Savers Value Village, Inc.

Please note that this call is being recorded and a replay of this call and related materials will be available on 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 result to differ materially from expectations or historical performance. Please review the disclosure on forward-looking statements, including in the company's earnings release and filings with the SEC for discussion on these risks and uncertainties. please be advised that the statements are current only as of the date and of this call. 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 directed comparable GAAP financial measures can be found in today's earnings and SEC filings. Joining from management on today's call are Mark Walsh, Chief Executive Officer, Jay Stavs, Chief Financial Officer, and Gibran Tenius, President and COO. Mr. Walsh, you may now go ahead.

Thank you for joining us today and for your interest in Savers. We had a strong third quarter and are pleased with our performance. Purchasing currency net sales increased 5%. Comparable store sales increased 3.7% on higher transactions. And despite a $1.5 million negative impact from foreign currency, We grew adjusted EBITDA by more than 6% to $91 million. Donations and supply of goods remained very strong in the quarter, and for the first time in Saver's 70-year history, we reached over 5 million members in our loyalty program, an increase of 10% over the third quarter last year. Our third quarter performance demonstrates our ability to deliver strong margin in EBITDA, underpinned by an operating philosophy that governs our unique vertically integrated company. Let me explain this a bit more. In the middle of 2019, Savers moved away from a volume-based operating paradigm to a data environment with one goal, maximizing EBITDA. We knew that by finding the optimal mix between price, cost, and turnover, we could drive improved profit margins and strong, sustainable cash flow. To do so, we refocused the organization around productivity measures and started more thoroughly analyzing data for every item we collected, processed, and sold. Unlike conventional retailers, we don't preorder products months in advance from a vendor or manufacturer. Instead, we accept donated goods on behalf of our nonprofit partners, and our cost of these goods is made up by two primary components. the price that we pay our nonprofit partners for the donated items themselves, and the labor costs we incur to collect, source, grade, and merchandise these items for sale. Labor is the biggest component of our cost of goods, and this accounts for roughly 60% of the total product costs. While we accept donated items every day, we have the ability to accelerate or decelerate our processing volumes based on the directional demand trends at retail. This does two things. First, it keeps our retail inventory levels in balance with demand. And second, it better matches our expenses to our sales, both of which help maximize productivity, EBITDA, and cash flow. The result has been more than a 700 basis point improvement in gross margin, and 1,000 basis point improvement in EBITDA margin from 2019 to 2022. An important driver of productivity unique to Thrift is a metric called sales yield. Sales yield is calculated by dividing retail sales dollars by the number of pounds processed in any given period on a currency neutral and comparable store growth basis. Sales yield was $1.50 in the third quarter. This was up from $1.42 in the third quarter last year and $1.08 in 2019. To put it simply, we are generating higher sales for every pound of product that we process, which is being driven by our productivity gains from structural changes made to the business. It is also a reflection of the strong trends we are seeing on the supply side of the business. Donations were very strong in the third quarter. On the demand side of the equation, we saw two different trends in the quarter. Demand for hard goods remained strong and consistent throughout the period, while demand for soft goods was strong in the first half of the quarter and moderated a bit in September. As a result, we stepped our soft goods processing volumes up in the first half of the quarter and down in the latter part of the quarter to align our expenses to revenue and deliver $91 million in adjusted EBITDA. With an average unit retail of under $5, our value proposition is strong. Clearly, value is an important dynamic in the consumer landscape. However, as everyone is very aware, the macro environment is uncertain right now, as inflation remains high on essential everyday items such as food and housing. With consumers managing their discretionary spending, we are monitoring both demand and processing very closely to align expenses with sales. and maintain profitability. Turning to new stores, in line with our expectations, we opened three new stores in the third quarter and are on track to open a total of 12 this year. We continue to target 22 new stores in 2024. As a reminder, our new stores generally take three to four years in Canada and four to five years in the U.S. to reach mature processing efficiency, donation volume, and retail demand. The new store classes of 2022 and 2023 are performing in line with expectations. There is a tremendous amount of white space in front of us. We are addressing that opportunity methodically. We continue to build the organizational muscle in accelerating the store cadence, and our early results provide bullish overtones to continued success. In conclusion, we feel good about our third quarter results. The quality and quantity of our donations and our ability to execute our business going forward. We have made significant structural changes to the business that allow us to maximize EBITDA through focusing productivity measures that align our inventory, processing levels, labor expenses with demand trends. We know this is very different from most other retailers, and it is why we are so confident in our ability to drive profitable growth at scale. I want to thank our dedicated and hardworking team members who execute the business and serve our customers every day. Our mission is to grow the reuse economy and make secondhand second nature, thereby benefiting people, planet, and profit. With that, I'll turn the call over to Jay to discuss our financial results.

