Good morning. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to BJ's Wholesale Club Fourth Quarter Fiscal 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]I would now like to turn the call over to Faten Freiha, Vice President-Investor Relations. You may begin your conference.

Good morning, everyone. Thank you for joining BJ's Wholesale Club's Fourth Quarter Fiscal 2019 Earnings Conference Call. Chris Baldwin, Executive Chairman; Lee Delaney, President and CEO; Bob Eddy, Chief Financial and Administrative Officer; and Bill Warner, Senior Vice President Strategic Planning and Investor Relations are on the call.Please remember that during this call, we may make forward-looking statements within the meaning of the Federal Securities Laws. These statements are based on current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations described on this call and in today's press release. Please see the Risk Factors section of our Form 10-K filed with the SEC on March 25, 2019 for a description of those risks and uncertainties.Finally, please note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release posted on the Investors section of our website for a reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.With that, I'll turn the call over to Chris.

Good morning and thank you for joining us. On today's call, I'll provide some introductory remarks and then you'll hear from Lee Delaney, our new President and CEO. After that, Bob will walk you through our results and guidance for fiscal 2020 then we'll take your questions.In December, we announced that Lee would succeed me as Chief Executive Officer at BJ's. Most of you know Lee. He's been -- he was one of the first people I hired after becoming CEO and he's been involved in every aspect of our transformation since then. This leadership transition was part of a planned and deliberate process to ensure that BJ's is well-positioned to execute against its strategic priorities and drive long-term shareholder value.BJ's performance has improved substantially since 2015 and we see clear opportunities to accelerate our growth particularly on the top line. We are optimistic about our prospects and are confident in the fundamentals of our business. Lee will move the company forward with a clear emphasis on driving sustainable profitable growth. In my new role, I am focused on leading our board and continuing to work closely with Lee and Bob on key strategic direction.With that, I'll hand the call over to Lee.

Thank you, Chris, and good morning, everyone. I'm pleased to join you today for my first earnings call as President and CEO of BJ's. I look forward to executing against our strategic priorities and delivering value to members and shareholders. We have made significant progress in transforming our company and continue to believe in the fundamentals of our business model. The investments we made and the capabilities we built over the past four years enabled us to deliver consistent positive comps with margin growth. However, our results fell short of expectations in the back half of the year.Our priority is clear. We must grow faster. We'll do this by investing more aggressively into growth opportunities and accelerating those areas of our transformation that are delivering results.To help fuel our investments in the fourth quarter, we launched Project Momentum, a cost reduction program that will deliver at least $100 million of savings over the next two years. This work included a realignment of our organization to support our strategic initiatives and to remove duplicative work. We made these decisions from a position of strength and the savings will enable us to invest more aggressively behind growth opportunities.Our investments will be disciplined growth-oriented and anchored in our strategic pillars: to acquire and retain members deliver value to keep them engaged make it more convenient and expand our reach.Let me highlight, a few key areas of focus in 2020. I'd like to start with our omni-channel business, which is key to delivering the convenience members' demand and will be one of our highest priorities. This business grew nicely last year and in the fourth quarter particularly. We are investing in omni-channel for the long-term and believe our capabilities in buy online, pick-up in club and same-day delivery offer the potential for considerable growth.Members…

Thanks, Lee. Good morning everybody. Let's first touch on our results for the first quarter -- fourth quarter. Net sales for the quarter were $3.4 billion, merchandise comp sales which exclude gasoline increased by 0.3% and were driven primarily by ticket. As a reminder, our fourth quarter comps reflect the headwind associated with lapping last year's timing change and government assistance benefits. We estimate that this had an 80 basis point effect on our merchandise comps for the quarter.In addition to the EBT change, our comp sales for the quarter were negatively impacted by the compressed holiday period. Our two-year stack for the quarter was 3.2%. While the general merchandise division led the growth for this quarter and posted a 3% comp, it fell short of our expectations in key fourth quarter categories like toys. And while we estimate that the effect of weather on the total business was likely a push, the warmer weather did impact key GM categories like apparel and winter supplies.Our perishables and edible grocery divisions were impacted by the EBT headwind I discussed earlier, as well as by the compressed holiday season. The calendars fewer shopping days led to fewer trips and less shopping for holiday party essentials and related goods. These two factors resulted in comps in our edible grocery and perishables divisions of negative 2% and negative 1% respectively.In addition, our non-edible grocery division comps grew by 1% in spite of a slight EBT headwind. Membership fee income grew by 6% during the fourth quarter. Performance was primarily driven by improving the quality of our membership base. As Lee noted, we continue to execute well on membership acquisition and reduce our reliance on trial members.For the year, we made good progress with higher tier penetration and the Easy Renewal program and maintained our…

[Operator Instructions] First question comes from Edward Kelly with Wells Fargo. Edward, your line is open.

