Savers Value Village, Inc.

Ladies and gentlemen, welcome to Savers Value Village's conference call to discuss financial results for the third quarter ending September 27, 2025. 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 risks and uncertainties that could cause the company's actual results to differ materially from expectations and historical performance. Please review the disclosures on forward-looking statements included in the company's earnings release and filings with the SEC for a discussion of these risks and uncertainties. Please be advised that statements are current only as of the date of this call, and while the company may choose to update these statements in the future, it is under no obligation to do so unless required by applicable law or regulation. The company may also discuss certain non-GAAP financial measures. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in today's earnings release and SEC filings. Joining for management on today's calls are Mark Walsh, Chief Executive Officer, Dubron Tanius, President and Chief Operating Officer, Michael Mayer, Chief Financial Officer, and Ed Iruma, Vice President of Investor Relations and Treasury. Mr. Walsh, you may go ahead, sir.

Thank you, and good afternoon, everyone. We appreciate you joining us today. We are pleased with our third quarter results, particularly in the U.S., where our momentum remains strong. Comps continue to strengthen in Canada, but challenging macroeconomic conditions remain a headwind there. Let me start with a few highlights from the quarter. Sales in our U.S. business grew 10.5%, with comp sales up 7.1%, driven by both transactions and average basket. These results underscore our strong operational performance, as well as an accelerating secular thrift trend. Powerful results like these reinforce our enthusiasm for the long-term growth opportunity in the U.S. In Canada, our business made further progress, delivering 3.9% comp sales growth, an acceleration of 130 basis points from the prior quarter, marking the fourth consecutive quarter a sequential improvement. The Canadian macro environment remains very challenging, and we continue to lean into selection during the quarter while taking steps to better align production with demand trends going forward, which Mike will go over in more detail. We opened 10 new stores in the quarter and still expect to open 25 new stores in 2025. As a class, our new stores continue to perform in line with our expectations, delivering strong unit economics. We remain confident in our long-term store growth opportunity and a targeted 20% store-level contribution margin. Turning to our loyalty program, we reached approximately 6.1 million total active members. Financially, we generated $70 million of adjusted EBITDA in the quarter, or approximately 16.4% of sales. Additionally, our strong cash flow generation and an attractive debt market allowed us to opportunistically refinance our debt, which will significantly reduce our interest expense and give us a more flexible capital structure. Just as a reminder, we do not have any direct impacts from tariffs. We continue to monitor price trends closely, and I feel very good about our competitive positioning and value gaps as new clothing and footwear pricing begins to increase in the U.S. Finally, based on our results year-to-date, we are tightening our revenue and earnings outlook for 2025. Michael will provide additional details on our outlook in his remarks. Parsing our results by geography, let's start in the U.S., where momentum is especially strong. We are thrilled to post a 7.1% comp, which I will point out is coming from a mature store base, as the majority of our 2024 class will not begin to enter the comp base until the fourth quarter. This speaks to our compelling assortment at great value and the consumer-friendly shopping experience that we offer as well as the accelerating secular adoption of thrift. As we've noted in previous calls, we continue to see growth in our younger and more affluent customer cohorts. In Canada, the economy remains challenging, but it has not impacted everyone the same. For example, tariffs and trade tensions have disproportionately impacted certain regions, such as Southwest Ontario, a key market of ours where the automotive industry is a large portion of the local economy. Meanwhile, unemployment is above 7%, and the lower-income consumers have seen little or no disposable income growth, plus higher than average inflationary pressure in non-discretionary categories like food, shelter, and transportation. Against this backdrop, we are leading with a compelling selection which helped drive positive comps over the past year, although we do think that the near-term Canadian comp upside will be limited by macro pressure. Throughout the third quarter, we actively worked to calibrate production and meet demand, making careful and targeted adjustments in response to sales trends. Exiting the quarter, Canadian comps leveled off at the lower end of our expected range, and we continue to drive improved gross margins also at the lower end of our expected range. We remain laser-focused on giving our Canadian consumer great value through sharp pricing and compelling selection. We are controlling what we can control. and we will manage the Canadian business with the expectation that macro conditions may limit our growth in the near term. Moving on to new stores, we continue to be pleased with the results we are seeing. And as a whole, they are performing in line with our expectations. As new stores continue to mature as expected, they are beginning to contribute to an inflection in our profitability. We are especially pleased that our U.S. and Canadian segments did year-over-year profit growth this quarter for the first time since 2023. And we expect a return to profit growth at the enterprise level in the fourth quarter, putting us on track for our previously stated goal of annual profit improvement in 2026. We opened 10 new stores during the quarter and are on track to open 25 new stores in 2025. As the 2026 lease pipeline is starting to round out, we're expecting a roughly similar number of openings next year, but the focus of our new store growth going forward will even be more U.S.-centric. as we believe the secular adoption of thrift remains in the early innings, and we still have significant amount of geographic white space. To this end, we're excited to enter new markets in 2026, including North Carolina and Tennessee. Store growth remains the highest return and most important use of our capital, and we could not be more pleased to bring our compelling value proposition to more consumers throughout the U.S. Finally, we recently released our 2025 Impact and Sustainability which can be found on our investor relations website. We are a mission-driven business championing reuse and looking to inspire a future where secondhand is second nature. This report highlights the impact and circularity ingrained in our model, and I am proud that over the past five years, we have kept 3.2 billion pounds of usable items out of landfills and paid our charitable partners over $490 million. We hope you will take the time to review the report and our commitment to community impact, sustainability, and sound corporate governance. I would like to conclude my remarks by thanking our more than 22,000 team members for the hard work and commitment. As a team, we are more energized than ever as we see the fruits of our labor with more people choosing us every day, whether it be due to our treasure hunting experience, exceptional assortment of sharp value, or to contribute to the circular economy. 2025 continues to be a success. While macro pressures persist, I believe that our value proposition positions us well. Now I'll hand the call over to Michael to discuss our third quarter financial performance and the updated outlook for the remainder of 2025.

