Good afternoon, and welcome to Savers Value Village conference call to discuss financial results for the second quarter ending July 1, 2023. [Operator Instructions] Please note that this call is being recorded, and a replay of this call and related materials will be available in the company's Investor Relations website. The comments made during this call and the Q&A that follows are copyrighted by the company and cannot be reproduced without written authorization from the company. Certain comments made during this call may constitute forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from expectations or historical performance. Please review the disclosure and forward-looking statements included in the company's earnings release and filings with the SEC for a discussion on these risks and uncertainties. Please be advised that statements are current only as of the date of this call. And while the company may choose to update these statements in the future, it is under no obligation to do so unless required by applicable law or regulation. The company may also discuss certain non-GAAP financial measures. A reconciliation of each of these non-GAAP measures to the most direct comparable GAAP financial measure can be found in today's earnings release and SEC filings. Joining from management on today's call are Mark Walsh, Chief Executive Officer; Jay Stasz, Chief Financial Officer; and Jubran Tanious, President and COO. Mr. Walsh, you may go ahead, sir.

Thank you for joining us on our first earnings call as a public company. I'm excited to be here today to share our story and talk about the tremendous opportunity ahead of Savers Value Village. Later, Jay will discuss the details of our second quarter results and provide our initial outlook for the full fiscal year ending December 30, 2023. We are very pleased with our second quarter results, which exceeded our expectations on both the top and bottom lines. Comparable store sales increased 5.5%, and importantly, we saw a consistent and steady demand throughout the quarter. The strong comps, combined with sales from new store openings, led to a more than 6% increase in revenue on a constant currency basis, and our bottom line profitability remained very strong. Despite a $2.4 million negative impact from foreign currency, we grew adjusted EBITDA nearly 5% to $89 million and increased adjusted EBITDA margin to 23.5% of sales. Stepping back from the numbers, we continue to see a number of positive trends driving our business. The reuse economy and the thrifting community are growing, and this is fueling strong donation volumes and increasing diverse customer base. We are investing in people, process and technology to drive productivity and sales yield levels that generate extreme value to our customers and strong returns to our shareholders. For those of you who may be less familiar, Savers Value Village is the largest for-profit thrift company in the U.S. and Canada. Our mission is to champion reuse and inspire a future where secondhand is second nature. What do we mean by that? Well, every day, millions of pounds of clothing and household goods are thrown away despite the fact that they still have years of usable life left. In most cases, these items go to a…

Thanks, Mark. It's a pleasure to be speaking to everyone today on our first quarterly earnings call as a public company. Please note that since our IPO closed on July 3, we will be accounting for this transaction in our third quarter, and our second quarter results do not include certain nonrecurring items related to the IPO. As Mark indicated, our second quarter results were strong across the board and came in ahead of our expectations from both the top and bottom line perspective. Net sales increased 4% to $379.1 million. On a constant currency basis, net sales increased 6.2%. The increase was driven by a comparable store sales increase of 5.5% in new store openings, partially offset by our optimization plan to drive sales yield at the acquired 2nd Avenue stores and the closure of 3 Canadian stores in 2022. The strong comp demand was fairly consistent across all 3 months of the quarter with April and June slightly above the average and May, slightly below the average. Looking at our sales by country. Our U.S. retail net sales increased 4.4% to $196.5 million. Comparable store sales in the U.S. increased 5.6% driven by growth in transactions. Our Canada retail net sales increased 2.4% to $153.5 million, which includes an unfavorable impact of foreign currency. Comparable store sales in Canada increased 5.5%, also driven by growth in transaction volume. We opened one new store in the second quarter and a total of 9 net new stores over the past 12 months, ending the second quarter with 318 stores. Our new stores are performing well and right in line with our expectations. Cost of merchandise sold, exclusive of depreciation and amortization, increased 5.6% to $154.9 million. The increase was primarily related to higher labor and material costs from our increased…

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

So Mark, could you elaborate on comp trends that you saw as the second quarter progressed? Or just any change in momentum or customer behavior that you've seen in July? And then larger picture, could you speak or elaborate on new customer acquisition trends and initiatives in place to retain these new customers?