Hi, guys. Sorry, I was on mute. I just wanted to start with Project Momentum and the investment. Can you just maybe talk a little bit about the decision to ramp investment and growth? The speed at which you think the investment can occur the confidence around being able to pay with the cost saves? And when do you think it begins to register in comps?And then Lee, just kind of taking a step back, I think there is a view here that you guys were investing enough that seems to have, I guess, changed a bit. Can you just talk about that shift in strategy as well?

Sure. Let me start and I'll ask Bob to weigh in here as well. So our Project Momentum starts with a belief in our ability to grow the company at a faster rate. As you know we have been building systems to allow us to invest behind growth assortment systems, promotional systems, et cetera.We have deployed those and piloted a lot of initiatives that we are quite excited about. And we think we can increase and invest at a faster rate. And so the key question given that was, how to fund greater investment in growth going forward? And what we hadn't done is really go back and think through, how do you align the overall cost structure of the business to support that growth going forward. And as we dug in, we found a meaningful opportunity to reduce costs largely across the SG&A base.And as we stared at those two things, we realized that we could streamline our G&A structure and fund growth while continuing to grow the bottom line of the business in line with kind of our -- with our long-term algorithm.And so we're excited about that possibility and think it will give us even more money to invest behind growth which we have been doing, but this is really a step-up of that. And we're kind of sober about where we are.Last two quarters we had aspired to grow at a higher rate and we didn't. And so we recognize we need to invest more. We feel like we found effective ways to do that that will pay dividends over the course of the next couple of years. And we're excited to get going.

Can I just ask one follow-up? So if we think about membership growth like membership growth has been good. Comps is -- you've kind of just talked about right the comps less so. But what do you think the disconnect has been between the two? I guess, I'm asking is why hasn't the membership growth translated into better comps?

So I think the -- as you look at the membership growth there's a few things going on. First we're really pleased with the progress we've made in membership growth and in particular upgrading the quality of that membership growth. So an underlying portion of what is happening with MFI is you have trial members becoming paid members, which is great for the long-term health of the business.You have more members moving up into higher tiers. And so the overall quality of that base has improved pretty meaningfully. The key now is to get them shopping at a higher rate. And as we've continued to say, over time we believe that benefit will come.And part of what we're doing with the savings for Project Momentum is investing behind the things to activate that growth. It's everything from continuing to invest behind the right promotions and marketing, but also thinking differently about our assortment. And I think this will be key for us.As I've highlighted in my prepared remarks, there's a whole bunch of categories and services that we haven't been able to compete and we want to move aggressively into those categories. And we think both of those things are going to drive faster member shop rate going forward.

Thanks.

Next question comes from Peter Benedict with Baird.

Hey guys, thanks. I'm just following up on that, just that question there. I may have missed it. Did you give the year-end member count kind of where that stood at the end of the year?

Peter, as you know we don't disclose it at the end of the year. We disclosed it whenever we hit a milestone and we didn't do that at the end of this fiscal year. So we're still -- the last disclosed number was 5.5 million members and we typically disclose 0.5 million member increments. So we are somewhere north of 500 -- sorry, 5.5 million, but towards south of 6 million.

Okay. Thanks Bob. And I am curious on the MFI growth that you're planning for 2020. It looks like it was up 6% here in the fourth quarter maybe a little bit of help from the fee increase, but not much. But is 5% a good level to think about as you pencil out the MFI growth for 2020? Or should we be thinking something a little less than that?

