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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
____________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2023
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 001-41733
____________________________
Savers Value Village, Inc.
(Exact name of registrant as specified in its charter)
____________________________
Delaware
83-4165683
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
11400 S.E. 6th Street
Suite 125, Bellevue, WA
98004
(Address of Principal Executive Offices)(Zip Code)
____________________________
425-462-1515
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.000001 per share
SVV
The New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes o No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
x
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The registrant had outstanding 160,452,754 shares of common stock as of August 7, 2023.
Table of Contents
Page



Part I - Financial Information
Item 1. Financial Statements (Unaudited)
SAVERS VALUE VILLAGE, INC.
Condensed Consolidated Balance Sheets
(All amounts in thousands, except per share amounts, unaudited)
July 1, 2023December 31, 2022
Current assets:
Cash and cash equivalents$111,565 $112,132 
Trade receivables, net of allowance for doubtful accounts of $360 and $316
12,924 14,092 
Inventories30,192 21,822 
Prepaid expenses and other current assets57,039 35,647 
Derivative asset – current9,629 8,625 
Total current assets221,349 192,318 
Property and equipment, net209,208 190,518 
Right-of-use lease assets466,746 437,843 
Goodwill687,440 681,447 
Intangible assets, net168,614 170,651 
Derivative asset – non-current26,023 31,077 
Other assets3,788 3,961 
Total assets$1,783,168 $1,707,815 
Current liabilities:
Accounts payable and accrued liabilities$104,006 $80,748 
Accrued payroll and related taxes55,619 62,046 
Lease liabilities – current72,234 79,838 
Current portion of long-term debt and short-term borrowings13,250 50,250 
Total current liabilities245,109 272,882 
Long-term debt, net1,079,701 783,347 
Lease liabilities – non-current388,803 349,194 
Deferred tax liabilities, net68,652 63,141 
Other liabilities13,474 11,916 
Total liabilities1,795,739 1,480,480 
Commitments and contingencies (see Note 11)
Stockholders’ (deficit) equity:
Preferred stock, $0.000001 par value, 100,000 shares authorized; no shares issued and outstanding
  
Common stock, $0.000001 par value, 800,000 shares authorized; 141,703 and 141,590 shares issued and outstanding
  
Additional paid-in capital227,335 226,327 
Accumulated deficit(275,801)(38,443)
Accumulated other comprehensive income35,895 39,451 
Total stockholders’ (deficit) equity(12,571)227,335 
Total liabilities and stockholders’ (deficit) equity$1,783,168 $1,707,815 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
1

SAVERS VALUE VILLAGE, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(All amounts in thousands, except per share amounts, unaudited)
Thirteen Weeks EndedTwenty-Six Weeks Ended
July 1, 2023July 2, 2022July 1, 2023July 2, 2022
Net sales$379,102 $364,668 $724,786 $692,135 
Operating expenses:
Cost of merchandise sold, exclusive of depreciation and amortization154,945 146,794 300,698 290,749 
Salaries, wages and benefits67,342 66,103 159,974 131,536 
Selling, general and administrative73,259 76,298 150,304 148,771 
Depreciation and amortization14,693 14,043 29,177 26,692 
Total operating expenses310,239 303,238 640,153 597,748 
Operating income68,863 61,430 84,633 94,387 
Other (expense) income:
Interest expense, net(27,734)(14,807)(52,204)(29,401)
Gain (loss) on foreign currency, net4,487 (6,251)5,782 (8,268)
Other income, net434 132 218 55 
Loss on extinguishment of debt  (6,011)(1,023)
Other expense, net(22,813)(20,926)(52,215)(38,637)
Income before income taxes46,050 40,504 32,418 55,750 
Income tax expense11,000 9,646 7,563 12,961 
Net income35,050 30,858 24,855 42,789 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(1,682)4,407 (1,948)2,316 
Cash flow hedges2,039 673 (1,608)11,833 
Other comprehensive income (loss)357 5,080 (3,556)14,149 
Comprehensive income$35,407 $35,938 $21,299 $56,938 
Net income per share, basic$0.25 $0.22 $0.18 $0.30 
Net income per share, diluted$0.24 $0.21 $0.17 $0.29 
Basic weighted average shares outstanding141,712 141,545 141,705 141,545 
Diluted weighted average shares outstanding146,174 146,162 146,258 146,162 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
2

SAVERS VALUE VILLAGE, INC.
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity
(All amounts in thousands, except per share amounts, unaudited)
Thirteen Weeks Ended
Common stockAdditional
paid in
capital
Accumulated
deficit
Accumulated
other
comprehensive
income
Total
SharesAmount
Balance at April 1, 2023141,735$ $226,899 $(310,851)$35,538 $(48,414)
Stock-based compensation expense— 940 — — 940 
Repurchase of common stock(32)— (504)— — (504)
Comprehensive income— — 35,050 357 35,407 
Balance at July 1, 2023141,703$ $227,335 $(275,801)$35,895 $(12,571)
Balance at April 2, 2022141,545$ $224,838 $(41,777)$23,533 $206,594 
Stock-based compensation expense— 120 — — 120 
Cancellation of stock options— (292)— — (292)
Comprehensive income— — 30,858 5,080 35,938 
Balance at July 2, 2022141,545$ $224,666 $(10,919)$28,613 $242,360 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
3

SAVERS VALUE VILLAGE, INC.
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity
(All amounts in thousands, except per share amounts, unaudited)
Twenty-Six Weeks Ended
Common A unitsCommon B unitsCommon stockAdditional
paid in
capital
Accumulated
deficit
Accumulated
other
comprehensive
income (Loss)
Total
UnitsAmountUnitsAmountSharesAmount
Balance at December 31, 2022$ $ 141,590$ $226,327 $(38,443)$39,451 $227,335 
Stock-based compensation expense— — — 1,857 — — 1,857 
Stock issued under stock compensation incentive plans, net— — 158— (150)— — (150)
Repurchase of common stock— — (45)— (699)— — (699)
Dividends declared, $1.32 per share
— — — — (262,213)— (262,213)
Comprehensive income (loss)— — — — 24,855 (3,556)21,299 
Balance at July 1, 2023$ $ 141,703$ $227,335 $(275,801)$35,895 $(12,571)
Balance at January 1, 2022141,545$223,379 $1,297 $ $ $(53,708)$14,464 $185,432 
Corporate conversion of common units to common stock(141,545)(223,379)(1,297)141,545— 224,676 — —  
Stock-based compensation expense— — — 282 — — 282 
Stock issued under stock incentive plan, net— — — (292)— — (292)
Comprehensive income— — — — 42,789 14,149 56,938 
Balance at July 2, 2022$ $ 141,545$ $224,666 $(10,919)$28,613 $242,360 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
4

