Savers Value Village narrows 2025 outlook as U.S. growth offsets Canadian headwinds

Earnings Call Insights: Savers Value Village (SVV) Q3 2025

MANAGEMENT VIEW

* Mark Walsh, CEO, highlighted that "sales in our U.S. business grew 10.5% with comp sales up 7.1%, driven by both transactions and average basket." He noted strong operational performance in the U.S. and an "accelerating secular thrift trend." In Canada, comp sales grew 3.9%, marking the fourth consecutive quarter of improvement, though Walsh warned that "challenging macroeconomic conditions remain a headwind there."
* New store growth remains a priority, with the company opening 10 new stores in the quarter and reiterating the expectation to open 25 new stores in 2025. Walsh stated, "as a class, our new stores continue to perform in line with our expectations delivering strong unit economics."
* The company reached approximately 6.1 million total active loyalty members and delivered $70 million of adjusted EBITDA for the quarter, or 16.4% of sales. Walsh also emphasized a recent debt refinancing designed to "significantly reduce our interest expense and give us a more flexible capital structure."
* Michael Maher, CFO, stated, "total net sales increased 8.1% to $427 million. On a constant currency basis, net sales increased 8.6% and comparable store sales increased 5.8%." Maher outlined segment performance, noting that "U.S. segment profit was $48 million, up $3 million versus the prior year period," and Canadian segment profit was $45 million, up $0.4 million.

OUTLOOK

* Maher provided an updated outlook for fiscal 2025: "net sales of $1.67 billion to $1.68 billion, comparable store sales growth of 4.0% to 4.5%, net income of $17 million to $21 million or $0.10 to $0.13 per diluted share, adjusted net income of $71 million to $75 million or $0.44 to $0.46 per diluted share, adjusted EBITDA of $252 million to $257 million, capital expenditures of $105 million to $120 million, and 25 new store openings."
* The updated guidance reflects a "weakening of the Canadian dollar since last quarter," and ongoing macro pressures in Canada, with roughly flat Canadian comps expected in the fourth quarter.

FINANCIAL RESULTS

* The company reported total net sales of $427 million for the quarter. U.S. net sales were $235 million, with comparable store sales up 7.1%. Canadian net sales were $161 million, with comparable store sales up 3.9%.
* Cost of merchandise sold as a percentage of net sales increased by 80 basis points to 44.1%. Gross margins improved by roughly 100 basis points over the first half of the year.
* Selling, general and administrative expenses increased 19% to $100 million and included a $4 million impairment charge for the closure of six underperforming stores. Net interest expense increased 12% to $17 million, while a $33 million loss on extinguishment of debt was recorded as part of refinancing efforts.
* GAAP net loss for the quarter was $14 million or ($0.09) per diluted share, while adjusted net income was $22 million or $0.14 per diluted share.
* The company ended the quarter with $64 million in cash and a net leverage ratio of 2.7x. The Board approved a new $50 million share repurchase authorization.

Q&A

* Randal Konik, Jefferies: Asked for more details on Canadian margin pressures and processing improvements. Walsh responded, "the third quarter was definitely another step forward in Canada... the macro challenges do persist," and Tanious said, "we are balanced between sales and production and feel very good about that going forward."
* Konik also inquired about U.S. customer trends. Walsh noted, "High household income cohort continues to become a larger portion of our consumer mix. It's trade down for sure."
* Matthew Boss, JPMorgan: Asked about U.S. comp cadence and value proposition. Walsh said, "we try to get between 40% and 70%, maintain that gap, continue to give our thrifters value that is brings them back and is compelling."
* Boss followed up on gross margin drivers. Maher explained, "the biggest driver of the gap year-over-year continues to be new store growth... The other driver in this quarter was the Canadian processing."
* Brooke Roach, Goldman Sachs: Asked about new market expansion and lessons from store closures. Tanious noted, "our strategic goal was always to enter the U.S. Southeast... the local supply that we now have in our mix will help us feed those new organic stores in 2026."
* Roach also questioned EBITDA margin guidance. Maher replied, "we still see high-teens EBITDA margins in the long-term algorithm."
* Mark Altschwager, Baird: Inquired about pricing opportunities. Walsh said, "if the gap widens significantly beyond that 40% to 70% range... it gives us an advantageous optionality."
* Michael Lasser, UBS: Asked about trade down in Canada and balancing U.S. profitability. Walsh confirmed, "we are actually seeing trade down in Canada," and Maher added, "we believe that at a low single-digit growth rate... in Canada that we can be disciplined enough on costs to still achieve our bottom line objectives."
* Alexia Morgan, Piper Sandler: Sought clarification on EBITDA guidance narrowing. Maher confirmed, "Canada is the largest factor... that is the biggest driver of sort of the narrowing of the guide toward the lower end on EBITDA."
* Owen Rickert, Northland: Asked about automation benefits and CapEx. Tanious stated, "we have made progress in terms of efficiency and effectiveness on those quarter after quarter," and Maher said current CapEx levels are "indicative of where we'll be as long as we are in this growth mode."

SENTIMENT ANALYSIS

* Analysts expressed slightly negative sentiment regarding Canadian macro challenges, margin pressures, and EBITDA guidance narrowing, with repeated focus on margin drivers and strategic responses.
* Management maintained a confident tone regarding U.S. growth and long-term strategy, but was more cautious and defensive when discussing Canadian performance. Walsh frequently referenced tight execution and cost discipline, while Maher addressed guidance changes and acknowledged pressures.
* Compared to the previous quarter, analyst sentiment shifted from largely positive to more cautious and probing, particularly on Canadian headwinds and profit outlook. Management’s tone remained confident in U.S. momentum but more guarded on Canada, reflecting heightened external uncertainty.

QUARTER-OVER-QUARTER COMPARISON

* The company’s U.S. business maintained strong momentum, with comp sales growth rising from 6.2% in Q2 to 7.1% in Q3. Canadian comps also improved but at a slower pace, from 2.6% in Q2 to 3.9% in Q3.
* Guidance was tightened for the year, reflecting a lower net income range ($17-$21 million vs. $47-$58 million previously) and adjusted net income range now at $71-$75 million vs. $67-$78 million. Adjusted EBITDA outlook narrowed to $252-$257 million from $252-$267 million.
* The previous quarter saw optimism around sequential improvements in Canada and a raised outlook, while this quarter’s tone shifted to caution regarding Canadian macro headwinds and margin pressure.
* Analysts’ questions in Q3 focused more on risk management, cost controls, and the sustainability of growth, particularly in light of Canadian challenges and store closures.

RISKS AND CONCERNS

* Management cited persistent macroeconomic headwinds in Canada, especially in regions like Southwest Ontario, high unemployment, and inflationary pressure on nondiscretionary categories as ongoing risks.
* Margin pressure from increased cost of merchandise sold and processing inefficiencies in Canada were highlighted.
* Store closures and related impairment charges were discussed as necessary tactical moves to improve profitability.
* Analysts raised concerns about the sustainability of Canadian comps, margin contraction, and the path to EBITDA margin expansion.

FINAL TAKEAWAY

Management emphasized persistent strength in the U.S. business, driven by strong comps, new store growth, and rising loyalty membership. However, ongoing macroeconomic challenges in Canada and associated margin pressures led to a tightening of the full-year outlook, increased focus on cost controls, and a shift in investment to more U.S.-centric expansion. Store closures and process improvements are expected to support future profitability, while the leadership team remains confident in the company’s long-term value proposition and growth algorithm, particularly in the U.S. market.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/svv/earnings/transcripts]

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