Core Insights - Savers Value Village (SVV) reported revenue of $394.8 million for the quarter ended September 2024, reflecting a 0.5% increase year-over-year, but fell short of the Zacks Consensus Estimate of $401.94 million by 1.78% [1] - The company's EPS was $0.15, down from $0.16 in the same quarter last year, resulting in an EPS surprise of -11.76% against the consensus estimate of $0.17 [1] Financial Performance Metrics - Comparable Store Sales Growth - Total: -2.4%, compared to the three-analyst average estimate of -1% [3] - Comparable Store Sales Growth - United States: 1.6%, below the 2.6% average estimate [3] - Comparable Store Sales Growth - Canada: -7.5%, worse than the -4.5% estimated by analysts [3] - Number of Stores - United States: 167, slightly below the two-analyst average estimate of 169 [3] - Number of Stores - Canada: 164, in line with the average estimate of 163 [3] - U.S. Retail Revenue: $212.47 million, below the $215.45 million estimate, but a 6.2% increase year-over-year [3] - Other Revenue: $30.44 million, exceeding the $29.70 million estimate, with a year-over-year change of 4.8% [3] - Canada Retail Revenue: $151.89 million, below the $157.26 million estimate, representing a 7.1% decline year-over-year [3] Stock Performance - Shares of Savers Value have returned +8.1% over the past month, outperforming the Zacks S&P 500 composite's +3.2% change [4] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [4]

Core Viewpoint - Savers Value Village (SVV) reported quarterly earnings of $0.15 per share, missing the Zacks Consensus Estimate of $0.17 per share, and showing a decline from $0.16 per share a year ago, indicating an earnings surprise of -11.76% [1] Financial Performance - The company posted revenues of $394.8 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 1.78%, and showing a slight increase from $392.7 million year-over-year [2] - Over the last four quarters, Savers Value has consistently failed to surpass consensus EPS and revenue estimates [2] Stock Performance - Savers Value shares have declined approximately 37.9% since the beginning of the year, contrasting with the S&P 500's gain of 24.3% [3] - The current Zacks Rank for Savers Value is 3 (Hold), indicating expected performance in line with the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.12 on revenues of $397.47 million, and for the current fiscal year, it is $0.51 on revenues of $1.54 billion [7] - The trend of estimate revisions for Savers Value is mixed, which could change following the recent earnings report [6] Industry Context - The Textile - Apparel industry, to which Savers Value belongs, is currently ranked in the bottom 41% of over 250 Zacks industries, suggesting potential challenges for stock performance [8] - Comparatively, Lululemon (LULU), another company in the same industry, is expected to report quarterly earnings of $2.73 per share, reflecting a year-over-year increase of 7.9% [9]

Financial Performance - Net sales increased by 0.5% to $394.8 million, with U.S. sales up 6.2% and Canada down 7.1%[2] - Comparable store sales decreased by 2.4%, with U.S. increasing by 1.6% and Canada decreasing by 7.5%[2] - Net income was $21.7 million, with an adjusted net income of $25.1 million, resulting in net income per diluted share of $0.13 and adjusted net income per diluted share of $0.15[2] - Adjusted EBITDA was $82.0 million, with an adjusted EBITDA margin of 20.8%[2] - Operating income for the thirteen weeks ended September 28, 2024, was $48,638, compared to $20,345 in the same period of 2023, indicating a significant increase of 139.5%[18] - Net income for the thirteen weeks ended September 28, 2024, was $21,681, a turnaround from a net loss of $15,612 in the same period of 2023[23] - Basic net income per share for the thirteen weeks ended September 28, 2024, was $0.13, compared to a loss of $0.10 per share in the same period of 2023[23] - Adjusted net income for the thirteen weeks ended September 28, 2024, was $25,088,000, compared to $26,519,000 for the same period in 2023[29] - Net income per diluted share for the thirteen weeks ended September 28, 2024, was $0.13, compared to a net loss of $0.10 for the same period in 2023[29] - Adjusted EBITDA for the thirteen weeks ended September 28, 2024, was $81,998 thousand, down 9.0% from $91,010 thousand in the prior year[33] Sales and Revenue - Total active members in loyalty programs increased by 11.5% to 5.8 million, accounting for nearly 72% of total sales in the quarter[2] - The updated fiscal 2024 outlook includes total net sales of approximately $1.53 billion to $1.54 billion[4] - Projected net income for fiscal 2024 is approximately $44 million to $49 million, with adjusted net income projected at $81 million to $86 million[4] - U.S. Retail net sales increased by $12,343,000 (6.2%) to $212,470,000 for the thirteen weeks ended September 28, 2024, compared to $200,127,000 for the same period in 2023[25] - Canada Retail net sales decreased by $11,632,000 (7.1%) to $151,886,000 for the same period, down from $163,518,000[25] - Total net sales for the company increased by $2,099,000 (0.5%) to $394,797,000 for the thirteen weeks ended September 28, 2024, compared to $392,698,000 in the prior year[25] - The U.S. Retail segment's total net sales for the thirty-nine weeks ended September 28, 2024, increased by $31,470,000 (5.4%) to $612,118,000 compared to $580,648,000 in the prior year[26] Store Operations and Expansion - The company plans to open 29 new stores in fiscal 2024, including 22 organic openings and 7 from the Peaches acquisition[4] - The total number of stores increased to 344 as of September 28, 2024, from 321 in the same period last year[37] Assets and Liabilities - Total assets as of September 28, 2024, were $1,889,671, an increase from $1,867,405 as of December 30, 2023[19] - Total liabilities decreased to $1,456,788 as of September 28, 2024, from $1,491,350 as of December 30, 2023[19] - Cash and cash equivalents at the end of the period were $137,719, down from $179,955 at the beginning of the period[21] Capital Expenditures and Debt - The company incurred $80,146 in capital expenditures for property and equipment during the thirteen weeks ended September 28, 2024[21] - The company reported a loss on extinguishment of debt of $4,088 for the thirty-nine weeks ended September 28, 2024, compared to a loss of $16,626 for the same period in 2023[21] - The company reported an interest expense of $15,466 thousand for the thirteen weeks ended September 28, 2024, down from $18,708 thousand in the same period last year[33] Market Strategy - The company remains focused on driving stronger performance in Canada despite macroeconomic pressures[2] - The company anticipates continued focus on market expansion and new product development as part of its strategic initiatives moving forward[36]

Investment Overview - Savers Value Village (NYSE:SVV) is rated as a hold due to expected underperformance in Canada operations, influenced by high mortgage rates affecting household income [2] - The robust outlook in the US is not anticipated to sufficiently offset the weaknesses in Canada, suggesting better investment alternatives in the US market [2] Business Description - SVV operates as a leading for-profit thrift store in the US and Canada, sourcing merchandise through non-profit partners and processing it in centralized centers [3] - The US market accounts for 52% of FY23 revenue, while Canada contributes 40% [3] 2Q24 Earnings - SVV reported sales of $386.7 million, missing consensus expectations of $391.1 million, with same-store sales growth declining from 0.3% in 1Q24 to -0.1% in 2Q24 [4] - Gross margin was reported at 57.9%, below the expected 59.1%, leading to an adjusted EBITDA margin of 20.7%, also below the consensus of 21.4% [4] - Management has lowered FY24 guidance for adjusted EBITDA to $290 to $310 million, down from $330 to $340 million, with expected sales revised to $1.53 to $1.56 billion [4] US Market Outlook - US same-store sales growth remains strong, with a favorable macro environment driving consumer behavior towards value purchases [5][6] - The loyalty program is experiencing double-digit growth, particularly among younger and higher-income customers, indicating a positive trend for SVV [7] Canada Market Outlook - Canada operations are facing significant headwinds, with deteriorating same-store sales growth and negative consumer demand trends [9] - High interest rates in Canada are expected to pressure household income, particularly as many mortgages are up for refinancing at higher rates [10] Valuation - SVV's valuation is likely to remain depressed due to concerns over Canadian performance, despite a strong outlook in the US [11] - Competitors like Ross Stores and Ollie's Bargain Outlet are seen as better investment options due to clearer growth prospects [11] Conclusion - The overall performance of SVV is expected to be weak in the near term, primarily due to challenges in Canada, which are likely to outweigh the benefits from the US market [12]

Financial Data and Key Metrics Changes - Total net sales increased by 2% to $387 million in Q2 2024, with a constant currency increase of 2.8% [17] - Adjusted EBITDA margin was over 20% for the quarter, demonstrating the resilience of the financial model despite challenges [16] - GAAP net income for the quarter was $9.7 million, or $0.06 per diluted share, while adjusted net income was $23.7 million, or $0.14 per diluted share [21] Business Line Data and Key Metrics Changes - U.S. net sales increased by 5.4% to $207 million, with comparable store sales up by 2.1%, driven by growth in both transactions and average basket [17] - Canadian net sales declined by 2.4% to $150 million, with comparable store sales down by 3.1%, impacted by declines in both transactions and average basket [17] Market Data and Key Metrics Changes - Canadian GDP per capita has declined, and the unemployment rate rose from 5.7% to 6.4% in the first half of the year, affecting consumer spending [5] - Canadian household debt is over 100% of GDP, with debt service costs exceeding 15% of household income, leading to reduced discretionary spending [5][6] Company Strategy and Development Direction - The company plans to open 29 new stores in 2024, including 22 organic openings and 7 acquired locations, with a focus on U.S. expansion [10][25] - Off-site processing capabilities are being enhanced to support new store growth, with more than half of new stores expected to leverage off-site processing [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in long-term growth despite current challenges in Canada, citing strong brand awareness and customer