Q4 2024 Savers Value Village Inc Earnings Call

Operator: Good afternoon and welcome to Savers Value Village's conference call to discuss financial results for the fourth quarter, ending December 28, 2024. 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.

Good afternoon, and welcome to Savers value villages conference call to discuss financial results for the fourth quarter ending December 28 2024.

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.

Operator: 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.

The comments made during this call and the Q&A that follows are copyrighted by the company it cannot be reproduced without written authorization from the company.

Operator: 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 four looking statements included in the company's earning release and filings with the SEC for a discussion of these risks and uncertainties. Please be advised that statements are currently 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 as required by applicable law or regulation.

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 earning release and filings with the S. E. C for a discussion of these risks and uncertainties.

Please be advised that statements are currently only as of the date of this call and while the company may choose to update these statements in the future is in no obligation to do so quite by optical law or regulation.

Operator: 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 filing.

The company May also discuss certain non D AAP financial measures.

A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can.

Can be found in today's earnings release and SEC filings.

Operator: Joining from the 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 Yuma, Vice President of Investor Relations and Treasury.

<unk> for the management on today's call are Mark Walsh, Chief Executive Officer.

Brad Tidiness: Your Brad Tidiness.

Brad Tidiness: President and Chief operating officer.

Walsh: Michael Mayer, Chief Financial Officer, and Ed <unk>, Vice President of Investor Relations and Treasury. Mr. Walsh you May go ahead Sir.

Mark Walsh: Mr. Walsh, you may go ahead, sir. Thank you and good afternoon everyone. We appreciate you joining us today.

Walsh: Thank you and good afternoon, everyone. We appreciate you joining us today.

Mark Walsh: Let me start by giving you a few highlights on our fourth quarter performance and then talk about the things we are doing to drive the business forward. The overall trends we saw in the fourth quarter were within the range of our expectations, and we saw a healthy acceleration in trends across the U.S. and Canada. Our U.S. business remains solid and continue to generate positive comp sales growth given by increase in both transactions and average basket. Our Canadian business saw sequential improvement over the last five. In the fourth quarter, continued focus on sharp value coupled with freshness engendered a positive consumer reaction.

Speaker Change: Let me start by giving you a few highlights on our fourth quarter performance and then talk about the things we are doing to drive the business forward.

Walsh: The overall trends we saw in the fourth quarter.

Walsh: Within the range of our expectations and we saw a healthy acceleration in trends across the U S and Canada.

Walsh: Our U S business remained solid.

Walsh: You need to generate positive comp sales growth driven by increases in both transactions and average basket, our Canadian business saw a sequential improvement over the last five months in the fourth quarter continued focus on sharp value coupled with freshness engendered a positive consumer reaction.

Mark Walsh: That said, we have more work to do as the sales trends in Canada are not yet where we expected them to be. We opened nine new stores in the quarter and delivered against our 2024 new store targets. We are confident in our 25 to 30 new store opening plan for 2025. And as we called out at ICR, we believe that our targeted 20 percent store level adjusted EBITDA margins will drive long term profitable growth. As a class, our new stores continue to perform well, which in 2025 will help drive sales growth, but will be a headwind to adjusted EBITDA.

Walsh: That said, we have more work to do that's the sales trends in Canada are not yet where we expect.

Walsh: We opened nine new stores in the quarter and deliver against our 2024, new store targets. We're confident in our 25 to 30, new store opening plan for 2025, and as we called out at ICR, We believe that our targeted 20% store level adjusted EBITDA margins will drive long term profitable growth.

Walsh: As a class are new stores continued to perform well, which in 2025 will help drive sales growth.

Walsh: It will be a headwind to adjusted EBITDA.

Mark Walsh: 2026 will be an important inflection point as we expect accelerating profit contribution from new stores. We also continue to see solid growth in our loyalty program. with double-digit percent growth in active members over last year. loyalty members accounted for 72% of our total sales in the quarter, up from 70% last year. Finally, the resilience of our business model allowed us to generate $74 million of adjusted EBITDA in the quarter for more than 18% of sales. Our sales performance strengthened in the fourth quarter in both the U.S. and Canada. We are especially pleased with double-digit total revenue growth in the U.S., driven by accelerating new store growth and strong comparable store sales.

Walsh: 2026 will be an important inflection point as we expect accelerating profit contribution from new stores.

Walsh: We also continued to see solid growth in our loyalty program with double digit percent growth in active members over last year.

Walsh: Loyalty members accounted for 72% of our total sales in the quarter up from 70% last year.

Walsh: Finally, the resilience of our business model allowed us to generate $74 million of adjusted EBITDA in the quarter, but more than 18% of sales.

Walsh: Our sales performance strengthened in the fourth quarter in both the U S and Canada.

Walsh: We are especially pleased with double digit total revenue growth in the U S driven by accelerating new store growth and strong comparable store sales U S is our key growth market and we continue to see significant white space opportunities.

Mark Walsh: The U.S. is our key growth market, and we continue to see significant white space opportunities. Our work on competitive pricing, looking across thrift, off-price, and discount retail, reaffirms that we have a strong price-value offering for competitors. Our competitive pricing tools give us actionable insights that are particularly important in a challenging macroeconomic environment. These processes and analytics allow us to better respond to rapidly shifting competitive dynamics in a localized way, which we think further enhances our agility.

Walsh: Our work on competitive pricing looking at cross drift off price and discount retail reaffirms that we have a strong price value offering for consumers our competitive pricing tools give us actionable insights that are particularly important in a challenging macroeconomic environment.

Walsh: These processes and analytics allow us to better respond to rapidly shifting competitive dynamics in a localized way, which we think further enhances our agility.

Mark Walsh: This is a great example of how innovation is a key part of our DNA. We continue to identify more opportunities to use data and technology to better serve our customers.

Walsh: This is a great example of how innovation is a key part of our DNA, we continue to identify more opportunities to use data and technology to better serve our customers.

Mark Walsh: As we noted in our third quarter call, we pulled back too far on production levels in Canada during the summer months. We are pleased the Canadian consumer has responded well to our rebalance level since then. We believe that improved inventory levels and surgical price adjustments help drive a 500-basis point sequential improvement in our Canadian comp.

Walsh: As we noted in our third quarter call, we pulled back too far our production levels in Canada during the summer months.

Walsh: We are pleased the Canadian consumer has responded well to our rebalanced level since then.

Walsh: We believe that improved inventory levels and surgical price adjustments helped drive a 500 basis points sequential improvement in our Canadian comp.

Mark Walsh: For 2025, the Canadian landscape is ever-changing. The Bank of Canada is reducing interest rates. Unemployment has ticked down slightly. And there was a small improvement in consumer sentiment.

Walsh: For 2025, the Canadian landscape is ever changing the bank of Canada is reducing interest rates.

Walsh: Unemployment has ticked down slightly.

Walsh: And there was a small improvement in consumer sentiment.

Mark Walsh: That said, the tariff issue certainly clouds the picture. We are staying focused on what we can control, planning conservatively, and continuing to drive improvements in our processes, innovations, and making our business stronger with the same great value Canadians have come to love. Our goal is simple, to get our Canadian business back to positive, comparable store sales growth. We are excited about our expanding store footprint that accelerated in the second half of 2024 with 18 new store open. We've done a comprehensive analysis to understand our store opening and maturation economics and added capabilities to our real estate and other support.

Walsh: That said the tariff issues certainly clouds the picture.

Speaker Change: We are staying focused on what we can control planning conservatively and continuing to drive improvements in our processes innovations and making our business stronger with the same grade value Canadians have come to love. Our goal is simple to get our Canadian business back to positive comparable store sales growth.

Speaker Change: We are excited about our expanding store footprint that accelerated in the second half of 2024 with 18, new store openings. We've done a comprehensive analysis to understand our store opening in maturation economics and added capabilities to our real estate and other support teams.

Mark Walsh: This underpins our confidence in our 25 to 30 new store openings this year and our long-term growth opportunity. With a targeted 20% store level adjusted EBITDA margin, we think that our first and best use of capital is to continue to grow our store.

Speaker Change: This underpins our confidence in our 25 to 30, new store openings this year and our long term growth opportunity.

Speaker Change: With a targeted 20% store level adjusted EBITDA margin, we think that our first and best use of capital is to continue to grow our store fleet. The sector is highly fragmented and emerging particularly in the U S. And we are underpenetrated in major regions, such as the south and the west.

