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DATE

Thursday, Aug. 6, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer - Mark Walsh
• President and Chief Operating Officer - Jubran Tanious
• Chief Financial Officer - Michael Maher
• Vice President of Investor Relations and Treasury - Ed Yruma

TAKEAWAYS

• Total Net Sales -- $448.2 million, an increase of 7.4% reflecting growth in the U.S. business and contributions from new store openings.
• U.S. Comparable Store Sales -- 6.6%, driven by increases in both average basket and transaction counts across regions and demographics.
• Canada Comparable Store Sales -- 0.8%, which included a 70-basis-point benefit from an earlier Easter holiday shift.
• Adjusted EBITDA -- $74.5 million, up 8% due to productivity initiatives and higher top-line sales in the U.S. market.
• Adjusted EBITDA Margin -- 16.6%, a slight increase from 16.5% in the prior year despite headwinds from new store pre-opening expenses.
• Cost of Merchandise Sold -- 43.1% of net sales, a decrease of 170 basis points reflecting efficiency initiatives and growth in high-quality on-site donations.
• Salaries, Wages, and Benefits -- $85.5 million or 19.1% of sales, decreasing from 20.8% primarily due to lower IPO-related stock-based compensation expense.
• Selling, General, and Administrative Expenses -- $101.7 million, including a $2.4 million impairment charge related to the closure of a Canadian warehouse processing facility.
• Interest Expense -- $13.0 million, representing a 19% reduction following debt refinancing and repricing actions that lowered borrowing costs.
• Adjusted Net Income -- $22.3 million or $0.14 per diluted share, which excludes the impact of debt extinguishment and transaction costs.
• Cash Balance -- $91.9 million, providing capital for organically funding new store growth and reducing net leverage.
• Net Leverage Ratio -- 2.4x at quarter end, with management targeting a ratio under 2.0x by the end of next year.
• Share Repurchases -- 1.2 million shares, executed at a weighted average price of $8.10 per share during the quarter.
• On-site Donations -- 84.9% of total pounds processed, representing the company's most cost-efficient and high-quality source of supply.
• Sales Yield -- $1.56 per pound processed, an increase from $1.46 reflecting improved pricing precision and sell-through outcomes.
• New Store Openings -- Six locations opened in the quarter, with a new North Carolina location delivering the highest opening week sales in company history.
• ThriftIQ Pilot Impact -- 100 basis points of higher gross profit dollar growth in pilot stores compared to non-pilot locations due to data-driven pricing consistency.
• Net Sales Guidance -- $1.77 billion to $1.79 billion for the full year, a narrowed range from the previous expectation of $1.76 billion to $1.79 billion.
• Adjusted EBITDA Guidance -- $265 million to $275 million, updated to incorporate the costs and benefits of the phased ThriftIQ rollout.
• CapEx Guidance -- $125 million to $145 million, prioritized for opening approximately 25 new stores during the fiscal year.
• Comp Sales Growth Guidance -- 3% to 4%, raised from a prior low end of 2.5% based on first-half momentum.
• Total Headcount -- 24,000 team members, supporting retail and processing operations across the U.S., Canada, and Australia.
• Pounds Processed -- 282 million pounds, reflecting stable supply levels across the store network.
• Interest Expense Reduction -- $20 million on an annualized basis over the last year, driven by debt refinancing and subsequent repricing.
• Weighted Average Shares -- 160 million projected for the full year, assuming no additional share repurchases.

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RISKS

• Maher noted that conditions in the macro environment "remain stable but sluggish" in Canada, leading the company to plan for roughly flat comparable store sales in that region.
• Walsh stated that the company is "still seeing pressure in Canada at the lower end of the household income demographic," which contributes to limited top-line growth in that segment.

SUMMARY

Management reported consecutive quarters of year-over-year Adjusted EBITDA growth, driven by sustained transaction and basket size gains in the U.S. business. The company stated that expansion remains prioritized in the U.S. market, where new locations in new regions are reaching profitability thresholds ahead of internal maturation expectations. Strategic focus is centered on the deployment of ThriftIQ, a proprietary platform that uses a data set to automate pricing decisions and improve sales yields. Management indicated that financial objectives include a return to high teens Adjusted EBITDA margins within three years, supported by productivity gains in Canadian processing and the scaling of the U.S. store fleet.

• CEO Walsh described ThriftIQ as a proprietary data set across 45,000 brands used to provide "more consistent pricing recommendations while preserving compelling customer value."
• President Tanious explained that ThriftIQ simplifies store operations by having team members identify brands to generate automated pricing based on historical sell-through data.
• Management reported that more than 50% of the 2025 class of new stores generated positive four-wall contribution in the second quarter.
• The company plans to reduce grader training time for new employees by approximately 50% through the implementation of ThriftIQ.
• CFO Maher indicated that maturation of the new store fleet and other profit initiatives support a target of 50 to 100 basis points of annual Adjusted EBITDA margin expansion beginning in 2027.
• Management noted that younger and affluent demographics are the fastest-growing cohorts, describing a "sandwich effect" where both ends of the income spectrum are outpacing middle-income growth.

