Q3 2023 Savers Value Village Inc Earnings Call
Okay.
Good afternoon, and welcome to feverish values villages conference call to discuss financial results for the third quarter ending September 30th Twenty-twenty speak at this time all participants are in listen mode. Only later, we will conduct a question and answer session and instructions will follow at that time.
Speaker 1: Good afternoon and welcome to Savers' Value Villages Conference call to discuss financial results for the third quarter ending September 30th, 2023. At this time, all participants are in listen mode only. Later, we will conduct a question-and-answer session and instructions will follow at that time.
Please note that this call is being recorded and a replay of this call and related materials will be available on the company's investor relation 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.
Speaker 1: 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.
Speaker 1: Certain comments may during this call may constitute forward looking statements which are subject to significant risks and uncertainties that could cause the company's actual result to differ materially from expectations or historical performance.
Sure you can 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 are historical performance. Please review the disclosure on forward looking statements, including.
Speaker 1: Please review the disclosure on forward-looking statements, including the cut-in to company surroundings to release, and file links with the SEC for discussion on these risks and uncertainties.
In the company's earnings release and filings with the S. E C for a discussion on these risks and uncertainties.
Speaker 1: Please be advised that the statements are current only as of the date and of this call. 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 regulations.
Please be advised that the statements are current only as of the date of this call.
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.
Speaker 1: The company may also discuss certain non-GAAP .
The company May also discuss certain non G. A a P financial measures a reconciliation of each of these non G. A a P measures you did most directed.
Speaker 1: financial measures, a reconciliation of each of these non-GAAP measures to the most directed
Speaker 1: comparable GAAP financial measures can be found in today's earnings. And...
Terrible comparable G. A a P financial measures can be found in today's earnings and.
Our SEC filings joining.
Speaker 2: Joining from management on today's call are Mark Walsh, Chief Executive Officer, Jay Stasz, Chief Financial Officer, and Gibran Kenyus, President and COO. Mr. Walsh, you may now go ahead. Thank you for joining us today and for your interest in Savers. We had a strong third quarter and are pleased with our performance.
Joining from management on today's call are Mark Walsh, Chief Executive Officer, Jason <unk>, Chief Financial Officer, and Djabran Kenya's pressured.
President and she O O. Mr. Walsh you May now go ahead.
Thank you for joining us today and for your interest in Cyprus, We had a strong third quarter and are pleased with our performance constant currency net sales increased 5%.
Speaker 2: Comparable, store sales increased 3.7% on higher transactions.
Comparable store sales increased three 7% on higher transactions and despite a $1.5 million negative impact from foreign currency.
Speaker 2: And despite a $1.5 million negative impact from foreign current.
Speaker 2: We grew a justity bit up by more than 6% to 91 million.
We grew adjusted EBITDA by more than 6% to $91 million.
Speaker 2: donations and supply of goods remain very strong in the quarter. And for the first time in saver 70 year history, we reached over 5 million members in our loyalty program. An increase of 10% over the third quarter last year. And for the first time in saver 70 year history, we reached over 5 million members in saver 70 year history.
In Asia and supply of goods remained very strong in the quarter and for the first time in favor 70 year history. We reached over 5 million members in our loyalty program and an increase of 10% over the third quarter last year.
Our third quarter performance demonstrates our ability to deliver strong margin and EBITDA underpinned by an operating philosophy that governs our unique vertically integrated company.
Speaker 2: Third quarter performance demonstrates our ability to deliver strong margin in EBITDA, underpinned by an operating philosophy that governs our unique vertically integrated company.
Let me explain this a bit more.
Speaker 2: In the middle of 2019, Searest moved away from a volume-based operating paradigm to a data environment with one goal. Maximum...
In the middle of 2019, Shavers moved away from a volume based operating paradigm to a data environment with one goal.
<unk> EBITDA.
We knew that by finding the optimal mix between price cost and turnover, we can drive improved profit margins and strong sustainable cash flow to do so we refocused the organization around productivity measures. It started more thoroughly analyzing data for every item we collected.
Assets and sold.
Unlike conventional retailers, we don't preorder products months in advance from a vendor of manufacturer instead.
Instead, we except donated goods on behalf our nonprofit partners in.
And our cost of these goods is made up by two primary components the price that we pay our nonprofit partners for the donated items themselves.
