Savers Value Village - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered solid top-line growth and raised FY2025 guidance: Net sales rose 7.9% to $417.2M; U.S. comps +6.2% and Canada comps +2.6% as assortment and value resonated; Adjusted EBITDA margin 16.5%.
• Results beat Wall Street on revenue and EPS: Revenue $417.2M vs ~$406.7M consensus; Adjusted EPS $0.14 vs ~$0.12 consensus; management cited transitory margin headwinds in Canada processing and accelerated Two Peaches conversions, with margins expected to normalize in H2.
• Guidance raised across revenue, comps, net income, adjusted EPS, and Adjusted EBITDA; store openings refined to 25 and capex trimmed to $125–$140M; net interest expense guided at ~$67M and effective tax rate ~30% GAAP/~27% adjusted.
• Strategic catalysts: strong U.S. momentum, improving Canadian trends, pipeline of high‑quality real estate deals, and technology initiatives (Automated Book Processing now supplying ~50% of fleet), positioning long‑term margin recovery and share gains.
• Capital allocation: 2.7M shares repurchased in Q2, including 2.3M in conjunction with Ares’ secondary; $2.8M authorization remains, supporting per‑share metrics amidst improving fundamentals.

What Went Well and What Went Wrong

What Went Well

• U.S. strength and demographic broadening: U.S. net sales +10.5% to $228.8M; comps +6.2% driven by transactions and basket; customer base trending younger and higher income, consistent with secular thrift adoption.
• Canadian progress: comps +2.6% with favorable basket/transactions; third consecutive quarter of sequential improvement as assortment strengthened.
• Technology and operations: ABP rollout expanded to supply nearly 50% of fleet, supporting efficiency and selection; On‑site donations plus GreenDrop reached 79% of supply, bolstering sourcing.
  • “After seeing strong financial returns from our rollout of Automated book processing (ABP), we've expanded ABP to supply nearly 50% of the fleet.” — CEO Mark Walsh.
  • “OSDs plus GreenDrop… accounted for 79% of supply versus 78% last year.” — CFO Michael Maher.

What Went Wrong

• Gross margin pressure: Cost of merchandise sold rose 270 bps to 44.8% on higher Canadian processing levels and new stores; management expects H2 gross margins closer to last year as equilibrium is reached.
• Canada segment profit down: Canada segment profit fell $4.6M YoY in Q2 due to deleveraging and weaker CAD; FX translation lifts sales but is hedged with limited near‑term earnings impact.
• Near‑term investment drag: Accelerated conversion of the seven Two Peaches stores created modest, low‑single‑digit million‑dollar costs in Q2; largely behind the company now.

Transcript

Operator (participant)

Good afternoon and welcome to the Savers Value Village conference call to discuss financial results for the second quarter ending June 28, 2025. At this time, all participants are in listen-only mode. Later, there will be a question-and-answer session with instructions provided at that time. Please note that this call is being recorded, and a replay along with related materials will be available on the company’s investor relations website. Comments made during this call and the Q&A are copyrighted by the company and cannot be reproduced without written authorization. Certain comments may constitute forward-looking statements and are subject to risks and uncertainties that could cause actual results to differ materially from expectations or historical performance.

Please review the following disclosures of the forward-looking statements included in the company's earnings release and filings with the SEC for a discussion of these risks and uncertainties. These statements are current only as of the date of this call, and while the company may choose to update them 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, and a reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measures can be found in today's earnings release and the SEC filings. Joining management on this call are Mark Walsh, Chief Executive Officer; Jubran Tanious, President and Chief Operating Officer; Michael Maher, Chief Financial Officer; and Ed Aruma, Vice President of Investor Relations and Treasury. Mr. Walsh, you may go ahead, sir.

Mark Walsh (CEO)

Thank you and good afternoon, everyone. We appreciate you joining us today. We are very excited about our second-quarter results, which reflect our strong execution and serve as another proof point that our sharp value and compelling assortment resonates strongly with our consumers. Let me start with a few highlights from the quarter. Sales in our U.S. business grew 10.5%, with comparable store sales up 6.2%, driven by both transactions and average basket. These results underscore the long-term growth opportunity ahead of us. In Canada, our business continues to make progress in 2025, delivering 2.6% comparable store sales growth, an acceleration of 200 basis points from the prior quarter, marking a third consecutive quarter of sequential improvement. Despite a prolonged, choppy Canadian macroeconomic environment, our Canadian consumers are responding favorably to our fresh assortment and strong value proposition.

