Q4 2023 Savers Value Village Inc Earnings Call
Good afternoon, and welcome to Sievers valuable niches conference call.
Financial results for the fourth quarter ending December 32023.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
And instructions will follow at that time.
Please note that this call is being recorded and a replay of this call and related materials will be available on the company's investor Relations website.
The comments made during this call and the Q&A that follows.
Operated by the company.
You may not 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 could 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 S. E C for a discussion of 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 every constellation of each of these non-GAAP measures to the most directly comparable GAAP financial measure.
Today's earnings release and F E SEC filings.
Joining from management on today's call are Mark Walsh, Chief Executive Officer, Jason <unk>, Chief Financial Officer, and Yuba Tonya's precedent.
CLO Mr. Walsh you May go ahead Sir.
Thank you for joining us today and for your interest in serious value village. We finished 2023 on a strong note and are pleased with the underlying performance.
And resiliency of our business in the fourth quarter constant currency net sales increased four 5% comp.
Comparable store sales increased two 6%.
And we grew adjusted EBITDA to $83 million.
We believe our results once again demonstrate the power of our vertically integrated model.
Which allows us to align our processing levels with demand levels to generate strong profitability and cash flow.
As we have previously discussed unseasonably warm temperatures created some softness in the demand for apparel in the first half of the fourth quarter.
This reversed as the quarter progressed with trends getting progressively better.
The fourth quarter capped off a very important year for savers, and one in which we generated strong financial results, while continuing to invest in people processes and technology to drive productivity and position us for accelerated growth.
We are proud of our achievements in 2023, which included <unk>.
$1 5 billion in revenue and over $322 million and adjusted EBITDA.
$175 million of cash from operations.
Opening of 12, new stores the growth of our customer loyalty program to over 5 million members.
Completion of our self checkout and in store signage rollout.
The opening of three centralized processing centers, including the first two in the United States and of course, the completion of our initial public offering.
All while diverting hundreds of millions of pounds of reusable goods away from North American landfills.
Fueled by strong secular trends the reuse economy and thrifty community are growing.
And this is driving strong donation volumes and increasingly diverse customer base for savers.
We recently completed our latest thrift industry survey.
And the results continue to demonstrate the growing popularity of thrift.
In the past year, nearly 90% of consumers having engaged in the <unk> cycle as a shopper donor or both.
One in four consumers report they have will increase their spend at thrift stores, citing a variety of reasons, including value fund and a unique sense of style.
<unk> hundred 10, Gen Z consumers say that more than a quarter of their wardrobe secondhand.
Ultimately consumers are more focused on value quality and their unique style than they were a few years ago.
With a 70 year operating history in a business that is 10 times larger than our next largest for profit thrift competitor, we are using our size and scale to further differentiate ourselves in a fragmented industry that has historically lacked innovation.
Directors want to well merchandize mix of value and selection in our brick and mortar setting to that end.
Our stores are conveniently located right well organized and easy to shop.
We turn our inventory over 15 times, a year with an average store putting out 35000, new items on the floor every week.
And we continue to drive supply through conveniently located in efficient donation locations.
With the investments we have made over the last few years, the demonstrated margin stability of our business and our strong unit economics, we are well positioned to accelerate our growth.
Whether organically or through acquisition, our number one growth initiative is to expand our store base.
We will stay disciplined and grow our store footprint at the right pace and locations, where we have done the analysis from both the donor and the shopper standpoint in.
In 2023, we began our multiyear plan to accelerate unit growth and we opened 12 new stores. This year, we plan to open up 22, new stores and a 2025 and beyond we will plan to expand our unit growth even further to reach the high single digit percentage range. The.
The new store classes of 2022, and 2023 are performing well in line with our expectations and we are building a robust pipeline of future stores.
With exceptional cash flow generation. We also continue to strengthen our balance sheet as Jay will detail in a moment.
In conclusion savers delivered strong fourth quarter and full year results and we feel good about the underlying fundamentals of our business.
The macro environment remains a bit uncertain and consumers continue to manage our discretionary spending our average unit retail of around $5 offers an exceptional value proposition that positions us well.
I want 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. It makes secondhand second nature, thereby benefiting people planet and profit with that I will turn the call over to Jay to discuss our financial results.
Hey.
Thanks, Mark we're very pleased with the underlying trends in our results in the fourth quarter and full year.
