Savers Value Village, Inc.

Good afternoon and welcome to Saver's Value Village conference call to discuss financial results for the first quarter ending March 30, 2024. 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 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 risk and uncertainties that could cause the company's actual results to differ materially from expectations or historical performance. Please review the disclosure on forward-looking statements included in the company's earnings release and filings with the SEC for discussion on this risk 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 directly 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 and Euron Tanyas, President and Chief Operating Officer.

Mr. Walsh, you may go ahead, sir.

Thank you. Good afternoon, everyone. Appreciate you joining us today. We started 2024 on solid footing, underpinned by secular trends, a growing loyalty program, and an underlying value proposition that is driven by our unique product selection and shopping experience. We have a number of areas that we want to discuss today, namely our first quarter results, our strong new store performance and pipeline, an opportunistic acquisition of a small thrift chain in the southeast that establishes a beachhead for accelerated growth in a key geography where we have considerable white space. The investments we are making to differentiate ourselves and support accelerated growth, chopper trends, and finally, the CFO transition we announced this afternoon. I'll start with our results. Overall, we are pleased that our first quarter results were in line with expectations we provided on our last earnings call. In Q1, we delivered 354 million in sales and 60.3 million in adjusted EBITDA, representing growth of 2.5 and 2.1% respectively. One theme which we will be discussing today is the divergence in the trends between the U.S. and Canada. Specifically, while our comparable sales on aggregate were 0.3%, the U.S. grew by 2.3%, while Canada saw negative comparable sales of 2.6%. Notably, on a two-year stack basis, our aggregate comp store sales increased 7.5%, with the U.S. up 7.9%, and Canada up 6.4%. As I will discuss in a bit, we are facing more difficult macro conditions in Canada than what we are currently seeing in the United States. Moreover, given our existing established presence in Canada, where we already are considerably more penetrated and where thrift is already more widely adopted, the macro pressures have tended to be more impactful to our results. In the U.S., consumers also remain cautious with the discretionary dollars, but thrift exploration and acceptance continues to grow. As we have referenced, 85% of consumers have interacted with Thrift as a shopper or a donor, and one in five indicate they will increase their spend over the coming years. While we are facing some macro headwinds in Canada, we continue to invest to drive accelerated unit growth and sales. As you will recall, we opened 12 stores in 2023 and are pleased to report that we are on track to reach our 22-store opening target this year in 2024. with 21 leases already signed. As Gibran will discuss shortly, with seven additional stores in the southeast via our two peaches acquisition, we expect to add a total of 29 stores this year, representing 9% growth of our consolidated store base at the start of the year. More importantly, the performance of our newly opened stores has demonstrated strong unit economics, with a targeted return on investment north of 20%, and are performing in line with our underwriting model. We continue to expect a back-end weighted opening schedule this year and a more balanced quarterly cadence opening schedule next year, resulting in significantly more new store openings in the beginning of 2025 on a year-over-year basis. The investments we have made in the real estate development team are powering the new store growth engine, and we are well positioned to accelerate this growth given the significant white space opportunity we have in front of us. I'll now turn the call over to Gibran to discuss our recent acquisition and our exciting plans for the Southeast. Thanks, Mark.

Echoing Mark's comments, we continue to have tremendous growth opportunities, fueled by strong secular trends and the huge white space ahead of us. Right now, in the United States, we are underpenetrated in most major markets that we currently operate in. and we have no presence in the U.S. southeast and virtually no presence in the U.S. south, which obviously presents a significant opportunity for us. We announced this morning the acquisition of a regional thrift store chain in Georgia by the name of Two Peaches. As part of the diligence process, our analysis indicates significant upside potential given the local demographics and attractiveness of the real estate itself. While the impact of the acquisition will not be material to our 2024 financials, this is a key development in our unit growth strategy, as it provides a beachhead from which to grow in an important new geography like the southeast, home to some of the fastest growing states in the country. As we have previously discussed, supply is one of the gating factors when opening a new store or entering a new region such as the southeast. In addition to the real estate itself, the Two Peaches stores also bring an attractive and critical base of supply. Leveraging our centralized processing centers and their long-haul product delivery, we have a proven ability to feed stores with off-site processing that allows us to enter new regions faster and more nimbly compared to starting from scratch. As part of our transition and integration program, we will initially transition two of the stores to operate in the same manner as our existing Savers Value Village stores by supplementing their local supply from our centralized processing center in Hyattsville, Maryland. That will allow us to very quickly elevate the selection and overall value proposition to the Two Peaches customer without the longer lead times required with building this capability locally. Over time, we will convert the remaining five stores to the Saver's Value Village model and transition the offsite processing support to the local area to optimize transportation costs and overall cost of goods. We expect the maturity curve on these locations to more or less match the five-year curve we see with our traditional new store openings. Finally, as a reminder, we are making continued investments in new centralized processing centers off-site production facilities housed in smaller warehouses, and automated book processing units. We currently operate five centralized processing centers, with the latest having opened in Minneapolis late last year. We plan to open our sixth in California either later this year or early in 2025 to further support growth in the western region. We also completed eight new automated book processing deployments and opened four off-site production facilities in 2023. This is a great illustration of our continued investment in future growth in retail and supply. Now I'll turn the call back to Mark.