Certainly, through the quarter, we -- the second quarter and into July, the trends have been pretty consistent, Matt. In the second quarter, trans were up -- transactions were up 6.8%. Baskets were still down on an enterprise level around 1%. That trend hasn't really changed much into July. Donation volume remains steady. Transactions continue to drive good comps, and we're really excited to have particularly strong -- member transaction trends remained solid. Both -- transaction growth from both member and nonmember side have been continuing to grow through the second quarter and into July. The database -- the loyalty database has grown at a solid pace, high single digits. The store teams are really focused on signing up new individuals. That's probably one of the principal things that our front-end supervisors are focused on. So we're very happy with the continued progress of loyalty sign-ups moving forward. I think one of the other things that I would like to mention is we continue to see, through our own internal survey metrics, an influx of younger customers. That's obviously very encouraging for us in the long term. What's really interesting is our boutique stores in Canada were over-indexing in these new loyalty customer sign-ups, which is equally exciting. I think that answers pretty much all your question, right?

Absolutely. Yes, that's great color. And then maybe as a follow-up, Jay, could you just help break down the drivers of the second quarter gross margin decline? And then how best to think about gross margin through the back half of the year as you continue to grow sales yield?

Yes, Matt, for sure. As you pointed out, right, we did have a little bit of a headwind on our cost of merchandise sold during the quarter. That was more than offset with the leverage that we got on operating expenses. And breaking that headwind down in the second quarter really comes down to 2 components, and they're split about evenly within the quarter. One was we made higher labor investments. We made a conscious decision in June to increase our processing, which is really designed to match the demand and the solid comp sales trend that we saw during June. And then from a materials standpoint, we did have a couple of onetime items related to, as we close the books for the second quarter, related to the ramp of our [ Hyattsville ] CPC and then the continued integration of 2nd Avenue.

And Matt, let me add one thing, though. On the sales yield side, with sales yield up 8%, we love the fact -- [ as I pointed out ], we love the trade of having higher retail sales, a little less processing and driving that sales yield up. So we love that trade, and we're very pleased with the outcome from a store productivity perspective.

Your next question comes from the line of Randy Konik from Jefferies.

I want to start with, Mark, give us some perspective on -- maybe unlock a little bit more on the GreenDrop side of things and how that strategy has unlocked more quality of products versus just the quantity addition. And maybe a personal example, where I'm from at Long Island, you have a store in West Hempstead. It has a certain demographic around that store. And then you have a GreenDrop location at the Walt Whitman mall that has a different set of demographics, which gives you, I would think, higher quality of goods from that GreenDrop location. So maybe just give us some perspective on what the GreenDrop locations have done to kind of unlock that quality factor in the goods that you're getting?

Yes, Randy, I think Jubran and I will tag team in that one. I'll give a quick contextual start. I think it goes back to the yield dynamic and that yield metric that we've talked about a lot. And as we think about yield improving, especially at 8%, there are 2 things happening. There's the improvement of quality supply, and I think that's part and parcel of the GreenDrop strategy; and then the ability for us to continue to utilize our back stock in the most effective way possible. Those 2 pieces of execution through the supply channel are really helping us drive yield. GreenDrop, obviously, then is a supercharged element of that particular strategy. Jubran has got a lot more information on where we're headed and where we stand with respect to the rollout of the GreenDrop facilities.

Yes. Thanks, Mark. Hi, Randy. So yes, we're pretty excited about this. I mean just a quick reminder for the group, the GreenDrops are a staffed mobile donation location. They're clean, well maintained and really, they bring convenience to the donor. We've talked about this in the past. Convenience is paramount. So GreenDrop allows us to meet the donor where they already are in terms of their daily, weekly routine. So landlords like them because they help drive traffic and incremental rent. Municipalities like them because they're a convenient way for donors to donate, and they avoid the problems that sometimes accompany stand-alone, unmanned bins. But exactly to your question, Randy, we know that high-quality supply helps drive selection and sales yield. And so matching those 2 things together is a pretty powerful combination for us into the future. So our target this year is to open 50 GreenDrop locations. You mentioned a couple in Long Island. And we're looking in lots of markets to place these in high-traffic, affluent areas of town. We currently have line of sight to opening 40 to 45 locations, and we continue to build our pipeline towards our target. So all up and all in, very excited about the prospects not just this year, but into the future.