As Mark mentioned and we previously reported we saw some early impact from weather, but demand trends accelerated as the quarter progressed in the month of December was very strong.
We manage their processing levels, accordingly, and delivered better than expected sales and adjusted EBITDA.
Let me take you through our fourth quarter results.
Net sales increased four 4% to $382 8 million on a constant currency basis net sales increased four 5%.
Our sales growth was driven by a comparable store sales increase of two 6% and new store openings increased.
<unk> actions drove the comp increase in the average basket was down very slightly on a consolidated basis.
In the United States net sales increased three 9% to $199 $5 million.
Comparable store sales increased three 1% the increase was driven by growth in transactions and to a lesser extent basket.
In Canada net sales increased four 6% to $155 $4 million. This included a $600000 unfavorable impact from foreign currency.
Comparable store sales increased two 8%.
The increase was driven by growth in transactions, partially offset by a modest decline in average basket.
We opened five new stores in the fourth quarter with three of these in the United States and two in Canada.
For the full year, we opened 12, new stores in line with our plan at.
At year end, we had 326 stores with 155 of these in the U S 150, 90, Canada and 12 in Australia.
Our new stores are ramping well and performing in line with our expectations and our underwriting model.
Cost of merchandise sold as a percentage of net sales decreased 70 basis points to 42%.
70 basis points decrease was driven primarily by lower material and other processing costs, which was partially offset by higher labor costs.
We processed 250 million pounds of goods in the quarter and generated a sales yield of $1 54.
This compares with 234 million pounds processed in our sales yield of $1 51 in the fourth quarter last year.
Onsite in Green dropdown Ations represented 71, 6% of pounds processed in the quarter versus 71, 5% in the year ago quarter.
Salaries wages and benefits expense increased 21, 9% to $90 $1 million due entirely from stock based compensation.
Stock based compensation was $21 6 million in the quarter of this amount $28 million related to the IPO.
Excluding the IPO related stock based compensation salaries wages and benefits was $69 $3 million and.
As a percentage of net sales by 210 basis points to 18, 1%.
The decline was driven by decreased incentive compensation and productivity improvements from the self checkout kiosks that we installed primarily in 'twenty, two and 'twenty three partially offset by an increase in our average wage rates.
Our SG&A remains very well controlled SG&A as a percentage of sales increased 30 basis points to 26% driven primarily from increased credit card fees and costs.
Depreciation and amortization increased two 6% to $16 1 million and interest expense decreased six 9% to $17 6 million.
GAAP net income for the quarter was $43 9 million and included a $31 3 million noncash tax benefit related to the legal entity consolidation of second Avenue.
Adjusted net income for the fourth quarter was $25 4 million or <unk> 15 per diluted share compared to $26 9 million.
Or <unk> 18 per diluted share respectively in last year's fourth quarter.
Adjusted EBITDA increased 5% to $83 1 million and our adjusted EBITDA margin increased 10 basis points to 21, 7%.
Turning to the balance sheet, we ended the fourth quarter with $180 million of cash and cash equivalents for the full year, we generated $175 million of cash from operating activities.
At the end of the fourth quarter, our total borrowings outstanding were $817 million and our net leverage based on a trailing 12 month adjusted EBITDA was two <unk> times.
Subsequent to the end of the fourth quarter, we've taken additional steps to further strengthen our balance sheet.
First in late January we amended our senior secured credit agreement.
The amended agreement plus a corresponding upgrade of our debt rating by Moody's lowers our borrowing rate spread by 175 basis points second.
Second in early March we paid down $49 $5 million of principal on our senior secured notes.
In addition, we are looking to monetize our interest rate swaps and cross currency hedges in the coming weeks, which will generate approximately $35 million of cash proceeds further enhancing our liquidity position.
Lastly, let me conclude with some commentary around our initial outlook for 2024, we.
We feel very good about the underlying fundamentals of the business as Mark mentioned there is some uncertainty in the overall environment and consumers continuing to manage their discretionary spending. So we think some level of cautiousness in our initial guidance is prudent.
Our January sales were negatively impacted by severe winter weather and some of our key markets, but we've seen an acceleration in comp trends through February and early March and are encouraged by the trajectory of our business.
Our initial fiscal year 'twenty four outlook is for comparable store sales to increase in the range of 2% to 3%.