Thanks, Gibran. Returning to the first quarter, the broader macro environment, weather, and shopper trends created some challenges. Like many other retailers, we faced external factors and headwinds in Q1 that impacted our financial results. Severe weather in January resulted in a number of store closures and traffic disruptions early in the quarter. impacting Q1 sales by approximately 50 basis points. In addition, we experienced unfavorable holiday shifts in Canada at the beginning and the end of our fiscal quarter associated with New Year's and Good Friday, impacting Canada Q1 sales by approximately 90 basis points. While our US business was in line with our revised expectations, our Canadian business did not perform as we expected. This is a challenging time in Canada for many retailers. and the macro headwinds have gotten stronger since the end of last year. The softness we experienced in Q1 was driven mostly by a pronounced slowdown in mid to late March, primarily driven by fewer visits from non-loyalty members. Importantly, our non-loyalty member customer segment skews younger and on the lower end of our household income scale. This demographic tends to be more affected when the economy takes a downturn. They're shopping less often, as typically happens when people are stretched for cash and are uncertain about the future. By comparison, sales from our core loyalty members who make up 70% of our sales base were more resilient in the month of March in Canada. In fact, we continue to add loyalty members at a healthy pace in the Canadian market, growing 12.9% year-over-year in quarter one. Moreover, our customer data shows that loyalty members remain firmly committed to our brand with high shopper satisfaction and low attrition, particularly amongst our best and highest spenders who represent nearly half of our sales. Given our operating model where we generate our supply locally and where our cost of goods is principally labor, we believe Savers Value Village is uniquely positioned to perform amidst these headwinds. Our operating model provides nimbleness manage our production, and production labor can be adjusted to be more in line with consumer demand, thereby limiting pressure on our EBITDA margins. We will be aggressively testing ways to increase shopper trip frequency and re-engage customers who may not have shopped with us recently. These efforts, which include increasing marketing in certain Canadian markets, focusing production on certain categories which we know drive frequency of purchases, and delivering Targeted promotions have already begun. In this environment, consumers are focused on quality and value. Savers Value Village delivers a unique value proposition to these consumers, offering quality items at the right price. When it comes to the consumer, our customer data in North America continues to remain very positive. Our customer satisfaction scores remain high. Our merchandise selection continues to resonate with shoppers. customers' intent to shop levels remain very strong. We believe our brand is exceptionally positioned to meet the needs of today's consumers. Before I move on to our detailed financial results, I'd like to take a moment to address the CFO transition we announced today. We are thrilled to welcome Michael Mayer as our new CFO, effective Monday, replacing Jay Stats. I want to thank Jay for his many contributions to Savers in helping us successfully launch our IPO, and we wish him all the best. Michael is a seasoned finance leader with more than 25 years of retail and consumer experience, most recently as the interim CFO of Nordstrom. He is a perfect fit as we position Savers Value Village to capitalize on our accelerating growth opportunities. We're really excited to have him on board. Michael is looking forward to joining us on future calls, but for today, I'll take you through our first quarter financials in a little more detail. Let's start with sales. Net sales increased 2.5% to $354 million. Our net sales growth was driven by new store openings and a comparable same store sales increase of 0.3%. As a reminder, we were up against our highest same store comparison of the year in Q1. In last year's first quarter, Comparable store sales increased 9% in Canada and 5.6% in the U.S., and 7.2% on a consolidated basis. In the United States, net sales increased 4.7% to $192.6 million. Comparable store sales increased 2.3%, driven by both an increase in transactions and an average basket. In Canada, net sales were flat at $134 million. Comparable store sales declined 2.6%, driven primarily by declines in transactions from non-loyalty members. Cost of merchandise sold as a percentage of net sales increased 260 basis points to 44.7%, with the increase driven by higher material, labor, benefits, and freight costs. The increase in material costs as a percentage of net sales was in line with expectations and driven by the ramp of the two new centralized processing centers that were opened in the second half of last year and the higher mix of processing coming from those facilities. The increase in labor as a percentage of sales was driven by two things, higher labor rates, which again were expected, and secondly, declines in labor productivity, which was unexpected and was driven by the deceleration in Canadian sales in the month of March. While we do look to align production with sales trends, The drop-off in March Canadian sales made it difficult to properly align production levels late in the quarter. Since May 1st, we have better aligned production levels to consumer demand. The increase in benefits expenses as a percentage of sales resulted from a higher than expected healthcare claims late in the quarter. Pounds processed and donation mix. We processed 238 million pounds in the quarter and generated a sales yield of $1.41. This compares with 240 million pounds processed and a sales yield of $1.39 in the first quarter last year. On-site and green drop donations represented 71.9% of pounds processed in