We opened four new stores in the quarter and now expect to open 25 new stores in 2025. As a group, our new stores continue to perform in line with our expectations, delivering strong unit economics. We remain confident in our long-term store growth opportunity and a targeted 20% store-level contribution margin. Turning to our loyalty program, we reached a milestone with over 6 million total active members. Financially, we generated nearly $69 million of Adjusted EBITDA in the quarter, or approximately 16.5% of sales. Finally, based on our first-half results, we are raising our revenue and earnings outlook for 2025. Michael will provide additional details on our outlook in his remarks. Parsing our results by geography, let's start in the U.S., where our performance was especially strong. The team has been disciplined in execution. Value selection remains a really unique thrift environment.

Consumers are responding as we continue to drive market share gains. The obvious question is which demographic is driving our growth trade down, secular tailwinds, or some combination? The data we have compiled from our insight work tells an interesting and compelling story. Based on our survey work, consumers are increasing their spend with us, driven by our value proposition and customer experience. In addition, over the last several quarters, our customer base has been getting younger and more affluent, with a growing propensity to shop with us that is not driven by economic circumstances. This speaks to the powerful and durable secular trends driving higher adoption of thrift. Helping to fuel this further, our competitive field research indicates price gaps to discount retail between 40% and 70%, prior to any tariff impact.

If upward pressure on new retail pricing intensifies, we believe we have a unique opportunity to introduce new customers to the great value and shopping experience Savers Value Village offers. Value always wins, but it is even more important in an environment where consumers continue to stretch their dollars. In short, near-term economic pressures are accelerating a longer-term secular tailwind that was already underway in the U.S., further highlighting the growth opportunity in front of us. Our exceptional treasure hunting experience, punctuated by a compelling combination of value and selection, serves all cohorts across the economic spectrum. In Canada, we led with a strong and compelling selection. Consumers responded well, as basket growth is indicative of our delivery of value and selection.

Our team has worked tirelessly using a data-driven approach to optimize our offering at the store level, paying off with our third consecutive quarter of comparable store sales improvement. All things considered, macroeconomic conditions were stable in Canada during Q2, and we have seen green shoots as election-related turbulence settled down. However, unemployment and inflation remain elevated, and consumer confidence is volatile amid ongoing trade and tariff uncertainty. That said, we are encouraged by consumer behavior to date as basket size and transactions have trended favorably, and we have seen sequential improvement across all regions. As indicated after Q1, we are far from declaring victory and still have work to do navigating a challenging economic landscape, but we are pleased with the progress we continue to see.

Moving on to new stores, we are excited about our accelerating square footage growth, which will be more U.S.-centric going forward. We opened four additional stores in Q2 and are refining guidance to 25 new stores in total for this year. New stores have performed in line with our expectations and remain our first and best use of capital to drive growth and compelling returns. Given the ongoing momentum, we are making near-term tactical investments focused on initiatives to enable sustainable long-term growth. In Canada, higher production levels are improving assortment. More great finds drive more repeat visits. This investment in processing and selection has had a transitory impact on Canadian profit margin, which we expect to normalize over the next few quarters.

In the U.S., we accelerated our investment in the Southeast, moving forward with the Two Peaches rebranding and repositioning efforts, completing conversion of all seven stores on an accelerated schedule. We believe this modest investment will provide a beachhead for ongoing expansion in the region. Additionally, we continue to embrace innovation, exploring new technologies and processes to optimize business performance. For example,After seeing strong financial returns from our rollout of Automated book processing (ABP), we've expanded ABP to supply nearly 50% of the fleet. I want to conclude by thanking our more than 22,000 team members for their extraordinary performance so far, which is reflected in our financial results. Without our people, we would not be in this position as we pursue our mission of making second-hand second nature.

H1 2025 has been a success, exceeding our expectations, and while macroeconomic pressures persist, strong execution, fresh assortment, and exceptional value position us well. I will now hand the call over to Michael to discuss Q2 financial performance and the updated outlook for the remainder of 2025.