And the labor costs, we incur to collect source grade and merchandize these items for sale.
Labor is the biggest component of our cost of goods and this accounts for roughly 60% of the total product costs.
While we accept donated items every day, we have the ability to accelerate or decelerate our processing volumes based on the directional demand trends at retail.
This does two things.
First it keeps our retail inventory levels in balance with demand and second it better matches, our expenses to our sales.
Both of which help maximize productivity EBITDA and cash flow.
The result has been more than a 700 basis point improvement in gross margin.
1000 basis point improvement in EBITDA margin from 2019 to 2022.
An important driver of productivity unique to thrift as a metric called sales yield.
<unk> yield is calculated by dividing retail sales dollars, while the number of pounds processed in any given period on a currency neutral comparable store growth basis.
Sales yield was $1 50 in the third quarter. This was up from $1 42 in the third quarter last year and $1 eight in 2019.
To put it simply we are generating higher sales for every pound of product that we process, which is being driven by our productivity gains from structural changes made to the business. It is also a reflection of the strong trends we are seeing on the supply side of the business.
<unk>, we're very strong in the third quarter.
On the demand side of the equation, we saw two different trends in the quarter demand for hard goods remained strong and consistent throughout the period, while demand for soft goods was strong in the first half of the quarter and moderated a bit in September.
As a result, we stepped our soft goods processing volumes up in the first half of the quarter and down in the latter part of the quarter to align our expenses to revenue and delivered $91 million and adjusted EBITDA.
With an average unit retail of under $5. Our value proposition is strong clearly value is an important dynamic in the consumer landscape. However, as everyone is very aware the macro environment is uncertain right now as inflation remains high on essential everyday items, such as food and housing.
With consumers managing their discretionary spending we are monitoring both demand and pricing very closely to align expenses with sales and maintaining profitability.
Turning to new stores in line with our expectations. We opened three new stores in the third quarter and are on track to open a total of 12. This year, we continue to target 22, new stores in 2024.
As a reminder, our new stores generally take three years to four years in Canada and four to five years in the U S to reach mature processing efficiency.
In Asia volume and retail demand.
The new store classes of 2022, and 2023 are performing in line with expectations.
There is a tremendous amount of white space in front of US we are addressing that opportunity methodically, we continue to build the organizational muscle and accelerating new store cadence and our early results provide bullish overtones to continued success.
In conclusion, we feel good about our third quarter results, the quality and quantity of our donations and our ability to execute our business going forward.
We have made significant structural changes to the business that allow us to maximize EBITDA through focusing productivity measures that align our inventory.
Pricing levels labor expenses with demand trends.
We know this is very different from most other retailers and that is why we are so confident in our ability to drive profitable growth at scale.
To thank our dedicated and hard working team members, who execute the business and serve our customers every day. Our mission is to grow the reuse economy and makes secondhand second nature, thereby benefiting people planet and profit.
That I will turn the call over to Jay to discuss our financial results Jay.
Thanks Mark.
I begin let me remind you that our IPO closed on July <unk> and the related accounting for the transaction was recorded in our third quarter results.
Specifically, we recorded $48 3 million of nonrecurring stock compensation expense related to the IPO in the salaries wages and benefits line of the income statement.
The stock comp expense, obviously impacted our effective tax rate in the quarter as well as this was not tax deductible.
With that said, let me review, our third quarter numbers.
Net sales increased three 8% to $392 $7 million on a constant currency basis net sales increased 5%.
Our sales growth was driven by a comparable store sales increase of three 7% and new store openings.
During the quarter, we saw the strongest demand in July and August with somewhat softer sales trends in September as we transition from summer to fall goods in September we believe that the above normal temperatures in the U S and Canada impacted our soft good sales and we moderated our processing levels accordingly.
Sales of hard goods remains strong and consistent throughout the quarter.
Looking at our sales by country U S. Retail net sales increased three 6% to $200 $1 million and comparable store sales increased three 3% driven by growth in transactions.
Canada retail net sales increased four 4% to $163 5 million, which included an unfavorable impact of foreign currency.
Canada comparable store sales increased four 3% also driven by growth in transaction volume.
We opened three new stores in the third quarter and a total of 12 new stores over the past 12 months ending in the third quarter with 321 stores.
We are pleased with our new store performance, which is in line with our expectations and our underwriting model.