Yes. I think the way to think about that is, it starts with the exit velocity out of the fourth quarter and consider the fact that that number has many inputs. It's certainly the number of members that we attract, but it's also the improvement in the quality they're in.So I wouldn't take a 6% Q4 growth and assume we're attracting 6% new members. There is a significant portion of that growth that is taking regular members into higher tiers putting them in the easy renewal program or the BJ's Mastercard program and doing things like that.It's a mix benefit as well as a member count issue. And you're right to point out that we're lapping the last pieces of the fee increase there in the 6% too. So I would expect that to obviously fall out of the growth rate going forward. So we're not projecting to maintain 6%, but slightly lower than that.

Okay. Thanks for that. And I guess just my last question. Anything -- the timing of some of the -- I guess the convenience initiatives that you're expecting to kind of roll out or double down on. Just trying to get a thought line in my head around what kind of plan to hit here, let's say in the first half of the year that could help with your comps over the back half of the year? Any -- what are the major things we should be looking for that are going to be entering the business here, let's say in the first half of the year? That would be helpful. Thank you.

Yes. So, this is really one of my biggest growth priorities going forward. We have built the platform for a much bigger omni-channel business than we currently have. That's buy online pick up in club. It's same-day delivery. It's the digital delivery of our coupons and all the ways we engage members.And that is today still a relatively small portion of our business, but it's growing quickly. And so, as we think about continuing to be kind of relevant to the way members want to shop, where they want to shop? When they want to shop? We believe, we can invest more aggressively to market those businesses, make our members fully aware of them, encourage trial and then encourage repeat use. And investment in those areas will be a big part of our growth formula going forward.And so, we built the platform over the course of the last 12 to 18 months and now we're going to invest even more aggressively behind it. We will be announcing new digital services as we move forward, nothing formal to announce today. But we're continuing to always rethink that set of services and what is most relevant for our members.

Peter let me tag on to that for one second too. We will -- starting in Q1 give you all a little bit more color on the digital business and its impact on our overall business. We chose not to do that to-date because we've been building it and have some periods overlapping that had 0 as our very low numbers in it.So we felt like it was not truly a great compare year-over-year, even though it is growing quickly albeit at a small piece of our business. So starting in Q1, we'll be disclosing the growth in our omni business and its impact on our overall growth.

Okay. That will be helpful. Okay, I will turn it over. Thanks guys.

Next question comes from Kate McShane with Goldman Sachs.

Hi, good morning. Thanks for taking my question. With regards to your real estate strategy, it sounds like there's going to be a slight acceleration there. I wondered if you could maybe talk about how the two Michigan stores have been performing. I believe you said in the past that these stores do have less SKUs than the rest of your store base.And I'm wondering too, if the new stores will have an opportunity to have more of these general merchandise categories you mentioned because of the fewer SKUs and the opportunity for new real estate?

Okay. Maybe, I'll take the real estate part of that and Lee can tag on the merchandising side of it. We are certainly focused on accelerating our real estate pipeline and building that pipeline to start opening more stores. You remember the story there, where we weren't doing that all that effectively and took a little bit of a pause to reinvent the process.The stores that we've opened to date have largely met or exceeded our expectations from that standpoint and that's given us the confidence to move forward at a faster rate. We got three done this fiscal year. We had hoped for higher than that, but the vagaries of the real estate process pushed Pensacola into this new fiscal year.We're looking for four this fiscal year, but our cognizant that real estate is a weird thing, so we disclosed three to four. But looking even further than that, we'd hope to get it higher than five and continue to build the pipeline out. Michigan stores are doing well, although, it's still very early, they've only been open a few months.They are looking pretty good so far. And that's on the back of that -- the improved process of selecting sites and opening sites, as well as the differences in merchandising that you pointed out and so I'll let Lee talk a little bit about that.The other thing I'll tell you just on the real estate front is, we're having much more success from our gasoline perspective, opened six last year, a couple have already been opened this new fiscal year so far. And we're looking for even more than that. And those clubs generally have better comps and better renewal rates than the non-gas clubs. And so, we'll continue to double down our gasoline clubs as well. So, let me kick it to Lee for our merchandising.

