Savers Value Village, Inc.

Good afternoon and welcome to Savers Value Village's conference call to discuss financial results from the second quarter ending July 4th, 2026. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and introductions 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 the 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 Thank you for listening. 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 filings. Joining from management on today's call are Mark Walsh, Chief Executive Officer, Jubran Tanious, President and Chief Operating Officer, Michael Maher, 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. Our second quarter results reinforce our confidence in the power of the model as we continue our earnings inflection with the third consecutive quarter of year-over-year adjusted EBITDA growth. U.S. comp growth remained broad-based, profits increased in both major markets, and new-store profitability has started to ramp ahead of our original expectations. Together with Thrift IQ and our broader productivity agenda, this gives us a sustained path back toward high-teens adjusted EBITDA margins. Let me start with a few highlights from the quarter. Sales in our U.S. business grew 11.6%, with comps up 6.6%, driven by both average basket and transactions. Secular adoption of Thrift remains strong, and our comp continues to be broad-based across categories, regions, and demographics. In Canada, comps increased 0.8% during the quarter, reflecting a roughly 70 basis point benefit from the Easter shift. Despite the limited top-line growth, grew Canadian segment profit almost 16% and expanded segment profit margin by 330 basis points, once again showing the impact of our productivity and profit improvement initiatives. Financially, adjusted EBITDA increased 8% to 75 million, or 16.6% of sales. And finally, we are updating our outlook for 2026, which Michael will address as part of his remarks. Turning to new stores, we opened four locations in the US and two in Canada during the quarter, including our recent North Carolina opening that delivered the highest opening week sales in company history. This performance in a new market underpins our confidence that our model is durable and scalable across regions. We are also seeing new store profitability ramp ahead of our original expectations, supported in part by ThriftIQ, A proprietary data driven platform that supports grading and pricing consistency, enhancing our customer value proposition. We are eager to continue growing our store fleet in the U.S. and believe we can expand at the current pace for years to come. For 2026, our plan remains to open around 25 new stores, more than 20 of which will be in the U.S. in 11 states with a nice mix of infill and new markets, including our first location in Tennessee opening later this year. Repeating a theme, our new store growth remains the highest return and the most important use of our capital. We are excited to bring our value offering to more consumers. Today, we also announced Thrift IQ, our next major innovation initiative designed to bring greater precision and consistency to pricing across our men's and women's apparel assortment. Because we process millions of unique items each week, we have built a proprietary data set across brands, categories, price points, and sell-through outcomes that would be difficult for another retailer to replicate. Thrift IQ uses that data to provide more consistent pricing recommendations while preserving compelling customer value. We built Thrift IQ with three core objectives in mind. Number one, improve our consumer value proposition with more precise, and Consistent Pricing. Second, deploy our proprietary data set across the store network. And finally, improve financial outcomes through stronger sales yields, larger baskets, simpler store processes and faster new store profitability ramps. We have conducted an intensive two-year test and learn process with Thrift IQ and have used it to price over 25 million items spanning 45,000 brands. The platform is already operational in 58 existing stores, including most new store openings over the last six months. Thrift IQ delivered improvements in sales yield and gross profit in our pilot stores, with average prices that are the same or lower than the rest of the fleet and continuing to average 40% to 70% off traditional retail. We believe Thrift IQ and our broader innovation efforts will be meaningful contributors as we progress for our long-term high-teens adjusted EBITDA margin target. Michael will discuss the pilot results and the financial implications in more detail. I've been busy touring our stores and CPCs, and the enthusiasm from our team members is palpable. The data-driven process simplifies workflows, enables greater cross-training, and helps us deliver compelling value more consistently across the assortment. In fact, store managers have reiterated that Thrift IQ is delivering value that is resonating with our consumers. Given the transformational nature of the platform, we will move deliberately and with rigor to ensure successful change management. We are also excited to announce our Savers Innovation Day in early November, where you can get a hands-on look at Thrift IQ and our other initiatives. We are reinventing Thrift again. I would like to now thank our nearly 24,000 team members for their role in driving strong results in the first half of 2026. and keeping our momentum going into the back half of the year. Our mission to make secondhand second nature continues to gain traction. And the progress we're making each day to expand our reach and bring an exciting thrift shopping experience to more customers is invigorating. We are well positioned to capitalize on the opportunity ahead and drive long-term value for our customers, nonprofit partners and shareholders. I'll now hand the call over to Michael to discuss our second quarter financial performance and the updated outlook for the remainder of 2026.