Michael Maher (CFO)

Thank you, Mark, and good afternoon. As Mark noted, we had a strong Q2. Total net sales rose 7.9% to $417 million. On a constant currency basis, net sales increased 8.5% and comparable store sales rose 4.6%. We are especially pleased with double-digit growth in the U.S., where net sales increased 10.5% to $229 million. Comparable store sales rose 6.2%, driven by both transactions and average basket. The U.S. business continues to outperform the broader off-price retail peer group, benefiting from thrift adoption with a growing customer base that is younger and has higher household income. We are also encouraged by sequential improvement in Canada, where net sales increased 3.4%. On a constant currency basis, Canadian net sales rose 4.7% to $157 million, and comparable store sales increased 2.6%, fueled by higher average basket and transactions. Financially, we generated nearly $69 million of Adjusted EBITDA in the quarter.

This reflects the initial benefits of our execution in Canada, as consumers reacted favorably to increased selection. Cost of merchandise sold as a percentage of net sales rose 270 basis points to 44.8%, primarily due to higher processing levels in Canada and the impact of new stores. Rebalanced Canadian production levels are driving sales by providing better selection to customers, while creating some short-term pressure on gross margins. We anticipate improved flow through to the bottom line as demand builds and production levels are optimized. These cost increases were partially offset by year-over-year growth in On-site donations (OSDs) plus GreenDrop…, which accounted for 79% of supply versus 78% last year. Salaries, wages, and benefits totaled $87 million. Excluding IPO-related stock-based compensation, salaries, wages, and benefits as a percentage of net sales increased 30 basis points to 18.7%.

The increase was driven primarily by new store growth and an increase in incentive compensation expenses. Selling, general, and administrative expenses increased 6% to $88 million, primarily due to growth in our store base. As a percentage of net sales, SG&A decreased 40 basis points to 21.2%, primarily due to continued expense discipline. Depreciation and amortization increased 20% to $21 million, reflecting accelerated amortization of certain acquisition-related intangible assets, investments in new stores, off-site processing, and information technology. Net interest expense increased 1% to $16 million, primarily due to the impact of unwinding our interest rate swaps last year, partially offset by reduced debt and lower average interest rates. GAAP net income for the quarter was $19 million, or $0.12 per diluted share. Adjusted net income was $23 million, or $0.14 per diluted share. Second quarter adjusted EBITDA was $69 million, and adjusted EBITDA margin was 16.5%. U.S.

segment profit was $49 million, up half a million dollars versus the prior year, primarily due to increased profit from our comparable stores, partially offset by the impact of new stores and the Two Peaches conversions. Canada segment profit was $39 million, down $5 million versus the prior year period due to deleveraging of expenses as a percentage of sales, primarily associated with our efforts with Canadian production to build demand, as well as a weaker Canadian dollar. Our balance sheet remains strong with $71 million in cash and cash equivalents and a net leverage ratio of 2.5 times at the end of the quarter. We repurchased approximately 2.7 million shares of our common stock during the quarter. Of this total, 2.3 million shares were purchased at a weighted average price of $8.86 per share as a part of the secondary offering in May.

We also purchased 0.4 million shares under our share purchase authorization at a weighted average price of $8.17 per share. As of the end of the second quarter, we had approximately $2.8 million remaining on our share purchase authorization. Finally, I'd like to discuss our updated outlook for the remainder of fiscal 2025. We have exceeded our expectations for the first half, with strong U.S. comps and continued sequential improvement in Canada. New stores are meeting our expectations, putting them on track to begin contributing to profit growth in 2026, consistent with our previously stated goal. Our profit margins reflect the short-term tactical investments we're making in higher processing levels in Canada and accelerating the conversion of Two Peaches locations to our operating model. Additionally, a stronger Canadian dollar is contributing to better total sales results, but with limited short-term earnings impact due to hedging.

