Savers Value Village, Inc.

Good afternoon and welcome to Saver's Value Village conference call to discuss financial results for the second quarter ending July 1st, 2023. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Please note that this call is being recorded and the replay of this call and related materials will be available in the company's investor relations website. The comments made during this call and the Q&A that follows are copyrighted by the company and cannot be reproduced without written authorization from the company. Certain comments made during this call may constitute forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from expectations or historical performance. Please review the disclosure and forward-looking statements included in the company's earnings release. and filings with the SEC for discussion on these risks and uncertainties. Please be advised that statements are current only as of the date of this call, and while the company may choose to update these statements in the future, it is under no obligation to do so unless required by applicable law or regulation. The company may also discuss certain non-GAAP financial measures. A reconciliation of each of these non-GAAP measures to the most direct comparable GAAP financial measure can be found in today's earnings release and SEC filings. Joining for management on today's call are Mark Walsh, Chief Executive Officer, Jace Taz, Chief Financial Officer, and Eubren Tanios, President and COO. Mr. Walsh, you may go ahead, sir.

Thank you for joining us on our first earnings call as a public company. I'm excited to be here today to share our story and talk about the tremendous opportunity ahead of Savers Value Village. Later, Jane will discuss the details of our second quarter results and provide our initial outlook for the full fiscal year ending, December 30th, 2023. We were very pleased with our second quarter results, which exceeded our expectations on both the top and bottom lines. Comparable store sales increased 5.5%, and importantly, we saw consistent and steady demand throughout the quarter. The strong comps combined with sales from new store openings led to a more than 6% increase in revenue on a constant currency basis. And our bottom line profitability remained very strong. Despite a $2.4 million negative impact from foreign currency, we grew adjusted EBITDA nearly 5% to 89 million and increased adjusted EBITDA margin to 23.5% of sales. Stepping back from the numbers, we continue to see a number of positive trends driving our business. The reuse economy and the thrifting community are growing, and this is fueling strong donation volumes and increasing diverse customer base. We are investing in people, process, and technology to drive productivity and sales yield levels that generate extreme value to our customers and strong returns to our shareholders. For those of you who may be less familiar Savers Value Village is the largest for-profit thrift company in the U.S. and Canada. Our mission is to champion reuse and inspire a future where secondhand is second nature. What do we mean by that? Well, every day, millions of pounds of clothing and household goods are thrown away despite the fact that they still have years of usable life left. In most cases, these items go to a landfill. But Savers changes this trajectory. By partnering with nonprofits, we redirect billions of pounds of used clothes and household goods away from landfills and onto our racks and shelves, reducing waste and conserving natural resources. And we do it all while offering our customers a treasure hunt shopping experience and an average cost per item of less than $5. That's our incredible value proposition for consumers and the planet. And that is why we like to say at Savers, we are focused on a triple bottom line, people, planet, and profit. We've been operating for-profit thrift stores for nearly 70 years, and we are nine times larger than the next for-profit competitor. We're using our size and scale to further differentiate ourselves in a fragmented industry that has historically