Good morning and welcome to the BJ's Wholesale Club, Inc. fourth quarter and year end earnings results conference call. There will be some formal remarks made by the company, and then we will open up for questions. At this time I'd like to turn the conference to Cathy Maloney, Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, [Augusta]. Welcome to the BJ's Wholesale Club fourth quarter and year end conference call for the year ended January 31, 2009. With me this morning are Herb Zarkin, Chairman of the Board, Laura Sen, President and CEO, and Frank Forward, Chief Financial Officer. Before we begin, let me remind you that the information presented and discussed today includes forward-looking statements which are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these forward-looking statements. The risks and uncertainties related to such statements include levels of gas profitability, levels of customer demand, economic and weather conditions and other factors detailed in our fiscal 2008 10-K and subsequent 10-Q for fiscal 2009. While the company may elect to update its forward-looking statements, the company specifically disclaims any obligation to do so, even if the company's estimates change. During this call we will be referring to non-GAAP financial measures that are not prepared in accordance with generally accepted accounting principals. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in our press release, which is posted on our Investor Relations website at www.bjsinvestor.com. With that, I'll turn the call over to Frank Forward, CFO.

Thank you, Cathy. Good morning, everyone. For the fourth quarter ended January 31, 2009, net income was $52.7 million or $0.91 per diluted share. Fourth quarter results included post-tax income of $1.3 million or $0.02 per diluted share from favorable state income tax audit settlements. Comparatively, for last year's fourth quarter ended February 2, 2008, net income was $50.2 million or $0.80 per diluted share. Adjusting for the unusual item this year on a non-GAAP basis, EPS was $0.89 per share this year versus $0.80 per share last year, an 11.3% - and net income was $51.3 million this year versus $50.2 million last year, an increase of 2.2%. In summary, the fourth quarter reflected strong increases in comp sales and customer count, gasoline income slightly above last year, and strong expense control. However, this was partially offset by merchandise margin rates that were below [LY]. Most importantly, BJ's continued to gain market share despite the difficult macro environment, merchandise comp sales excluding gasoline increased 6.4%, driven by an 11% increase in food and perishables and customer count increased 6%. Perishables itself had a 13% comp increase. General merchandise comp sales were flat to last year, which we consider a good performance relative to the retail universe. For the year ended January 31, 2009, net income was $134.6 million versus $122.9 million in 2007, an increase of 9.5%. And EPS was $2.28 per share versus $1.90 per share, an increase of 20%. The full year 2008 earnings included unusual items netting to income of $2.8 million post tax of $0.05 per share. This included post-tax income of $3.3 million or $0.06 per share for various favorable state tax audit settlements, offset by expense of $0.5 million post tax or $0.01 per share from the club closing reserve recorded within the…

Thank you, Frank. Hello, everyone, and thanks for joining us this morning. I'm here today as Chairman of BJ's Board of Directors and former CEO to introduce my successor, Laura Sen, on her first earnings conference call as BJ's Chief Executive Officer. This management change, which went into effect on February 1, was part of a planned transition. Laura has spent her entire professional career - some 30 years - in retail and 16 of those years have been here at BJ's. Her promotion to CEO was based upon the Board's recognition of her passion for the business, her skill as a leader and manager, and of course her success in running BJ's daytoday operations as President and Chief Operating Officer for the past year. Laura has built a cohesive leadership team that has coalesced around a set of values and a shared vision for the BJ's future. So on behalf of the Board of Directors, it's a great pleasure to officially pass the baton to Laura Sen.

Thank you, Herb. It's an honor to be leading the company where I've spent more than half my professional life. I'm also very grateful to be among colleagues whose experience and judgment I rely upon every day. In 2008 the search for better value was a major driver of our strong comparable club sales increases as consumers reacted to rapidly increasing food and gas prices during the first half and collapsing financial and real estate markets during the second half. At the same time, an equally important driver of our sales was the close collaboration among our team members. The buyers, marketing team, club operators, IT department, and logistics specialists worked together to deliver a clean, organized, well presented and friendly club experience. Our success is a clear case of preparation meeting opportunity. BJ's continued to gain market share from the supermarket and restaurant channels in 2008. Comparable club sales of food increased by 11% for the fourth quarter and 10% for the full year, strong evidence that our members are consistently spending more of their food and consumables budget with us. Sales of perishable food - BJ's highest margin merchandise category - continued to outpace all other departments throughout the year, driven by consistently strong demand in produce, meat, bakery, dairy, frozen, deli and prepared food. With thoughtful planning, good communication and careful execution, our team members were able to maintain high standards of quality and presentation while expanding our capacity for selling perishable items. For BJ's buyers, the number one priority is to provide our members with the best value on the highest quality merchandise. Let me give you a few examples of how our merchants added freshness and differentiation in the perishables area in 2008. First, there were lots of new offerings of higher quality fresh and…