Yes. I think, the -- it is absolutely true that the clubs in Michigan have fewer SKUs, but that's not the key as much as they have the right SKUs. And so, as we open the clubs in Michigan, we built more assortment in general merchandise categories, where we generally are underrepresented and we were a bit lean around some of the traditional grocery SKUs.And I think this is one of the things about our transformation that has been a bit misunderstood. A lot of retailers in the past have reduced SKUs, because they have way too many and we're looking for operational simplification. We are not thinking about it as reducing SKUs.We're thinking about it as, we have not carried key growing items, healthy foods, organic foods, plant-based foods, a whole bunch of categories in Good morning, a broad line of services that our competitors carry, that offer a greater growth prospects and that we have -- we in, by and large, have not been in. Yet, we are over assorted in either slow-growing or declining center store grocery categories. And we can simplify that assortment without taking much away from the member at all.And remember, we have a tremendous amount of data to understand who is buying what, how do people substitute if we eliminate something, what else the people buy? And so, we can streamline assortment there and see growth by getting into things that are relevant and growing today. And Michigan is a step in the right direction, because you don't have the challenge of just transitioning the space. And so, we started a little bit cleaner and more in line in Michigan. But the overall growth opportunity that comes through from this effort is pretty considerable.

Thank you. And then if I could just ask a follow-up unrelated question. I think, part of what weighed on your results in the third quarter was partially due to how your promotions were conveyed in the month of October. I wondered if you could speak at all to how the cadence of promotions went during the fourth quarter and if that was something that was better in your opinion during the quarter, than maybe versus what you experienced in the third quarter?

Yes. I think the fourth quarter is really a story of two key things. So we were facing the EBT headwind from the year ago period. And as we thought about offering guidance for the fourth quarter, we reflected that and I've called that number on the Q3 call.What we weren't fully anticipating was the impact from the shortened holiday season. And you're having six fewer days between Thanksgiving and Christmas. We knew it would be headwind. It was a bigger headwind than we had anticipated. And that's the key driver of the sales mess in the quarter.When it comes to promotion, we actually feel pretty good about our promotional cadence in the quarter and the activity we're doing. We have become increasingly personalized, increasingly digital and increasingly scale on the things we're doing across the chain. So we've had great vendor engagement and support. We've had good member response that all feels like it's working well. We were just hit with the shorter selling season and the EBT headwind.

Thank you.

Next question comes from Robby Ohmes with Capital B.

Hello. Good morning. Thanks for taking my question. And Lee congrats on your new role. I had two follow-ups. I guess, the first, Lee can you maybe give us more color on the timing of doing more in categories like sporting goods, home improvement, office supplies, you mentioned some others?And then, related to that, and maybe Bob you can chime in here. As we look -- as you move and sort of do Project Momentum and you move through this year, does it change? When you look at the expense savings in new category rollouts and things, does it change the way we should think about your gross margin and SG&A ratios over the next year, next three years? That would be my first question.

Sure. Thank you, Robby. The merchandising changes are going to get layered in over the course of the year. And so, last year we tested selected assortment. So things like sporting goods, we set a small number of clubs with a sporting goods set to understand how it would respond, if our members would be excited about it. Yet, we, by and large, haven't rolled that out across the chain.Same is true with services. We have tested new service offerings and have been pretty excited about the results, including cell phones in Q3, but we're now at a stage where we can roll that aggressively across the chain and offer it every day. And so, you will see those things layer in over the course of the coming year. And some of it is seasonally dependent, some of it is not. And so, that will be the flow of that.

Yes. Robby, as you think about how that flows through the numbers over the next year and in the future. I don't expect it to have a material change to gross margins. Overall, I would say, that some of the new categories that we're entering are a little bit higher gross margins, but we're not forecasting it to have a material impact on the company's rate.And from an SG&A perspective, certainly, we'll be investing more dollars in growth and funding that through Project Momentum. I would say, we are planning and hoping for SG&A leverage over time, coming more from sales upside than from less expensive. So it's a way we're looking at it to really fuel the considerable opportunities we think we have which requires considerable investments. And that will impact SG&A dollars, but when they yield benefits, we should be able to leverage.

That's helpful. And just a quick follow-up. Lee you mentioned the younger members that you guys are getting and that -- I guess they're responding through digital channels more. Is there -- can you maybe give us more color on the sort of different surge? Are they sort of a higher -- do you expect them to have a higher overall value to BJ's than sort of historical numbers?

