Savers Value Village Stock

Good afternoon and welcome to Savers Value Village's conference call to discuss financial results from the second quarter ending July 4th, 2026. [Operator Instructions] 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 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 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 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 Eramo, 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. 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 remained broad-based, profits increased in both major markets, and 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 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 top 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 4 locations in the U.S. and 2 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 and 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. 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 for 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 3 core objectives in mind. #1, 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 2-year test and 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 6 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% to 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. 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 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 4-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 3 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, offsite processing improvements, and a 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 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, 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. SG&A 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 1 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 loans.

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, offsite 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. GAAP net income for the quarter was $22 million or $0.14 per diluted share. Adjusted net income was also $22 million or $0.14 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 2.4x 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 2x 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 million to $76 million or $0.42 to $0.47 per diluted share, adjusted net income of $76 million to $85 million, or $0.47 to $0.53 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 8 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?

[Operator Instructions]

Your first question comes from the line of Brooke Roach with Goldman Sachs.

I was hoping that we could unpack the drivers of the return to the high-teens EBITDA margin that you outlined on the call. Can you talk a little bit more about the assumptions that underpin that, how to think about the contribution from ThriftIQ over that 3-year period and the ThriftIQ contribution each year within the 50 to 100 basis point plan, and any other particulars that we should be thinking about with regards to phasing as you look to return to that EBITDA margin?

Yes, thanks, Brooke. It's Michael. So certainly, you got the components there. It's a combination of our innovation agenda, which ThriftIQ is a significant piece, obviously, as well as our new store ramp and just our ongoing comp margin leverage and other profit improvement initiatives. I expect it's going to be a healthy contribution and balance of contribution from all 3 of those things. And there's frankly a little bit of overlap too. So for example, you know, the innovation contribution to new stores is part of that. So as we think about the 50 to 100 basis points per year, as I mentioned in my remarks, the contribution from ThriftIQ is going to build as the deployment scales.

And so, as you think about us rolling that out, back half of this year, all the way through '27 and into early 2028, I would expect to see full annualization come in '28 and beyond. And so I would think about probably expecting us to be at the lower end of that 50 to 100 basis point range in '27 and building toward the higher end of that range in the subsequent years.

Great. And then Mark, maybe we can talk a little bit more about the benefits to ThriftIQ and what it means for your customer base. You spoke a little bit about some of these engagement metrics that you were seeing within the test stores. What does that mean for traffic, customer repeat rate, basket size conversion, and net? As you think about that 100 basis point higher gross profit dollar growth, how much of that is coming from better sales momentum and how much of that is coming from better COGS efficiencies?

Thanks, Brooke. Look, I think let's start with a little context on why we got to ThriftIQ and how do we get there. It's really born from an opportunity. We've accumulated 1 of the largest data sets in secondhand retail, processing more than 1 billion pounds of goods annually. And ThriftIQ over the last almost 2 years has helped us price more than 25 million items and most importantly evaluate the sell-through of those 25 million items that will likely double to 50 million by year-end over 45,000 brands. The objective, very clearly for us as we started this process, was to improve the customer value proposition, full stop, by making prices more precise, consistent, and predictable, removing a lot of the subjective nature approach.

And as we talked about on the prepared remarks in our pilot stores, the average prices have been the same or lower than the rest of the fleet, and that's still continuing to average that very important band that we try to operate in between 40% and 70% below traditional retail. The result that we've seen in our pilot stores is it's producing better outcomes across a number of metrics. Higher unit sell-through, larger baskets, stronger sales yields. And we've talked about the faster new store ramps, very important as well. Ultimately, it's driving improved profitability.

Your next question comes from the line of Matthew Boss with J.P. Morgan.

With 7 consecutive quarters now of mid-single-digit same-store sales in the U.S., can you speak to new customer acquisition, trends from your existing cohorts, and any market share metrics that speak to the acceleration or the inflection, and just any constraints to sustaining mid-single-digit comps in the back half of the year, in your view?

Thanks, Matt. Let me start with the new customer trends. We continue to see robust new customer interaction, and we are very focused, obviously, on driving those individuals into our loyalty program. It's a stickiness factor for us and obviously we can track those customers on a consistent basis. I would say the most interesting and most exciting thing we're seeing, look, we're still seeing that younger cohort grow disproportionately to the rest of the age cohorts in our traffic and our customer base. What's really exciting for us, and I think it speaks to the universal appeal of how we're delivering value and merchandise, is the fact that both the high and the low end, we're seeing growth.

Our high household income customers and our low household income customers are outpacing growth of the other household incomes in the middle. So sort of a sandwich effect. But you think about that dynamic, it's really wonderful from a universal appeal perspective. So we're bringing in high household income, low household income, whole household income, getting them in the shop, creating stickiness, having them sign up to the loyalty database or continually see that frequency improve. So net net net, I think that's a lot to do with why we've seen that consistent pattern over the last couple of quarters, as you mentioned.

Hey Matt, it's Michael. A couple of things I'd add on just the sustainability of the comp into the back half. So first of all, Mark kind of alluded to this, but we've seen a really healthy balance of that growth. It's transactions, it's basket, it's broad-based across categories, regions, demographics. And just the other thing I would add is that our comp base is still a relatively mature comp base. Only now are new stores really beginning to enter that comp base in a significant way, and that's going to continue to provide a tailwind to that U.S. comp for a while.

Great. And then, Michael, just to break down the return to high-teens EBITDA margin as a multiyear target, what would be the best way to think about the gross margin rate opportunity if we're thinking about breaking down that high-teens EBITDA margin just between gross margin and SG&A, maybe relative to the past in terms of when we had previously seen high-teens EBITDA margins in the business?

Yes, well, Matt, it's probably a little early for us to get into too much specifics on that yet, but I do think gross margin is going to be a meaningful contributor. All of the things that we've seen this year in margin, whether it be leverage on that comp base or continued efficiency gains in our Canadian business, but also, very importantly, the continued maturation of new stores and the contribution of ThriftIQ, all of those things are going to have a positive impact on gross margin over time. But I would expect some leverage on our SG&A as well as we continue to scale on the top line. So we'll have more details on that as we progress.

Great color. Best of luck.

Thanks, Matt.

Your next question comes from Michael Lasser with UBS.

Can you unpack the guidance change from what you were expecting previously? You raised the low end of your expectations. If we look at where you came out within the second quarter, it fell short of where the consensus was, the increase to the full year outlook, at least at the midpoint. So perhaps you can bridge that for us.

Michael, are you talking about EBITDA? Yes, I think the consensus expectation numbers we're seeing, we're ahead of that on the second quarter. So just as far as our outlook for the year, yes, we're happy with our results so far. We're a little bit ahead of our plans. We've got half the year to go, more than half of our earnings to go so far. We were off to a good start to the second half, but obviously a long ways to go yet. We do have some slight shift. I mentioned in my remarks, timing of new store openings and the associated pre-opening expenses between Q2 and Q3.

But other than that, we're essentially holding our view on the back half of the year unchanged. And therefore we thought it appropriate to pull up the lower end of the guide.

Okay, I'll just take that offline. My follow-up question is, you alluded to slower comps in the back half, in part because of more difficult comparison. But at the same time, you're going to have the rollout of ThriftIQ, which it sounds like is an accelerant for gross profit dollars, maybe not as much on the sales side and it could come at the expense of margin. So if you could square all that, that would be super helpful.

Yes, sure, Michael. So what we're seeing is gross profit dollar growth around 100 basis points relative to the rest of the fleet in the pilot stores with ThriftIQ. Just at the risk of stating the obvious, that could come from higher sales on a given level of production or similar sales, but on lower levels of production, right? Essentially, it's about sales yield, and that's where we're seeing that improvement. We're seeing a mix of both, frankly, in our pilot stores. And so we focused on that gross profit improvement. Certainly that can be a component though of comp tailwind for us. So we have factored that in. Remember it is going to be a phased rollout.

We're going to be deliberate about that. So while to a certain extent that is helping us out, we are also just mindful of the continuing momentum from last year that we are beginning to lap, particularly in the U.S. in the back half of the year.

Understood. Thank you so much and good luck.

Thanks, Michael.

Your next question comes from Randal Konik with Jefferies.

Yes, thanks guys. Couple things. So first on Canada, continue to kind of drive up the profit margins there. I think getting that region very much more efficient and up from a profit margin standpoint, just kind of remind us where we are in the cycle of that region's margins and where you think they can go in the coming years. And then back on, I think something you said in the script, I believe you said something to the effect of North Carolina, that store, I think you said something to the effect of it was like your best opening ever, you know, kind of remind us what you're doing differently from a store opening procedure to kind of drive more awareness pre the opening of these stores and what you're doing differently than perhaps what you may have been doing when you opened stores a few years ago. Let's start there. Thanks, guys.

Sure, Randy. It's Michael. I'll take your first question on Canada margins and kind of where we've been and where that's going. So, yes, very pleased to have another quarter of Canadian segment profit growth, meaningful Canadian segment profit growth, up over 15% on sales, up 2%. So a lot going on behind that to continue to drive improvement for us for several quarters yet. So first of all, just tight management of production in response to demand trends. That's helping us drive sales yields, which, as we just talked about, is a meaningful indicator of gross margin. Offsite processing we talked about a little bit in our prepared remarks, but we continue to make improvements not only on the cost per unit, but on the sales yields of the items that we are processing in our offsite facilities that's helping drive improvement in the Canadian segment.

And then onsite donation growth robust, outpacing our sales growth. So all of those things are contributing to Canadian margin and we expect will continue to contribute to Canadian margin in the coming quarters. And then the other factor which we talked about for a while is just the impact of the new store drag. We've talked about this for a while. New stores are a temporary drag on margins. You know, they begin to inflect over time, but we are now shifting the vast majority of our growth to the U.S. As we go forward, which means Canada will be very relatively few new store openings going forward, and that means less of that new store drag.

And so we do expect to continue to see Canadian contribution margins that are above those in the U.S. as we focus our growth investments in the U.S. and I would expect to continue to hold if not improve Canadian margins for the foreseeable future.

Then Randy, this is Jubran on the new stores. Yes, very excited about that first location in North Carolina. That's our Burlington store, which was a record breaker. And very pleased with our new store fleet in general. The performance has been right on track with what we had hoped. And I think we've gotten better at this. There's a few reasons why. The first is that we've been on a continuous improvement path with our algorithm and frankly picking winners when it comes to sites.

So the site selection process has continued over the years, and I think our success bears this out. And when you think about entering a new market, a new region of the country where we've talked about the Southeast, the southern tier really just reinforces the durability and scalability of our model. It resonates in all markets. So that's the first, site selection. The second thing is we actually have a dedicated finance and senior leadership team that holds the hand of a new store as it grows into its maturity curve. And that is helping us ramp as well. I think we made in the opening comments a comment that most new stores are opening with ThriftIQ that has cut our training time in half. It has streamlined the process and it makes it easier for a new store to get on its feet quicker.

And then the last thing I would say, Randy, is the marketing playbook. And this is a nod to the continued evolution and good work by our marketing team, where there is a focus on the local communities with a mix of tactics, paid search, outdoor, right, billboards, influencer. We have cultivated a nice ecosystem of influencers, including new influencers that join in these new markets. And then optimizing the physical site itself, right, for maximum drive-by awareness. So you put all that together. And you see the performance that we're seeing in the new stores. And I'll just close by saying really excited about the additional stores to come in North Carolina, that first store in Tennessee, which will open later this year, and then a real nice pipeline that's filling out for us in the southern tier with stores to open in 2027 and beyond.

Super helpful. And then I guess last one for Michael, remind us where we are with onsite donation penetration, where we come from, let's say 3 years ago, where we are today, where do you think we can go? How is GreenDrop helping with that? And then the strategy going forward there. And then just remind us finally on differential on, let's say the profit of the margins or the cost benefit of onsite versus third party. Because if you kind of think about that going forward, combined with ThriftIQ and other strategies and better new store openings, like you have real good confidence in growing that margin structure back to those high-teens, either on target or even quicker than your plan. So just curious there. Thanks.

Yes, Randy. So first of all, just the metrics. So we reached 84.9% in the recent quarter in terms of onsite donations and GreenDrop as a percentage of our total pounds process. That's up from 78.5% a year ago. So significant growth. And we continue to see that in both countries and I'll let Jubran speak to why that is and how high is high, but I would just say yes, that is absolutely a factor in our gross margin expansion and our confidence in the continued gross margin expansion. It is both a top-line driver because that tends to be a high-quality source of supply and a margin driver because it's our most cost-efficient source of supply as well. So, yes, definitely factored into our outlook for the year and our contemplation of the long-term algorithm.

Yes, Randy, Jubran. I would also just add that we are seeing broad-based onsite donation growth across regions, across countries, and that really is a function of the execution at our stores. Super proud of our field leaders for how we're showing up to donors each and every day, and that's really what's driving that broad-based growth. In terms of how high is high, and can you continue to keep growing onsite donations, absolutely. Even though we have continued to drive them over the years, we expect that to continue because as large as we are, we're still getting just a small portion of the textiles that go into landfill each and every year. So in terms of continuing to hold on to that donor and win that new donor because of advocacy and execution, we fully expect to continue to grow onsite donations in both mature stores and the new stores that we're opening for years to come.

Super helpful. Thanks, guys.

Thanks, Randy.

Your next question comes from Bob Drbul with BTIG.

This is actually Jake Katsikas on for Bob. I was wondering if you could compare and contrast what you're seeing from the consumer in Canada versus the U.S. Are there differences in health of the consumer or customer behavior, traffic, spending patterns? Just curious there.

Jake, thanks for the question. This is Mark. Well, I think very consistent in both countries, both in the U.S. and Canada, the younger and the higher household income cohorts are becoming a larger portion of our customer base. Absolutely. I see growth in both of those cohorts. The difference between the 2 countries is really not that big. The low end and we're still seeing pressure in Canada at the lower end of the household income demographic.

Your next question comes from the line of Peter Keith with Piper Sandler.