SAVERS VALUE VILLAGE, INC.
Condensed Consolidated Statements of Cash Flows
(All amounts in thousands, unaudited)
Twenty-Six Weeks Ended
July 1, 2023July 2, 2022
Cash flows from operating activities:
Net income$24,855 $42,789 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense1,857 282 
Amortization of debt issuance costs and debt discount3,223 1,961 
Depreciation and amortization29,177 26,692 
Operating lease expense58,275 58,148 
Deferred income taxes, net5,290 3,748 
Loss on extinguishment of debt6,011 1,023 
Other items, net(10,800)14,080 
Changes in operating assets and liabilities:
Trade receivables(596)(7,099)
Inventories(8,291)(4,772)
Prepaid expenses and other current assets(19,466)(6,518)
Accounts payable and accrued liabilities24,727 (3,489)
Accrued payroll and related taxes(6,898)(19,962)
Operating lease liabilities(55,100)(55,376)
Other liabilities1,526 (989)
Net cash provided by operating activities53,790 50,518 
Cash flows from investing activities:
Purchases of property and equipment(47,167)(57,794)
Net settlement of derivative instruments32 (691)
Net cash used in investing activities(47,135)(58,485)
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net529,247  
Principal payments on long-term debt(237,525)(6,866)
Advances on revolving line of credit42,000 53,000 
Repayments of revolving line of credit(79,000)(53,000)
Prepayment premium on extinguishment of debt (1,023)
Net settlement of derivative instruments3,889  
Repurchase of shares and shares withheld to cover taxes(849) 
Payment of debt issuance costs(4,359)(161)
Dividends paid(262,235) 
Net cash used in financing activities(8,832)(8,050)
Effect of exchange rate changes on cash and cash equivalents1,610 (898)
Net change in cash and cash equivalents(567)(16,915)
Cash and cash equivalents at beginning of period112,132 97,915 
Cash and cash equivalents at end of period$111,565 $81,000 
Supplemental disclosures of cash flow information:
Interest paid on debt$33,874 $26,497 
Income taxes paid, net$9,257 $18,506 
Supplemental disclosure of noncash investing activities:
Noncash capital expenditures$3,331 $4,795 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
5

SAVERS VALUE VILLAGE, INC.
Notes to Interim Condensed Consolidated Financial Statements (unaudited)
Note 1. Description of Business and Basis of Presentation
Description of business
Savers Value Village, Inc., a Washington State based company, together with its wholly owned subsidiaries (the “Company”, “we”, “us” or “our”), sells second-hand merchandise primarily in retail stores located in the United States (“U.S.”), Canada and Australia.
Basis of presentation
The accompanying interim condensed consolidated financial statements as of July 1, 2023 and for the thirteen and twenty-six weeks ended July 1, 2023 and July 2, 2022, have not been audited but, in the opinion of management, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial statements. The condensed consolidated balance sheet at December 31, 2022, has been derived from the audited financial statements at that date but does not include all of the disclosures required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the fiscal year ended December 31, 2022, and the notes thereto. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year, which ends on the Saturday nearest to December 31.
All dollar and share amounts in the notes to these unaudited interim condensed consolidated financial statements, with the exception of per share amounts, are rounded to the nearest thousand unless otherwise indicated.
Corporate Conversion
On January 7, 2022, S-Evergreen Holding LLC converted into a Delaware corporation and the name of the Company was changed to Savers Value Village, Inc. (the “Corporate Conversion”). In the Corporate conversion, equityholders of S-Evergreen Holding LLC received one share of common stock of Savers Value Village, Inc. for each Class A Unit of S-Evergreen Holding, LLC and corresponding adjustments were made to the Company’s outstanding equity awards.
Reverse stock split
On May 26, 2023, in anticipation of the initial public offering (“IPO”), the Company effectuated a reverse stock split of its then-outstanding common stock, in which each share of pre-split common stock became 0.713506461319705 of a share of post-reverse split common stock (the “Reverse Stock Split”) and corresponding adjustments were made to the Company’s outstanding equity awards. All references to units, per unit, shares and per share amounts for all periods presented in these unaudited interim condensed consolidated financial statements, including amounts in Note 8, have been retrospectively restated to give effect to the Reverse Stock Split.
Authorized shares
In connection with the Company’s IPO, the Company filed an amended and restated certificate of incorporation (the “A&R Charter”) on June 29, 2023. The Company also amended and restated its bylaws, effective as of June 28, 2023. The A&R Charter authorized 800.0 million shares of common stock, par value $0.000001 per share, and 100.0 million shares of preferred stock, par value $0.000001 per share. See Note 12 for further information regarding our initial public offering.
Each share of common stock entitles its holder to one vote per share on all matters to be voted on by stockholders and to receive dividends when and as declared by the board of directors from legally available sources, subject to the prior rights of the holders of our preferred stock. Common stockholders are not entitled to preemptive rights and are therefore subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that the board of directors may designate and issue in the future. In the event of a liquidation, dissolution or winding-up, the assets legally available for distribution to the Company’s stockholders would be distributable ratably among the holders of common stock and any participating preferred
6

stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding shares of preferred stock and payment of claims of creditors.
Note 2. Summary of Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies as described in the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2022.
Use of estimates
The preparation of these unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. These estimates are based on available information and on various other assumptions that are believed to be reasonable under the circumstances. Certain items subject to such estimates and assumptions include, but are not limited to, the valuation of intangibles, the valuation of goodwill and income taxes. Actual results could vary from those estimates under different assumptions or conditions.
Revenue recognition
The following table disaggregates our revenue by retail and wholesale during each of the periods presented:
Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)July 1, 2023July 2, 2022July 1, 2023July 2, 2022
Retail sales$360,421 $347,184 $687,849 $657,147 
Wholesale sales18,681 17,484 36,937 34,988 
Total net sales$379,102 $364,668 $724,786 $692,135 
Deferred offering costs
Deferred offering costs of $20.5 million incurred in connection with our IPO have been recorded in prepaid and other current assets in the unaudited interim condensed consolidated balance sheet as of July 1, 2023. Upon the completion of our IPO on July 3, 2023, deferred offering costs are recorded in stockholders’ deficit as a reduction from the gross proceeds of the offering.
Recently adopted accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments that replaces the existing incurred loss model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The Company adopted this guidance, and subsequent amendments to this guidance, as of January 1, 2023. The change to an expected credit loss model did not have a material effect on the Company’s unaudited interim condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Topic 848 provides relief that, if elected, will ease the potential accounting burden when modifying contracts and hedging relationships that use the London Inter-Bank Offered Rate (“LIBOR”) as a reference rate. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. This ASU clarifies that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions under Topic 848. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Topic 848 allows for different elections to be made at different points in time.
7

In accordance with the fallback provisions of our interest rate swap contracts and the discontinuation of LIBOR after June 30, 2023, the reference rate for our interest rate swaps transitioned from LIBOR to Fallback Rate (SOFR) with effect from July 1, 2023. The Company elected to apply the optional expedients under Topic 848 to this change in reference rate and therefore the modified instruments will be accounted for and presented in the same manner as the instruments existing before the modification. This change from LIBOR to Fallback Rate (SOFR) for our interest rate swaps is not expected to have a material impact on the Company’s consolidated financial statements.
Note 3. Property and Equipment
Property and equipment, net, consisted of the following:
(in thousands)July 1, 2023December 31, 2022
Furniture, fixtures and equipment$268,768 $230,694 
Leasehold improvements96,568 88,739 
Total property and equipment365,336 319,433 
Less: accumulated depreciation156,128 128,915 
Total property and equipment, net$209,208 $190,518 
Depreciation expense for the thirteen weeks ended July 1, 2023 and July 2, 2022, was $13.3 million and $12.5 million, respectively; and $26.6 million and $23.9 million for the twenty-six weeks ended July 1, 2023 and July 2, 2022, respectively.
Note 4. Indebtedness
Debt consisted of the following:
(in thousands)July 1, 2023December 31, 2022
Term Loan Facility$577,163 $814,687 
Senior Secured Notes550,000  
Advances on Revolving Credit Facility5,000 42,000 
Total face value of debt1,132,163 856,687 
Less: current portion of long-term debt and short-term borrowings13,250 50,250 
Less: unamortized debt issuance costs and debt discount39,212 23,090 
Long-term debt, net$1,079,701 $783,347 
On February 6, 2023, the Company issued $550.0 million of Senior Secured Notes (the “Notes”) at a discount of 2.014%. In connection with the issuance of the Notes, the Company repaid $233.4 million of outstanding borrowings under the Term Loan Facility resulting in a loss on extinguishment of debt of $6.0 million. The Company did not incur a penalty on the repayment. In addition to repaying $233.4 million of outstanding borrowings with the proceeds of the Notes issuance, the Company also paid a $262.2 million dividend and a $23.6 million one-time bonus to certain of our employees and directors participating in our management equity incentive plan who were unable to participate in the dividend, which is recorded in salaries, wages and benefits in the unaudited interim condensed consolidated statement of operations and comprehensive income.
The Notes bear interest at a fixed rate of 9.75%. Interest began accruing on the date of issuance and the first scheduled interest payment is due on August 15, 2023, with interest due every February 15 and August 15 thereafter through maturity. The Notes are due in full at maturity in April 2028, coterminous with the Term Loan Facility. The Company’s principal subsidiaries in the U.S. are issuers of the Notes. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by most of the Company’s U.S. and Canadian subsidiaries (other than the issuers). The Notes rank pari passu with the Term Loan Facility in right of payment and are subordinated to our existing super-priority Revolving Credit Facility in right of payment.
Prior to February 15, 2025, we may redeem the Notes at any time, in whole or in part, at a price equal to 100% of the principal amount of such Notes, plus a make-whole premium, plus accrued and unpaid interest. We may also redeem (a) up to an aggregate of 40% of the principal amount of the Notes with the proceeds of certain equity offerings at a redemption price of 109.750% of the principal amount of Notes redeemed, plus
8

