Savers Value Village, Inc. (SVV)

Item 7. 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 our audited consolidated financial statements and related notes and other financial information included in this Annual Report. This section of this Annual Report generally discusses fiscal year 2024 and 2023 items and year-to-year comparisons between fiscal years 2024 and 2023. Discussions of fiscal year 2022 items and year-to-year comparisons between fiscal years 2023 and 2022 are not included in this Annual Report on Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023, which was filed with the SEC on March 8, 2024.

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 I, Item 1A “Risk Factors” or in other parts of this Annual Report.

Overview

We are the largest for-profit thrift operator in the United States (“U.S.”) and Canada based on number of stores and operate a total of 351 stores under the Savers®, Value Village®, Value Village Boutique™, 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”). We then process, select, price, merchandise and sell these items in our stores. Items that are unsuited for or unsold at retail stores 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 is sold to our retail or wholesale customers.

We offer a dynamic, ever-changing selection of items, with an average unit retail (“AUR”) price of approximately $5. Our most engaged customers are members of our Super Savers Club® loyalty program. As of December 28, 2024, we had 5.9 million total active members enrolled in our U.S. and Canadian loyalty programs who have shopped with us during fiscal year 2024, compared to 5.3 million total active members as of December 30, 2023. Active members drove 72.4% of retail sales during fiscal year 2024, compared to 70.3% during fiscal year 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.

Our strategy is to locally source our merchandise by purchasing secondhand items donated to our NPPs, which provides them with revenue to support their community-focused missions. This also aids in creating a broad and diverse selection for our customers, fosters a sense of community, and reduces transportation costs and emissions typically associated with the production and distribution of new merchandise. While purchases made by our customers in our stores do not directly benefit any NPP, we pay a market-competitive contractual rate to purchase donated items.

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We source our merchandise primarily through three distinct and strategic procurement models: (i) on-site donations (“OSDs”), (ii) GreenDrop locations and (iii) delivered supply. Increasing the proportion of OSDs and GreenDrop as a percentage of total supply is desirable as donations from these sources are usually of higher quality and collectively have a lower cost than product sourced through other channels. OSDs and GreenDrop are collectively the largest part of our supply mix, accounting for 76.3% of our total pounds processed for fiscal year 2024, compared to 73.6% for fiscal year 2023.

•OSDs: Donations of items by individuals to our NPPs, made at Community Donation Centers (“CDCs”) located at our stores. We operate as a registered professional fundraiser where required, accepting donations on behalf of our NPPs. Each store is specifically designated as an OSD location for a particular NPP, such that all donations received at the CDC are credited to that NPP.

•GreenDrop locations: Attended donation stations that collect donations of items made by individuals to our NPPs at convenient and well-signed brick and mortar and trailer locations in neighborhoods surrounding a store. On behalf of our NPPs, we solicit, collect, and deliver items from our GreenDrop locations to our stores and Centralized Processing Centers (“CPCs”).

•Delivered supply: Delivered supply comprises donations delivered either to our CPCs or our stores, or both. These donations can be collected by our NPPs through a variety of methods such as neighborhood collections or donation drives, or we may solicit, collect and deliver the items on behalf of our NPPs.

We leverage an analytical platform to measure the sales yield and product margin of each stream of supply in our stores. In general, this tool is either used to periodically confirm the performance of an existing stream of supply or to evaluate the performance of a new source of supply.

Our business model is predicated on sourcing and selling quality secondhand items to our customers in local communities. We are able to meet customer demand given our deep relationships with an extensive network of NPPs that is unmatched in the thrift industry.

The majority of our retail stores have a dedicated space that handles the processing of soft and hard goods that provide the inventory to be sold on our retail sales floors. In fiscal year 2024, we processed 1.0 billion pounds of secondhand goods, compared to 984 million in fiscal year 2023. We are actively implementing our offsite processing strategy which allows us to process goods at larger-scale facilities and distribute goods to multiple stores in a local market. The processing of donations under this strategy can occur at offsite warehouse facilities, stores with surplus processing capacity or at CPCs.

Our store experience directly reflects our mission to make secondhand second nature. We deliver a well merchandised environment that maximizes customer engagement and supports a core tenet for any thrifter—the treasure hunt. Our stores offer a wide selection of quality items across clothing, home goods, books and other items at convenient locations. Our sales floor inventory is also regularly rotated and refreshed, providing our customers with an extensive, ever-changing selection at tremendous value.

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 textile items that are unsuited for or unsold at retail stores 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.

Recent Developments

Macroeconomic Conditions in Canada

The macroeconomic environment in Canada remains challenging, with elevated levels of unemployment and a high cost of living that is especially hard on low-income consumers. In periods of perceived or actual unfavorable economic conditions, consumers may reallocate their discretionary spending, which may adversely impact demand for the Company’ products and our profitability.

In response to the macroeconomic pressures in Canada, we have been actively testing different approaches to improve our Canadian business, particularly in the areas of selection and pricing, to drive foot traffic, increase conversion and improve our overall value perception among consumers.

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Share Repurchases

During fiscal year 2024, under our $50.0 million share repurchase program announced in November 2023, we repurchased 3.2 million shares at a weighted average price of $9.95 and a total cost of $31.9 million. As of December 28, 2024, the Company had $18.1 million remaining under the share repurchase program.

Derivative Financial Instruments

In April 2024, we terminated our interest rate swaps and cross currency swaps realizing net proceeds of $38.4 million.