ThriftIQ certainly sounds exciting. And I was hoping you could help me bring it to life a little bit more, because if I go back, I do think about Savers as a very analytical company that was able to look at demand trends and adjust pricing historically. So it sounds like this is providing a bit more consistency, but is it reactive? Is it reacting to demand? Is it reacting to competitive pricing? Maybe just help me understand the step change benefits that seem to be occurring here.

Yes, hey Peter, this is Jubran. I'll take a stab at that and the guys can jump in if I miss anything. And it's a good question because it's important that everybody understand the exact change that we have made here. So if I could just take a minute, walk all of you through with a simple before and after. So prior to ThriftIQ, our team members would assess each garment and they would grade it based on condition and quality to determine its value. And then that grade would translate to a price based on the category and department. And for many years, this method has worked well.

On average, we would get it right, but it's too inconsistent. So for example, under that legacy approach, 2 team members could evaluate the exact same garment and come up with different prices, even with the best training because of the subjectivity of the assessment itself. Inconsistent, and in thrift, as you mentioned, consistency matters. So now fast forward to ThriftIQ, we're no longer asking the team member to assess condition and quality. We're simply asking them to identify the brand. We then use that brand and combine it with seasonality, sell-through to determine the price of the garment. So it's easier, it's more objective, allows us to show up to the customer in a more consistent and in a precise way, and that is the key.

All right, that's a great explanation. Thank you for bringing that to light for me. Maybe, just thinking on ThriftIQ, does that go just to the store level or can it also obviously go into CPCs?

It would be both. So our plan, the rollout plan that the guys articulated earlier, will actually be front loaded with our offsite facilities. And then we'll cascade with a fast follow into our traditional stores. So really both, Peter.

Great. Okay. One last question, and maybe this is a financial question for Michael, but on the new store growth where it has been a headwind to EBITDA, I believe it's neutral to EBITDA this year. As we move into the back half, are we still neutral or do we start to see some EBITDA benefits from that historic store growth?

Yes, Peter, it's actually a slight tailwind this year. There's a little timing within the year in terms of when the stores open, how the pre-opening expenses flow. But overall for the year, it's a very modest tailwind, which is an inflection point from where we've been for the last several years. But what is encouraging to us is that while new stores are still performing in line with our expectations on the top line, the profitability is ramping faster. You know, we opened that 2025 class fairly back weighted as you probably remember last year, so they entered this year still relatively young. More than half of that class was positive on a 4-wall basis, 4-wall business contribution in the second quarter. That's meaningfully ahead of what we've seen before.

So given how important that has been to our financial performance over the last few years, to our algorithm going forward, we're really encouraged about what that means for future profit growth. And together with the innovation agenda, it's why we felt more confident in the path back to the high-teens EBITDA margins.

Very good. Sounds exciting and thanks so much.

Your next question comes from Dylan Carden with William Blair.

Hi, this is Anna Linn Scott on for Dylan Carden. I'm just curious if ThriftIQ was envisioned in the original high-teens EBITDA margin target that you had out there for a while, or if this is entirely incremental. And then should this be viewed as a platform to add additional efficiencies over time?

Yes, I'll take the first part of that question. So I would say not specifically, as we've talked about our algorithm over time, we've long believed it rested on a few pillars. Part of it was new store growth and the continued maturation of those new stores. And part of it was our innovation agenda, and we've, as Mark mentioned in his remarks, we've been working on this for a couple of years now. We have seen increasingly encouraging signs from it for some time. Obviously, didn't feel ready to talk about it until now. But we certainly saw innovation as an element of the path back.

What I think has changed for us now is, as we're seeing these results accumulate, as we're seeing the ramp of our new stores continue to get better, what is new is that we're able to provide some more specificity and pull forward the timeline on that to seeing that path back to high-teens EBITDA margins within the next 3 years.

And Anna Linn, let me just add on your comment about platform for innovation. I think it's a great opportunity to make sure I personally invite, we all personally invite you guys to our innovation day that will be taking place in Minnesota in early November. It's really an opportunity to get a firsthand look at the next phase of innovation, really our innovation revolution. And walk you through core improvements we made to the CPC operating environment, giving you a chance to live comparison of how we're changing our pricing approach from the old way and Jubran described to ThriftIQ. And then lastly, the chance to see some of the additional innovation ideas that we will be driving through the system in the very, very late part of this year into '27.

Great. Thank you so much for the time.

Your next question comes from the line of Mark Altschwager with Baird.

A couple here. You said ThriftIQ is helping new stores ramp profitably faster, cutting the grader time, I think almost half you said. Does that change the underlying new store model and the payback period? At what point would that argue for maybe stepping up the opening cadence from the 25 per year you are on right now?

Hey Mark, I'll speak to the new store model and maybe Jubran can speak to our pace of new store opening. So, you know, it's early, but yes, so far, what we're seeing is a faster path to profitability than we previously anticipated. ThriftIQ being 1 among several factors contributing to that. We do plan to refresh our new store economic model and share more about that with you all in future quarters. I think it's a little early for us to do that yet.

And then, Mark, on the new store opening, 25 stores per year as we've guided. We like where we're at. We continue to see great site selection, good performance, high batting average on those. I think we've talked about in previous calls, the tone and tenor of the conversations that we've had with developers and landlords has really changed over time. So really like how our pipeline is building. I will take us back to 1 of the fundamental building blocks of opening up a new store, certainly a new market, and that's supply. We want to make sure that we've got the supply equation fully satisfied, the cornerstone of which is the onsite donation. So, we want to make sure we've satisfied that, but in terms of finding new sites that are going to be very attractive to our long-term algorithm, no concerns at all about that and excited about what the remainder of this year will bring, 2027, and then we're starting to fill up the pipeline for 2028.

Thank you. And you called out some of the success in newer markets like North Carolina, Tennessee. How would you characterize the profitability of entering a new market versus adding another store in an existing market and whether you kind of lean towards 1 versus the other in your plans?

Yes, Mark, it's Michael. I mean, there certainly are different dynamics there and they can work in different directions too. So for example, when we enter a new market, we typically assume that we're going to start out a little bit lower in terms of onsite donation penetration than when we open a store as an infill on an existing market. That's all baked into the initial planning, you know, and we still have to hit the same return thresholds. But, you know, there may be offsetting things around, you know, real estate costs, for example, that can go into that. So, overall, I wouldn't say that 1 is necessarily always going to be higher, lower than the other. At the end of the day, we target a return on our investment that is somewhere around double our cost of capital. And we've got no shortage of candidates of stores, new store locations that meet that hurdle.

Your next question comes from the line of Jeremy Hamblin with Craig-Hallam.

Hey, this is Will on for Jeremy. I just wanted to start by seeing if you could share any more color on the composition of the U.S. and Canada comps in the quarter in terms of basket versus transaction, and then maybe how those trends have continued here in quarter to date.

Sure, yes, Michael. So essentially kind of similar to what we've seen in recent quarters in the U.S. Pretty good balance. We're seeing both basket and transaction count growth. In Canada, it's more basket driven. Transactions flattened down slightly. And thus far, what we're seeing in the third quarter is good. The comps in both countries are roughly in line with what they delivered in the second quarter.

Got it. That's helpful. Then it sounds like the new stores are maturing ahead of expectations. I guess 1, are all of the '24 class of stores in the comp base at this point, and then 2, what sort of comp lift have you seen from the new stores in the U.S.?

Yes, so everything we opened in '24 is now in the comp base. And so, just a few of the '25 class because that was relatively back weighted. So as I mentioned earlier, still pretty mature comp store base, but as those '23 and '24 class new stores have now entered the base, we're seeing anywhere from 40 to 50 basis points of comp benefit from that because as I think you know, the implication of your question as I'm sure you know is that even once the store enters the comp base it's a young comp store, it's still growing at a rate well ahead of our mature fleet and so that's a nice tailwind to the comp base and we still have a number of years before that effect has sort of normalized and plateaued.

Got it. That's helpful. Thank you for taking the questions.

Sure. Thank you.

Your next question comes from the line of Owen Rickert with Northland Capital Markets.

For the non-loyalty customer cohort, can you just describe how they are behaviorally? Are they primarily one-time or infrequent visitors? And then maybe secondly, are there any specific conversion strategies you're deploying as of recent? Maybe ThriftIQ-enabled personalization and to maybe bring them into that loyalty ecosystem?

It's a great question. Thanks, Owen. I'll go here in terms of 1 of our key retail operating goals and objectives that we talk to store managers about is signing up people for the loyalty program, really concerted effort on making sure every opportunity is converted into a new member sign up. So, in terms of the non-member frequency transaction levels, obviously we don't have a lot of that because we don't have the data. But what I can tell you is we're dogmatic about making sure that our loyalty signup rates continue to grow and that, and especially in new stores, we have very, very high goals for our store managers in terms of getting them into the fold. So clearly it is a core piece of our retail agenda and continuing to grow that loyalty base, which has grown very nicely over the last 3 or 4 years.

We have reached the end of the Q&A session. I would now like to turn the call back over to Mark Walsh for closing remarks.

I want to thank everyone, as always, for your interest. We look forward to updating you on the third quarter, and I hope to see each and every 1 of you in Minneapolis in early November for Innovation Day. Thanks again.

This concludes today's conference. Thank you for participating. You may now disconnect.

Good afternoon, and welcome to Savers Value Village's conference call to discuss financial results for the first quarter ending April 4, 2026. [Operator Instructions] 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 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 the 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 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 Roma, 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 with 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%, driven 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 manage production levels and benefited from some significant and sustainable profit improvement initiatives. We opened 3 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 U.S., 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, on-site 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, and 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 off-site 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 3 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 Light, 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 and 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 estate, structuring operating data that allows us to translate and communicate insights to drive field action, 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 road map. 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 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 SNO 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. GAAP net loss for the quarter was $5 million or $0.03 per diluted share. Adjusted net income was $2 million or $0.02 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 or 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 preopening expenses. While we expect preopening expenses for the year to be roughly flat with last year at approximately $14 million to $16 million, first quarter preopening 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 2.5x 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 2x 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 million to $78 million or $0.41 to $0.48 per diluted share. Adjusted net income of $73 million to $85 million or $0.45 to $0.53 per diluted share, adjusted EBITDA of $260 million to $275 million, capital expenditures of $125 million to $145 million 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 comp 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 6 new stores during the quarter, in line with our goal of more ratably opening stores throughout the year.

This concludes our prepared remarks. We would now like to open the call for questions. Operator?

[Operator Instructions] We'll go to our first question from Matthew Boss at JPMorgan.

Congrats on a nice quarter. So, Mark, can you elaborate on the step-up in comp trends that you're seeing in the U.S. business, in particular, 2 straight quarters of double-digit same-store sales on a 2-year stack. Maybe if you can touch on new customer acquisition, secular shift tailwinds. And just any puts and takes to consider with the second quarter comp trend maybe relative to the mid-single-digit full year guide?

Yes. Thanks, Matt. Look, I think it starts with what we've seen is widespread growth across geographies and merchandise categories. And that obviously plays into a great experience, value and selection winning. But on top of that, we're seeing accretive adoption trends amongst our younger and higher income households. We've seen that continue. So, we're seeing trade down, trade in. I would also say that demand is really healthy across a broad base of all income demographics. And I think that's a key difference versus Canada. The secular trend certainly remains a tailwind. And what's really great is basket and transactions have driven comp. And as we mentioned around the Agentic initiative, the loyalty program is an important element in how we consider and drive growth, and we've continued to see really nice growth in our loyalty program in the U.S.

And then, Matt, to your question about how we think about Q2. So far, what we've seen in April in the U.S. is actually a little bit of acceleration in the U.S. comps. But we do expect those comps get a little tougher to lap as we progress through the year. So still thinking about a mid-single digit. And Canada really haven't seen much change, remains roughly flattish as we've now lapped the Easter shift.

That's great color. Michael, maybe just as a follow-up, could you update us on the new store waterfall and maturity curve? And just the expected contribution from the waterfall in this year's comp outlook relative to multiyear as more of the store cohorts mature?

Sure. So, new stores continue to perform in line with our expectations and consistent with the waterfall, as you describe it, that we've laid out here over the last year or so. So just as a reminder for everyone, typically, in year 1, we see about $3 million in top line sales. We do lose money both from the preopening expenses that we incur as well as in the first year of operations as we're still ramping volume and developing, building that on-site donation foundation. Profitability, we typically pass breakeven in the second year and then continues to ramp as the sales improve. Ultimately, we target a 5-year -- excuse me, a year 5 top line of about $5 million and something close to a 20% contribution margin. So, so far, our new store classes continue to perform in line with that waterfall.

And thus far, Matt, we don't -- we're still too early in that pipeline for those stores to be meaningfully contributing to our comp. So, the comps that we're posting in the U.S. really are mature store comps. Recall now that we only started opening new stores at this pace in the last couple of years and really only the 24 class at this point has entered the comp base. So, it's less than 50 basis points in total benefit to the comp, but we expect that's going to continue to build as more of those stores enter the comp base going forward.

Let me supplement Michael's answer, Matt. It remains the highest and best use of our capital to open up new stores.

We'll move next to Brooke Roach at Goldman Sachs.

I was hoping you could unpack the improvement in profitability that you're seeing in your Canadian business. How should we expect that to continue for the rest of the year? And then more broadly, can you help us understand what the quantitative opportunities that you see from your AI capability monitors and your agents in profitability as you look on a multiyear basis?

Yes. Brooke, this is Jubran. I can take the Canadian profitability question. The first thing I'd say is it's actually -- it's driven by a few factors. It's not one thing. So, the first of which is some of our initiatives in CPC. Mark talked about those in his opening comments. Those continue to get better, more efficient, more effective through a variety of process improvements. And we've been very pleased with that and proud of the team. We're in the midst of expanding that to all of our off-site locations. So that's one.

