Savers Value Village Q3 2026 Earnings Call Transcript
Savers Value Village (NYSE:SVV) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Savers Value Village reported strong third-quarter financial performance, with net sales increasing by 8.5% to $463 million and comparable store sales rising by 4.2%.
The company highlighted strategic initiatives, including the rollout of ThriftIQ and the introduction of Auto Tagger technology, which are expected to drive efficiency and margin expansion.
The future outlook remains positive, with plans to open 25 new stores by 2026, mainly in the US, and updated earnings guidance reflecting continued growth and innovation-driven efficiency improvements.
Full Transcript
OPERATOR
An answer session and instructions will follow at that time. Please note that this call is being recorded and a replay of this call and related materials will be available on 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 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, 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 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, Mark Walsh, Chief Executive Officer; Jubran Tanious, President and Chief Operating Officer; Michael Maher, Chief Financial Officer; and Ed Iruma, Vice President of Investor Relations and Treasury. Mr. Walsh, you may go ahead, sir.
Mark Walsh (Chief Executive Officer)
Thank you and good afternoon, everyone. We appreciate you joining us today. We are pleased with the strength of our third quarter results, which underscores the momentum in our business. Our compelling assortment and sharp value continue to win with consumers. This translates into ongoing earnings momentum, including a fourth consecutive quarter of year-over-year adjusted EBITDA growth. Let me start with a few highlights from the quarter. Sales of our US business grew 12.2%, with comps up 5.9% driven by both average basket and transactions. Secular adoption of thrift remains strong in Canada. Comps increased 1.5% during the quarter, driven by average basket. Canadian segment profit increased 10% and segment profit margin expanded 210 basis points, once again showing the impact of our productivity and profit improvement initiatives.
Adjusted EBITDA increased 8% to $76 million, or 16.4% of sales. And finally, we are updating our outlook for 2026, which Michael will address as part of his remarks. Turning to our results by geography, let’s start in the US, where momentum remains strong. The 5.9% US comp was broad based, with growth across regions, categories, and income cohorts. Younger and higher household income shoppers are still some of our highest-performing demographics. Competitively, we’re in a great place and well positioned, with value gaps to discount and traditional retailers remaining about 40% to 70% on site. Donation growth trends are strong and we see ample available supply to fuel our future new store opening plans.
And finally, from a real estate perspective, our white space opportunity is significant and site availability is robust. Simply put, the US business continues to perform strongly and we are excited to bring our compelling values to new customers and new markets. In Canada, we are encouraged by our 1.5% comp and 10% segment profit growth. We have driven strong OSD supply growth, remained disciplined on production levels, and seen nice productivity gains, which have all contributed to continued margin expansion. Our team is executing well and we are optimistic about the direction of our business. We will continue to plan prudently.
Moving to new stores. We opened eight locations in the US and one in Australia during the quarter, including the successful opening of our first store in Tennessee. Strong performance out of the gate in new markets underpins our confidence that our model is durable and scalable across regions. We continue to see new store profitability ramp ahead of our original expectations and supported in part by ThriftIQ. As I noted earlier, we are excited to continue growing our store fleet in the US and believe we can expand at the current pace for years to come.
For 2026, our plan remains to open 25 new stores, more than 20 of which will be in the US across 11 states, with a nice mix of infill and new markets. New store growth remains the highest return and most important use of our capital, and we are excited to bring our value offering to more consumers. Shifting to innovation. First, I would like to provide an update on ThriftIQ. As of the end of the quarter, the platform has now priced over 40 million items. Utilizing our proprietary data set, which covers over 45,000 brands, ThriftIQ is now live in 108 stores, and in these locations we continue to see an improved price-value equation resulting in increased unit sell-through, larger baskets, higher sales yields, and average prices that are the same or lower than the rest of the fleet.
Additionally, we are excited to announce the next step in our innovation roadmap, the Auto Tagger with integrated image capture capability. These are patent-pending engineering solutions that drive labor efficiency by reducing the number of touches required to process each item. Michael will provide more details on the financial impact, but this is a powerful example of innovation driving greater efficiency in our business. Our innovation agenda continues to focus on three key areas: strengthening our price-value equation, driving efficiency and cost reduction, and, lastly, expanding our data science and business insights. The Auto Tagger and integrated image capture technologies now join ThriftIQ, automated book processing, autonomous floor scrubbers, AI-enabled HVAC integration, and agentic AI capabilities in our innovation toolkit. We look forward to providing more details on how our innovative culture drives great consumer experiences and helps power our medium-term adjusted EBITDA margin expansion targets at our Innovation Day in Minneapolis next week.