Cost of merchandise sold as a percentage of sales was flat to last year at 43%.
Higher labor and material costs were offset by lower freight expenses.
Costs increased primarily from higher wage rates growth in comparable store transactions and an increase in the number of stores.
Salaries wages and benefits expense increased to $116 $1 million due primarily to the $48 $3 million in IPO related stock compensation expense. Excluding this expense salaries wages and benefits was $67 $8 million and declined as a percentage of net sales by 70 basis points to 17.
<unk>, 3% increase.
Increases in wages were more than offset by benefits of the self checkout kiosks.
SG&A as a percentage of sales was flat year over year and continued to be well control.
Depreciation and amortization increased 18, 6% to $15 $9 million due to capitalized expenses related primarily to our strategic initiatives, including new stores centralized processing centers automated book processors, and self checkout kiosks as well as maintenance Capex.
Interest expense increased to $18 $7 million, primarily due to overall higher interest rates on our debt.
Net loss for the quarter was $15 6 million or a loss of 10 cents per diluted share compared to net income of $15 5 million or <unk> 11 per diluted share a year ago.
Adjusted net income for the third quarter was $26 5 million or <unk> 16 per diluted share.
Adjusted EBITDA increased six 3% to $91 million and our adjusted EBITDA margin increased 60 basis points to 23, 2% includes.
Included in adjusted EBITDA, as a foreign currency headwind of $1 $5 million due to changes in currency rates.
Turning to the balance sheet, we ended the quarter with $125 $3 million in cash for the first nine months of the year, we generated $104 $4 million.
Of cash from operating activities.
We completed our initial public offering of $18 8 million shares at a price of $18 per share on July 3rd together with cash on hand, the company used the net proceeds from its IPO to redeem $55 million of notes and to repay $252 $4 million of outstanding borrowings under the term loan facility as well as accrued interest and pre.
<unk> under the term loan and the notes.
These transactions resulted in a loss on extinguishment of debt of $10 $6 million in the quarter.
At the end of the third quarter, our total borrowings were $818 $3 million and our net leverage based on a trailing 12 month adjusted EBITDA was two two times.
Lastly, let me make a few comments about recent demand and processing trends and how we are thinking about our financial outlook for the remainder of the year as.
As Mark indicated our business is very different than most retailers, where you're constantly receiving goods through the form of donations to our charity partners in the stores and are able to manage our floor inventory levels and production expenses by adjusting processing to demand trends.
This allows us to better align our labor expenses to sales and maintain profitability.
We lowered processing in the back half of the third quarter based on some fluctuations in September for fall and winter soft goods that we believe or weather related.
While we have seen a pickup in demand from September lows, where weather has normalized the pickup has been modest and varied between markets.
With the continued inflationary pressures and uncertainties in the broader macro environment. We believe it is prudent to take a measured approach.
Closely manage our processing levels to maintain profitability in the fourth quarter.
We also note that the decreases in the Canadian dollar currency rate over the past three months adds an incremental headwind to sales and EBITDA in the fourth quarter.
As a result, we are guiding our fourth quarter comparable store sales to a range of flat to plus 1% and our fourth quarter adjusted EBITDA to approximately $80 million.
Our updated guidance assumes a lower Canadian dollar exchange rate of <unk>, 75, which negatively impacts our fourth quarter sales and adjusted EBITDA estimates by approximately $6 million and $1 million respectively.
For the full year 'twenty three sales are now projected to be approximately 1.49 billion as compared to the previous guidance of approximately $1 five 1 billion.
Which includes a negative FX impact that we experienced in the third quarter and our revised FX impact in the fourth quarter from the lower exchange rates.
Full year 'twenty three adjusted EBITDA is still expected to be $320 million unchanged from previous guidance and once again inclusive of the revised FX impacts.
Other guidance figures for the full year 'twenty three are contained in the outlook section of the earnings release.
A few additional items to keep in mind, when modeling out quarters and full year.
In the fourth quarter, we expect to incur IPO related stock comp expense of approximately $21 million, which will be included in the salaries wages and benefits line on the P&L.
This is nonrecurring stock comp that will be excluded from adjusted EBITDA and adjusted net income.