Jay? Thanks, Mark. Before I begin, let me remind you that our IPO closed on July 3rd, and the related accounting for the transaction was recorded in our third quarter results. Specifically, we recorded $48.3 million of non-recurring stock compensation expense related to the IPO in the salaries, wages, and benefits line of the income statement. The stock comp expense obviously impacted our effective tax rate in the quarter as well, as this was not tax deductible. With that said, let me review our third quarter numbers. Net sales increased 3.8% to $392.7 million. On a constant currency basis, net sales increased 5%. Our sales growth was driven by a comparable store sales increase of 3.7% in new store openings. During the quarter, we saw the strongest demand in July and August, with somewhat softer sales trends in September. As we transition from summer to fall goods in September, we believe that the above normal temperatures in the US and Canada impacted our soft goods sales, and we moderated our processing levels accordingly. Sales of hard goods remained strong and consistent throughout the quarter. Looking at our sales by country, U.S. retail net sales increased 3.6% to $200.1 million, and comparable store sales increased 3.3%, driven by growth in transactions. Canada retail net sales increased 4.4% to $163.5 million, which included an unfavorable impact of foreign currency. Canada comparable store sales increased 4.3%, also driven by growth in transaction volume. We opened three new stores in the third quarter and a total of 12 new stores over the past 12 months, ending the third quarter with 321 stores. We are pleased with our new store performance, which is in line with our expectations and our underwriting model. Cost of merchandise sold as a percentage of sales was flat to last year at 40.3%. Higher labor and material costs were offset by lower freight expenses. Labor costs increased primarily from higher wage rates, growth in comparable store transactions, and an increase in the number of stores. Salaries, wages, and benefits expense increased to $116.1 million due primarily to the $48.3 million in IPO-related stock compensation expense. Excluding this expense, salaries, wages, and benefits was $67.8 million and declined as a percentage of net sales by 70 basis points to 17.3%. Increases in wages were more than offset by benefits of the self-checkout kiosks. SG&A as a percentage of sales was flat year over year and continued to be well controlled. Depreciation and amortization increased 18.6% to $15.9 million due to capitalized expenses related primarily to our strategic initiatives, including new stores, centralized processing centers, automated book processors, and self-checkout kiosks, as well as maintenance capex. Interest expense increased to $18.7 million, primarily due to overall higher interest rates on our debt. Net loss for the quarter was $15.6 million, or a loss of 10 cents per diluted share compared to net income of $15.5 million, or 11 cents per diluted share a year ago. Adjusted net income for the third quarter was $26.5 million, or 16 cents per diluted share. Adjusted EBITDA increased 6.3% to $91 million, and our adjusted EBITDA margin increased 60 basis points to 23.2%. Included in adjusted EBITDA is a foreign currency headwind of $1.5 million due to changes in currency rates. Turning to the balance sheet, we ended the quarter with $125.3 million in cash. For the first nine months of the year, we generated $104.4 million of cash from operating activities. We completed our initial public offering of 18.8 million shares at a price of $18 per share on July 3rd. Together with cash on hand, the company used the net proceeds from its IPO to redeem $55 million of 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 in the notes. These transactions resulted in a loss on extinguishment of debt of $10.6 million in the quarter. At the end of the third quarter, our total borrowings were $818.3 million, and our net leverage based on a trailing 12-month adjusted EBITDA was 2.2 times. Lastly, let me make a few comments about recent demand and processing trends and how we are thinking about our financial outlook for the remainder of the year. As Mark indicated, our business is very different than most retailers. We're constantly receiving goods through the form of donations to our charity partners in the stores and are able to manage our floor inventory levels and production expenses by adjusting processing to demand trends. This allows us to better align our labor expenses to sales and maintain profitability. We lowered processing in the back half of the third quarter based on some fluctuations in September for fall and winter soft goods that we believe were weather related. While we have seen a pickup in demand from the September lows where weather has normalized, the pickup has been modest and varied between markets. With the continued inflationary pressures and uncertainties in the broader macro environment, we believe it is prudent to take a measured approach and closely manage our processing levels to maintain profitability in the fourth quarter. We also note that the decreases in the Canadian dollar currency rate over the past three months adds an incremental headwind to sales in EBITDA in the fourth quarter. As a result, we are guiding our fourth quarter comparable store sales to a range of flat to plus 1% and our fourth quarter adjusted EBITDA to approximately $80 million. Our updated guidance assumes a lower Canadian dollar exchange rate of 0.725, which negatively impacts our fourth quarter sales and adjusted EBITDA estimates by approximately 6 million dollars and 1 million dollars respectively. For the full year 23, sales are now projected to be approximately 1.49 billion dollars as compared to the previous guidance of approximately 1.51 billion dollars. which includes the negative FX impact that we experienced in the third quarter and our revised FX impact in the fourth quarter from the lower exchange rates. Full year 23 adjusted EBITDA is still expected to be $320 million unchanged from previous guidance and once again inclusive of the revised FX impacts. Other guidance figures for the full year 23 are contained in the outlook section of the earnings release. A few additional items to keep in mind when modeling out quarters in full year. In the fourth quarter, we expect to incur IPO-related stock comp expense of approximately $21 million, 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 assumes an effective tax rate of 44%. Our GAAP effective tax rate will continue to move around in the next few 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 foreign currency gains or losses associated with the term loan held in Canada. Our full-year adjusted net income guidance assumes a statutory tax rate of 29% and a foreign exchange rate of 0.725 for the Canadian dollar. Post-IPO, we had approximately 160.5 million shares outstanding, and we are estimating a full-year diluted share count of approximately 157 million shares.

