Savers Value Village, Inc.

Good afternoon and welcome to Saver's Value Villages conference call to discuss financial results for the first quarter ending April 4, 2026. 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 Investors Relations website. The comments made during this call and the Q&A that follows are copyrighted by the company and cannot be reproduced without written authorization from the company. Certain comments made during this call may constitute forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from expectations or historical performance. Please review the disclosure on forward-looking statements included in a 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 the historical non-GAAP measures to the most directly comparable GAAP financial measure can be found in today's earnings release and SEC filing. Joining from management on today's call are Mark Walsh, Chief Executive Officer, Drew Brontanius, President and Chief Operating Officer, Michael Maher, Chief Financial Officer, and Ed Ruma, 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 first quarter results as we once again delivered strong sales performance and continued our earnings inflection for the second consecutive quarter of year-over-year adjusted EBITDA growth. We increased segment profit in both of our major markets through a combination of continued strength in our U.S. comp store fleet, the ongoing maturation of our new stores, profit improvement initiatives, and tremendous operational discipline. We also made continued progress on our innovation agenda, which is already delivering benefits to our business. Let me start with a few highlights from the quarter. Sales in our U.S. business grew 11.2%, with comps up 6.4%, given by both average basket and transactions. The secular trend towards Thrift remains a powerful tailwind, and our maturing new store fleet is in the early stages of contributing to comp sales growth. In Canada, our sales trends were largely as expected, with a 0.6 comp decrease during the quarter, reflecting a roughly 70 basis point headwind due to an early Easter. I'm especially proud of our Canadian team's execution this quarter. Despite flat comps, we grew Canadian segment profit almost 24% as we tightly managed production levels and benefited from some significant and sustainable profit improvement initiatives. We opened three new stores during the quarter, all of which were in the U.S., and we continue to expect around 25 total new store openings this year. Our new store portfolio continues to perform in line with expectations, giving us confidence in our ability to drive profitable sales growth as these stores mature. Financially, we generated $44 million of adjusted EBITDA in the quarter, or 11% of sales. And finally, we are reaffirming our outlook for 2026, which Michael will address in more detail. Turning to our results by geography, let's start in the US, where we believe that we are still in the early innings of consumer thrift adoption. Our 6.4% comp, despite some unusually disruptive weather, was broad-based, with strong growth across regions, categories, and income cohorts. We continue to see the strongest growth in our younger and more affluent consumer cohorts, which speaks to the power of our model and its ability to resonate with shoppers across demos. We feel very good about our competitive positioning and value gaps as new clothing and footwear prices continue to face upward pressure. Additionally, onsite donation growth continues to be robust, which helps power our flywheel, enabling our compelling assortment. In short, the U.S. business is firing on all cylinders, but we are excited about our continued expansion in this market. In Canada, our 0.6 comp decrease was largely in line with our flattish comp expectation, with the Easter shift negatively impacting our comp by roughly 70 basis points. Macro conditions remain stable but sluggish, particularly in our key southern Ontario market, including the greater Toronto area and Windsor, where we have roughly 35% of our Canadian store fleet. We do not expect a material change in the economic conditions in Canada in the near term, and we continue to plan our business around a roughly flat comp. Having said this, our first quarter results demonstrated our ability to drive meaningful profit improvement in Canada despite limited top-line growth. Canadian segment profit increased $6 million over last year, and profit margin expanded 310 basis points. which we attribute to our continued focus on productivity and tight management, matching demand and production. We also have a number of tests and initiatives underway to drive meaningful improvements in sales yields and cost per unit in our offsite facilities. We are quickly sharing learnings and best practices across our central processing centers and expect incremental benefits in the coming quarters. Moving on to new stores, We opened three new store locations in the U.S. during the quarter and continue to be pleased with the results as they are performing in line with our expectations. As I indicated earlier, we are excited to continue growing our store fleet in the U.S. and believe we can expand at current rates for years to come. For 2026, we are planning to open around 25 new stores, over 20 of which will be in the United States, across 11 states, with a nice mix of infill and new markets. An upcoming highlight this quarter is our first North Carolina store, as our Burlington location opens later this month. Repeating our theme, our new store growth remains the highest return and most important use of our capital, and we are excited to bring our value offering to more consumers. Shifting now to innovation, where our key priority areas are, strengthening our price value equation, driving efficiency and cost reduction, and expanding our data science and business insights. Last quarter, we announced the launch of ABP Lite, an asset-light extension of our automated book processing or ABP system. I am pleased to report that we have completed our rollout plans ahead of schedule with the vast majority of the fleet now leveraging our ABP capability. We expect these stores will now reap the proven benefits of ABP I think this is a great example of how we can deploy technology in a cost-effective and high-return way across our store portfolio. We also continue to significantly strengthen the foundation of our data science and business insights. The team has been working hard to transition to a more robust data state, structuring operating data that allows us to translate and communicate insights to drive field actions. thus improving our ability to, one, react to changes in sales trends, two, improve productivity, three, support margin discipline, and finally, to help us continually refine our value proposition for consumers. I would like to highlight the progress we're making through a strategic partnership with Microsoft. For several months, Microsoft has had a team of forward-deployed engineers working closely with savers to embed AI agents directly into our operating model. Our first agentic AI capability monitors our loyalty program, empowering our field organization with insights to boost consumer engagement and drive productivity. Our loyalty program is a strategically important part of our business as it represents roughly 73% of our sales and is a key focus as we continue to grow our store fleet. This deployment also provides us an agentic template for an agile future rollout of AI capabilities and insights across our enterprise. We have already identified several other use cases for AI agents across our business and are either deploying or finalizing for implementation as part of our broader innovation roadmap. We look forward to sharing more updates on future calls. I'd like to thank our nearly 24,000 team members for their efforts in driving a strong start to 2026 and helping us deliver our commitments to our customers, nonprofit partners, and shareholders. Our mission is to make secondhand second nature, and that continues to gain momentum. We are well positioned to build on this momentum and deliver continued success. I'll now hand the call over to Michael to discuss our first quarter of financial performance and the outlook for the remainder of 2026.