Thank you, Mark, and good afternoon, everyone. As Mark indicated, we had a strong third quarter. Total net sales increased 8.1% to $427 million. On a constant currency basis, Net sales increased 8.6%, and comparable store sales increased 5.8%. We were especially pleased with our double-digit growth in the U.S., where net sales increased 10.5% to $235 million. Comparable store sales increased 7.1%, driven by both transactions and average baskets. We also saw our fourth consecutive quarter of sequential improvement in Canada. where net sales increased 5.1%. On a constant currency basis, Canadian net sales increased 6.1% to $161 million, and comparable store sales increased 3.9%, fueled by an increase in transactions in average baskets. While we are pleased with another quarter of positive comps, we believe that ongoing macro pressure places a near-term ceiling on Canadian comp store sales. Given the sluggish Canadian economy, we do not assume that conditions will change materially in the near term. Cost of merchandise sold as a percentage of net sales increased 80 basis points to 44.1% due to the impact of new stores and deleverage due to higher processing in Canada, partially offset by growth in onsite donations. Gross margins improved by roughly 100 basis points over the first half of the year And we materially narrowed the gap versus last year as we lapped new store growth. We expect this trend to carry into the fourth quarter as new stores continue to ramp. As Mark previously indicated, Canadian comp sales trends have leveled off at the lower end of our expected range, with a corresponding impact on gross margins as we worked to balance production levels throughout the quarter. Salaries, wages, and benefits expense was $85 million. Excluding IPO-related stock-based compensation, salaries, wages, and benefits as a percentage of net sales increased 220 basis points to 18.8%. The increase was driven primarily by new store growth, an increase in annual incentive plan expense, and higher wage rates. Selling general and administrative expenses increased 19% to $100 million, and as a percentage of net sales increased 200 basis points. to 23.3%, primarily due to growth in our store base. SG&A expenses also included a $4 million impairment charge for the planned closure of six underperforming stores during the fourth quarter. This includes three of the two Peaches stores that we converted during the second quarter, whose post-conversion results were not meeting our expectations, along with one other store in the U.S. and two in Canada. We concluded the closure of these six stores would be EBITDA accretive in 2026, and we expect nearby stores to absorb much of the sales volume from the closed locations. Our store fleet remains healthy with almost all comp stores generating positive EBITDA. In addition to the impairment charge, SG&A also included $2.1 million of debt refinance costs and the year-over-year change in fair value of acquisition-related contingent consideration. Depreciation and amortization increased 6% to $18 million, reflecting investments in new stores. Net interest expense increased 12% to $17 million, primarily due to the impact of unwinding our interest rate swaps last year, partially offset by reduced debt and lower average interest rates. As we disclosed during the quarter, we took advantage of a strong market and refinanced our debt. As a result of the refinancing, We expect interest expense savings of approximately $17 million on an annualized basis. For modeling purposes, this translates to an estimated interest expense of $14 million for the fourth quarter and $52 million for fiscal 2026. We incurred a $33 million loss on extinguishment of debt as part of the refinancing. Gap net loss for the quarter was $14 million, or 9 cents per diluted share. Adjusted net income was $22 million, or 14 cents per diluted share. Third quarter adjusted EBITDA was $70 million, and adjusted EBITDA margin was 16.4%. U.S. segment profit was $48 million, up $3 million versus the prior year period primarily due to increased profit from our comparable stores, partially offset by the impact of new stores. Canada segment profit was $45 million, up $0.4 million versus the prior year period due to improved comparable store performance, partially offset by deleveraging of cost of merchandise sold as a percentage of net sales, primarily associated with our efforts with Canadian production levels to maintain demand, as well as a weaker Canadian dollar. This marks our first year-over-year increase in both U.S. and Canadian segment operating profits since 2023. highlighting our imminent inflection in total company profitability as new stores continue to mature. Our balance sheet remains strong with $64 million in cash and cash equivalents and a net leverage ratio of 2.7 times at the end of the quarter. Our updated capital structure gives us increased liquidity through a $55 million expansion in our revolver capacity, extended debt maturity through 2032, and significant flexibility to pay down debt in the future. Our strong cashflow generation will enable us to further deleverage our business as we target a net leverage ratio of under two times within the next couple of years. We are also pleased to announce that our board of directors approved a new $50 million share repurchase authorization. We will continue to take a balanced approach to capital allocation as our strong financial model allows us to fund organic store growth, reduce debt, and opportunistically repurchase shares. Finally, I'd like to discuss our updated outlook for the remainder of fiscal 2025. Our U.S. business remains strong entering the fourth quarter, while in Canada, macro pressures continue to weigh on results. We've made strides in better calibrating sales and production and are planning for Canadian macro conditions to remain challenging for the near term, with roughly flat Canadian comps in the fourth quarter. Our updated full-year outlook for 2025 now includes the following. Net sales of $1.67 billion to $1.68 billion, reflecting a weakening of the Canadian dollar since last quarter. Comparable store sales growth of 4.0% to 4.5%. Net income of $17 million to $21 million, or 10 cents to 13 cents per diluted share. adjusted net income of $71 million to $75 million, or 44 to 46 cents per diluted share, adjusted EBITDA of 252 million to $257 million, capital expenditures of 105 million to $120 million, and 25 new store openings. Our outlook for net income assumes net interest expense of approximately $62 million and an effective tax rate of approximately 41%. For adjusted net income, we are assuming an effective tax rate of approximately 26%. This concludes our prepared remarks. We would now like to open the call for questions. Operator?