Based on these factors and the momentum we're seeing in our business, we are raising our previously stated outlook for the year. Our updated full-year outlook for 2025 now includes the following: Net sales of $1.67 billion to $1.69 billion, comparable store sales growth of 3% to 4.5%, net income of $47 million to $58 million, or $0.29 to $0.36 per diluted share, adjusted net income of $67 million to $78 million, or $0.41 to $0.48 per diluted share, Adjusted EBITDA of $252 million to $267 million, capital expenditures of $125 million to $140 million, and 25 new store openings. Our outlook for net income assumes net interest expense of approximately $67 million and an effective tax rate of approximately 30%. For adjusted net income, we're assuming an effective tax rate of approximately 27%.

I'd also like to briefly touch on the expected cadence of results for the third and fourth quarters. We expect sales growth in the third quarter to be roughly consistent with the second quarter, with total sales growth in the high single-digit % range and comparable store sales growth in the mid-single digits. We plan to open 10 new stores during the quarter. We expect fourth quarter total sales growth in the mid-teens % range, including the impact of the 53rd week, with comparable store sales growth in the low single digits as we begin to lapse stronger comparisons. We expect adjusted net income and adjusted EBITDA in dollars to be roughly balanced between the third and fourth quarters, with the fourth quarter slightly higher than the third quarter. This concludes our prepared remarks. We would now like to open the call for questions. Operator?

Operator (participant)

Yes, sir. Thank you. Ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question, please press star and one on your telephone keypad. Once again, star and one if you wish to ask a question. We now have our first question. This comes from Matthew Boss from J.P. Morgan. Your line is now open. Please go ahead.

Jubran Tanious (President and COO)

Great, thanks and congrats on the nice quarter.

Mark Walsh (CEO)

Thanks, Matt.

Jubran Tanious (President and COO)

Mark, could you elaborate on the cadence of the second quarter same store sales, maybe across the U.S. and Canada, how you've seen momentum progress into the third quarter? Mark, just taking a step back, how much of the inflection do you attribute to the team's execution relative to macro improvement?

Mark Walsh (CEO)

Thanks for the question, Matt. Let's start in the U.S. The U.S. business was very strong. I think the team executed our strategy exceptionally well, delivering that sharp price value, the elevated shopping experience, and merchandise and selection that delivered what our customers are demanding resonated with consumers across the demographic spectrum, and that trend continued with increasing penetration in the younger and higher household income demographics. We're very pleased with that. You add to that execution the secular trend, and ultimately value is winning. We saw that in our transactions and our basket improvements. I'd also add that the new store fleet has met its goals, so it's been a very, very satisfying quarter for us in the U.S. One final note on the U.S. business, and this goes actually for the Canadian business as well. Our team continues to provide that FAST-friendly donation approach.

As you heard, we're close to 80% on-site donations GreenDrop mix in terms of our supply. That's a fantastic place for us to be. The Canadian team had a little bit of a different executional challenge, and they rose to the occasion. We really focused our Canadian team on incremental efforts in meeting our thrifters' expectations on selection. You combine that with a sharp value proposition.

Jubran Tanious (President and COO)

That's the point.

Mark Walsh (CEO)

This is the third. I'm sorry?

Jubran Tanious (President and COO)

Oh, I'm sorry. Go ahead.

Mark Walsh (CEO)

Oh, the results of these efforts, I think you've seen a continued improvement in our business. The sales improvements by cohort was widespread. The lower end and the higher end of household income cohorts showed the most improvement, which is really a powerful indicator of our model strength and wide acceptance. Hey, Matt, are you there?

Jubran Tanious (President and COO)

Yeah, I can hear you.

Mark Walsh (CEO)

Yeah, we had a little technical problem. Sorry about that.

Jubran Tanious (President and COO)

Okay.

Mark Walsh (CEO)

I was saying that the lower and higher end of our income cohorts showed the most improvement in Canada. I think it's a powerful indicator of our model strength and wide acceptance in that country. The younger cohort was also an area of growth. As indicated in the prepared remarks, we did invest in selection in this quarter, and as the Q3 starts, we are zeroing in on that equilibrium between items put out and items sold. I think the vertical integration of our model is one of the unique elements of our position in retail and remains a strength of the company. Ultimately, the trend is continuing into July, and we love the momentum as we head into the third quarter. Michael, why don't you touch on the cadence of the.

Jubran Tanious (President and COO)

Yeah, sure.