Thanks, Laura. I'll go into guidance for next year and first quarter. For the fiscal year ended January 30, 2010, we are planning for GAAP earnings in the range of $2.26 to $2.36 per diluted share and net income in the range of $123 million to $129 million. To help better understand this guidance, here is how we're thinking about it: First, because it is such a large dollar amount, I want to reiterate that we are planning for gasoline to return to a more normal level of profit versus the unprecedented amount earned in Q3 2008. So start with the 2008 non-GAAP EPS excluding unusual items of $2.23 per share and subject $0.10 per share of non-repeating principally gasoline income. With rounding, this brings you to a normalized $2.14 per share in 2008. If you compare the midpoint of our 2009 guidance or $2.31 per share with the normalized nonGAAP $2.14 per share for 2008, you get an increase of approximately 8%. On the same basis, the 2009 net income would be about $126 million, which is flat to the 2008 normalized non-GAAP income. In our November conference call we gave preliminary 2009 guidance of $2.27 to $2.39 per share and net income of $129 to $136 million. I want to discuss a couple of important factors driving the change in guidance. First, our prior guidance assumed a modest increase in merchandise margin rates; however, we are now planning for a flat merchandise margin rate. This reflects a strategic decision to take any margin enhancements we achieved with a favorable mix of perishables and invest it in pricing. This is consistent with our continued efforts to drive market share gains in this weak economy. Additionally, our prior guidance assumed share repurchases in 2008 of $130 to $150 million, but…

Thanks, Frank. In conclusion, these are challenging times for consumers and businesses, yet I have a tremendous amount of confidence in our team and in the opportunities we have to increase market share. Our plan calls for strong sales growth, and we've found that with robust sales we typically come up with new efficiencies. And we will continue to operate the business for the long term by investing in our people, the new technology, and in chain expansion. And with that, I'll open the call for questions.

Thank you. (Operator Instructions) Your first question comes from Deborah Weinswig - Citigroup.

Frank, you had said that with regards to CapEx spend in 2009 that there would be increased spending on club maintenance capital to improve club conditions. Can you please provide some more color around the spend?

We'll be doing some large renovations in three or four clubs. We're continuing to do a number of smaller renovations in a number of different clubs. We'll continue to add some capacity in some of the perishable areas. We still have to finish out all the bathroom renovations through the chain. On top of that, there's a number of other things that the operations folks are working on that we think will cost us a little bit. Again, the goal here is to improve the club conditions.

And then just kind of broadly speaking, can you provide us an update in terms of the insulator businesses and any new initiatives there?

I think that we are clearly focusing on food court and demos and really, I think, taking a much more strategic approach to the organization behind that and how we look at that. I don't really have any specifics to unveil at this point on that subject, but I think that we know those are not the centers of excellence that we could bring them to and that's what our work is going to look like.

I believe it was stated on the call that as we think about gross margins for 2009, there will an investment in price. Can you talk about what you're seeing with regard to the competitive landscape and also what are you seeing with regard to deflation currently?

I would say that the competitive landscape certainly during holiday was challenging more broadly across all retail, I would say, and particularly in the club channel. But our process has not changed. We go out and do our competitive shopping every month. We will be with it 100 to 150 basis points of competition. And we're not really seeing any major challenges with that. In terms of deflation, I think Frank covered what we're seeing in dairy, in meat, in oils. I think there's some in trash bags. But it's more than being offset by unit increases in those categories.

Your next question comes from Charles Grom - J.P. Morgan.

Laura, should we look for any changes to the spring membership push or your MARM initiative in '09? MFI was a little bit light. It sounds like Atlanta is the issue once again, similar to last quarter. But Costco reported this morning and their membership was a little bit softer, too. So I was just wondering what you guys are thinking on the spring membership push as well as the MARM front?

As you know, we've been doing the member acquisition program for about 15 or more years and that will continue in its typical rhythm for the spring and for the fall. We're always testing different things, but I'm really not at liberty to disclose anything about that right now.

And the MARM initiative will stay intact?

Yes.

And then just on the gas, the past couple of months the impact of the comp's been negative, call it by 800 basis points. Can you talk to how much of that is price versus the number of gallons that you're selling?