Yes. The short answer is yes. We think a lot internally about the lifetime value of a member. And when we talk younger, we're not talking people in their 20s. Our business starts to make sense when you buy a home, when you have kids, when you have a real need to buy in larger quantities. And so as you think about acquiring that recently -- recent new homeowner or recent -- your family kind of creation, you have great long-term value.And the key to that cohort is making sure you have the relevant merchandising and so that is increasingly organic healthy broad-based items. It is offering the appropriate omni services and making sure people aware of that -- making sure that people are aware that BJ's offers those and they are a great set of services. And then it's offering personalized marketing.And so we feel like we've built all of the tools to successfully target someone kind of in their mid to late 20s and 30s and roll them in the franchise and that will drive great things for us the long-term because you have more shopping years ahead than if you acquire someone a little bit later in life. And so we're kind of coming at it in a multifaceted way, but skewing younger is great for the franchise because of the lifetime value of the members.

That makes sense. Thanks so much.

Thanks Robby.

Next question comes from Chuck Grom with Gordon Haskett.

Hey good morning. This is actually John Parke on for Chuck. I guess can you guys talk a little bit more about the expected cadence of margins and EBITDA growth as we move here through 2020?

Hi John. So, certainly, you remember we don't give detailed guidance on margins and we don't give detailed guidance on quarters. So, it's a little bit difficult to give you a precise answer to the question.Certainly, the guidance that we've put forward anticipate some margin growth throughout the year that is fueled by continued impact of our CPI program a little bit of private label penetration growth which obviously is higher margin goods and so that should flow in -- flowing throughout the year.And the EBITDA growth is fairly similar, right? You got to take a whack at what you think the cadence from a sales perspective is because obviously EBITDA falls sales to some degree. But I don't see really any big year-on-year lapping changes from a profitability perspective you should be thinking about in your modeling.

Great. Thank you.

Next question comes from Chris Horvers with JPMorgan.

Thanks. Good morning guys. So, question jumping back to the membership side. So, the net member growth this year seems modest. Is that about the pace of the new membership sign up? The renewal rate of that -- those younger cohorts that you've marketed to at the past few years or is it the age members not renewing? Because at the same time the renewal rate was flat and you had added easy renewal and other efforts to make sure that members renew. So, just trying to understand the modest member growth and the flat renewals and sort of what cohort of members is driving that?

Yes, Chris, it's Bob. I guess what I would say is getting back to the storyline right? We're spending all of our time and effort here not only gaining new members but improving the quality of the membership base. And part of that is reducing the reliance on trial memberships that we've had over time as Chris -- sorry as Lee said in his remarks. We're now down to 3% from that measure. That's a meaningful impact. Those are folks that were once allowed to shop in our club for free, and now they're paying us members.They are not the most valuable numbers from a lifetime value perspective as we just mentioned, but they are certainly paid members and that's a good thing. We've improved our higher tier penetration up to 28% at the end of the year. Our easy renewal penetration is 63%. We're doing great things from a quality perspective there. I don't know that I would characterize the member growth to be modest tough that's kind of the one issue I would take with the way you phrased your question.I certainly would agree that we can attract more members and we would certainly like to do that but we were pretty pleased with the membership growth in the fourth quarter and throughout the year. The issue really for us is not member growth it is activation of those members and how do we get them in the box more frequently and buying more things from us digitally when they need to shop.

Got it. So, then as you think about -- I think the math all along has been as you got to 2020, less of a headwind from the trial membership coming down as a percentage. So -- and then at the same time that younger member sort of aging not and spending more year-over-year.So, can you share what you thought the headwind to comp this year from the reduced trial membership was? And then as you're looking forward, lighting up that younger customer to spend more what do you think -- why has that customer perhaps not aged like other members have aged in the past? Thank you.

Look I think you're on the right issue. We need to celebrate the success that we have of getting younger a little bit and attracting more members digitally and giving those members the products and services that they want and the ways to interact with us that they want. But we are far from where we want to be from that perspective. And that's the idea behind Project Momentum and investing in growth. Those members most particularly, but all members seem to want to interact with us and other retailers on a more convenient and increasingly digital basis.And so that's clearly the idea behind the story that you've heard from us today, taking all the cost cuts that we can find and pouring them into omnichannel and other growth avenues. That's the way this puzzle ends up making sense is giving the members the opportunity to shop from us in the ways in which they would like to do that.We've certainly built the infrastructure to do it. We had good success commercializing it in the end of last year. And this whole year is about really taking that next big leap from a digital perspective.