Mark Walsh (CEO)

Comps Matt asked?

Jubran Tanious (President and COO)

Yeah, Matt. We saw comps accelerate pretty meaningfully in both countries beginning in May and continuing into June, and we've seen that trend continue to accelerate into July in both countries as well.

Operator (participant)

Wow, it's a great color. Maybe, Michael, just as a follow-up relative to this year's 15.4% adjusted EBITDA margin guidance, is there a way to think about the progression of margins beyond this year if we see consistent low single-digit comparable store sales? Just given, I know you have the new store maturity curve, just want to understand all the different pieces.

Jubran Tanious (President and COO)

For sure. Yeah, Matt, as we've said many times, we believe our long-term algorithm includes high teens EBITDA margins. We continue to believe that. For the near to medium term, we'll likely be in the mid-teens, and that reflects the investments that we're making in new stores, which we're now in year two of that journey. As we continue to build out that pipeline, we expect margins to improve. That won't be overnight, but we do think our 2025 EBITDA margin is roughly the trough.

Operator (participant)

It's a great color. Best of luck.

Mark Walsh (CEO)

Thanks, Matt.

Jubran Tanious (President and COO)

Thanks, Matt.

Operator (participant)

Thank you. The next question comes from Brooke Roach from Goldman Sachs. Your line is now open. Please go ahead.

Good afternoon, and thank you for taking our question. Mark, I was hoping you could elaborate on some of these transitory headwinds to margin that you're looking at seeing into the back half of the year that's weighing on the incremental flow through from these really strong comps. Can you help us understand what those things are, how transitory they are, and then, Michael, could you quantify the impacts that we're seeing and how that phases through the year?

Mark Walsh (CEO)

Yeah, I appreciate the question, Brooke, and we'll have Jubran, I think Jubran will have some perspective on it as well. Look, after we reported the first quarter, as Michael just mentioned, the business really took off. We were really excited about that acceleration, and we took the opportunity to feed an improving trend in Canada by increasing selection. That's one of the transitory issues that we're referring to. We accelerated our Two Peaches conversion, which in the scheme of the business is not nearly as significant as that feeding of the trend in Canada. We believe that this will help drive long-term durable growth. I think Michael could go over the financial implications, but Jubran, why don't you take a second and outline what we did in Canada on the selection piece?

Jubran Tanious (President and COO)

Sure, thanks, Mark. Yeah, Brooke, as Mark mentioned earlier, we've seen sequential strengthening in Canada in terms of transactions and sales, and if you recall where we were this time last year with some significant pullbacks in production and frankly lessons learned from that, we wanted to feed the momentum. When we produce that equilibrium, we're trying to match items to the floor to anticipated transactions. As you think about the lap, as you think about the strengthening trend, it's sort of an inherently imprecise thing. What we know is that it's hard to get it right on the pin, especially with a dynamic situation like that, but if we're going to err, we're going to err on the side of selection to the Canadian consumer. That's exactly what we've done.

As we think about the remainder of the year and things start to settle down, certainly from a comp perspective, we'll be able to dial that production amount in to get more in line with equilibrium, if that makes sense. The second piece of that that Mark mentioned is the Two Peaches fleet. A reminder to the group, this was the acquisition that we made a little over a year ago, fairly modest seven-store chain in the greater Atlanta market, de minimis to our overall P&L, but what it represents is a strategic beachhead for us as we look to expand in the U.S. Southeast and take advantage of that white space.

We converted the first two stores, sort of savorized them, if you will, bringing them up to our standards of selection and merchandising, and we took the opportunity to accelerate the conversion of the remaining five as we are currently actively prospecting new sites in the U.S. Southeast.

Michael Maher (CFO)

Brooke, this is Michael, just to speak to your question about financial impact to that. We think Q2 is the peak impact. As Jubran just said, we're lapping the beginning of the pullback from last year, and we're the exact reverse of that this year. We're really on our front foot and driving volume. We saw that play out last year in terms of obviously reduced demand in the third quarter. We expect to see the reverse of that, improved sales trends in the third quarter of this year. As the trends sort of normalize going forward from here and we find that equilibrium, I would expect the second half gross margins to be much closer to last year than we saw in the first half. Same thing on the Two Peaches investment.