INDUSTRY GLOSSARY

• ThriftIQ: A proprietary data-driven platform that automates pricing decisions for apparel based on brand identification and historical sell-through data.
• CPC: Centralized Processing Centers used for the off-site sorting and processing of donated goods before they are shipped to retail stores.
• GreenDrop: A donation collection service that partners with nonprofit organizations to collect clothing and household items for resale.
• Sales Yield: A metric defined as retail sales generated per pound of processed goods on a currency-neutral and comparable store basis.
• Four-Wall Contribution: A measure of a single store's profitability that includes only the revenue and expenses directly associated with that specific location.

Full Conference Call Transcript

Operator: Good afternoon, welcome to Savers Value Village's conference call to discuss financial results from the second quarter ending July 4, 2026. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Introductions will follow at that time. Please note that this call is being recorded. A replay of this call and related materials will be available on the company's investor relations website. The comments made during the 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 on forward-looking statements included in the company's earnings release and filings with the SEC for a discussion of these risks and uncertainties. Please be advised that statements are current only as of the date of this call. 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 the historical non-GAAP measures to the most directly 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, Jubran Tanious, President and Chief Operating Officer, Michael Maher, Chief Financial Officer, Ed Yruma, Vice President of Investor Relations and Treasury. Mr. Walsh, you may go ahead, sir.

Mark Walsh: Thank you. Good afternoon, everyone. We appreciate you joining us today. Our second quarter results reinforce our confidence in the power of the model as we continued our earnings inflection with a third consecutive quarter of year-over-year adjusted EBITDA growth. U.S. comp growth remains broad-based, profits increased in both major markets. New store profitability has started to ramp ahead of our original expectations. Together with ThriftIQ and our broader productivity agenda, this gives us a sustained path back toward high teens adjusted EBITDA margins. Let me start with a few highlights from the quarter. Sales at our U.S. business grew 11.6%, with comps up 6.6%, driven by both average basket and transactions. Secular adoption of thrift remains strong.

Our comp continues to be broad-based across categories, regions, and demographics. In Canada, comps increased 0.8% during the quarter, reflecting a roughly 70 basis point benefit from the Easter shift. Despite the limited top-line growth, we grew Canadian segment profit almost 16% and expanded segment profit margin by 330 basis points, once again showing the impact of our productivity and profit improvement initiatives. Financially, adjusted EBITDA increased 8% to $75 million or 16.6% of sales. Finally, we are updating our outlook for 2026, which Michael will address as part of his remarks.

Turning to new stores, we opened four locations in the U.S. and two in Canada during the quarter, including our recent North Carolina opening that delivered the highest opening week sales in company history. This performance in a new market underpins our confidence that our model is durable and scalable across regions. We are also seeing new store profitability ramp ahead of our original expectations, supported in part by ThriftIQ, our proprietary data-driven platform that supports grading and pricing consistency, enhancing our customer value proposition. We are eager to continue growing our store fleet in the U.S. and believe we can expand at the current pace for years to come.

For 2026, our plan remains to open around 25 new stores, more than 20 of which will be in the U.S. in 11 states with a nice mix of infill and new markets, including our first location in Tennessee opening later this year. Repeating a theme, our new store growth remains the highest return and the most important use of our capital. We are excited to bring our value offering to more consumers. Today, we also announced ThriftIQ, our next major innovation initiative designed to bring greater precision and consistency to pricing across our men's and women's apparel assortment.

Because we process millions of unique items each week, we have built a proprietary data set across brands, categories, price points, and sell-through outcomes that would be difficult for another retailer to replicate. ThriftIQ uses that data to provide more consistent pricing recommendations while preserving compelling customer value. We built ThriftIQ with three core objectives in mind. Number one, improve our consumer value proposition with more precise and consistent pricing. Second, deploy our proprietary data set across the store network. Finally, improve financial outcomes through stronger sales yields, larger baskets, simpler store processes, and faster new store profitability ramps.

We have conducted an intensive two-year test to learn process with ThriftIQ and have used it to price over 25 million items spanning 45,000 brands. The platform is already operational in 58 existing stores, including most new store openings over the last six months. ThriftIQ delivered improvements in sales yield and gross profit in our pilot stores with average prices that are the same or lower than the rest of the fleet, and continuing to average 40%-70% off traditional retail. We believe ThriftIQ and our broader innovation efforts will be meaningful contributors as we progress toward our long-term high teens adjusted EBITDA margin target. Michael will discuss the pilot results and the financial implications in more detail.

I've been busy touring our stores and CPCs, and the enthusiasm from our team members is palpable. The data-driven process simplifies workflows, enables greater cross-training, and helps us deliver compelling value more consistently across the assortment. In fact, store managers have reiterated that ThriftIQ is delivering value that is resonating with our consumers. Given the transformational nature of the platform, we will move deliberately and with rigor to ensure a successful change management. We are also excited to announce our Savers Innovation Day in early November, where you can get a hands-on look at ThriftIQ and our other initiatives. We are reinventing thrift again.

I would like to now thank our nearly 24,000 team members for their role in driving strong results in the first half of 2026 and keeping our momentum going into the back half of the year. Our mission to make secondhand second nature continues to gain traction, the progress we're making each day to expand our reach to bring an exciting thrift shopping experience to more customers is invigorating. We are well-positioned to capitalize on the opportunity ahead and drive long-term value for our customers, nonprofit partners, and shareholders. I'll now hand the call over to Michael to discuss our second quarter financial performance and the updated outlook for the remainder of 2026.