lacked innovation. It all starts with our business model, which is hyper-local, socially responsible, and supported by the communities we serve. Our model combines innovative technology and data to vertically integrate the three highly complex parts of our thrift operations, supply and processing, retail, and wholesale. With a strong focus on data analytics and technology, we are driving productivity gains across the enterprise and revolutionizing thrift operations. Over the last few years, we have introduced a number of key initiatives that are helping drive performance and strengthen our competitive advantages. First, we have implemented self-checkout kiosks in all stores and continue to improve store layout and signage. This has virtually eliminated wait times at checkout and enabled us to redeploy resources to merchandising and customer service, enhancing the overall shopping experience. Next, we have expanded our use of GreenDrop locations. These mobile donation locations are placed in convenient, high-traffic areas that optimize for high-quality donations, strengthening our supply base. There are staff with team members to make drop-offs quick and easy. Finally, on the automation and technology side, we have begun rolling out automated book processing units and central processing centers. Our automated book processing system is an integrated set of technologies to simplify and speed up how we sort and price books. The system uses high-speed conveyors, optic recognition, robotic tagging, and an automated distribution system to determine the best price for each book. Our centralized processing centers are investments in the future as we test and learn these off-site, semi-automated facilities that mechanize the flow of goods and prices. Both our automated book processing units and our central processing centers should drive improved efficiencies across the supply and the pricing of items over time, while deepening our competitive advantages. As I mentioned earlier, our operating initiatives are also powered by strong secular trends, like the growth in the reuse economy, the rise of secondhand goods, and the growing popularity of thrift. This, in turn, is increasing our TAM and providing exceptional growth opportunities. Our model has proven to be very resilient over the last 15 years with positive comparable store sales growth in all but the COVID year of 2020. We have made a number of operational improvements over the last few years that have resulted in significant increases in productivity and profitability, and we are now focused on growth. We are entering a new and accelerated growth phase for the company driven by new store openings, densifying our presence in markets where we are strong, continuing to strengthen our access to quality supply, acquiring established brands with loyal customers, and leveraging our size and infrastructure to enhance our competitive positioning and drive profitable growth at scale. We are ramping towards a target of high single-digit percentage unit growth annually with an accelerated unit growth plan of 12 new stores this year, 22 new stores next year, and 25 or more in the years thereafter. That growth is supported by an infrastructure we built and are continuing to augment to penetrate the growing TAM and the long-term store potential in North America. As you hopefully are beginning to see, we are truly unique. We believe in something big and inspiring, a company that grows its bottom line and benefits people and the planet. People, planet, and profits. That is our triple bottom line. And that is what makes Savers Value Village a unique, purpose-driven company. In closing, I want to thank our entire team for all they do each and every day. We would not be where we are today without our amazing teams, both in stores and at our support centers. Their passion and commitment to our mission and the reuse economy is at the heart of our success. Together, we are making a difference. I am proud of what we do and how we do it. With that said, I will turn it over to Jay to discuss our financial results. Jay?