In line with previous communications, where you're planning to open 22, new stores and 24.
Our comp outlook combined with the number and timing of new store openings gets to a full year revenue outlook of $1 57 to $1 $5 9 billion.
The continued investment in wages and the higher number of new store openings is expected to put modest pressure on gross margin. This year, but most of this is expected to be offset with better leverage over fixed expenses. As a result, we think both gross margin and total operating expenses as a percent of sales should be flat to slightly down.
<unk> and adjusted EBITDA margin also being flat to slightly down this year.
The last component to highlight around the shaping of our initial 24 outlook as our vertically integrated model and ability to align processing and labor levels with short term fluctuations in demand.
As we have discussed this is something that separates us from most other retailers and gives us confidence in achieving our bottomline targets. Despite the potential for modest variability in our top line.
As a result were initially guiding to a full year adjusted EBITDA number of $340 million rather than a range.
A few additional comments to help with the building of models.
The timing of our new store openings will be back end weighted with approximately three in the first half of <unk> 19 in the back half of the year.
The first quarter represents our most challenging year over year same store sales comparison with a seven 2% comp last year that was driven by a 9% comp in Canada, and a five 6% comp in the U S.
The early portion of this year's first quarter was impacted by the holiday calendar shift and store closures and disruptions from the extreme weather in January.
We estimate the weather disruptions in January and holiday calendar shifts will be in approximately 150 basis point headwind to first quarter comparable store sales growth.
Similar to what we saw in the fourth quarter, we've seen increasingly positive trends as the quarter has progressed and March is typically our largest volume month of the quarter.
Given the strong comparable store sales growth in last year's first quarter negative impacts from January weather and the holiday calendar shifts. This year, we would expect first quarter comparable store sales of approximately zero to 1%.
Net sales of approximately $350 million to $355 million and adjusted EBITDA of approximately $60 million to $61 million.
As a reminder, our year over year quarterly same store sales comparisons get progressively easier as the year progresses.
The amendment of our credit agreement in late January and the pay down of $49 $5 million of debt in early March is expected to reduce our annual interest expense by approximately $10 million.
This annual savings will be partially offset by increased interest expense associated with the expected monetization of our IR swaps.
As a result, we are projecting interest expense of approximately $78 million for the year.
Lastly, our GAAP net income guidance assumes an effective tax rate of 31%.
That concludes our prepared remarks, we would now like to open the call for questions.
Thank you.
And gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on you touched on filings you will hear Etsy com acknowledging your request questions will be taken in the order received should you wish to cancel your request. Please press the star followed by the tools.
If you are using a speaker phone please lift the handset before pressing any case one moment. Please for your first question.
Your first question is from Matthew boss from Jpmorgan. Please ask your question.
Great. Thanks.
So maybe two part question for Mark.
Maybe could you just elaborate on the cadence of sales trends that <unk> seen post holiday looking at January February and then March to date or is there just any way to parse out underlying trends that youre seeing in the U S and Canada and then just if you could walk through second half drivers that support same store sales improve.
Beyond the first quarter.
Hey, Matt.
Thanks for the question yes.
As we look at the first quarter. It certainly was eventful as chase.
Recorded comments articulated we were up against a pretty <unk>.
Difficult seven two enterprise comp and a nine comp in Canada in January our comps came under significant pressure.
From weather related closures of disruptions.
It was 140 increase in store impairment days, so 12 over 1200.
Store impairment days versus just 511 last year.
Your comps do get easier in March.
We like.
The trends.
That we've seen since the.
The significant impact of January and I think we're being slightly conservative in terms of our guidance of flat to one.
For the quarter as we see that two year stack in line with the fourth quarter for both U S and Canada.
Given the early quarter challenges, we also feel really good about.
The comp guidance, while leveraging our vertically integrated model to guide to that 60 to 61 EBITDA target for the first quarter.
With respect to your second question on what's going to drive second half trends I think we just see a normalization of the patterns that we saw in the late fourth quarter and what we're seeing into early March.
We've got the same cadence in terms of marketing as well as.
Strengthening our fundamentals of <unk>.
Supply and demand and ultimately look the comps do get easier as we go through the year.
Great and then maybe Jay for a follow up on the bottom line as we break down the adjusted EBITDA margin guide for the year, how best to think about puts and takes on the gross margin line.
And just your comfort with inventory coming out of the year.