And the headwind from the trial in 2019?

Yes, Chris, we don't really get into that much detail. It was -- it's not something we've really shared.

Got it. Okay. Thank you. Best of luck.

Thanks, Chris.

Next question comes from Karen Short with Barclays.

Hi, thanks very much. Just moving -- or looking at your philosophy going into 2020. I guess in the past what you have been very clear on is you've been very focused on not moving too quickly. So as not to kind of fire members as I guess you put it. So I guess, how do we get comfortable that that won't be a bigger risk as you accelerate space optimization and obviously also move faster on SKU changes in some of the slower turning SKUs?

Yes, Karen. I think it's a great question. So we have been admittedly cautious on some things because we know getting it right is important. We're now at a phase where we feel like we have piloted a host of changes either with our assortment, with our promotional activity. With our omnichannel capabilities that we can move at a faster rate.And so as we look to how to fund investment in those things. We said we can streamline our costs, which is what led to Project Momentum. So that we have the flexibility to invest in growth and things that we've piloted and feel good about while still able to deliver the bottom line growth that we know is important to investors. And so we feel good about where we are.

Helpful. And then I guess I'm wondering if you could just talk a little bit on some of the other categories? I know you called out toys, obviously, was below expectations. Would you kind of be willing to think about or talk to what the growth rate would have been or decline I guess in 4Q and what your thoughts are for toys into 2020?And then I'd ask the same thing in terms of electronics, because you did do the electronic reset to move to I think higher price points. How is that looking in terms of success relative to expectations?

Yes. So as we called out in the script toys was below our expectation. We think that's a mix of things but the shorter holiday season is the key. CE we are happy about. We didn't have the Patriots in the super bowl this year, which is a new one for us, which depressed TV sales in the Boston area. But otherwise the CE reset is working well and we'll scale it in a bigger way this coming year.

Okay. And just last for me was the renewal rate at 87% was that in line with your expectations? Or was that a little bit lower? Like were you hoping for a year-over-year improvement?

Well, certainly we're always hoping for a year-over-year improvement, but 87% was what we had in our internal plan for the year.

Okay. Thanks.

Next question comes from Judah Frommer with Credit Suisse.

Thanks for taking the question. Just a follow-up on the space optimization and utilizing your data for promotional activity. Are you using the data kind of in the same way as you rationalize SKUs to kind of see how members who have bought those SKUs might react?

Yes. So we've made an investment in assortment and space optimization tools. If you went back eight, nine months ago, the merchants couldn't exactly tell you how much space was dedicated to SKUs across our footprint. And the history of the company is the clubs have evolved in very different ways, because we were general manager led. General Managers have the freedom to assort the buildings from a space standpoint as they saw fit and that resulted in a pretty broad range of stores. And so we've gone through the process of mapping and collecting space data for all of the clubs, connecting it to the kind of the planning and merchant community so that they understand exactly how productive SKUs are and then connecting it to the membership system, so that we know as we pilot things if we remove a SKU do members move to a competitive offering? Do they stop shopping that category entirely?And then we pilot and test what to do with those different results. It can be everything from viva SKU and stock or promote the competitive skew more heavily to those individual members. And so the key to getting this right is really understanding member behavior as we flex the space. And building those tools was a critically important part of moving faster. We now feel like we have those tools and it will allow us to move with greater pace.

Okay. That's helpful. And separately I know it's early, but is there any more color you could give on the high-octane promotion program. Obviously supermarkets have had a lot of success with fewer rewards for years. Are you getting that message across to the customer that they can get gas as cheaply as they can now? Is there any kind of pushback or slowness to adopt that you're seeing?

Yes, this program -- and just everything on the same page. If you buy a high-octane item you get $0.10 off a gallon of gas for every gallon you buy and the savings are stackable. So if you bought eight of these items, you'd get $0.80 off a gallon of gas. In the world of these programs, our program is incredibly competitive. The amount of savings you can garner or the outlay of cash is considerable and we've seen really good growth and adoption from our members with these programs. I still think it's sort of full potential. And so we have marketed this aggressively but we can market it even more aggressively going forward and we'll see good growth. And we think we're seeing share gain when it comes to fuel consumption in the market.