loyalty [8][9] - The company is lowering its full-year 2024 outlook for total net sales to a range of $1.53 billion to $1.56 billion, reflecting macroeconomic headwinds in Canada [24] Other Important Information - Donations grew by 6% year-over-year, contributing to strong supply levels for existing and new stores [11] - The company has taken steps to strengthen its balance sheet, including paying down debt and increasing its revolving line of credit [22][23] Q&A Session Summary Question: Insights on U.S. store performance and growth - U.S. new stores are exceeding expectations, with strong performance and reliable forecasting supporting long-term growth plans [31][32] Question: Canadian market challenges and guidance adequacy - The current downturn in Canada is unique, with management confident that it is cyclical and will eventually improve [34] Question: Margin protection strategies in Canada - Despite challenges, the company maintained a 20% EBITDA margin, with investments in new stores and off-site processing impacting margins [39] Question: Pricing strategy and customer sensitivity - The company is actively monitoring its price-value relationship and testing aggressive pricing strategies to drive traffic [52][53] Question: Differences between Canadian and U.S. markets - The macroeconomic environment in Canada is currently more challenging, with higher household debt and lower thrift market maturity compared to the U.S. [54] Question: Long-term growth algorithm and expectations - The company anticipates high-single digit annual revenue growth driven primarily by new stores, with EBITDA margins expected to remain near 20% as growth investments mature [56][57]

Savers Value Village (SVV) reported $386.66 million in revenue for the quarter ended June 2024, representing a year-over-year increase of 2%. EPS of $0.14 for the same period compares to $0.22 a year ago. The reported revenue represents a surprise of -1.66% over the Zacks Consensus Estimate of $393.2 million. With the consensus EPS estimate being $0.20, the EPS surprise was -30.00%. While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street expectations to d ...

Company Performance - Savers Value Village (SVV) reported quarterly earnings of $0.14 per share, missing the Zacks Consensus Estimate of $0.20 per share, and down from $0.22 per share a year ago, representing an earnings surprise of -30% [1] - The company posted revenues of $386.66 million for the quarter ended June 2024, missing the Zacks Consensus Estimate by 1.66%, and compared to year-ago revenues of $379.1 million [2] - Over the last four quarters, the company has not surpassed consensus EPS or revenue estimates [2] Stock Performance - Savers Value shares have lost about 44.3% since the beginning of the year, while the S&P 500 has gained 9% [3] - The current status of estimate revisions is unfavorable, leading to a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6] Future Outlook - The current consensus EPS estimate for the coming quarter is $0.24 on revenues of $415.18 million, and for the current fiscal year, it is $0.73 on revenues of $1.58 billion [7] - The outlook for the industry, specifically the Textile - Apparel sector, is in the bottom 25% of Zacks industries, which may materially impact the stock's performance [8]

Financial Data and Key Metrics Changes - In Q1 2024, the company reported sales of $354 million and adjusted EBITDA of $60.3 million, representing growth of 2.5% and 2.1% respectively [116] - Comparable sales in the US grew by 2.3%, while Canada experienced a decline of 2.6% [116] - On a two-year stack basis, aggregate comparable store sales increased by 7.5%, with the US up 7.9% and Canada up 6.4% [117] - The cost of merchandise sold as a percentage of net sales increased by 260 basis points to 44.7%, driven by higher material, labor, benefits, and freight costs [100] Business Line Data and Key Metrics Changes - The company opened 12 stores in 2023 and is on track to open 22 stores in 2024, with 21 leases already signed [118] - Newly opened stores are demonstrating strong unit economics with a targeted return on investment exceeding 20% [118] Market Data and Key Metrics Changes - In Canada, the company is facing more difficult macro conditions compared to the US, impacting sales performance [117] - Shopper satisfaction in Canada is reported at 85%, while in the US it is around 87% [21] Company Strategy and Development Direction - The acquisition of 2 Peaches, a regional thrift store chain in Georgia, is seen as a strategic move to establish a presence in the Southeast, a key growth area [122] - The company plans to convert the remaining stores from the 2 Peaches acquisition to the Savers Value Village model, optimizing supply through centralized processing [124] - Continued investments are being made in centralized processing centers and automated book processing units to support growth [126] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the trajectory in the US, noting positive trends in thrift shopping and loyalty program growth [5] - The company anticipates that the second half of the year will see improved adjusted EBITDA, with expectations of mid to high single-digit percentage growth year-over-year [1] - Management acknowledged macroeconomic pressures in Canada but remains confident in the company's