The second thing, and we talked about this on past calls, is striking the right balance in total pounds process, right, the amount of production level and maintaining a good equilibrium so that we are feeding customers, fresh product, but also doing it in a very healthy gross margin way. And we think the team did an excellent job at striking that equilibrium this past quarter. The third thing I'd cite is just ongoing refinement and improvement of our data and analytical tools. And that's important because as you think about converting pounds into items, those improvements have helped us better align items that we supply to the customer at the category level. So, it improves our ability to put the right thing at the right time in front of the customer, and that obviously benefits our sales yield.

And then, Brooke, the last thing I would cite is just the ongoing on-site donation growth, which we are seeing improve in a broad-based way. This past quarter, over 3/4 of our supply came from on-site donation and Green Drop mix, nice year-on-year improvement and one that we expect to continue. So, you put all that together. And yes, we absolutely expect those trends to continue through the balance of the year, and that's all contemplated in our guidance for Canada.

Brooke, on your question around AI and the Agentic deployment, let me say that it's just one element of a much broader innovation approach that includes ABP Light, includes a number of process and efficiency improvements that we're driving in our off-site production centers and then applying data science and business insights to what is a data-rich business. So, from an AI-specific perspective, these efforts are primarily efficiency and productivity driven, and we will develop a better sense for how big of an impact it will be over time.

Yes. And Brooke, Michael, just one closing thought on that. I think, first of all, as Jubran stated, what we're seeing in Canada really pleased with that. We do -- while we don't guide segment profit specifically, we do expect directionally that to continue, and we have contemplated that in the guidance for this year. I think longer term, to your question about innovation, I think it just gives us added confidence in that longer-term algorithm of getting back to that high teens EBITDA margin as we continue to see the new stores mature but also see the innovation initiatives really take root.

Next, we'll move to Randy Konik at Jefferies.

Michael, I just want to jump off on the last thing you said there in terms of segment profit or geographic profit margins continue to move higher. Can you give us some perspective on where we sit with those Canadian margins versus history in the U.S.? And what are you going to -- are there things you're doing in Canada that you intend to apply to the U.S. business to kind of further take those margins higher? Just give us some thoughts on some of these profit initiatives you're working on and where they are in that kind of life cycle. How much higher can we go from here?

Sure, Randy. Why don't I start and then maybe I'll let Jubran jump in and provide a little color, too. So, first of all, we've long seen that we have structurally higher contribution margins in Canada than the U.S. I actually think that gap probably widens in the short-term in 2026 because we continue to invest in growth in the U.S., which, as we have said now for a while, does create a short-term headwind. Long-term, it's absolutely value accretive. But we know that there's some short-term margin pressure as a result of opening new stores. Now we're generating nice comp growth, and we're seeing healthy gains from on-site donations and yield improvements in the U.S. as well. But you do have that headwind. Whereas in Canada, the focus really is on profit improvement and process optimization.

We are not really investing meaningfully in new store growth in Canada at this point. We are a mature business there, much more highly penetrated, obviously, than we are in the U.S. And so that gives us a chance to really focus on the productivity and efficiency initiatives that Jubran described earlier and really see those flow through into the bottom line as you saw here in the first quarter and the improvement in our Canadian segment profitability. So, I do expect directionally that trend to continue this year. And I'll let Jubran speak to how we're thinking about leveraging that across both countries.

Yes. Randy, it absolutely is. When we think about production, productivity and efficiency improvements, that cuts across borders. The team does a very good job of working collaboratively on discovery, leveraging best practices, scaling that across all of our facilities. So I'll take 2 of them that we talked about earlier, offsites. The improvements that we have made in offsites are going to benefit all locations, not just in Canada. Data and analytics, that refinement that I mentioned, where we have tools that are better than they have been in terms of putting the right thing at the right time in front of the customer, that cuts across all segments. So the short answer to your question is, yes, we expect goodness broad-based from that.

And just a follow-up. It looks like you managed payroll well in the quarter. I think you've had some deleverage in that item in the last few quarters or the last 4 to 6 quarters. Is that something where now we're kind of turning the corner on that payroll side of things, we'll start to get some leverage going forward out into the balance of the year and into 2027 and beyond? How do you think about that?

Well, Randy, a couple of things on the OpEx line. So remember that we are -- salaries, wages and benefits line, I think you're referring to. So we are continuing to step down the IPO-related stock comp in that line. We've got 1 quarter left of that here in the second quarter. That's roughly $4 million in each of Q1 and Q2. That falls away completely in Q3 and beyond. So you will see that. Incurring -- excluding those sort of nonrecurring items, though, yes, I think so.

We do still have some pressure from new stores and those maturing and getting to scale there. So I think you'll see that kind of normalize as we go forward, get past the onetime items. But I would expect actually more of the improvement this year to come from gross margin rather than the operating expense lines as we continue to see the new stores mature and the benefit of that and their related on-site donation ramp flowing through to the margin line.

We'll go to our next question from Michael Lasser at UBS.

How long can you continue to grow the profitability in Canada on a flat comp? At some point, do you start to experience deleverage if the same-store sales do not grow and do you need to take action to reinvigorate the same-store sales growth in that market?

Michael, Jubran, I'll grab the profitability question. Yes, I understand your question. Long-term, I think there is merit to what you're saying, but we think there is still a tremendous amount of opportunity, certainly for the remainder of this year on all the initiatives that we have to improve efficiency and effectiveness. And so the trends that we saw in Q1, we expect to continue this for the remainder of this year.

Michael, thanks for the question. Look, we're not satisfied with the flat comp at all. We continue to test differential marketing approaches, whether it be using our influencers to a higher degree, social, paid and then broadcast opportunities. We are investing in the core fleet as well. We've got some renovations teed up, and we've also got some relocations planned. And we just continue to focus on that price value equation and making sure that we're delivering a terrific experience to our Canadian consumers. So our goal is to not have that deleverage happen, and we're certainly not going to sit still with a flat comp.

Okay. My follow-up question is on the delta between your sales yield and what you are paying for donations. So a, what are you seeing with respect to the sales yield? How much of the improvement in sales yield is being driven by like-for-like pricing? And then on the payment for donations, are you experiencing any inflation as a result of the overall environment and some of the strains that charities are under around the country?

Yes. Why don't -- Michael, this is Jubran. I'll grab your supply cost question first. So a reminder to the group that our supply costs, these are a set of contracts that we have with all of our great nonprofit partners across our 3 countries that are typically anywhere between 1 and 3 years. And they are deliberately relatively short- to medium-term because we are always evaluating what market is that we can stay very competitive in terms of what we pay for, whether that is a delivered goods, delivered product as we talk about, or on-site donation, which we have reliably continued to grow across all segments. So the short answer to your question is, are we experiencing any unexpected upward pressure or cost on supply? No, we're not. That's all very, very predictable. It's contract-based, and we can see it clearly. And we plan for it many, many, many months in advance.

And then I'll just also take the opportunity to say that in terms of availability of supply, both for our comp stores and to feed new store growth, no concerns at all. The team continues to execute well. We see no ceiling on how high on-site donations can go, and that's what we're seeing in the business.

Yes. And then, Michael, this is Michael. I'll take your question on the sales yield. So we were really pleased with the roughly 6.5% increase in sales yield that we delivered in the first quarter. There's an element of higher ASP in that. We strive to keep that, though, at or below inflation over time. And that's sort of a normal recurring thing. But really, what drove that outsized growth this quarter was kind of things Jubran talked about earlier, being very careful about how we're managing production and lining that up to demand, especially in Canada, but also the productivity initiatives in our off-site processing facilities, which is helping us to drive getting the right item to the right location at the right time and therefore, greater sales yields on those items as well.

We'll take our next question from Bob Drbul at BTIG.

A couple of questions for you. The first one is, when you look at, I guess, energy cost impact, is -- can you talk about how you're being impacted throughout the business from that perspective? And then I guess the second question I have is just, can you expand a bit more just new store productivity? And are you seeing any variations? And I think -- and as you more measured approach to this year, 5 in the first quarter, 6 in the second, like the benefits to a more measured rollout from an execution perspective, what you're seeing there?

Yes, Bob, let me take the first question, and then I'll let Jubran take the new store one. So energy costs, Yes. The run-up in fuel costs came fairly late in the quarter for us. So not really a material impact to our first quarter. At these levels, we think there is some modest pressure for the balance of the year. Nothing that we think we can't mitigate, but obviously, a fast evolving situation that we'll just continue to monitor. Jubran, do you want to talk about the new store question?

Yes. New stores have been very pleased, as Mark talked about in his opening comments, Bob. So in line with our expectations, I think our ability to pick winners and refine our modeling of new stores has just gotten better and better over the years, and we're seeing that in performance. So to your question of are we seeing any outliers, it's been pretty consistent. We feel very good about our ability to predict and then also execute all the things that have to go into play to make a new store open on time and be successful. And then in terms of our ability to prospect and find attractive new locations and fill up that pipeline, that has only gotten stronger as we think about the remainder of this year and what we have committed to in 2027, we are right on track with where we hope we would be.

We'll move next to Mark Altschwager at Baird.

I wanted to follow up on the price value framework you've been building on here in the last few calls. With the U.S. comp now nicely in the mid-single digits and your competitive set continuing to take price, has anything in your testing changed your view on the AUR opportunity? Are you taking any incremental price tactically by category or by geography? And just how are you thinking about further opportunity if that value gap widens? Is it more about loyalty growth with new customer acquisition on that trade down? Or is there maybe some incremental AUR contribution to comp as we move forward?

Great question. Look, I think it starts with we are very focused on maintaining a super deliberate and very attractive price value relationship for our customer base. And that's U.S. and Canada. I mean we're focused on it. We've got a great data set that informs our approach on where we're putting category pricing in a given geography, critical, critical element. As we think about watching the item ratio or flow-through, that really informs us as to where there are certain opportunities in certain geographies and certain categories. So again, very analytically data science-driven approach to how we're deploying pricing across our fleet. And again, that's U.S. and Canada. The differences are obviously the geographies and the sensitivities to price relative to how quickly those garments or those goods sell. So it is very data science oriented. We're monitoring our approach carefully. And in this environment, we seem to be winning. I mean we're really pleased with the throughput that we've gotten in both countries when it comes to our price value relationship.

And just a follow-up on the loyalty program, the loyalty file. Can you size up where that is today and how much it grew in Q1? Trying to get a better understanding of how much the U.S. strength is growth in that file versus deeper engagement with your existing base.

Yes. The file is growing quite nicely. We're a little north of 6 million total loyalty members across North America. We continue to see nice growth. We're very pleased with -- I think the thing we're most pleased about is that top loyalty cohort behavior really continues to outperform in both countries. And it represents roughly 73%, 74% of our sales. A great ability for us to connect with our consumers very cost efficiently at any given time.

Our next question comes from Peter Keith at Piper Sandler.

Nice quarter, guys. I know it sounds like Q2 has continued the trend. But with the backdrop of higher gas prices, in the past, you have spoken to a lower income element as a portion of your customer base. So wondering if with the loyalty program, are you seeing anything of note as it relates to sort of trade-in versus trade out in this kind of evolving economic backdrop?

Yes, I'll take that one. So look, I think in both countries, we continue to see a real nice adoption trend amongst younger and higher income consumers. And when you think about higher income consumers, certainly trade in, trade down is part of our growth mix in our loyalty platform. There are some differences though between the countries. We see in the U.S. consistently that demand has remained healthy and broad-based across all income demographics. In Canada, where there is a little more of an economic sluggishness -- sorry about that. We see our lower household income cohort disproportionately impacted. So that's really the only difference we're seeing between the 2 countries and how they're engaging with us and through the loyalty program.

Okay. Helpful. And then, Mark, to follow up on the prepared remarks with using AI and applying it to your loyalty program. I guess I was hoping you can kind of unpack exactly what you guys are doing. It sounds like maybe something that would enhance sales, but I'd like to just get a better understanding of what's happening.

Well, I think it's a really good question. So I think we're -- our goal is, and we're picking very important and critical strategic elements of our business model and what the stores do. So obviously, the loyalty program is an important element of our consumer engagement platform. Having our store managers, having our store leadership continually focus on this very critical element was a great starting point for us to kick off our agentic strategy. So what this agent is doing is basically communicating to our store managers, this is where you are relative to your peer set from a loyalty perspective, could be great, could be depending on where you are in that continuum. It gives you things to consider and actions to take relative to how you're engaging with the consumer at that moment when they could either sign up or the opportunity to get them signed up.

We see this as the unlock for several more agents to come right behind that, again, to allow us to keep our team and our store managers focused on critical issues throughout the week, period, month and just -- and then providing the information upward so that regional district managers, regional managers, Jubran and the country leads can drill down when appropriate to ensure that those key disciplines are being met and focused on throughout the year.

We'll move to our next question from Jeremy Hamblin at Craig-Hallum.

This is Will on for Jeremy. First, I was just wondering if you're able to quantify the weather impact you saw in Q1. And then you noted the 70 basis point headwind from Easter. I guess should we be considering a similar magnitude of benefit here in Q2 from the late Easter last year?

It's Michael. So yes, I don't know if I quantify a weather impact other than to say it really was more about how the quarter played out. Very lumpy in terms of the comps just given the weather patterns this year versus last. February was our best comp because February last year had some really extreme weather. January was our softest comp because we had some really extreme storms in both the U.S. and Canada this year. Actually, I would say that some degree of extreme weather is just par for the course in Canada, in particular. It was probably more extreme than normal in the U.S. and therefore, arguably even a little bit more disruptive to our U.S. comp, which continued nevertheless to be strong. So again, we're focused on what we can control. And as we exit the quarter and see that all kind of normalize, we're pleased with the reacceleration in the U.S. comp. As far as the Easter impact, yes, that headwind of roughly 70 basis points to Q1 will flip and benefit us in Q2 by a similar amount.

Got it. That's helpful. And then I just wanted to touch on the ABP Light rollout. It sounds like it's solidly ahead of case here. I mean it may be too early, but just curious if there's any quantifiable benefits you've been able to realize thus far from the rollout?