Yes, that's great. And another area I want to kind of get into here is the concept of varying productivity between the U.S. and Canada because I think it's clear [ or correct ] that when you think about the volumes you're doing in per unit in Canada, in a market that has, I think, much more -- a higher awareness of the Value Village concept and I think the country is more into thrifting than in the United States, yet the United States units are obviously a higher amount of volume per unit, yet the U.S. doesn't have a lot of awareness of your concept of Savers yet. Wouldn't it be fair to think through an opportunity for the volumes in the United States stores continuing to move markedly higher as the concept of thrift kind of moves -- becomes more pervasive in the economy of the United States but also the awareness of the Savers banner becomes more well aware with the U.S. consumer? Kind of give us your thoughts on that kind of dynamic or that concept that I'm thinking through.

Look, I think, Randy, there's a lot to unpack there. We love where we -- obviously, we love where we are in terms of brand awareness in Canada, standing at 90-plus percent. So you certainly got a bull's eye on our ability to continue to monetize and drive growth in Canada. We've had some remarkably successful store openings in the last 6 months, which were really good about our Canadian presence. That said, the U.S., we're even more excited because of the strength of the growth pattern in thrift and what we represent. These are hyperlocal stores, hyperlocal markets. We get our supply and our demand from within a 8- to 10-mile radius of each store. Generating that awareness through influencers, through great signage, through great presence, through great real estate, we're cracking the code on that. Our new stores in the U.S. are performing quite well. We're very happy with the performance. They're on pro forma. And so I think we're delivering against that initiative in a way that we feel like will be [ replicatable ] over the next 5, 10 years. And so we're really bullish about our opportunities in the U.S. and our ability to open up stores effectively.

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

I was hoping we could dive a bit deeper into the strong sales yield growth that you've been delivering, particularly in this quarter. Can you talk a little bit more about the strategic initiatives that are driving that and your outlook on the sustainability of that momentum as you enter the back half and as you comp some of these tougher compares into early 2024?

Well, let's start -- I think contextually, let's start, Brooke -- and thanks for the question. Look, our -- we run our business to maximize cash flow for future growth, and we're doing this by increasing sales in every pound of product we process. And Jubran, the operations team, they are focused on improving productivity across every possible element of our business model. Our store managers focus on sales, four-wall contribution, inclusive of both those front and back of house expenses. I think you're seeing that the fruits of that efforts play out as we've articulated over the last 4 years, and I think it will continue to go forward. And we're very -- we had a great -- you're right. We had a great quarter in terms of sales yield improvement, but we're not done.

Yes, I think that's right, Brooke. And I would say that -- we talk a lot about making sure that we match processing levels to demand. So if we see that a particular store is enjoying a nice trend of strong transaction comp growth, then our operators will see that and we will [ feed it ] accordingly to keep the flywheel going. So you got to start with processing levels and managing that well and matching it to demand to continue to enjoy robust sales yield. But beyond processing level, as we've talked about, there are other factors that really come into play. We talk about use of price. We talk about use of space. All of those things are very data-driven through dashboards that our operators have at the store level. And so to give you a very sort of timely and salient example as we think about transitioning from summer into fall, each of our stores have dashboards that can tell them exactly what the sales performance is by square foot and by linear foot in our stores so that you migrate through the season and you match what customers are buying in that particular moment in time as opposed to what a traditional retailer might do, which was a whole floor flip to fall as an example. So we try to match the customer exactly where they're at in terms of space, price, processing levels. And then we continue to do that in a data-driven way. We expect sales yields to be robust and strong as we go forward.