Thank you, Mark, and good afternoon, everyone. As Mark indicated, we had a solid first quarter. Total net sales increased 8.9% to $403 million. On a constant currency basis, net sales increased 6.9%, and comparable store sales increased 3.5%. We are especially pleased with our sales results in the U.S., where net sales increased 11.2% to $234 million. Comparable store sales increased 6.4%, fueled by both average basket and transactions, with broad-based gains across categories, regions, and income cohorts. Given the breadth of our sales performance and the fact that we have yet to see a material lift from our new store openings, we remain very confident in our ability to grow the U.S. business. We also saw continued stability in Canada, where net sales increased 6.7%, On a constant currency basis, Canadian net sales increased 2% to $131 million, and comparable store sales decreased 0.6%, reflecting an earlier Easter that negatively impacted comp by 70 basis points due to store closures on Good Friday. In the near term, we do not assume any material improvement in the Canadian economy, and as such, we'll be planning our Canadian business conservatively. However, as Mark mentioned, we did successfully expand segment margins and grow profit contribution even without comp sales growth through strong execution, efficiency gains, and the continued maturation of our new stores. All things considered, we believe this quarter is a good model for how we will continue to grow segment profit contribution even with limited sales growth going forward. Cost of merchandise sold as a percentage of net sales decreased 10 basis points to 45.4% due to comp leverage and efficiency initiatives, as well as growth in on-site donations, partially offset by the impact of new store openings. Salaries, wages, and benefits expense was $86 million. Excluding IPO-related stock-based compensation, salaries, wages, and benefits as a percentage of net sales was roughly flat at 20.5%. Selling, general, and administrative expenses increased 13% to $98 million, and as a percentage of net sales increased 80 basis points to 24.4%, primarily due to growth in our store base, increased routine maintenance costs, namely higher snow removal expenses, and increased occupancy costs. Depreciation and amortization increased 18% to $23 million, reflecting investments in new stores. Net interest expense decreased 15% to $13 million, primarily due to the impact of our debt refinancing last fall. Gap net loss for the quarter was $5 million, or 3 cents per diluted share. Adjusted net income was $2 million, or 2 cents per diluted share. First quarter adjusted EBITDA was $44 million, and adjusted EBITDA margin was 11%. U.S. segment profit was $43 million, an increase of $4 million, primarily due to increased profit from our comparable stores. Canada segment profit was $31 million. We're up $6 million due to disciplined management of production and expenses and the CPC productivity and efficiency initiatives Mark mentioned earlier. Our new stores continue to perform in line with our expectations, and mature on schedule as their contribution ramps. However, as we mentioned last quarter, a more balanced store opening schedule this year means more front loaded pre-opening expenses. While we expect pre-opening expenses for the year to be roughly flat with last year at approximately $14 to $16 million, first quarter pre-opening expenses were approximately $1 million higher than last year. Our balance sheet remains strong with $62 million in cash and cash equivalents and a net leverage ratio of two and a half times at the end of the quarter. We also repurchased 1.2 million shares at a weighted average price of $8.51. Our capital allocation strategy remains unchanged as we continue to prioritize organically funding new store growth, repaying debt as we target a net leverage ratio under two times by the end of next year, and opportunistically repurchasing shares. I'd like to now turn to our guidance and discuss our outlook for fiscal 2026, which remains unchanged from the previous full-year guidance we gave back in February. We continue to expect net sales of $1.76 billion to $1.79 billion, comparable store sales growth of 2.5% to 4%, Net income of 66 to 78 million dollars or 41 to 48 cents per diluted share. Adjusted net income of 73 to 85 million dollars or 45 to 53 cents per diluted share. Adjusted EBITDA of 260 to 275 million dollars. Capital expenditures of 125 to 145 million dollars. And approximately 25 new store openings. Our outlook for net income assumes net interest expense of approximately $50 million and an effective tax rate of approximately 28%. For adjusted net income, we're assuming an effective tax rate of approximately 27%. We're projecting weighted average diluted shares outstanding to be approximately 163 million for the full year. This does not contemplate any potential future share repurchases. Finally, I'd like to briefly touch on our expectations for the second quarter. We expect total revenue growth to be 100 to 200 basis points lower than the first quarter due to the impact of foreign exchange rates. We expect constant currency total revenue and COP sales growth similar to the first quarter. We also expect Q2 adjusted EBITDA growth to be similar to Q1. with the cadence of earnings through the balance of the year to resemble 2025. We plan to open six new stores during the quarter in line with our goal of more rapidly opening stores throughout the year. This concludes our prepared remarks. We would now like to open the call for questions. Operator?