Mark Walsh: The sector is highly fragmented and emerging, particularly in the U.S., and we are underpenetrated in major regions such as the South and the West.

Mark Walsh: I also recently visited our Australian business. It came away even more optimistic on our long-term growth opportunity, and I'm excited that we will open four stores there in 2025. Another essential element to accelerating new store growth is the expansion of our off-site processing capabilities. Our network of central processing centers and off-site warehouse facilities enables us to open stores in locations that for various reasons can't support on-site processing. This has already proven to be a critical unlock for our new store growth plans. With more than half of our new stores going forward, expect to utilize some form of off-site processing.

Speaker Change: I also recently visited our Australia business. It came away even more optimistic on our long term growth opportunity and I'm excited that we will open four stores there in 2025.

Speaker Change: Another essential element to accelerating new store growth is the expansion of our off site processing capabilities, our network of central processing centers and Offsite warehouse facilities enables us to open stores in locations that for various reasons can't support onsite processing. This is already proven to be a critical unlocked for our new store growth.

Speaker Change: Both plans with more than half of our new stores going forward expect to utilize some form of off site processing.

Mark Walsh: We are seeing great collaboration between our central processing centers in an effort to share best operating practices, which will help continue to lower costs per unit.

Speaker Change: We're seeing great collaboration between our central processing centers in an effort to share best operating practices, which will help continue to lower cost per unit.

Mark Walsh: In addition, we continue to embrace innovation and are always exploring new technologies to make our business run more efficiently. A great example of our innovation is automated book processing. And after seeing strong financial returns, we've now rolled it out to support over 150.

Speaker Change: In addition, we continue to embrace innovation and are always exploring new technologies to make our business run more efficiently a great example of our innovation is automated book processing and.

Speaker Change: And after seeing strong financial returns, we've now rolled it out to support over 156 stores in closing let me. Thank our more than 22000 team members for their work and dedication to the Sabres fans.

Mark Walsh: In closing, let me thank our more than 22,000 team members for their work and dedication to the Savers. We took a year with challenging macroeconomic conditions and built new capabilities and refined our operating model. come out of 2024 as a better, more agile business. Our consumers react positively to our compelling assortment and great values, which make us highly confident in expanding our store. We look forward to updating you on our progress throughout 2025.

Speaker Change: We took a year with challenging macroeconomic conditions and built new capabilities and refined our operating model.

Speaker Change: We come out of 2024 is a better more agile business.

Speaker Change: Our consumers react positively to our compelling assortment and great values, which make us highly confident of expanding our store footprint.

Speaker Change: We look forward to updating you on our progress throughout 2025, I am more confident than ever in our long term growth prospects and in our mission to make secondhand second nature.

Mark Walsh: I am more confident than ever in our long-term growth prospects and in our mission to make secondhand second nature.

Michael Maher: Now I'll turn the call over to Michael to discuss our fourth quarter financial performance and the outlook for 2025. Thank you, Mark, and good afternoon, everyone. As Mark indicated, the results of the fourth quarter were within our expectations. Total net sales increased 5% to $402 million. On a constant currency basis, net sales increased 6% and comparable store sales increased 1.6%. We are especially pleased with double-digit sales growth in the U.S. despite continued constraints on consumer spending power, which has had a disproportionate effect on lower-income consumers. While our Canada results continued to be pressured by macroeconomic challenges, we were able to drive a 500 basis point sequential improvement in comparable store sales.

Speaker Change: Now I'll turn the call over to Michael to discuss our fourth quarter financial performance and the outlook for 2025.

Michael: Thank you Mark and good afternoon, everyone.

Michael: As Mark indicated the results of the fourth quarter were within our expectations.

Michael: Total net sales increased 5% to $402 million on a constant currency basis, net sales increased 6% and comparable store sales increased one 6%.

We were especially pleased with double digit sales growth in the U S. Despite continued constraints on consumer spending power, which has had a disproportionate effect on lower income consumers.

Michael: While our Canada results continued to be pressured by macroeconomic challenges, we were able to drive a 500 basis points sequential improvement in comparable store sales.

Michael Maher: We also opened nine new stores during the quarter, achieving our target of 22 organic new stores for the year. In the U.S., net sales increased 10.5% to $220 million, and comparable store sales increased 4.7%, driven by growth in both transactions and average baskets. In Canada, net sales declined 2.7%, reflecting a weaker Canadian dollar. On a constant currency basis, Canadian net sales declined 0.2% to $155 million, and comparable store sales declined 2.5%, primarily driven by a decrease in transactions. Cost of merchandise sold as a percentage of net sales increased 230 basis points to 44.3%, with the increase reflecting the impact of new stores and deleverage on lower Canadian comparable store sales.

Michael: We also opened nine new stores during the quarter, achieving our target of 22 organic new stores for the year.

Michael: In the U S. Net sales increased 10, 5% to $220 million and comparable store sales increased four 7% driven.

Michael: Driven by growth in both transactions and average basket.

Michael: In Canada net sales declined two 7%, reflecting a weaker Canadian dollar.

Michael: On a constant currency basis, Canadian net sales declined 0.2% to $155 million and comparable store sales declined two 5% primarily driven by a decrease in transactions.

Michael: Cost of merchandise sold as a percentage of net sales increased 230 basis points to 44, 3%.

With the increase reflecting the impact of new stores and deleverage on lower Canadian comparable store sales.

Michael Maher: salaries, wages, and benefits expense was $82 million. Excluding IPO-related stock-based compensation, salaries, wages, and benefits as a percentage of net sales increased 20 basis points to 18.3%. The increase was driven primarily by new store growth and higher wages and benefits. Selling general and administrative expenses as a percentage of net sales increased 230 basis points to 22.9 percent, primarily due to new stores and pre-opening expenses, partially offset by continued expense discounts. Depreciation and amortization increased 3% to $17 million. Reflecting Investments in New Stores, Centralized Processing Centers, and Automated Book Processing Systems. Net interest expense decreased 14% to $15 million, primarily due to reduced debt and lower average interest rates.

Michael: Salaries wages and benefits expense was $82 million <unk>.

Michael: Excluding IPO related stock based compensation salaries wages and benefits as a percentage of net sales increased 20 basis points to 18, 3% the.

Michael: The increase was driven primarily by new store growth and higher wages and benefits.

Michael: Selling general and administrative expenses as a percentage of net sales increased 230 basis points to 22, 9%, primarily due to new stores and Preopening expenses, partially offset by continued expense discipline.

Michael: Depreciation and amortization increased 3% to $17 million.

Michael: Reflecting investments in new stores centralized processing centers and automated book processing systems.

Michael: Net interest expense decreased 14% to $15 million, primarily due to reduced debt and lower average interest rates.

Michael Maher: Other expense of $15 million reflects a net loss on foreign currency related to a weaker Canadian dollar. Gap net loss for the quarter was $1.9 million or one cent per diluted share. Adjusted net income was $15.9 million or $0.10 per diluted share. Fourth quarter adjusted EBITDA was $74 million, and adjusted EBITDA margin was 18.4%.

Michael: Other expense of $15 million reflects a net loss on foreign currency related to a weaker Canadian dollar.

Michael: GAAP net loss for the quarter was $1 9 million or <unk> <unk> per diluted share.

Michael: Adjusted net income was $15 9 million or <unk> 10 per diluted share.

Michael: Fourth quarter, adjusted EBITDA was $74 million and adjusted EBITDA margin was 18, 4%.

Michael Maher: U.S. segment profit was $49.8 million, down $1.3 million versus the prior year period primarily due to new stores and pre-opening expenses. Canada segment profit was $40.3 million, down $8.7 million versus the prior year period due primarily to cop store sales declines, new stores, and pre-opening expenses.

Michael: U S segment profit was $49 8 million down $1 $3 million versus the prior year period, primarily due to new stores and Preopening expenses.

Michael: Canada segment profit with $40 3 million down $8 $7 million versus the prior year period, due primarily to comp store sales declined new stores and Preopening expenses.

Michael Maher: Turning now to capital allocation, we remain committed to a disciplined approach that funds our growth and strengthens our balance sheet. As our business continues to generate strong cash flow, we will continue to repay debt and be opportunistic in returning capital to shareholders. Our balance sheet remains strong with $150 million in cash and cash equivalents and a net leverage ratio of 2.1 times at the end of the quarter. This month, we redeemed $44.5 million of our senior secured notes, or 10% of the outstanding balance. We repurchased approximately 1.1 million shares of our common stock during the quarter at an average price of $9.67 per share.