Michael Maher: Thank you, Mark, and good afternoon, everyone. Before reviewing the quarter, I want to provide additional detail on the ThriftIQ pilot results and financial implications. As Mark noted, this platform allows us to be more precise and consistent in delivering great value to our customers. ThriftIQ is currently live in 58 stores across the U.S. and Canada. In these stores, we've seen customers respond positively through increased unit sell-through, larger baskets, and stronger sales yields with the same or lower average prices compared to the rest of our fleet. That translated into gross profit dollar growth that was approximately 100 basis points higher in our pilot stores than in our non-pilot stores.

ThriftIQ is also helping our new stores ramp to profitability faster with better data-driven pricing out of the gate and simpler operational processes. For example, we're able to reduce training time for new graders by approximately half. Thanks in part to ThriftIQ, more than half of our 2025 class of new stores generated positive four-wall contribution in the second quarter, which is ahead of previous new store classes. We expect to provide additional detail on the new store maturation model at a future date. The early ThriftIQ results, continued maturation of the new store fleet, and other profit improvement initiatives increase our confidence in the path to our long-term profitability goals.

We expect these initiatives collectively to support 50-100 basis points of annual adjusted EBITDA margin expansion beginning in 2027 and a return to high teens margins within the next three years. We expect the financial contribution of ThriftIQ to build as deployment scales. We look forward to sharing more details at our Savers Innovation Day in November. Turning our attention back to second quarter results, total net sales increased 7.4% to $448 million. On a constant currency basis, net sales increased 7.1%, and comparable store sales increased 4.4%. The favorable impact of foreign exchange rates was 170 basis points lower than in Q1.

We are especially pleased with our sales results in the U.S., where net sales increased 11.6% to $255 million. Comparable store sales increased 6.6%, fueled by both average basket and transactions with broad-based growth across regions, categories, and income cohorts. Younger and more affluent consumer cohorts are still our fastest-growing demos, which speaks to the power of our model and its ability to resonate with all shoppers. As a reminder, the majority of our comp base is made up of largely mature stores with little benefit from our recent new store openings. As new stores enter the comp base, they will provide an additional tailwind to our comp growth.

Given the breadth of our comp strength and compelling new store performance, we remain very confident in our ability to grow and scale the U.S. business. We also saw continued stability in Canada, where net sales and constant currency net sales both increased 2.2% to $158 million, and comparable store sales increased 0.8%, reflecting a 70-basis-point benefit from the Easter holiday shift. Despite limited top-line growth, we were still able to grow profits and expand segment margin by 330 basis points, which we attribute to tight production management, off-site processing improvements, and the continued maturation of our new stores.

We believe this profit performance is durable, and with the addition of ThriftIQ, we are confident in our ability to drive future incremental profit growth. As it relates to the macro environment, conditions remain stable but sluggish. We do not expect a material change in Canadian economic conditions in the near term and continue to plan our business around a roughly flat comp. Cost of merchandise sold as a percentage of net sales decreased 170 basis points to 43.1% due to comp leverage and efficiency initiatives, as well as growth in on-site donations, partially offset by the impact of new store openings. Salaries, wages, and benefits expense was $85 million.

Excluding IPO-related stock-based compensation, salaries, wages, and benefits as a percentage of net sales increased 100 basis points to 19.7%. The increase was driven primarily by new store growth, an increase in annual incentive plan expense, and higher non-IPO-related stock-based compensation expense. Selling, general, and administrative expenses increased 15% to $102 million, and as a percentage of net sales increased 150 basis points to 22.7%. SG&A included a $2 million impairment charge, primarily related to the consolidation of one of our Canadian warehouse processing facilities, which was enabled by our continued efficiency improvements in off-site processing. SG&A also included $1 million of transaction costs related to the recent repricing of our term loan.

Excluding these charges, SG&A increased 11%, primarily due to growth in our store base. Depreciation and amortization increased 22% to $25 million, reflecting continued investments in new stores, off-site processing, and information technology, as well as capital maintenance expenditures. Net interest expense decreased 19% to $13 million, primarily due to the impact of our debt refinancing last fall. Between that refinancing and our more recent repricing, we have reduced interest expense by approximately $20 million on an annualized basis over the last year. GAAP net income for the quarter was $22 million, or $0.14 per diluted share. Adjusted net income was also $22 million, or $0.14 per diluted share.

Second quarter adjusted EBITDA was $75 million and adjusted EBITDA margin was 16.6%. U.S. segment profit was $59 million, an increase of $10 million, primarily due to increased profit from our comparable stores and the continued maturation of new stores. Canada segment profit was $46 million, up $6 million due to increased operating efficiency driven by our profit improvement initiatives. Our new stores continue to perform in line with our expectations on the top line, and as previously mentioned, we are seeing their profitability ramp ahead of our original expectations. Our balance sheet remains strong, with $92 million in cash and cash equivalents and a net leverage ratio of 2.4x at the end of the quarter.

We also repurchased 1.2 million shares at a weighted average price of $8.10. Our capital allocation strategy remains unchanged as we prioritize organically funding new store growth, repaying debt as we target a net leverage ratio under two times by the end of next year, and opportunistically repurchasing shares. I'd like to now turn to our guidance and discuss our updated outlook for the remainder of fiscal 2026. Our updated outlook reflects our first half performance and continued adjusted EBITDA growth in the second half. The costs and benefits of a phased ThriftIQ rollout are also incorporated, with a financial contribution from ThriftIQ expected to build as deployment scales. We now expect net sales of $1.77 billion-$1.79 billion.