Great. Thank you.

Next question comes from Rupesh Parikh with Oppenheimer.

Good morning and thanks for taking my question. Just going back to some of your e-commerce efforts. I was curious what you guys are seeing right now from Instacart in-store pickup. And if there's any surprises thus far in what you're seeing between both those offerings?

Surprises? No. We're seeing great growth with these offerings. Again it was important for us to make sure the value proposition was right and the service has worked well. But we're seeing strong year-over-year and really period-over-period growth on these businesses and we're excited to invest behind them. And so the partnership is working well members seem to be enjoying the services and we're seeing great growth. Then as Bob said we'll disclose more detail on the Q1 call.

And Rupesh the one thing I'll add on to that is our same-day delivery offering where many digital and omnichannel offerings are profit dilutive. Same-day delivery is a full margin sale for us as we -- the charge that we offer for that is offsetting fully the cost of Instacart delivery. And so we aim to push that as hard as we can. Obviously if we can gain growth at a neutral profit we're more than happy to do that.

Great. And then just a follow-up question on your guidance. I was curious what your expectations are for fuel processes here? And then on the capital allocation front, is it fair to assume that at this point that share buybacks are not included within your guidance and you're essentially going to be paying down debt with your free cash flow?

Yes. On fuel profit it's more or less level with this year is the way that we're thinking about it from a cents per gallon perspective and then share gains would come in on top of that. And from a capital allocation perspective, as we go throughout the year and the next few years, the first thing we're going to do is invest in growth. And we've seen -- we put forward guidance with a little bit extra capital expense as we get throughout the year. There are other things we want to invest and we will do that first and foremost.Next we'll continue to delever. And finally, we will return capital to shareholders through the buyback. We did about $67 million of buyback last year and we'll look to do a little bit more than that in the coming year. The way that we're thinking about it in the guidance is flat overall share count that means we're buying back enough to cover the dilution from stock compensation grants.That is more or less 1% of the float. And at today's prices, we could buy back a little bit more than that obviously. And so we will look to opportunistically buyback shares and return capital to shareholders and delever. But first and foremost, our mission is to grow the business.

Great. Thank you.

Next question comes from Mike Baker with Nomura.

Hi. Thanks, guys. So first don't worry about the Patriots because we'll get a championship from the Bruins or Celtics or maybe both. So that will help this summer. The -- I get that you are -- two questions -- I hate to be so short-term focused on the comps but two questions there.One, I get that your guidance does not include an impact from the virus. But what are you seeing from the virus sort of offsetting the idea of people may be stocking up compared with people not leaving the house and not going to stores? So that's one question. And then the second one back to the fourth quarter, if the issue is the six fewer shopping days, does that mean that December was the worst month of the year and that January was a little bit better than the full quarter comp? Thanks.

Yes. So I'll take them in reverse order Mike. The quarterly cadence is -- quarterly cadence in the fourth quarter is precisely what you said December was the worst month of the quarter and January was better. And that really just highlights the compressed holiday calendar as you said.With respect to coronavirus, it's certainly -- probably the most fluid situation I've seen in my history here. We're monitoring it. We've got a team on top of it and we're spending all of our time trying to make sure that we do the right thing for our members and our team members as we go through it.We're not going to really talk about in any detail on the comp effect but we are seeing some businesses as some of our members are stocking up on cleaning supplies and can food. I don't know how we would predict what happens from here. And so we've chosen to exclude it entirely from the guidance that we've put forward. And we will react appropriately as best as we can and talk about it in the results as they come out.

Thank you. Fair enough.

Next question comes from Simeon Gutman with Morgan Stanley.

Good morning. Hey, I wanted to go back to the very first question regarding the space optimization. And it seems like this -- and it's a very sensible strategy, it seems like it was being discussed in some form but now it's being fast tracked. So I guess why wasn't this obvious a year or even a little bit two a go? And did you not have the resources?And then was it contemplated that this could be funded with CPI? And I'm just trying to make the connection that this doesn't -- is not a commentary on the amount of margin potential that's going to still come from CPI going forward?

