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Operator: Good afternoon, and welcome to Savers 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 different 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 the company’s earnings release and filings with the SEC for a discussion of 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 from management on today’s call are Mark Walsh, Chief Executive Officer; and Jubran Tanious, President and Chief Operating Officer.

Mr. Walsh, you may go ahead sir.

Mark Walsh: Thank you, and 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 whitespace, investments we are making to differentiate ourselves and support accelerated growth shopper 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 US and Canada. Specifically, while our comparable sales on aggregate 4.3% the US 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 US 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 it tended to be more impactful to our results. In the US, consumers also remain cautious with their discretionary dollars, but thrift exploration and acceptance continues to grow. As we have referenced, 85% of consumers have interacted with breadth as a shopper or donor and one and 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 Brian 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 a real estate development team are powering the new store growth engine, and we are well-positioned to accelerate this growth given the significant whitespace opportunity we have in front of us.

I’ll now turn the call over to Jubran to discuss our recent acquisition and our exciting plans for the Southeast.

Jubran Tanious: Thanks, Mark. Echoing Mark’s comments, we continue to have tremendous growth opportunities, fueled by strong secular trends and the huge whitespace 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 US Southeast and virtually no presence in the US 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 2 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 2 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, we will initially transitioned 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 high school Maryland that will allow us to very quickly elevate the selection and overall value proposition to the 2 Peaches customer without the longer lead times required with building this capability locally.

Over time, we will convert the remaining five stores to the Savers Value Village model and transition the off-site processing support through 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, house and 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.

Mark Walsh: Thank you Jubran. Returned to the first quarter, the broader 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. Our U.S. 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 on the lower-end of our household income scale. This demographic tends to be more effective 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 member’ 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 our cost of goods is principally labor, we believe Savers Value Village is uniquely positioned to perform amidst these headwinds. Operating model provides nimbleness to manage our production and production labor can be adjusted to be more in line with consumer demand, thereby eliminate pressure on our EBITDA margins. We will be aggressively testing ways to increase shopper trip frequency and reengage 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, and customers intend 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 Maher, as our new CFO, effective Monday replacing Jay Stasz. 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 accelerated growth opportunities. We’re really excited to have him onboard. 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% the US 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% was 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 difficult to properly align production levels late in the quarter, since May 1, we have better align 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 in the quarter and generated a sales yield of $1.41. This compares with £240 million processed and a sales yield of $1.39 in the first quarter last year. On-site and GreenDrop 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. Depreciation and amortization increased 26.4% to $18.3 million, while interest expense decreased 34.3% to $16.1 million. Net income and adjusted EBITDA to GAAP net loss for the first quarter was $500,000. Adjusted net income increased 32% to $13.9 million or $0.08 per diluted share compared to $10.5 million or $0.07 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. Late January, we amended our senior secured credit agreement, the amended agreement combined with a corresponding upgrade of our debt rating by Moody’s lower 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 2 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 Brian discussed, this acquisition represents an important step forward in our strategy to open new items. 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 range. On the sales side, we are reiterating our full year 2024 outlook at $1.57 billion to $1.59 billion. Given the performance of our new US stores and with the inclusion of $7 million from 2 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 a range of 2% to 3%. Absent a macro improvement in Canada, we believe we are more likely to come 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 6% 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 million 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 flows 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 2020 for shifting of 22 new store openings and seven via the two pieces transactions, four new on-site production facilities, 8 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 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?

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