That concludes our prepared remarks. We would now like to open the call for questions.

We are now opening the floor for the question and answer session.

If you'd like to ask a question, please press star and number one on your telephone keypad. Our first question comes from Matthew Voss from JPMorgan. Your line is now open.

Great, thanks. So, Mark, maybe higher level, could you just help and maybe speak to any notable trends in customer behavior or just elaborate on the cadence of traffic trends that you saw as the third quarter progressed and maybe just anything in October or just drivers underlying your flat to 1% comp outlook for the fourth quarter?

Yeah. So, look, I think the third quarter started with strong transaction growth in both Canada and the U.S. Baskets have been flattish enterprise-wide throughout the quarter. We do believe some of that slowdown in the U.S. and Canada in September, and that's continued into early October, was weather related. We've had unusually warm temperatures across both countries that drove down demand for traditional shoulder season goods. We've got internal analysis that shows highly negative correlated statistical analysis, when you look at high temperature versus transactions, it's like a jigsaw. One indicator that also we point to is the dynamic that our demand for hard goods has remained constant, consistent with the earlier year trends, which also points to that soft good shoulder season issue that I mentioned. We just were remaining cautious about the buying patterns as UPTs remain depressed. And from our vantage point, consumers are sticking with their budget. Ultimately, we remain very bullish about the overall sector guidance for the thrift industry. We love where we are from a value positioning perspective. And I'd just like to reiterate, we continue to run the business to maximize EBITDA, generating growth, enabling free cash flow to invest in stores, supply, and inorganic opportunities. And it's really a unique model. that will power growth at scale.