Just your comfort with inventory on hand.
Yes, sure Matt from an inventory standpoint, I'll take that one first I mean that is good news because it is an indication of our great supply.
Certainly the inventory year over year has increased but again, we've seen nice trends.
In our onsite donations, which is a big driver of that and then in terms of margin for 'twenty for thinking about that right. Obviously, we have a little bit of pressure that could impact our gross margin.
Year over year, as we ramp the new stores.
Break it down.
We expect the gross margin to be flat to slightly down year over year, we will have slight increases in our used material costs, but we can mitigate some of that with increasing OSB penetration and on the production labor side again, we're investing in the staff.
So we will have increases there, but we're able to offset that with some processing efficiencies.
That we would expect from from our.
The labor so.
We mitigate some of that and that ultimately then leads to flat gross margins were slightly down.
That's great color best of luck.
Thank you thanks, Matt.
Thank you. Our next question is from Randy <unk> from Jefferies. Please ask your question.
Hey, guys. Good afternoon, maybe I just want to start on the real estate opening timing just to give us some color on whats.
What's driving the.
The more of the back half weighting and then can you give us any perspective on how youre thinking about leases for 25, and you're starting to kind of look for real estate. There I'm just trying to get a sense of the pipeline.
Yeah, Hey, Randy as to Brian.
Yeah, absolutely so.
2024, as Mark and Jay talked about we've committed to 'twenty two we feel very very good about that youre absolutely right. It is.
Back end loaded and a lot of that is because it's a function of building up the new store opening muscle.
That we have been working hard at really over the last year and at every every aspect that goes into opening new stores. We have built up in terms of people process technology. The number of dealmakers that we have.
The technology platforms that we have the marketing ourselves to brokers and landlords and developers that I think I've stated on previous calls.
A very positive response that we're getting from national landlord. So whats youre seeing in 2024 is the outcome of building up that muscle once we get into the back half of Q2 now we're in a steady state position, where we start to see stores that are opening at a more balanced way.
Across all four quarters as we get into 2025 and so to your question about.
How are the early stages of 2025 shaping up.
Very positive in fact I would tell you. We are we are already sitting on a handful of signed leases with more to come for Q1 of 2025.
Q2 of 2025, and there'll be many more to come after that so.
Phil Great obviously about the 22 this year, we feel great about the 25 next year. In fact, we tell you. We're ahead of the curve on that but I go back to what Mark said.
We're not limiting ourselves if we can go faster, we will but we put a premium on execution and replicate ability.
And when we look at the performance of the new stores that we have had over the last one to two years all of them performing in line with expectations across different markets and that just gives us tremendous confidence that our formula is working.
Great helpful. And then I guess, one last question more for probably Jay when you think about the complexion of comp guidance annual comp guidance for this year is it just basically assuming all from just traffic versus.
A mixture of some mostly traffic and some ticket.
Just wanted to understand your thoughts there and then.
As we think about the kind of model is a model you would want to model over a multiyear timeframe.
Do you think that this type of comp guidance is the.
The comp guidance that would be more appropriate for kind of a.
An investor thinking out three years.
When the business or is three to four more likely in your opinion in this year's more subdued because of comparisons just wanted to get some perspective, there as well thanks.
Yeah sure Andy Thanks for the question in terms of the composition of the comp on the annual basis, it's a little bit of a tail between the two countries and it reflects what we've seen trends.
So in the U S. I would say that comp would be two thirds transactions and then probably one third a bit of a lift on average basket and in Canada.
Would be primarily driven by transactions with with essentially flat average basket. We do expect that we'll have some modest price increases over the next year and Canada. What we see is that that is that it's pretty much offset with the decrease in UPC.
In the U S. Though we are seeing some some upside in that in that the average basket is climbing. So that's that's kind of how we model that.
For 24, and then in terms of your question on this year's guide and long term I mean, we've talked about being appropriately conservative with our comp guidance, we think thats the right position to take especially now in this current environment right, where there is some economic uncertainty.
So if we think about the top end of that range at three really a couple of things I mean again, we think that's appropriately conservative we think.
Also that sets up the expense structure underlying that comp guide so that if the demand does pick up we're in a great position to capitalize that and get some leverage on our expenses.
And I think about longer term guidance.
I think I think maintaining this level is appropriate.
Two to three range would make sense going forward and.