Michael: Turning now to capital allocation, we remain committed to a disciplined approach that funds our growth and strengthens our balance sheet.

Michael: As our business continues to generate strong cash flow, we will continue to repay debt and be opportunistic in returning capital to shareholders.

Michael: Our balance sheet remains strong with $150 million in cash and cash equivalents and a net leverage ratio of two one times at the end of the quarter.

Michael: This month, we redeemed $44 $5 million of our senior secured notes or 10% of the outstanding ballots.

Michael: We repurchased approximately one 1 million shares of our common stock during the quarter at an average price of $9 67 per share.

Michael Maher: As of the end of the fourth quarter, we had approximately $18 million remaining on our share purchase authorization.

Michael: As of the end of the fourth quarter, we had approximately $18 million remaining on our share repurchase authorization.

Michael Maher: Finally, I'd like to discuss our outlook for 2025, which we believe reflects continued momentum in the business, while also acknowledging the near-term impact of the macroeconomic environment and new store opening. I'll start by providing some important context for our outlook. First, as we've previously discussed, we are at an inflection point in our long-term growth strategy. Between our 2024 and 2025 openings, we will have approximately 50 stores in their first year of operation in 2025. On average, new stores generate approximately $3 million in sales in their first year and achieve profitability by their second year. We therefore expect new stores to be a meaningful driver of revenue growth this year, but a net headwind of approximately $10 million to adjust the diva dot.

Michael: Finally, I'd like to discuss our outlook for 2025.

Michael: Which we believe reflects continued momentum in the business. While also acknowledging the near term impact of the macroeconomic environment and new store openings.

Michael: I'll start by providing some important context for our outlook.

Michael: First as we've previously discussed we are at an inflection point in our long term growth strategy.

Michael: Between our 2024 and 2025 openings, we will have approximately 50 stores in their first year of operation in 2025.

Michael: On average new stores generate approximately $3 million in sales in their first year.

Michael: And achieve profitability by their second year.

Michael: We therefore expect new stores to be a meaningful driver of revenue growth this year, but a net headwind of approximately $10 million to adjusted EBITDA.

Michael Maher: We expect an inflection in profitability by 2026 as these stores mature and drive both top and bottom line growth. Second, we are taking a conservative approach to planning comparable store sales. with continued steady growth in the U.S. and a cautious approach in Canada. As Mark indicated, the Canadian economy has shown some signs of stabilization recently. But the potential for new tariffs creates additional uncertainty. On a related note, the Canadian dollar has weakened and is currently trading near a multi-decade low relative to the U.S. dollar. Our outlook for 2025 is based on an estimated exchange rate of 70 cents U.S.

Michael: We expect an inflection in profitability by 2026, as these stores mature and drive both top and bottom line growth.

Michael: Second we are taking a conservative approach to planning comparable store sales growth with.

Michael: With continued steady growth in the U S and a cautious approach in Canada.

Michael: As Mark indicated the Canadian economy has shown some signs of stabilization recently.

Michael: The potential for new tariffs creates additional uncertainty.

Michael: On a related note the Canadian dollar has weakened and is currently trading near a multi decade low relative to the U S. Dollar.

Michael: Our outlook for 2025 is based on an estimated exchange rate of 70 U S per Canadian dollar, which negatively impacts our year over year comparisons for sales by approximately one seven percentage points.

Michael Maher: per Canadian dollar, which negatively impacts our year-over-year comparisons for sales by approximately 1.7 percentage and for adjusted EBITDA by approximately $6.5 million.

Michael: And for adjusted EBITDA by approximately $6 5 million.

Michael Maher: Also, as we announced last month, effective in 2025, we are changing the way we report certain non-GAAP financial measures, including comparable source sales, adjusted EBITDA, and adjusted net income, to better reflect our accelerating growth and for improved consistency with peer companies. Please refer to today's earnings release for additional details on these changes and a recast of previous year amounts based on our new measurements for comparability. Finally, 2025 is a 53-week fiscal year. We estimate the 53rd week will add approximately 1.5% to total sales growth with no significant impact on net income, adjusted net income, or adjusted EBITDA.

Michael: Also as we announced last month effective in 2025, we are changing the way we report certain non-GAAP financial measures, including comparable store sales adjusted EBITDA and adjusted net income to better reflect our accelerating growth and for improved consistency with peer companies. Please.

Michael: Refer to today's earnings release for additional details on these changes and a recast of previous year amounts based on our new measurements for comparability.

Michael: Finally, 2025 is a 53 week fiscal year.

Michael: We estimate the 50 <unk> week will add approximately one 5% to total sales growth with no significant impact on net income adjusted net income or adjusted EBITDA.

Michael Maher: There is also no impact on comparable store sales. which will be reported on a like-for-like 52-week basis.

Michael: There is also no impact on comparable store sales growth, which will be reported on a like for like 52 week basis.

Michael Maher: With that context in mind, our full year outlook for 2025 includes the following. 25 to 30 new store openings, most of which will occur in the second half of the year. Net sales of $1.61 billion to $1.65 billion. Comparable store sales up 0.5% to 2.5%, with the U.S. continuing to outperform Canada. Net income of $36 million to $52 million. adjusted net income using our new definition of $62 million to $77 million. compared with $97 million in 2024 using the same definition. adjusted EBITDA using our new definition of $245 million to $265 million, compared with $273 million in 2024 using the same definition.

Michael: With that context in mind, our full year outlook for 2025 includes the following.

Michael: 25% to 30, new store openings, most of which will occur in the second half of the year.

Michael: Net sales of $1 six 1 billion to $1 65 billion.

Michael: Comparable store sales up <unk>, 5% to two 5% with the U S continuing to outperform Canada.

Michael: Net income of $36 million to $52 million.

Michael: Adjusted net income using our new definition of $62 million to $77 million.

Michael: Compared with $97 million in 2024, using the same definition.

Michael: Adjusted EBITDA, using our new definition of $245 million.

Michael: $265 million compared.

Michael: Compared with $273 million in 2024, using the same definition.

Michael Maher: and capital expenditures of $125 million to $150 million. Our outlook for net income assumes net interest expense of approximately $66 million and an effective tax rate of approximately 35%. For adjusted net income, we are assuming an effective tax rate of approximately 27%. We're projecting weighted average diluted shares outstanding to be approximately $168 million for the full year. This does not contemplate any potential future share repurchase.

Michael: And capital expenditures of $125 million to $150 million.

Michael: Our outlook for net income assumes net interest expense of approximately $66 million and an effective tax rate of approximately 35%.

Michael: For adjusted net income we are assuming an effective tax rate of approximately 27%.

Michael: We're projecting weighted average diluted shares outstanding to be approximately $168 million for the full year.

Michael: This does not contemplate any potential future share repurchases.

Michael Maher: Finally, I'd like to briefly touch on our expectations for the first quarter. Q1 will be our smallest quarter of the year in terms of both revenue and adjusted EBITDA due to a number of factors. The first quarter is typically our smallest due to normal seasonal variation. In addition, we will have a temporary lull in new store openings, with two new stores and one relocation during the quarter, before the pace picks back up again in the second quarter. Finally, since our 2024 new store openings were back half-weighted, most of those stores are still early in their first year of operation and are therefore still generating operating losses in the first quarter.

Michael: Finally, I'd like to briefly touch on our expectations for the first quarter.

Michael: Q1 will be our smallest quarter of the year in terms of both revenue and adjusted EBITDA due to a number of factors.

Michael: The first quarter is typically our smallest due to normal seasonal variations.

Michael: In addition, we will have a temporary lull in new store openings with two new stores and one relocation during the quarter before the pace picks back up again in the second quarter.

Michael: Finally, since our 2024, new store openings were back half weighted most of those stores are still early in their first year of operation and are therefore still generating operating losses in the first quarter.

Michael Maher: We expect most of them to begin achieving profitability by the end of this year. As a result of these factors, we expect total sales growth in the first quarter in the low single digit. and a first quarter adjusted EBITDA margin in the high single digits to low double digits.

Michael: We expect most of them to begin achieving profitability by the end of this year.

Michael: As a result of these factors, we expect total sales growth in the first quarter in the low single digits.

Michael: And our first quarter adjusted EBITDA margin in the high single digits to low double digits.