Our full year net income guidance assumes an effective tax rate of 44% our GAAP effective tax rate will continue to move around in the next few quarters. As a result of the application of IRS section 160, <unk> as a public company as it relates to our IPO stock comp and the dividend related bonuses paid in Q1, as well as foreign currency gains or losses associated with the term loan.
Hell in Canada.
Our full year adjusted net income guidance assumes a statutory tax rate of 29% and a foreign exchange rate of <unk> 75 for the Canadian dollar.
Post the IPO, we had approximately 165 million shares outstanding and we are estimating a full year diluted share count of approximately 157 million shares.
That concludes our prepared remarks, we would now like to open the call for questions.
I would now opening the floor for the question and answer session. If you'd like to ask a question. Please press star and number one on your telephone keypad. Our first question comes from Matthew Boss from Jpmorgan. Your line is now open.
Great. Thanks.
So mark maybe higher level could you just help and maybe speak to any notable trends in customer behavior.
Just elaborate on the cadence of traffic trends that you saw as the third quarter progressed, and maybe just anything in October or just drivers underlying your flat to 1% comp outlook for the fourth quarter.
Yes, So look I think the third quarter started with <unk>.
Strong transaction growth in both Canada.
And the U S baskets have been flattish enterprise wide throughout the quarter.
We do believe some of that slowdown in the U S and Canada in September.
And Thats continued into early October was weather related.
Unusually warm temperatures across both countries that drove down demand for traditional shoulder season goods. We've got internal analysis that shows highly negative correlated.
Statistical analysis, when you look at high temperature versus transaction.
A jigsaw.
One indicator that also we point to is the dynamic that our demand for hard goods has remained constant and consistent with the earlier trends, which also points to that soft goods shoulder season issue that I.
I mentioned.
We just we're remaining cautious about the buying patterns as <unk> remained depressed and from our vantage point consumers are sticking with their budget ultimately.
<unk> very bullish about the overall sector guidance for the thrift industry, We love, where we are from a value positioning perspective.
And I'd just like to reiterate we continue to run the business to maximize EBITDA generating growth, enabling free cash flow to invest in stores supply and inorganic inorganic opportunities and it's really a unique model that will power growth at scale.
Great and then.
Maybe Jay could you just elaborate on the flexibility with the model, meaning as we think about labor and processing costs and a potentially softer topline backdrop.
Are there are efficiency opportunities multiyear or just levers that can be pulled if same store sales were to be below that leverage point, which I think it's 3% to 4% same store sales.
Yes, Matt and thanks, and really I mean, the biggest lever that we talk about it is obviously.
Modulating our processing levels.
So that matches demand so our labor expense, which is in Cogs, which is the biggest component of our Cogs really ties into demand and our sales and by doing that we can capture a lot of that sales shortfall and keep our EBITDA hole.
Now look if we had a wild swing in the comp.
Not saying, we captured 100%, but we could get a lot of it and then we have things below the line below Cogs.
We're very we're very focused on managing our operating expenses because our goal like we've like we've done here is.
Producing strong EBITDA, maintaining our EBITDA, even went soft sales and thats embedded in the guidance for Q4 and Thats something we can also carry on next year.
That's great color best of luck.
Thanks, Matt.
Our next question comes from Brooke Roach from Goldman Sachs. Your line is now open.
Good afternoon, and thank you for taking our question.
Was hoping you could elaborate on the growth that you're seeing in sales yield today and the strategic initiatives that are driving that unlock and then as a follow up have you seen any signs of increased price sensitivity of your customer that would suggest that some of the pricing optimization strategies, you've unlocked in the business may need to be reinvested in driving value for that customer in this march.
Challenging macro backdrop.
So I'll answer the first question I will turn it over to you Brian on sales yield Brook. Thank you for the question we have not seen.
Any impact on price.
None whatsoever.
Yes, I think Thats right Brook, and I would say when it comes to sales yield.
We are always looking at price with regard to item ratio and again the definition of item ratio being the number of items that we put out versus the number of items that we sell within a particular category.
So when when we think about price, we think about reacting to what is selling really well with the customer and we take price very surgically at the category and the sub category level and Thats an ongoing process that we do that's not just at the category level, but also geographically regionally.
If you will so.
So I think that that that helps and sale deal I think our ability to manipulate space.
Top of the call Mark talked about unseasonably warm weather as we transitioned into fall.
Well.
One of the things that we're able to do and being nimble and seeing space to sales and manipulating space to sales is that as you transition across a shoulder season.