Well, it's clearly a combination of both. Obviously, the demand ramped up when prices were soaring back in the spring and summer. It's not as certainly big a destination purchase as it was when gas was $4.00 a gallon, but it's a combination of both.

But we are seeing comp down - decreases. And obviously huge deflation in the pricing, too.

I know you said that 2% overall net inflation benefit. Have you been able to dissect it for food in '08 and I guess along the lines of what you're thinking for '09 for food inflation?

Generally the food inflation is a little bit higher than that. Again, this is a very difficult number to quantify, as I think I've mentioned in the past. That 2% number, again, it's a little higher because we still haven't cycled through some of the price increases that we saw early and generally a lot of those consumable prices are holding. But, again, we're also seeing deflation in meat, some of the other categories, dairy and other categories. Again, as far as the guidance for the next year, deflation certainly will be an impact on it, but like Laura said, we're seeing example after example where the value that we have, even though there is deflation, we're still seeing pretty strong unit increases, so overall we're seeing a comp increase in these categories.

Right. Plus I would add that if you look at the entire basket, prices year-over-year are still higher than they were a year ago.

Just on your decision to invest a little bit more in price, is that sort of an offensive or a defense strategy? Clearly a lot of the supermarkets are now starting to invest more in price. Just wondering if you could flesh that out for us.

It's certainly not offensive. We do not lead on pricing. Our goal is to be competitive and make sure that our value proposition overall is appropriate for our members and that we're delivering on our promise when we sell to the membership. But, I mean, a good deal of what we sell is not found in other warehouse clubs, so we're looking out at food, drug and mass channels to do our competitive pricing as well.

Your next question comes from Mark Lipacis - Morgan Stanley.

As you approach the margins in the perishables categories, if you are seeing deflation in some of those categories do you typically try to defend the gross margin rate or do you manage to gross margin dollars?

Certainly we need to - to achieve our plan we need to maintain the rate, but the governing factor is competition. We can't go for a rate that is not reasonable in light of what our club competitors, super center and supermarket competitors might be doing. That being said, there are a handful of commodities that are very, very sensitive and the rest are not so sensitive.

You had a very strong traffic gain for February and also pretty strong in the quarter as well. Do you think that is more being driven by grocery competition dynamics or do you think you're picking it up from clubs?

I would say probably grocery. What I attribute our very strong comp sales to is our own internal business improvement. When I look at what the operators have done to deliver a great member experience, what the merchants have done to shift the mix to be more appealing to our members and to drive frequency, when I look at the support we've gotten from IT on certain initiatives and all the back office support we get through logistics and the rest of the people here in the home office, it's really a team effort. And it's been a huge success and I believe that we're going to see dividends from that for a long time to come.

Your major competitor mentioned that they were cutting prices during the quarter to try to drive traffic during the holidays. Did you see any of your price gaps widen out with them during the quarter?

I would say not.

Your next question comes from Adrianne Shapira - Goldman Sachs.

Could you spend a little time on the SG&A control? Impressive in terms of the management of the dollar growth rate and going forward. Perhaps spend some time sharing with us the details in terms of where specifically you see continued expense control opportunity.

In the fourth quarter we saw some just very good expense control almost in every line up and down the P&L. Payroll was pretty consistent and what we planned for, but where we saw the savings, there was a little bit in utilities, a little bit in supplies. Again, sort of go up and down the line of various expenses in the club, just very good cost control up and down the line. And we're expecting to see that going into next year.

So a lot of little opportunities? Could you bucket it out, sort of maybe one, two, three?

Really, not. It really is a lot of little opportunities.

And then just some clarity on the membership renewal. It sounds as if it softened in the fourth quarter, came back strong in February. Was there anything you did specifically in February to jump start that renewal rate?

Well, we certainly have been putting an effort in the clubs to talk to the members. We've talked about - since you've followed us over the last couple of years, we instituted a group of folks we call MARMs, and that's been helpful. Again, just good operational communication with our members post Christmas.

Okay. I guess I was wondering if there was anything new this February versus last February.

Not really.

And then just lastly on the margin point, you're clearly seeing some deflation. I'm wondering if you could share with us some insight into the vendor negotiations that you're having, what's happening there on the price? And it sounds as if you're looking to invest more on price, but perhaps give percentage wise of the outcome of those negotiations, how much perhaps would be an opportunity on the margin line versus how much the member would save?

I think the opportunity comes in the mix of sales, and we have successfully grown perishables disproportionate to the rest of the business. The opportunity comes in the SKUs that we carry that are not carried by other warehouse clubs. And I think the opportunity comes in our sourcing strategies, whether it's for general merchandise in terms of overseas sourcing or whether it's developing unique items and private. We're not running out saying Tyson you've got to reduce your prices or we're not going to buy anymore from you. That's not our game.