the quarter versus 68.3% in last year's first quarter. Our on-site donations were, again, very strong in the first quarter, and we remain pleased with the quality of our inventory. Salaries, wages, and benefits expense was $84 million compared to $93 million in the first quarter last year. These figures included $18 million of IPO-related stock-based compensation in this year's first quarter and $24 million of special one-time bonuses in last year's first quarter. Excluding these items, salaries, wages, and benefits as a percentage of net sales declined 120 basis points to 18.6%. the decline was primarily driven by lower incentive compensation. Selling general and administrative expenses as a percentage of net sales decreased 30 basis points to 22%, primarily driven by lower maintenance and utility costs. Appreciation and amortization increased 26.4% to $18.3 million, while interest expense decreased 34.3% to $16.1 million. Net income in adjusted EBITDA, the gap net loss for the first quarter was $500,000. Adjusted net income increased 32% to $13.9 million, or 8 cents per diluted share, compared to $10.5 million, or 7 cents per diluted share in last year's first quarter. Adjusted EBITDA increased 2.1% to $60.3 million, and our adjusted EBITDA margin was relatively flat with last year's first quarter at 17%. Turning to the balance sheet, we ended the first quarter with $102 million of cash and cash equivalents. At the end of the first quarter, our total borrowings outstanding were $765.8 million, and our net leverage based on a trailing 12-month adjusted EBITDA was 2.1 times. We've taken a number of steps to strengthen our balance sheet over the past several months. In late January, we amended our senior secured credit agreement. The amended agreement, combined with a corresponding upgrade of our debt rating by Moody's, lowered our borrowing rate spread by 175 basis points. S&P subsequently upgraded our credit rating as well in April. In early March, we paid down $49.5 million of principal on our senior secured notes. And finally, in April, subsequent to the first quarter, we terminated our interest rate and cross-currency swaps and realized net proceeds of $38 million, adding to our cash position and further strengthening our balance sheet after the end of the first quarter. As mentioned, we acquired Two Peaches LLC on May 6, 2024. Seven stores will be included in our United States store base beginning in the second quarter. As discussed earlier, we are increasing our investment in these growth opportunities and do not expect material contribution year one from these stores. As Gibran discussed, this acquisition represents an important step forward in our strategy to open new markets. Let me wrap up the financial section with a few comments on how we are thinking about business for the rest of the year and our guidance figures. On the sales side, we are reiterating our full year 2024 outlook at $1.57 to $1.59 billion. Given the performance of our new U.S. stores, and with the inclusion of $7 million from Two Peaches, we currently expect to be at or above the midpoint of the total sales guidance range. We are also reiterating our full-year comparable store sales increase in the range of 2 to 3 percent. Absent a macro improvement in Canada, we believe we are more likely to come in at the lower end of our comp store sales growth range of two to three for the year, with Canadian comps diluting consolidated comp performance. On a two-year stack basis, comparable store sales will be 7.5% in the first quarter, and we are modeling between six and 6.5% for the remaining quarters. As a reminder, our same store sales comparisons get easier as the year progresses, And total net sales should benefit in the back half of the year from new store openings and the two peaches acquired stores. As mentioned earlier, we cut production levels in Canada in early May to align with demand trends. And this should help profitability in the coming quarters. The combination of improving net sales growth and production leverage should drive higher flow through to the bottom line as the year progresses. Given the negative year one contribution from two peaches, increased marketing efforts to stimulate Canadian sales, increased investments in our team and processes, ahead of accelerated new store openings in the back half of the year and beyond, and the effects of top-line pressure in the Canadian comps, we are guiding our full-year adjusted EBITDA to a range of $330 to $340 million, which, at the midpoint of our total net sales guidance, would be an adjusted EBITDA margin of 21 to 21.6%. With the higher sales and flow-through outlook in the second half of the year, we would expect adjusted EBITDA to decrease slightly on a year-over-year basis in the first half and increase in the mid-to-high single-digit percentage range on a year-over-year basis in the second half. In conclusion, the Savers Value Village long-term growth algorithm continues to solidify. Our significant self-generated cash flow is being deployed to open new stores, opportunistically acquire, innovate to drive a steady and cost-effective flow of supply to new and existing stores and markets, and invest in technology that provides our organization with the data to execute at the highest levels. I hope you took away that our growth trajectory continues to accelerate, and it's highlighted by 29 new stores in 2024, assisting of 22 new store openings, and seven via the two pieces transaction. Four new offsite production facilities. Eight new automated book processing deployments. Double digit growth in our loyalty member program. Strong overall shopper satisfaction. And we expect to be approximately 1.5 times net leverage by the end of the year. And all of this while delivering value with an average unit retail at around $5. Again, I'd like to thank all of our team members who I truly believe are the best, most passionate people in the industry. We would now like to open the call for questions. Operator?