Finally, we recently released our fifth Innovation Impact and Sustainability Report, which can be found on our Investor Relations website. We are a mission-driven business championing reuse and looking to inspire a future where secondhand is second nature. This report highlights the impact and circularity ingrained in our model. I am proud that over the past five years we have kept 3.6 billion pounds of usable items out of landfills and paid our nonprofit partners over a half a billion dollars.
We hope you take the time to review the report and our commitment to community impact, sustainability, and sound corporate governance and reporting. I want to thank our nearly 24,000 team members for their hard work in delivering strong financial results and helping sustain our momentum. We are grateful for their efforts to bring an exciting thrift shopping experience to new markets and customers. I’ll now hand the call over to Michael to discuss our third quarter financial performance and the updated outlook for the remainder of 2026.
Michael Maher (Chief Financial Officer)
Thank you, Mark, and good afternoon, everyone. As Mark indicated, we had a strong third quarter. Total net sales increased 8.5% to $463 million. On a constant currency basis, net sales increased 8.9%, and comparable store sales increased 4.2%. We are especially pleased with our sales results in the US, where net sales increased 12.2% to $263 million. Comparable store sales increased 5.9%, driven by both average basket and transactions. Our treasure hunt shopping experience featuring low-priced, one-of-a-kind merchandise continues to resonate across demographics and support the secular adoption of thrift.
Given the breadth of our comp strength and compelling new store performance, we remain confident in our ability to grow and scale the US business. We also saw encouraging trends in Canada, where net sales increased 2.5%, with constant currency sales up 4.3% to $167 million and comparable store sales up 1.5%. Segment margins expanded by 210 basis points, reflecting strong OSD supply growth, disciplined production management, productivity gains, and the continued maturation of our new stores. We believe this Canadian profit improvement is sustainable through the balance of the year, and with the addition of ThriftIQ, Auto Tagger, and integrated image capture capability, we are confident in our ability to drive future incremental profit growth.
Our guidance does not contemplate a material change in Canadian economic conditions in the near term, but we are encouraged by underlying trends in the business. Cost of merchandise sold as a percentage of net sales decreased 100 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 $88 million excluding IPO-related stock-based compensation. Salaries, wages, and benefits as a percentage of net sales increased 20 basis points to 19%. The increase was driven primarily by new store growth and an increase in annual incentive plan expense.
Selling, general, and administrative expenses increased to $105 million, and as a percentage of net sales decreased 60 basis points to 22.7%, reflecting growth in our store base. Increased repair and maintenance expense and information technology investments were partially offset by decreased impairment charges and lease termination gains. Depreciation and amortization increased 35% 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 35% to $11 million, primarily due to the impact of our debt refinancing last fall. GAAP net income for the quarter was $23 million, or $0.15 per diluted share. Adjusted net income was $26 million, or $0.16 per diluted share. Third-quarter adjusted EBITDA was $76 million and adjusted EBITDA margin was 16.4%. US segment profit was $56 million, an increase of $8 million primarily due to increased profit from our comparable stores. Canada segment profit was $50 million, an increase of $5 million due to increased operating efficiency driven by our profit improvement initiatives. On the innovation front, as Mark noted, ThriftIQ is currently live in 108 stores across the US and Canada. In these stores we continue to see increased unit sell-through, larger baskets, and higher sales yields with the same or lower average prices compared to the rest of our fleet.
As a result, stores with ThriftIQ continue to see faster gross profit growth than the rest of the fleet, and that gap has widened since last quarter. We also announced today our new patent-pending Auto Tagger and integrated image capture solutions. Upon full deployment, we expect these technologies to deliver annualized labor savings of approximately $10 million. I want to highlight that all of our recently announced innovations—ThriftIQ, Auto Tagger, and image capture—were contemplated in the framework we gave last quarter for 50 to 100 basis points of annual adjusted EBITDA margin expansion over the next three years beginning in 2027.
We look forward to discussing this further at our Innovation Day next week. Our new stores continue to perform in line with our expectations on the top line, and as previously mentioned, their profitability is ramping ahead of our original expectations. This reflects elevated site selection, strong operational execution, an improved and evolving marketing approach, and the impact of ThriftIQ, which simplifies operational processes and reduces the time required to train new graders by roughly half. Our balance sheet remains strong with $60 million in cash and cash equivalents and a net leverage ratio of 2.3 times at the end of the quarter.