Great. And then maybe, Jay, could you just elaborate on the flexibility with the model, meaning as we think about labor and processing costs and a potentially softer top line backdrop, are there efficiency opportunities, multi-year, or just levers that can be pulled if same store sales were to be below that leverage point, which I think is 3% to 4% same store sales? Right.

Yeah, Matt. And thanks. And really, I mean, the biggest lever that we talk about is obviously modulating our processing levels so that that matches demand. So our labor expense, which is in COGS, which is the biggest component of our COGS, really ties into demand and our sales. And by doing that, we can capture a lot of that sales shortfall and keep our EBITDA whole. Now, look, if we had a wild swing in a comp, you know, I'm not saying we could capture 100%, but we could get a lot of it And then we have things below the line, below COGS, that we're very focused on managing our operating expenses. Because our goal, like we've done here, is producing strong EBITDA, maintaining our EBITDA, even with soft sales. And that's embedded in the guidance for Q4. And that's something we could also carry on next year.

It's a great color. Best of luck. Thanks, Matt.

Our next question comes from Brooke Roach from Goldman Sachs.

Your line is now open.

Good afternoon, and thank you for taking our question. I was hoping you could elaborate on the growth that you're seeing in sales yield today and the strategic initiatives that are driving that unlock. And then as a follow-up, have you seen any signs of increased price sensitivity of your customer that would suggest that some of the pricing optimization strategies you've unlocked in the business may need to be reinvested in driving value for that customer in this more challenging macro backdrop?

So I'll answer the first question. I'll turn it over to Gibran on sales yield. Brooke, thank you for the question. We have not seen any impact on price, none whatsoever.

Yeah, I think that's right, Brooke.

And I would say when it comes to sales yield, we are always looking at price with regard to item ratio and again the definition of item ratio being the number of items that we put out versus the number of items that we sell within a particular category so when when we think about price we think about reacting to what is selling really well with the customer and we take price very surgically at the category and the subcategory level and that's an ongoing process that we do that's not just at the category level but also geographically, regionally, if you will. So I think that that helps in sales yield. I think our ability to manipulate space. You know, at the top of the call, Mark talked about unseasonably warm weather as we transitioned into fall. Well, one of the things that we're able to do in being nimble and seeing space to sales and manipulating space to sales is that as you transition across a shoulder season and you would normally be shrinking your summer set, expanding the cold weather items. That's going to look a little bit different each year, depending on how the actual fall weather comes in. And so we can walk that line and meet the customer where they're at, all the while protecting sales yield. So if short sleeve items are selling better a little bit later into the season, we'll keep them on our floor and be more nimble. So there's a lot that goes into it. And the last that I would say on sales yield is, and Mark mentioned this earlier, very robust on-site donation performance in both countries. And what we know over the years in measuring this is that when the donor takes the time and care to bring their goods to our donation centers and our green drops generally will create a higher sales yield in our stores versus the rest of the supply, if you will. So I think all those things taken together are what help drive sales yield.

Thanks, Gibran. And then maybe a follow-up for Jay. Can you speak a little bit to the labor costs that you see as you look ahead in the model? Are there any additional initiatives that you have to optimize labor efficiency in both the short-term and the medium-term?

Yeah, well, we're constantly looking for efficiencies. I mean, obviously, the self-checkout was an initiative that we completed this year, and that is paying dividends. We're seeing nice expense leverage in our payroll on the front side of the stores from the self-checkout. We're continually monitoring efficiencies of our processing teams as well, trying to find that perfect balance between the level of processing and the efficiencies to drive that. So absolutely, I mean, we're constantly sharpening that saw. As we think about wages, obviously, we've invested in wages in the last couple of years very significantly. We're up probably 6% year over year. And we expect from a labor pool, while there's still going to be some challenges, we would expect that labor investment to moderate slightly looking forward.