Talking about our long term algorithm right. If we think about long term.
Yes.
Really that long term algorithm is combined of.
Our expectation of comp and then our unit growth and as Joe Brown has talked about we are starting to ramp our new store growth appropriately. We've got 22. This year, we're planning to do.
Say, 25% next year, and then 25, plus and the years beyond that.
So we feel very good with that and with a two to three comp and that type of unit growth, we definitely build right into our long term algo. So.
So we feel very comfortable with that.
Very helpful. Thank you.
Thank you. Your next question is from Chris.
Perelman Goldman Sachs. Please ask your question.
Thank you good afternoon.
My question for Mark I was hoping you could discuss the traffic driving initiatives that you have in 2024, including marketing and other customer facing initiatives such as loyalty. What are you seeing in terms of new customer acquisition today, and what are you expecting for the year.
Hey, Brooks Thanks for the question from a loyalty perspective.
I couldnt be more proud of the team and how we're executing new member sign ups.
2023 was.
A really great year in terms of our growth of our loyalty platform growing over 10% in North America, which really really strikes to the heart of the.
The team members in the stores.
<unk> non members into members.
As more of the same there I mean, we are staying focused on that initiative.
You brought on Michael to Dino Nicole Macpherson, when they're talking to their store leadership that is not as a big priority for us as we think about facing off to the consumers that are coming into our environment. So more of the same in 2024 when it comes to the loyalty.
Remember.
And the growth of that particular metric.
In terms of.
Connecting with.
Our member base.
The Influencer influencer of programs that we put in place are working we've got great interaction with our customer base and.
I am sure you recall, we've done a lot of surveying to understand what motivates the thrift or to come into the environment and what keeps them coming into savers and it's about authenticity were very authentic in terms of how we talk to our our <unk> and I think that connection.
Connection keeps our attrition rates at very very low levels. So when we look at our top cohorts, we have best in class attrition rates being in the low single digits. So we're very pleased with.
The member sign ups and our continued interaction with our loyalty members and we believe that that is the status quo for 2020 for continuing to move on the positive momentum we've already created in 2023.
Thanks, Mark and maybe one for Jay in response to Randy's question, you mentioned that if demand does pick up you could get some leverage on your expenses this year can.
Can you elaborate on what the expense leverage point is for this year and what an additional point of comp might mean for the bottom line does that leverage point change as you move through 2024 and into 2025 as you get the first two tranches of new stores through the system and you no longer see the same level of gross margin pressure from some of those new store openings.
Yes Brooks.
Do we think about our leverage point is.
<unk> exceed inflation levels.
It's where we start to gain some leverage I mean, obviously setting up our guidance and our expense structure. The way we have if we see increases in demand. We will we will get some flow through on that.
So again I don't think as we grow we're going to continue to ramp stores. So as we've talked about overall from an EBITDA margin standpoint, I mean, we're going to.
We're modeling.
Basically consistent EBITDA margin this year to last year, maybe maybe slightly down say 10 or 20 basis points.
And going forward, we would expect that work to maintain that EBITDA margin, we will as we gain scale.
And as we get the pipeline as we get past this ramp in new stores start to come in.
To the store base rate, we get 25 and consistently year after year, we will gain leverage we think on the operating expenses.
In time once we get past this first initial ramp we would expect.
Some leverage on on EBITDA margin. So that we will grow I'd say 10 to 20 basis points in the future years.
Thanks, So much I'll pass it on.
Thank you.
Next question is from Michael Lasser from UBS. Please ask your question.
Good morning, or good afternoon. Thank you so much for taking my question. So between this first quarter and in the.
Last quarter, the business is becoming a bit more volatile would you attribute that to any change in the competitive landscape.
Just any.
The key.
Throughout the.
The trend toward drifting that coming off of the pandemic.
Yes, Michael this is mark I would not describe the business is volatile with respect to the the factors that you represented.
I mean, we're talking about a weather.
Weather impact.
1200 store days that that's <unk>.
Store closures are are just part of the part of the business running our retail business. When we think about fatigue with respect to.
Thrift interesting are.
A recent survey data.
Actually demonstrates the opposite.
90% of consumers are engaged in thrift as either a shopper a donor or both.
Wanted for consumers are going to increase their spending and thrift and at 606 and 10 Gen Z customers have.
Secondhand goods in their closet.