Operator: This concludes our prepared remarks.

This concludes our prepared remarks, we would now like to open the call for questions.

Operator: We would now like to open the call for questions.

Operator: Operator. Thank you.

Michael: Operator.

Speaker Change: Thank you.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number 1 on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.

Speaker Change: Should you have a question. Please press the star followed by the number one on your Touchtone phone.

Speaker Change: You'll hear a prompt that you haven't been raised.

Speaker Change: Should you wish to decline from the polling process. Please press the star followed by the number too.

Speaker Change: Fewer using a speaker phone.

Speaker Change: Please lift the handset before pressing any keys.

Speaker Change: One moment. Please for your first question.

Matthew Boss: Your first question is from Matthew Boss from J.P. Morgan, please go ahead. Great, thanks, and congrats on the progress. So Mark, maybe could you speak to current health of your U.S.

Speaker Change: Your first question is from Matthew Boss from Jpmorgan. Please go ahead.

Matthew Boss: Great Thanks, and congrats on the progress.

Matthew Boss: So mark maybe could you speak to current health of your U S business elaborate on drivers of the sequential improvement in Canada, and just maybe putting the pieces together the support or your confidence in the pivot to same store sales growth in 2025.

Mark Walsh: business, elaborate on drivers of the sequential improvement in Canada, and just maybe putting the pieces together, the support or your confidence in the pivot to same-store sales growth in 2025. Thanks, Matt. I appreciate the positive thoughts. Look, as we have articulated... in the prepared remarks. So US business continues to be consistently solid throughout the year. And we did see acceleration in the fourth quarter. It's... You know, it's a strong consumer base that continues to grow within our new loyalty membership, and the growth is in both transactions and across cohorts. Canada obviously remains a bit more complicated beginning in August when the team rebalanced production levels.

Matthew Boss: Thanks, Matt.

Matthew Boss: We appreciate the positive thoughts look as we have articulated.

Matthew Boss: In the prepared remarks, our U S business continues to be consistently solid throughout the year and we did see acceleration in the fourth quarter.

Matthew Boss: It's.

It's a strong consumer base that continues to grow with our within our new loyalty membership and the growth is in both transactions and across cohorts.

Matthew Boss: Canada, obviously remains a bit more complicated beginning in August when the team rebalanced production levels. That's really when we saw that sequential improvement in the Canadian business through the end of the fourth quarter.

Mark Walsh: That's really when we saw that sequential improvement in the Canadian business through the end of the fourth quarter. And as we articulated in the prepared remarks, the improvement has not gotten us where we want to be. So while welcome and in the right direction, we're certainly not satisfied. You're going a little deeper into Canada, you know, the back end of the years did see some sequential improvement in the overall Canadian economy. Stabilizing over the last several months and unemployment has ticked down slightly. The Bank of Canada has been a little more aggressive in lowering interest rates and consumer confidence was inching upward.

Matthew Boss: And as we as we articulated in the in the prepared remarks, the improvement has not gotten us where we want to be so while welcome and in the right direction, we're certainly not satisfied.

Matthew Boss: Youre going a little deeper into Canada. The back end of the year did see some sequential improvement in the overall Canadian economy stay.

Matthew Boss: Stabilizing over the last several months and unemployment has ticked down slightly.

Matthew Boss: The bank of Canada has been little more aggressive in lowering interest rates and consumer confidence was inching upwards tariffs.

Mark Walsh: Tariffs did create a bit of an uncertainty, a new uncertainty for us. In terms of what's happening with our core business donations remain strong. The first quarter, I mean, the third, the third, the fourth quarter translated well into the first half of this first quarter of 2025, as we saw a nice progression into January. February has been a little more muddy as the weather impacts have clouded the picture.

Matthew Boss: Tariffs did create a bit of an uncertainty new uncertainty for us.

Matthew Boss: Terms of what's happening with our core business donations remains strong.

Matthew Boss: The first quarter I mean, the third the third.

Matthew Boss: The fourth quarter translated well into the first half of this first quarter of 2025 as we saw a nice progression into January February has been a little more money as the weather impacts of clouded the picture.

Mark Walsh: Our approach, though, is very simple. Maintain that level of production that provides our consumer and our customer with the selection they demand. And it was the key lesson learned. If Jubran wanted to jump in after this, he would re-articulate that point. Second, stay sharp on price value. Third, continue to connect with our consumers with offers that give them added value throughout the year, essentially controlling what we can control, plan conservatively. I think with the additional innovation, and again, that sharp, attractive price value, when the cycle turns, we'll be well positioned to serve our Canadian consumer with great selection and value.

Matthew Boss: Our approach, though is very simple maintain that level of production that provides our consumer and our customer with the selection. They demand. It was the key lesson learned.

Speaker Change: <unk> wanted to jump in after this he would re articulate that point.

Matthew Boss: Second stay sharp on price value.

Matthew Boss: Third continue to connect with our consumers with offers that give them added value throughout the year essentially controlling what we can control plan conservatively I think with the additional innovation and again that sharp attractive price value when the cycle turns will be well positioned to serve our Canadian consumer with great selection and value.

Michael Maher: Maybe, Michael, just to follow up on that, maybe could you elaborate on the new store pipeline for 2025? If you could walk through the economics on some of the more recent builds and just speak to the timeline for the inflection to new store profitability. Yeah, you got it, Matt. So as we talked about it, ICR last month. New stores typically open around $3 million in sales on average in their first year. They lose money in the first year, though, because of, you know, they're roughly at 60% of their mature store volume, and the onsite donation mix is lower, but the profitability quickly ramps.

Speaker Change: Maybe Michael just.

Speaker Change: To follow up on that maybe could you elaborate on the new store pipeline for 2025.

Speaker Change: If you could walk through the economics on some of the more recent Belgian and just speak to the timeline for the inflection to new store profitability.

Matthew Boss: Yes, you got it Matt so as we talked about at ICR last month's.

Matthew Boss: New stores typically open around $3 million in sales on average in their first year.

Matthew Boss: They lose money in the first year, though because of their roughly at 60% of their mature store volumes.

Matthew Boss: And the onsite donation mix is lower but the profitability quickly ramps they typically become profitable by year two on their way to a roughly 20% EBITDA margin by year five so as we accelerate new store growth. There is a headwind to profit margins in the short term, which we quantified at about $10 million in 2025.

Michael Maher: They typically become profitable by year two on their way to a roughly 20% EBITDA margin by year five. So, as we accelerate new store growth, there is a headwind to profit margins in the short term, which we've quantified at about $10 million in 2025. And this is especially pronounced in 2025 because, as you'll recall, Matt, most of our new store class from last year, the 22 stores we opened last year, were backloaded, and now we're adding 25 to 30 more new stores in the current year. So that becomes a tailwind as these stores work their way up the maturity curve, become profitable by their second year, and continue to ramp that profitability as we go.

Matthew Boss: And this is especially pronounced in 2025, because as Youll recall, Matt most of our new store class from last year. The 22 stores. We opened last year were back loaded and now we're adding 25% to 30 more new stores in the current year.

Matthew Boss: So.

Matthew Boss: That becomes a tailwind as these stores work their way up the maturity curve become profitable by their second year and continue to ramp that profitability as we go but the nature of that new store.

Michael Maher: But the nature of that new store, those new store economics that I just laid out, essentially means there's a one-year lag from the sales inflection, which we're seeing this year, to the earnings inflection, which we expect to see next year. As far as the cadence of that through the year, Matt, it's a little bit like I said, a little bit of a lull in Q1. We have two new store openings. It's a temporary lull. Q2, we'll get back to sort of a normal pace. And we'll see, we'll be largely caught up to that pace by Q3.

Matthew Boss: Those new store economics that I, just laid out essentially means theres, a one year lag from the sales inflection, which we're seeing this year to the earnings inflection, which we expect to see next year as.

Matthew Boss: As far as the cadence of that through the year, Matt It's a little bit like I said, a little bit of a lull in Q1, we have two new store openings as a temporary lull Q2, we will get back to sort of a normal pace and we will see will be largely caught up to that pace by Q3, we'll kind of over index in Q3.

Michael Maher: We'll kind of over-index in Q3.