Thanks, Mark.

It's a pleasure to be speaking to everyone today on our first quarterly earnings call as a public company. Please know that since our IPO closed on July 3rd, we will be accounting for this transaction in our third quarter, and our second quarter results do not include certain non-recurring items related to the IPO. As Mark indicated, our second quarter results were strong across the board and came in ahead of our expectations from both a top and bottom line perspective. Net sales increased 4% to $379.1 million. On a constant currency basis, net sales increased 6.2%. The increase was driven by a comparable store sales increase of 5.5% and new store openings partially offset by our optimization plan to drive sales yield at the acquired Second Avenue stores and the closure of three Canadian stores in 2022. The strong comp demand was fairly consistent across all three months of the quarter, with April and June slightly above the average and May slightly below the average. Looking at our sales by country, our U.S. retail net sales increased 4.4% to $196.5 million. Comparable store sales in the U.S. increased 5.6%, driven by growth in transactions. Our Canada retail net sales increased 2.4% to $153.5 million, which includes an unfavorable impact of foreign currency. Comparable store sales in Canada increased 5.5%, also driven by growth in transaction volume. We opened one new store in the second quarter and a total of nine net new stores over the past 12 months, ending the second quarter with 318 stores. Our new stores are performing well and right in line with our expectations. Cost of merchandise sold, exclusive of depreciation and amortization, increased 5.6% to $154.9 million. The increase was primarily related to higher labor and material costs from our increased store count, strong transaction growth, increased wage rates, and one-time costs associated with the ramp of our first CPC in the United States and the integration of Second Avenue. Salaries, wages, and benefits expense increased 1.9% to $67.3 million, driven by the scaling of our business to support our growth initiatives and investments in wages, partially offset by the benefit of self-checkout kiosks. As a percentage of net sales, salaries, wages, and benefits expense declined 40 basis points to 17.7%. SG&A expense declined 4% to $73.3 million. Last year's SG&A included a $3.3 million charge for a one-time adjustment of fixed assets. Excluding this charge, SG&A as a percentage of sales decreased 70 basis points to 19.3%. Depreciation and amortization increased 4.6% to $14.7 million due to capitalized expenses related primarily to new stores, our strategic initiatives, including the self-checkout kiosks, automated book processing, and centralized processing centers, as well as maintenance cap-outs. Interest expense increased to $27.7 million due to the issuance of our $550 million senior secured notes on February 6th of 23. We had a $4.5 million net gain on foreign currency in the second quarter. This relates to our term loan held by our Canadian business that gets revalued each quarter based on changes in foreign currency rates. Net income increased 13.6% to $35.1 million, or 24 cents per diluted share, compared to $30.9 million, or 21 cents per diluted share, a year ago. Diluted weighted average shares outstanding in the quarter were 146.2 million and did not include IPO-related equity awards or IPO-related common shares. Adjusted net income for the second quarter was $32.6 million, or 22 cents per diluted share. Adjusted EBITDA increased 4.7% to $89.3 million, and our adjusted EBITDA margin increased 10 basis points to 23.5%. As a reminder, this EBITDA includes a foreign currency headwind of $2.4 million due to the changes in the Canadian, Australian, and U.S. currency rates year over year. Turning to the balance sheet, we ended the quarter with cash of $111.6 million and total borrowings of $1.1 billion. For the first half of the year, we generated $54 million of cash from operating activities demonstrating continued strong cash flow conversion. After the end of the second quarter and on July 3rd, we completed our initial public offering of 18.8 million shares at a price of $18 per share. Net proceeds to the company were $305.7 million. We used the proceeds plus existing cash on our balance sheet to redeem $55 million of our senior secured notes and to repay $252.4 million of outstanding borrowings under the term loan facility, as well as accrued interest in premium under the term loan and the notes. These transactions resulted in a loss on extinguishment of debt of $10.6 million, which will be recorded in the third quarter. After making the principal payments, our total borrowings were approximately $820 million, and our net leverage based on a trailing 12-month adjusted EBITDA was 2.3 times. Let me conclude by laying out our initial outlook for the full year ending December 30th of 23. We expect to open 12 new stores and end the year with a total of 326 stores. Total net sales of approximately $1.51 billion, comparable store sales growth of approximately 5%, net income of approximately $23 million, adjusted net income of approximately $98 million. adjusted EBITDA of approximately $320 million, and capital expenditures between $100 and $105 million. A few additional items to keep in mind when modeling out quarters in full year. With the IPO closing on July 3rd, we expect to incur IPO-related stock comp expense of approximately $48 million in the third quarter and $21 million in the fourth quarter, which will be included in the salaries, wages, and benefits line on the P&L. This is non-recurring stock comp that will be excluded from adjusted EBITDA and adjusted net income. Our full year net income guidance of $23 million assumes an effective tax rate of 44%. Our GAAP effective tax rate will move around quite a bit over the next several quarters as a result of the application of IRS Section 162M as a public company as it relates to our IPO stock comp and the dividend-related bonuses paid in Q1, as well as our foreign currency gains or losses associated with the term loan held in Canada. Our full-year adjusted net income guidance of $98 million assumes a statutory tax rate of 29% and a foreign exchange rate of 0.75 for the Canadian dollar. Post-IPO, we had approximately 160 million shares outstanding, and our diluted share count was approximately 172.5 million. That concludes our prepared remarks. We would now like to open the call for questions. Operator?

Thank you, Sam. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. Again, that's star followed by the number one. If you would like to withdraw your request, please press star followed by the number two. Your first question comes from the line of Matthew Boss from J.P. Morgan. Please go ahead.

Great, thanks, and congrats on a nice quarter. Thanks, Matt. Thanks, Matt. So Mark, could you elaborate on comp trends that you saw as the second quarter progressed, or just any change in momentum or customer behavior that you've seen in July? And then larger picture, could you speak or elaborate on new customer acquisition trends and initiatives in place to retain these new customers?