Thank you, sir. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. and she wished to decline from the polling process, please press star followed by two. And if you're using a speakerphone, please lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions. First, we will hear from Randy Connick at Jefferies. Please go ahead, Randy.

Yeah, thanks a lot. And good evening, everybody. I guess first, why don't we just kind of unpack Canada a little bit further? You know, you gave us some good color. on the uh in the script around you know the top line continuing to improve you talked about the macro so maybe unpack that a little more and then you talked about some processing impacting um i guess the margins a bit that sounds like something that can be you know corrected obviously and fixed and improved from an efficiency standpoint going forward maybe give us a little more color there working on on the processing side thanks guys

Randy, thanks. Look, from our perspective, a little recap. From our perspective, the third quarter was definitely another step forward in Canada. We'd like to highlight the fourth quarter of sequential comp improvement, and more significantly, the first quarter of profit growth since 2023. Look, that said, the macro challenges do persist. There's stubborn unemployment and inflationary pressures on consumables. We're not planning for that to change. And we see from an unemployment perspective in the greater Toronto market, coverage just around, just below 9%. And in Windsor, it's over 10%. It's an important market for us, just to give you some context. So as we think about the third quarter, more progress, but a lot more to do. And we landed Canada at the lower end of our expectations. But tactically, we remain focused on delivering sharp value. that AUR of $5 USD, and measuring our price gaps to protect and gain share where we can. And I think in an environment of limited growth and higher wages, we've got to improve productivity through process improvements, resulting in cost reductions while not impacting the consumer proposition. Rest assured, Michael and Gibran's team are all over this challenge. And lastly, just from a, putting it back from a corporate perspective, because I think it's important, From a strategic enterprise perspective, we're going to deploy 75 to 80% of our growth capital in 26 and beyond to the U.S., where we do have tremendous white space and momentum. It's very important to note. I'll let you, Brian, sort of dive into a little more around selection and some of the other questions you asked.