We repaid $52 million of debt during the quarter and, as previously announced, we purchased 1,000,000 shares at a weighted average price of $9.79 as part of the secondary offering in August. This quarter was a great example of the cash generation power of our model and our capital allocation priorities in action, as we continue to organically fund new store growth, repay debt as we target a net leverage ratio under two times by the end of next year, and opportunistically repurchase 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 third quarter performance, holding our view of the fourth quarter largely unchanged. The costs and benefits of our various innovation initiatives are also incorporated, with the financial contribution from each expected to build as deployment scales. We now expect net sales of $1.77 billion to $1.78 billion, comparable store sales growth of 3.5% to 4.0%, net income of $69 million to $75 million, or $0.43 to $0.47 per diluted share, adjusted net income of $76 million to $83 million, or $0.48 to $0.52 per diluted share, adjusted EBITDA of $270 million to $275 million, capital expenditures of $135 million to $145 million with approximately 25 new store openings, net interest expense of approximately $48 million, and an effective tax rate of approximately 28%.
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 fourth quarter. We plan to open seven new stores during the quarter. We expect total revenue growth to be roughly flat compared to Q4 of last year—up mid- to high-single digits excluding the impact of last year’s 53rd week. We expect comp sales growth to be modestly lower than Q3 as we lap one of the strongest US quarters in recent memory. We expect US comps in the low to mid-single digits and Canada comps in the low single digits.
We expect Q4 adjusted EBITDA margin to expand modestly, marking a key inflection point and providing us confidence in our path to EBITDA margin expansion in the coming years. This concludes our prepared remarks. We would now like to open the call for questions. Operator.
OPERATOR
We will now begin the 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 Q&A roster. Your first question comes from the line of Matthew Boss with J.P. Morgan.
Your line is open. Please go ahead.
Matthew Boss (Analyst at J.P. Morgan)
Thanks, and congrats on a nice quarter.
Mark Walsh (Chief Executive Officer)
Thanks, Matt.
Matthew Boss (Analyst at J.P. Morgan)
So Mark, could you speak to the composition of the 5.9% US comp this quarter between traffic and ticket? And with eight straight quarters now of mid- to high-single-digit comps in the US, what do you attribute to the step-up in top-line trend?
Mark Walsh (Chief Executive Officer)
So, Matt, I think similar to the balance of the year to date, it’s been basket and transaction—very, very consistent. And in terms of eight straight quarters of mid- to high-single-digit comps, consistent execution, great value proposition, unique selection, really fun thrifted shopping experience, and I think overall the secular adoption that we still see—broad acceptance across geographies, income cohorts, and age ranges.
Matthew Boss (Analyst at J.P. Morgan)
And then, Michael, on the bottom line, could you elaborate on the drivers of 100 basis points gross margin expansion this quarter? Are you seeing any initial benefits from ThriftIQ, and any puts and takes to consider for gross margin in the fourth quarter?
Michael Maher (Chief Financial Officer)
Yeah, Matt, sure. So gross margin leverage that we saw in Q3—similar story to what we’ve been talking about all year. So it’s a number of factors: comp leverage in the US on that strong mid-single-digit comp; really exceptional sales yield growth, especially in Canada—we’ve been talking about production management there throughout the year; robust on-site donation growth in both countries; off-site processing improvements in both sales yields and cost efficiencies; and then continued maturation of our new stores and that historical headwind starting to turn and becoming a tailwind.
We are seeing some benefits from ThriftIQ, yes. As we talked about in our prepared remarks, those stores continue to demonstrate faster gross profit growth than the rest of the fleet. However, bear in mind it’s still a relatively small group of stores. While we are now live in over 100 stores, it’s not a flick of the switch and immediately we see the gross profit benefits, right? It takes some time for those price recommendations to flow through, for the previously priced items on the floor to sell through, and so the actual benefit to the overall business thus far is still relatively small.
As for the fourth quarter, all of the factors that I talked about in terms of what drove that third quarter performance are still in play and are still very much operative. And so when you think about our outlook for the balance of the year, I would actually expect gross margin improvement in the fourth quarter to be roughly similar to what we saw in Q3.
Matthew Boss (Analyst at J.P. Morgan)
Helpful color. Best of luck.
Michael Maher (Chief Financial Officer)
Thanks, Matt.
OPERATOR
Your next question comes from the line of Brooke Roach with Goldman Sachs. Your line is open. Please go ahead.