We will now begin the question and answer session. Should you have a question, please press star followed by one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Matthew Boss from JP Morgan. Your line is open.

Great, thanks. So, Mark, maybe to kick off, could you speak to the health of your U.S. business? Maybe elaborate on U.S. traffic or basket trends as the first quarter progressed. Any change in trends so far in the second quarter? And any change at all in the trajectory of U.S. business for this year, as you see it?

No, we're really excited about the trajectory in the U.S. First quarter, positive. I think the takeaway for us, that 2.3% comp, it was a mix of transactions, a little bit of price. We like the two-year stack. And as we see us moving into the second quarter, we're seeing the same trend. So we feel really good about what's happening in the U.S. Thrift continues to grow. We added another 8.5% to our loyalty program. Shopper satisfaction is around 87%. And I think the most exciting piece of all of this is our new stores are performing at or above our expectations. That is just super exciting. So we continue to see that thrift experience resonating, our brand resonating, the way we're merchandising our stuff is resonating. And I think the question always is the trade down. We continue to see acceptance in all household demographics, so higher household demographics as well as the lower income. Trade down secular acceptance, however you want to describe it, we feel really good about our trajectory in the U.S. And I must say, you know, Gibran architected the two peaches acquisition. This is a great step forward for us in terms of expanding our footprint in the U.S. If you just look at the U.S. footprint, we're actually going to grow our U.S. footprint by 12% this year, which is really exciting and really a step forward for us.

It's a great color. And then on gross margin, could you just help break down the drivers of gross margin contraction that we saw in the first quarter and help us to think about the cadence of gross margin in the second quarter versus back half of the year?

Yep, that's a great question, Matt. I'm going to employ Gibran halfway through the commentary to give you some additional color. So look, contextually, first quarter has always been our lowest gross margin rate quarter. This year we would have forecasted at around 57.5%. Building from that starting point, really two things conspired to lower our budgeted margin. First, as we mentioned in the prepared remarks, in mid to late March, we had a series of very large benefit claims that were really very different than our experience curve, and we would not have forecasted these, and we don't expect those to replicate. Second, and really the real, the crux of the matter is production labor. Heading into March, after our February, after what was an improving February, we saw the two-year stack. We used that after removing all the weather disruptions and the holiday shift noise, we kept production levels at or near our budgeted targets. Unfortunately, in mid-March, trends decelerated, and we found that our production hours were misaligned with our unit demand. Look, it's not an on and off switch. We can't just turn production on and off. But the beauty of the model is our ability to quickly adjust, in this case, in a couple of weeks, our approach to get back to the balance of production hours to demand. Gibran and the country leaders have moved very quickly And I'm really excited to say that the team's got a great plan in place to the balance of May. But I'd like to give Gibran the chance to take you through a little more of the detail to get a perspective about how we went about making these changes.

Yeah, thanks, Mark. Hey, Matt. Absolutely. We, you know, plenty of weather in Q1, but on a two-year stack basis, we like what we saw in the first two periods. And so we continued that. I mean, after all, we don't want to be underfeeding selection to the customer when we believe demand was going to be there. And starting in mid to late March, it wasn't. The macro was real. It didn't play out the way that we thought. Pretty sudden change. And so as Mark said, we need to recalibrate as well. And therein lies the durability, resiliency, flexibility, whatever you want to call it, of this business. Because again, in our stores, we're turning everything over the store every three to four weeks the merchant is the operator so it really is kind of a perfect case study of the model so here's how we would do it we have a very good plan in place the first thing to know is that we do not take a broad brush approach to this we look at each store individually and that's important as you think about Canada there are handfuls of stores that are in great shape and frankly require no intervention. And then there are other stores that are over processing as we see the trend continue into P4 by a fair amount and then everything in between. So it really isn't a one size fits all. Once we get below the store level, we really are surgical with how the processing cutbacks go, both at the department and then at the category level. So for example, At the department level, you know, it really is women's and kids where the biggest opportunity lies. And within women's, categories like long-sleeve knits, capris, dresses present some of the biggest opportunities, right? These are some of the relatively low sell-through categories where we can trim and we can remove labor costs associated with it. Because, again, labor cost follows not just pounds processed, but also items put out. And so again, as you think about, well, then how do stores actually remove that labor? It's a combination. It's not a one size fits all either. Some of it's through natural attrition, some of it's through scheduling change, so on and so forth. So feel very good about the plan going forward. I think as Mark mentioned, as we start to get more into the midpoint of the year in the back half, we start to enjoy some scale leverage. So the moves that we've put in place are going to pay off for us as we move forward. So feel very good about the plan. Proud of the team for, I think, what is a very smart surgical approach.