Comparable store sales growth of 3%-4%, net income of $67 million-$76 million, or $0.42-$0.47 per diluted share, adjusted net income of $76 million-$85 million, or $0.47-$0.53 per diluted share, adjusted EBITDA of $265 million-$275 million. Capital expenditures of $125 million-$145 million, with approximately 25 new store openings. Net interest expense of approximately $48 million and an effective tax rate of approximately 28%. For adjusted net income, we are assuming an effective tax rate of approximately 27%. We are projecting weighted average diluted shares outstanding to be approximately 160 million for the full year. This does not contemplate any potential future share repurchases. Finally, I'd like to briefly touch on our expectations for the third quarter.

We expect total revenue growth between Q1 and Q2 levels, with comp sales growth moderating slightly as we begin to lap stronger comparisons. We expect adjusted EBITDA to be modestly below Q2, driven principally by a shift in timing of new store openings and associated pre-opening expenses between Q2 and Q3. We plan to open eight new stores during the quarter, reaching the midpoint of our full-year target in August. This concludes our prepared remarks. We would now like to open the call for questions. Operator?

Operator: We will now begin our question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the roster. Your first question comes from the line of Brooke Roach with Goldman Sachs. Your line is open. Please go ahead.

Brooke Roach: Good afternoon. Thank you.

Michael Maher: Hey, Brooke.

Brooke Roach: For taking our question. I was hoping that we could unpack. The drivers of the return to the high teens EBITDA margin that you outlined on the call. Can you talk a little bit more about the assumptions that underpin that? How to think about the contribution from ThriftIQ over that three-year period, and the ThriftIQ contribution each year within the 50-100 basis point plan, and any other particulars that we should be thinking about with regards to phasing as you look to return to that EBITDA margin rate? Thank you.

Michael Maher: Thanks, Brooke. It's Michael. Certainly, you got the components there. It's a combination of our innovation agenda, which ThriftIQ is a significant piece, obviously, as well as our new store ramp and just our ongoing comp margin leverage and other profit improvement initiatives. I expect it's going to be a healthy contribution and balance of contribution from all three of those things. There's frankly a little bit of overlap, too. For example, the innovation contribution to new stores is part of that. As we think about the 50-100 basis points per year, as I mentioned in my remarks, the contribution from ThriftIQ is going to build as the deployment scales.

As you think about us rolling that out back half of this year, all the way through 2027 and into early 2028, I would expect to see full annualization come in 2028 and beyond. I would think about probably expecting us to be at the lower end of that 50-100 basis point range in 2027, then building toward the higher end of that range in the subsequent years.

Brooke Roach: Great. Mark, maybe we can talk a little bit more about the benefits to ThriftIQ and what it means for your customer base. You spoke a little bit about some of these engagement metrics that you were seeing within the test stores. What does that mean for traffic, customer repeat rate, basket size conversion, and net? As you think about that 100 basis point higher gross profit dollar growth, how much of that is coming from better sales momentum, and how much of that is coming from better COGS efficiencies?

Mark Walsh: Thanks, Brooke. Look, I think let's start with a little context on why we got to ThriftIQ and how do we get there. It's really born from an opportunity. We've accumulated one of the largest data sets in secondhand retail, processing more than a billion pounds of goods annually. ThriftIQ, over the last almost two years, has helped us price more than 25 million items, and most importantly, evaluate the sell-through of those 25 million items. That will likely double to 50 million by year-end, over 45,000 brands.

The objective very clearly for us as we started this process was to improve the customer value proposition, full stop, by making prices more precise, consistent, and predictable, removing a lot of the subjective nature of our grading process to an objective approach. As we talked about on the prepared remarks, in our pilot stores, the average prices have been the same or lower than the rest of the fleet, and that's still continuing to average that very important band that we try to operate in between 40% and 70% below traditional retail. The result that we've seen in our pilot stores is it's producing better outcomes across a number of metrics.

Higher unit sell-through, larger baskets, stronger sales yields, and we've talked about the faster new store ramps, very important as well. Ultimately, it's driving improved profitability.

Brooke Roach: Great. Thanks so much. I'll pass it on.

Operator: Your next question comes from the line of Matthew Boss with JPMorgan. Your line is open. Please go ahead.

Matthew Boss: Great. Thanks, and nice quarter.

Michael Maher: Thanks, Matt.

Matthew Boss: Mark, with seven consecutive quarters now of mid-single digit same-store sales in the U.S., can you speak to new customer acquisition, trends from your existing cohorts, and any market share metrics that speak to the acceleration or the inflection, and just any constraints to sustaining mid-single digit comps in the back half of the year in your view?

Mark Walsh: Thanks, Matt. Let me start with the new customer trends. We continue to see robust new customer interaction, and we are very focused, obviously, on driving those individuals into our loyalty program. Big stickiness factor for us, and obviously we can track those customers on a consistent basis. I would say the most interesting and most exciting thing. Look, we're still seeing that younger cohort grow disproportionately to the rest of the age cohorts in our traffic and in our customer base. What's really exciting for us, and I think it speaks to the universal appeal of how we're delivering value and merchandise, is the fact that both at the high and the low end, we're seeing growth.