Yes. This is Jubran. It is a little bit early to cite the results, but very pleased with the rollout between our traditional automated book processing ABP and now it's derivative ABP Light. We've rolled it to roughly 85% of the fleet. The rollout has gone well. Reminder, books is only about 5% of our business, but I think ABP Light is a great example of our innovative process, data-intensive stress testing and a smart rollout plan that we feel good about. So we'll continue to monitor it in the coming months.

We'll go next to Owen Rickert at Northland Capital Markets.

This is Keaton Schuelke on for Owen. You called -- with the strength in the younger and more affluent cohorts, I was curious to hear how their basket size purchase frequency and category mix has been trending versus legacy customers. And curious how you expect that to trend going forward?

Thanks for the question. Pretty consistent. Nothing out of the ordinary in terms of the trend lines that we're seeing from that particular customer cohort.

Okay. And then any early read on Tennessee and North Carolina stores? Are those markets ramping faster or slower than prior cohorts? And kind of what are you expecting out of those?

We're excited about those markets to be sure, we have not yet opened those stores. Our first store in North Carolina will open later this month. And then our first store in Tennessee will be several months beyond that, maybe end of this year, early next year, that sort of thing. So nothing to report on that. But suffice to say, very energized by the white space opportunity and the quality of the sites that we've secured.

And we'll go next to Dylan Carden at William Blair.

I guess I'm curious, is there any incremental or change in the competitive dynamic in Canada? I know that market tends to lag from an online migration standpoint, if that's a piece of it. And to the extent that there isn't, just the line of sight you have in some of the improvement in that market or if it's more -- if you're managing a business to a flat comp, that becomes more of a manifest destiny so you feel more comfortable with.

Yes. Jubran, I can take a piece of that and then guys can jump in. No, in terms of longer-term expectation of growing the top line, I think Mark spoke to that earlier. We're not satisfied with the flat comp. We think there's a number of things that we can test and tinker with and trial. What we do know is that we can control what we can control now, and that is efficient and effective use of our material and labor to put the right thing at the right time and the right amount in front of the customer. So I think doing that well in a more sophisticated way allowed us to have the gross margin improvement that we saw in Q1. In terms of competitive landscape directly for us in Canada, nothing specific that we could point to that's materially changed that.

Not-for-profit is really our #1 competitive set in the Canadian market. And being within 12 miles of 90% of the population, we're fairly saturated. So we're highly competitive in every market in Canada. And again, we're not satisfied with our comp trend. We're going to -- we're doing a lot to try to improve those trends.

Yes. Dylan, I think -- it's Michael. Just to kind of put a bow on that, to your point, and just to underline what Mark and Jubran said, we continue to work to drive the business in all facets, including top line. In the near-term, though, we are mindful of the macro environment, and we believe it's prudent to plan for a flattish comp for the balance of this year. And we continue to believe that even with that backdrop, we can drive profit improvement on the order of what we saw in the first quarter.

And then on the AI technology side of things, any incremental thinking on how you might use that from an inventory management standpoint, pricing, decisions on what to keep versus donate? Yes, I guess, sort of an open-ended question there.

Yes. We've got a robust innovative pipeline for sure. And we've got a lot of promising initiatives in test. We're pretty conservative, though, about bringing them public. So once we get to a place where we're ready to deploy, we will certainly be sharing those opportunities.

And that concludes our Q&A session. I will now turn the conference back over to Mark Walsh for closing remarks.

I just want to thank everyone again for their interest, and we look forward to talking to you in roughly 3 months.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good afternoon, and welcome to Savers Value Village conference call to discuss financial results for the fourth quarter ending January 3, 2026. [Operator Instructions]. 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 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, including in the 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 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 Yruma, 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 very pleased with our fourth quarter results. We delivered our anticipated inflection in earnings, posting our first quarter of year-over-year adjusted EBITDA growth in nearly 2 years, supported by profit contribution gains in both countries. We are also thrilled with the momentum in the U.S., where thrift adoption continues to accelerate and strength remains broad-based across categories and regions.

Before we look towards the compelling growth opportunities ahead, let me start with a few highlights from the quarter. Sales in our U.S. business grew 20.6%, or 12.6% when excluding the benefit of the 53rd week, with comps up 8.8%, driven by both transactions and average basket. We attribute this performance to accelerating consumer adoption of thrift and stellar execution by our team, delivering compelling value to consumers. In Canada, our sales trends have stabilized with a 0.7% comp during the quarter. As we take a conservative approach to planning our business in Canada, we have tightly managed production levels, helping us drive year-over-year segment profit growth.

We opened 10 new stores in the quarter, finishing the year with 26 openings. As a class, our new stores continue to perform in line with our expectations. We remain confident in our long-term store growth opportunity and a targeted 20% store level contribution margin. Financially, we generated over $74 million of adjusted EBITDA in the quarter or 15.9% of sales.

Looking at our loyalty program, we have 6.1 million total active members. As it relates to pricing, we are monitoring trends closely. We feel very good about our competitive positioning and value gaps as new clothing and footwear prices continue to increase in the U.S. Finally, we are pleased to announce our outlook for 2026, and Michael will provide further additional details on our outlook in his remarks.

Turning to our results by geography. The U.S. business continues to shine. Our 8.8% comp was driven largely by mature stores with minimal contribution from new stores that are only now beginning to enter the comp base. We are also seeing our customer base continue to skew younger and more affluent. As we shared at ICR, based on our loyalty program data, roughly 40% of our U.S. shoppers are under the age of 45 and about 45% of the household income above $100,000. These trends reinforce the powerful secular shift towards thrift in the U.S. At the same time, attractive real estate opportunities supported by our off-site processing capabilities continue to strengthen our confidence in the long runway for disciplined square footage expansion.

In Canada, macro conditions remain largely unchanged. And with a mature market, we continue to plan the business conservatively, which is reflected in the modest growth we saw again this quarter. That said, trends have stabilized and our disciplined approach to managing production allowed us to grow our Canadian segment profit during the quarter. As we significantly slow new store openings and focus on operating more efficiently, we expect margin expansion in Canada and for our Canadian business to continue to be a meaningful contributor to free cash flow.

Moving on to new stores. We continue to be pleased with the results, and they are performing in line with our expectations. As I previously noted, our inflection in profitability was in large part driven by the on-plan maturation of new stores, and we believe we can expand our store fleet in the U.S. at current rates over the years to come. We opened 10 new stores during the quarter, bringing our total to 26 new store openings for 2025. For 2026, we are planning to open around 25 new stores. And as a reminder, we're expecting over 20 of those openings will be in the U.S., including expansion in new markets in North Carolina and Tennessee. To this end, we are pleased to be planning store openings across 11 states and a nice mix of infill and new markets. 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, which remains a core part of Savers' DNA. At ICR, we introduced ABP Lite, an asset-light extension of our automated book processing or ABP system. We expect returns comparable to our existing ABP system, and we expect that ABP Lite can bring capabilities to roughly 85% of the fleet by the end of the second quarter. We are also investing in proven in-store efficiency initiatives to help offset cost inflation, including autonomous floor scrubbers and AI-enabled HVAC integration. Our innovation agenda continues to focus on 3 key areas: strengthening our price value equation, driving efficiency and cost reduction, and lastly, expanding our data science and business insights. I look forward to sharing more in future quarters.

I would like to close by reflecting on another year of meaningful progress since our IPO. At ICR, we outlined 3 strategic pillars for long-term value creation: growth, innovation and capital allocation. In 2025, we made meaningful progress on all 3 of these pillars. Our new stores are maturing as expected and help drive our inflection point with a return to growth in both segment contribution and enterprise adjusted EBITDA. We also continue to advance our innovation agenda, sharpening our price value equation and driving labor efficiency with the initiatives I mentioned earlier a strong example. And we put in place a new capital structure that reduces annual interest expense by $17 million and provides flexibility for continued debt reduction.

I'm incredibly proud of the execution from our nearly 24,000 team members and grateful for all of their hard work throughout 2025. Their efforts strengthen our business and helped us deliver on our commitments to shareholders. We are as energized as ever to continue expanding our footprint and bringing our value proposition to more consumers as thrift adoption grows. Our mission is to make secondhand second nature, and we believe that we are well positioned for continued success.

I'll now hand the call over to Michael to discuss our fourth quarter financial performance and the outlook for 2026.

Thank you, Mark, and good afternoon, everyone. As Mark indicated, we had a strong fourth quarter. Total net sales increased 15.6% to $465 million. Excluding the benefit of the 53rd week, total net sales increased 8.4%. On a constant currency basis, net sales also increased 8.4% and comparable store sales increased 5.4%. We are especially pleased with our sales results in the U.S., where net sales increased 20.6% to $266 million. Excluding the benefit of the 53rd week, net sales increased 12.6%. Comparable store sales increased 8.8%, fueled by both transactions and average basket with broad-based gains across categories and regions. We believe we're still in the early innings of thrift adoption in the U.S. and are eager to accelerate expansion in markets where we are significantly underpenetrated.

We also saw stability in Canada, where net sales increased 9.1% or 3.1% when excluding the benefit of the 53rd week. On a constant currency basis, Canadian net sales increased 3% to $156 million and comparable store sales increased 0.7%, driven by an increase in average basket. 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 do believe that we can still expand segment margins and grow profit contribution even with roughly flat comps through strong execution, efficiency gains and the continued maturation of our new stores. We will also significantly decelerate store openings in Canada, which will provide a benefit to segment margins.

Cost of merchandise sold as a percentage of net sales increased 30 basis points to 44.6% due to the impact of new stores, partially offset by comp leverage and associated growth in on-site donations. Salaries, wages and benefits expense was $93 million. Excluding IPO-related stock-based compensation, salaries, wages and benefits as a percentage of net sales increased 90 basis points to 19.2%. The increase was driven primarily by new store growth, an increase in annual incentive plan expense and higher wage rates. Selling, general and administrative expenses increased 8% to $99 million, primarily due to growth in our store base. However, as a percentage of net sales, SG&A decreased 150 basis points to 21.4%. Excluding impairment and contingent consideration charges in the prior year, SG&A as a percentage of net sales was roughly flat.

Depreciation and amortization increased 32% to $22 million, reflecting investments in new stores, the impact of the extra week and accelerated depreciation on 7 stores that we closed during the quarter. Net interest expense decreased 8% to $14 million, primarily due to the impact of our recent debt refinancing, partially offset by the impact of the extra week. GAAP net income for the quarter was $22 million or $0.14 per diluted share. Adjusted net income was $24 million or $0.15 per diluted share. Fourth quarter adjusted EBITDA was $74 million, and adjusted EBITDA margin was 15.9%.

U.S. segment profit was $60 million, an increase of $11 million, primarily due to increased profit from our comparable stores and new store productivity progression. Canada segment profit was $43 million or up $4 million due to favorable comparable store and new store performance. This acceleration of profit growth in both countries reflects the fact that new stores continue to perform in line with our expectations and mature on schedule as their contribution ramps. Our balance sheet remains strong with $86 million in cash and cash equivalents and a net leverage ratio of 2.5x at the end of the quarter. As previously announced, we repaid $20 million of debt during the quarter and also repurchased 1.1 million shares at a weighted average price of $8.75. This speaks to the power of our model, which enables us to organically fund new store growth, repay debt and repurchase shares, consistent with our capital allocation strategy. Our strong cash flow generation will enable us to further deleverage our business as we target a net leverage ratio of under 2x within the next couple of years.

I'd like to now turn to our guidance and discuss our outlook for fiscal 2026, which we believe reflects the momentum in our business as well as an inflection in our earnings. I'll start by providing some important context for our outlook. First, we're at an inflection in our long-term growth strategy, and we're expecting adjusted EBITDA growth in 2026 with roughly flat adjusted EBITDA margins. This reflects the continued maturation of our new stores, some of which are now entering their third year of operations. As we build our pipeline over the next few years, we expect continued improvements in profitability with a long-term target of high teens adjusted EBITDA margins.

Second, adjusted EBITDA and EBITDA margins continue to reflect significant preopening expenses, which we estimate will be approximately $14 million to $16 million in 2026, consistent with 2025. We've made good progress on the consistency and flow of our real estate pipeline. We expect new store openings to be reasonably balanced between the first and second half of the year, with most occurring in the second and third quarters, whereas 2025 openings were concentrated in the third and fourth quarters. As a result, preopening expenses will be more front-loaded than last year.

Next, consistent with our long-term financial algorithm, we're taking a conservative approach to planning comparable store sales growth, assuming mid-single-digit comp performance in the U.S. and flat to low single-digit comps in Canada. We are assuming no material change in the U.S. or Canadian economies in 2026. We expect modest improvement in gross profit margins as new store headwinds abate and we continue to drive efficiencies in store and off-site processing. We also expect modest operating expense leverage as our IPO-related stock-based compensation will fully run off by the end of the first half of 2026. We expect to recognize approximately $8 million of IPO-related stock-based compensation expense evenly split between Q1 and Q2 of 2026. Excluding noncash items, we expect slight operating expense deleverage due to new stores, roughly offsetting gross margin expansion.

As it relates to Canada, our outlook for 2026 is based on an estimated exchange rate of USD 0.72 per Canadian dollar. Also, in 2026, we will be lapping a 53-week fiscal year that will be approximately a 2% headwind to total sales growth. There's no impact on net income, adjusted net income or adjusted EBITDA. Additionally, there's no impact on comparable store sales growth, which is reported on a like-for-like 52-week basis.

With that context in mind, our full year outlook for 2026 includes the following: net sales of $1.76 billion to $1.79 billion; comparable store sales growth of 2.5% to 4%; net income of $66 million to $78 million or $0.41 to $0.48 per diluted share; adjusted net income of $73 million to $85 million or $0.45 to $0.53 per diluted share; adjusted EBITDA of $260 million to $275 million; capital expenditures of $125 million to $145 million; and roughly 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 are 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 first quarter, which is our smallest in terms of both revenue and adjusted EBITDA due to normal seasonal patterns. Q1 has limited new store openings and reflects the impact of an earlier Easter, including store closures in Canada on Good Friday. And as previously noted, preopening expenses will be higher in Q1 this year than last year. Based on these factors, we expect mid- to high single-digit total revenue growth in the first quarter with adjusted EBITDA roughly flat to slightly up compared with last year. We also expect the cadence of earnings through the balance of the year to resemble 2025.