value proposition and market positioning [21][61] Other Important Information - The company ended Q1 with $102 million in cash and cash equivalents, with total borrowings of $765.8 million and a net leverage of 2.1 times [101] - A new CFO, Michael Maher, has been appointed, replacing Jay Stasz [99] Q&A Session Summary Question: Health of the US business and traffic trends - Management reported positive trends in the US, with a 2.3% comparable sales increase and strong performance from new stores [5] Question: Drivers of gross margin contraction - Management noted that Q1 is typically the lowest gross margin quarter, with unexpected large benefit claims and misalignment of production hours contributing to margin contraction [6][7] Question: Historical perspective on the Canadian market - Management highlighted strong brand awareness in Canada and low attrition rates among loyalty members, despite macroeconomic challenges [20] Question: Update on central processing centers and productivity initiatives - The company currently operates five centralized processing centers and plans to open a sixth in California, with positive returns on investment from automated book processing units [25][26] Question: Impact of promotional activities in Canada - Management is testing targeted promotional activities in specific markets rather than a nationwide approach, aiming to drive traffic and revenue [56] Question: On-site donations and GreenDrop initiative - On-site donations are performing well, and the GreenDrop initiative is expected to expand, with plans to open 20 to 25 new locations this year [81][82]

Financial Performance - Net sales increased by 2.5% to $354.2 million, with comparable store sales up 0.3%[4] - Adjusted net income rose by 32.3% to $13.9 million, with adjusted net income per diluted share at $0.08[4] - The company ended the first quarter with a net loss of $0.5 million, or $0.00 per diluted share[4] - Adjusted EBITDA increased by 2.1% to $60.3 million, with an adjusted EBITDA margin of 17.0%[4] - Net income for fiscal 2024 is projected to be approximately $85 million to $92 million, an increase from previous estimates[9] - Adjusted net income for the period was $13,863 thousand, compared to $10,480 thousand for the same period in 2023[35] - The company expects adjusted net income for fiscal 2024 to be between $126 million and $133 million, with a GAAP net income forecast of $85 million to $92 million[39] Sales and Store Performance - Fiscal 2024 outlook includes total net sales projected between $1.57 billion and $1.59 billion[9] - Comparable store sales growth is expected to be between 2% and 3% for fiscal 2024[9] - U.S. Retail segment sales increased by 4.7% to $192,580 thousand from $184,021 thousand year-over-year[32] - Comparable store sales growth in the United States was 2.3% for the thirteen weeks ended March 30, 2024, down from 5.6% in the same period last year[46] - The total number of stores increased to 326 as of March 30, 2024, up from 317 a year earlier, with 155 stores in the United States and 159 in Canada[46] - The company plans to add a total of 29 net new stores in 2024, including the acquisition of 7 stores in Georgia[3][5] Loss and Improvement - The net loss for the thirteen weeks ended March 30, 2024, was $467 thousand, a significant improvement from a net loss of $10,195 thousand in the same period last year[29] - For the thirteen weeks ended March 30, 2024, the company reported a net loss of $467,000 compared to a net loss of $10,195,000 for the same period in the previous year, indicating a significant improvement[41] Assets and Liabilities - Cash and cash equivalents decreased to $102,183 thousand from $179,955 thousand at the end of the previous quarter[25] - Total assets decreased to $1,817,955 thousand from $1,867,405 thousand at the end of the previous quarter[25] - Total liabilities decreased to $1,422,998 thousand from $1,491,350 thousand at the end of the previous quarter[25] Other Financial Metrics - The company incurred interest expense of $16,076 thousand, a decrease from $24,470 thousand in the same period last year[27] - Stock-based compensation expense for the thirteen weeks ended March 30, 2024, was $19,129,000, significantly higher than $917,000 in the same period last year[41] - The company recorded transaction costs of $2,257,000 for the thirteen weeks ended March 30, 2024, compared to $940,000 in the prior year[41] - The company processed a supply volume of 238 million pounds for the thirteen weeks ended March 30, 2024, slightly down from 240 million pounds in the previous year[46] - The impact of foreign currency on net sales was a decrease of $20,000, with constant-currency net sales showing a 2.4% increase[43] Acquisition Impact - The acquisition of 2 Peaches is expected to generate approximately $7 million in net sales from May 7, 2024, to December 28, 2024[8]