Certainly through the second quarter into July, the trends have been pretty consistent, Matt. You know, in the second quarter, transactions were up 6.8%. Baskets were still down on the enterprise level around 1%. That trend hasn't really changed much into July. Donation volume remains steady. Transactions continue to drive good comps. And we're really excited that particularly strong member transaction trends remain solid. Both transaction growth from both member and non-member side have been continuing to grow through the second quarter into July. The loyalty database has grown at a solid pace, high single digits. The store teams are really focused on signing up new individuals. That's probably one of the principal things that our front-end supervisors are focused on. So we're very happy with the continued progress of loyalty sign-ups moving forward. I think one of the other things that I would like to mention is we continue to see through our own internal survey metrics an influx of younger customers. That's obviously very encouraging for us in the long term. What's really interesting is our boutique stores in Canada are over-indexing in these new loyalty customer sign-ups, which is equally exciting. I think that answer is pretty much all your question, right?

Absolutely. Yeah, that's great color. And then maybe as a follow-up, Jay, could you just help break down the drivers of the second quarter gross margin decline, and then how best to think about gross margin through the back half of the year as you continue to grow sales yield?

Yeah, Matt, for sure. You know, as you pointed out, right, we did have a little bit of a headwind on our cost of merchandise sold. during the quarter. That was more than offset with the leverage that we got on operating expenses. And breaking that headwind down in the second quarter really comes down to two components, and they're split about evenly within the quarter. One was we made higher labor investments. We made a conscious decision in June to increase our processing, which was really designed to match the demand and the solid comp sales trends that we saw during June. And then from a material standpoint, we did have a couple one-time items related to, as we close the books for the second quarter, related to the ramp of our highest bill, CPC, and then the continued integration of 2nd Avenue.

Hey, Matt, let me add one thing, though, on the sales yield side. With sales yield up 8%, we love the fact, and I think Jabroni would love the trade of having higher retail sales, a little less processing and driving that sales yield up. So we love that trade, and we're very pleased with the outcome from a store productivity perspective.

Congrats again. Best of luck.

Thanks. Thanks, Ben.

Thank you. Your next question comes from the line of Randy Koenig from Jefferies.

Please go ahead. Thanks a lot, guys, and good afternoon. I want to start with, Mark, give us some perspective on maybe unlock a little bit more on the GreenDrop side of things and how that strategy has unlocked more quality of product versus just the quantity addition. And maybe a personal example where I'm from the area of Long Island, you have a store in West Hempstead, has a certain demographic around that store, and then you have a GreenDrop location at the Walt Whitman Mall that has a different set of demographics, which gives you, I would think, higher quality of goods from that green drop location. So maybe just give us some perspective on what the green drop locations have done to kind of unlock that quality factor in the goods that you're getting. Thanks.

Yeah, Randy, I think Jerbon and I will tag team that one. I'll give a quick contextual start. You know, I think it goes back to the yield dynamic and the yield metric that we've talked about a lot. And as we think about yield improving, especially at 8%, know two things happening there's the improving the improvement of quality supply and i think that's part and parcel of the green drop strategy and then the ability for us to continue to utilize our back stock in the most effective way possible those those two metro those two uh pieces of execution through the supply channel are really helping us drive yield the green drop obviously then is a supercharged element of that particular strategy. LeBron has got a lot more information on where we're headed and where we stand with respect to the rollout of the GreenDrop facilities.

Yeah, thanks, Mark. Hey, Randy. So, yeah, we're pretty excited about this. I mean, just a quick reminder for the group, you know, the GreenDrops are a staffed mobile donation location they're clean well maintained and and really they bring convenience to the donor we've talked about this in the past convenience is paramount so green drop allows us to meet the donor where they already are in terms of their daily weekly routine so you know landlords like them because they they help drive traffic and incremental rent municipalities like them because they're a convenient way for for donors to donate And they avoid the problems that are sometimes a company's standalone unmanned bins. But exactly to your question, Randy, we know that high-quality supply helps drive selection and sales yield. And so matching those two things together is a pretty powerful combination for us into the future. So our target this year is to open 50 GreenDrop locations. You mentioned a couple in Long Island. And we're looking in lots of markets. to place these in high traffic, affluent areas of town. We currently have line of sight to opening 40 to 45 locations, and we continue to build our pipeline towards our target. So, you know, all up and all in, very excited about the prospects, not just this year, but into the future.