Mark Walsh: And Matt, let me add one more thing on the new stores. Look, it remains our best use of capital to open those new stores. The white space of the U.S. is very compelling. I think in 2025 and more so in 2026, the U.S. will be the lion's share of our new store growth. Our Canadian new store opening cadence will slow considerably after this year, focusing really on strategic relocations as well as strong market fill-ins. and the operations real estate teams have done really a great job in developing the muscle to effectively roll out these targeted stores that we can count on into the future.

Matthew Boss: And Matt Let me add one more thing on the new stores look it remains our best use of capital to.

Matthew Boss: To open those new stores in the white space in the U S.

Matthew Boss: Is very compelling and I think in 2025 and more so in 2026, the U S will be the lion's share of our new store growth, our Canadian new store opening cadence will slow considerably. After this year, firstly, focusing early on strategic relocations as well as strong market fillers.

Brian: Sure Brian.

Brian: Operations real estate teams have done a really great job of developing the muscle to effectively rollout. These targeted stores that we can count on into the future and just as importantly supply is growing and we continue to look to supplement that supply base.

Mark Walsh: And just as importantly, supply is growing, and we continue to look to supplement that supply base with new opportunities. So I think the group, we feel really good as a group. about the direction of our new store initiative, the results, and the opportunity.

Brian: With new opportunities. So I think the group, we feel really good as a group.

Brian: About the direction of our new store initiative the results and the opportunity ahead.

Matthew Boss: It's great color. Best of luck.

Speaker Change: Great color best of luck.

Brian: Okay.

Mark Altschwager: Your next question is from Mark Altschwager from Baird, please go ahead. Good afternoon. Thank you for taking my question. I was just hoping to unpack the 25 guide a little bit further. So you got into a couple of hundred basis points of deleverage on EBITDA margin at the midpoint. I know you called out the $10 million specifically for the impact of a new store kind of year one contribution. Can you unpack some of the other factors there that are driving that deleverage and maybe specifically how we should be thinking about gross margin through the year?

Speaker Change: Your next question is from Mark <unk> from Baird. Please go ahead.

Mark Walsh: Good afternoon. Thank you for taking my question.

Speaker Change: I was just hoping to unpack the 25 guide a little bit further so.

Speaker Change: Got into a couple of hundred basis points of deleverage on EBITDA margin at the midpoint I know you've called out the $10 million specifically for.

Speaker Change: The impact of the new store kind of year one contribution.

Speaker Change: Can you unpack some of the other factors there that are driving that deleverage and maybe specifically, how we should be thinking about gross margin through the year.

Michael Maher: Yeah, you got it, Mark.

Mark Walsh: Yes, you got it mark so.

Michael Maher: So let me step back and just maybe try to help bridge from our 2024 EBITDA to the outlook for 2025. So we'll start first by just making sure we're grounded on the number. Recall that we're changing the definition. to include store pre-opening and other expenses beginning in 2025, expenses that we used to exclude. Under that new definition, 2024 EBITDA was $273 million.

Mark Walsh: Let me step back and just maybe try to help bridge from our 2020 for EBITDA to the outlook for 2025. So we'll start first by just making sure were grounded on the number of recall that we're changing the definition to.

Mark Walsh: To include store Preopening and other expenses beginning in 2025 expenses that we used to exclude under that new definition.

Mark Walsh: 2024, EBITDA was $273 million now we have two unique elements to 2025 that are pressuring those EBITDA comparisons. This year number one is the new store investments that we talked about a $10 million headwind because like I said, we're in the inflection point for <unk>, but the inflection for <unk>.

Michael Maher: Now, we have two unique elements to 2025 that are pressuring those EBITDA comparisons this year. Number one is the new store investments that we talked about, a $10 million headwind, because like I said, we're in the inflection point for sales, but the inflection for earnings will follow a year later. So that's $10 million. The second is the weaker Canadian dollar. So it's trading at around 70 cents USD today. That's sort of where most of the forward curves have it for the year as well. that's down, that's weaker than the average rate for 2024. And so that means that an additional six and a half million dollar headwind to eat the dot in 2025, relative to.

Mark Walsh: <unk> will follow a year later, that's $10 million.

Mark Walsh: The second is the weaker Canadian dollar so its trading at around 70, USD today, that's sort of where most of the forward curves habits for the year as well.

Mark Walsh: Thats down that's weaker than the average rate for 2024, and so that means an additional $6 $5 million headwind.

Mark Walsh: In 2025 relative to 2024. So if you just take those two unique items that bridge you from our 2024 number of $2 73, roughly to the midpoint of our 2025 guidance right around $2 55 to $2 56 and <unk>.

Michael Maher: So if you just take those two unique items, that bridges you from our 2024 number of 273, roughly to the midpoint of our 2025 guidance, right around 255, 256. And at that midpoint, we have comp sales at about one and a half percent. So our core copy, the DA, excluding those two distinct items that I called out, are essentially flat on the one and a half percent. If you move up from there and go like to the high end of our guidance range, where our comp sales are two and a half percent, then we have EBITDA $10 million higher, $10 million higher.

Mark Walsh: That midpoint, we have comp sales at about one 5% increase so our core coffee EBIT dah, excluding those two distinct items that I called out are essentially flat at one 5% comp if.

Mark Walsh: If you move up from there and go like to the high end of our guidance range, where our comp sales are two 5% then we have EBITDA $10 million higher $10 million higher so I think that it's consistent with our long term growth algorithm at Lowe's, we've talked about low single digit comps, we expect EBITDA growth to drive EBITDA growth at low.

Michael Maher: So, I think that it's consistent with our long-term growth algorithm. We've talked about low single-digit comps. We expect EBITDA growth to drive EBITDA growth at low single-digit comps.

Michael Maher: But, as we've said now for a while, 2025 is the investment year. We're investing in the new stores. We will see that in sales, but the earnings follow in 2026. And, of course, now we have the added headwind of the foreign currency transaction.

Mark Walsh: Single digit comps, but as we've said now for a while 2025 is the investment year, we're investing in the new stores, we will see that in sales, but the earnings follow in 2026 and of course now we have the added headwind of the foreign currency translation.

Mark Altschwager: That's very helpful. Thank you.

Speaker Change: That's very helpful. Thank you and I was going to follow up just on the kind of bigger picture algorithm beyond 2025, you just spoke to part of it.

Mark Altschwager: And I was going to follow up just on the kind of bigger picture algorithm beyond 2025. You just spoke to part of it, kind of leverage on a comp kind of north of one and a half percent. How should we think about the comp algo? I guess as you start to realize the benefit from a large cohort of ramping stores, presumably that's going to be a building tailwind. So just maybe speak a little bit more to how you're thinking about the kind of the medium-term comp algo. Yeah, that's, that's right, Mark.

Mark Walsh: Average on.

Speaker Change: On a comp kind of north of one 5%.

Speaker Change: How should we think about the comp algo I guess as you start to realize that benefit from a large cohort of ramping stores, presumably that's.

Speaker Change: Going to be a building tailwind so just.

Speaker Change: Maybe speak a little bit more to how youre thinking about the kind of medium term comp outlook.

Mark Walsh: Yes, that's that's right Mark.

Michael Maher: I mean, you know, we're obviously not going to guide to 2026 with any specificity. But, but that's right. I mean, we first of all, let me reiterate the long term financial model as we see it. We see high single digit total revenue growth, driven primarily by new low single-digit comps, and we do expect the U.S., which is our growth market, to outperform Canada, which is a more mature business. And over the next few years, we think that'll support a high teens EBITDA margin as those growth investments continue to mature. And that'll continue to expand. So we have some near to medium term headwinds as we're accelerating the new store openings, which we think will continue through 2025.

Mark Walsh: We're obviously not going to guide to 2026 with any specificity, but but that's right. I mean, we first of all let me reiterate the long term financial model as we see it we see high single digit total revenue growth driven primarily by new stores.

Mark Walsh: Low single digit comps and we do expect the U S, which is our growth market to outperform Canada, which is a more mature business for us.

Mark Walsh: And over the next few years, we think that will support a high teens EBITDA margin as those gross growth investments continue to mature.

Mark Walsh: And that will continue to expand so we have some near to medium term headwinds, we're accelerating the new store openings, which we think will continue through 2025, but by 2026. As you mentioned, we will have a significant number of maturing young stores that are entering that comp base and as we continue to build that.

Michael Maher: But by 2026, as you mentioned, we'll have a significant number of maturing young stores that are entering that comp base. And as we continue to build that pipeline. that will help feed not only the new store growth, but our comp store growth. Because as you'd expect, younger comp stores tend to outgrow more mature comp.