Thank you, Mark, and good afternoon, everyone. Before reviewing the quarter, I want to provide additional detail on the Thrift IQ pilot results and financial implications. As Mark noted, this platform allows us to be more precise and consistent in delivering great value to our customers. Thrift IQ is currently live in 58 stores across the U.S. and Canada. In these stores, we've seen customers respond positively through increased unit sell-through, larger baskets, and stronger sales yields with the same or lower average prices compared to the rest of our fleet. That translated into gross profit dollar growth that was approximately 100 basis points higher in our pilot stores than in our non-pilot stores. Thrift IQ is also helping our new stores ramp to profitability faster with better data-driven pricing out of the gate and simpler operational processes. For example, we're able to reduce training time for new graders by approximately half. Thanks in part to Thrift IQ, more than half of our 2025 class of new stores generated positive four-wall contribution in the second quarter, which is ahead of previous new store classes. We expect to provide additional detail on the new store maturation model at a future date. The early Thrift IQ results Continued maturation of the new store fleet and other profit improvement initiatives increase our confidence in the path to our long-term profitability goals. We expect these initiatives collectively to support 50 to 100 basis points of annual adjusted EBITDA margin expansion beginning in 2027 and a return to high teens margins within the next three years. We expect the financial contribution of Thrift IQ to build as deployment scales. We look forward to sharing more details at our Savers Innovation Day in November. Turning our attention back to second quarter results, total net sales increased 7.4% to $448 million. On a constant currency basis, net sales increased 7.1% and comparable store sales increased 4.4%. The favorable impact of foreign exchange rates was 170 basis points lower than in Q1. We are especially pleased with our sales results in the U.S., where net sales increased 11.6% to $255 million. Comparable store sales increased 6.6%, fueled by both average basket and transactions, with broad-based growth across regions, categories, and income cohorts. Younger and more affluent consumer cohorts are still our fastest growing demos, which speaks to the power of our model and its ability to resonate with all shoppers. As a reminder, the majority of our comp base is made up of largely mature stores with little benefit from our recent new store openings. As new stores enter the comp base, they will provide an additional tailwind to our comp growth. Given the breadth of our comp strength and compelling new store performance, we remain very confident in our ability to grow and scale the U.S. business. We also saw continued stability in Canada, where net sales and constant currency net sales both increased 2.2% to $158 million, and comparable source sales increased 0.8%, reflecting a 70 basis point benefit from the Easter holiday shift. Despite limited top line growth, we were still able to grow profits and expand segment margin by 330 basis points, which we attribute to tight production management Offsite Processing Improvements, and a continued maturation of our new stores. We believe this profit performance is durable, and with the addition of Thrift IQ, we are confident in our ability to drive future incremental profit growth. As it relates to the macro environment, conditions remain stable but sluggish, we do not expect a material change in Canadian economic conditions in the near term, and continue to plan our business around a roughly flat comp. Cost of merchandise sold as a percentage of net sales decreased 170 basis points to 43.1% due to comp leverage and efficiency initiatives, as well as growth in onsite donations, partially offset by the impact of new store openings. 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 100 basis points to 19.7%. The increase was driven primarily by new store growth, an increase in annual incentive plan expense, and higher non-IPO-related stock-based compensation expense. Selling, general, and administrative expenses increased 15% to $102 million, and as a percentage of net sales increased 150 basis points to 22.7%. SG&A included a $2 million impairment charge primarily related to the consolidation of one of our Canadian warehouse processing facilities, which was enabled by our continued efficiency improvements in offsite processing. SG&A also included $1 million of transaction costs related to the recent repricing of our term loan. Excluding these charges, SG&A increased 11%, primarily due to growth in our store base. Depreciation and amortization increased 22% to $25 million, reflecting continued investments in new stores, off-site processing, and information technology, as well as capital maintenance expenditures. Net interest expense decreased 19% to $13 million, primarily due to the impact of our debt refinancing last fall. Between that refinancing and our more recent repricing, we have reduced interest expense by approximately $20 million on an annualized basis over the last year. Gap net income for the quarter was $22 million or 14 cents per diluted share. Adjusted net income was also $22 million or 14 cents per diluted share. Second quarter adjusted EBITDA was $75 million and adjusted EBITDA margin was 16.6%. U.S. segment profit was $59 million, an increase of $10 million primarily due to increased profit from our comparable stores and the continued maturation of new stores. Canada segment profit was $46 million, up $6 million due to increased operating efficiency driven by our profit improvement initiatives. Our new stores continue to perform in line with our expectations on the top line, and as previously mentioned, we are seeing their profitability ramp ahead of our original expectations. Our balance sheet remains strong with $92 million in cash and cash equivalents and a net leverage ratio of 2.4 times at the end of the quarter. We also repurchased 1.2 million shares at a weighted average price of $8.10. Our capital allocation strategy remains unchanged as we 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 updated outlook for the remainder of fiscal 2026. Our updated outlook reflects our first half performance and continued adjusted EBITDA growth in the second half. The costs and benefits of a phased ThriftIQ rollout are also incorporated with a financial contribution from ThriftIQ expected to build as deployment scales. We now expect Net sales of $1.77 billion to $1.79 billion Comparable store sales growth of 3 to 4% Net income of $67 to $76 million or 42 to 47 cents per diluted share Adjusted net income of $76 to $85 million or 47 to 53 cents per diluted share adjusted EBITDA of $265 million to $275 million, capital expenditures of $125 million to $145 million with approximately 25 new store openings, net interest expense of approximately $48 million, and an effective tax rate of approximately 28%. For adjusted net income, we are assuming an effective tax rate of approximately 27%. We are projecting weighted average diluted shares outstanding to be approximately 160 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 third quarter. We expect total revenue growth between Q1 and Q2 levels, with comp sales growth moderating slightly as we begin to lap stronger comparisons. We expect adjusted EBITDA to be modestly below Q2, driven principally by a shift in timing of new store openings and associated pre-opening expenses between Q2 and Q3. We plan to open eight new stores during the quarter, reaching the midpoint of our full-year target in August. This concludes our prepared remarks. We would now like to open the call for questions. Operator?