Your next question comes from David Schick - Stifel Nicolaus & Company.

As you move along with road map - and I guess it came in slightly differently than you thought, but not too much - are there any new things on the planning horizon for that project?

We're certainly spending most of the time right now in the three areas that we talked about on the call - choosing a new vendor to do our data processing, doing the work replacing all our registers in all the stores, and putting in a new human resources and payroll capability. Those are the things we're really working on. There are some other things that we've been starting to look at, look out 12 to 18 months. They're really not much to talk about right now because we still need to make some of those decisions.

But anything else would be incremental to what you've talked about today?

What I just listed is going to be a pretty full plate for the next 12 months.

The second is just simply on gas. Has there been any change in the behavior of consumers who are buying gas? Are they in club and the basket size? Do they stop in or just cherry pick gas?

We don't see any evidence of that.

Like I said, our comp gallonage actually decreased over the last couple of months, whereas obviously February kind of speaks for itself with an 8.2% comp increase.

Your next question comes from Bob Drbul - Barclays Capital.

A couple of questions. The first one is on the store opening plan, do you have any flexibility around the seven clubs that you're planning in the back half of the year and can you maybe talk about your expectations for 2010?

I'm not sure what you mean. Would we try and add some or push some off, is that what you mean?

Yes, either.

We're actually trying to open as many as we can. We're not trying to hold off in any way, if that's the question. We believe that there may be more real estate opportunities out there and, as they come up, we'll try and choose those that will be most productive for us. But we're not looking to back off of anything we're doing.

Can you maybe talk a little bit about the penetration of private label and any signs that you're seeing on trade down within the consumer?

Yes. I think that the people who follow us know that we have not been as bullish on private label as perhaps we had been in the past, but looking at a stable universe of items year-over-year that do the most volume in private label, those did grow disproportionate to our comp sales increase for the chain. That being said, we have deleted a lot of private label items - about 20% again this year - which yielded about a 5% decline in overall private label sales. So there's a couple stories going on here where our core private label items are gaining share; our overall private label share is slightly down. I would say that we are continuing to look at the relationship between the sales of branded items versus the sales of private label items. And overall, our members are choosing pretty strongly for branded items in certain categories. However, we are rebuilding private label in a strategic way with destination items that are unique, yield very nice margins, and we feel good about that. So I think that we're taking a balanced approach.

Having done $70 million already of the $100 million planned for the buyback program, what factors would lead you to increase your plans for buybacks in 2009?

Right now, again, we're planning for the $100 million. We really don't have much else to say. We're going to watch what the market does, obviously. If we think there's opportunities, we certainly have a fair amount of buyback authorization from the Board at this point in time. But again, right now the plan is for $100 million, which we've already bought $70 million.

Your next question comes from Daniel Binder - Jefferies & Co.

A couple of questions. First, I'm not sure if you said it earlier, but do you have a single point estimate or a range of numbers in terms of what you think the net impact from inflation will be in '09? The second question is can you give us a little bit of color [inaudible] right now and what you've bought already, how you think the rest of the $30 million will be bought over the rest of the year. Is it going to be wrapped up by Q1 or do we spread it out over the next few quarters? And then, third, I'm just curious how early spring goods are selling.

On inflation, I think we believe it'll hover around 2%, but it's hard to have a crystal ball in terms of the future. I would say that major manufacturers are trying to hold their costs and we believe that we're treated fairly and equitably with the rest of the world, so that's what we see for now. I'll let Frank talk about the shares.

Right now, if you just want to model it, just model it out evenly over the course of the year.

In terms of early spring selling, I would say continued strength in TV and electronics and computers in the hard lines part of the business. In terms of spring, I mean, we just had a foot of snow yesterday or the day before, whenever it was, so the chance of that selling very well right now is low. But we feel that when we put out the right value, the members are buying pretty robustly. So we're seeing, again, with the right items, we do business.

Inventory, well controlled. Any other opportunities and, perhaps more specifically, in your cash flow from operations estimate should we be assuming that working capital is a source or use of cash year-over-year? And my final question was with regard to MFI. As you build more stores in existing markets, presumably there'll be some cannibalization of existing members. Just kind of wondering what you think that looks like and what that does to the MFI per club.

As far as the working capital goes, as we've said, we're going to be opening up seven clubs this year  that's the plan anyway - and that will use up some working capital. Generally we use as a rule of thumb about $2 million inventory net of payables and that's when we open them up. The next question was -

Just in terms of when you're modeling out the new store growth in existing markets, presumably there's some sort of member cannibalization. I'm just curious what you think that typically looks like with this kind of expansion.