Right. I think the pacing was really tied to making sure we were getting this right. And thinking through what new categories we wanted to enter? How we would optimize space? How we would communicate to members and how we would balance the change? We're now at a place where we feel pretty good about our ability to do this and do it well.As it relates to the CPI program, CPI has been a tremendous profit lever for us. We do anticipate as we go forward that we're going to have a little bit less gain from that. But Project Momentum will help fill that gap. And then when it comes to thinking about the assortment the other thing that happens, as you get this right as you create more room and head space for our own brands portfolio, which as we've talked about before is meaningfully more profitable than national brands.And so the overall algorithm hangs together reasonably well. But the key on pace is I guess to make sure we had it right from a member standpoint and that we had confidence to move more quickly.

And the comment around no disruption is that because you've begun to execute this? Or because the resets are pretty minimally I guess intrusive into the shopping experience?

Yes, I don't -- I'm not sure it's in no disruption there it's minimal small disruption. But the key thing we're trying to do here which I think is different from other retailers programs in the past is we're focused on growing the business. We're not focused on operational benefits as the primary lever. We're focused on adding products and services that we don't have that we know members want and are on trend. And so our expectation is -- while there could be some small disruption and it will be accretive very early on in the process.

Got it. And then just one follow-up maybe for Bob. The 1% to 2% comp guide. I don't think you give all this detail, but if you can members grow what in that guide the spend per member or I guess the ticket? Any color this -- the building blocks of how we should think about the 1% to 2% so we can assess the degree of difficulty of getting their elect thereof?

Yes. Simeon certainly, we don't disclose those metrics that you're looking for, but they are the right ones, right? We've talked about some of them on the call here today where we've been growing members at a nice pace. We don't see a reason why that would slow down. The primary thing we need to do is activate those members and that's the challenge. So that comes across in both traffic and ticket. How do we get them to come see us more often and how do we get them to put that extra item in their basket?As we've planned the comp for the year, we've effectively planned those two items to be pretty balanced. And as we always do, we have not included an impact from inflation or deflation in the comps. We've always just let that flow through and then tell you what we saw during the quarter. So we're looking for a little bit of member growth, a little bit of activation of those members and pretty balanced traffic and ticket.

Okay. Thanks. Good luck.

Thank you.

Thank you.

Our last question comes from Chuck Cerankosky with Northcoast Research.

Good morning everyone. How would you quantify these merchandise mix changes you're talking about in terms of the SKU count reduction, the number of new categories you'd increased? And then Bob I think you were the one talking about layering it in. Are we going to see that by regions? Or does it happen to all the clubs at the same time across certain time periods?

Maybe I'll take the last part of that question Chuck and Lee can give any detail he chooses to on SKU count. We're projecting it to come in through the year. We'll come in, in decent sized chunks though. So back to the overall storyline of sort of prudently testing last year to make sure that we could do it and that we are getting the results that we were desirous of having now we want to press the accelerator pedal a little bit. And so in the first half of the year, we will set a pretty sizable chunk of the chain this way and then continue throughout the year in another couple of steps. And so you'll see benefits from it hopefully throughout the entire year and we'll go from there.

Yes. And then in terms of just quantification, we are not issuing externally or internally guidance on SKU reduction because that's not what this is about. We are asking the merchant team to go find products and services where we can offer a great value and our members will love them. And when we have those, we're creating space by reducing places where we know we have more choice than our members need and are in categories that are not growing or declining. And so that balance will sort itself out over time. But the key is saying how do we get more of the stuff that we know people want and is already growing and making sure we're participating in it.

Lee, how do you keep the process dynamics so that you don't get stuck with an assortment that needs to be changed three years from now?

Well I think the assortment needs to be changed every quarter. And so part of this is just making sure we're being really dynamic and moving with the market. And as there are new categories that come along we're growing into those and assorting them. So plant-based protein is a great example of that that category by and large didn't exist a year or two ago, it's growing really quickly and we should be in, in a much bigger way than we have been. And so it will be a constant evolution of our assortment to stay current and relevant with our members.

Thank you. Have a good fiscal 2020.

Thanks, Chuck.

At this time, I will turn the call over to the presenters.

Great. Thank you everyone for joining the call. We look forward to talking to you again soon.

This concludes today's conference call. You may now disconnect.