Again, as Jubran indicated, small, the cost of that is in the low single digit millions of dollars and now largely behind us as well. Again, expecting second half gross margins to be closer to last year.

Great, thanks so much. I'll pass it on.

Mark Walsh (CEO)

Thanks, Brooke.

Operator (participant)

Thank you. The next question comes from Randy Konik from Jefferies. Your line is now open. Please go ahead.

Appreciate it. Hey, guys. I guess, Mark, just hearing the commentary thus far, it sounds like there's a lot more visibility in the business, less volatility. Maybe comment on that and elaborate a little bit on the, you kind of talked positively about transaction and basket, and you also made a comment, maybe get a little more granular there if you can. On the pricing side, you talked about if the industry starts to move a little bit on pricing and you have that great price gaps, and we know you have a low average dollar value of, let's say, $5 or so per unit. Do you see some opportunity while maintaining those price gaps to get a little lift further in AUR potentially?

It just feels like where we're going from here is a lot more visibility in the business, a lot more opportunity to drive the business both through transaction, basket size, even AUR, and things kind of keep moving in the right direction, execution, et cetera. Maybe pull that all together and react to those comments.

Mark Walsh (CEO)

Sure. Thanks for the question, Randy. Look, I think on the pricing opportunity, the team does a great job. We're in the field all the time, performing competitive price work, understanding what not only our direct thrift competitors are doing, but what the discount retailer is doing, as you mentioned. Our price gaps are pretty substantial to the discount retail world, 40 to 70%. If that price gap were to widen, it gives us an opportunity and optionality. I'm not going to talk about the optionality, but it certainly gives us more optionality. Either way, it's very advantageous to us. It gives us an opportunity to really gain share. I think that's really ultimately what we're trying to do. From a visibility standpoint, how I would react to that is our strategy reflects the visibility into the business. We saw opportunities to invest. We've made quick decisions.

I think the strategic investment in selection in Canada, continuing to improve on a trend that has now taken hold over three consecutive quarters, is all about visibility. The team is focused on the data we're receiving, how we use that data to drive the business forward. I think you're seeing it in a 6.2% comp in the U.S. in terms of execution and the third straight quarter of sequential improvement in Canada.

Super helpful. Michael, lastly for you, two things. You gave us the guidance for the third and fourth quarter on the EBITDA, dollars balanced. Any kind of granularity that we should be thinking about from a gross margin versus SG&A perspective, just to help us from a modeling perspective for everybody on the call? Secondarily, as you think about or what we've been hearing about in the real estate market is supply is opening up more and more. It feels like you guys should have some more visibility and even more opportunity as we go into 2026 and 2027 from a real estate perspective. Maybe give us some of your thoughts there as well on real estate. Thanks.

Jubran Tanious (President and COO)

Sure, thanks, Randy. I'll go ahead and take your question on the guidance and the cadence of that, and then maybe let Jubran speak to real estate. As far as the components of that guide, I would say, as I mentioned earlier, first of all, margin's going to be closer to last year in the second half overall. I would expect those comparisons to sequentially improve from Q3 to Q4, largely because we're continuing to see the new store class from last year mature, and that helps to provide a continuing and growing tailwind. As far as OpEx overall for the year, I expect that to be slightly better than last year as a percentage of sales. The OpEx dollars are a little bit lumpy by quarter in the second half.

What I would say is that as a percentage of sales, I expect OpEx to be reasonably consistent between Q3 and Q4.

Mark Walsh (CEO)

Great. Randy, the new stores, as Mark mentioned in the prepared comments, we're pleased with the new store performance that we have so far. We're also very pleased with the pipeline formation that we're seeing. I think we've talked about this in the past, and I believe the momentum has continued. We're seeing good muscling up by the team. We're seeing high-quality deals come across. The conversation with landlords, we're seeing a good appetite from them in terms of the mainstreaming and realization that thrift can be a compelling part of their real estate mix. Absolutely, we are looking at high-quality deals. We are very pleased with the pipeline going into 2026, and we expect that to continue in the out years.

Thanks, guys.

Thanks, Randy.