We see the trend continuing to accelerate and on the donation side I will tell you that our onsite donation volume continues to increase in both the U S and Canada, which again goes back to that circular economy.
Economy, and the power of this momentum around doing the right thing with us textiles. So.
Quite the opposite in terms of I think the the perspective about the secular trend, we actually see it continuing to be very strong and we will point to especially in January will point to a very volatile weather situations conspired to just.
So we're supposed to close stores or limit hours in stores.
In a manner that was significant relative to last year in January.
Got you. That's helpful. My follow up question is what have you assumed for the seal yield.
Embedded within the guidance for this year, especially with inventory up so significantly year over year and are there any indications that.
You are running up.
Against more pricing constraints.
At least in the minds of the consumer.
Sure.
Yeah, Hey, Michael this is djabran, so with regard to sales yield no. We've enjoyed some pretty robust increases in sales yield over the last several years, we've assumed something a bit more modest for remainder of year.
On the order of a 3% to 4% increase in sales yield which.
In our mind is very achievable for all of the factors that we've talked about in the past and a reminder for the group sales.
Sales yield as sales divided by pounds processed so when we look at matching supply on our sales floor with demand you start with that denominator you start with processing the right amount of goods and as Mark mentioned, we're in a very robust supply situations. So we're in a great spot.
When it comes to that the sales portion of it.
It's all those things that we talk about quality quality of goods, particularly associated with robust onsite donation growth.
Space to sales so certainly germane as we think about what the spring transition is going to look like over the next couple of months.
As all of you know, we don't do a spring flip in our stores, we match, what the thrift or is buying in terms of long sleeve short sleeve.
As it's happening with space to sales dashboards that our operators manage the business too.
Comparative pricing back stock I mean, all of the things that go into sales, you'll tell us that our assumption of a 3% to 4% for remainder of year is very achievable.
Thank you very much and good luck.
Okay. Thank you Michael.
Thank you. Your next question is from Peter Keith from Piper Sandler. Please ask your question.
Hey, Thanks, good afternoon, everyone.
You guys had touched on the central processing centers, you've got three opened now maybe you could talk about how those are trending is it looking increasingly like something that can be scaled up to more and more units and if you could touch also on <unk>.
The book processing centers are performing.
Yes, Peter Djabran I'll I'll answer a portion of it and the guys can jump in if there's anything. Additionally, so yes. We are currently operating three CPC is in Canada.
Two in the U S with a third U S location to open in southern California, either the end of this year or early next year.
And a reminder, these are long term strategic assets for us that help us unlock growth and overall market performance and I would tell you that.
It's all about continuous improvement and we are thrilled months five months with the improvements in efficiency and capacity and throughput that we are seeing in these.
So.
Very enthusiastic about CPC.
And in fact, we'll take out a step further there is a bit of a innovation cascade that has happened here, where many of the learnings from CPC, we are able to harness and a.
Bit more nimble.
Less capital intensive almost CPC light version.
That allows us to do exactly what we talked about before.
Open up new store locations that traditionally would not have been possible except for the presence of off site production. So we have a few of these that are operating currently in Canada. We are prospecting to open more we've got a.
Pro forma algorithm that is very attractive and again I would think about it in terms of our CPC light, where it's a bit more nimble less capital intensive.
Bill allows us to unlock that new store growth that we talk about.
Well catch you, Brian I think our automated book processing, we continue to see the merits of that program. Continuing we've got 93 stores that are being served by the automated book processing units that we have in place both in central processing centers and in the back of some stores.
<unk> us exceptionally well from a consumer facing standpoint.
Sharply priced and very well Merchandised books, and look books as a gateway category.
<unk>. So this initiative has proven to be quite successful and a great return on investment for us from a capital perspective.
Okay very interesting thank you.
I wanted to pivot to inventory and I think it was asked earlier, but I am intrigued with the 50% growth in inventory year on year, it's a pretty big step up from prior quarters. So on one hand, maybe this suggests some very healthy sales that could come down the pipe on the other hand, it could suggest some gross margin pressure, maybe just help us think.
But the balance between those two and maybe also as OSD in Green dropped.
Just drive this level of inventory growth in the quarters to come.
Yes, Peter this is Jay and really.
As that inventory increase is a function of the great supply that we've been seeing.
We have a process, where we we've taken inventory and if it's not the right season, we back stock it and hold it.