Yeah. Hi, Randy. Thanks, Mark. Well, it really comes down to the three or four things that we can control. And to be clear, and I think Michael mentioned this earlier, As we sit today, we are balanced between sales and production and feel very good about that going forward. But again, around controlling the controllables, I mean, the first thing is providing selection and value that our customers expect. And we believe we're doing that. In fact, our own internal surveys tell us that customer perception of both price and selection has increased year over year. as we look to put out the right items in the right amount at the right price. The second thing that we can control, and Mark alluded to this, is being as efficient as we possibly can be in delivering that selection to our customers. Again, ours is a labor-intensive model, but our teams do an excellent job at executing as efficiently as possible. And frankly, we'll continue to do that through the remainder of the year. And we are relentless about looking for tactical and innovative ways to improve labor efficiency. So we've got a few things in the hopper that we're looking forward to as we get into 2026. And then finally, growing on-site donations. We've talked about this in the past. It's really about how you show up to the donor in terms of being reliably fast, friendly, and convenient. That is something that we control entirely. And we measure it not just in terms of on-site donation growth, but also donor sentiment and satisfactions. And our own internal voice of the donor surveys tell us that overall satisfaction is north of 90%. So we feel good about that. So yeah, overall, in terms of controlling the controllables, I think we're doing that amidst an otherwise challenging macro.

Yeah, super helpful. I guess last question. Obviously, this US business feels really good. Any color you can give us on the traffic or the transactions that are being done with existing customers versus new to file. I'm sure that you're getting a healthy amount of new customers entering the business. It'd just be helpful to get some perspective there. Any kind of feel for what the awareness level is for the banner in the United States right now? Obviously, again, it seems like we're still very early innings in this U.S. story going forward.

Yeah, Randy, great question. Look, transactions at basket definitely drove comps. And we have seen a nice increase in our loyalty platform in the U.S. That momentum is continuing. Beyond that, you know, we love what we're seeing from a consumer who's entering the mix. High household income cohort continues to become a larger portion of our consumer mix. It's trade down for sure. And our younger cohort also continues to grow in numbers. We couldn't ask for a better outcome, and I think it's largely driven by a great store experience, you know, merchandise mix that's unusual and powerful and great value, and that all drives, that all feeds into the secular momentum. Swimmers are liking what they see, and needless to say, we're very pleased with that trajectory.

Thanks, guys.

Thank you. Next question will be from Matthew Boss at J.P. Morgan. Please go ahead, Matthew.

Great, thanks. So, Mark, could you elaborate on the cadence of same-store sales over the course of the third quarter in the U.S.? Maybe just comment on what you're seeing in October. And then you mentioned the value gap. So how you see your value proposition positioned in the U.S., maybe against the broader marketplace?

Yeah, thanks, Matt. So I'll start with the value gap. I'll let Michael do the the October cadence and what we're seeing. We're very, you know, we spend a lot of energy and time understanding where we are relative to our competitive set. We define our competitive set in two ways. One's obviously thrift competitors, and the other is discount retail. And we gather a ton of information, and as I've said in previous calls, we can tell you you know, in our Issaquah store, what's happening down the street at TJX or other discount retailers, we try to get between 40 and 70 percent, maintain that gap, continue to give our thrifters value that is, you know, brings them back and is compelling. And I think we're doing that both in the U.S. and in Canada. We look at these metrics in both countries We're really driven by these metrics. We want to make sure that we're always delivering that price value gap to our customers everywhere they shop in the Value Village savers chains.