Mark Walsh: <unk>.

Mark Walsh: That will help feed not only the new store growth.

Mark Walsh: Our comp store growth because as you would expect younger comp stores tend to out grow more mature comp stores.

Mark Altschwager: Great. Thank you for all the detail and best of luck.

Mark Walsh: Great. Thank you for all the detail and best of luck.

Brooke Roach: Thank you. Your next question is from Brooke Roach from Golden Sachs. Please go ahead. Good afternoon, and thank you for taking our question. Mark, in the prepared remarks, you spoke to an increase in the proportion of sales from loyalty customers.

Mark Walsh: Thank you.

Speaker Change: Your next question is from Brooke Roach from Goldman Sachs. Please go ahead.

Brooke Roach: Good afternoon, and thank you for taking our question Mark in the prepared remarks, you spoke to an increase in the proportion of sales from loyalty customers can you speak a little bit more about what you're seeing among your repeat customers and the changes in the customer cohorts that youre seeing as you.

Mark Walsh: Can you speak a little bit more about what you're seeing among your repeat customers and the changes in the customer cohorts that you're seeing as you expand the store base, but also given the macroeconomic pressures in the environment today? Thanks, Brooke, great question. So I would say the trend line on the customer cohorts continues to remain pretty steady. And that is that we continue to see in both countries, in both Canada and the US, an increase in that household income cohort above 100,000 as a overall perspective of our pie. that the place where we're seeing that decline, the matching decline is at the lower end of the.

Brooke Roach: And the store base, but also given the macroeconomic pressures in the environment today.

Mark Walsh: Thanks Brook, Great question, So I would I would say the trend line on the customer cohorts continues to remain.

Mark Walsh: Pretty steady and that is that we continue to see in both countries in both Canada and the U S. An increase in that household income cohort above 100000.

Mark Walsh: Overall perspective of our pie.

Mark Walsh: The place, where we're seeing that decline matching decline is at the lower end.

Mark Walsh: The <unk>.

Mark Walsh: Household Income Cohort Change. While we may be seeing some trade down, we are seeing some trade down in the in the higher income cohorts. Unfortunately, some of these gains are being offset by continued pressure on the lower income consumer in Canada. And when you when we think about our comp. construct. Real issue for us in Canada is around the weakness in non-loyalty, customer trends, and that's where we're continuing to put a lot of effort.

Mark Walsh: Income household income cohort chain.

Mark Walsh: While we may be seeing some trade down we are seeing some trade down in the in the higher income cohorts. Unfortunately, some of these gains are being offset by continued pressure on the lower income consumer in Canada.

Mark Walsh: And when you when we think about our comp.

Mark Walsh: Construct.

Mark Walsh: The real issue for us in Canada is around the weakness in non loyalty customer trends and that's what we're continuing to put a lot of effort and focus.

Michael Maher: That's really helpful, Culler. For Michael, I was hoping that you could help us understand the cadence of the EBITDA margin that you expect throughout the year. Understood that the first quarter is likely to see some healthy pressure as a result of the low single-digit sales growth, but what drives that additional pressure in the first quarter, and how should we be thinking about the path to a return to EBITDA margin growth?

Speaker Change: That's really helpful color from Michael I was hoping that you could help us understand the cadence of the EBITDA margin that you expect throughout the year understood that the first quarter is likely to see some healthy pressure as a result of the low single digit sales growth but.

What drives that additional pressure in the first quarter and how should we be thinking about the path to return to EBITDA margin growth.

Michael Maher: Yeah, good question. Thanks, Brooke. So That's right. Q1, first of all, is typically just because of our normal seasonality, our lowest sales quarter of the year. And that's no different this year. We also have, as I mentioned earlier, a temporary slowdown in new store openings. We'll just have two this quarter. And so the contribution of new stores to our total sales growth will be lower. And then in addition, you know, I mentioned that the weaker Canadian dollar is about a 1.7% drag to total sales growth on the year. It's actually a little higher than that in the first quarter just because of the year-over-year comparison.

Speaker Change: Yeah. Good question. Thanks Brook so.

Speaker Change: That's right Q1 first of all is.

Speaker Change: Typically just because of our normal seasonality, our lowest sales quarter of the year and Thats no different this year.

Speaker Change: We also have as I mentioned earlier.

Speaker Change: A slowdown in new store openings, we will just have to this quarter and so the contribution of new stores to our total sales growth will be lower and.

Speaker Change: And then in addition, I mentioned that the weaker Canadian dollar is about a one 7% drag to total sales growth on the year, it's actually a little higher than that in the first quarter, just because of the year over year comparisons a little north of 2% in the first quarter. So all of that to say then that we get to low single digit total sale.

Michael Maher: It's a little north of 2% in the first quarter. So all of that to say then that we get to low single digit total sales growth in the first quarter, which is basically comprised of a low single digit comp, the new store contribution, and then that higher FX drag.

Speaker Change: <unk> growth in the first quarter, which is basically comprised of a low single digit comp the new store contribution and then that higher FX drag.

Michael Maher: On the EBITDA margin, the real, the driver there is twofold. Number one is the lower sales, right? Just leveraging on the cost base. There's a little bit of deleverage in Q1. But on top of that, it's the timing and the dynamics of the new stores. So the 2024 class, as I mentioned earlier, was significantly backloaded. So those stores are very early in their first year ramp and obviously still generating operating losses. And so the the upshot of that is that we expected EBITDA margin in the first quarter, somewhere in the high single digits to low double digits.

Speaker Change: On the EBITDA margin.

Speaker Change: The real the driver there is two fold number one is the lower sales right. Just just leveraging on the cost base. There is a little bit of deleverage in Q1.

Speaker Change: But on top of that it's the timing and the dynamics of the new stores. So the 'twenty 'twenty four class as I mentioned earlier was significantly back loaded. So those stores are very early in their first year ramp.

Speaker Change: And obviously still generating operating losses.

Speaker Change: So the upshot of that is that.

Speaker Change: We expect EBITDA margin in the first quarter somewhere in the high single digits to low double digits that is the outlier quarter. The remaining quarters, we would expect EBITDA margins to be more consistent with our full year outlook.

Michael Maher: That is the outlier quarter. The remaining quarters, we would expect the EBITDA margins to be more consistent with our full year out.

Operator: Thanks so much, I'll pass it on. Thank you.

Speaker Change: Thanks, So much I'll pass it on.

Speaker Change: Thank you.

Bob Drbul: Your next question is from Bob Drbul from Guggenheim. Please go ahead. Hi, good afternoon. Just a couple of questions for me.

Speaker Change: Your next question is from Bob <unk> from Guggenheim. Please go ahead.

Speaker Change: Hi, Good afternoon, just a couple of questions from me. The first one just in Canada, you talked a little bit about some of the drivers but.

Bob Drbul: The first one, just in Canada, you talked a little bit about some of the drivers, but, you know, were any pricing adjustments made to really help improve the trend? I think that's my first question.

Speaker Change: Or any pricing adjustments made to really help improve the trend.

Speaker Change: Yes, My first question in the U S. When you think about some of the weather impacts.

Bob Drbul: In the U.S., when you think about some of the weather impacts and, you know, sort of in December, but even in, you know, the first two months of this year, can you just talk about, have you been able to sort of have the right apparel in the stores and any impact that you think weather has had to the business thus far?

Speaker Change: In December but even in the first two months of this year can you just talk about have you been able to sort of have the right apparel in the stores and any impact that you think weather has had to the business thus far.

Mark Walsh: Hey, Bob. Thanks. So I'll start with the pricing.

Bob: Hey, Bob Thanks, So I'll start with the pricing.

Jubran Tanious: tests, and then I'll pass it over to Jubran, talk about the trends we're seeing. Look, we have talked a lot, and we've looked closely at price gaps between Savers Value Village and not just thrift, but also discount and off-price competitors. And all of that work reaffirms that we really have strong price gaps relative to that broader competitive and our $5 USD AUR provides great value. We did. Sharpen price on a small set of items. We were pleased with the results But frankly that was not a material impact to our fourth quarter So we will remain focused on looking at competitive pricing, respond dynamically when needed, both in geography and in category.

Speaker Change: Tests, and then I'll pass it over to Djabran talk about the trends. We're seeing look we have talked a lot and we've looked closely at price gaps between savers value village in not just thrift, but also discount in off price competitors.