[Part I](index=6&type=section&id=PART%20I) [Item 1. Business](index=6&type=section&id=Item%201.%20Business) Savers Value Village, Inc. is the largest for-profit thrift operator in the United States and Canada, with 326 stores, operating a vertically integrated model from sourcing to retail sales, with a strategic focus on cost-effective On-Site Donations and growth through store expansion and operational efficiency, all rooted in ESG principles - The company operates **326 stores** under banners including Savers, Value Village, and 2nd Ave., making it the largest for-profit thrift operator in the U.S. and Canada[24](index=24&type=chunk) - The business model is vertically integrated across three core operations: Supply & Processing, Retail, and Wholesale[31](index=31&type=chunk)[36](index=36&type=chunk) - A strong loyalty program with over **5.3 million active members** drove **70.3% of point-of-sale transaction value** in fiscal year 2023[24](index=24&type=chunk) - On-Site Donations (OSDs) are a critical and growing supply source, accounting for **65.2% of total pounds processed** in fiscal 2023. OSDs have a cost per pound that is, on average, less than **one-third** that of delivered supply[34](index=34&type=chunk)[95](index=95&type=chunk)[103](index=103&type=chunk) - The company's growth strategy focuses on strategically expanding its store base, with a target of approximately **2,200 potential new locations** identified across the U.S. and Canada. The company plans to open approximately **22 new stores in 2024** and **25 or more annually from 2025 through 2027**[83](index=83&type=chunk)[150](index=150&type=chunk) - The company is implementing technological innovations to drive efficiency, including Centralized Processing Centers (CPCs) and Automated Book Processing (ABP) systems, for which it holds exclusive rights for a period[80](index=80&type=chunk)[122](index=122&type=chunk)[167](index=167&type=chunk) - As of December 30, 2023, the company employed over **22,000 team members**. In fiscal year 2023, **72% of open salaried management positions** in the U.S. and Canada were filled by internal promotions[173](index=173&type=chunk)[174](index=174&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks primarily related to its business model, operations, and financial structure, including dependency on sourcing, labor costs, intense competition, operational disruptions, material weaknesses in internal controls, substantial indebtedness, and governance implications as a "controlled company" - The business model's success is highly dependent on the ability to source a sufficient quantity of quality secondhand items at attractive prices, primarily from non-profit partners and on-site donations[184](index=184&type=chunk)[200](index=200&type=chunk) - The company has identified material weaknesses in its internal control over financial reporting related to insufficient technical accounting expertise, lack of clearly defined roles in finance, and ineffective IT general controls (ITGCs)[191](index=191&type=chunk)[269](index=269&type=chunk) - The company is vulnerable to cybersecurity threats and data breaches, having experienced a ransomware attack in July 2020 that caused data loss and operational disruptions[188](index=188&type=chunk)[256](index=256&type=chunk) - Significant indebtedness (**$816.8 million** as of Dec 30, 2023) poses risks, including the need for substantial cash flow for debt service and limitations on operations due to restrictive covenants[194](index=194&type=chunk)[297](index=297&type=chunk) - The company is a **"controlled company"** as the Ares Funds beneficially owned **83.9% of common stock** as of Dec 30, 2023. This exempts it from certain NYSE corporate governance requirements, and Ares Funds' interests may conflict with other stockholders'[196](index=196&type=chunk)[321](index=321&type=chunk)[326](index=326&type=chunk) - The company's growth and performance are dependent on attracting and retaining store and processing center team members, and it may be negatively affected by labor market conditions and employee relations[185](index=185&type=chunk)[211](index=211&type=chunk) [Item 1B. Unresolved Staff Comments](index=55&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None[348](index=348&type=chunk) [Item 1C. Cybersecurity Risk Management, Strategy and Governance](index=55&type=section&id=Item%201C.%20Cybersecurity%20Risk%20Management%2C%20Strategy%20and%20Governance) The company's cybersecurity strategy is aligned with industry frameworks such as NIST and CIS Controls and includes annual risk assessments, continuous monitoring, vulnerability scanning, and external penetration testing, with governance overseen by the Board and Audit Committee, and a comprehensive review and enhanced controls implemented following a 2020 ransomware incident - The cybersecurity risk management strategy is aligned with the National Institute of Standards and Technology (NIST) framework, the Center for Internet Security (CIS) Controls 8.0, and the Payment Card Industry Data Security Standard (PCI DSS)[350](index=350&type=chunk) - Oversight is provided by the Board and the Audit Committee, with the Chief Information Officer (CIO) having primary responsibility for assessing and managing cybersecurity risks[358](index=358&type=chunk)[361](index=361&type=chunk) - The company experienced a ransomware incident in 2020. In response, it implemented enhanced controls, including improved backup approaches, proactive security monitoring, and expansion of the cybersecurity team[356](index=356&type=chunk) [Item 2. Properties](index=57&type=section&id=Item%202.