Savers Value Village, Inc. Q3 FY2025 earnings call

• Highlights: U.S. sales growth and comps strengthening, Canadian comps showing sequential improvement for four quarters, 10 new stores opened in the quarter, loyalty program with ~6.1 million active members, debt refinancing reducing annual interest expense by ~$17M, and release of the 2025 Impact and Sustainability report.
• Operational Focus: In Canada, leaning into selection and calibrating production to meet demand; continuing store growth strategy with 25 planned openings in 2025; planning to close 6 underperforming stores, which is EBITDA-accretive in 2026.

U.S. Business: Net sales grew 10.5% to $235 million, with comp sales up 7.1% driven by transactions and average basket. Canadian Business: Net sales increased 5.1%, with comp sales growth of 3.9% (fourth consecutive quarter of sequential improvement). The U.S. segment contributes significantly more to revenue due to strong momentum, while the Canadian segment is impacted by macro challenges but shows sequential improvement.

• Updated 2025 outlook: Net sales expected to be $1.67 billion to $1.68 billion, comparable store sales growth 4.0% to 4.5%, net income $17 million to $21 million, adjusted net income $71 million to $75 million, adjusted EBITDA $252 million to $257 million, capital expenditures $105 million to $120 million, and 25 new store openings.
• Debt refinancing expected to result in annual interest expense savings of approximately $17 million, with estimated interest expense for Q4 2025 at $14 million and fiscal 2026 at $52 million.

• Macroeconomic challenges in Canada, including high unemployment, inflation, and trade tensions. - Impact of underperforming stores leading to closure of 6 stores and a $4 million impairment charge. - Dependence on successful store growth and execution in both U.S. and Canadian markets to meet guidance.

Q: Elaborate on Canada's macroeconomic challenges and processing impact.

A: Mark and Jubran discuss ongoing macro challenges in Canada (unemployment, inflation), and adjustments in processing to balance production and demand while focusing on delivering sharp value.

Q: Talk about U.S. traffic, new customers, and brand awareness.

A: Mark mentions transactions and basket driving comps, growth in loyalty platform, increasing mix of high household income and younger consumers, and strong consumer response to store experience and value proposition.

Q: Discuss gross margin drivers and fourth quarter outlook.

A: Michael explains that new store growth and Canadian processing were key drivers of margin contraction in Q3, but expects margin improvement in Q4 as new stores mature and processing aligns with demand.

Q: New market expansion and lessons from 2 Peaches stores.

A: Jubran talks about the approach to new market expansions (similar to existing store openings) and lessons learned from underperforming 2 Peaches stores, leading to their closure for EBITDA accretion.

Q: U.S. pricing opportunity given apparel price increases.

A: Mark states that increasing apparel and footwear prices create an opportunity to leverage the price-value gap, allowing for share gain or strategic price increases if the gap widens beyond target ranges.

Q: Canada's Q4 guidance and 2026 outlook.

A: Michael mentions planning for flat Q4 in Canada with low single-digit comps, and confidence in U.S. mid-single-digit comps, expecting an average low single-digit overall comp.

Q: Tariffs and sales mix impact.

A: Mark states no visible mix shift in sales metrics from tariffs.

Q: Automation and CapEx progress.

A: Jubran discusses ongoing progress in automated processing centers, with continued opportunities for improvement, and Michael mentions CapEx plans aligning with growth, roughly a high single-digit percentage of revenue, focused on new stores and enablers like technology.