including in particular those set forth under "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (the "Annual Report on Form 10-K for the fiscal year 2023") and our other filings with the SEC.

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.