Savers Value Village, Inc. 2026 Q2 Earnings Call

Thank you. Good afternoon, everyone. We appreciate you joining us today. Our second quarter results reinforce our confidence in the power of the model as we continued our earnings inflection with a third consecutive quarter of year-over-year adjusted EBITDA growth. U.S. comp growth remains broad-based, profits increased in both major markets. New store profitability has started to ramp ahead of our original expectations. Together with ThriftIQ 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 at 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. 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, we 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. 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 U.S. 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, our 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 ThriftIQ, 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. ThriftIQ uses that data to provide more consistent pricing recommendations while preserving compelling customer value. We built ThriftIQ 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. 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 to learn process with ThriftIQ 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. ThriftIQ 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%-70% off traditional retail. We believe ThriftIQ and our broader innovation efforts will be meaningful contributors as we progress toward 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 ThriftIQ 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 a 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 ThriftIQ 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, the progress we're making each day to expand our reach to 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 ThriftIQ 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. ThriftIQ 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. ThriftIQ 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 ThriftIQ, 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 ThriftIQ 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 ThriftIQ 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 store 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, off-site processing improvements, and the continued maturation of our new stores. We believe this profit performance is durable, and with the addition of ThriftIQ, 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 on-site 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%.