Yeah, and Brooke, I'll jump in. It is all about tying labor to processing, modulating that labor, those number of hours we utilize to process the amount of goods that we put on the sales floor. Our ability to do that And that vertical supply chain really drives efficiency. And you see it over the last quarter. We were able to do that in the second half of the quarter. We feel very bullish about our ability to do that moving forward.

Thanks so much. I'll pass it on.

Thanks, Brett.

Our next question comes from Randy Koenig from Jefferies.

Your line is now open.

Yeah, thanks a lot. And good evening, everybody. I guess, Mark, can you give us some perspective on any differences in trends that you saw from the shopper in Canada versus U.S.? Just trying to get an understanding if there's any differences there. And then kind of similar question on behavior differences between how the members acted in the quarter and how they've changed versus non-member shoppers in your data analytics. Thanks, guys.

On the Canadian piece, look, the Canadian consumer is stressed, like the U.S. consumer. What I think the strength of our model over a period of stress, we've been able to achieve very strong comps. So our value proposition remains as powerful today with the Canadian consumer as it ever has been. But we're obviously keeping a sharp eye on the market once again employing a data-driven approach to match production to demand to deliver that strong productivity randy i don't i don't think we see any massive difference in their shopping behavior again transactions drove growth and baskets are relatively uh similar so very very very symbiotic uh consumer reaction in both countries on the member non-member i point to The real strong growth we had in signing up members this past quarter broke that 5 million loyalty member database mark. Very exciting for us. A couple of other data points I'd point out on the loyalty program. Very pleased, again, with our store execution on the ability to capture new member signups, an engine that ultimately fuels that growth. and the stickiness with those thrifters. And the member signups continue to be moving towards that youngest cohort. So another couple of hundred basis point move in the youngest cohort signing up in terms of the number of folks who signed up. Sorry, I kind of pushed that a bit. And we're also seeing in the higher household incomes that trade down. So we're seeing active trade down with our higher household income cohorts, increasing their share of the overall pie.

Great, thanks. And then Jay, I don't know if you mentioned this, I might have missed it, but how do you think, how should we be thinking about, I guess, high level about FX impacts across top and dollar lines as we think about, you know, beyond next quarter into next year, just high level?

Yeah, so we are, you know, we're going to forecast that at the future rate, you know, forward curve future rates at the time. We're currently at 0.725 for the Canadian dollar, so we don't have the perfect crystal ball, but when we get around to our 24 guidance, you know, we will use the then existing future curves to estimate that.

I guess then any changes in how you're thinking about hedging or anything like that then or no?

No, I mean, we have got a couple hedges in place, a cross-currency swap on our debt, as well as some Canadian future contracts to hedge about 60% of our cash flow from Canada, and those have been effective even in this environment. I mean, we're constantly looking at it, but we wouldn't expect major changes.

Fair enough. Great. Thanks, guys.

Our next question comes from Michael Lasser from UBS.

Your line is now open.

Good evening. Thank you so much for taking my question. It sounds like while the weather was a drag on the business in September, in October, and what you've seen so far this quarter, it's a combination of some weather drag along with the consumer trepidation. So A, is that right? B, is it best for us to expect that that's going to continue for the next couple of quarters? Or would you expect if this consumer pressure persists that you'll start to see a trade down that will support your same store sales growth that you just haven't seen as of yet?

I would not say that that's an accurate portrayal of what's happened. In the last couple weeks, as the weather has moderated and we've gotten to more seasonal weather patterns, we've seen an improvement in our comp trends. So we feel actually very bullish about that. We feel good about that moving forward. And again, as I mentioned, we have continued to see active trade down in our higher household income cohorts, increasing the share of their overall pie during that same window.