Brooke Roach (Analyst at Goldman Sachs)
Good afternoon, and thank you for taking our question. Mark, Michael, I’d love to hear a little bit more about the pacing of some of the innovation that you’re looking to roll out across ThriftIQ and the newly unveiled Auto Tagger. It sounds like Auto Tagger could add an incremental 50 basis points of margin once it’s fully deployed. How should we be thinking about the cadence and timeline of that deployment and any other innovation that will continue to build ahead?
And then are there any costs associated with that that will weigh on near-term margins that will turn to a bigger benefit in ’27 and beyond?
Mark Walsh (Chief Executive Officer)
Hey, Brooke, this is Mark. We are super excited about Auto Tagger. Thank you for the question. I’m going to turn it over to Jubran to talk about some of the nuances, and Michael will follow up on the specific financial questions you raised.
Jubran Tanious (President and Chief Operating Officer)
Yeah. Hey, Brooke. So very excited about Auto Tagger. Also excited to showcase that for those of us that can join us live next week at our Innovation Day in Minneapolis. Auto Tagger is—we are literally on the front end of rolling it this quarter, and we expect the rollout of that to more or less match our rollout timing across the fleet, same as ThriftIQ, which will bring us into the first portion, first half of 2028. So feel good about that, putting a premium on
Michael Maher (Chief Financial Officer)
Execution and change management, but everything is lining up to be very attractive for that timeframe of rollout. So Brooke, it’s Michael. As far as the financials on Auto Tagger, first of all there is a capital investment. We will spend approximately $40 million in CapEx over the next couple of years. As we’re rolling that out across the fleet in the timetable that Gibran laid out does not change our overall CapEx algorithm. And that high single-digit percentage of revenue remains, you know, that envelope remains the same.
But this will be a component of our innovation capital over that time period. The $10 million, roughly, of annual expense savings is what we can expect once we’re fully rolled out. So that benefit will build. It’ll be, you know, a portion of that in 2027 and growing into 2028 and beyond once we’re fully live on that. So as far as what that does to our overall EBITDA margins, I do want to remind you that that is contemplated in the outlook that we have previously given of 50 to 100 basis points per year. And that is going to be together with Thriftiq and our other innovation efforts along with the other pillars that we’ve talked about, new store maturation and comp leverage. So 50 to 100 basis points a year inclusive of all of that over the next three years on our path back to a high-teens EBITDA margin.
Brooke Roach (Analyst at Goldman Sachs)
Great. And then Michael, just one quick follow-up for you. Can you speak to the drivers of the inflection to EBITDA margin expansion in 4Q given your comment about gross profit margin improvement similar in 4Q versus 3Q?
Michael Maher (Chief Financial Officer)
Yeah, absolutely, Brooke. In fact, I think it’s worth kind of backing up and going back to the earlier part of this year. We’d been saying for a while that 2026 would be our inflection in which we would start to deliver EBITDA dollar growth. We have now done that for four consecutive quarters, largely driven again, as we’ve talked about, not only by the comp core business, but also by the inflection in our new store maturation. We also said that that would be the trough in our EBITDA margin and that is playing out.
If you look at our guidance range, you know, we’re now expecting to be flat to slightly positive on EBITDA margin for the year, exiting the year on a nice, you know, a nice path, a nice trajectory consistent with what we’ve laid out for the next few years. And I think that is reflective of everything that we’ve, you know, sort of talked about and committed to up to this point, namely the continued maturation of new stores and the impact of that and leverage on our comp business. But now also increasingly, as we go forward, the contribution of our innovation agenda as well. And so those things will continue to build. Not every quarter will be a straight line, but I do think Q4 is a nice early down payment, if you will, on EBITDA margin expansion in 2027 and beyond.
Brooke Roach (Analyst at Goldman Sachs)
Great. Thanks so much. I’ll pass it on.
Michael Maher (Chief Financial Officer)
Thanks, Brooke. Thank you.
OPERATOR
Your next question comes from the line of Mark Altschwager with Baird. Your line is open. Please go ahead.
Mark Altschwager (Analyst at Baird)
Thank you. Good afternoon. Following up on that last comment on the margin inflection, as we think about that 50 to 100 basis points for 2027 and beyond, can you speak to, I guess, the relative contribution from the new store maturation, some of these innovation initiatives, and just core comp leverage?
Michael Maher (Chief Financial Officer)
Yeah, Mark, sure. So we’re going to talk a little bit more about this at Innovation Day next week as well. But all three of those things are legs of the stool of margin expansion over the next three years as we progress back up into the high teens. And they’re all meaningful contributors. So right now I would say the largest in the near term is continued leverage on our comp business. Innovation and new stores both are going to build with time. In the case of innovation, it’s the deployment of Thriftiq and Auto Tagger and image capture.