Our high household income customers and our low household income customers are outpacing growth of the other household incomes in the middle. Sort of a sandwich effect. You think about that dynamic, it's really wonderful from a universal appeal perspective. We're bringing in high household income, low household income, getting in the shop, creating stickiness, having them sign up to the loyalty database. We're continuing to see that frequency improve. Net-net, I think that's a lot to do with why we've seen the consistent pattern over the last couple of quarters, as you mentioned.

Michael Maher: Hey, Matt, it's Michael. A couple of things I'd add on just the sustainability of the comp into the back half. First of all, Mark kind of alluded to this, we've seen really healthy balance of that growth. It's transactions, it's basket, it's broad-based across categories, regions, demographics. Just the other thing I would add is that our comp base is still a relatively mature comp base. Only now are new stores really beginning to enter that comp base in a significant way, and that's going to continue to provide a tailwind to that U.S. comp for a while.

Matthew Boss: Great. Michael, just to break down the return to high teens EBITDA margin as a multi-year target, what would be the best way to think about the gross margin rate opportunity if we're thinking about breaking down that high teens EBITDA margin just between gross margin and SG&A, maybe relative to the past in terms of when we had previously seen high teens EBITDA margins in the business?

Michael Maher: Well, Matt, it's probably a little early for us to get into too much specifics on that yet, I do think gross margin is going to be a meaningful contributor. All of the things that we've seen this year in margin, whether it be leverage on that comp base or continued efficiency gains in our Canadian business, also, very importantly, the continued maturation of new stores and the contribution of ThriftIQ, all of those things are going to have a positive impact on gross margin over time. I would expect some leverage on our SG&A as well as we continue to scale on the top line. We'll have more details on that as we progress.

Matthew Boss: That's a great color. Best of luck.

Michael Maher: Thanks.

Mark Walsh: Thanks, Matt.

Operator: Your next question comes from Michael Lasser with UBS. Your line is open. Please go ahead.

Michael Lasser: Good evening. Thank you so much for taking my question. Can you unpack the guidance change from what you were expecting previously? You raised the low end of your expectations. If we look at where you came out with in the second quarter, it fell short of where the consensus was despite the increase to the full year outlook, at least at the midpoint. Perhaps you can bridge that for us.

Michael Maher: Michael, are you talking about EBITDA?

Michael Lasser: Yeah. EBITDA.

Michael Maher: Yeah. I think the consensus expectation numbers we're seeing, we're ahead of that on the second quarter. Just as far as our outlook for the year, we're happy with our results so far. We're a little bit ahead of our plans. We've got half the year to go, more than half of our earnings to go. So far, we're off to a good start to the second half, but obviously a long way to go yet. We do have some slight shifts. I mentioned in my remarks, timing of new store openings and the associated pre-opening expenses between Q2 and Q3.

Other than that, we're essentially holding our view on the back half of the year unchanged, and therefore, we thought it appropriate to pull up the lower end of the guide.

Michael Lasser: Okay. I'll just take that offline. My follow-up question is, you alluded to slower comps in the back half, in part because of more difficult comparisons. At the same time, you're going to have the rollout of ThriftIQ, which it sounds like is an accelerant for gross profit dollars, maybe not as much on the sales side, and it could come at the expense of margin. If you could square all that would be super helpful.

Michael Maher: Yeah. Sure, Michael. What we're seeing is gross profit dollar growth around 100 basis points relative to the rest of the fleet in the pilot stores with ThriftIQ. Just at the risk of stating the obvious, that could come from higher sales for a given level of production or similar sales, but on lower levels of production, right? Essentially, it's about sales yield, and that's where we're seeing that improvement. We're seeing a mix of both, frankly, in our pilot stores. We focused on that gross profit improvement. Certainly, that can be a component, though, of comp tailwind for us. We have factored that in. Remember, it is going to be a phased rollout.

We're going to be deliberate about that. While to a certain extent that is helping us out, we are also just mindful of the continuing momentum from last year that we are beginning to lap, particularly in the U.S. in the back half of the year.

Michael Lasser: Understood. Thank you so much, and good luck.

Michael Maher: Thanks, Michael.

Operator: Your next question comes from Randy Konik with Jefferies Group. Your line is open. Please go ahead.

Randy Konik: Yeah, thanks, guys. A couple of things. First on Canada, you continue to kind of drive up the profit margins there. I think it's getting that region very much more efficient from a margin standpoint. Just kind of remind us where we are in the cycle of that region's margins and where you think they can go in the coming years. Back on, I think, something you said in the script. I believe you said something to the effect of North Carolina, that store, I think you said something to the effect of it was like your best opening ever.

Kind of remind us what you're doing differently from a store opening procedure to kind of drive more awareness pre-opening of these stores and, what you're doing differently than perhaps what you may have been doing when you opened stores a few years ago. Let's start there. Thanks, guys.

Michael Maher: Sure, Randy, it's Michael. I'll take your first question on Canada margins and kind of where we've been and where that's going. Yeah, very pleased to have another quarter of Canadian segment profit growth, meaningful Canadian segment profit growth, up over 15% on sales up 2%. A lot going on behind that we expect to continue to drive improvement for us for several quarters yet. First of all, just tight management of production in response to demand trends, that's helping us drive sales yields, which, as we just talked about, is a meaningful indicator of gross margin. Offsite processing, we talked about a little bit in our prepared remarks.