And Michael, this is Jay, just to add a couple other points, right? So, like Mark said, we've seen that acceleration, so we feel good about that. You know, we're trending for Q4 right, you know, right into the guidance that we've given from a comp standpoint, a zero to one. And we're not, you know, we're not giving 24 guidance at this time, but there's, we've experienced no structural changes to the business, and we're confident we can achieve the long-term growth targets over time. I mean, sure, there could be some variability quarter to quarter, but The beauty of the model, like we've talked about, is our ability to modulate the processing so we can maintain profitability and drive that EBITDA growth.

Okay. Two other quick follow-ups. Number one, is there any relationship between the quality of the product that gets delivered in the economic cycle, meaning if the economy gets tougher, the quality of the product that gets donated may not be consistent with what you've seen in the last few years, and so sales yield could moderate. And also, it looks like the new store productivity remains under pressure just as we're able to calculate it externally. Can you give us a sense of why that is the case? Thank you very much.

Yeah. Hey, Michael. This is Jabron. I think Jay and I will tag team this one. So, on the donation side, your question around, you know, does the quality or even the volume of donations change in a challenged economy. What I can tell you is we're not seeing that in our business. In fact, on-site donation volume has been robust in both Canada and the U.S., and a lot of that goes to execution. We've talked about this in the past, where when it comes to being the donation destination of choice for the donor, convenience is king, like we talked about. And then they need to have that reliable, fast, friendly experience that our team members are trained to give each and every time. So doing that consistently, doing that well ensures that you stay that destination of choice. And again, we're seeing pretty robust on-site donation performance, which we know, as mentioned earlier, helps drive sales for us.

Yeah, Michael, this is Jay. Just on the new store productivity calculation, and I understand, right, with the information you have, it's hard to get to it. But our new stores are performing right in line with our expectations. They're doing very well. And that translates to a new store productivity of about 70%. And it is challenging to get to from the numbers because there's some noise in there with our wholesale revenue. We're lapping some closed stores still as well in the quarter. And then finally, Second Avenue right how we're strategically shifting that model You know from from you know more to the savers model of focus on sales yield So backing some of that noise out the true new stores are right in line with our expectations Thank you very much a good luck Our next question comes from mark the tree from CI BC your line is now open I

That's great. Thank you. Actually, I just wanted to pull up on that last question with regards to the product quality in donations. And is there any change in how new locations are ramping up in terms of volumes? And I guess that's new stores, but also the green drops as you're rolling them out?

Yeah. Hi, Mark Gibran. No, not really. Not really. When we do a pro forma, we open new green drop locations and new stores. We kind of have a historical pattern and an expectation of what that ramp is going to look like for donation volume. And on the whole, we're seeing exactly what we expected. Some locations a bit better than what we anticipated, some a little lighter. But on the whole, pretty accurate in terms of our expectations. So, no, not seeing any change on that in terms of new locations.

Yeah. And, Mark, just a reminder, right, it does take time for our stores to mature. I mean, it's a long tail, you know, three to five years, depending on the market and the country. So, yeah, the early reads are fine in line with our metrics, but it's a long maturity timeline.

Yeah, understood. Okay. And just given the landscape of a cautious consumer, I'm just curious if you have any plans to broaden your marketing programs to, you know, appeal to and reach more customers, and specifically here in Canada, you know, to reach new Canadians, given the significant acceleration Canada is seeing from an immigration perspective.

I'll say this on the Canadian market, having just been there for – for a week just two weeks ago. I was up in Alberta. And we feel really good about our approach. And I will tell you the best indicator of how we're reaching out to new Canadians is our new stores in Canada. We're very pleased with new store openings. The number of people we're signing up remains robust in Canada. And I would say we're really confident and continuing to drive that feel that we are a part of the mainstream retail economy. We're really woven into the fabric, no pun intended, of the Canadian retail landscape, Mark.