And you would normally be shrinking your summer set.
Expanding the cold weather items, that's going to look a little bit different each year, depending on how the actual fault weather comes in and so we can we can walk that line and meet the customer with where they're at.
All the while protecting sales yield so if short sleeve items are selling better a little bit later into the season.
I'll keep them on our floor and be more nimble. So theres a lot that goes into it and the <unk>.
But I would say on sales yield as Mark mentioned this earlier.
Very robust onsite donation performance in both countries and what we know over the years in measuring this is that.
When the donor takes the time and care to bring their goods to our donation centers in our green drops.
Generally we will create a higher sales yield in our stores versus the.
The rest of the supply if you will so I think all those things taken together are what helped drive sales yield.
Thanks, Brian and then maybe a follow up for Jay can you speak a little bit to the labor cost that you see as you look ahead of the model are there any additional initiatives that you have to optimize labor efficiency in both the short term and the medium term.
Yeah, well we are.
We're constantly looking for efficiencies I mean, obviously the self checkout was an initiative that we completed this year and that is paying dividends, we're seeing nice expense leverage in our payroll on the front side of the stores from the self checkout, we're continually monitoring efficiencies of our processing teams as well trying to find that that perfect balance between.
The level of processing and the efficiencies to drive that.
So absolutely I mean, we're constantly sharpening that so as we think about wages. Obviously, we've invested in wages in the last couple of years very significantly.
Probably 6% year over year, and we expect from a labor pool, while theres still going to be some challenges, we would expect that labor investment to moderate slightly looking forward.
Yeah Brook I'll jump in.
It is all about tying labor to processing modulating that labor those those number of hours, we utilized process the amount of goods that we put on the sales floor, our ability to do that and that vertical supply chain really drives efficiency and you see it over the last.
Quarter, we're able to do that in the second half of the quarter, we feel very bullish about our ability to do that moving forward.
Thanks, So much I'll pass it on.
Thanks Brooks.
Our next question comes from Randy <unk> from Jefferies. Your line is now open.
Yes, Thanks, a lot and good evening, everybody I guess, Mark can you give us some perspective on any differences in trends you saw from the shopper in Canada versus the U S. Just trying to get an understanding if there's any differences there and then kind of similar question on on behavior differences between.
What the how the members acted.
In the quarter and how they've changed versus nonmember shoppers in your and your data analytics. Thanks guys.
On the Canadian piece look that the Canadian consumer is stressed.
Like the U S consumer.
Well I think the strength of our model.
Over a period of stress, we have been able to achieve very strong comps. So our value proposition remains as powerful today with the Canadian consumer as it ever has been we're obviously keeping a sharp eye on the market once again, employing a data driven approach to match production to demand to deliver that strong productivity.
Activity Randy.
I don't think we see any massive difference in their shopping behavior again.
Actions drove growth baskets are relatively similar so very very very symbiotic.
<unk> reaction in both countries on the member non member I point to.
The real strong growth we had.
Signing up members this past quarter broke that $5 million.
Loyalty member database, Mark very exciting for us.
A couple of other data points that I pointed out on the.
The loyalty program.
Very pleased again with our store execution on the ability to.
To capture new member sign ups that engine that ultimately fuels that growth and the stickiness with those those thrusters.
And.
The the non met the member sign ups continue to be moving towards the youngest cohort. So another couple of hundred basis point move.
The youngest cohort signing up in.
In terms of.
The number of number of folks who sign up kind.
Kind of which is that a bit and we're also seeing in the higher household incomes that trade down. So we're seeing active trade down with our higher household income cohorts increasing their share of the overall pie.
Great. Thanks, and then Jay I don't know if you mentioned this I missed it but how do you think how should we be thinking about I guess high level about FX impacts across top and EBITDA dollar lines as we think about.
Beyond next quarter into next year just high level.
Yes, so we're going to forecast the future.
Forward curve future rates at the time, we're currently at 75% for the Canadian dollar. So we don't have the perfect Crystal ball, but when we get around to our 24 guidance. We will use the then existing.
Future curves to estimate that.
I guess I guess than any changes in how youre thinking about hedging or anything like that then are now.
No I mean, we have got a couple of hedges in place.
Ross currency swap on our debt as well as some Canadian future contracts to hedge about 60% of our cash flow from Canada and those have been effective.