We continue to make improvements not only on the cost per unit, but on the sales yield of the items that we are processing in our offsite facilities. That's helping drive improvement in the Canadian segment. Onsite donation growth continues to be robust, outpacing our sales growth. All of those things are contributing to Canadian margin, and we expect will continue to contribute to Canadian margin in the coming quarters. The other factor which we talked about for a while is just the impact of the new store drag. We've talked about this for a while. New stores are a temporary drag on profit margins.

They begin to inflect over time, but we are now shifting the vast majority of our growth to the U.S. as we go forward. Canada will be very relatively few new store openings going forward, and that means less of that new store drag. We do expect to continue to see Canadian contribution margins that are above those in the U.S. as we focus our growth investments in the U.S. I would expect to continue to hold, if not improve Canadian margins for the foreseeable future.

Jubran Tanious: Randy, this is Jubran. On the new stores, very excited about that first location in North Carolina. That's our Burlington store, which was a record breaker. Very pleased with our new store fleet in general. The performance has been right on track with what we had hoped. I think we've gotten better at this. There's a few reasons why. The first is that we've been on a continuous improvement path with our algorithm and frankly, picking winners when it comes to sites. The site selection process has continued over the years, and I think our success bears this out.

When you think about entering a new market, a new region of the country, where we've talked about the Southeast, the Southern Tier, really just reinforces the durability and scalability of our model. It resonates on all markets. That's the first, site selection. The second thing is we actually have a dedicated finance and senior leadership team that holds the hand of a new store as it grows into its maturity curve, and that is helping us ramp as well. I think we made in the opening comments, a comment that most new stores are opening with ThriftIQ. That has cut our training time in half.

It has streamlined the process, and it makes it easier for a new store to get on its feet quicker. The last thing I would say, Randy, is the marketing playbook. This is a nod to the continued evolution and good work by our marketing team, where there is a focus on the local communities with a mix of tactics. Paid search, outdoor, billboards, influencer. We have cultivated a nice ecosystem of influencers, including new influencers that join in these new markets. Optimizing the physical site itself for maximum drive-by awareness. You put all that together, and you see the performance that we're seeing in the new stores.

I'll just close by saying, really excited about the additional stores to come in North Carolina. That first store in Tennessee, which will open later this year, and then a real nice pipeline that's filling out for us in the Southern Tier with stores to open in 2027 and beyond.

Randy Konik: Super helpful. I guess last one for Michael. Remind us where we are with onsite donation penetration, where we come from, let's say, three years ago, or where we are today. Where do you think we can go? How is GreenDrop helping with that? The strategy going forward there. Just remind us finally on differential on, let's say, the profit of the margins or the cost benefit of onsite versus third party. If you kind of think about that going forward, combined with ThriftIQ and other strategies and better new store openings, it feels like you have real good confidence in growing that margin structure back to those high teens, either on target or even quicker than you planned.

Just curious there. Thanks.

Michael Maher: Yeah, Randy. First of all, just the metrics. We reached 84.9% in the recent quarter in terms of onsite donations and GreenDrop as a percentage of our total pounds processed. That's up from 78.5% a year ago. Significant growth, and we continue to see that in both countries. I'll let Jubran speak to why that is and how high is high. I would just say yes, that is absolutely a factor in our gross margin expansion and in our confidence of the continued gross margin expansion. It is both a top-line driver because that tends to be a high-quality source of supply, and a margin driver because it's our most cost-efficient source of supply as well.

Yeah, definitely factored into our outlook for the year and our contemplation of the long-term algorithm.

Jubran Tanious: Yeah, Randy, Jubran. I would also just add that we are seeing broad-based on-site donation growth across regions, across countries, and that really is a function of the execution at our stores. Super proud of our field leaders for how we're showing up to donors each and every day, and that's really what's driving that broad-based growth. In terms of how high is high, and can you continue to keep growing on-site donations? Absolutely. Even though we have continued to drive them over the years, we expect that to continue because as large as we are, we're still getting just a small portion of the textiles that go into landfill each and every year.

In terms of continuing to hold onto that donor and win that new donor because of advocacy and execution, we fully expect to continue to grow on-site donations in both mature stores and the new stores that we're opening for years to come.

Randy Konik: Super helpful. Thanks, guys.

Jubran Tanious: Thanks, Randy.

Michael Maher: Thanks, Randy.

Operator: Your next question comes from Bob Drbul with BTIG. Your line is open. Please go ahead.

Jake Katsikis: Hey, guys. This is actually Jake Katsikis on for Bob. Thanks for taking my question. Just wondering if you could compare and contrast what you're seeing from the consumer in Canada versus the U.S. Are there differences in health of the consumer or customer behavior, traffic, spending patterns? Just curious there. Thanks.

Mark Walsh: Jake, thanks for the question. This is Mark. Well, I think that one thing very consistent in both countries, both in the U.S. and Canada, the younger and the higher household income cohorts are becoming a larger portion of our customer base, absolutely. See growth in both of those cohorts. The difference between the two countries is really the low end, and we're still seeing pressure in Canada at the lower end of the household income demographic.

Jake Katsikis: Great. Thank you.