Those benefits build as we scale that across the fleet. And as Gibran indicated, that’s going to take us into the early part of 2028. New stores, similar story. That has been building for some time and will continue to build. First we had the inflection point from headwind to tailwind, which we’ve seen this year. Next, and going forward, we’re going to start to see the impact on EBITDA margin flip as well. But again, that’s a function of time and older classes of new stores continuing to mature and increase profitability.
Mark Altschwager (Analyst at Baird)
Thank you. And then following up on Canada, the comps improving to plus one and a half percent. What do you think drove the better trend versus your flat comp plan? And then I think you said you’re not anticipating further improvement there, but just maybe walk us through how you’re thinking about the Canada trajectory both from a comp and further margin opportunity from here. Thank you.
Mark Walsh (Chief Executive Officer)
Hey, Mark, thanks. This is Mark. So a couple of things around Canada. Let me start with what we think changed in terms of the Canadian consumer, which is very important. Canadian consumer continues to skew younger. But in the third quarter what we saw, and it’s probably the best news in Canada we’ve seen in a while, is that lower household income cohort showed growth. So we said in previous quarters these customers were on the sidelines. We see this growth as a real green shoot.
We’re still planning conservatively, but we have reason for optimism. And really what’s happened in Canada, what hasn’t happened is matching production to demand. That execution level is still super tight. We’re delivering that compelling price-value. We’ve invested modestly in marketing and the fleet. But I think all of these things and that modestly improving macro have conspired to improve our sales trajectory.
Mark Altschwager (Analyst at Baird)
Thank you. Looking forward to the Innovation Day next week.
Mark Walsh (Chief Executive Officer)
Thanks. Thanks, Mark.
OPERATOR
Your next question comes from the line of Randy Konik with Jefferies. Your line is open. Please go ahead.
Randy Konik (Analyst at Jefferies)
Yeah, thanks, guys. I guess, Michael, when you think about the idea of maturity or maturing stores in the U.S. market, you know, I think there’s just a different conversation than in Canada where I think you’ve said in the past that 95%, I believe, awareness in the Canadian market by the citizens there, but the amount of awareness of the brand and the business in the U.S. is extremely low. So when you think about, you know, as time goes by and the awareness levels build, it would seem that the sales productivity per foot to move, you know, incrementally much higher for the fleet.
I wanted just to kind of understand your thoughts around that concept. And then when you look at the geographic margins of the U.S. relative to Canada, if you think about that productivity improvement opportunity long term, how does that kind of inform your opinion of where the geographic margins for the U.S. go relative to Canada? Thanks.
Michael Maher (Chief Financial Officer)
Yeah. Hey Randy, thanks for the question. So a couple things. First of all, your thoughts on the long-term trajectory of U.S. comps, I think that’s fair. I mean, I think that’s consistent with what we’ve talked about for a while, which is that we’re still in earlier innings of thrift adoption. We still have a lot of white space. When you think about the way we’re seeing that show up in our business, the consistent now, as you’ve already seen us talk about here, the broad-based strength across categories and regions and income demographics just all speaks to the continued runway for that broader secular adoption.
I would also say there’s a sort of a mechanical factor at play here, which is as we continue to grow in the U.S. and more new stores enter the comp base, our comp base gets younger on average and that provides a tailwind to the comp growth in the U.S. We’ve said before this year that tailwind has been worth about 50 basis points. I expect that tailwind to build as we go forward into 2027 and beyond. So yeah, in short, because of all of that and because we are much more mature in Canada, we do expect U.S. comps to continue to outpace Canadian comps for the long term.
As far as the margin profile, the contribution margin, some different dynamics there. I think what you have seen in Canada this year, which we’re really proud of, is a reflection of some exceptional operating disciplines around management of production and sales yields, off-site processing, on-site donation growth, and that kind of year-over-year improvement. While we think that has more room to run through the balance of this year, you’re not going to see that kind of improvement every single year.
However, we do have additional ammunition from our innovation initiatives that we think can drive profit improvement as we go forward, and we should be able to sustain profit margins in Canada at something like this level with only very modest low single-digit comp sales growth. The U.S. is a little bit different. It’s always had a structurally lower margin and we’re still accelerating our growth in the U.S., which, as you know, creates some short-term headwinds.
So in the near term, near to medium term, I would say we’ll continue to see that divergence between U.S. and Canadian profit margins.