This concludes our prepared remarks. We would now like to open the call for questions. Operator?

[Operator Instructions] Your first question comes from Matthew Boss of JPMorgan.

Congrats on a nice quarter. So Mark, could you speak to the progression of same-store sales that you've seen post holidays in the U.S., just maybe relative to the momentum that you saw in the fourth quarter? How best to think about comp trends in the first quarter relative to the mid-single-digit guide in the U.S. for the year?

Matt, it's Michael. I'll go ahead and take that. So yes, we have continued to see, for the quarter, good momentum in the U.S. Certainly choppy, you're aware of the significant storm there towards the end of January. That definitely disrupted our business in the U.S. We saw similarly severe weather in Canada in January. But thus far, we've seen a nice rebound in February. So for the quarter-to-date, we're continuing to see strength in the U.S., and Canada remains up slightly. So essentially feel good about that relative to the directional guide we've given for Q1.

Great. And then maybe just a follow-up on stores. So with the acceleration in the pace of new store growth in the U.S. for this year, could you elaborate on new store productivity, maybe what you're seeing, and just expected returns on new stores in the U.S.

Yes. So we continue to be very pleased. New stores progressing in line with our expectations. Really no change there, Matt. I think we've outlined now the overall new store economics averaging around $3 million in sales in the first year, ramping up to around $5 million by the fifth year, again, unprofitable in that first year, but typically breakeven or better by year 2 and something close to 20% contribution margin by year 5. So nothing in the recent openings has changed our view on that. Continue to feel good about that.

Your next question comes from Brooke Roach of Goldman Sachs.

What are your latest thoughts on pricing, particularly as the industry has raised prices in recent months? Are you seeing any opportunities to lean into specific areas of market share gains by letting price gaps widen in specific categories? And is this driving additional trade-down customer traffic to your stores, particularly in the U.S.?

Thanks, Brooke. Look, I think as we've talked about in the past, we continually monitor our pricing relative to competition. And obviously, our core objective is to deliver a compelling price value relationship. If others do raise price, we do think it's an opportunity for us to gain share, absolutely. But we also target price increases to aggregate a little under inflation, which 2025 is a good example. We do think we're gaining some share with what is a small but growing price differential relative to what we see in discount retail.

And then just as a follow-up, Michael, can you help us walk through the puts and takes of the inflection back to gross profit margin expansion that you expect in 2026? Are there any other particular geographical or comp considerations on that, that we should be considering?

Brooke, yes, so first of all, I just would emphasize, it's going to be relatively modest. I mean, as we talked about our EBITDA margins, we're expecting something roughly flat, and that's a modest gross margin leverage, modest OpEx deleverage. I think the biggest thing, obviously, is the maturation of new stores. And so as you think about the fact that our new store growth now is shifting to the U.S., and we really are not going to have a whole lot of new openings, a low single-digit number in Canada, combining that with our efficiency initiatives there, you saw in the fourth quarter that even on a very low comp, we were able to drive contribution growth in Canada, essentially hold contribution margin flat there. We think we have an opportunity to really drive continued margin improvement in Canada even on relatively low growth.

Your next question comes from Mark Altschwager from Baird.

I guess, first, with the comp trends you're seeing, can you give us a sense of the trends with the need-to-shop-thrift customer versus the want-to-shop-thrift customer? And then separately, just any color on regional trends within the U.S. And as we think about the growth outlook this year for comps and new stores, what you're most excited about?

Well, from a consumer perspective, as we talked about at ICR, Mark, we're really excited about what are 2 really important underlying trends for us, the continued growth of our younger customers and the continued growth of more affluent customers or trade down. That is a big win for us. It's a big win from a value perspective. And I think what you're seeing is they're drawn to what is a well-merchandised environment with a terrific price value proposition.

Yes. And Mark, this is Jubran. On your question on geography, really no distinction. I mean, we see it across the country, a variety of different markets, different geographies. We see it across very mature stores, and we certainly see growth, transaction growth and sales growth in younger stores as well. So it's pretty encouraging, seeing broad-based growth.

And maybe just a follow-up for Michael. Now that we've hit this inflection point in the business in terms of profitability, how should we think about the goal for annual margin leverage on a low to mid-single-digit comp, high single-digit revenue growth?

Yes, Mark, I think as we said, so this year, expecting margins to be roughly flat, and that is an inflection in terms of the profit dollars. We do expect profit margin to follow. And as our new store pipeline continues to mature, we just have stores entering their third year now as we go forward and have stores filling out the fourth and fifth year of that pipeline and continuing to work toward that 20% business contribution, we expect not only a continued tailwind to profit dollars, but to profit margins toward our long-term algorithm goal of high teens. So we do expect further build in that as we go forward.

Your next question comes from Dylan Carden of William Blair.

Michael, just a point of clarification. So you gave the first quarter flat to slightly up EBITDA margin. Is that kind of the outlook for the balance of the year? It sounded like you said it would be linear? Or do you simply mean it would follow sort of similar seasonality? Can you just unpack some of those comments about what to expect as far as the cadence of them?

Sure, Dylan. Let me just clarify, first of all, Q1 is flat to slightly up EBITDA dollars. I want to be clear about that, not margin. And just to give a little more color on that, we do expect our business contribution to grow. However, we've got some timing issues in Q1 this year relative to last year. We've got -- preopening expenses are more front-loaded because our new store openings are more even across the year. That's a good thing. We've been working toward that, but it does have that implication in terms of the timing of those preopening expenses.

And we've got the earlier Easter, meaning we've got some store closures in Canada on Good Friday, which will negatively impact our comp there by a little less than 1 point for the quarter. And so those 2 things are going to weigh on our Q1 EBITDA dollars. After that, we expect the flow, not necessarily that it's flat every quarter, but that the overall cadence and shape of the earnings will resemble 2025. Does that make sense?

Yes. I appreciate it. And then if not price, can you just unpack kind of the drivers behind basket being up? I don't know if that sort of speaks to customer behavior or what type of customers are in the store, but that would be helpful.

Yes. Look, I think it's really about transactions in both countries. The U.S., the business and the comp was driven principally by transactions. Obviously, there's a mix of price and UPT in the basket composition. And in Canada, a lot of the stability was led by the increase in transactions as well. So really, really balanced and like the trend in both countries.

And then just to confirm, the stimulus that everyone is kind of anticipating here on the tax refund, that's not embedded in the expectations here? Are you seeing any kind of early signs that, that might be happening? Any comment there would be helpful.

It's not embedded in our expectations. We do historically see activity in our business related to the timing of government payments to consumers such as tax refunds, stimulus checks. And look, any time our customers have more money in their pocket, that's good for business. Momentum is strong. We think we'll get our fair share as that occurs.

Your next question comes from Bob Drbul of BTIG.

Just a couple of quick questions. On the new markets, can you talk a little bit about supply in the new markets or any surprises that you're seeing? And then I guess the other question that I have is largely around the plan for new stores. Have there been any sort of changes to, I guess, the backlog of the new store plan or the new store opening schedule?

Bob, this is Jubran. I can take that and the guys can jump in with additional color. So in terms of the new markets, you're absolutely right. Mark referenced that in his opening comments. Really, the majority of our new stores, starting this year, in 2026, 20-plus openings are going to be in the U.S. Pretty excited about the mix. It's a nice mix of both infill and greenfield markets. So in total, we're talking about opening stores in 11 different states. Very excited about our foray into North Carolina and Tennessee.

When we think about supply, the first thing to know, and we've said this on previous calls, is that we will not open a new store unless we feel good about that supply equation. And the cornerstone of that is the on-site donation. So these specific locations that we're looking forward to opening, we think they set up very well in terms of a robust on-site donation growth, which we expect to continue to grow for many, many years, just like we see in our mature stores. So that's the first thing to start with.

In terms of the delivered supply, we have a number of different tools in our tool belt. We talk about GreenDrop, we talk about all the different ways in which you can collect supply, and we participate in all of them. So it's always market specific. We're always looking ahead. But in terms of any concerns around supply feeding these new stores with their OSD performance and then attractive cost-effective delivered supply to make up the balance, no concerns there.

In terms of the second part of your question, backlog, not really. We continue to get really great traction in the tone and tenor of the conversations that we're having with landlords as they see thrift as part of their mix. I think Michael talked about this earlier where we've been working for a couple of years now to get those new store openings feathered across the quarters in a more balanced way, and we've made progress on that each and every year. We'll make more progress on that in 2026. So that's really the goal from an execution perspective is to get that kind of balanced out.

Your next question comes from Peter Keith of Piper Sandler.

This is Alexia Morgan on for Peter Keith. Given the typical margin drag associated with new store openings, what gives you confidence in your ability to drive EBITDA margin expansion looking longer term over the coming years while keeping unit growth steady. Are there any specific efficiencies we should be considering that might offset that new store pressure?

Yes. Thanks, Alexia. The biggest thing is the continued maturation of new stores. It's almost a math equation, right? As they continue to develop and grow profitability toward a mature store level, and as we fill out that pipeline and with stores entering their third, fourth and fifth years, we just start to get more offsetting tailwind, more momentum to counteract the impact of the 25 or so new stores that we'll open in any given year.

And if you want sort of a near-term proof point of that, if you just look at Q4 and what we did in both countries, frankly, we grew EBITDA, and we actually held EBITDA margin on a business contribution level at least. And that was including in Canada on what was just a little bit above a flat comp. And so that just speaks to the fact that as the new stores continue to mature, that's starting to provide a meaningful tailwind to us as we go forward. By the way, that's not reflecting all kinds of other things we're working on in terms of the innovation agenda around, again, price value equation, cost efficiency and so on that we think can provide additional longer-term benefits.

Okay. And then just one more on sales. So U.S. performance was really good. Could you elaborate on the specific drivers of that acceleration and then perhaps give more detail on what informs your Canada forecast going forward?

In the U.S., look, it's a lot about the secular trend continuing and terrific selection and value and an exceptional brick-and-mortar experience for thrifters. And I think the 8.8% comp is that evidence. The things that we're really excited about in the U.S. in terms of the momentum is, as I stated before, the continued increase in the younger customer and the higher household income customer and transactions and basket drove comps. And I think the other thing that's really exciting about the U.S. momentum is that our new stores are resonating, and we see a lot of momentum from that as well.

Michael, do you want to handle the second half of that question?

Yes. So Alexia, you asked about the assumptions behind our Canadian comp plan. So we're planning very conservatively for Canada, something in the flat to low single-digit comp level for the year. And that's pretty consistent with what we've seen both in the fourth quarter and thus far in the first quarter. I think it's a reflection of an economy that appears to have broadly stabilized, albeit at certainly a weaker level than what we see in the U.S. And we're planning our business accordingly. We're not assuming any material change in that in the near term.

But to add to Michael's comments about Canada, fourth quarter was another step forward. And I think it's indicative of our expectations around Canada moving forward with that increased segment profit growth in a modest comp environment and generating nice strong free cash flow.

Your next question comes from Owen Rickert of Northland Capital Markets.

We've seen a lot of commentary lately about consumers leaning pretty heavily into thrift for holiday gifting. I guess, based off what you saw in 4Q, strong quarter, obviously. But do you think that behavior is pretty sticky and could potentially carry over to other major holidays and seasonal moments maybe throughout the year? And then maybe secondly, anything you can just share on how holiday shopping patterns this year compared to prior years?

I'll answer the sticky question. I think overall, what we're seeing with thrift adoption and with our own loyalty database is a very low attrition rate. Once we sign people up and get them into our family, they love the experience, they love the value we're providing. So our attrition rates are exceptionally low. And I think that speaks volumes about the stickiness. On the Q-over-Q...

Yes, Owen, I guess, I just think this is the second consecutive year that we've seen the strongest comp of the year in the fourth quarter for the U.S. So it's hard for us, obviously, to parse all the motivation behind that. But I do think it's consistent with that sort of broader consumer adoption and the acceptance of thrift, including for gifting. And I think we also see it in terms of sort of some of the more giftable categories in the hard goods that you might think about toys, for example, or jewelry continuing to outperform. So I certainly think it's consistent with that thesis.

Your next question comes from Jeremy Hamblin of Craig-Hallum Capital Group.

I'll add my congratulations on the strong results and hitting that inflection point on profitability. I wanted to start actually on that point about EBITDA drag, which you called out roughly $10 million of hit to EBITDA from new store openings and kind of the impact of those first couple of years. As you're getting through the maturation of the '23 and '24 class of stores, can you give us a sense of what the EBITDA drag will look like in '26? And then as you start hitting, let's call, that tailwind effect that's going to happen as those stores get into years 4, 5 and beyond. Can you give us a sense for what that might be as a help to 2027?

Jeremy, thanks. It's Michael. Yes, it's really not a drag anymore. As we've said now for a while, we expected by '26 that drag to become a tailwind, and it is. It's a modest tailwind this year, because we really only started opening stores in earnest just over 2 years ago, it was sort of second half of 2024, not even really 2 years ago. And so we have these stores now just beginning to enter their third years and that is allowing that net year-over-year impact to be slightly positive this year relative to 2025. And the size of that tailwind, we expect to continue to grow as those stores enter years 4 and 5 and so on. So not ready to guide with any specificity for 2027, other than just to say, as we have for a while, over the longer term, we do expect both EBITDA dollars and margin to grow as the new stores, as that pipeline continues to fill up. And our long-term target remains an EBITDA margin in the high teens.

Great. And then just my other question. You got some noise related to having a 53rd week in '25. As we think about Q4 in '26, can you just help us understand a little bit of what you think the implications might be on SG&A in particular in Q4 year-over-year and then kind of salary, wages and benefits.