Hey, Matt, it's Michael. So your question about the cadence of our comps. So as we expected, the comps were strongest in July, eased slightly in August and September, as we expected, because we are starting to go up against tougher compares last year. As we've kicked off the fourth quarter, what we're seeing thus far is continued strength in the U.S., continue to be really pleased with the momentum there, and continued moderation in Canada. Now, we have had a warmer than usual start to the fall. That weighed on our results a little bit in late September and early October. Over the last week or so, as the weather has cooled, we're starting to see that improve. But as I mentioned in my remarks, we're assuming, you know, roughly flat, low growth in Canada for Q4. and planning conservatively given what we see in terms of the macro.

Great. And then, Michael, on gross margin, maybe could you help break down the drivers of the 80 basis point contraction in the third quarter? Maybe just some gross margin puts and takes that we should consider for the fourth quarter, anything to be mindful of for next year at this point.

Yeah, you got it. As we mentioned on the last call, we expected to narrow that gap from the first half, and we did. The biggest driver of the gap year over year continues to be new store growth. That gap is shrinking as the new stores are progressing in line with our expectations. The other driver in this quarter was the Canadian processing. As we've mentioned, comps being at the lower end of our expected range. We were very careful, very deliberate about reducing processing to ensure we didn't repeat the mistakes of last year and prematurely choke off demand. And so that did weigh on our margins in the quarter. But as Gibran mentioned a little bit ago, we exited the quarter essentially at equilibrium with processing demand, processing and demand lined up well. And then to a lesser extent, the two peaches, I mentioned the underperformance of those three stores that we've elected to close. So those were the big factors. I expect the gap to last year to continue to narrow, Matt, in Q4. We are continuing to move through the new store pipeline. Those new stores continue to mature and ramp very nicely, and that's helping to drive and lead us toward that inflection that we talked about. And being better at equilibrium in Canadian processing, both of those should contribute to a further narrowing of the gap in the fourth quarter.

Great. Best of luck. Thanks.

Next question will be from Brooke Rose at Goldman Sachs. Please go ahead, Brooke.

Good afternoon, and thank you for taking our question. Mark, I was hoping to get your thoughts on new market expansion for the Savers brand, given the announcement to enter Tennessee and North Carolina. What did you learn from the two peaches stores that you're closing that can help you ensure that new market expansions will be successful?

I can jump in. Sure, Jabron, why don't you jump in? Yeah, sure. Hi, Brooke. It's Jabron. I can help provide some color. Yeah, we converted the two Peaches stores per plan, and it's really pretty straightforward. I mean, we had three of them that we converted and, frankly, didn't like the performance on them, so we acted quickly to close them. But I think your broader question is, in kind of higher level, our strategic goal was always to enter the U.S. Southeast, where we previously had no presence and we wanted to take advantage of all that white space. While we're closing these three acquisition locations, the local supply that we now have in our mix will help us feed those new organic stores in 2026, where I think Mark mentioned that we will be opening our first store in Tennessee, our first stores in North Carolina, and an additional store in the Atlanta market. Very excited about these locations. These are, well, again, exciting centers that we think are going to show strong, our first stores in those states. So we continue to stay enthusiastic about our expansion opportunities in Southeast.

Great. And then maybe a follow-up from Michael. As you contemplate the modestly lighter EBITDA margin guide that you've provided for the back half this year, how should we be thinking about the path back to EBITDA margin expansion into 2026? Do the recent pressures in the Canadian business impact your view on the cadence and magnitude of improvement that you could see into next year?

thanks brooke you know this really doesn't nothing has changed our view of the near or longer term financial algorithm so you know just as a reminder for everyone we see over the long term high single digit total revenue growth which will be driven primarily by new stores now next year and i'm not guiding the next year but do remember that next year we go back to a 52 52 week year after a 53 week year this year so that two points we picked up this year we're going to give that back next year but That aside, you know, continue to see over the long-term low single-digit comps. And I think, you know, what we're seeing now is probably reasonably representative of how that's going to shake out by country with Canada in the low single digits and the U.S. somewhere in the mid-single digits averaging out to roughly low singles. So we still see high team EBITDA margins in the long-term algorithms. That's not going to be a step change. We've been saying that for a while. I don't expect to see that happen next year. We've got to continue building out the new store pipeline and letting that mature. But we continue to believe, as we said before, that EBITDA margins are at their trough this year. And so we would expect to see some modest growth in 2026.

Thanks so much. I'll pass it on.