Randy Konik (Analyst at Jefferies)
Great. And I guess, Mark, knowing what you know about what you’re going to show us next week, what would be like the one, two, or three things you want us to kind of take away either qualitatively or quantitatively in terms of what we’re going to witness next week when we come out to see you guys?
Mark Walsh (Chief Executive Officer)
I would say this: I think it’s one thing. The company has a tremendous culture of innovation. You are going to see it on display and you’re going to be impressed.
Randy Konik (Analyst at Jefferies)
Simple enough. Thanks guys.
Mark Walsh (Chief Executive Officer)
Thanks, Randy.
OPERATOR
Your next question comes from the line of Michael Lasser with UBS. Your line is open. Please go ahead.
Michael Lasser (Analyst at UBS)
Good evening. Thank you so much for taking my question. Your guidance implies and your commentary implies that you’re going to see a slower comp in the fourth quarter, presumably some of that related to the weather from last year where that fostered some demand for cold-weather seasonal goods. Have you already started to see the slowdown, or is that more November to December when you’re expecting the moderation to occur? Thanks.
Michael Maher (Chief Financial Officer)
Hey Michael. It’s Michael. Yeah, so that’s correct. Let me talk first of all about the cadence of the comp through third quarter and how we’re seeing that extend into Q4. So in the U.S. we did see some modest sequential moderation throughout Q3 as we started to lap tougher comparisons from a year ago. Very modest. September was only slightly below the third quarter average. And we do see continued moderation in early Q4, which is what we have expected all year and have communicated to you all previously.
Something in the low- to mid-single-digit range in the fourth quarter, not so much because of weather, although that’s always a sort of factor intra-quarter, really because we’re now lapping the strongest quarter in the recent history of the company. In the U.S. we did an 8.8 comp a year ago, so it’s really more a function of that, Michael. Certainly there’s always some weather factor. We’ve seen some warmer weather in the Midwest, for example, but those things tend to even out over the course of the quarter.
By the way, I would just say it’s the opposite in Canada. We had sequential acceleration throughout the third quarter in Canada and, so far in Q4, what we’re seeing in Canada is roughly in line with Q3.
Michael Lasser (Analyst at UBS)
Michael, begs the question: what was the exit rate, and have you seen two-year stacks remain pretty consistent over the course of 3Q into the current period?
Michael Maher (Chief Financial Officer)
Yeah, enterprise-wide two-year stacks remain consistent.
Michael Lasser (Analyst at UBS)
Okay. My follow-up question is Savers Value Village has a long history and heritage of being innovative. CPCs and ADPs are good examples of that. How would you compare and contrast the magnitude of the impact from the technology that you are going to implement over the next 24 months to what has already been in place over the last few years? And if this is a model that is inherently more profitable, higher returns, does it make sense to accelerate the store growth or engage in more M&A because you have a model that can benefit from all that capital deployment?
Thank you so much.
Mark Walsh (Chief Executive Officer)
Yeah, Michael, I’m going to start with the last piece of that question — it’s a terrific question, by the way — from an M&A perspective. We’re not looking for M&A to drive our growth. We’ve got tremendous white space ahead of us. We’re really comfortable with our execution pace on new stores and we see great results in our new stores. The innovation agenda just bolsters our ability to move forward and deliver additional profitability as we improve our processes.
I mean, Jubran’s really championed the Auto Tagger solution. I’ll turn it over to him to provide you additional color on that sort of culture of innovation you hearken to.
Jubran Tanious (President and Chief Operating Officer)
Yeah, Michael, and hopefully you can join us next week. But, you know, innovation in our company, as Mark talked about, is not a one-and-done. It’s continuous improvement. It’s looking for derivatives on things that we’ve already created. Very excited about this latest chapter, which will affect the entire fleet. So lots of things in the hopper. We want to take a scientific approach on all of it, a test-and-learn approach. And then in terms of unlocking new stores, we’re pretty happy with our pipeline and performance of new stores like Mark talked about, and excited about our 2027 pipeline. Very pleased with the performance of the stores that we have opened to date. We think we’ve done a lot of things to get better over time, over that. And it really comes down to a balance. I mean, we have a bias for execution and a high success rate on new stores.
And as we think about the majority of our new stores opening in the US, entering a variety of new markets where there’s amazing white space, again, we want to put a premium on execution and striking the right balance of all the factors that go into opening a new store.
Michael Lasser (Analyst at UBS)
Thank you so much and good luck.
Mark Walsh (Chief Executive Officer)
Thank you, Michael.