Yeah, it's great. And another area I want to kind of get into here is is the concept of varying productivity between the U.S. and Canada. Because I think it's clear or correct that when you think about the volumes you're doing per unit in Canada in a market that has, I think, much more higher awareness of the value village concept, and I think the country is more into thrifting than in the United States, yet the United States units are obviously a higher amount of volume per unit, yet the U.S. doesn't have a lot of awareness of your concept of savers yet. Wouldn't it be fair to think through an opportunity for the volumes in the United States stores continuing to move markedly higher as the concept of thrift becomes more pervasive in the economy of the United States, the awareness of the Savers banner becomes more well aware with the U.S. consumer. Kind of give us your thoughts on that kind of dynamic or that concept that I'm thinking through.

Look, I think, Randy, there's a lot to unpack there. We love where we – obviously, we love where we are in terms of brand awareness in Canada standing at, you know, 90-plus percent. So you're certainly – You certainly got a bull's eye on our ability to continue to monetize and drive growth in Canada. We've had some remarkably successful store openings in the last six months, which we're really good about our Canadian presence. That said, the U.S., we're even more excited because of the strength of the growth pattern in thrift and what we represent. These are hyper-local stores, hyper-local markets. We get our supply and our demand from within an 8 to 10 mile radius of each store, generating that awareness through influencers, through great signage, through great presence, through great real estate. We're cracking the code on that. Our new stores in the U.S. are performing quite well. We're very happy with the performance. They're on pro forma. And so I think we're delivering against that initiative in a way that we feel like will be replicatable over the next five, ten years. And so we're really bullish about our opportunities in the U.S.

and our ability to open up stores effectively. Great. Thanks, guys. Thanks, Randy.

Thank you. Your next question comes from the line of Brooke Roach from Goldman Sachs. Please go ahead.

Good afternoon, and thank you so much for taking our question. I was hoping we could dive a bit deeper into the strong sales yield growth that you've been delivering, particularly in this quarter. Can you talk a little bit more about the strategic initiatives that are driving that and your outlook on the sustainability of that momentum as you enter the back half and as you comp some of these tougher compares into early 2024? Well, let's start.

I think contextually, let's start, Brooke, and thanks for the question. Look, our... We run our business to maximize cash flow for future growth. And we're doing this by increasing sales in every pound of product we process. And Gibran, the operations team, they're focused on improving productivity across every possible element of our business model. Our store managers focus on sales, four-wall contribution, inclusive of both those front and back-of-house expenses. I think you're seeing that the fruits of that effort play out as we've articulated over the last four years, and I think it will continue to go forward. And we're very, you know, we had a great, you're right, we had a great quarter in terms of sales yield improvement, but we're not done.

Yeah, I think that's right, Brooke. And I would say that, you know, we talk a lot about making sure that we match processing levels to demand. So if we see that a particular store is enjoying a nice trend of strong transaction comp growth then our operators will see that and we will feed it accordingly to keep the flywheel going so you got to start with processing levels and managing that well and matching it to demand to continue to enjoy robust sales yield but beyond processing level you know as we've talked about there are other factors that really come into play We talk about use of price. We talk about use of space. All of those things are very data driven through dashboards that our operators have at the store level. And so to give you a very sort of timely and salient example, as we think about transitioning from summer into fall, each of our stores have dashboards that can tell them exactly what the sales performance is by square foot and by linear foot in our stores. so that you migrate through the season and you match what customers are buying in that particular moment in time, as opposed to what a traditional retailer might do, which was a whole floor flip to fall, as an example. So we try to match the customer exactly where they're at in terms of space, price, processing levels, and then we continue to do that in a data-driven way. We expect sales yields to be robust and strong as we go forward.

Great, thanks. And if I could just ask one follow-up. I was hoping you could elaborate on your store opening pipeline. Could you give us an update on your lease signings that give you confidence in an accelerating pace of store rollout?