%20Properties) As of December 30, 2023, the company operates 326 retail stores, all occupied under operating leases, located across the United States, Canada, and Australia, in addition to leased corporate offices, distribution centers, and centralized processing centers Number of Stores by Location | Location | Number of Stores | | :--- | :--- | | United States | 155 | | Canada | 159 | | Australia | 12 | | **Total** | **326** | - All of the company's **326 stores** and other facilities, including corporate offices and distribution centers, are occupied under operating leases[362](index=362&type=chunk) [Item 3. Legal Proceedings](index=58&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding the company's legal proceedings is referenced in Note 15 of the consolidated financial statements - For details on legal proceedings, refer to Note 15. Commitments and Contingencies in the consolidated financial statements[365](index=365&type=chunk) [Item 4. Mine Safety Disclosures](index=58&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[366](index=366&type=chunk) [Part II](index=59&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=59&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock began trading on the New York Stock Exchange under the ticker symbol "SVV" on June 29, 2023, and it does not anticipate paying cash dividends in the foreseeable future, having authorized a $50.0 million share repurchase program in November 2023 under which no shares were repurchased in fiscal year 2023 - The company's common stock began trading on the NYSE under the symbol **"SVV"** on June 29, 2023[369](index=369&type=chunk) - The company does not anticipate paying any cash dividends for the foreseeable future. The last dividend of **$262.2 million** was paid on February 6, 2023[370](index=370&type=chunk)[371](index=371&type=chunk) - A share repurchase program of up to **$50.0 million** was authorized in November 2023, set to expire in November 2025. No shares were repurchased under this program in fiscal year 2023[372](index=372&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=61&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal year 2023, net sales increased by 4.4% to $1.5 billion, driven by a 4.7% growth in comparable store sales, though net income declined to $53.1 million primarily due to a 33.8% increase in salaries, wages, and benefits, including $69.1 million in IPO-related stock-based compensation, and a 36.7% rise in net interest expense, with the company completing its IPO in July 2023 to repay debt and improving sales yield to $1.48, while maintaining liquidity through operations and its revolving credit facility, and outlining critical accounting policies Consolidated Financial Highlights (in thousands) | (in thousands) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | **Net sales** | **$1,500,249** | **$1,437,229** | **4.4%** | | Operating income | $141,857 | $206,226 | (31.2)% | | Net income | $53,115 | $84,720 | (37.3)% | - The **4.4% increase in net sales** was driven by a **4.7% growth in comparable store sales** and a **3.8% increase in the number of stores**, partially offset by unfavorable foreign currency impacts[425](index=425&type=chunk) - Salaries, wages, and benefits expense increased by **33.8% to $366.2 million**, largely due to **$69.1 million in stock-based compensation expense** recognized in connection with the IPO and a **$24.1 million special one-time bonus** related to the Notes offering[431](index=431&type=chunk)[433](index=433&type=chunk) - Net interest expense increased by **36.7% to $88.5 million**, driven by higher interest rates and the issuance of **$550.0 million in Senior Secured Notes** in February 2023[437](index=437&type=chunk)[438](index=438&type=chunk) Key Performance Indicators | Key Performance Indicator | 2023 | 2022 | | :--- | :--- | :--- | | Comparable Store Sales Growth (Total) | 4.7% | 13.5% | | Number of Stores (Total) | 326 | 314 | | Pounds Processed (millions) | 984 | 985 | | Sales Yield | $1.48 | $1.39 | - The company completed its IPO on July 3, 2023, receiving net proceeds of **$295.0 million**, which were used along with cash on hand to repay **$252.4 million of its Term Loan Facility** and redeem **$55.0 million of its Senior Secured Notes**[391](index=391&type=chunk) - Free Cash Flow (a non-GAAP measure) increased to **$83.4 million** in fiscal 2023 from **$59.3 million** in fiscal 2022[509](index=509&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=85&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate risk on its variable-rate debt and foreign currency exchange risk from its operations in Canada and Australia, with $321.8 million in variable-rate debt as of December 30, 2023, 85.5% of which is hedged through interest rate swaps, and approximately 45.5% of fiscal 2023 net sales denominated in foreign currencies, mitigated by currency forwards and cross-currency swaps - The company is exposed to interest rate risk on its **$321.8 million of variable-rate debt**. A hypothetical **1.00% increase** in Term SOFR would increase annual interest expense by **$3.2 million**[566](index=566&type=chunk)[568](index=568&type=chunk) - To mitigate interest rate risk, the company has entered into interest rate swaps that effectively hedge **85.5% of its variable-rate debt exposure** as of December 30, 2023[569](index=569&type=chunk) - The company is exposed to foreign currency risk, with **45.5% of fiscal year 2023 net sales** denominated in currencies other than the U.S. dollar. It