Operator: Your next question comes from the line of Peter Keith with Piper Sandler. Your line is open. Please go ahead.

Peter Keith: Thank you very much. Good afternoon, everyone. The ThriftIQ certainly sound exciting. I was hoping you could help me bring it to life a little bit more because if I go back, I do think about Savers as a very analytical company that was able to look at demand trends and adjust pricing historically. It sounds like this is providing a bit more consistency. Is it reacting to demand? Is it reacting to competitive pricing? Maybe just help me understand the step change benefits that seem to be occurring here.

Jubran Tanious: Hey, Peter. This is Jubran. I'll take a stab at that. The guys can jump in if I miss anything. It's a good question because it's important that everybody understand the exact change that we have made here. If I could just take a minute, walk all of you through with a simple before and after. Prior to ThriftIQ, our team members would assess each garment. They would grade it based on condition and quality to determine its value. Then that grade would translate to a price based on the category and department. For many years, this method has worked well. On average, we would get it right. It's too inconsistent.

For example, under that legacy approach, two team members could evaluate the exact same garment and come up with different prices, even with the best training because of the subjectivity of the assessment itself. Inconsistent. In thrift, as you mentioned, consistency matters. Now fast-forward to ThriftIQ. We're no longer asking the team member to assess condition and quality. We're simply asking them to identify the brand. We use that brand, combine it with seasonality, sell-through, to determine the price of the garment. It's easier. It's more objective. It allows us to show up to the customer in a more consistent and precise way. That is the key.

Peter Keith: All right. That's a great explanation. Thank you for bringing that to light for me.

Jubran Tanious: Thanks.

Peter Keith: Maybe, just sticking on ThriftIQ, does that go just to the store level, or can it also, obviously, go into CPC?

Jubran Tanious: It would be both.

Peter Keith: Yeah

Jubran Tanious: Our rollout plan that the guys articulated earlier, will actually be front-loaded with our off-site facilities, and then we'll cascade with a fast follow into our traditional stores. Really both, Peter.

Peter Keith: Great. Okay. One last question, maybe this is a financial question for Michael. On the new store growth, where it has been a headwind to EBITDA, I believe it's neutral to EBITDA this year. As we move into the back half, are we still neutral, or do we start to see some EBITDA benefits from that historic store growth?

Michael Maher: Yeah, Peter, it's actually a slight tailwind this year. There's a little timing within the year in terms of when the stores open, how the pre-opening expenses flow. Overall for the year, it's a very modest tailwind, which is an inflection point from where we've been for the last several years. What is encouraging to us is that while new stores are still performing in line with our expectations on the top line, the profitability is ramping faster. As I mentioned, we opened that 2025 class fairly back-weighted, as you probably remember, last year. They entered this year still relatively young. More than half of that class was positive on a four-wall basis, four-wall business contribution in the second quarter.

That's meaningfully ahead of what we've seen before. Given how important that has been to our financial performance over the last few years, to our algorithm going forward, we're really encouraged about what that means for future profit growth. Together with the innovation agenda, it's why we felt more confident in the path back to the high teens EBITDA margins.

Peter Keith: Very good. Sounds exciting, thanks so much.

Mark Walsh: Thanks.

Michael Maher: Great.

Jubran Tanious: Thanks, Peter.

Operator: Your next question comes from Dylan Carden with William Blair. Your line is open. Please go ahead.

Anna Linscott: Hi, this is Anna Linscott on for Dylan Carden. Thanks for the time. Just curious if ThriftIQ was envisioned in the original high teens EBITDA margin target that you had out there for a while, or if this is entirely incremental. Should this be viewed as a platform to add additional efficiencies over time? Thanks.

Michael Maher: Yeah. I'll take the first part of that question. I would say not specifically, as we've talked about our algorithm over time. We've long believed it rested on a few pillars. Part of it was new store growth and the continued maturation of those new stores, and part of it was our innovation agenda. As Mark mentioned in his remarks, we've been working on this for a couple of years now. We have seen increasingly encouraging signs from it for some time. Obviously, didn't feel ready to talk about it until now. We certainly saw innovation as an element of the path back.

What I think has changed for us now is, as we're seeing these results accumulate, as we're seeing the ramp of our new stores continue to get better. What is new is that we're able to provide some more specificity and pull forward the timeline on that to seeing that path back to high teens EBITDA margins within the next three years.

Mark Walsh: Anna, let me just add on your comment about platform for innovation. I think it's a great opportunity to make sure I personally invite, we all personally invite you guys to our Savers Innovation Day that will be taking place in Minnesota in early November. It's really an opportunity to get a firsthand look at the next phase of innovation, really our innovation revolution, and walk you through core improvements we made to the CPC operating environment, giving you a chance to live comparison of how we're changing our pricing approach from the old way that Jubran described to ThriftIQ.

Lastly, the chance to see some of the additional innovation ideas that we will be driving through the system, in the very late part of this year into 2027.

Anna Linscott: Great. Thank you so much for the time.

Mark Walsh: Thank you.

Operator: Your next question comes from the line of Mark Altschwager with Baird. Your line is open. Please go ahead.

Mark Altschwager: Thank you for taking my question. Couple here. You said ThriftIQ is helping new stores ramp profitably faster, cutting the greater time, I think almost in half you said. Does that change the underlying new store model and the payback period? At what point would that argue for maybe stepping up the opening cadence from the 25 per year, that you are on right now?