accrued and unpaid interest, and (b) up to 10% of the then outstanding aggregate principal amount of the Notes during each of the twelve-month periods ending after February 6, 2023, at a redemption price equal to 103% of the aggregate principal amount thereof, plus accrued and unpaid interest.
On or after February 15, 2025, we may redeem the Notes in whole or in part at the redemption prices set forth below, plus accrued and unpaid interest:
For the periodRedemption Price
February 15, 2025 through February 14, 2026104.875 %
February 15, 2026 through February 14, 2027102.438 %
On or after February 15, 2027 and thereafter100.000 %
If a change in control occurs, we will be required to repurchase the Notes at a purchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest.
The indenture, pursuant to which the Notes were issued, contains customary covenants limiting our ability to take certain actions, as well as a number of important exceptions. Certain covenants may be suspended in the event the Notes are assigned an investment grade rating from two of three rating agencies.
On June 28, 2023, concurrent with the registration statement being declared effective for the Company’s IPO, applicable interest rates under the Senior Secured Credit Facilities were reduced by 0.25% per annum.
As of July 1, 2023, advances on the Revolving Credit facility were $5.0 million, there were $1.2 million of letters of credit outstanding and $68.8 million was available to borrow.
See Note 12 for additional details regarding the settlement of certain borrowings after July 1, 2023.

Note 5. Fair Value Measurements
The Company utilizes fair value measurements for its financial assets and financial liabilities and fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is based upon a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 inputs are inputs other than unadjusted quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement.
9

The following table presents financial assets and financial liabilities that are measured at fair value on a recurring basis at July 1, 2023:
Fair Value Hierarchy
(in thousands)Level 1Level 2Level 3Total
Assets:
Interest rate swaps$ $15,802 $ $15,802 
Cross currency swaps 19,842  19,842 
Forward contracts 8  8 
Total$ $35,652 $ $35,652 
Liabilities:
Cross currency swaps$ $740 $ $740 
Forward contracts 609  609 
Total$ $1,349 $ $1,349 
The following table presents financial assets and financial liabilities that are measured at fair value on a recurring basis at December 31, 2022:
Fair Value Hierarchy
(in thousands)Level 1Level 2Level 3Total
Assets:
Interest rate swaps$ $16,472 $ $16,472 
Cross currency swaps 22,993  22,993 
Forward contracts 237  237 
Total$ $39,702 $ $39,702 
Liabilities:
Cross currency swaps$ $66 $ $66 
Forward contracts 14  14 
Total$ $80 $ $80 
Interest rate swaps, cross currency swaps and forward contracts are fair valued using independent pricing services and the Company obtains an understanding of the methods used in pricing. As such, these derivative instruments are classified within Level 2.
As of July 1, 2023, the fair value of the Company’s Senior Secured Notes, based on Level 1 inputs, was $569.4 million.
Note 6. Derivative Financial Instruments
As a result of its operating and financing activities, the Company is exposed to market risks from changes in interest and foreign currency exchange rates. These market risks may adversely affect the Company’s operating results and financial position. The Company seeks to minimize risk from changes in interest and foreign currency exchange rates through the use of derivative financial instruments. Derivative contracts are not collateralized and are entered into with large, reputable financial institutions that are monitored for counterparty risk.
Foreign currency contracts
The Company operates in foreign countries, which exposes it to market risk associated with foreign currency exchange rate fluctuations. The Company uses derivative financial instruments to manage its exposure to foreign currency exchange rate risk, specifically forward sales of the Canadian Dollar (“CAD”), and U.S. Dollar (“USD”) – CAD cross currency swaps. These instruments lock in the exchange rate for a portion of the estimated cash flows of the Company’s Canadian operations. As of July 1, 2023 and December 31, 2022, the Company’s forward contracts had USD equivalent gross notional amounts of $68.1 million and $42.1 million, respectively. Additionally, as of July 1, 2023 and December 31, 2022, cross currency swaps with notional amounts of $275.0 million were outstanding.
10

Interest rate swap contracts
The Company’s market risk is affected by changes in interest rates. The Company’s Term Loan Facility bears interest based on market rates plus an applicable spread. Because the interest rate on the Company’s floating-rate debt is tied to market rates, the Company manages its exposure to interest rate movements by effectively converting a portion of its floating-rate debt to fixed-rate debt. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement without exchange of the underlying notional amount.
The Company has agreements with each of its derivative counterparties that contain a provision whereby the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.
At July 1, 2023 and December 31, 2022, interest rate swaps with notional amounts of $275.0 million were outstanding.
The fair values of cross currency swap contracts, forward contracts and interest rate swap contracts are as follows:
(in thousands)Balance Sheet LocationJuly 1, 2023December 31, 2022
Derivatives not designated as hedging instruments:
Forward contractsDerivative asset – current$8 $237 
Cross currency swapsDerivative asset – current 6 
Cross currency swapsDerivative asset – non-current19,842 22,987 
Total derivatives in an asset position$19,850 $23,230 
Forward contractsAccounts payable and accrued liabilities$609 $14 
Cross currency swapsAccounts payable and accrued liabilities740 66 
Total derivatives in a liability position$1,349 $80 
Derivatives designated as hedging instruments:
Interest rate swapsDerivative asset – current$9,621 $8,382 
Interest rate swapsDerivative asset – non-current6,181 8,090 
Total derivatives in an asset position$15,802 $16,472 
Total deferred gainAccumulated other comprehensive income$19,406 $21,014 
The impact of derivative financial instruments on the unaudited interim condensed consolidated statement of operations and comprehensive income is as follows:
Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)July 1, 2023July 2, 2022July 1, 2023July 2, 2022
(Loss) gain on forward contracts recognized in gain (loss) on foreign currency, net$(624)$480 $(689)$170 
(Loss) gain on cross currency swaps recognized in gain (loss) on foreign currency, net$(4,619)$11,173 $(3,930)$914 
Gain (loss) on interest rate swaps recognized in interest expense$2,729 $(190)$5,123 $(417)
11