So that's really the driver there from again the basis of our inventory is so low that we do not have an Easter obsolete.
Inventory risk or a gross margin risk from that standpoint, so we feel very good about it.
Okay. Thank you very much guys.
Thank you.
Okay.
Your next question is from Anthony to comeback from loop capital markets. Please ask your question.
Good morning, or sorry, good afternoon. Thanks for taking my question.
Nice job on that.
Top line given the what.
On the top or beating on the EBITDA given the little bit of lightness on the top line.
So I guess my first question. So you talked about the 2% to 3% comp guidance sort of setting expenses too.
Assuming that.
I guess my question is let's say you do 4% with how much would that incremental 100 basis points of comp I mean in terms of EBITDA.
Yes.
We estimate we would flow that through.
About.
<unk>, 30%.
Got it okay. So call it like a 30% incremental EBITDA margin.
That were the right way to look at it or think about it.
Yes, I think Thats fair.
Okay.
I'll pass it on I know a lot of other people have questions keep up the good work guys.
Thanks, Anthony Thank you.
Your next question is from Mark Petrie from CIBC. Please ask your question.
Okay.
Alright, thanks for the question.
Two questions could you just give us a sense of the geographic breakdown of the 22 new stores.
That you've used.
Selectively in Canada.
Yeah, Hi, Mark Brown.
The geography of the 22 stores.
It is across all three countries. We do have a couple that are in the boutique format, but the vast majority are traditional stores.
And then across the geographies themselves, it's pretty distributed so we are not single threaded in any one or two markets.
In Canada or the U S.
As we've talked about in the past.
<unk>.
We are fishing in every major market and looking for great opportunities. So youll see it we see a pretty good pretty good spread across all three countries.
Okay, and the boutique Theyre all in Canada.
Oh, sorry go ahead.
Im sorry, I just wanted to chime in I mean, basically right Jay Brian we have a handful of.
Australia opportunities that we're looking at that May come, but the majority of what we have.
And the 22 stores is basically 50 50 split between U S and Canada.
Okay, and just to clarify all of the boutiques. Those those remain in Canada are you or are you going to test that in the U S.
No that is not in the U S. Those are in Canada.
Yeah, Okay, perfect and then just on the on the Green drops how many of those.
Do you have in the market today and what's the plan.
For 2024.
Yes Green dropped is again, we are actively pursuing multiple markets at the same time.
As we talked about earlier Mark you can't start.
Any.
Supply conversation without talking about onsite donations and so from a supply perspective, we are in a very robust position right now not just for this year.
But beyond so.
And we should expect that to continue we've talked about this right I mean, when we provide the donor with a reliably fast friendly experience. We can expect to be the donation destination of choice whether that be the onsite donation or the green drop green.
Green drop as our long term play.
Take that same fast friendly experience and meet the donor where they're at part of the daily use.
And help us elevate supply quality for years into the future. So.
We like the performance of the Green drops we've opened.
We will continue to open up green drops this year actually making an entrance into Canada as well.
And.
Again, we think that its replicate able now as we've talked about on previous calls municipalities landlords Love Green drops they love to use it as SaaS friendly clean it presents well.
There are some obstacles when it comes to what the code and they use envisions there are many municipalities where that sort of very attractive staffed donation point does not even envisioned in the code.
So that varies by municipality and the way that we mitigate against that.
We're fishing in multiple markets at the same time and that's what allows us to continue to grow that into the future.
So as we sit today, we are just shy of 70 green.
Green dropped locations.
And we will continue to add to that this year and beyond.
Okay. Thanks, and then just back to the new store pipeline.
Recall that.
One of the one of the sort of business case.
Arguments for the Cpc's was a simplification of.
The shipping into different locations and effectively.
<unk> broadens the potential scope of the locations you could open.
Fewer receiving doors I guess, specifically so are any of the locations that you've agreed to for 2024.
That sort of spec or is it still the typical location that you have that.
You bet.
Signed up for.
Yes, Great question Mark now.
Your intuition is right.
Several of the locations that we're looking at for 2024 and by the way something that we opened in 2023.
Are making use of that increased degrees of freedom. If you will we are able to look at more boxes because of the freedom that that gives us exactly to your point and that will be the case in 2025 and beyond as well. It really serves as an unlock for us and just kind of widened the top of that funnel.