Yeah, absolutely, Brooke. So we are on pace for this year. I think Mark mentioned that we are going to open 12 new stores this year. So feeling very good about that with grand opening dates already set. We have 22 locations that we are set to open next year. And we feel very good about the pipeline that is building for that. Here in the next few weeks, we will have signed our 16th lease. And the pipeline sitting behind that is pretty robust. What's encouraging, and in general, and that's anecdotal, but I'll share, that there seems to be a real ground shift happening in the conversations that our real estate team are having in terms of increased awareness and interest by landlords and developers. So the team is doing a great job. We feel very good about the momentum that is building. We feel good about next year. And again, some of those productive dialogues that we're having with national commercial landlords are pretty exciting.

Thank you so much. I will pass it on.

Thank you. Your next question comes from the line of Michael Lazar from EBS. Please go ahead.

Good evening. Thanks a lot for taking my question. Given what you've done so far already this year, your guidance for a 5% comp increase through the full year would imply that trends are going to slow both on a one-year basis as well as a four-year geometric basis, if we roll back the clock to what you were doing all the way back prior to the pandemic. So why would that be the case?

Michael, this is Jay. And look, we've stuck the guidance that we have in the back half. We always plan this business right around the low to mid single-digit comp. And we have kept the guidance consistent with what we gave in our modeling and our thoughts previously. So we have in the back half on a consolidated basis right around a 3.5% comp for both Q3 and Q4. And look, we think we're well positioned to do that. Obviously, we had a nice quarter in Q2, but we thought it was prudent to maintain the back half guidance as we had kept our expectations previously.

And my follow-up, Jay, is you mentioned that the model levered by about 50 basis points on operating expenses for the 5.5% comp increase in the quarter. Is that the right algorithm that we should consider moving forward, or was there some unique factors like the deployment of self-checkout, other cost containment measures that had made the expense leverage look a little higher outside of some of the unique factors that you mentioned this quarter that may not be repeatable moving forward?

No, I think compared to our expectations, we did have very nice leverage in the quarter. And that was driven by a combination of our scale efficiency, our good expense controls, as well as the strong comps. I mean, high level, right, if we can continue to comp above inflation, then that's when we get leverage. We did see nice leverage in the quarter on occupancy, self-checkout initiative, as you mentioned, which will anniversary early in 24 next year, as well as corporate SG&A. Got it.

All right. Thank you very much. Thank you.

Thank you. Ladies and gentlemen, just a reminder, should you have a question, please press star followed by the number one on your touchstone phone. Your next question comes from the line of Mark Altwacker from Baird. Please go ahead.

Good afternoon. Thanks for taking my question. I guess to start out, Gibran, maybe following up on the comment you made a moment ago about how the conversations with landlords are changing, does that potentially enable a faster pace of store openings or maybe accelerating sooner than you would have otherwise planned? Curious your thoughts there and just overall kind of the capacity of the organization from a pace of opening standpoint Yeah, hey mark It's a good question.

Listen, it certainly helps right? I mean just just the general awareness and interest that we're seeing but you know, I would remind the group that Finding attractive real estate is but one piece of the equation and We also think about supply as a necessary ingredient. We talked about GreenDrop, certainly spend time talking about on-site donations. Listen, there's plenty of high quality, good volume supply that's out there. But we want to make sure that we check that box in addition to finding a good parcel. So there's a few things at play. I think as we've talked about as an executive team, We feel good about the commitments we have. If we have the ability to go faster, we certainly will. But we want to be very thoughtful about the stores that we open. So we feel pretty good about where we're at. But yes, certainly it's a good development.

That's great. And then just to follow up, I think you said basket down 1% in the quarter. Can you comment on any trends in AUR versus UPT? and just any opportunity you see to take price in any particular categories to offset some of the higher labor costs. Thank you.

Yes. Yeah. Mark, this is Mark. So look, I think that the basket is as what we've described in previous conversations. We're seeing that trade-off. There has been some price being taken, and the consumer is just shifting the number of units they're putting into that basket. And that's where you end up at that basket being down. So there's definitely a price unit trade-off happening pretty consistently. As we've also talked about, price increases are very strategic in nature. They're done on a category-by-category basis across geographies, and it's all based on sales.