Yes. Well, I guess maybe the way to think about that, Jeremy, is that the fourth quarter impact of giving back that 53rd week, obviously, it's especially pronounced there, 6 or 7 points, give or take, in the fourth quarter. But we also lose that extra week of salary and benefits and cost of merchandise sold in SG&A, and that's why there really isn't much, if any, impact on the bottom line. So it just roughly neutralizes.

Your next question comes from Anthony Chukumba of Loop Capital Markets.

So you guys have talked a lot about the fact you have very high brand recognition in Canada. I was just wondering, I guess, what's that comparable number? I want to say it's like over 90%. What's that comparable number in the U.S.? And then how has that changed over like the last year?

Look, I think every U.S. market is different. As we've talked about, Anthony, the supply and demand comes from within a 10- to 12-mile radius. I think in our more mature stores, we've got very strong but unquantified brand recognition. And in new markets, we're gaining rapidly as we see in the performance of those new stores.

Got it. And then just one last quick one. Have you seen any shifts in terms of source of supply like between in-store versus GreenDrop versus delivered by the nonprofit, anything notable there that you've seen?

Anthony, it's Jubran. Short answer is, no, we haven't. I mean the one thing that we have seen is, of all the different sources of supply, we like the on-site donation for its quality and its cost, and we like our execution on that. We're seeing, across all 3 countries and across the regions within those countries, good robust on-site donation growth. In terms of the composition of the donation or the nature of the supply, no, not really seeing any changes there. Just that we kind of make our own weather when it comes to growing on-site donations. It's totally within our control. We expect it to grow again this year in 2026 and for years to come.

There are no further questions at this time. I would hand over the call to Mark Walsh for closing remarks. Please go ahead.

Just want to say thank you to everyone for their time and their interest today in Savers Value Village, and we look forward to speaking to you after our next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.

Good morning, thank you for taking time to visit with Savers Value Village First thing. Happy New Year. I'm Mark Walsh. For those of you who don't know me, I'm the CEO of Savers. We'll jump to our fourth quarter results. And let me kick off the meeting with a quick update on our fourth quarter results, which were really solid and highlights include $465 million in sales or a 15.6% increase from prior year and at the high end of our guidance, 5.4% enterprise comp with an 8.8% increase in the U.S. and a 0.7% increase in Canada.

The strength of that U.S. number speaks to our core store comp momentum and really doesn't have a significant impact from the new store classes in '23 or '24. That said, the new store classes in '23 and '24 are really right on top of our expectations and meeting our guidance. So we're really pleased about that as well, just a separate point.

We opened 10 new stores in the quarter, putting us at 26 for the year. The power of our cash-generative model, which Michael loves to talk about, was on full display again. And in the fourth quarter, we repaid $20 million of debt and repurchased 1.1 million shares at an average price of $8.75.

And lastly, and most importantly, we are reaffirming our earnings guidance. As we turn the page into 2026, Savers is really at a key and exciting inflection point. I really love this slide. The 6 points highlighted on this page, both independently and collectively present a unique moment in our strategic journey.

First, secular adoption of thrift continues to accelerate, and we certainly believe that the cost of living pressures are aiding this trend. Second, as we have mentioned in a number of our quarterly calls, and we'll talk about this more in a couple of slides, our customer continues to get younger and more affluent. Third, as evidenced by what I just said on the first slide, our comp momentum is strong. We're pleased with posting a 5.4% enterprise comp and not to use too aggressive an adjective, but we're really pumped up about the 8.8% comp in the U.S.

New store trajectory, that's our fourth point. This is -- if there's one thing I'd like to leave you with today, our new store trajectory remains strong. It's gaining traction and we're poised for positive adjusted EBITDA contribution in 2026. This is critical to that financial inflection that both I and Michael will be talking about throughout the presentation.

Number five is innovation. We continue to be very innovative, and we will -- that trend is going to continue into 2026. And finally, all of this is underpinned by a balanced capital allocation strategy that enhances shareholder value, and Michael will go deeper on this topic in his portion of the presentation.

So for those of you who are unfamiliar, and I think it's very few in the room, but for those of you who are less familiar with our business model, it's unique. It's one we're very proud of, a couple of key metrics. We're the #1 for-profit retailer in North America, which obviously provides significant scale advantages. We operate 367 stores in 3 countries and clicking down into the U.S., there is a tremendous white space opportunity for us as we're underpenetrated and have significant momentum. Value, value value at $5 -- approximately $5 AUR value screams. We've got over 6 million active loyalty members, close to $1.7 billion in sales. And LTM through the third quarter, we've got $249 million of adjusted EBITDA.

And our mission really sets us apart from anything you'll hear today. At best, we champion reuse and hopefully inspire a future where secondhand is second nature. And the proof of that is on the numbers on the slide. In the last 5 years, we paid our nonprofit partners $490 million for secondhand clothing and housewares that we accept on their behalf.

And equally impressive, in the same period, we kept 3.2 billion pounds of our reusable goods out of North American landfills. And Jubran came up with this quick stat. That's the equivalent of 80 municipal garbage trucks every day for the last 5 years. It's kind of mind-blowing.

Thrift or more broadly, the reuse economy continues to grow, and it becomes more mainstream. We're seeing it every day across all 3 countries as it is a very cool cross-section of the local landscapes that we're serving.

Now we talk about value a lot, and I hope this slide sort of jumps out at you. We can't emphasize the value that we're delivering. And I mentioned value earlier in that approximate $5 AUR. If you compare that to other value retail experiences, the numbers on this page jump off at you. It's exceptional value, really exceptional. And just as impressive is -- and we didn't put a lot about this on the page, but our adjusted EBITDA margins, which are in the mid-teens. So to deliver that value and the adjusted EBITDA margins is quite impressive.

So in the last couple of quarters, we've been talking a lot about our ability to meaningfully add loyalty customers in 2 critical cohorts. So I want to take a little bit of time where are we on that journey? And I think the numbers presented on this page emphasize where we are, and this is based on our current U.S. loyalty data.

So approximately 40% of our customers are under the age of 45 and 45% of our customers reside in households earning over $100,000. So you think about our long-term algorithm and the opportunity to grow, we really love these data points to support that long-term growth algorithm.

So to talk about longer term, how do we think about our strategic and financial plans. And our framework is directed, it's more importantly, actionable, and it's really built on 3 pillars. First is growth. The second is innovation, and the third is that balanced capital allocation.

Now I'm going to talk about the first 2 pillars, and Michael is going to do a deep dive on the third. Let's start with growth. And as this map clearly indicates, we certainly have a significant new store opportunity in the U.S. as we are essentially underpenetrated in every U.S. state. Since 2022, we have built a team to deliver on this very important element of our strategy. Progress has been steady. And more importantly, it's been very successful. As our new store count started at just 8 in 2022, we opened 26 in 2025, and we have a very confident and comfortable target of 25 in 2026.

I think the biggest takeaway about where we were and where we've been is as we've honed our new store approach, the key difference in 2026 is going to be that the growth is U.S.-centric. So 85% to 90% of our new stores are going to be in the U.S. rather than in the mix of the 3 countries. And what's also very interesting is as part of that strategy or part of that focus within the U.S., we will start to enter new strategic adjacent markets in both North Carolina and Tennessee. This is probably the most important slide I'm going to talk about before I hand it over to Michael.

So for SVV, the slide illustrates an exciting moment in our strategic journey. Let me kick off by reiterating that our new stores in each one of our new store cohorts is performing in line with expectations. Obviously, it makes us very happy with that data point. As a result, 2026 is really now the inflection point in profitability where new stores contribute to profitability. And this chart is really a good illustration of that point.

So let me walk you through the last couple of years. So in 2023, we started with a small number of stores. The combination of our solid comp performance and limited new store openings resulted in strong profit contribution growth. As we accelerated new store growth into 2024, the profit contribution fell as new stores and the associated cost of opening and operating them impacted our short-term profit trajectory.

In the third quarter of '25, we very importantly turned the corner on profit growth in both the U.S. and in Canada and a power -- a really powerful proof point that our new stores are gaining traction. Our guidance complement -- I'm sorry, our guidance contemplates adjusted EBITDA growth in the fourth quarter, the first quarter of adjusted EBITDA growth since we accelerated our new store trajectory. Again, so this is all about that profit inflection and our new stores delivering to the growth.

So looking ahead, Canada and U.S. create a powerful combination of growth opportunity and strong cash flow generation. As articulated throughout the U.S. is our primary source of new store growth. With an underpenetrated footprint and a strong secular trend, our value in store experience as evidenced by the 8.8% comp that we delivered in the fourth quarter, the U.S. focus is all about growth.

Canada has best-in-class customer -- consumer awareness and a highly generative cash flow model. We think about this. We love this combination of opportunities and core strengths in both models to deliver our long-term algorithm. A critical component of our growth story that I have not mentioned is our powerful and very successful donation efforts. With 76% of our donations coming directly from the donor, our donation growth rates have increased at a higher rate than our retail comps. A quick aside, our new store team spends a lot of time analyzing the donation opportunities of a new location as they do a retail equation.

So success in delivering the tandem goals of great retail and donation experiences manifests in outsized financial returns for those new environments.

So now I'll move on to innovation. Over the last 7 years, no one has been more innovative in brick-and-mortar thrift than Savers, but there's still a lot to do. And our innovation approach is centered on 3 core items. First is price value. In an environment where we put out 34,000 new items in every store, every week, how do we optimize that price value equation to drive improved revenue realization.

The second is around cost efficiency with a model that employs significant hourly labor. How do we utilize technology and industrial engineering to create a constant flow of cost and process improvements.

And finally, data science and insights. Our data set is massive. And there is an enterprise-level effort through data science and potentially agentic tools to drive insights and savings that will propel our business for the next decade. After a highly successful implementation of automated book processing or as we call it ABP to around half of the fleet, we engineered a solution. This is a good example. I'm sorry to rush it because I'm running out of time, and Michael has got a lot to say.

So as a good example, we engineer a solution to serve the balance of our stores in ABP Lite. And it's a great example of these -- 3 of these innovation pillars coming together, designed to maximize the revenue opportunity and merchandising execution, the store-level deployment, one, scans a title and genre of a book and allows for library-like merchandising. It prices the book in seconds by connecting to a 50 million title of library of used books. It delivers more than 15% in production cost improvements, moving the book from donation bin to the sales floor, and it maximizes revenue by removing the subjectivity of pricing. And I'll leave this with you. This is just the beginning of our innovation pipeline.

With that, I'd like to thank you very much for your interest early in the day, and I'll turn it over to my colleague and our CFO, Michael Maher.

Thank you, Mark. Okay. I'm going to move on now and talk about our third pillar, capital allocation, and we continue to take a balanced approach here. So our first priority is investing in our business. We continue to believe that new store growth is the highest and best use of our capital. Next is strengthening our balance sheet. We're reducing our leverage ratio through a combination of earnings growth and debt reduction. And finally, we're opportunistically returning capital to shareholders via share buybacks.

And as Mark indicated, we've got strong cash flow generation that enables us -- that has enabled us to fully self-fund all 3 of these priorities for each of the last 2 years. So let's take them one by one. So we'll start with investing in our business.

We expect capital expenditures to be a high single-digit percentage of revenue with approximately 2/3 of that for growth investments like new stores and related investments and about 1/3 for maintenance. I want to double-click on the new store investment, and this will be a refresher for some of you. We first put this up here last year, but it's important to the model and some of the remarks that Mark made earlier.

So we typically spend around $1.5 million to $2 million in capital on a new store. And we opened with first year sales averaging around $3 million and a modest operating loss. We're typically profitable by the second year. And by the fifth year, we average around $5 million in sales and a 20% 4-wall contribution margin. So that's important because as Mark discussed, we only recently began this current new store growth phase. And that means our new stores are still early in this cycle. They're still mostly in years 1 and 2. And that's been a headwind to our earnings for the last couple of years.

But as those earlier cohorts mature, move later into the cycle, that headwind is beginning to abate. And so we believe 2025 is the trough for EBITDA margin, and we expect collectively new stores to start contributing to EBITDA growth beginning in 2026.

So let me turn now to our other 2 priorities, starting with strengthening our balance sheet. We've repaid $120 million in debt since our IPO, including $20 million in the most recently completed quarter. Now as some of you will recall, in September, we refinanced our debt, which had several meaningful benefits. First, $17 million in annualized interest savings, $55 million in increased liquidity through an expanded revolving line of credit, maturities extending to 2032 and increased flexibility for continued debt reduction.

We're aiming for a leverage ratio of approximately 2 times by the end of 2027. With regards to returning capital to shareholders, over the last couple of years, we've repurchased 8.4 million shares of our stock at a weighted average price of $9.15, including the 1.1 million shares Mark mentioned in the fourth quarter at a weighted average price of $8.75. As of the end of the year, we still had $42 million remaining on our share repurchase authorization, and we will continue to be opportunistic about share buybacks.

All right. So as Mark described it, those 3 pillars: growth, innovation and capital allocation support and drive our long-term financial targets, which are low single-digit comp store sales growth, which is comprised of the U.S. a little better than that, mid-single-digit growth in the U.S. and Canada, our more mature market in the lower low single digits.

We expect to continue to open approximately 25 new stores per year, driving high single-digit total revenue growth. We expect adjusted EBITDA margins in the mid-teens in the near term, building to high teens in the longer term as those new store cohorts continue to mature. And we expect adjusted EPS growth to equal or exceed our revenue growth as we continue to grow EBITDA, pay down debt, thereby lowering interest and buy back our shares.

So in summary, we think Savers Value Village is well positioned to win. We've got a unique category tailwind with thrift outpacing traditional retail and our customer continuing to get younger and more affluent. We've got a durable and growing source of supply with on-site donations continuing to grow as a percentage of our overall supply mix.

Our new stores are gaining traction, contributing to EBITDA growth beginning in 2026. We've got a proven innovation engine with opportunities to further sharpen our price value equation and drive labor efficiency through technology. And we've got a highly cash-generative model that allows us to fully self-fund our new store growth, reduce our debt and return capital to shareholders. So we're really excited about the opportunities in front of us in 2026 and longer term.