uses currency forwards and cross-currency swaps to manage this risk[570](index=570&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=87&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, as audited by KPMG LLP, including the Consolidated Balance Sheets, Statements of Operations and Comprehensive Income, Statements of Stockholders' Equity, and Statements of Cash Flows, along with detailed notes, reporting net sales of $1.5 billion, net income of $53.1 million, and diluted earnings per share of $0.34 for fiscal year 2023 Key Financial Data for Fiscal Year 2023 (Consolidated) | Metric | Amount (in thousands) | | :--- | :--- | | **Statement of Operations:** | | | Net Sales | $1,500,249 | | Operating Income | $141,857 | | Net Income | $53,115 | | Diluted EPS | $0.34 | | **Balance Sheet (End of Period):** | | | Total Assets | $1,867,405 | | Total Liabilities | $1,491,350 | | Total Stockholders' Equity | $376,055 | | **Cash Flow Statement:** | | | Net Cash from Operating Activities | $175,165 | | Net Cash used in Investing Activities | $(92,365) | | Net Cash used in Financing Activities | $(17,044) | - The company adopted the new lease accounting standard (Topic 842) as of January 2, 2022, which resulted in the recognition of right-of-use lease assets of **$499.4 million** and lease liabilities of **$498.7 million** on the balance sheet as of December 30, 2023[577](index=577&type=chunk)[588](index=588&type=chunk)[649](index=649&type=chunk) - As of December 30, 2023, the company had total debt with a face value of **$816.8 million**, consisting of **$495.0 million in Senior Secured Notes** and **$321.8 million under its Term Loan Facility**[667](index=667&type=chunk) - Stock-based compensation expense was **$72.6 million** in fiscal 2023, a significant increase from **$1.9 million** in 2022, primarily due to the vesting of performance-based options upon the company's IPO[712](index=712&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures](index=118&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - None[747](index=747&type=chunk) [Item 9A. Controls and Procedures](index=118&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of December 30, 2023, due to identified material weaknesses in internal control over financial reporting related to insufficient technical accounting and SEC reporting expertise, lack of clearly defined roles within finance, and ineffective information technology general controls, with remediation efforts underway - Management concluded that disclosure controls and procedures were **not effective** as of December 30, 2023[749](index=749&type=chunk) - The ineffectiveness was due to three identified material weaknesses: insufficient technical accounting/SEC expertise, lack of clearly defined roles in finance, and ineffective IT general controls (ITGCs)[751](index=751&type=chunk) - Remediation efforts are underway, including the hiring of a director of internal audit and a director of SEC reporting, and the engagement of external advisors[752](index=752&type=chunk) [Item 9B. Other Information](index=119&type=section&id=Item%209B.%20Other%20Information) During the fourth quarter of 2023, several executive officers, including the CEO, Chief People Services Officer, and General Counsel, adopted or amended pre-arranged stock trading plans pursuant to Rule 10b5-1(c) for the potential sale of company stock - CEO Mark Walsh entered into a Rule 10b5-1 plan on November 17, 2023, for the potential sale of up to **612,000 shares**[756](index=756&type=chunk) - Other executive officers, including Mindy Geisser and Richard Medway, amended their existing Rule 10b5-1 plans in November 2023[757](index=757&type=chunk)[758](index=758&type=chunk) [Part III](index=120&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=120&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section provides biographical information for the company's directors and executive officers, detailing the board's staggered composition and leadership structure, noting its utilization of exemptions from certain NYSE corporate governance requirements as a "controlled company" due to majority ownership by Ares Funds, and outlining the roles and composition of its three standing committees: Audit, Compensation, and Nominating, Governance & Sustainability - The report lists the names, ages, and positions of all non-employee directors and executive officers, along with their professional backgrounds[761](index=761&type=chunk)[762](index=762&type=chunk)[771](index=771&type=chunk) - The company is a **"controlled company"** under NYSE rules and is exempt from requirements to have a majority-independent board, a fully independent compensation committee, and a fully independent nominating committee[783](index=783&type=chunk) - The Board of Directors is divided into three classes, with directors serving staggered three-year terms[782](index=782&type=chunk)[787](index=787&type=chunk) - The Board has three standing committees: Audit, Compensation, and Nominating, Governance & Sustainability, with their respective compositions and responsibilities outlined[790](index=790&type=chunk) [Item 11. Executive Compensation](index=126&type=section&id=Item%2011.