So we will continue to employ that very deliberate strategy to execute against our price increases moving forward. Thank you.

Thank you.

Your next question comes from the line of Mark Petrie from CIBC. Please go ahead.

Good afternoon. I actually just wanted to follow up on a couple of the topics you've already discussed. Gibran, specific to the comment around the perception from landlords and developers, it's fair to say this is in the U.S. you're talking about, and you're essentially catching up to the experience you already have in Canada, or is that underway in both markets?

Yeah. Hey, Mark. Good question. Yes. I would say the phenomenon is in both countries, but to a larger degree in the U.S. As Mark mentioned earlier, we have such strong unaided brand awareness and presence in Canada that we're really a very well-known quantity there. And yet, there still continues to be great opportunity for us in Canada. But yes, the lion's share of what I mentioned earlier, Mark, is in the United States.

Yeah, okay, perfect. And you highlighted the strength and the benefit of the small format stores. I think you have two of those locations open. What are the plans for expanding that format?

So on the boutique side, we have been very pleased with our performance today. We have two in Toronto and one in Vancouver. And again, as I mentioned, I think one of the things that we're really excited about is the over-indexing of the youthful customer coming into that store and signing up to be part of the loyalty program. That's a very exciting piece of the equation for us as we deliver Savers, that Savers experience, into a more urban setting. We will continue to prosecute boutique opportunities as they become available. I think the only thing I would say about the boutique opportunity is a Canadian-only strategy at this moment.

Thank you.

Sorry, I was on mute there.

Yeah, can I just ask one more? I just wanted to follow up, Mark, on the comments around prices. And I know you have the tools to be pretty responsive on that. And I'm just sort of curious, you know, big picture, how you're kind of looking at that opportunity today versus, you know, maybe where you were six months ago or a year ago. I don't know if you can kind of provide some context there.

Sure. I think we're looking at it in a very consistent manner. I mean, we really are very strategic in the way we approach our price increases and The team really does look at it on a month-to-month basis, category by category, across geographies. We're pleased that we continue to deliver value below $5. I think it's really powerful in terms of even though we have taken some price, we're still driving exceptional value for our consumer, both in the U.S. and in Canada. So the AURs are up. you know, low to mid single digits.

But again, we're very strategic in the way we're approaching those changes. Okay. Appreciate all the comments. All the best. Thanks.

Thank you. Your next question comes from the line of Bob Drupal from Guggenheim Securities. Please go ahead.

Hi. Good afternoon. Two questions for me. The first one is just, you know, with the completion of the IPO, Can you just give us, Jay, an update on your expectation for where you're going to end up leverage, maybe at the end of the year, and sort of how you think about leverage going forward on the balance sheet? And then the second question is just bigger picture, higher level, but can you just give us some insight in terms of your relationships with the nonprofit partnerships and sort of any feedback that you've gotten over the last few months from your partners? Thanks.

Sure. Bob, I'll start with the leverage question. As we talked about in the prepared remarks, post-IPR, our net leverage was about 2.3 times. You know, I would forecast by year end to be, you know, right around two times or just slightly under that. And then as we've talked about before, I mean, this business, the beauty of this business is that it will continue to generate cash, especially now that we've paid down some of that debt. And so we would naturally delever, you know, say half a point a year. And like we've said, as a public company, we think a net leverage target of one to two times is the right place to be. And as we build our cash, you know, that's going to be discussion with management and our sponsor about best ways to deploy that.

And, Bob, in terms of the nonprofit relationships, I think they've never been stronger. Actually, Javon and I had lunch with our very important partner here in the Puget Sound area, And what you'll hear from all of our nonprofit partners is they're excited about our growth efforts because they grow with us. And it is a very symbiotic relationship. They're very bullish about what we're trying to do, and they want to be part of that growth trajectory.

So I would say the relationships have never been stronger. Thank you.

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Walsh for any closing remarks.

Thank you, everyone, for your interest and savers and participation on today's call. We look forward to speaking to you again when we report the third quarter. Thanks again.

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.