And Matt, we'll finish. I'll just add one more comment. With the easier compares in the second half and that more conservative production approach, we're confident in our back half margin range for the year, for 2024.

Great color. Best of luck.

Your next question comes from the line of Randy Connick from Jefferies. Your line is open.

Hey, guys. Good afternoon. Thanks for taking my questions. I guess first, maybe what would be helpful, Mark or Gibran, maybe give us some historical perspective on the Canadian market in thinking through how you've seen this movie before in the numbers and how we should be thinking about how Canada performs, generally speaking, with this type of macro environment over the next, let's say, couple of years or so. Just give us your thoughts. That would be super helpful. Thanks, guys.

I think what I would say, what's really different about our position in the Canadian market versus our position in the United States market is our starting point, Randy. So with 95% brand awareness, and we estimate that we're we're, we're shopped by one in three Canadian households. So when you think about that, we're really woven into the fabric of the Canadian landscape. So as we think about that, you know, that this is, and that, that non loyalty member, that non loyalty member is the one that's really the one that's struggling. So our loyalty, our loyalty members are certainly, um, Still coming in, still shopping, still feel good about where those trends are with those loyalty members. We have very low attrition rates. They still represent 70% of our overall sales base. And a couple of other points. Shopper satisfaction in Canada is 85%. So, again, they're really good about where we are competitively within that Canadian construct. These are things I'm not sure we've seen in Canada, at least not since I've been here. You've got rising unemployment ticked over 6% last month. You've got overhang of housing, affordability and availability, and then obviously some inflationary pressures. We think we're very well suited with our value proposition to continue to gain share. If you think about our two-year stack in Canada, just in the first quarter at 6.4, We believe with a 6.42 year stack that we've actually gained some share. So I think again, the value proposition, our depth of awareness and our approach to our marketing is going to help us as the Canadian economy goes through this difficult time period.

Great. And then maybe just give us some perspective. on where we are with the various initiatives as it relates to the central processing centers and book processing initiatives, just as it relates to improving long-term productivity and margin enhancement potential. Just give us your thoughts there. Thanks, guys.

Yeah, hey, Randy, Gibran, I can take that one. First of all, we feel very good about CPC, so we currently have Five CPCs. The latest one that we opened is in Minnesota. You know, as we have opened these, our experience set has grown and we're able to ramp them faster. And one of the very cool things about the capability that it's unlocked is if we think about our most recent CPC, the Minneapolis facility, we're actually using that to support what we call long-haul stores. So it services some stores in the Twin Cities, but it's also supporting stores that are more remote, four, five, six-hour drives in terms of Sioux Falls, Fargo, places where the labor market still continues to be very challenged, and yet we're able to bring all of the selection and value to those customers because of the presence of the CPC. So we're already doing this, and as you think about the two peaches acquisition, that's what gives us the confidence to be able to quickly and nimbly bring selection and value to that customer as well, because we're already doing it. We do have plans to open a sixth CPC in the Los Angeles market. We'll be either later this year, possibly early 2025. ABPs, again, we're far along the experience curve on ABPs. And by the time we end This year we will have 12 facilities in the U.S. and seven locations in Canada. And they're doing fabulous. Really pleased with the investment thesis on those and the return on invested capital. So all in all, very pleased. We continue to make those investments like Mark talked about. And then the only other one I would add is the offsite warehouse. And I think we talked about this on a previous call where one of the unlocks that we've had from CPC is the ability to open new stores that don't necessarily check every physical attribute that we would need from a traditional perspective, right? The double dock doors, things that we've talked about in the past. Well, offsite warehouse is kind of a light version of CPC where we're able to still use it to make new stores happen that couldn't otherwise so there are markets where that is very applicable long island as an example we have expansion plans in long island as you think about the real estate and the availability of large warehouse space in long island it's very limited and that's where an off-site production warehouse comes into play and we're going to be opening one there that helps make new store growth on the island happen So did I answer your question, Randy?

Yes, that was super helpful. Thank you so much. Really appreciate it, guys. Thanks.

Your next question comes from the line of Brooke Roach from Goldman Sachs. Your line is open.

Our question. You've provided a lot of context on some of the actions that you're taking to drive a reacceleration in the Canada customer engagement so far. I was hoping you could elaborate on the early reads of what you've seen as you've begun to implement these changes. Has that driven a reacceleration in comp where those changes in marketing loyalty discounts and promotions have been affected? And specifically, what Canadian comp are you embedding in 2Q and for the full year within your guide?