Even in this environment I mean, we're constantly looking at it but we wouldn't expect major changes.
Fair enough great. Thanks, guys.
Our next question comes from Michael Lasser from UBS. Your line is now open.
Good evening. Thank you so much for taking my question it sounds like while the weather was a drag on the business in September.
<unk> and what <unk> seen so far this quarter, it's a combination of some weather drag along with the consumer trepidation.
Is that right.
Have you is.
Is it best for us to expect that that's going to continue for the next couple of quarters or do you expect if this consumer pressure.
Is that Youll start to see a trade down that will support your same store sales growth that you just haven't seen as of yet.
I would not I would.
I would not say that that's an accurate portrayal of what's happened in the last couple of weeks as the weather has.
Moderated and we've gotten to more seasonal.
Weather patterns, we have seen an improvement in our comp trends.
So we feel actually very bullish about that we feel good about that.
Moving forward.
Again as I mentioned we.
Have continued to see active trade down in our higher household income cohorts, increasing the share of their overall pie during that same window.
Yeah and Michael This is Jay just to add a couple of other points right. So like Mark said, we've seen that acceleration. So we feel good about that we're trending for Q4 right.
Alright into the guidance that we've given from a comp standpoint, a zero to one.
And we're not we're not giving 'twenty for guidance at this time, but there's we've experienced no structural changes to the business and we're confident we can achieve the long term growth targets over time, I mean sure there could be some variability quarter to quarter, but the beauty of the model like we've talked about is our ability to modulate the processing.
So we can maintain profitability and drive that EBITDA growth.
Okay.
Two other quick follow ups number one is there any relationship between the quality of the product that gets delivered.
The economic cycle, meaning if the economy gets tougher the quality of the product that gets donated may not be.
Consistent with what <unk> seen in the last few years and so sales yield could moderate and also it looks like the new store productivity remains under pressure just as we're able to calculate it externally can you give us a sense of why that is the case. Thank you very much.
Hey, Michael This is Djabran I think Jay and I will tag team. This one so on the on the donation side your question around.
It does it does the quality or even the volume of donations change in a challenged economy.
What I can tell you is we're not seeing that in our business.
In fact onsite donation.
Volume has been robust in both Canada and the U S.
And a lot of that goes to execution, we've talked about this in the past where.
When it comes to being the donation that.
Destination of choice for the Downer conveniences King like we talked about and then they need to have that reliable fast friendly experience that our team members are trained to give each and every time so.
Doing that consistently doing that well and ensures that you stay that destination of choice and again, we're seeing.
Pretty robust onsite donation performance, which we know as mentioned earlier helps drive sales for us.
Yes, Michael This is Jay just on the new store productivity calculation and understand right with the with the information you have it's hard to get to it but our new stores are performing right in line with our expectations are doing very well and that translates to new store productivity.
About 70% and it is challenging to get to from the numbers because there is some noise in there with with our wholesale revenue with the <unk>. We're lapping some closed stores still as well in the quarter and then finally second Avenue right and how we are strategically shifting that model.
From from.
More to the savers model a focus on sales yield so backing some of that noise out the true new stores are right in line with our expectations.
Thank you very much and good luck.
Our next question comes from Mark Petrie from CIBC. Your line is now open.
That's great. Thank you.
I just wanted to follow up on that last question with regards to.
The product quality.
In donations and is there any change in how new locations are ramping up in terms of.
In terms of volumes and I guess, that's new stores, but also the green drops as you're rolling them out.
Yeah, Hi, Mark <unk>, Brian.
No not really not really when we do a pro forma we opened new green dropped locations and new stores.
We kind of have a historical pattern and an expectation of what that ramp is going to look like for.
Donation volume.
And on the whole, it's we're seeing exactly what we expected.
Some locations.
Better than what we anticipated some a little lighter, but on the whole pretty accurate in terms of our expectation so.
So no not seeing any change on that in terms of new locations.
And Mark just a reminder, right. It does take time for our stores to mature I mean, it's a long tail three to five years, depending on the market in the country. So yeah. The early reads are fine in line with our metrics but.
It's a long maturity timeline.
Yeah understood. Okay, and then just given the landscape of a cautious consumer I'm. Just curious if you have any plans to broaden your marketing programs.
To appeal to and reach more customers and specifically here in Canada.