Great. And if I could just ask one follow-up. I was hoping you could elaborate on your store opening pipeline. Could you give us an update on your lease signings that give you confidence in an accelerating pace of store rollout?

Yes. Absolutely, Brooke. So we are on pace for this year. I think Mark mentioned that we are going to open 12 new stores this year. So feeling very good about that with grand opening dates already set. We have 22 locations that we are set to open next year, and we feel very good about the pipeline that is building for that. Here in the next few weeks, we will have signed our 16th lease, and the pipeline sitting behind that is pretty robust. What's encouraging and in general, and that's anecdotal but I'll share, that there seems to be a real ground shift happening in the conversations that our real estate teams are having in terms of increased awareness and interest by landlords and developers. So the team is doing a great job. We feel very good about the momentum that is building. We feel good about next year. And again, some of those productive dialogues that we're having with national commercial landlords are pretty exciting.

Your next question comes from the line of Michael Lasser from UBS.

Given what you've done so far already this year, your guidance for a 5% comp increase through the full year would imply that trends are going to slow both on a [ 1-year ] basis as well as a 4-year geometric basis if we roll back the clock of what you were doing all the way back prior to the pandemic. So why would that be the case?

Michael, this is Jay. And look, we've stuck -- the guidance that we have in the back half, we always plan this business right around the low- to mid-single-digit comp. And we have kept the guidance consistent with what we gave in our modeling and our thoughts previously. So we have in the back half on a consolidated basis right around a 3.5% comp for both Q3 and Q4. And look, we think we're well positioned to do that. Obviously, we had a nice quarter in Q2, but we thought it was prudent to maintain the back half guidance as we had kept our expectations previously.

And then my follow-up, Jay, is you mentioned that the model [ levered ] by about 50 basis points on operating expenses for the 5.5% comp increase in the quarter. Is that the right algorithm that we should consider moving forward? Or was there some unique factors, like the deployment of self-checkout, other cost containment measures, that had made the expense leverage look a little higher outside of some of the unique factors that you mentioned this quarter that may not be repeatable moving forward?

No, I think compared to our expectations, we did have very nice leverage in the quarter, and that was driven by a combination of our scale efficiency, our good expense controls as well as the strong comps. I mean high level, right, if we can continue to comp above inflation, then that's when we get leverage. We did see nice leverage in the quarter on occupancy, self-checkout initiative, as you mentioned which will anniversary early in '24 next year as well as corporate SG&A.

[Operator Instructions] Your next question comes from the line of Mark Altschwager from Baird.

I guess to start out, Jubran, maybe following up on the comment you made a moment ago about how the conversations with landlords are changing, does that potentially enable a faster pace of store openings or maybe accelerating sooner than you would have otherwise planned? Curious your thoughts there and just overall kind of the capacity of the organization from a pace of opening standpoint.

Yes. Mark, it's a good question. Listen, it certainly helps, right, I mean, just the general awareness and interest that we're seeing. But I would remind the group that finding attractive real estate is but one piece of the equation. We also think about supply as a necessary ingredient. We talked about GreenDrop, certainly spent time talking about on-site donations. Listen, there's plenty of high quality, good volume supply that's out there. But we want to make sure that we check that box in addition to finding a good parcel. So there's a few things at play. I think as we've talked about as an executive team, we feel good about the commitments we have. If we have the ability to go faster, we certainly will, but we want to be very thoughtful about the stores that we open. So we feel pretty good about where we're at. But yes, certainly, it's a good development.

That's great. And then just a follow-up, I think you said basket down 1% in the quarter. Can you comment on any trends in AUR versus UPT? And just any opportunity you see to take price in any particular categories to offset some of the higher labor costs?