Michael Maher: Hey, Mark. I'll speak to the new store model, and maybe Jubran can speak to our pace of new store openings. It's early, but yes, so far what we're seeing is a faster path to profitability than we previously anticipated. ThriftIQ being one among several factors contributing to that. We do plan to refresh our new store economic model and share more about that with you all in future quarters. I think it's a little early for us to do that yet.

Jubran Tanious: Mark, on the new store opening, 25 stores per year as we've guided. We like where we're at. We continue to see great site selection, good performance, high batting average on those. I think we've talked about in previous calls, the tone and tenor of the conversations that we've had with developers and landlords has really changed over time. Really like how our pipeline is building. I will take us back to one of the fundamental building blocks of opening up a new store, certainly a new market, and that's supply. We want to make sure that we've got the supply equation fully satisfied, the cornerstone of which is the onsite donation. We want to make sure we've satisfied that.

In terms of finding new sites that are going to be very attractive to our long-term algorithm, really no concerns at all about that, and excited about what the remainder of this year will bring 2027, and we're starting to fill up the pipeline for 2028.

Mark Altschwager: Thank you. You called out some of the success in newer markets like North Carolina, Tennessee. How would you characterize the profitability of entering a new market versus adding another store in an existing market, and whether you lean towards one versus the other in your plans?

Michael Maher: Yeah, Mark, it's Michael. There certainly are different dynamics there, and they can work in different directions, too. For example, when we enter a new market, we typically assume that we're going to start out a little bit lower in terms of onsite donation penetration than when we open a store as an infill on an existing market. That's all baked into the initial planning, and we still have to hit the same return thresholds. There may be offsetting things around real estate costs, for example, that can go into that. Overall, I wouldn't say that one is necessarily always going to be higher or lower than the other.

At the end of the day, we target a return on our investment that is somewhere around double our cost of capital, and we've got no shortage of candidates of stores, new store locations that meet that hurdle.

Mark Altschwager: Thank you.

Mark Walsh: Thank you.

Jubran Tanious: Thanks, Mark.

Operator: Your next question comes from the line of Jeremy Hamblin with Craig-Hallum. Your line is open. Please go ahead.

Will Forsberg: Hey, this is Will on for Jeremy. I just wanted to start by seeing if you could share any more color on the composition of the U.S. and Canada comps in the quarter in terms of basket versus transaction, and then maybe how those trends have continued here in quarter to date.

Michael Maher: Sure, yeah. It's Michael. Essentially, kind of similar to what we've seen in recent quarters. In the U.S., pretty good balance. We're seeing both basket and transaction count growth. In Canada, it's more basket driven. Transactions flattened down slightly. Thus far, what we're seeing in the third quarter is good. The comps in both countries are roughly in line with what they delivered in the second quarter.

Will Forsberg: Got it. That's helpful. It sounds like the new stores are maturing ahead of expectations. I guess one, are all of the 2024 class of stores in the comp base at this point? Then two, what sort of comp lift have you seen from the new stores in the U.S.?

Michael Maher: Yeah. Everything we opened in 2024 is now in the comp base. Just a few of the 2025 class, because that was relatively back-weighted. As I mentioned earlier, still pretty mature comp store base, but as those 2023 and 2024 class new stores have now entered the base, we're seeing anywhere from 40-50 basis points of comp benefit from that because as I think, the implication of your question, as I'm sure you know, is that even once a store enters the comp base, it's a young comp store. It's still growing at a rate well ahead of our mature fleet.

That's a nice tailwind to the comp base, and we still have a number of years before that effect has normalized and plateaued.

Will Forsberg: Got it. That's helpful. Thank you for taking the questions.

Michael Maher: Sure.

Mark Walsh: Thank you.

Operator: Your next question comes from the line of Owen Rickert with Northland Capital Markets. Your line is open. Please go ahead.

Owen Rickert: Hey, guys. Thanks for taking my question here. For the non-loyalty customer cohort, can you just describe how they are behaviorally? Are they primarily one-time or infrequent visitors? Maybe secondly there, are there any specific conversion strategies you're deploying as of recent, maybe ThriftIQ enabled personalization to maybe bring them into that loyalty ecosystem?

Mark Walsh: It's a great question. Thanks, Owen. I'll go here. In terms of one of our key retail operating goals and objectives that we talk to store managers about is signing up people for the loyalty program. Really concerted effort on making sure every opportunity is converted into a new member sign-up. In terms of the non-member frequency transaction levels, obviously we don't have a lot of that because we don't have the data. What I can tell you is we're dogmatic about making sure that our loyalty sign-up rates continue to grow and that, and especially in new stores, we have very, very high goals for our store managers in terms of getting them into the fold.

Clearly it is a core piece of our retail agenda and continuing to grow that loyalty base, which has grown very nicely over the last three or four years.

Owen Rickert: Great. Thanks, guys.

Mark Walsh: Thank you.

Operator: We have reached the end of the Q&A session. I will now turn the call back over to Mark Walsh for closing remarks.

Mark Walsh: I want to thank everyone, as always, for your interest. We look forward to updating you on the third quarter, and I hope to see each and every one of you in Minneapolis in early November for Innovation Day. Thanks again.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.