I think as we think about, let's start with the second part of that question. First, we're targeting, as we mentioned in the prepared remarks, we're targeting a two-year stack of around 6.6% overall. And Canada being lower and the United States being a bit higher. And it's too early, Brooke, on the marketing efforts. We have taken, we've got four or five distinct efforts, heavying up on the Wind Back program. We're implementing some connected TV in a distinct market to drive traffic. We're ramping up some promotional activities to drive category performance. And we're certainly increasing our share of digital voice in several designated markets to see if we can drive foot traffic. Those initiatives have just gotten started. And I think over the next three months, we'll have a much better read on the impact as we move forward. So probably in the next call, I'll be able to update the group on those efforts.

Great. Thanks. And then maybe a more comprehensive update on your 22 new store opening plans for the year. How do you anticipate these new store openings to split by geography, and how should we expect the cadence of those stores to split by quarter?

Yeah. Hey, Brooke. Good question. So we plan on opening by the time we finish second quarter, we will have opened four of the 22 locations. Three of those are in the U.S., one in Australia. By the end of the third quarter, we will have opened an additional 11. Four of those are in the U.S., six are in Canada, one in Australia. And then in the fourth quarter, we have the remaining seven, of which five are in the U.S., two are in Canada. So of the 22, that puts 12 of them in the U.S. And again, overall, very pleased with how the stores have gone, performing in line with expectations. U.S. stores off to a fabulous start. And, you know, one of the things that we talked about on a previous call was the cadence. where we are back end loaded this year. And a lot of that is a function of the real estate muscle that we've been building up. So once we get into 2025, I can share, we already have 13 in the hopper, seven of those in Q1, which is still forming. The concrete hasn't set on that yet. Six in Q2, certainly still forming. And this is all a function of what I would say is now just a mature, real estate team where we are at steady state we expect these store openings to feather across the quarters in a much more balanced way and so we're really on the front end of that here starting in the beginning of q2 and into q3 one other data point we went ahead and took a look back at some of the quote unquote unofficial deal these are the active deals sort of pre-real estate committee if you will, a hopper of potential deals. And we looked at this May 1st last year, what did that hopper look like versus effectively where do we sit today? And right now we're sitting at two and a half times the volume of active deals than we did this time last year. So, you know, again, everything we can see, very pleased, very proud of the team. and the momentum and the flywheel that they have built and just encouraged for not just remainder of year, but how we're looking into 2025. Yeah.

And just one, it's a reinforcing and probably redundant point, but we do have 21 of the 22 stores for this year. The leases are signed. So we're feeling absolutely terrific about the momentum we've generated over the last 18 months on real estate.

Great. Thank you so much for the color. I'll pass it on.

Again, if you wish to have questions, please press star followed by 1 on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the 2. Your next question comes from the line of Peter Keat from Piper, Sandler, Canada. Your line is open.

Oh, I'm not in Canada, but good afternoon, everyone. So I wanted to just ask about Two Peaches. Maybe you could compare and contrast to Second Avenue acquisition, because I recall Second Avenue, I think you actually dialed back the sales to work on profitability. It sounds like Two Peaches is completely different. Maybe the sales are a little low and you're going to ramp those up. Secondarily, on Peaches, are you going to convert those to the Saver's brand name? And then lastly, I think you just said $7 million of revenue for maybe seven months of sales, so it seems like a pretty low dollar amount overall.

Yeah, so I'll let Gibran jump in on most of those questions, but on the name, we quite like the Value Village name, so we're going to keep it in Georgia.

Absolutely. yeah peter you're you're you're comparing or you're comparing contrast to second avenue is is uh it's a great comment because yeah it's it is kind of the opposite so what we see when we look at these seven locations is um we see great four wall potential in these locations um they're in good trade areas they're in good centers we plug them into our real estate modeling. And then what I would tell you is that if we were looking at these as new organic locations being brought to our real estate committee, they would be approved. So I think that the challenge and for a variety of reasons is that given the quality of the real estate and the four wall potential of these stores effectively, what we've seen over time is our thesis is that the customer has been underfed from a selection perspective. So, again, given the nimbleness, given the flexibility with the Hyattsville CPC that we talked about, we're able to quickly convert two of those, still leveraging the Value Village banner, and increase basket and transactions as we go.

Yeah, we see great potential. And this is an inroad, obviously, to the southeast. and our ability to supply this or supplement supply through the CPC in Maryland is just a big, big win. And, you know, one of the things that's super interesting about what the process and how Gibran led the process is we basically looked at the universe of the two peaches stores and did basically one-to-one analysis on each one of those stores. And yes, seven passed and we said we love these seven. We actually did not take three of the stores because they weren't up to our real estate standards. So we really love the portfolio that we got and we think this is a great way to get ourselves into the Deep South. We're really excited about this.