Thanks, Brooke.

Next question will be from Mark Altschweiger at Baird. Please go ahead, Mark.

Great. Thanks for taking my question. Just following up on the U.S. momentum, can you talk about the opportunity in pricing, given the quality of supply you're seeing and the inflation you're beginning to see within the U.S. apparel market?

Yeah, look. Hey, Mark. This is Mark. So we are starting to see new apparel and footwear prices increase. And how we're approaching that is if the gap widens significantly beyond that 40 to 70 percent range that I articulated, it gives us an advantageous optionality, whether we choose to just gain share or some modest strategic price increases or both. It's just going to highlight our well-positioned price value equation within that market. So we see that as a big opportunity for us moving forward.

Thank you. And just on Canada, you made a handful of comments here as we think about Q4 and into 2026. But I guess guiding Flattish Q4, I think you just said low single digit is kind of your baseline expectation for next year. I mean, I know you're not guiding, but comparisons do begin to get tougher next year as you cycle forward. the recovery or the improvement you delivered this year. So maybe just help us understand the factors that could drive sort of a stable low single in Canada, given the macro headwinds you outlined. Yeah, Mark. So I think that, you know, the assumption is that we're going to continue to focus on the things Mark talked about earlier in terms of sharp value, great execution. We are seeing sort of stability there. The macro is is growing, albeit slowly, and so we do think that we can sustain low, and we're going to plan for conservatively low single-digit comps in Canada, and hopefully I'll help perform that, but we'll stay cautious in terms of the planning. And like I said, we continue to see really strong momentum in the U.S., and so, you know, we're more in the mid-single-digit range there, comfortably in the mid-single-digit range in Q3, obviously, and so we've we remain confident that we can average that out in something around a low single-digit overall comp. Thank you.

Next question will be from Bob Durbel at VTIG. Please go ahead, Bob.

Hi. Good afternoon. Just a couple of follow-up questions. On the two peaches, you know, the stores that you, you know, updated and then closed, I guess, what did you guys learn from, like, why do you think that didn't work for those stores? And I guess the other question I have is just on the new markets, you know, Tennessee, North Carolina, and the other store in Atlanta, do you just talk about the entry and how you're approaching the market and any marketing around, you know, those stores and that initiative? Thanks.

So, hey, Bob, it's Mark. On the Tennessee and North Carolina stores, we'll take the same approach that we have in all of our new store openings. We've got great real estate, great traffic patterns around it. Putting that community donation center first and foremost as part of that facility, critical for us in the long term. And then you start with... You know, we typically start with an event, and then we do paid search around it. And that's been very successful for us throughout our last three years of openings in the U.S. So we feel confident about our approach, and we don't see why it would be any different or the success rate of that approach would be any different in North Carolina and Tennessee. On the issue around two pieces, look, as Jabron mentioned, we converted those, converted those stores three months ago. You know, I think we looked at them out of the chute. We did not like the way they were performing. We wanted to get to a better place from a 2026 perspective on EBITDA and it being accretive. And we decided to close them. And we made a quick decision based on what we thought was the base case in terms of potential growth within those three environments. So we decided to move on. We feel good about that decision, and we like the fact that we're setting ourselves up for 2026 accretion versus continuing to fight a fight that we didn't think was going to be that fruitful.

And Bob, the only other thing I would add to Mark's comments is we've got our first stores in Tennessee, North Carolina, a new one in Atlanta. What we didn't mention is sitting behind that, is a pretty growing, robust pipeline of other attractive locations that are sitting a little bit behind those stores, but are equally attractive in terms of site quality, demographics, trade area that we'll be operating in. So like Mark said, pretty excited about the future for us in the Southeast.

Great. Thank you.

Next question will be from Michael Lasser at UBS. Please go ahead, Michael.

Good evening. Thank you so much for taking my question. So if the macro is getting worse in Canada, why are you not seeing the trade down? And if the macro remains challenged in 2026, how far are you willing to sacrifice the profitability of the U.S. business to support the Canadian segment? Thanks.

I'll answer that first part of the question. I think Michael will tackle the second part. We are actually seeing trade down in Canada, similar to the U.S., and I just didn't mention it because the original answer was focused on the U.S., but like the U.S., our key cohorts, U.S., I mean, the high household incomes and younger consumers, they're both growing in Canada as well. So we're actually really pleased about how the loyalty base is morphing in Canada as well. And we are, we are in fact seeing grade down, probably not to the same degree as we are in the U S we are certainly seeing it.