Two to reach new Canadians given the significant acceleration Canada's seeing firming.
From an immigration perspective.
I'd say this on the Canadian market, having just been there for.
For a week.
Just two weeks ago I was up in Alberta.
And we feel really good about our approach and I will tell you the best indicator of how we're reaching out to new Canadians as our new stores in Canada.
We're very pleased with new store openings the number of people we're signing up.
Remains robust in Canada and.
I would say, we're really confident in continuing to drive.
That that feel that we are a part of the mainstream retail economy, and we're really in the fat really woven into the fabric no pun intended.
The Canadian retail landscape Mark.
Okay I appreciate the comments and then any update with regards to the M&A landscape I know, that's obviously an ongoing.
Story and part of the strategy just curious if if the current landscape is shifting at all thank you.
The landscape has not shifted we remain.
Sure.
Focused on the on the dynamics that we talked about in the last call around geographic infill the opportunity to grow within a market strong supply that strong local brand presence.
Solid and stable attractive workforce in terms of what we are inherent and the opportunity to leverage our operational excellence to capture additional synergies so beyond that nothing I can say at this time.
Okay I appreciate all the comments and all the best in the holiday.
Our next question comes from Peter Keith from Piper Sandler Your line is now open.
Hey, Thanks, good afternoon, everyone.
I wanted to ask about store growth.
So there seems to be some awareness that in the marketplace with investors that favors was challenged with new store openings before 2019.
Under prior management.
And as a result, maybe.
The current team you guys, who will have also have trouble opening up new stores.
I guess, if someone is suggesting that where might the thinking be incorrect in that assumption.
Yeah, Hey, Peter this is Brian and I'll I'll.
Grab that one of the guys can jump in.
Youre absolutely right. It was a different paradigm under a different administration one thing that we do know and doing the forensics on that is.
Today, when we think about new store sites, we want to check the box on a few things so.
We have a pro forma and a very good predictive model on.
But traffic the surrounding trade area, so on and so forth, but also on supply.
And when we talk about the white space that we have.
And the momentum that the team has built in terms of that robust pipeline, but we want to open a new store unless we've got the supply equation.
It out and that means onsite donation performance for the location as well as what the supplementary delivered supply.
Going to look like and I and I can just tell you that in some of those previous vintages. They had not figure that out and it was not a data driven approach the way that we're doing today.
I think I'll add this.
The approaches couldnt be more different.
And I think we've built the muscle and we're executing.
Two a high high degree so I'm really confident about djabran and David cyber it and their team and opening these new stores and continued success over the next year.
<unk>.
Okay got it and the only other I.
I'm, sorry, Peter I dialed, the only other thing I would share is that.
Okay.
Pretty selective in where we opened new sites that meet all that criteria and we're able to do that because.
Because of that white space, because we are we are prospecting in every major market in North America, and Australia, So theres, a big robust pipeline that sitting behind the scenes that allows us.
Be very judicious in the new stores that we choose.
Yes sounds good track for our store target both this year and next year.
Okay.
I wanted to just pivot back to the the sales trend in <unk>.
I know you've talked about weather and certainly we're all aware of kind of a warm start to the fall, but the weather has not been equal across the country. It.
It has been colder.
Western U S warmer middle Eastern So did you see any geographic differences in the sales trend maybe in the last two months as a result of that yes.
Yes.
Sure.
Very good question and we absolutely have seen differences in the sales trend again were running statistical analysis, all the time looking at volume and highs with respect to T Y O y.
Temperature highs and we do see piled high correlation high negative correlation when that temperature spikes up we're in the shoulder season, we're trying to push.
Cold weather goods, we see trends the volume of transactions go down but in areas, where we haven't had that extreme.
<unk>, we've seen much better performance much more consistent performance as we have through the third and the second quarters and Thats why we do talk about weather because we feel like once the weather pattern settles, we will get back to our cadence.
Strong comp growth.
Okay. Thank you very much.
Hello, Peter.
And one more thing I'll. Thank Peter is sorry, one more thing I'll add Peter is that we have seen hard goods.
The consistency of our hard demand remains constant so theres no weather influence on miscellaneous and furniture and books.
Alright, thats been very consistent throughout the throughout the quarter.
Thank you if you'd like to ask any questions. Please press star and number one on your telephone keypad our next.