Operator (participant)

Thank you. The next question comes from Mark Altschwager from Baird. Your line is now open. Please go ahead.

Jubran Tanious (President and COO)

Great, thank you. Maybe starting with that, the last point on the real estate, you did refine the store opening targets this year to 25 versus the 25 to 30. I guess, what happened to the five at the high end? Is that getting pushed into early 2026, and could that potentially mean a more front-end loaded real estate opening schedule for next year, or perhaps a faster pace at openings if those were pushed a little bit later?

Mark Walsh (CEO)

No meaningful change. Listen, we've always believed it's going to be 25 to 30. We want to do high-quality deals. We feel very confident about the 25. We expect next year to be a very similar number. There is nothing magical about, you know, midpoint of 25 to 30, honestly, Mark. No, there's nothing systemic underneath any of that.

Jubran Tanious (President and COO)

Okay. Could you update us on labor costs and what you're seeing from an inflation perspective there at the front of the store? On the production side, what opportunities do you see to drive some greater efficiency as you execute on these higher production levels? Thank you.

Michael Maher (CFO)

Hey, Mark, this is Michael. I'll take the labor cost thing and then let Mark speak to the production piece. I'd say fairly typical labor costs, you know, they grow. Hourly labor costs, wages grow. They typically outpace inflation. This year's no exception. Not particularly different though from our long-term averages.

Mark Walsh (CEO)

I think on the production side, our approach is always to be innovative as we think about every part of our business. We're constantly trying to improve our process. We are testing different approaches as we speak. They're not ready for prime time. That clearly, as a meaningful part of our cost structure, is a point in which we really place a lot of emphasis. As the quarters progress, we should be talking more about innovation as we progress down that path.

Michael Maher (CFO)

Excellent. Thank you.

Jubran Tanious (President and COO)

Thanks, Mark.

Mark Walsh (CEO)

Thanks, Mark.

Operator (participant)

Thank you. The next question comes from Michael Lasser from UBS. Your line is now open. Please go ahead.

Good evening. Thank you so much for taking my question. In the last several years, Savers Value Village has seen a significant inflection in its second half profitability relative to the margin relative to the second quarter. Now you are guiding to a margin that is similar to your second quarter. Why should that be the case? To what degree are some of the unanticipated costs that impacted the second quarter going to linger into the second half of the year? Given those unanticipated costs and the difficulty that you found processing in Canada, are there systems or other investments that you can make to improve the visibility with which you continue to forecast the business?

Michael Maher (CFO)

Michael, this is Michael. Let me take the first part of that question about the half-two margin. First of all, our overall view on half-two margins, midpoint is roughly unchanged from where we were before. What this is, I think the biggest change this year relative to any prior year in our history is just the acceleration of our new store growth and the impact that has on our profit margins in the near term. As we've mentioned before, that was backloaded last year, so that's weighing on our margins as we go through this year. We are now entering the second year of that and seeing those stores mature, and the good news is they are meeting our expectations in terms of that inflection. That does continue to be a factor in terms of our EBITDA margins.

The other dynamics that we talked about earlier on this call, the Canada processing, the Two Peaches conversions, again, we believe those were peak impacts in the second quarter, much less impact as we go forward into the back half of the year. One other factor that does play into the updated guidance and the change in sales relative to EBITDA is the stronger Canadian dollar. When we began the year and initially provided guidance, it was trading at about $0.70 U.S. That's now a little north of $0.72, close to $0.73, if you believe some of the forward rates. That has an impact on our sales. Our sales, Canadian business sales, when translated into U.S. dollars, are now higher, and that's almost half of the incremental sales in our new guidance midpoint relative to the previous guidance.

It's not much of an impact to the bottom line because of our hedging. It's specifically designed to minimize swings in the short term in our profit related to FX. Over the longer term, the stronger Canadian dollar is good for us, all else equal. It just doesn't have a meaningful impact on the bottom line in 2025.

Are there investments that could be necessary to improve the visibility in the business?

Mark Walsh (CEO)

You mean?

Go ahead, Michael. Could you read the text that left?

The question is, are there investments in systems or other areas of the infrastructure that Savers Value Village could make to increase the visibility into the profit outlook for the business?