We have modeled it out. Best guess right now, I'd say that it's not going to change materially from that 1% number that we've been seeing for the last year or so.

1% member cannibalization?

1% sales cannibalization. The sales and members go pretty hand in hand.

Your next question comes from Charles Cerankosky - FTN Midwest Securities Corporation.

A question for you, Laura. In looking at the general merchandise comp the last few months and especially February, it's been, at least to me, better than expected, and I was wondering if you could talk a little bit more about the components. You've mentioned some are weak. What are you doing there that you're pleased with that reflects the long-term strategy rather than just some of these economic-driven shifts among categories.

What we're seeing in the general merchandise category, the consumable part of the business is still what's delivering the greatest gains, and those tend to be very large segments. So in health and beauty care and chemicals, we see great growth there. But we also see that our electronics reset that I talked about has been very successful. Our members are really understanding more clearly what we have. It's more visible. And the values that we've been able to offer are tremendous, I think. That's where our strategy is. I mean, I can't make them buy sweaters or T-shirts or whatever it is if it's 30 degrees out, but I think that our offerings are very nice and when the business turns around we'll get our share.

Frank, you gave us a lot of numbers and I hope I got them down, but I think an operating cash flow number of I think it was $230 to $250 million. You said you'd be capital self-sufficient. But in thinking about the buyback plus the CapEx, just a quick look suggests some external financing might be required. Can you talk about that, please?

Sure. My definition of being capital self-sufficient is that we'll have enough cash coming in from operations to cover CapEx. So, again, we're estimating cash from operations would be about $230 to $250 million and a CapEx of around $180 to $200 million. So we'll be able to cover that. Now comes your question, well, over and above that, if we're going to buyback $100 million, would we have to go into debt? It's pretty much right around there. Our expectations right now is hopefully we could continue as we have the last couple of years finding ways to generate some cash from working capital for how we've been working with inventories. If we end up being in debt, I don't think it would be much, certainly pretty immaterial to a retail business.

Your next question comes from Joe Feldman - Telsey Advisory.

I just wanted to ask you just about product cost and sourcing. I know you've talked about deflation being a pressure in the competitive market, but what are the trends you're seeing in terms of sourcing costs and what's coming out of Asia these days? If you could get into that a little bit.

Yes. Certainly the rampant cost inflation that we saw from Asia in the fall timeframe has completely backed off because demand is way off over there, as you know, so I think that we're returning to much more what we'd say normalized pricing. And the lack of demand also helps us with things like ocean freight and so on, so I would say that we're more normalized. Other sourcing costs I would say are more commodity driven, as we've discussed, and we do not have the commodities running rampant as they did last year. And I think that those costs will stay down.

And then also you've been asked a lot about product rationalization in the past and even touched on it today, but are there still opportunities for you guys to streamline in some categories? I understand the point of difference that you want to have with the other clubs and also to attract that grocery shopper, but I would still think there's some areas where you could be even more efficient in driving product margins a little higher.

Absolutely I agree. I think that what we're seeing as we migrate our assortment in various categories, the buyers themselves see that they can do more with less. That being said, we'll never be looking to the 4,000 to 5,000 SKU level. We definitely want more varieties of breakfast cereal and more varieties of soup and more varieties of coffee and peanut butter and household needs because that's how we're going to get the weekly grocer shopper. They need some choice. Our operators are very adept at handling the levels of assortment we have, and that point of differentiation is strategic.

Your next question comes from Neil Currie - UBS.

You've performed a very successful turnaround of the business in the last couple of years by really simplifying the business and being a lot more customer focused, but still your productivity and sales per square foot lags your competitors, which maybe still gives you a big opportunity. What do you think the next steps are really for BJ's in moving the business forward on a longer term and what's the next phase of this story other than opening new stores?

Well, I think that in my view the real story is about getting the weekly grocery shopper. And I think that we're succeeding in getting the family in every week for their perishable needs and the deeper we get, the next tranche of those customers that we get will continue to yield the comp growth that we've seen. For me it is not a wholly different change in strategy; I think more of a migration toward really understanding which parts of our assortment are key to getting them in every week. And I think that's working.

There are no other questions at this time. I'd like to turn it back to the presenters for any additional or closing remarks.

Thank you all for listening in and I'll look forward to seeing you very soon. Take care.

This does conclude our call. We'd like to thank everyone for their participation. Have a great day.