Yes. Look, Mark -- this is Mark. So look, I think the basket is as what we've described in previous conversations. We're seeing that trade-off. There has been some price being taken, and the consumer is shifting the number of units they're putting into that basket. And that's where you end up at that basket being down. So there's definitely a price-unit trade-off happening pretty consistently. As we've also talked about, price increases are very strategic in nature. They're done on a category by category basis across geographies, and it's all based on [ sell-through ]. So we will continue to employ that very deliberate strategy to execute against our price increases moving forward.

Your next question comes from the line of Mark Petrie from CIBC.

Actually, I just wanted to follow up on a couple of the topics you've already discussed. Jubran, specific to the comment around the perception from landlords and developers, fair to say this is in the U.S. you're talking about and you're essentially catching up to the experience you already have in Canada? Or is that underway in both markets?

Yes. Hey, Mark. Good question. Yes. I would say the phenomenon is in both countries but to a larger degree in the U.S. As Mark mentioned earlier, we have such strong unaided brand awareness and presence in Canada that we're really a very well-known quantity there. And yet, there still continues to be a great opportunity for us in Canada. But yes, the lion's share of what I mentioned earlier, Mark, is in the United States.

Yes. Okay. Perfect. And you highlighted the strength and the benefit of the small format stores. I think you have 2 of those locations open. What are the plans for expanding that format?

So on the boutique side, we have been very pleased with our performance today. We have 2 in Toronto and 1 in Vancouver. And again, as I mentioned, I think one of the things that we're really excited about is the over-indexing of the youthful customer coming into that store and signing up to be part of the loyalty program. That's a very exciting piece of the equation for us as we deliver Savers -- that Savers experience into a more urban setting. We will continue to prosecute boutique opportunities as they become available. I think the only thing I would say about the boutique opportunity, it's a Canadian-only strategy at this moment.

Yes. Can I just ask one more? I just wanted to follow up, Mark, on the comments around price, and I know you have the tools to be pretty responsive on that. And I'm just sort of curious big picture how you're kind of looking at that opportunity today versus maybe where you were 6 months ago or a year ago. I don't know if you can kind of provide some context there.

Sure. I think we're looking at it in a very consistent manner. I mean we really are very strategic in the way we approach our price increases. The team really does look at it on a month-to-month basis, category by category across geographies. We're pleased that we continue to deliver value below $5. I think it's really powerful in terms of even though we have taken some price, we're still driving exceptional value for our consumer, both in the U.S. and in Canada. So the AURs are up low to mid-single digits. But again, we're very strategic in the way we're approaching those changes.

Your next question comes from the line of Bob Drbul from Guggenheim Securities.

Two questions for me. The first one is just with the completion of the IPO, can you just give us, Jay, an update on your expectation for where you're going to end up leveraged maybe at the end of the year and sort of how you think about leverage going forward on the balance sheet? And then the second question is just bigger picture, higher level. But can you just give us some insight in terms of your relationships with the nonprofit partnerships and sort of any feedback that you've gotten over the last few months from your partners?

Sure. Bob, I'll start with the leverage question. As we talked about in the prepared remarks, post IPO, our net leverage was about 2.3x. I would forecast by year-end to be right around 2x or just slightly under that. And then as we've talked about before, I mean, this business -- the beauty of this business is that it will continue to generate cash, especially now that we paid down some of that debt. And so we would naturally delever, say, 0.5 points a year. And like we've said, as a public company, we think a net leverage target of 1x to 2x is the right place to be. And as we build our cash, that's going to be a discussion with management and our sponsor about best ways to deploy that.

And Bob, in terms of the nonprofit relationships, I think they've never been stronger. Actually, Jubran and I had lunch with our very important partner here in the Puget Sound area. And what you'll hear from all of our nonprofit partners is they're excited about our growth efforts because they grow with us, and it is a very symbiotic relationship. They're very bullish about what we're trying to do, and they want to be part of that growth trajectory. So I would say the relationships have never been stronger.

There are no further questions at this time. I'd now like to turn the call back over to Mr. Walsh for any closing remarks.

Thank you, everyone, for your interest in Savers and participation on today's call. We look forward to speaking to you again when we report the third quarter. Thanks, again.

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a...