Okay. And it was $7 million of revenue for the remaining seven months of the year. Is that correct?

That's correct.

Okay. All right. Separately, and this may be a little bit of a follow-up on Brooke's question, I'm just trying to get comfortable with maintaining the comp guidance. So fair enough that you're kind of thinking about the low end. That does to me imply like a 2.5% for the rest of the year. And if I break that down further, I kind of have to model out like a 4% for the U.S. and then flat for Canada. So it kind of implies pretty healthy acceleration in both countries. And maybe is that kind of a good framework? And if so, help us get comfortable with that framework.

Well, I think one of the things is certainly the comps get easier as the year progresses. If you recall, our P9 and 10 last year. And as we think about the second half of the year, look, it's about those two-year stacks. And We're comfortable in that seven, seven and a half range in the U.S. for the two-year stack and five to five and a half in Canada, which ultimately gets you that six and a half, two-year stack for the full year for the consolidated entity.

Okay. Very good. Thanks so much, guys, and good luck.

Your next question comes from the line of Michael Lesser from UBS.

Your line is open.

Good evening. Thank you so much for taking my question. Can you quantify what the impact will be from being slightly more promotional in Canada in an effort to support the comp? And if some of the economic weakness that's currently happening in Canada comes to the U.S., such that your comp weakens here, Would you take similar action by being a bit more promotional, and how would you frame the potential impact in that case? Thanks.

Well, that's a great question, Michael. So let me start with we are testing. We're being very, very prescriptive about what we're doing in Canada. We are not doing a countrywide promotional activity approach. We're taking very specific markets. and testing different things within those markets to see about the opportunity of growth from a transactional perspective and from a revenue perspective, and then what, if any, impact that has on margin. So we're being, I wouldn't say cautious because we're acting quickly, but we're still testing into an approach that would make sense economically for us within that country.

Understood. And historically, the thrift model has seen or was perceived to see a trade-down benefit during more challenging economic times, Mark. Why do you think you're not seeing that in Canada? And could you be seeing some impact of that right now in the U.S. that are providing support to your comps here? Thank you very much.

Well, I'll start with the US piece first, Michael. What we're excited about is we see increases in all of our demographics. We tend to be skewing now at the higher two cohorts. So there is, you could describe it as trade down. We think it's more secular, though. We think it's more about people being a little more thoughtful about how they're approaching their purchases and the thrift experience. Is it fun? And it's It's engaging. So I think in the U.S., it's a bit hard to say it's trade down. I think we like to think of it more as a secular trend around thrifting and the thrift experience. In Canada, again, we're 95% brand awareness. We're in one of three households. That's our own estimate based on the demographic information we have. overall shopper satisfaction scores are 85 percent um we're we're we're really where we're getting hit or or where we're having troubles from a comp perspective is around the non-member and the non-member tends to be younger and tends to be of lower income so i think they're just making trade-offs these are discretionary dollars And it's difficult for those individuals in that window. I do think we're gaining share relative to the marketplace based on what we read and what we see from other folks who are selling textiles and household items. So we feel good about our competitive positioning. I think when you look at our two-year stack in Canada in the first quarter at 6.4%, that says a lot about where we are. And yes, we had a difficult first quarter in 2024, but that it comes off of a very difficult compare in Canada in the first quarter last year of 9%.

Thank you very much and good luck.

Your next question comes from the line of Mark Altschwerger from Baird.

Your line is open.

Good afternoon. Thank you for taking my questions. On Canada, It sounds like it's mostly a traffic issue and concentrated with the non-loyalty members. Has there been any material change in conversion and basket in Canada? I'm trying to get at the quality of supply or mixes of goods and how much that might be contributing.

We've seen it's pretty linear in terms of comp and transactions. So there has not been a big change in basket, so to speak, because it's basically the comp has followed the transaction flow. Yeah.

And Mark, on supply, we have not detected any change in the overall quality of supply. In fact, Canada has enjoyed Pretty healthy forward momentum, particularly in the first half of Q1 on on-site donation growth, which we know generally brings a nice sales yield with it. So, but no discernible change in quality to your question.

Thank you. And in addition to the marketing you're planning, I think you mentioned the prepared remarks. You have the opportunity to lean into some specific categories. maybe just to unpack that a bit more and remind us, how do you go about concentrating your production in certain categories, given that most of the donations are more raw, unsorted goods?