The table below presents the effect of cash flow hedge accounting on other comprehensive income (loss):
Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)July 1, 2023July 2, 2022July 1, 2023July 2, 2022
Amount of gain recognized in other comprehensive income$4,768 $530 $3,515 $11,452 
Amount of gain (loss) reclassified from accumulated other comprehensive income into net income$2,729 $(143)$5,123 $(381)
Amounts reclassified from accumulated other comprehensive income into net income are recognized in interest expense. Within the next 12 months, the Company estimates that an additional $11.6 million of gains currently recognized within accumulated other comprehensive income will be reclassified as a decrease in interest expense.
Note 7. Segment Information
The Company has two reportable segments, U.S. Retail and Canada Retail. In addition to its two reportable segments, the Company has retail stores in Australia and its wholesale operations, which are classified within Other.
The Company evaluates the performance of its segments based on Segment Profit, which it defines as operating income, exclusive of corporate overhead and allocations, asset impairments as applicable, and certain separately disclosed unusual or infrequent items. Segment Profit, as defined herein, may not be comparable to similarly titled measures used by other entities. These measures should not be considered as alternatives to our GAAP measures of Operating income, Net income, or cash flows from operating activities as an indicator of the Company’s performance or as a measure of liquidity.
During each of the periods presented, our segment results were as follows:
Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands)July 1, 2023July 2, 2022July 1, 2023July 2, 2022
Net sales:
U.S. Retail$196,500 $188,199 $380,521 $362,222 
Canada Retail153,489 149,952 286,762 277,861 
Other29,113 26,517 57,503 52,052 
Total net sales$379,102 $364,668 $724,786 $692,135 
Segment profit:
U.S. Retail$52,316 $49,848 $94,800 $87,604 
Canada Retail50,516 47,968 84,484 76,085 
Other10,290 10,377 19,852 16,094 
Total segment profit113,122 108,193 199,136 179,783 
General corporate expenses29,566 32,720 85,326 58,704 
Depreciation and amortization14,693 14,043 29,177 26,692 
Operating income68,863 61,430 84,633 94,387 
Interest expense, net(27,734)(14,807)(52,204)(29,401)
Gain (loss) on foreign currency, net4,487 (6,251)5,782 (8,268)
Other income, net434 132 218 55 
Loss on extinguishment of debt  (6,011)(1,023)
Income before income taxes46,050 40,504 32,418 55,750 
Income tax expense11,000 9,646 7,563 12,961 
Net income$35,050 $30,858 $24,855 $42,789 
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Note 8. Net Income Per Share
Basic and diluted net income per share were as follows:
Thirteen Weeks EndedTwenty-Six Weeks Ended
(in thousands, except per share data)July 1, 2023July 2, 2022July 1, 2023July 2, 2022
Numerator
Net income$35,050 $30,858 $24,855 $42,789 
Denominator
Basic weighted average common shares outstanding141,712141,545141,705141,545
Dilutive effect of employee stock options and awards4,4624,6174,5534,617
Diluted weighted average common shares outstanding (1)
146,174146,162146,258146,162
Net income per share
Basic$0.25 $0.22 $0.18 $0.30 
Diluted$0.24 $0.21 $0.17 $0.29 
____________
(1)For the thirteen and twenty-six weeks ended July 1, 2023 and the thirteen and twenty-six weeks ended July 2, 2022, there were no stock-based awards that would have had an antidilutive impact on earnings per share.
Note 9. Stock-based Compensation
2019 Management Incentive Plan
On March 28, 2019, the Company adopted the 2019 Management Incentive Plan (the “2019 Plan”) which allows for the issuance of stock options to directors, officers, key employees and other key individuals. Stock options awarded under the 2019 Plan contain both service and performance conditions. Awards issued under the 2019 Plan have a 10-year contractual term. In connection with the adoption of the Omnibus Incentive Compensation Plan (as defined below), the Company ceased issuing awards under the 2019 Plan. As a result, no shares remain available for issuance under the 2019 Plan; however, the 2019 Plan continues to govern awards that are outstanding under it. The total number of shares outstanding under the 2019 Plan as of July 1, 2023, was 15.6 million.
Omnibus Incentive Plan
In connection with the IPO, the Company’s Board of Directors approved the Omnibus Incentive Compensation Plan (the “Omnibus Incentive Plan”), which became effective upon the effectiveness of the registration statement on Form S-1 for the IPO on June 28, 2023. Upon effectiveness of the Omnibus Incentive Plan, the Company ceased granting new awards under the 2019 Plan.
The Omnibus Incentive Plan allows for issuance of up to 15.0 million new shares of common stock at the effective date, plus shares of common stock underlying any award under the 2019 Plan that expires, terminates, or is canceled for any reason without having been exercised in full. Awards under the Omnibus Incentive Plan may be in the form of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, stock units, other stock based awards and cash awards. Awards issued under the Omnibus Incentive Plan have a maximum contractual term of 10 years. As of July 1, 2023, there were 14.4 million shares available for future issuance under the Omnibus Incentive Plan.
Stock-based Compensation
Stock-based compensation expense for the twenty-six weeks ended July 1, 2023 and July 2, 2022 was $1.9 million and $0.3 million, respectively.
Time-based options
Stock option awards containing only a service condition (“time-based options”) generally vest in equal annual installments over five years from the date of grant, subject to continued employment through each vesting date. Stock-based compensation cost for time-based options is measured at the grant date based on
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the fair value of the award using the Black-Scholes-Merton option pricing model and is recognized ratably over the requisite service period of the awards. The Company accounts for forfeitures for time-based options as they occur. The following assumptions apply to time-based options awarded during the twenty-six weeks ended July 1, 2023 and July 2, 2022:
Twenty-Six Weeks Ended
July 1, 2023July 2, 2022
Expected volatility
35.4% to 35.7%
32.7% to 39.8%
Risk-free interest rate
3.4% to 4.2%
1.8% to 3.0%
Expected term (in years)6.56.5
Weighted average fair value options per share$6.01$5.13
Expected volatility is based on historic share price volatilities of comparable publicly traded companies. The risk-free rate is based on the 10 Year U.S. Treasury yield curve in effect at the time of each grant. The expected term of options granted represents the period of time that options are expected to be outstanding.
The following table summarizes the activity related to time-based options as of July 1, 2023:
(in thousands, except per share and remaining term amounts)Number of optionsWeighted average exercise priceWeighted average remaining contractual term (in years)Aggregate intrinsic value
Outstanding at December 31, 20226,976 $4.99 7.66$60,299 
Granted933 13.96
Exercised(186)1.52
Forfeited or expired(100)12.99
Outstanding at July 1, 20237,623 6.077.4757,206 
Exercisable at July 1, 20233,291 2.426.4935,806 
Performance-based options
Stock option awards containing a performance condition (“performance-based options”) vest after either a change in control or an initial public offering, and after the Company achieves market-specific performance conditions during the performance period. Performance-based options are subject to continued employment through the vesting date and vest in 25% increments as performance measurements are achieved through the term of the options, with 25% vesting upon the completion of the Company’s IPO and the remaining vesting in equal increments over three years as performance measurements are achieved. In October 2022 and May 2023, the Company modified the vesting terms of its outstanding performance-based options to reflect the above vesting terms. The Company determined that the respective modified vesting terms constituted modifications under Topic 718 and thus remeasured the fair value of the outstanding performance-based options as of their respective modification dates.
Compensation expense for performance-based options is recognized when it is probable that performance measurements will be achieved. The Company accounts for forfeitures for performance-based options as they occur. A Black-Scholes-Merton option pricing model was used to determine the grant-date fair value of the performance-based options that were tied to the Company’s IPO and a Monte Carlo simulation under the option pricing framework was used to determine the grant-date fair value of the performance-based options subject to market-specific performance conditions. As of July 1, 2023, the Company had not recognized compensation expense for performance-based options because achievement of the underlying performance conditions had not been met. As the IPO was completed on July 3, 2023 and was an underlying performance condition, the Company intends to commence recognition of compensation expense for these awards beginning in the third quarter of fiscal year 2023.
On July 3, 2023, 2.0 million performance-based options vested upon completion of our IPO. See Note 12 for additional details regarding the vesting of the performance-based options after July 1, 2023.