OPERATOR
Your next question comes from the line of Bob Durbal with BTIG. Your line is open. Please go ahead.
Bob Durbal (Analyst at BTIG)
Hi, good afternoon. I was just wondering, can you focus a little bit on the sort of traction with younger consumers and the affluent consumers, sort of how you’re seeing within some of your new stores? And I think, just following some of the other questions, can you unpack a bit more sort of how you’re feeling about some of the new markets that you’ve entered?
Mark Walsh (Chief Executive Officer)
Why don’t I jump in with the question around the consumer, and maybe Jubran, you can talk about the two new stores in North Carolina and Tennessee. Broadly speaking, the Canadian and US customer is getting younger and that gives us great optimism for the future. And in both countries, we have seen consistently the higher household income demographic being more drawn to the environment and the value proposition. So it’s a wonderful combination, Bob, of trade-down and younger customers getting engaged.
But again, whenever I talk about the consumer, at least for this quarter, the impact of the lower household income consumer growing in Canada was a real nice green shoot for us. Jubran, you want to talk about the two markets, the Tennessee and North Carolina?
Jubran Tanious (President and Chief Operating Officer)
Yeah, I mean, earlier this year we opened our first store in North Carolina, as Mark mentioned, opened our first store in Tennessee in Chattanooga and doing really well. And then we think there’s a few reasons for that, really. Three things I would point to, Bob. The first thing is we’ve gotten better and better at site selection and I think our success continues to bear that out. The second thing I would say is we have dedicated boots-on-the-ground teams that are there to support young stores in their maturity curve in getting to profitability.
And then the third thing is an ever-evolving marketing playbook, a mix of tactics, whether that’s influencers, paid search, optimizing the physical site itself. All those things taken together really help us ramp awareness and footsteps in a new market. So very pleased with what we’ve seen, and I think one of the reasons that we’re so encouraged is, frankly, the diversity of types of new markets that we’ve opened in. So Chattanooga to Harrisburg, Pennsylvania to Richmond, Virginia.
We’re seeing our model really do what we talked about earlier. Durable, portable, lots of white space to take advantage of into the future.
Bob Durbal (Analyst at BTIG)
Sounds good. Thank you very much.
OPERATOR
Your next question comes from the line of Ike Baruchau with Wells Fargo. Your line is open. Please go ahead.
Ike Baruchau (Analyst at Wells Fargo)
Hey, afternoon everyone. Michael, quick one for you on the margin algo. Do you still expect on the 50 to 100 basis points of expansion — do you still expect next year to be closer to the low end of that range? And, assuming the answer to that is yes, what do you think is the number one lever that you might see that might drive that answer more into the, you know, middle or higher range potentially of the algo? Thanks.
Michael Maher (Chief Financial Officer)
Yeah, short answer: yes, we still expect next year to be in the lower end, so let’s call it 50 basis points for 2027. And again, that’s a function of both the timing of the rollout of our innovation items — ThriftIQ, Auto Tagger, and image capture — and the continued maturation of new stores. So what could change that? I would say probably first and foremost the total level of comp sales growth and the underlying organic leverage that we get on that.
Always going to be a driver, plus or minus, of margin performance. And then just how well do we see new stores performing? I would say the innovation timeline, I think we’ve got that pretty locked down. We’re on track for that. So probably your variables would be more around the level of comp growth and new store performance.
Ike Baruchau (Analyst at Wells Fargo)
Thanks, Michael.
OPERATOR
Your next question comes from the line of Anthony Chucumba with Capital Markets. Your line is open. Please go ahead.
Anthony Chucumba (Analyst at Capital Markets)
Thank you so much for taking my question. I appreciate it. Can you just give us, I guess, a little bit more color on the rollout of ThriftIQ in terms of the timing on that? If I recall, last quarter was probably close to, like, 60 or so stores. Now it’s in 108. And just wondering how we should think about how the rollout is going to progress over the next, you know, 12 to 18 months. Thank you.
Jubran Tanious (President and Chief Operating Officer)
Yeah. Hey, Anthony, it’s Jubran. You’re right about that. The rollout is going well. Consumer reaction’s been strong. All the things that we mentioned earlier — we’re on schedule. You know, what we communicated and are executing on is it’s going to hit our central processing centers first, which obviously allows you to hit effectively multiple stores at once, and then it will start to roll to the rest of the fleet, sort of our traditional stores.
So still on track for a full fleet rollout sometime in the early portion of 2028.
Anthony Chucumba (Analyst at Capital Markets)
Got it. I’ll see you guys in Minneapolis.