Okay, appreciate the comments.

And then any update with regards to the M&A landscape? I know that's obviously an ongoing story and part of the strategy. I was just curious if... if the current landscape is shifting at all. Thank you.

The landscape has not shifted. We remain focused on the dynamics that we talked about in the last call around geographic infill, the opportunity to grow within a market, strong supply, that strong local brand presence, a solid and stable, attractive workforce. in terms of what we inherit and then the opportunity to leverage our operational excellence to capture additional synergy. So beyond that, nothing I can say at this time.

Okay, appreciate all the comments and all the best in the holiday.

Our next question comes from Peter Keith from Piper Sandler. Your line is now open.

Hey, thanks. Good afternoon, everyone. I wanted to ask about store growth. so there seems to be some awareness that uh in the marketplace with investors that savers was challenged with new store openings before 2019 under prior management and as a result maybe you know the current team you guys will have also have trouble opening up new stores and i guess if if someone is suggesting that where might the thinking be incorrect in that assumption yeah hey peter this is jabron and i'll i'll

Grab that one. You guys can jump in. You're absolutely right. It was a different paradigm under a different administration. One thing that we do know in doing the forensics on that is, you know, today when we think about new store sites, we want to check the box on a few things. So we have a pro forma and a very good predictive model on foot traffic, the surrounding trade area, so on and so forth, but also on supply. And we talk about the white space that we have and the momentum that the team has built in terms of that robust pipeline. But we won't open a new store unless we've got the supply equation figured out. And that means on-site donation performance for the location, as well as what the supplementary delivered supply is going to look like. And I can just tell you that in some of those previous vintages, they had not figured that out. And it was not a data-driven approach the way that we're doing today.

Yeah, I think I'll add this. The approaches couldn't be more different. And I think we built the muscle and we're executing to a high degree. So I'm really confident about Gibran and David Seibert and their team

in opening these new stores and continued success over the next uh years okay good yeah the only other i'm sorry peter the only other thing i would share is that you know um pretty selective where we open new sites that meet all that criteria and we're able to do that because um because of that white space because we are we are prospecting in every major market in North America and Australia. So there's a big, robust pipeline that's sitting behind the scenes that allows us to be very judicious in the new stores that we choose.

And we are on track for our store target both this year and next year. Okay.

Well, I wanted to just pivot back to the sales trend. I know you talked about weather and certainly we're all aware of kind of a warm start to the fall, but the weather's not been equal across the country. It has been colder in the western U.S., warmer middle and eastern. So did you see any geographic differences in the sales trend maybe in the last two months as a result of that?

Yes, that's a very good question. We absolutely have seen differences in the sales trend. Again, we're running – statistical analysis all the time, looking at volume and highs with respect to TYLY, the temperature highs. And we do see high correlation, high negative correlation when that temperature spikes up. We're in the shoulder season. We're trying to push cold weather goods. We see the volume of transactions go down. But in areas where we haven't had that extreme warmth, we've seen much better performance, much more consistent performance as we have through the third and the second quarters. And that's why we do talk about weather, because we feel like once the weather pattern settles, we'll get back to our cadence of strong comp growth.

Okay. Thank you very much. Thanks, Peter.

And one more thing I'll add, Peter, is that we have seen hard goods The consistency of our hard demand remains constant, so there's no weather influence on miscellaneous and furniture and books.

That's been very consistent throughout the quarter.

Thank you.

If you'd like to ask any questions, please press star and number one on your telephone keypad. Our next question comes from Bob from Guggenheim. Your line is now open.

Hi. Good afternoon. Just two questions for me. The first one is just, you know, on the sales piece of it, are you seeing any new competitive pressures, you know, in any of the markets that you're competing in? And the second one is, you just give us an update just sort of on the number of green drops, you know, and you sort of make sure our plans are current on that. you know, sort of the pipeline of green drops as well. Thanks.