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The following table summarizes the activity related to performance-based options as of July 1, 2023:
(in thousands, except per share and remaining term amounts)Number of OptionsWeighted average exercise priceWeighted average remaining contractual term (in years)Aggregate intrinsic value
Outstanding at December 31, 20227,948 $2.05 7.02$90,339 
Outstanding at July 1, 20237,948 2.05 6.5289,319 
Restricted Stock Units
Restricted stock units (“RSUs”) containing only a service condition generally vest in equal installments over a one-year or three-year period from the date of grant, subject to continued employment through each vesting date. The fair value of the RSUs is determined by using the closing price of the Company’s common stock on the date of the grant. All RSUs were granted after the Company’s common stock commenced trading on June 29, 2023.
The following table summarizes the activity related to RSUs as of July 1, 2023:
(in thousands, except per share and remaining term amounts)Number of UnitsWeighted Average Grant Date Fair Value
Unvested at December 31, 2022 $ 
Granted553 22.91 
Unvested at July 1, 2023553 22.91 
Note 10. Income Taxes
The income tax provision for interim periods is generally determined using an estimate of the Company’s annual effective tax rate adjusted for any discrete items, if any, in the relevant period. Each quarter the estimate of the annual effective tax rate is updated, and if the Company’s estimated tax rate changes, a cumulative adjustment is made.
The effective tax rate for the thirteen weeks ended July 1, 2023 and July 2, 2022 was 23.9% and 23.8%, respectively, of pre-tax income. The effective tax rates differed from the federal statutory rate primarily due to changes in the valuation allowances, tax credits, withholding taxes, state income taxes, Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), and foreign rate differential.
The effective tax rate for the twenty-six weeks ended July 1, 2023 and July 2, 2022 was 23.3% and 23.2%, respectively, of pre-tax income. The effective tax rates differed from the federal statutory rate primarily due to changes in the valuation allowances, tax credits, withholding taxes, state income taxes, GILTI, FDII, and foreign rate differential.
In the normal course of business, the Company is required to make estimated tax payments throughout the year based on the expected tax liability for the full year. This results in a prepaid balance during the first half of the year, as the Company earns most of its profit in the second half of the year. As of July 1, 2023, the Company had a $19.8 million balance in prepaid income taxes, which are classified in prepaid expenses and other current assets in the unaudited interim condensed consolidated balance sheets.
Note 11. Commitments and Contingencies
Litigation and regulatory matters
The Company is involved from time to time in claims, proceedings and litigation arising in the ordinary course of business. The Company has made accruals with respect to these matters, where appropriate, which are reflected in the unaudited interim condensed consolidated financial statements. For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated and therefore accruals have not been made. The Company may enter into discussions regarding settlement of these matters and may enter into settlement agreements, if in the best interest of the Company. From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no pending significant legal
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proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position.
The Company periodically has inquiries from various government agencies regarding aspects of its operations. In 2014, the Company received such an inquiry from the Attorney General of the State of Washington. In December 2017, the Washington Attorney General (“AG”) filed a lawsuit against the Company in State Court relating to, among other things, alleged deceptive advertisements and marketing practices. The parties completed the first phase of the lawsuit in October 2019. The second phase of the lawsuit was scheduled for June 2020, but in May 2020, the Washington Court of Appeals granted the Company’s request for a discretionary review of the ruling in the first phase. On August 16, 2021, the Washington Court of Appeals ruled in the Company’s favor and dismissed all of the remaining claims. At this point, the Company has prevailed on all claims asserted in the lawsuit. On November 17, 2021, the Washington Court of Appeals denied a Motion for Reconsideration filed by the Washington AG. Thereafter, on December 17, 2021, the Washington AG filed a Petition for Review in the Washington Supreme Court. On March 30, 2022, the Washington Supreme Court granted the Washington AG’s petition to review the case. Oral argument took place at the Washington Supreme Court on October 25, 2022. On February 23, 2023, the Washington Supreme Court reaffirmed the Court of Appeals decision in favor of the Company and remanded the case to the trial court to dismiss the Washington AG’s claims and rule on attorneys’ fees and costs. On June 14, 2023, the Washington AG filed a motion for dismissal without award of attorneys’ fees or costs. On June 20, 2023, the court ruled in favor of the Company and struck the AG’s motion. On July 6, 2023, the Company filed a motion for attorneys’ fees and costs.
Note 12. Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through August 11, 2023, the date the financial statements were available to be issued, and determined there are no additional events or transactions to disclose other than the events listed below.
Initial public offering
The registration statement related to our IPO was declared effective on June 28, 2023, and our common stock began trading on the New York Stock Exchange on June 29, 2023. On July 3, 2023, we completed our IPO for the sale of 18.8 million shares of our common stock, $0.000001 par value per share, at a public offering price of $18.00 per share. Net proceeds to the Company from the IPO were $305.7 million after deducting underwriting discounts and commissions of $22.8 million and unpaid offering expenses of approximately $9.0 million.
Certain funds, investment vehicles or accounts managed or advised by the Private Equity Group of Ares Management Corporation (the “selling stockholders”) sold 6.9 million shares, including 3.3 million shares pursuant to the exercise of the underwriters’ over-allotment option. The Company did not receive any proceeds from sales made by the selling stockholders.
Indebtedness
The Company used the net proceeds from its IPO, together with an additional $5.9 million of cash on its balance sheet, to redeem $55.0 million aggregate principal amount of Senior Secured Notes on July 3, 2023 and to repay $252.4 million aggregate principal amount of outstanding borrowings under the Term Loan Facility on July 5, 2023. In addition to paying accrued interest on these borrowings, the Company also paid a premium of 3%, or $1.7 million, on the partial redemption of its Senior Secured Notes. The Company did not incur a penalty on the partial repayment of borrowings under the Term Loan Facility. These transactions resulted in a loss on extinguishment of debt of $10.6 million.
On July 3, 2023, the Company repaid the $5.0 million advance under its Revolving Credit Facility.
Stock-based compensation
On July 2, 2023, the Company modified the vesting terms of its outstanding performance-based options subject to market-specific performance conditions. The Company determined the modified vesting terms constituted a modification under Topic 718 and thus remeasured the fair value of its outstanding performance-based options subject to market-specific performance conditions as of July 2, 2023.
Upon completion of our IPO on July 3, 2023, we commenced recognition of stock-based compensation for our performance-based options as the underlying performance-based conditions were satisfied. Stock-based compensation expense for the 2.0 million performance-based options that vested upon completion of our IPO
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was approximately $28 million, with approximately $126 million of unrecognized stock-based compensation expense for the remaining outstanding performance-based options that we plan to recognize in future periods on a graded vesting basis over their expected vesting period.
Emerging growth company status
Upon completion of our IPO on July 3, 2023, the Company ceased to be an emerging growth company (“EGC”) under the Jumpstart Our Business Startups (“JOBS”) Act. The previous EGC status allowed the Company to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and compliance exemptions with new or revised financial accounting standards until those standards would otherwise apply to private companies.
In anticipation of losing EGC status, the Company has prepared for auditor attestation requirements pursuant to Section 404 of the Sarbanes-Oxley Act and the Company is currently in compliance with new or revised standards required for non-emerging growth companies. Accordingly, the loss of EGC status will not have a significant impact on the Company.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of the financial condition and results of operations of Savers Value Village, Inc. in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and in our consolidated financial statements and related notes as disclosed in our prospectus filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act on June 30, 2023 (the “Prospectus”) in connection with our initial public offering (“IPO”). Unless the context otherwise requires, all references in this section to “Savers Value Village”, ”the Company”, “we”, “us” or “our” refer to the business of Savers Value Village, Inc. and its predecessor entities.
