Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Savers Value Village Inc (SVV, Financial) reported positive comp sales growth in the US, driven by increases in both transactions and average basket size.
- The company opened nine new stores in the third quarter and is on track to open 29 new stores for the year, with plans to open 25 to 30 new stores in 2025.
- SVV's loyalty program saw double-digit percentage growth in active members in both the US and Canada, with loyalty members accounting for 72% of total sales in the quarter.
- The company generated $82 million of adjusted EBITDA in the quarter, representing more than 20% of sales, showcasing the resilience of its business model.
- SVV is making significant progress in its new store expansion plans, with a focus on the US market, particularly in underpenetrated regions such as the South and Southeast.
Negative Points
- The Canadian business continues to face challenges due to a difficult macroeconomic environment, with comp sales trends softening.
- Comparable store sales in Canada declined by 7.5%, primarily driven by declines in transactions, and were impacted by a timing shift in the Canada Day holiday.
- New store openings are a short to medium-term headwind to profit margins, as new stores typically open at roughly half of their mature sales levels.
- Investments in offsite processing are impacting profit margins due to additional activities and costs, including freight and overhead.
- The company had to adjust its processing levels in Canada after pulling back too far, which initially caused sales trends to decelerate further.
Q & A Highlights
Q: Could you elaborate on the progression of same-store sales trends in the third quarter and trends seen so far in October and early November in the US and Canada?
A: The trend in both Canada and the US improved from July through September, and this trend has continued into the early fourth quarter. - Mark Walsh, CEO
Q: Could you help break down drivers of the third quarter gross margin contraction and how to think about the margin profile for next year?
A: Gross profit margin deleveraged due to new stores and lower comp sales. New stores typically open at half their mature sales levels, impacting margins. However, investments in offsite processing are being mitigated by improvements in cost per unit. We expect similar trends in the fourth quarter, with the degree of deleverage depending on sales. Long-term, a low single-digit comp is sufficient to maintain EBITDA margin, but near-term headwinds from new store openings will continue into 2025. - Michael Maher, CFO
Q: Can you elaborate on the tests being conducted to improve performance in the Canadian business and whether these can be applied to the US?
A: We tested several promotional and pricing strategies, with strategic price reductions by category and grade showing the most promise. We are investing in tools to monitor our consumer proposition and will adopt this approach throughout North America in early 2025. The Canadian macro environment remains challenging, but we are optimistic about long-term market share stability and growth. - Mark Walsh, CEO
Q: Could you discuss the guidance adjustment and the assumptions for the fourth quarter?
A: The narrowing of guidance reflects third-quarter performance, with the US in line and Canada softer. We assume no significant macro changes in Q4. The US is expected to continue low single-digit comp growth, while Canada could range from low to mid-single-digit declines. The higher end of guidance assumes some improvement from selection and pricing efforts. - Michael Maher, CFO
Q: What are the new store economics and how are recent openings performing?
A: New stores typically reach profitability by year two, with returns around double our cost of capital. The 2023 class of stores is maturing as expected and is now profitable. We are pleased with the predictive model used for new store approvals, and the pipeline is growing, with new deals now targeting early 2026. - Michael Maher, CFO and Jubran Tanious, COO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