Yeah, when it comes to, remember, we have, oh gosh, give or take 200 categories in our stores. And some of those sell very well, very predictably. Men's Jeans is a great example of that. Some have lower sell through. And, you know, in the context of what Mark described in the macro situation in Canada, some of those lower sell through categories, well, now sell through even lower. Women's capris, women's long sleeve knits as an example. So what our store teams will do is when we want to cut back on the put out of certain categories, It's just a function of, you know what, team? We're going to put out everything that we normally would in the first half of the day. And once we get after the lunch break, we're not putting out long sleeve knits anymore. It's really no more complicated than that. What's important there, Mark, is that we diagnose that properly on a per store basis, right? Because again, there are some stores that are doing just fine. selling women's long sleeve nits. So those are the last doors that we would want to touch in terms of pulling it back and then removing the labor associated with it. So the key is surgical, granular, with something that the team can actually execute, like the example that I just gave.

Thank you. Thanks, Mark.

Your next question comes from the line of

Bob Durbel from Guggenheim. Your line is open.

Hi. Good afternoon. I guess I was just wondering if you could spend some more time just on the on-site donations, the numbers up there pretty good these days and sort of where you see that trending. And I'm just curious if you can give us an update around the green dot and just sort of the plans there and how that's going. And then I was also just curious, would the green dot initiative be something you could also use in Georgia with the two peach acquisition? Thanks.

Yeah. Hey, Bob. On-site donations. I think the Canadian team, I think all three countries, frankly, I think the team has never operated at a better level in terms of what we know drives on-site donations. We've talked about this before. Convenience is king. And then after that, the number two reason, the number one reason a new donor comes to one of our donation centers is they drove by and saw a sign, just plain old visibility. So the team does a lot of work on donation center refreshes, so on and so forth. The number two reason is advocacy, that a friend, family member, coworker told them how convenient, fast, friendly the donation experience was. Because I would tell you across the landscape, that is not the norm. That is something that we work hard at. And our teams actually have donor satisfaction scores at the ready where they can see how are the donors that are coming to our donation centers experiencing us in terms of assistance, speed, convenience, friendliness. So doing that well helps ensure that on-site donations continue to grow into the future. So as far as we're concerned, Bob, there is no reason over the long term in all three countries that we would not expect on-site donations to grow. It may take a dip here or there, but over the long haul, they're going to grow. GreenDrop, you asked about GreenDrop. GreenDrop's doing well. I think on the last call we talked about that it is an education process for a lot of municipalities on how the staffed GreenDrop model works. But the new locations that we've opened, they are performing at or better than planned in terms of the quality of the goods, the volume, and the unit cost. So we're pretty excited about that. I think we're on track to open somewhere between 20 and 25 of those this year. Taking a step above, Bob, I would tell you from an overall raw material supply situation, we're actually in an oversupply situation right now. It's a pretty good place to be. And it's normal course of business for us to periodically kind of open the pressure relief valve, sell off some of the excess periodically, which we do. But from an overall supply situation, quality, amount, we feel very good about that. I think the last part of your question was two peaches. How do we think about green drop and bringing that to the Atlanta market? Look, I think first things first, we want to transition these stores. We do like the incumbent supply situation that they have, which is a mix of channels, some home pickup, some bins. But your thesis is spot on. I think that we would all agree there's an opportunity for us to not just improve and build upon the four-wall performance of the stores, but to also bring some horsepower and sophistication to the supply acquisition part of the equation as well.

Thank you.

Our next question comes from the line of Mark Petrie from CIBC. Your line is open.

Hey, good afternoon. Thanks for that. Just quickly on Canada, did any regions outperform or underperform, or did you see any variance across sort of urban or suburban or major markets versus smaller markets?

No, we've not seen any particular variation. either regional or urban, suburban trends.

Yeah, pretty consistent, Mark, especially on a two-year stack basis, normalizing for odd weather.

Yeah. Okay, perfect. Thanks.

And I'm curious if there's any shift of labor availability in any of your markets, and I guess specifically in Canada, just given, as you acknowledged, the sort of shifting or weakening economy?

Yeah, it's a good question, Mark. I mean, well, what I would say is, you know, what's great for us, and this applies to all three countries, is, you know, going all the way back to January of 2023 until this point in time, we have seen our turnover decline sequentially. And again, you know, Mark has talked about this in the past in terms of engagement scores. And so we feel good about that. From a vacancy perspective, it's held. It's held pretty steadily. So it varies by market, Mark, but on the whole, on the whole, at a country level in Canada, labor availability is not holding us back in any way.

Okay. Appreciate it. Thanks. All the best. Thanks, Mark.

There are no further questions at this time. I will turn the call over back to you, Mr. Walsh.

I'd like to thank everyone for their time and interest today in Savers Valley Village, and we look forward to speaking with many of you in the days and weeks to come. Thank you so much.

Ladies and gentlemen, thank you for participating. You may now disconnect.