Djabran: And all of that work reaffirms that we really have strong price gaps relative to that broader competitive set and in our five dollar USD AUR provides great value.

We did.

Djabran: Sharpen price on a small set of items, we were pleased with the results.

Djabran: Frankly that was not a material impact to our fourth quarter improvement.

Djabran: So we will remain focused on looking at competitive pricing.

Djabran: Respond dynamically when needed both in geography and category.

Djabran: Yeah.

Jubran Tanious: There's there's a really solid price value equation there for our consumer set in both Yeah, hey, Bob, this is Jubran. In terms of, you know, having the selection that's needed for, you know, a rough winter or what have you. We're pretty well covered on that. You know, we backstock throughout the year. So in the warm weather months, we're backstocking cold weather items. And that's a very important metric that we measure at every store, at the store level. And we know exactly what we want to accumulate in the months leading up to the start of the winter season.

Djabran: There is there is a really solid price value equation, there for our consumers in both countries.

Djabran: Yeah, Hey, Bob this to Brian in terms of having the selection that's needed for.

Djabran: No.

Djabran: A rough winter or what have you.

Djabran: We're pretty well covered on that we back stock throughout the year. So in the warm weather months, we're back stocking cold weather items.

Djabran: And that's a very important metric that we measure at every store at the store level and we know exactly what we want to accumulate in the months leading up to the start of the winter season, that's very important because.

Jubran Tanious: That's very important because while we maintain the proper production levels for the demand that we're seeing, it allows us to be very opportunistic if we want to have, say, more sweaters and ski jackets out there based on the weather that we're seeing. So, we're in good shape in both countries on that. And I would tell you, as we sit here in February, we are approaching the end of the backstocking season for the warm weather months. And we feel very good about where we're at on that as well.

Djabran: While we maintain the proper production levels for the demand that we're seeing it allows us to be very opportunistic if we want to have say more sweaters and ski jackets out there.

Djabran: Based on the weather that we're seeing so we're in good shape in both countries on that and I would tell you as we sit here in February we are approaching the end of the back stocking season for the warm weather months and we feel very good about where we're at on that as well.

Djabran: Okay. Thank you.

Michael Lasser: Your next question is from Michael Lasser from UBS, please go ahead. Good evening. Thank you so much for taking my question. Do you expect the Canadian business to comp positive in the first quarter? And if not, when would you expect that business to turn to positive comps? Thank you. Yeah, Michael, I think if you look at our guidance range for the year, and given what we said about the US continuing to outperform Canada, You know, it's somewhere in the downside scenario that looks a little bit like 24 with a low to mid single digit decline to an upside case of some recovery and driving.

Speaker Change: Your next question is from Michael Lasser from UBS. Please go ahead.

Michael Lasser: Good evening. Thank you so much for taking my question do you expect the Canadian business to comp positive in the first quarter and if not when would you expect that business to turn to positive comps. Thank you.

Michael Lasser: Yes, Michael I think if you look at our guidance range for the year and given what we said about the U S continuing to outperform Canada.

Michael Lasser: It's somewhere in the <unk>.

Michael Lasser: <unk> scenario that looks a little bit of like 24, with a low to mid single digit decline to an upside case of.

Michael Lasser: Some recovery in driving.

Michael Maher: you know, modest improvement, modest growth.

Michael Lasser: Modest modest improvement modest growth.

Michael Maher: I don't think, you know, we want to guide specifically to Q1. I would just say that our Q1 results to date are consistent with the outlook that we've given for Q1, which is that low single-digit overall total sales growth. You know, as far as how that's progressed, I think Mark mentioned it earlier, but we did see continued momentum in January coming out of the fourth quarter. That was helped a little bit by some favorable weather comparisons to last year. It was tough in January last year. That pattern flipped this year. February has been the more severe weather in both the U.S.

Michael Lasser: I don't think we want to guide specifically to Q1 I would just say that our Q1 results to date are consistent with the outlook that we've given for Q1, which is that low single digit overall total sales growth.

Michael Lasser: As far as how Thats progressed, I think Marc mentioned it earlier, but we did see continued momentum in January coming out of the fourth quarter that was helped a little bit by some favorable weather comparisons to last year. It was tough in January last year.

Michael Lasser: That pattern flipped this year February has been the more severe weather in both the U S and Canada, So thats muddied the waters a bit not uncommon for Q1.

Michael Lasser: and Canada, so that's muddied the waters a bit. Not uncommon for Q1, but quarter to date, if you just step back and look at our results through basically today, consistent with the outlook that we've discussed of low single-digit total revenue growth. And Michael, just to clarify, you do, I think in response to another question, you do expect positive comps in 1Q. Is that right? Yes. Got you.

Michael Lasser: But quarter to date, if you just step back and look at our results through basically today consistent with the outlook that we've discussed of low single digit total revenue growth.

Michael Lasser: Great.

Michael Lasser: Michael just to clarify you do.

Spots to another question you do expect positive comps in <unk>.

Michael Lasser: Alright.

Michael Lasser: Yes.

Michael Lasser: Got you and then as we think about 2026 does the arc of the impact to EBIT from the new stores.

Michael Maher: And then as we think about 2026, does the arc of the impact to EBITDA from the new stores work symmetrically, where you have a $10 million EBITDA drag from the new stores this year? Should you get all of that back and maybe even more in 2026 as they ramp up to full maturity and full profitability over the next few years? Yeah, I mean, I think the dynamic here is such that You've got such a large number that are late 2024 and then 2025. that are essentially, you know, I said this in the prepared remarks, 50 stores really between those two years that for some portion at least of 2025 are in their first year, which is, as we've said, stores are slightly unprofitable in their first year.

Michael Lasser: Work symmetrically, where you have a $10 million EBIT drag from the new stores. This year should you get all of that back and maybe even more in 2026 as they ramp up to full maturity and full profitability over the next few years.

Michael Lasser: Yes, I mean, I think the dynamic here is such that.

Michael Lasser: You have got such a large number that are late 2024, and then 2025.

Michael Lasser: That are essentially I said this in the prepared remarks 50 stores really between those two years that for some portion at least of 2025 are in their first year, which as we've said.

Michael Lasser: Doors are slightly unprofitable in their first year and add to that now, we're including Preopening expenses as well.

Michael Maher: And add to that, now we're including pre-opening expenses as well. That dynamic, first of all, is starting to smooth out. So this year's openings, like I said, we're a little bit back half-loaded, not as much as last year. We largely caught up by Q3. So that impact of 2026 won't be nearly the same as 2024 was on 2025. Add to that that those 50 stores will largely, many of them, be entering their second year. in 2026, or even their third year, some of them. And so we're now starting to fill the pipeline of stores in their first five years, when sales and profits both grow pretty rapidly.

Michael Lasser: That dynamic first of all is starting to smooth out. So this year's openings like I said, we have a little bit back half loaded not as much as last year, we largely caught up by Q3, so that impact of 2026 won't be nearly the same as 2024 was on 2025 add to that that those 50 stores we will.

Michael Lasser: Largely many of them be entering their second year.

Michael Lasser: In 2026 or even their third year some of them and so we're now starting to fill the pipeline of stores in their first five years, when sales and profits both grow pretty rapidly and.

Michael Maher: and provide a meaningful tailwind that we aren't, up till now, we have not yet had. We've not had the benefit of that.

Michael Lasser: And provide a meaningful tailwind that we arent up till now we have not yet had we've not had the benefit of that so as we reach the second year of this inflection.

Michael Maher: So as we reach the second year of this inflection. we'll see the benefit not only to top line, but also to bottom line.

Michael Lasser: We will see the benefit not only the top line, but also also the bottom line.

Carlos Gallagher: Thank you. Your next question is from Carlos Gallagher from Jeffries. Please go ahead.

Michael Lasser: Thank you.

Speaker Change: Your next question is from Carlos Gallagher from Jefferies. Please go ahead.

Michael Lasser: Okay.

Carlos Gallagher: Hi all, An here for Randy Konik at Jefferies. Thank you for taking our question. Just following up on Canada here, would you say that there is a trade-down benefit savers should be capturing as a result of the more pressured Canadian consumer or difficult macro? Or I guess I just want to unpack the dynamics there and if you would expect to be more of a beneficiary going forward as pressures persist. Thanks for the question. Look, I think in terms of as in previous calls, we've discussed a couple of things. One, we've got great brand awareness in Canada.