Yeah, Michael, this is, this is Michael. Can you, I didn't quite follow the second part of your question about Canadian versus us profit in 26.

You repeat that. You took down the guy. Yeah. You took down the guide because of a slowdown in the Canadian business for the fourth quarter. If we assume that continues into next year, do you have to sacrifice some of the improving profitability in the U.S. business to support the Canadian business? Or alternatively, if you experience deleverage on the Canadian business, to what degree is that going to eat in to the profitability of the U.S. business?

I see. Yeah, well, you know, we're not ready to guide for 26 specifically yet. I guess what I would say, though, is, and Mark mentioned this earlier in his remarks that were in response to the first question, we're planning for, in the near term at least, a slow growth business. And that means really tight execution, but also really aggressive posture on costs in Canada. And so, you know, we believe that at a low single digit growth rate, which we think is sustainable into next year, in Canada that we can be disciplined enough on costs to still achieve our bottom line objectives as well. And then, of course, in the U.S., really happy with the top line momentum there. That is also our investment, our growth market. And so we're investing in our new store growth is going to be disproportionately in the U.S. going forward. But nothing we see at this point

changes our view in the near or longer term about the financial algorithm okay thank you very much good luck thank you next question will be from peter keith at piper sandler please go ahead peter hi this is alexia morgan on for peter thanks for taking your question my first question is a clarification on guidance could you elaborate on the key drivers behind the narrowing of your EBITDA guidance and lowering the range at the high end. Was that primarily due to Canada or are there other factors that went into that recalibration as well?

Yeah, Canada is the largest factor. So that was really the biggest variable going into the back half of the year for us. We were going up against some really challenging business from a year ago. As we mentioned, we saw the comp settle out at the lower end of our expectations there. And Processing had to follow, but it did follow, and so we had some additional pressure on margin in the third quarter. And so that is the biggest driver of sort of the narrowing of the guide toward the lower end on EBITDA. To a lesser extent, it's the two peaches performance that we talked about earlier.

Okay, thank you. And then one more. on tariffs. I know you're not exposed to tariffs, but considering just the price increases being seen broadly across the industry, have you noticed any interesting mix shifts in your sales or are there certain categories of yours that you think might be outperforming and indirectly benefiting from prices raising across the industry?

We have not seen that phenomenon in our sales metrics.

Okay, thank you.

Thank you.

Once again, ladies and gentlemen, a reminder to please press star 1 if you do have any questions. Next, we will hear from Owen Rickert at Northland Capital Markets. Please go ahead, Owen.

Hey, guys, thanks for taking my question here. Just quickly on the automation front, have you started to see any tangible benefits from the new centralized processing centers and automated book systems? And maybe secondly, what's the latest thinking around CapEx? You continue to roll those out.

Why don't I take the CPC? You can talk CapEx. Hi, I'm Mr. Brown. Yeah, the CPC is the automated book processing We have made progress in terms of efficiency and effectiveness on those quarter after quarter after quarter. So pleased with the progress. What I will say is I don't think that we will ever get to a place where we say we've arrived. There's still a tremendous amount of opportunity that we see. And I don't mind sharing, I spend quite a bit of my own time and focus on this topic, where as we think about 2026, the opportunities that we have to become more efficient, more effective in those facilities. We think that there's a lot of opportunity there. I can't get into at this, I don't have the liberty of getting into the specifics on that. We got quite a few different tactics in the hopper that we think are going to play well for us in the future.

Great.

Thank you. This is Michael on your second question about CapEx. So, you know, again, we'll give more specifics when we guide for next year. But we have said that The current level at roughly a high single-digit percentage of revenue is probably pretty indicative of where we'll be as long as we are in this growth mode. And most of that investment is going to be in growth and in new stores. It may include amounts for additional enablers like off-site processing facilities or other technology investments as well. But overall, that's probably a reasonable envelope. Got it. Thanks, guys.

At this time, Mr. Walsh, it appears we have no other questions, sir. Please proceed.

We'd like to thank everyone for their time today and their interest in Savers Value Village, and we look forward to connecting with you after our fourth quarter. Thanks again.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.