%20Executive%20Compensation) This section details the compensation for the company's Named Executive Officers for fiscal year 2023, consisting of base salary, an Annual Incentive Plan based on Adjusted EBITDA which achieved a 103% payout, and long-term equity incentives, with the company also discussing its use of a peer group for benchmarking and the role of its independent compensation consultant, and the post-IPO granting of Restricted Stock Units in addition to stock options - The 2023 Annual Incentive Plan (AIP) for NEOs was based on a single metric: Adjusted EBITDA. The company achieved **101% of its goal**, leading to a payout of approximately **103% of target bonuses**[824](index=824&type=chunk)[827](index=827&type=chunk)[828](index=828&type=chunk) Fiscal Year 2023 AIP Payouts | Name | Target (% of Base Salary) | Actual Amount Earned | | :--- | :--- | :--- | | Mark Walsh | 100% | $993,002 | | Jay Stasz | 75% | $378,216 | | Jubran Tanious | 75% | $401,507 | | Richard Medway | 75% | $399,278 | | Mindy Geisser | 75% | $372,376 | - In connection with the IPO, **25% of the performance-based stock options** granted to NEOs prior to 2022 became vested[834](index=834&type=chunk) - Following the IPO, the company began granting Restricted Stock Units (RSUs) to some employees, including the CFO[815](index=815&type=chunk)[836](index=836&type=chunk) - The Compensation Committee engaged FW Cook as its independent compensation consultant for fiscal year 2023[844](index=844&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=140&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details the beneficial ownership of the company's common stock as of February 15, 2024. Funds managed by the Private Equity Group of Ares Management Corporation are the principal stockholder, beneficially owning 83.45% of the outstanding common stock. The company's directors and executive officers as a group beneficially owned 2.44% of the common stock. The section also provides information on equity compensation plans - As of February 15, 2024, funds managed by the Private Equity Group of Ares Management Corporation beneficially owned **134,659,188 shares**, representing **83.45% of the outstanding common stock**[903](index=903&type=chunk) - As of February 15, 2024, all directors and executive officers as a group beneficially owned **4,044,891 shares**, representing **2.44% of the outstanding common stock**[902](index=902&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=142&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) In connection with its IPO, the company entered into a Stockholders Agreement and a Registration Rights Agreement with its majority stockholder, the Ares Funds. The Stockholders Agreement grants the Ares Funds significant governance rights, including the right to designate a majority of the board of directors as long as they own 40% or more of the common stock, and consent rights over major corporate actions. The Registration Rights Agreement provides the Ares Funds with demand and piggyback registration rights. The board has determined that eight of its directors are independent under NYSE rules - The company entered into a Stockholders Agreement with the Ares Funds, granting them the right to designate a majority of the board of directors while their ownership is **40% or more**[904](index=904&type=chunk) - The Stockholders Agreement also requires the Ares Funds' prior written consent for major corporate actions (e.g., mergers, large acquisitions, significant debt incurrence) as long as their ownership is at least **30%**[906](index=906&type=chunk) - A Registration Rights Agreement provides the Ares Funds with unlimited **"demand"** and customary **"piggyback" registration rights** for their shares[907](index=907&type=chunk) - The board of directors has determined that **eight directors are independent** in accordance with NYSE rules: Aaron Rosen, Robyn Collver, William Allen, Duane C. Woods, Aina Konold, Kristy Pipes, Susan O'Farrell, and Jordan Smith[914](index=914&type=chunk) [Item 14. Principal Accounting Fees and Services](index=144&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) This section discloses the fees billed by the company's independent registered public accounting firm, KPMG LLP, for fiscal years 2023 and 2022. The Audit Committee has established procedures to pre-approve all audit and permissible non-audit services provided by KPMG Fees Billed by KPMG LLP | Fee Type | Fiscal Year 2023 | Fiscal Year 2022 | | :--- | :--- | :--- | | Audit fees | $2,776,700 | $2,844,599 | | Tax fees | $547,942 | $314,719 | | All other fees | — | — | - The Audit Committee pre-approves all audit and permitted non-audit services provided by the independent auditor[918](index=918&type=chunk) [Part IV](index=146&type=section&id=PART%20IV) [Item 15. Exhibits, Financial Statement Schedules](index=146&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the documents filed as part of the Form 10-K report. It includes a list of the consolidated financial statements contained in Item 8 and a list of all exhibits filed with the report, such as the company's certificate of incorporation, bylaws, material contracts, and various certifications - This item lists the financial statements, schedules, and exhibits filed with the Annual Report[922](index=922&type=chunk)[923](index=923&type=chunk) [Item 16. Form 10-K Summary](index=148&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company - Not applicable[927](index=927&type=chunk)