I'll answer the first question, Bob. Thanks for the question. No, not any negative influence from the competitive set. We're well positioned, feel very good about our presentation from a merchandising perspective, as we discussed. We know from consumer research that our merchandising is superior to our competitive sets. We feel great about where we sit today and our value proposition and how we're standing, how we look to the consumer once they walk in that door.

Yeah, Bob. And then on the GreenDrop side, so we are at roughly 60 locations right now for this year. We will have line of sight to approximately 30 locations that we will have opened. All doing well. in terms of their early performance with what we model so very happy about that one thing i will say about green drop is that it's such an attractive different method right and all of you are familiar with this right they're they're visible clean well-maintained locations as opposed to the standalone bin and all the problems that those can create but the fact that they are different does make it challenging in some municipalities to get the permitting, right? To fill the permitting form for the city can be challenging. So there are occasions where we have to work through the permitting process in different municipalities. But again, I would go back to there's such tremendous white space, and we are looking to grow GreenDrop for years and years into the future. that we are prospecting and lots of markets and that robust pipeline is what ensures that we're going to realize that into the future you know one thing to bear in mind is that we're very bullish on green drop to be able to collect high quality supply and high traffic affluent areas But GreenDrop today actually represents a relatively small percentage of our supply. So five or ten GreenDrop locations here or there in a year is not what we would consider material. So overall, still very excited about the opportunity. The ones we have opened are doing very well and encouraged for the years to come.

Thank you.

Next question comes from Mark from Baird.

Your line is now open.

Thank you. Good afternoon. I guess first I wanted to follow up regarding the Q4 comp guidance. Could you just clarify, does the guide incorporate reacceleration in the back half of the quarter as you get past the shoulder season and weather is less of a factor, or is it more representative of what you've experienced quarter to date?

We did see softness in October. We did step up from September, it got better in October, but we were still below our expectations, and that was largely driven by weather because, as Marcus said, the hard goods have continued to be strong and consistent throughout these time periods. The last couple weeks, given that the weather has become more seasonal in many of our markets, we've seen an acceleration. So I would tell you that the comp guidance for the quarter is tied in kind of to the most current trends that we're seeing.

Thank you for that. And then I also wanted to ask about some of the efficiency initiatives. I guess self-checkout, I know that's been a nice benefit this year. How much opportunity remains on that front into 2024? And then relatedly, you brought up the central processing centers. Just curious, any update on what the runway looks like for that initiative? Thank you.

Yeah, Mark, the self-checkout is largely in the rearview mirror at this point. That was well executed. across all three countries. And that's pretty much behind us now. So that was a home run. CPCs. Yeah, I mean, this is a multi-year strategic investment. We continue to make very solid progress. As a reminder, we have four in operation today. The Calgary CPC opened at the end of July. We have one more CPC for this year in our Minnesota market. And then in 2024, plan to open a facility in Southern California and possibly one additional facility if we find the right location that makes economic sense. But I'm very pleased with the month-on-month improvement, continuous improvement of the yield that's coming out of those facilities, the production efficiency, and most of all, new store opportunities, as we just talked about, is what we remain focused on. New sites that are very attractive to us that are only made possible by the presence of the CPC. So, pretty happy with the progress of the team and the continuous improvement going forward.

And I'll add the automated book processing units continue to deliver significant IRR returns. We're very pleased with those, and we will continue our rollout of those in both non-CPC and CPC operating markets.

Yeah, the headline on stores, guys, is currently 63 stores serviced by the ABPs. By the end of this year, that number will be up to 85 to 90 stores.

Thanks for all the detail.

This concludes our questions.

Go ahead, operator.

My apologies.

This concludes our question and answer session. I'd now like to hand back to the management for their final remarks.

I'd like to thank everyone for their time and interest and savor as we look forward to speaking to you again when we report our fourth quarter results. Have a great holiday.