This discussion contains forward-looking statements that involve risks and uncertainties about our business and operations and reflect our plans, estimates and beliefs. Our actual results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part II, Item 1A “Rick Factors” or in other parts of this Form 10-Q, as well as those identified in the Prospectus.
Overview
We are the largest for-profit thrift operator in the United States and Canada and operate a total of 318 stores under the Savers, Value Village, Village des Valeurs, Unique, and 2nd Ave. banners. We are committed to redefining secondhand shopping by providing one-of-a-kind, low-priced merchandise ranging from quality clothing to home goods in an exciting treasure-hunt shopping environment. We purchase secondhand textiles (e.g., clothing, bedding and bath items), shoes, accessories, housewares, books and other goods from our non-profit partners (“NPPs”) either directly from them, via on-site donations (“OSDs”) at Community Donation Centers (“CDCs”) at our stores, or at GreenDrop’s mobile donation stations. We then process, select, price, merchandise and sell these items in our stores. Items that are not sold to our retail customers are marketed to wholesale customers, who reuse or repurpose the items they purchase from us. We believe our hyper-local and socially responsible procurement model, industry-leading and innovative operations, differentiated value proposition and deep relationships with our customers distinguish us from other secondhand and value-based retailers. Our business model is rooted in ESG principles, with a mission to positively impact our stakeholders: thrifters, NPPs and their donors, our team members and our stockholders. As a leader and pioneer of the for-profit thrift category, we seek to positively impact the environment by reducing waste and extending the life of reusable goods. The vast majority of the clothing and textiles we source are sold to our retail or wholesale customers.
We offer a dynamic, ever-changing selection of items, with an average unit retail (“AUR”) price under $5. We have a highly engaged customer base with over 4.8 million active loyalty program members in the United States and Canada who shopped with us as of July 1, 2023, driving 69.7% of point-of-sale transaction value during the twelve months ended July 1, 2023.
We have innovated and invested in the development of significant operational expertise in order to integrate the three highly-complex parts of thrift operations—supply and processing, retail and sales to wholesale markets. Our business model enables us to provide value to our NPPs and our customers, while driving attractive profitability and cash flow.
While purchases made by our customers in our stores do not directly benefit any NPP, we pay our NPPs a contracted rate for all donations. Our subsidiaries are registered professional fundraisers where required.
We source our merchandise locally by purchasing secondhand items donated to our NPPs primarily through three distinct and strategic procurement models:
delivered supply: items donated to and collected by our NPPs through a variety of methods, such as neighborhood collections and donation drives;
OSDs: donations of items by individuals to our local NPPs made at CDCs located at our stores; and
GreenDrop locations: mobile donation stations placed in convenient, attractive and high-traffic locations that offer a fast and friendly experience to donors in the communities surrounding our stores.
We purchase merchandise from our NPPs which provides them with revenue to support their community-focused missions. From 2018 to 2022, over 90% of our supply was locally sourced, delivering a broad and diverse selection to our customers and fostering a sense of community. Our stores deliver a broad selection for
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our customers and at the same time reduce transportation costs and emissions typically associated with the production and distribution of new merchandise.
Our continued investment in our stores has both elevated and modernized the thrift shopping experience, transforming our stores into a thrift destination for all generations with increasing traffic from younger generations. To maximize traffic, we leverage data to drive our merchandising decisions. For each store, we closely track what is being sold to inform how we optimize our merchandising mix, including by leveraging data analytics. We have also implemented self-checkout kiosks to significantly enhance store efficiency and shorten lines, thereby further improving the shopping experience
Historically, we have displayed approximately 50% of all textile items we receive on our retail sales floors, approximately 50% of which are sold to thrifters. In support of our efforts to extend the life of reusable goods and recover a portion of the cost of acquiring our supply of secondhand items, we sell the majority of textiles, shoes and books unsold at retail to our wholesale customers (predominantly comprised of textile graders and small business owners) who supply local communities across the globe with gently used, affordable items like clothing, housewares, toys and shoes. Textiles not suitable for reuse as secondhand clothing can be repurposed into other textile items (e.g., wiping rags) and post-consumer fibers (e.g., insulation, carpet padding), further reducing waste.
Business Highlights
The following highlights our financial results for the thirteen weeks ended July 1, 2023 (the “second quarter”):
Net sales increased 4.0% to $379.1 million. Constant currency net sales increased 6.2% to $387.4 million.
Comparable store sales increased 5.5%, with U.S. and Canada up 5.6% and 5.5%, respectively.
Sales yield increased 8.0% to $1.49 per pound.
The Company opened one new store, ending the second quarter with 318 stores, a 2.9% net increase in the number of stores year over year.
Net income increased 13.6% to $35.1 million, or $0.24 per diluted share, from $30.9 million, or $0.21 per diluted share. Net income margin increased 70 basis points to 9.2%.
Adjusted net income totaled $32.6 million, or $0.22 adjusted net income per diluted share.
Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) increased 4.7% to $89.3 million and adjusted EBITDA margin increased 10 basis points to 23.5%. Adjusted EBITDA included a $2.4 million negative impact from changes in foreign currency rates.
Adjusted net income, adjusted net income per diluted share, adjusted EBITDA and adjusted EBITDA margin, as well as amounts presented on a constant currency basis, are not measures recognized under U.S. GAAP. For additional information on our use of non-GAAP financial measures and a reconciliation to the nearest GAAP measure, see “Non-GAAP Measures” below.
Sales yield is presented on a currency neutral and comparable store sales growth basis. For additional information on sales yield, see “Key Performance Indicators” below.
Recent Developments
Notes Offering
On February 6, 2023, certain of our wholly-owned subsidiaries completed the issuance of $550.0 million aggregate principal amount of 9.75% Senior Secured Notes due 2028 (the “Notes”). The Notes mature on April 26, 2028, and bear interest at a fixed rate of 9.75% per year, payable semi-annually on each February 15 and August 15, commencing on August 15, 2023 through maturity. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by S-Evergreen Holding Corp. and each of its existing and future direct and indirect wholly-owned U.S. and Canadian subsidiaries (other than the issuers of the Notes).
In connection with the Notes Offering, we repaid $233.4 million of outstanding borrowings under our Term Loan Facility and paid a $262.2 million dividend to our equityholders. We also paid a $23.6 million special one-
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time bonus to certain of our employees and directors participating in our management equity incentive plan, who were unable to participate in the dividend.
Reverse stock split
On May 26, 2023, in anticipation of the IPO, we effectuated a reverse stock split of its then-outstanding common stock, in which each share of pre-split common stock became 0.713506461319705 of a share of post-reverse split common stock (the “Reverse Stock Split”) and corresponding adjustments were made to our outstanding equity awards. All references to units, per unit, shares and per share amounts for all periods presented have been retrospectively restated to give effect to the Reverse Stock Split.
Authorized shares
In connection with our IPO, we filed an amended and restated certificate of incorporation (the “A&R Charter”) on June 29, 2023. We also amended and restated our bylaws, effective as of June 28, 2023. The A&R Charter authorized 800.0 million shares of common stock, par value $0.000001 per share, and 100.0 million shares of preferred stock, par value $0.000001 per share.
Initial public offering