Thank you again for your interest in Savers Value Village, and we look forward to meeting with many of you over the course of the day and tomorrow. Thank you.

Good afternoon, ladies and gentlemen. Welcome to Savers Value Village's conference call to discuss financial results for the third quarter ending September 27, 2025. [Operator Instructions] 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 significant risks and uncertainties that could cause the company's actual results to differ materially from expectations and historical performance. Please review the disclosures on forward-looking statements included in the 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 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; Jubran Tanious, President and Chief Operating Officer; Michael Maher, Chief Financial Officer; and Ed Yruma, 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 third quarter results, particularly in the U.S., where our momentum remains strong. Comps continue to strengthen in Canada, but challenging macroeconomic conditions remain a headwind there.

Let me start with a few highlights from the quarter. Sales in our U.S. business grew 10.5% with comp sales up 7.1%, driven by both transactions and average basket. These results underscore our strong operational performance as well as an accelerating secular thrift trend. Powerful results like these reinforce our enthusiasm for the long-term growth opportunity in the U.S.

In Canada, our business made further progress, delivering 3.9% comp sales growth, an acceleration of 130 basis points from the prior quarter, marking the fourth consecutive quarter of sequential improvement. The Canadian macro environment remains very challenging, and we continue to lean into selection during the quarter while taking steps to better align production with demand trends going forward, which Michael will go over in more detail.

We opened 10 new stores in the quarter and still expect to open 25 new stores in 2025. As a class, our new stores continue to perform in line with our expectations delivering strong unit economics. We remain confident in our long-term store growth opportunity and a targeted 20% store-level contribution margin.

Turning to our loyalty program. We reached approximately 6.1 million total active members. Financially, we generated $70 million of adjusted EBITDA in the quarter or approximately 16.4% of sales. Additionally, our strong cash flow generation and an attractive debt market allowed us to opportunistically refinance our debt, which will significantly reduce our interest expense and give us a more flexible capital structure.

Just as a reminder, we do not have any direct impact from tariffs. We continue to monitor pricing trends closely, and I feel very good about our competitive positioning and value gaps as new clothing and footwear pricing begins to increase in the U.S. Finally, based on our results year-to-date, we are tightening our revenue and earnings outlook for 2025. Michael will provide additional details on our outlook in his remarks.

Parsing our results by geography, let's start in the U.S. where momentum is especially strong. We are thrilled to post a 7.1% comp, which I will point out is coming from a mature store base as the majority of our 2024 class will not begin to enter the comp base until the fourth quarter. This speaks to our compelling assortment at great value and the consumer-friendly shopping experience that we offer as well as the accelerating secular adoption of Thrift.

As we've noted in previous calls, we continue to see growth in our younger and more affluent customer cohorts. In Canada, the economy remains challenging, but it has not impacted everyone the same. For example, tariffs and trade tensions have disproportionately impacted certain regions such as Southwest Ontario, a key market of ours where the automotive industry is a large portion of the local economy.

Meanwhile, unemployment is above 7%, and the lower income consumers have seen little or no disposable income growth plus higher-than-average inflationary pressure in nondiscretionary categories like food, shelter and transportation. Against this backdrop, we are leading with a compelling selection, which helped drive positive comps over the past year, although we do think that the near-term Canadian comp upside will be limited by macro pressure. Throughout the third quarter, we actively worked to calibrate production and meet demand, making careful and targeted adjustments in response to sales trends.

Exiting the quarter, Canadian comps leveled off at the lower end of our expected range, and we continue to drive improved gross margins also at the lower end of our expected range. We remain laser-focused on giving our Canadian consumer great value through sharp pricing and compelling selection. We are controlling what we can control, and we will manage the Canadian business with the expectation that macro conditions may limit our growth in the near term.

Moving on to new stores. We continue to be pleased with the results we are seeing. And as a whole, they are performing in line with our expectations. As new stores continue to mature as expected, they are beginning to contribute to an inflection in our profitability. We are especially pleased that our U.S. and Canadian segments had year-over-year profit growth this quarter for the first time since 2023, and we expect to return to profit growth at the enterprise level in the fourth quarter, putting us on track for our previously stated goal of annual profit improvement in 2026.

We opened 10 new stores during the quarter and are on track to open 25 new stores in 2025. As the 2026 lease pipeline has started to round out, we're expecting a roughly similar number of openings next year, but the focus of our new store growth going forward will even be more U.S.-centric as we believe the secular adoption of Thrift remains in the early innings, and we still have a significant amount of geographic white space.

To this end, we're excited to enter new markets in 2026, including North Carolina and Tennessee. Store growth remains the highest return and most important use of our capital, and we could not be more pleased to bring our compelling value proposition to more consumers throughout the U.S.

Finally, we recently released our 2025 Impact and Sustainability report, which can be found on our Investor Relations website. We are a mission-driven business, championing reuse and looking to inspire a future where secondhand is second nature. This report highlights the impact and circularity ingrained in our model, and I am proud that over the past 5 years, we have kept 3.2 billion pounds of usable items out of landfills and paid our charitable partners over $490 million. We hope you will take the time to review the report and our commitment to community impact, sustainability and sound corporate governance.

I would like to conclude my remarks by thanking our more than 22,000 team members for their hard work and commitment. As a team, we are more energized than ever as we see the fruits of our labor with more people choosing us every day, whether it'd be due to our treasure hunting experience, exceptional assortment at sharp value or to contribute to the circular economy. 2025 continues to be a success. While macro pressures persist, I believe that our value proposition positions us well.

Now I'll hand the call over to Michael to discuss our third quarter financial performance and the updated outlook for the remainder of 2025.

Thank you, Mark, and good afternoon, everyone. As Mark indicated, we had a strong third quarter. Total net sales increased 8.1% to $427 million. On a constant currency basis, net sales increased 8.6% and comparable store sales increased 5.8%. We are especially pleased with our double-digit growth in the U.S., where net sales increased 10.5% to $235 million. Comparable store sales increased 7.1%, driven by both transactions and average basket.

We also saw our fourth consecutive quarter of sequential improvement in Canada, where net sales increased 5.1%. On a constant currency basis, Canadian net sales increased 6.1% to $161 million and comparable store sales increased 3.9%, fueled by an increase in transactions and average basket. While we are pleased with another quarter of positive comps, we believe that ongoing macro pressure places a near-term ceiling on Canadian comp store sales.

Given the sluggish Canadian economy, we do not assume that conditions will change materially in the near term. Cost of merchandise sold as a percentage of net sales increased 80 basis points to 44.1% due to the impact of new stores and deleverage due to higher processing in Canada, partially offset by growth in on-site donations.

Gross margins improved by roughly 100 basis points over the first half of the year, and we materially narrowed the gap versus last year as we lapped new store growth. We expect this trend to carry into the fourth quarter as new stores continue to ramp. As Mark previously indicated, Canadian comp sales trends have leveled off at the lower end of our expected range with a corresponding impact on gross margins as we work to balance production levels throughout the quarter.

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 220 basis points to 18.8%. The increase was driven primarily by new store growth, an increase in annual incentive plan expense and higher wage rates.

Selling, general and administrative expenses increased 19% to $100 million and as a percentage of net sales increased 200 basis points to 23.3%, primarily due to growth in our store base. SG&A expenses also included a $4 million impairment charge for the planned closure of 6 underperforming stores during the fourth quarter. This includes 3 of the 2 Peaches stores that we converted during the second quarter, whose post-conversion results were not meeting our expectations, along with other store in the U.S., and 2 in Canada.

We concluded the closure of these 6 stores would be EBITDA-accretive in 2026, and we expect nearby stores to absorb much of the sales volume from the closed locations. Our store fleet remains healthy with almost all comp stores generating positive EBITDA.

In addition to the impairment charge, SG&A also included $2.1 million of debt refinance costs and the year-over-year change in fair value of acquisition-related contingent consideration. Depreciation and amortization increased 6% to $18 million, reflecting investments in new stores. Net interest expense increased 12% to $17 million, primarily due to the impact of unwinding our interest rate swaps last year, partially offset by reduced debt and lower average interest rates.

As we disclosed during the quarter, we took advantage of a strong market and refinanced our debt. As a result of the refinancing, we expect interest expense savings of approximately $17 million on an annualized basis. For modeling purposes, this translates to an estimated interest expense of $14 million for the fourth quarter and $52 million for fiscal 2026.

We incurred a $33 million loss on extinguishment of debt as part of the refinancing. GAAP net loss for the quarter was $14 million or $0.09 per diluted share. Adjusted net income was $22 million or $0.14 per diluted share. Third quarter adjusted EBITDA was $70 million and adjusted EBITDA margin was 16.4%. U.S. segment profit was $48 million, up $3 million versus the prior year period, primarily due to increased profit from our comparable stores, partially offset by the impact of new stores.

Canada segment profit was $45 million, up $0.4 million versus the prior year period due to improved comparable store performance, partially offset by deleveraging of cost of merchandise sold as a percentage of net sales, primarily associated with our efforts with Canadian production levels to maintain demand as well as a weaker Canadian dollar. This marks our first year-over-year increase in both U.S. and Canadian segment operating profit since 2023, highlighting our imminent inflection in total company profitability as new stores continue to mature.

Our balance sheet remains strong with $64 million in cash and cash equivalents, and a net leverage ratio of 2.7x at the end of the quarter. Our updated capital structure gives us increased liquidity through a $55 million expansion in our revolver capacity, extended debt maturities through 2032 and significant flexibility to pay down debt in the future. Our strong cash flow generation will enable us to further deleverage our business as we target a net leverage ratio of under 2x within the next couple of years.

We are also pleased to announce that our Board of Directors approved a new $50 million share repurchase authorization. We will continue to take a balanced approach to capital allocation as our strong financial model allows us to fund organic store growth, reduce debt and opportunistically repurchase shares.

Finally, I'd like to discuss our updated outlook for the remainder of fiscal 2025. Our U.S. business remained strong entering the fourth quarter, while in Canada, macro pressures continue to weigh on results. We've made strides in better calibrating sales and production and are planning for Canadian macro conditions to remain challenging for the near term, with roughly flat Canadian comps in the fourth quarter.

Our updated full year outlook for 2025 now includes the following: net sales of $1.67 billion to $1.68 billion, reflecting a weakening of the Canadian dollar since last quarter; comparable store sales growth of 4.0% to 4.5%; net income of $17 million to $21 million or $0.10 to $0.13 per diluted share; adjusted net income of $71 million to $75 million or $0.44 to $0.46 per diluted share; adjusted EBITDA of $252 million to $257 million; capital expenditures of $105 million to $120 million; and 25 new store openings.

Our outlook for net income assumes net interest expense of approximately $62 million and an effective tax rate of approximately 41%. For adjusted net income, we are assuming an effective tax rate of approximately 26%.

This concludes our prepared remarks. We would now like to open the call for questions. Operator?

[Operator Instructions] First, we will hear from Randy Konik at Jefferies.

I guess, first, why don't we just kind of unpack Canada a little bit further. You gave us some good color on the -- in the script around the top line continuing to improve. You talked about the macro, so maybe unpack that a little more. And then you talked about some processing impacting, I guess, the margins a bit. That sounds like something that can be corrected, obviously, and fixed and improved from an efficiency standpoint going forward. Maybe give us a little more color there working on the processing side.

Randy, thanks. Look, from our perspective, a little recap. From our perspective, the third quarter was definitely another step forward in Canada. We'd like to highlight the fourth quarter of sequential comp improvement and more significantly, the first quarter of profit growth since 2023.

Look, that said, the macro challenges do persist. There's stubborn unemployment and inflationary pressures on consumables we're not planning for that to change. I mean we see from an unemployment perspective in the Greater Toronto market, probably it's just around -- just below 9%. And in Windsor, it's over 10%. It's an important market for us, just to give you some context.

So as we think about the third quarter, more progress, but a lot more to do, and we landed Canada at the lower end of our expectations. But tactically, we remain focused on delivering sharp value, that AUR of USD 5 and measuring our price gaps to protect and gain share where we can. And I think in an environment of limited growth and higher wages, we've got to improve productivity through process improvements, resulting in cost reductions while not impacting the consumer proposition. Rest assured, Michael and Jubran's team are all over this challenge.

And lastly, just from a -- the impact from a corporate perspective because I think it's important. From a strategic enterprise perspective, we're going to deploy 75% to 80% of our growth capital in '26 and beyond to the U.S. where we do have tremendous white space and momentum. It's very important to note. So I'll let, Jubran, sort of dive into a little more around selection and some of the other questions you asked.

Yes. Hi, Randy, and thanks, Mark. Well, it really comes down to the 3 or 4 things that we can control. And to be clear, and I think Michael mentioned this earlier, as we sit today, we are balanced between sales and production and feel very good about that going forward. But again, around controlling the controllables.

I mean the first thing is providing the selection and value that our customers expect. And we believe we're doing that. In fact, our own internal surveys tell us that customer perception of both price and selection has increased year-over-year as we look to put out the right items in the right amount at the right price.

The second thing that we can control, and Mark alluded to this, is being as efficient as we possibly can be in delivering that selection to our customers. Again, ours is a labor-intensive model, but our teams do an excellent job at executing as efficiently as possible. And frankly, we'll continue to do that through the remainder of the year. And we are relentless about looking for tactical and innovative ways to improve labor efficiency. So we've got a few things in the hopper that we're looking forward to as we get into 2026.

And then finally, growing on-site donations. We've talked about this in the past. It's really about how you show up to the donor in terms of being reliably fast, friendly and convenient. That is something that we control entirely. And we measure it not just in terms of on-site donation growth, but also donor sentiment and satisfaction. And our own internal voice of the donor surveys tell us, that overall satisfaction is north of 90%. So we feel good about that.

So yes, overall, in terms of controlling the controllables, I think we're doing that amidst an otherwise challenging macro.