Possibility of new stores for US yes, Mark This is mark it's really accelerating our strategy of new store growth and it's giving us the opportunity to look at more locations.
Seeing that play out and it's been a big big win for Us.
Okay got it thanks for all the comments and all the best.
Thank you. Thank you.
Thank you. Your next question is from Bob <unk> from Guggenheim. Please ask your question.
Hi.
Good afternoon.
I was wondering if you could talk.
Little bit about sort of the wage pressure wage trends that youre seeing in the stores and I guess labor availability.
Managers as you think about and I think the 22 stores that you're opening.
Yeah, Hey, Bob Brunn.
Fair question, we watched this pretty carefully and just like everything else. We've got all the necessary metrics that give us a good snapshot as to what's happening in every market that we operate.
At an enterprise level.
I would tell you that the labor market has really improved over the last six to 12 months or so in the markets that we operate in.
We've been pretty aggressive in terms of keeping up with competitive wage rates from an overall wage rate perspective, we have grown 5% to 6%.
Year on year.
And we're seeing things settle down I mean at a country level, we have seen significant year over year improvement in turnover rate.
Vacancy remains in the low to mid single digits across all three countries.
So all in all we feel very good about staffing levels in our stores as we think about new store locations.
All of these new store locations are operating in infill markets, where we are able to leverage management pipeline team member pipeline.
The people services team along with our field operators do a very good job of getting out ahead of that curve in terms of cross training.
Hiring fares that happened well in advance of the Grand opening of our new store. So you put all that together, Bob and I'd say, we feel very good about labor in both our comp stores as well as the new stores to come.
Great. Thank you.
Any commentary around the second Avenue stores and if you guys are.
The M&A pipeline.
Availability is if youre looking at anything there. Thanks.
Yes, so from a second Avenue perspective, the team has done a great job of moving that initiative forward, we continue to see business contributions.
Increased.
At a pace that we're very very pleased with so that was the fundamental part of that strategy as we as we continue to move that to a business forward in terms of M&A No news to report on this part of our strategy. It remains geographic infill with a strong supply base.
<unk> brand locally a stable workforce, but we're going to we're very judicious in our approach and obviously when the opportunity here.
Creates and fulfills itself, we will be reporting it to the street.
Great. Thank you very much.
Thank you once again should you have a question. Please press star one.
Your next question is from Mark on Schrader from Baird. Please ask your question.
Good afternoon, and thanks for taking my question.
Wanted to touch a bit more on supply I was hoping you could give us a little bit more color on the flow that youre seeing across the delivered versus onsite donations versus the green drop and what youre seeing from a quality of supply stand point with those various vectors.
Yeah, Hey, Mark <unk>, Brian.
From a quality perspective, I would tell you we have not been able to detect any meaningful changes in the average quality of supply that we see from each of the channels.
Talked about in the past, we do know that the onsite donation.
By and large brings a higher quality supply.
Than typical delivered we do know that.
In terms of how we modulate the amount of supply.
Onsite donation is the always on superior source of supply, we're always saying, yes to the donor and as we mentioned, we're seeing very robust performance in growth in onsite donation in all three countries frankly.
The flex lever and that is.
Is the deliver supply that's the one that we are able to manipulate over long periods of time, where if we're seeing very outsized onsite donation growth, we're able to flex for that by modulating delivered so from an overall quality standpoint, not seeing anything meaningful that we can detect.
Changes.
But from a modulating the amount of supply that we acquire that's really how we do it and hopefully that's helpful.
That is helpful. Thank you and then just as a follow up I think it was mentioned in the prepared remarks, you are expecting.
Lately higher product cost. This year is that a function of the mix or is that a function of rates that youre paying your nonprofit partners just what's driving that expectation for the higher cost of materials.
Yes, Thats, just typical and is driven by the contractual rates with our nonprofit partners in a typical renewal process that we go through it's not.
Very.
But it is a little bit of a factor in like I said on this call we're able to offset.
Part of that rate increase with increasing our OSD mix.
Got it it makes a lot of sense best of luck. Thank you.
Thanks, Mark and good luck.
Thank you.
Further questions at this time I will now hand, the call back to Mark Walsh for any closing remarks.
Thank you I'd like to thank everyone again for their time and interest in savers value village and we look forward to speaking to you again, when we report our first quarter results. Thanks again.
Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.