On July 3, 2023, we completed our IPO for the sale of 18.8 million shares of our common stock, $0.000001 par value per share, at a public offering price of $18.00 per share. We received net proceeds of $305.7 million after deducting discounts and commissions and and unpaid offering expenses of approximately $9.0 million. We used the net proceeds from our IPO, together with an additional $5.9 million of cash on our balance sheet, to redeem $55.0 million aggregate principal amount of the Notes, to repay $252.4 million aggregate principal amount of outstanding borrowings under the Term Loan Facility, and pay accrued interest and a premium under the Notes and Term Loan Facility.
Stock-based compensation
Upon completion of our IPO on July 3, 2023, we commenced recognition of stock-based compensation for our performance-based options as the underlying performance-based conditions were satisfied. Stock-based compensation expense for the 2.0 million performance-based options that vested upon completion of our IPO was approximately $28 million, with approximately $126 million of unrecognized stock-based compensation expense for the remaining outstanding performance-based options that we plan to recognize in future periods on a graded vesting basis over their expected vesting period.
On June 29, 2023, in connection with the IPO, we granted 0.6 million restricted stock units to certain directors and employees, including some of our named executive officers (excluding our CEO). The RSUs generally vest in equal installments over a one-year or three-year period from the date of grant, subject to continued employment through each vesting date. The fair value of the RSUs is determined by using the closing price of our common stock on the date of the grant. All RSUs were granted after the Company’s common stock commenced trading on June 29, 2023.
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Key Performance Indicators
In assessing the performance of our business, we consider a variety of key business metrics to evaluate the performance of our business, identify trends, formulate financial projections and make strategic decisions. We believe that these metrics provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team.
The following table summarizes our key performance indicators for the periods indicated:
Thirteen Weeks EndedTwenty-Six Weeks Ended
July 1, 2023July 2, 2022July 1, 2023July 2, 2022
Comparable Store Sales Growth (1)
United States5.6 %1.7 %5.6 %4.8 %
Canada5.5 %61.7 %7.1 %51.8 %
Total (2)
5.5 %22.4 %6.3 %21.3 %
Number of Stores
United States152149152149
Canada154150154150
Total (2)
318309318309
Pounds Processed (Ibs mm)
246256485496
Sales yield (3)
$1.49$1.38$1.44$1.33
Cost of merchandise sold per pound$0.63$0.57$0.62$0.59
(1)Comparable store sales growth is the percentage change in comparable store sales over the comparable period in the prior fiscal year. We define comparable store sales to be sales of stores that have been in operation for all or a portion of two consecutive fiscal years, or, in other words, stores that are starting their third fiscal year of operation. We consider any store temporarily closed due to the COVID-19 pandemic to be open and comparable during the period for the purposes of calculating comparable sales growth. Comparable store sales growth excludes stores acquired in the 2nd Ave. acquisition because those stores were not yet fully integrated during the prior year comparative period. Comparable store sales growth is measured in local currency for Canada, while total comparable store sales growth is measured on a constant currency basis.
(2)Total comparable store sales growth and total number of stores include our Australia retail locations, in addition to the United States and Canada.
(3)Sales yield is presented on a currency neutral and comparable store sales growth basis.
Comparable store sales growth
Comparable store sales growth provides us with visibility into top-line performance on a like-for-like basis excluding new stores opened in the current or previous reporting period and excluding all closed stores as of the end of the current reporting period. We believe investors can use this metric to assess our ability to increase comparable store sales over time.
During the thirteen weeks ended July 1, 2023, our comparable store sales growth was 5.5%, compared to 22.4% for the thirteen weeks ended July 2, 2022. The 5.5% increase in comparable store sales growth during the thirteen weeks ended July 1, 2023 was primarily driven by growth in transactions. The 22.4% increase in comparable store sales during the thirteen weeks ended July 2, 2022 primarily reflects the impact of pandemic related store closures during fiscal year 2021 which we did not experience during the thirteen weeks ended July 2, 2022.
During the twenty-six weeks ended July 1, 2023, our comparable store sales growth was 6.3%, compared to 21.3% for the twenty-six weeks ended July 2, 2022. The 6.3% increase in comparable store sales growth during the twenty-six weeks ended July 1, 2023 was primarily driven by growth in transactions. The 21.3% increase in comparable store sales growth during the twenty-six weeks ended July 2, 2022 primarily reflects the impact of pandemic related store closures during fiscal year 2021 which we did not experience during the twenty-six weeks ended July 2, 2022.
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Number of stores
Our number of stores provides us visibility into our scale of operations and is viewed as a key driver of long-term growth. We believe investors can use this metric to assess our ability to open new stores in high-growth markets while reducing our number of stores in low-growth markets.
Our number of open stores increased to 318 stores as of July 1, 2023, from 309 stores as of July 2, 2022. The increase in stores resulted from the opening of three new stores in the United States, four net new stores in Canada and two new stores in Australia.
Pounds processed
We define pounds processed as the total number of pounds of goods processed during the period, excluding furniture and other large items. We process inventory by receiving goods directly from our NPPs or through OSDs and GreenDrop, sorting them, and placing them on the sales floor. From 2018 to 2022, we have found that items sourced through OSDs have a cost per pound that is on average one-third that of delivered supply from our NPPs. This metric is an indicator of the amount of secondhand goods processed during the period and is typically a key driver of top-line sales growth. We believe investors can use this metric to assist in their evaluation of our sales growth and sales yield.
During the thirteen weeks ended July 1, 2023, we processed 246 million pounds of supply, of which 76.4% was comprised of supply from OSDs and GreenDrop. During the thirteen weeks ended July 2, 2022, we processed 256 million pounds of supply, of which 72.7% was comprised of supply from OSDs and GreenDrop.
During the twenty-six weeks ended July 1, 2023, we processed 485 million pounds of supply, of which 72.4% was comprised of supply from OSDs and GreenDrop. During the twenty-six weeks ended July 2, 2022, we processed 496 million pounds of supply, of which 71.4% was comprised of supply from OSDs and GreenDrop.
Sales yield
We define sales yield as retail sales generated per pound of processed volume. We believe investors can use this metric as a proxy for the quality of goods we source, because when the quality is high, we are able to sell more items and/or sell items at higher prices from the volume we process than we would otherwise.
On a currency neutral and comparable store sales growth basis, our sales yield for the thirteen weeks ended July 1, 2023 was $1.49, compared to $1.38 for the thirteen weeks ended July 2, 2022. The 8.0% improvement in sales yield primarily reflects an increase in OSD mix as a percentage of total pounds processed which drove the quality of our supply and items sold at higher price points.
On a currency neutral and comparable store sales growth basis, our sales yield for the twenty-six weeks ended July 1, 2023 was $1.44, compared to $1.33 for the twenty-six weeks ended July 2, 2022. The 8.3% improvement in sales yield primarily reflects an increase in OSD mix as a percentage of total pounds processed which drove the quality of our supply and items sold at higher price points.
Cost of merchandise sold per pound processed
We define cost of merchandise sold per pound processed as cost of merchandise sold, exclusive of depreciation and amortization, on a recorded basis, divided by total pounds of goods processed. We believe investors can use this metric to measure the performance of our business as it is used to determine our ability to cost-effectively purchase and process supply items, and determine the value of incremental sales.
Cost of merchandise sold per pound processed during the thirteen weeks ended July 1, 2023 was $0.63, compared to $0.57 for the thirteen weeks ended July 2, 2022, primarily reflecting investments in labor and an increase in material costs, partially offset by the scaling of our business.
Cost of merchandise sold per pound processed during the twenty-six weeks ended July 1, 2023 was $0.62, compared to $0.59 for the twenty-six weeks ended July 2, 2022, primarily reflecting investments in labor, partially offset by the scaling of our business.
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Results of Operations
The following table sets forth our results of operations for each of the periods presented:

Thirteen Weeks EndedTwenty-Six Weeks Ended
July 1, 2023July 2, 2022July 1, 2023July 2, 2022
(in thousands)Amount% of SalesAmount% of SalesAmount% of SalesAmount% of Sales
Net sales$379,102100.0%$364,668100.0%$724,786100.0%$692,135100.0%
Operating expenses:
Cost of merchandise sold, exclusive of depreciation and amortization154,94540.9146,79440.3300,69841.5290,74942.0
Salaries, wages and benefits67,34217.766,10318.1159,97422.1131,53619.0
Selling, general and administrative73,25919.376,29820.9150,30420.7148,77121.5
Depreciation and amortization14,6933.914,0433.929,1774.026,6923.9
Total operating expenses310,23981.8303,23883.2640,15388.3597,74886.4
Operating income68,86318.261,43016.884,63311.794,38713.6
Other (expense) income:
Interest expense, net(27,734)(7.3)(14,807)(4.1)(52,204)(7.2)(29,401)(4.2)
Gain (loss) on foreign currency, net4,4871.1(6,251)(1.6)5,7820.8(8,268)(1.2)
Other income, net4340.113221855
Loss on extinguishment of debt(6,011)(0.8)(1,023)(0.1)
Other expense, net(22,813)(6.1)(20,926)(5.7)(52,215)(7.2)(38,637)(5.5)
Income before income taxes46,05012.140,50411.132,4184.555,7508.1
Income tax expense11,0002.99,6462.67,5631.112,9611.9
Net income$35,0509.2%$30,8588.5%$24,8553.4%$42,7896.2%
Thirteen Weeks Ended July 1, 2023 compared to the Thirteen Weeks Ended July 2, 2022
Net sales
The following table presents net sales:
Thirteen Weeks Ended
(in thousands)July 1, 2023July 2, 2022$ Change% Change
Retail sales$360,421 $347,184 $13,237 3.8 %
Wholesale sales18,681 17,484 1,197 6.8 
Total net sales$379,102 $364,668 $14,434 4.0 %
Retail sales increased by $13.2 million, or 3.8%, during the thirteen weeks ended July 1, 2023, compared to the thirteen weeks ended July 2, 2022. The 3.8% increase in retail sales resulted primarily from comparable store sales growth of 5.5% and a 2.9% net increase in the number of stores year-over-year, partially offset by the unfavorable impact of foreign currency during the thirteen weeks ended July 1, 2023 and our integration plan to drive sales yield at the acquired 2nd Avenue stores.
Wholesale sales increased by $1.2 million, or 6.8%, during the thirteen weeks ended July 1, 2023. The increase resulted primarily from an increase in prices charged to our wholesale customers.
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Cost of merchandise sold, exclusive of depreciation and amortization
The following table presents cost of merchandise sold, exclusive of depreciation and amortization (“cost of merchandise sold”):
Thirteen Weeks Ended
(in thousands)July 1, 2023July 2, 2022$ Change% Change
Cost of merchandise sold, exclusive of depreciation and amortization$154,945 $146,794 $8,151 5.6 %
Cost of merchandise sold increased by $8.2 million, or 5.6%, during the thirteen weeks ended July 1, 2023, compared to the thirteen weeks ended July 2, 2022.
As a percentage of net sales, cost of merchandise sold increased to 40.9% during the thirteen weeks ended July 1, 2023, compared to 40.3% during the thirteen weeks ended July 2, 2022. The increase primarily resulted from escalated labor and material costs, partially offset by the scaling of our business.
Personnel costs classified within cost of merchandise sold increased to $92.2 million during the thirteen weeks ended July 1, 2023, compared to $85.2 million during the thirteen weeks ended July 2, 2022. The $7.0 million increase in personnel costs resulted primarily from higher wages for store employees, increased labor to support transaction growth and an increase in the number of stores from 309 stores as of July 2, 2022 to 318 stores as of July 1, 2023. Materials costs increased primarily as a result of one-time costs related to the ramp up of the CPC opened during the first quarter of fiscal 2023 and increased material costs associated with the expansion of GreenDrop locations and integration of 2nd Avenue.
Salaries, wages and benefits
The following table presents salaries, wages and benefits expense:
Thirteen Weeks Ended
(in thousands)July 1, 2023July 2, 2022$ Change% Change
Retail and wholesale$48,091 $49,339 $(1,248)(2.5)%
Corporate19,251 16,764 2,487 14.8 
Total salaries, wages and benefits$67,342 $66,103 $1,239 1.9 %
Salaries, wages and benefits expense increased by $1.2 million, or 1.9%, during the thirteen weeks ended July 1, 2023, compared to the thirteen weeks ended July 2, 2022.
Personnel costs for our retail and wholesale operations decreased by $1.2 million, or 2.5%, primarily as a result of the rollout of self-checkout kiosks in our stores, partially offset by higher wage rates. Meanwhile, costs for our corporate employees increased by $2.5 million primarily reflecting investments in our organization to support being a public company, wage rate increases year over year, and the scaling of our business to support our growth initiatives.
Selling, general and administrative
The following table presents selling, general and administrative expenses (“SG&A”):
Thirteen Weeks Ended
(in thousands)July 1, 2023July 2, 2022$ Change% Change
Rent and utilities$42,705 $43,823 $(1,118)(2.6)%
Repairs and maintenance8,337 7,301 1,036 14.2 
Marketing2,873 2,710 163 6.0 
Professional service fees2,854 4,098 (1,244)(30.4)
Supplies4,051 3,722 329 8.8 
Other expenses12,439 14,644 (2,205)(15.1)
Total selling, general and administrative$73,259 $76,298 $(3,039)(4.0)%
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SG&A decreased by $3.0 million, or 4.0%, during the thirteen weeks ended July 1, 2023, compared to the thirteen weeks ended July 2, 2022. The decrease in SG&A resulted primarily from a $2.2 million decrease in other expenses which includes a $3.3 million decrease on the loss on disposal of property and equipment, a $1.2 million decrease in professional service fees primarily reflecting less non-capitalizable spend related to our IPO, as well as a $1.1 million decrease in rent and utilities, partially offset by a $1.0 million increase in repairs and maintenance primarily reflecting continued enhancements at our stores.
Depreciation and amortization
The following table presents depreciation and amortization expense:
Thirteen Weeks Ended
(in thousands)July 1, 2023July 2, 2022$ Change% Change
Depreciation and amortization$14,693 $14,043 $650 4.6 %
Depreciation and amortization during the thirteen weeks ended July 1, 2023, increased by $0.7 million, or 4.6%, compared to the thirteen weeks ended July 2, 2022. The increase in depreciation and amortization resulted primarily from capital expenditures since July 2, 2022, related to new stores, strategic initiatives, as well as capital maintenance expenditures.
Interest expense, net
The following table presents interest expense, net:
Thirteen Weeks Ended
(in thousands)July 1, 2023July 2, 2022$ Change% Change
Interest expense, net$(28,706)$(13,615)$(15,091)110.8 %
Amortization of debt issuance cost and debt discount(1,757)(1,002)(755)75.3 
Realized and unrealized gain (loss) on interest rate swap2,729 (190)2,919 n/m
Total interest expense, net$(27,734)$(14,807)$(12,927)87.3 %
____________
n/m – not meaningful
Total interest expense, net increased $12.9 million, or 87.3%, during the thirteen weeks ended July 1, 2023, compared to the thirteen weeks ended July 2, 2022. The increase in interest expense, net resulted primarily from the issuance of $550.0 million of Senior Secured Notes on February 6, 2023, partially offset by the $233.4 million repayment of our Term Loan Facility on the same day, and an increase in interest rates affecting amounts borrowed under our Term Loan Facility. The weighted average face value of debt outstanding from these two sources during the thirteen weeks ended July 1, 2023 was $1.13 billion, compared to $820.8 million during the thirteen weeks ended July 2, 2022. The weighted average interest rate of our Term Loan Facility and Senior Secured Notes was 10.36% during the thirteen weeks ended July 1, 2023, compared to 6.53% during the thirteen weeks ended July 2, 2022.
Gain (loss) on foreign currency, net
The following table presents gain (loss) on foreign currency, net:
Thirteen Weeks Ended
(in thousands)July 1, 2023July 2, 2022$ Change% Change
Gain (loss) on foreign currency remeasurement$9,730 $(17,904)