I think what we're trying, what we're testing, we're actively looking at every process that we have in this company to look for improvements. Our goal is to increase the profitability of the business, increase the ability for us to even be more nimble than we already are through technology, through process improvements. That is part of our DNA. I think over the window of the last five years, we've dramatically shifted the way thrift operates, certainly within our company, and we hope to do a similar transformation in the next five years.

Michael Maher (CFO)

Yeah, Michael, this is Michael again. I would just add too that, like anything, in periods of change when we are looking to find that equilibrium, for example, the Canadian macro challenges we've experienced over the last year, some of the self-inflicted issues that we had beginning in the third quarter of last year, rebalancing and refining that equilibrium makes forecasting inherently more imprecise. As we're now finding that equilibrium, we're finding that balance, it tends to be easier to forecast within a given range in the near term.

Understood. Thank you very much.

Thank you.

Operator (participant)

Thank you. Yes. The next question comes from Peter Keith from Piper Sandler. Your line is now open. Please go ahead.

Hi, this is Sarah on for Peter. Thanks for taking our question. Selection or value selection seemed to be a driver for strength in both the U.S. and Canada. I'm just wondering, is there anything to read into those comments or perhaps specific improvements on the processing side that could be translating to better sales?

Mark Walsh (CEO)

Yeah, thanks for the question. This is Jubran. I would tell you that we are always looking to dial in what we put in front of the shopper for the particular time of year that we're in. To give you a particular example, I think this group is familiar that we do backstock off-season product, and we have gotten better and better over the years as part of a continuous improvement effort that Mark has talked about to become more and more precise about putting the right thing on the floor in the right amount and at the right time of year. As you think about, for example, a seasonal transition, we are not like typical retail where we do a wholesale flip, for example. We match customer preferences and slowly contract our out-of-season and expand our incoming season to match customer preference as we go.

I think that is just one example of several that allow us to become sharper and sharper in terms of our value proposition and selection to the shopper. Yeah.

I think in best-in-class, when you think about best-in-class thrifters, which we believe we are, thrifters demand selection, they demand cost and freshness. Us turning, I mean, we turn 15 times a year. That's part of our DNA. That's what makes us special. I think that's what we expect and our shoppers expect of us.

Okay, great. Thank you.

Thank you.

Operator (participant)

Thank you. The next question comes from Owen Rickert from Northland Capital Markets. Your line is now open. It seems like the line got disconnected. We'll move to the next question. It comes from Anthony Chukumba from Loop Capital Markets. Your line is now open. Go ahead.

Mark Walsh (CEO)

Thanks for taking my question. Congrats on a really strong quarter. I guess my first question.

Thank you.

No problem. Embedded into your original guidance, if I remember correctly, it was like a $10 million or so headwind from the fact you had all these, you know, sort of mature stores. Obviously, they, you know, it takes your stores a while to mature because or longer to mature because you have to collect the donations, right? Is that still the estimate, I guess, that's built into your revised guidance?

Michael Maher (CFO)

This is Michael, Anthony. Yes, no change in that. The new stores are progressing according to our previous outlook.

Mark Walsh (CEO)

Got it. Just one last thing on Canada, and certainly really encouraging to see the improved performance there. I remember last year, part of the reason that you probably cut back a bit too much in terms of your inventory seats in Canada. How much of just kind of getting back in stock in Canada, how much has that continued to be a tailwind, or has that tailwind sort of run the course at this point? Thank you.

I think after this last quarter, we've gotten a selection where we wanted to be. As Jubran articulated, that delicate equilibrium is always something we're chasing. I think we feel good about where we're starting the third quarter, and we feel good about the continued momentum into the third quarter, July, in that particular aspect of our business.

Got it. Good luck with the back half of the year. Thanks.

Thank you.

Thank you.

Operator (participant)

Thank you. There are no further questions at this time. I'll turn the call back to Mr. Mark Walsh for any closing remarks. Please go ahead, sir.

Mark Walsh (CEO)

Thank you. Thank you, everyone, for your interest in Savers Value Village. We look forward to updating you on our second half progress in late October. Talk to you then. Thank you.

Operator (participant)

Thank you. This concludes our conference call for today. Thank you all for participating. You may now disconnect.