Yes. Super helpful. I guess last question. Obviously, this U.S. business feels really good. Any color you can give us on the traffic or the transactions that are being done with existing customers versus new to file. I'm sure that you're getting a healthy amount of new customers entering the business. It'd just be helpful to get some perspective there.

And any kind of feel for what the awareness level is for the banner in the United States right now? Obviously, again, it seems like we're still very early innings in this U.S. story going forward.

Yes, Randy, great question. Look, transactions and basket definitely drove comps, and we have seen a nice increase in our loyalty platform in the U.S. That momentum is continuing. Beyond that, we love what we're seeing from a consumer and who's entering the mix. High household income cohort continues to become a larger portion of our consumer mix. It's trade down for sure. And our younger cohort also continues to grow in numbers.

We couldn't ask for a better outcome. And I think it's largely driven by a great store experience, merchandise mix that's unusual and powerful and great value. And that all drives -- that all feeds into the secular momentum. Consumers are liking what they see. And needless to say, we're very pleased with that trajectory.

Next question will be from Matthew Boss at JPMorgan.

So Mark, could you elaborate on the cadence of same-store sales over the course of the third quarter in the U.S.? Maybe just comment on what you're seeing in October? And then you mentioned the value gap. So how you see your value proposition positioned in the U.S. maybe against the broader marketplace?

Yes. Thanks, Matt. So I'll start with the value gap. I'll let Michael do the October cadence and what we're seeing. We're very -- we spend a lot of energy and time understanding where we are relative to our competitive set. And we define our competitive set in 2 ways. One is obviously thrift competitors and the other is discount retail. And we gather a ton of information, as I've said in previous calls, we can tell you in our [indiscernible] store, what's happening down the street at TJX or other discount retailers, we try to get between 40% and 70%, maintain that gap, continue to give our thrifters value that is brings them back and is compelling. And I think we're doing that both in the U.S. and in Canada.

We look at these metrics in both countries. We're really driven by these metrics, and we want to make sure that we're always delivering that price-value gap to our customers everywhere they shop in the Value Village Savers chains.

Matt, it's Michael. So your question about the cadence of our comps. So as we expected, the comps were strongest in July, eased slightly in August and September as we expected because we are starting to go up against tougher compares last year. As we've kicked off the fourth quarter, what we're seeing thus far is continued strength in the U.S. We continue to be really pleased with the momentum there and continued moderation in Canada.

Now we have had a warmer-than-usual start to the fall that weighed on our results a little bit in late September and early October. Over the last week or so, as the weather is cooled, we're starting to see that improve. But as I mentioned in my remarks, we're assuming roughly flat low growth in Canada for Q4 and planning conservatively given what we see in terms of the macro.

Great. And then, Michael, on gross margin, maybe could you help break down the drivers of the 80 basis point contraction in the third quarter? Maybe just some gross margin puts and takes that we should consider for the fourth quarter, anything to be mindful of for next year at this point?

Yes, you got it. So as we mentioned on the last call, we expected to narrow that gap from the first half, and we did. The biggest driver of the gap year-over-year continues to be new store growth. That gap is shrinking and progressed -- as the new stores are progressing in line with our expectations.

The other driver in this quarter was the Canadian processing. As we've mentioned, comps being at the lower end of our expected range. We were very careful, very deliberate about reducing processing to ensure we didn't repeat the mistakes of last year and prematurely choke off demand. And so that did weigh on our margins in the quarter. But as Jubran mentioned a little bit ago, we exited the quarter essentially at equilibrium with processing demand -- processing and demand lined up well.

And then to a lesser extent, the 2 Peaches. I mentioned the underperformance of those 3 stores that we've elected to close. So -- those were the big factors. I expect the gap to last year to continue to narrow, Matt, in Q4. We are continuing to move through the new store pipeline. Those new stores continue to mature and ramp very nicely, and that's helping to drive and lead us toward that inflection that we talked about. And being a better equilibrium in Canadian processing, both of those should contribute to a further narrowing of the gap in the fourth quarter.

Next question will be from Brooke Roach at Goldman Sachs.

Mark, I was hoping to get your thoughts on new market expansion for the Savers brand given the announcement to enter Tennessee and North Carolina. What did you learn from the 2 Peaches stores that you're closing that can help you ensure that new market expansions will be successful?

I can jump in.

Sure Jubran, why don't you in jump in.

Yes, sure. Brooke, this is Jubran. I can help provide some color. Yes, we converted the 2 Peaches stores per plan, and it's really pretty straightforward. I mean we had 3 of them that we converted, and frankly, didn't like the performance on them. So we acted quickly to close them. But I think your broader question is in kind of higher level, our strategic goal was always to enter the U.S. Southeast, where we previously had no presence and we wanted to take advantage of all that white space.

So while we're closing these 3 acquisition locations, the local supply that we now have in our mix will help us feed those new organic stores in 2026, where I think Mark mentioned that we will be opening our first store in Tennessee, our first stores in North Carolina and an additional store in the Atlanta market. Very excited about these locations. These are, again, exciting centers that we think are going to show strong -- of our first stores in those states. So we continue to stay enthusiastic about our expansion opportunities in the Southeast.

Great. And then maybe a follow-up for Michael. As you contemplate the modestly lighter EBITDA margin guide that you've provided for the back half of this year, how should we be thinking about the path back to EBITDA margin expansion into 2026? Do the recent pressures in the Canadian business impact your view on the cadence and magnitude of improvement that you could see into next year?

Yes. Thanks, Brooke. This really doesn't -- nothing has changed our view of the near or longer-term financial algorithm. So just as a reminder for everyone, we see over the long term, high single-digit total revenue growth, which will be driven primarily by new stores. Now next year, and I'm not guiding to next year, but do remember that next year, we go back to a 52-week year after a 53-week year this year. So that 2 points we picked up this year, we're going to give that back next year. But that aside, continue to see over the long term low single-digit comps.

And I think what we're seeing now is probably reasonably representative of how that's going to shake out by country with Canada in the low-single digits and the U.S. somewhere in the mid-single digits, averaging out to roughly low single. So we still see high-teens EBITDA margins in the long-term algorithm. That's not going to be a step change. We've been saying that for a while. I don't expect to see that happen next year. We've got to continue building out the new store pipeline and letting that mature. But we continue to believe, as we said before, that EBITDA margins are at their trough this year. And so we would expect to see some modest growth in 2026.

Next question will be from Mark Altschwager at Baird.

Just following up on the U.S. momentum. Can you talk about the opportunity in pricing given the quality of supply you're seeing and the inflation you're beginning to see within the U.S. apparel market?

Yes, look -- Mark, this is Mark. So we are starting to see new apparel and footwear price increase. And we're -- how we're approaching that is if the gap widens significantly beyond that 40% to 70% range that I articulated, it gives us an advantageous optionality, whether we choose to just gain share or some modest price -- strategic price increases or both. It's just going to highlight our well-positioned price value equation within that market. So we see that as a big opportunity for us moving forward.

And just on Canada, you've made a handful of comments here as we think about Q4 and into 2026. But I guess, guiding flattish Q4, I think you just said low-single digit is kind of your baseline expectation for next year. I mean I know you're not guiding, but comparisons do begin to get tougher next year as you cycle the recovery or the improvement you delivered this year. So maybe just help us understand the factors that could drive sort of a stable low single in Canada given the macro headwinds you outlined.

Yes, Mark. So I think the assumption is that we're going to continue to focus on the things Mark talked about earlier in terms of sharp value, great execution, we are seeing sort of stability there. The macro is growing, albeit slowly. And so we do think that we can sustain low, and we're going to plan for conservatively low single-digit comps in Canada and hopefully outperform that, but we'll stay cautious in terms of the planning.

And like I said, we continue to see really strong momentum in the U.S. And so we're more in the mid-single-digit range there, comfortably in the mid-single-digit range in Q3, obviously. And so we remain confident that we can average that out and something around a low single-digit overall comp.

Next question will be from Bob Drbul at BTIG.

Just a couple of follow-up questions. On the 2 Peaches, the stores that you updated and then closed, I guess, what have you guys learned from -- like why do you think that didn't work for those stores?

And I guess the other question I have is just on the new markets, Tennessee, North Carolina and the other store in Atlanta. Can you just talk about the entry and how you're approaching the market and any marketing around those stores and that initiative?

So Bob, it's Mark. On the Tennessee and North Carolina stores, we'll take the same approach that we have in all of our new store openings. We've got great real estate, great traffic patterns around it. putting that community donation center, first and foremost, as part of that facility critical for us in the long term.

And then you start with -- we typically start with an event and then we do paid search around it. And that's been very successful for us throughout our last 3 years of openings in the U.S. So we feel confident about our approach, and we don't see why it would be any different or the success rate of that approach would be any different in North Carolina and Tennessee.

On the issue around 2 Peaches, look, as Jubran mentioned, we converted those stores 3 months ago. I think we looked at them out of the chute. We did not like the way they were performing. We wanted to get to a better place from a 2026 perspective on EBITDA and it being accretive.

And we decided to close them, and we made a quick decision based on what we thought was the base case in terms of potential growth within those 3 environments. So we decided to move on. We feel good about that decision, and we like the fact that we're setting ourselves up for 2026 accretion versus continuing to fight a fight that we didn't think was going to be that fruitful.

And the only -- Bob, the only other thing I would add to Mark's comments is we've got our first stores in Tennessee, North Carolina, a new one in Atlanta. What we didn't mention is sitting behind that is a pretty growing robust pipeline of other attractive locations that are sitting a little bit behind those stores but are equally attractive in terms of site quality, demographics, trade area that we would be operating in. So like Mark said, pretty excited about the future for us in the Southeast.

Next question will be from Michael Lasser at UBS.

So the macro is getting worse in Canada, why are you not seeing the trade down? And if the macro remains challenged in 2026, how far are you willing to sacrifice the profitability of the U.S. business to support the Canadian segment?

I'll answer that first part of the question. I think Michael will tackle the second part. We are actually seeing trade down in Canada. Similar to the U.S., I just didn't mention it because we were -- the original answer was focused on the U.S. But like the U.S., our key cohorts, U.S. -- I mean, the high household incomes and younger consumers, they're both growing in Canada as well. So we're actually really pleased about how the loyalty base is morphing in Canada as well, and we are, in fact, seeing trade down. Probably not to the same degree as we are in the U.S., but we are certainly seeing it.

Yes, Michael, this is Michael. Can you -- I didn't quite follow the second part of your question about Canadian versus U.S. profit in '26. Can you repeat that?

Yes, you took down the guide because of a slowdown in the Canadian business for the fourth quarter. If we assume that continues into next year, do you have to sacrifice some of the improving profitability in the U.S. business to support the Canadian business? Or alternatively, if you experience deleverage on the Canadian business, to what degree is that going to eat into the profitability of the U.S. business?

I see. Yes. Well, we're not ready to guide for '26 specifically yet. I guess what I would say though is, and Mark mentioned this earlier in his remarks that in -- or in response to the first question, we're planning for in the near term, at least a slow growth business. And that means really tight execution, but also a really aggressive posture on costs in Canada. And so we believe that at a low single-digit growth rate, which we think is sustainable into next year, in Canada that we can be disciplined enough on costs to still achieve our bottom line objectives as well.

And then, of course, in the U.S., really happy with the top line momentum there. That is also our investment, our growth market. And so we're investing -- our new store growth is going to be disproportionately in the U.S. going forward. But nothing we see at this point changes our view in the near or longer term about financial algorithm.

Next question will be from Peter Keith at Piper Sandler.

This is Alexia Morgan on for Peter. My first question is a clarification on guidance. Could you elaborate on the key drivers behind the narrowing of your EBITDA guidance and lowering the range at the high end? Was that primarily due to Canada? Or are there other factors that went into that recalibration as well?

Yes. Canada is the largest factor. So that was really the biggest variable going into the back half of the year for us. We were going up against some really challenging business from a year ago. As we mentioned, we saw the comp settle out at the lower end of our expectations there. And processing had to follow, but it did follow. And so we had some additional pressure on margin in the third quarter. And so that is the biggest driver of sort of the narrowing of the guide toward the lower end on EBITDA. To a lesser extent, it's the 2 Peaches performance that we talked about earlier.

Okay. And then one more on tariffs. I know you're not exposed to tariffs, but considering just the price increases being seen broadly across the industry, have you noticed any interesting mix shift in your sales? Or are there certain categories of yours that you think might be outperforming and indirectly benefiting from prices raising across the industry?

We have not seen that phenomenon in our sales metrics.

[Operator Instructions] Next, we will hear from Owen Rickert at Northland Capital Markets.

Just quickly on the automation front, have you started to see any tangible benefits from the new centralized processing centers and automated book systems?

And maybe secondly, what's the latest thinking around CapEx as you continue to roll those out?

Why don't I take the CPC, you can talk CapEx. Owen, this is Jubran. Yes, the CPCs, the automated book processing -- we have made progress in terms of efficiency and effectiveness on those quarter after quarter after quarter. So pleased with the progress. What I will say is I don't think that we will ever get to a place where we say we've arrived. There's still a tremendous amount of opportunity that we see.

And I don't mind sharing, I spend quite a bit of my own time and focus on this topic where as we think about 2026, the opportunities that we have to become more efficient, more effective in those facilities, we think that there's a lot of opportunity there. I can't get into at this -- I don't have the liberty of getting into the specifics on that, but we got quite a few different tactics in the hopper that we think are going to play well for us in the future.

Yes, Owen, this is Michael. Owen, on your second question about CapEx. So again, we'll give more specifics when we guide for next year. But we have said that the current level at roughly a high single-digit percentage of revenue is probably pretty indicative of where we'll be as long as we are in this growth mode. And most of that investment is going to be in growth and in new stores. It may include amounts for additional enablers like off-site processing facilities or other technology investments as well. But overall, that's probably a reasonable envelope.

At this time, Mr. Walsh, it appears we have no other questions, sir. Please proceed.

We'd like to thank everyone for their time today and their interest in Savers Value Village, and we look forward to connecting with you after our fourth quarter. Thanks again.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your line.