Michael Lasser: Hi, al on here for Randy <unk> at Jefferies. Thank you for taking our question just following up on Canada. Here would you say that there is a trade down benefit David should be capturing as a result of the more pressured Canadian consumer.

Speaker Change: Difficult macro or I guess I just wanted to unpack the dynamics, there and if you'd expect to be more of a beneficiary going forward its pressures persist.

Speaker Change: Thanks for the question.

Look I think in terms of as previously in previous calls we've discussed a couple of things one we've got great brand awareness in Canada, where part of the retail fabric.

Mark Walsh: We're part of the retail fabric at 90 plus percent. You know, our price value is sharp and we did the work and as I answered Bob's question earlier around price gaps, not just against thrift, but discounting off price competitors, we're focused on making sure that that's sharp. We may be seeing trade down from the higher income cohorts. And unfortunately, the gains that we're seeing from those trade down trade that benefit is being offset by continued pressure on our lower income consumer base, which is a meaningful cohort in our Canadian customer base. you know, a sizable portion of our customer base's household income is at or below the poverty line.

Speaker Change: At 90 plus percent.

Speaker Change: Our price value is sharp and we did the work and as I.

Speaker Change: Answered Bob's question earlier around price gaps not just against strip, but discount off price competitors, but we're focused on making sure that that sure.

Speaker Change: We may be seeing trade down from the higher income cohorts.

Speaker Change: And unfortunately, the gains that we're seeing from those trade down trade that benefit is being offset by continued pressure on our lower income consumer base, which is a meaningful cohort in our Canadian customer base.

Speaker Change: A sizable portion of our customer basis household income is at or below the poverty line and the pressure on those Canadian households has been enormous.

Mark Walsh: And the pressure on those Canadian households has been enormous. Ten percent of the purchasing power has disappeared really in the last year due to increases in fuel, housing, and food costs. And as we mentioned in the last quarter, they're not trading down, they're just, they're simply on the sidelines. So. From a data perspective, what we feel good about is When you look at shopper frequency combined with the low attrition rates that we're seeing across cohorts. building our customer base. Loyalty customer base is up double digits again in Canada. So the stability of that base is solid.

Speaker Change: 10% of their purchasing power has disappeared really in the last year due to increases in fuel housing and food costs and as we mentioned in the last quarter, they're not trading down Theyre, just theyre simply on the sidelines.

Speaker Change: So.

Speaker Change: From a data perspective, what we feel good about is.

Speaker Change: When you look at shopper frequency combined with the low attrition.

Speaker Change: Our rates that we're seeing across cohorts, we're building our customer base loyalty loyalty customer base is up.

Speaker Change: Double digit double digits again in Canada. So the stability of that of that base is solid we do have a lower income cohort who simply on the sidelines, but we think were filling up the top of the funnel and the bottom of the funnel is on the sidelines and once that gets a little healthier, we'll be able to get get it at both ends.

Mark Walsh: We do have a lower income cohort who's simply on the sidelines. But we think we're filling up the top of the funnel and the bottom of the funnel is on the sidelines. And once that gets a little healthier, we'll be able to get it at both ends.

Speaker Change: Very helpful. Thanks.

Anthony Pekamba: Your next question is from Anthony Pekamba from Loop Capital, please go ahead. Thank you for taking my question. So you mentioned in Canada that you were planning to significantly slow down new store openings in 2026. How do you think about, you know, the long term sort of store target in Canada?

Speaker Change: Your next question is from Anthony Dicamba from Loop capital. Please go ahead.

Anthony Dicamba: Thank you for taking my question so.

Speaker Change: So you mentioned.

Speaker Change: In Canada that you were planning to significantly slow down new store openings in 2026, how do you think about the long term store target.

Speaker Change: In Canada.

Jubran Tanious: Hey, Anthony, this is Jubran. I can answer and the guys can jump in, but... No question, it's the U.S. with all of the white space that we have that is our big growth opportunity. So I think, you know, to answer your question about what is the long-term look like in Canada, look, I think that we're always gonna be looking for opportunistic deals that we can do that put us in parts of a market where we know we'll be successful. But our saturation is... pretty expansive in Canada. And so it really comes down to opportunistic deals, infill in markets, strategic relocations.

Speaker Change: Hey, Anthony this to Brian I can answer the guys can jump in but.

Speaker Change: No question its the U S with all of the White space that we have that is our big growth opportunity.

Speaker Change: And so.

Speaker Change: I think to answer your question about what is the long term look like in Canada look I think that we're always going to be looking for opportunistic deals that we can do that put us in parts of our market, where we know we will be successful, but our saturation is.

Speaker Change: Pretty expansive in Canada, and so it really comes down to opportunistic deals in fill in markets strategic relocations.

Jubran Tanious: Those are things that we will always be looking at, but no question, the growth of new stores is going to be coming from the US. And we're pretty excited about that. I mean, we are, we are prospecting in virtually every major market, including in some white spaces that we had not in the past. I mean, Mark talked about the Southern Tier and the Southeast. starting to prospect locations. well so pretty exciting.

Speaker Change: Those are things that we will always be looking at but no question the growth of new stores is going to be coming from the U S.

Speaker Change: And we're pretty excited about that I mean, we are we are prospecting in virtually every major market, including in some white spaces that we had not in the past me Mark talks about the southern tier in the southeast and we're starting to prospect locations in those markets as well so pretty exciting.

Michael Maher: Got it. And then just as a quick follow-up, and you sort of mentioned a few sort of macroeconomic Canadian KPIs. You mentioned the Bank of America lowering interest rates, unemployment declining, consumer confidence taking up.

Speaker Change: Got it and then just as a quick follow up.

Speaker Change: <unk> mentioned a few.

Speaker Change: Sure.

Speaker Change: Macroeconomic Canadian Kpis, you mentioned bank of America, lowering interest rates unemployment declining consumer confidence taking up would you say there was sort of the three main.

Michael Maher: Would you say those are like sort of the three main KPIs that we should be looking at or maybe tracking if we want to try to get a gauge at a very high level for, you know, what's going on with the Canadian consumer?

Speaker Change: Kpis that we should be looking at or maybe tracking if we wanted to try to get a gauge and a very high level.

Speaker Change: Sure.

Speaker Change: What's going on maybe in consumer.

Michael Maher: Yeah, Anthony, this is Michael. I mean, you know, we are certainly not economists and don't want to pretend to be experts in that regard. But I think, obviously, the state of the Canadian economy is material and relevant to our business there. I think in addition to those things, you know, we obviously look at inflation and particularly when you think about who our core consumer is. It's inflation in non-discretionary categories, food, housing, transportation, you know, that really has put pressure on their discretionary spending over the last year or so. And so I think that was a major driver for the pressure on our Canadian business in 2014.

Speaker Change: Yes, Anthony this is Michael.

Speaker Change: We are certainly not economists and don't want to pretend to be experts in that regard, but I think obviously the state of the Canadian economy is is material and relevant to our business. There I think in addition to those things we obviously look at.

Speaker Change: At inflation and particularly when you think about who our core consumer is it's inflation in non discretionary categories food housing transportation.

Speaker Change: That really has put pressure on their discretionary spending over the last year or so and so.

Speaker Change: I think that was a major driver for the pressure in our Canadian business in 2024.

Michael Maher: That's helpful, thank you.

Speaker Change: That's helpful. Thank you.

Speaker Change: Got it.

Operator: Ladies and gentlemen, as a reminder, should you have any questions, you can press the star key. followed by the number one on your touchstone. Pause just a moment for any further questions.

Speaker Change: Okay.

Speaker Change: Ladies and gentlemen, as a reminder, should you have any questions you can press the star key.

Followed by the number one on your Touchtone phone.

Speaker Change: We will pause just a moment for any further questions.

Speaker Change: Yes.

Operator: There are no further questions at this time.

Speaker Change: There are no further questions at this time. Please proceed with closing remarks.

Operator: Please proceed with closing remarks. Once again, I'd like to thank everyone for their continued interest in Savers Value Village and we look forward to our next call at the end of the first Ladies and gentlemen, this concludes our conference call for today.

Speaker Change: Once again like to thank everyone for their continued interest in savers value village, we look forward to our next call at the end of the first quarter. Thanks again.

Speaker Change: Okay.

Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

We thank you for participating and ask that you please disconnect your lines.