Jubran Tanious (President and Chief Operating Officer)
Look forward to it.
OPERATOR
Your next question comes from the line of Peter Keith with Piper Sandler. Your line is open. Please go ahead.
Sarah Moore (Analyst at Piper Sandler)
Hi, this is Sarah Moore in for Peter Keith. Thanks for taking our question. You said new store profitability is ramping ahead of your original expectations, in part from ThriftIQ. Could you just walk through some other drivers of that, and then do you think some of the other innovations like the Auto Tagger and imaging technology could also contribute to further improvements there?
Jubran Tanious (President and Chief Operating Officer)
Yeah, this is Jubran. I can take a piece of that. You guys can jump in. So I think it’s a few things coming together. ThriftIQ is absolutely a piece of that. It allows immature new store teams to ramp very quickly in terms of the precision of price, like we’ve talked about in the past, shrinking your training time, allowing for ramp-up faster. I think, again, some of the marketing tactics in terms of awareness, particularly in new markets, have continued to improve and evolve and that is obviously helping us.
I think the dedicated resources that we have — sort of that boots-on-the-ground, helping on the executional items that a new store faces — help them ramp faster, both in terms of donation volume and how we show up to the donor in that experience, but then also on the customer side of things, with the shopping experience. So you put all that together and you really end up with what we’re seeing.
Sarah Moore (Analyst at Piper Sandler)
Okay, great. Thank you.
Jubran Tanious (President and Chief Operating Officer)
Thank you.
OPERATOR
Your next question comes from the line of Jeremy Hamblin with Craig-Hallum Capital Group. Your line is open. Please go ahead.
Will (Analyst at Craig-Hallum Capital Group)
This is Will on for Jeremy. I’m just curious of the drivers of the stronger mix of on-site donations in the quarter and if you can maybe speak to any differences in donation mix or sales yields between your newer versus the more mature stores, or any differences between the US and Canada markets.
Jubran Tanious (President and Chief Operating Officer)
Thanks for the question. This is Jubran. So short answer on donation mix: no, not really. Not seeing any material changes in the composition of what’s donated. In terms of the on-site donation growth itself, this has been sort of a recurring theme and we’ve talked about it in the past. We’re seeing growth across multiple regions, multiple countries, and it really comes down to a variety of things, but particularly execution and showing up to the donor in a reliably fast, friendly, and convenient way.
And we put a lot of focus and effort on this. We know that if we do that well and do that consistently, we will remain the donation destination of choice for new donors. So as we look forward, we expect that to continue.
Michael Maher (Chief Financial Officer)
And then, Will, this is Michael — just to your second part of your question about new versus mature stores. Certainly new stores have lower on-site donation penetration up front. That is part of the maturation, that is part of what helps ultimately move them to profitability. But typically a new store opens with an on-site donation mix that’s well below our fleet average.
Will (Analyst at Craig-Hallum Capital Group)
Understood, thanks. And then just wanted to go back to the ThriftIQ benefits, see if you’re able to add any more color on just how sell-through rates and sales yields or baskets compare to the kind of the remaining base that hasn’t had ThriftIQ implemented yet.
Michael Maher (Chief Financial Officer)
Yeah, the benefits are as we’ve articulated — higher unit sell-through, absolutely larger baskets. The sales yields and profitability for those new stores are growing. Gross profit very strong. Couldn’t be happier with the timeline. And lastly, benefits are, you know, they’re coming from both sales and gross margin dollars.
Will (Analyst at Craig-Hallum Capital Group)
Got it. Thank you.
Michael Maher (Chief Financial Officer)
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 (Analyst at Northland Capital Markets)
Hey guys, thanks for taking my question here. Quick one for me. Just as store growth is accelerating in the US this year, I was just curious how on-site donation supply is keeping pace in the newer, maybe less brand-aware markets like Tennessee and North Carolina.
Jubran Tanious (President and Chief Operating Officer)
Yeah, it’s a great question, Owen. On-site donations have been right on plan, right as we modeled, so in accordance with what we would expect in terms of the overall maturity curve of a new store from a sales, profitability, and on-site donation volume perspective.
Owen Rickert (Analyst at Northland Capital Markets)
All right, awesome. Thanks for taking my question. I’ll see you guys on Tuesday.
OPERATOR
Thank you. 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 (Chief Executive Officer)
Thank you, everyone, for participating today and your interest, your Continued interest in Savers Value Village. And we’re really looking forward to hosting everyone in Minneapolis next week. We look forward to seeing you there. Travel safe, you all. Thank you.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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