Question comes from Bob <unk> from Guggenheim. Your line is now open.
Hi, good afternoon.
Two questions from me. The first one is just on the sales piece of it are you seeing any new competitive pressures in any of the markets that youre competing in and then the second one is can you just give us an update just sort of on the number of green drops and you sort of make sure. Our plans are current on sort of the pipe.
Your line of Green drops as well thanks.
I'll answer the first question Bob Thanks for the question no not not any any negative influence from the competitive set.
We are well positioned feel very good about our presentation from a merchandising perspective as we've discussed.
We know from consumer research that our merchandising is superior to our competitive set so we feel great about where we sit today and our value proposition and how we're standing.
We look to the consumer once they walk in the door.
Yes, Bob and then on the Green drop side.
So we are at a roughly 60 locations right now for this year, we will have line of sight to approximately 30 locations that we will have opened.
All doing well in terms of their early performance with what we model. So very happy about that one thing I will say about green drop is that.
It's such an attractive.
Different methods and all of you are familiar with this right they're visible clean well maintained locations as opposed to the standalone than in all of the problems that those can create.
But the fact that they are different does make it challenging in some municipalities to get the permitting right.
Fill the <unk>.
<unk> form for the city can.
Can be challenging so there are occasions, where we have to work through the permitting process and different municipalities, but again.
I would go back to.
There is such tremendous white space and we are looking to grow green drop for years and years into the future.
That we are prospecting in lots of markets in that robust pipeline.
Is what ensures that we're going to realize that into the future. You know one thing to bear in mind is that.
We're very bullish on green drop.
To be able to collect high quality supply and high traffic affluent areas with green dropped today actually represents a relatively small percentage of our supply. So so five or 10 green dropped locations here there in any year.
Not what we would consider material.
So overall still very excited about the opportunity the ones. We have opened are doing very well and encouraged for the years to come.
Thank you.
Question comes from Mark <unk> from Baird. Your line is now open.
Thank you good afternoon, I guess, just first I wanted to follow up regarding the Q4 comp guidance could you just clarify does the guidance incorporate reacceleration in the back half of the quarter as you get past kind of the shoulder season and weather is less of a factor or is it more representative.
What you've experienced quarter to date.
We did see softness in October we did step up from September It got better in October, but we were still below our expectations and that was largely.
Driven by weather because as Mark has said the hard the hard goods have continued.
To be strong and consistent throughout these time periods.
Last couple a couple of weeks given that the weather has become more seasonal than many of our markets we've seen an acceleration.
So I would tell you that the comp guidance for the quarter is tied in Canada. The most current trends that we're seeing.
Thank you for that and then.
Also wanted to ask about some of the efficiency initiatives.
Self checkout I know thats been a nice benefit this year, how much opportunity remains on that front into 2024, and then relatedly brought up the central processing centers, just curious any update on what the runway looks like for that initiative. Thank you.
Yes, Mark the self checkout is largely in the rearview mirror at this point that was X that was well executed.
Across all three countries and Thats pretty much behind US now so that was a homerun.
CPC is yes, I mean this is a multiyear strategic investment we continue to make very solid progress as a reminder, we have we.
We have four in operation today.
The Calgary CPC opened at the end of July we have one more CPC for.
For this year in our Minnesota market and then in 2024, we plan to open a facility in southern California, and possibly one additional facility. If we find the right location that makes economic sense, but.
Very pleased with the month on month improvement continuous improvement of.
The yield that's coming out of those facilities the production efficiency and most of all.
New store opportunities as we just talked about is what we remain focused on new sites that are very attractive to us that are only made possible by the presence of the CPC.
No.
Pretty happy with the progress of the team and the continuous improvement going forward.
I'll add the automated book crossing.
Units continue to.
Deliver significant IRR returns, we're very pleased with those and we will continue our rollout of those in both <unk>.
Non.
Non CPC and CPC operating markets, yes, the headline on stores guys is currently.
63 stores serviced by the B piece.
By the end of this year that number will be up to 85% to 90 stores.
Thanks for all the detail.
I would like to thank you everyone.
Go ahead operator.
My apology. This concludes our question and answer session I would now like to hand back to the management for their final remarks.
I'd like to thank everyone for their time and interest in Sabre as we look forward to speaking to you again, when we report our fourth quarter results have a great holiday.
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