2 Peaches Acquisition

On May 6, 2024, the Company acquired all of the equity of 2 Peaches Group, LLC (“2 Peaches”) for $5.4 million, which is comprised of cash consideration of $3.5 million, including a holdback of $0.5 million, and acquisition-related contingent consideration with an initial fair value of $1.9 million (the “2 Peaches Acquisition”). 2 Peaches is a thrift store chain with seven locations in the Atlanta, Georgia, metropolitan area. The acquired stores are the Company’s first locations in the state of Georgia and will serve as a base for the Company’s entrance and expansion into the southeast region of the U.S. Goodwill arising from the acquisition amounted to less than $0.1 million.

Revolver Upsizing

On June 27, 2024, the Company entered into a fourth amendment to its Senior Secured Credit Facilities that, among other things, increased the maximum amount available under the Revolving Credit Facility by $50.0 million to $125.0 million, and extended the maturity date of the Revolving Credit Facility from April 26, 2026 to April 26, 2027.

Partial Redemption of Senior Secured Notes

On February 6, 2025, the Company redeemed $44.5 million aggregate principal amount of Senior Secured Notes and paid accrued interest and a premium on the partial redemption. Subsequent to the partial redemption, the Company had total borrowings of $716.8 million outstanding.

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Key Performance Indicators

We use the key performance indicators below 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:

(1)Comparable store sales is the percentage change in comparable store sales over the comparable period in the prior fiscal year. Through fiscal year 2024, we define comparable store sales to be sales by 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. Comparable store sales excludes stores acquired in the 2 Peaches Acquisition. For fiscal year 2023, comparable store sales excludes stores acquired in the acquisition of 2nd Ave. because those stores were not yet fully integrated during the prior year comparative period. Comparable store sales is measured in local currency for Canada, while total comparable store sales is measured on a constant-currency basis.

(2)Total comparable store sales and the total number of stores include our Australia retail locations, in addition to the U.S. and Canada.

(3)We define sales yield as retail sales generated per pound processed on a currency neutral and comparable store basis.

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Comparable store sales

Comparable store sales 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 fiscal year 2024, our comparable store sales were relatively flat. During fiscal year 2023, our comparable store sales increased 4.7%, primarily reflecting growth in transaction volume.

The Company currently defines comparable store sales to be sales by 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. Beginning with the first quarter of fiscal year 2025, the Company will define comparable store sales to be sales by stores that have been in operation for all or a portion of 14 months to more closely conform with common retail practice. The impact of this change to previously reported comparable store sales is de minimis and amounts for prior periods will not be recast.

Number of stores

Our number of stores provides us visibility into the scale of our 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 the number of stores in low-growth markets.

Our number of open stores increased to 351 stores as of December 28, 2024, from 326 stores as of December 30, 2023. The increase in stores resulted from the opening of ten net new stores in the U.S., six net new stores in Canada and two new stores in Australia, as well as the addition of seven stores through the 2 Peaches acquisition.

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. 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 fiscal years 2024 and 2023, we processed 1.0 billion and 984 million pounds of supply, respectively, of which 76.3% and 73.6% was comprised of supply from OSDs and GreenDrop, respectively.

Sales yield

We define sales yield as retail sales generated per pound processed on a currency neutral and comparable store basis. We believe investors can use this metric as an indicator of 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.

Our sales yield for fiscal year 2024 was $1.46, compared to $1.48 for fiscal year 2023. The 1.4% decline in sales yield primarily reflects a decrease in items sold per pound processed, partially offset by 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 reported basis, divided by total pounds of goods processed. We believe investors can use this metric 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 fiscal years 2024 and 2023 was $0.66 and $0.63, respectively.

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Results of Operations

The following table sets forth our results of operations for each of the periods presented:

Comparison of fiscal year 2024 and fiscal year 2023

Net sales

The following table presents net sales:

Retail sales increased by $36.4 million, or 2.5%, during fiscal year 2024, compared to fiscal year 2023. The increase in retail sales resulted primarily from growth in our store base, partially offset by the unfavorable impact of foreign currency exchange rates.

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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”):

Cost of merchandise sold increased 230 basis points to 43.6% of net sales during fiscal year 2024, compared to 41.3% during fiscal year 2023. The 230 basis point increase primarily reflects deleverage of cost of merchandise sold as a percentage of net sales on comparable store sales, as well as the impact of new stores and new offsite processing facilities.

Personnel costs classified within cost of merchandise sold were $393.1 million during fiscal year 2024, compared to $378.6 million during fiscal year 2023. As a percentage of net sales, personnel costs classified within cost of merchandise sold was 25.6% during fiscal year 2024, compared to 25.2% during fiscal year 2023. The $14.5 million increase in personnel costs resulted primarily from growth in our store base, the opening of new offsite processing facilities and higher wages.

Beginning in the second quarter of fiscal year 2024, we have updated the way we define personnel costs classified within cost of merchandise sold and have recast the prior period accordingly. This update had no impact on the total cost of merchandise sold. Specifically, we have updated personnel costs classified within cost of merchandise sold to include offsite processing production labor due to the continued growth of offsite processing. Historically, these costs were included in other costs classified within cost of merchandise sold.

Salaries, wages and benefits

The following table presents salaries, wages and benefits:

Personnel costs for our retail and wholesale operations increased by $7.5 million, or 3.9%, during fiscal year 2024, compared to fiscal year 2023. The increase primarily reflects growth in our store base and higher wages, partially offset by a reduction to annual incentive plan expense.

Personnel costs for our corporate employees decreased by $42.7 million, or 24.8%, during fiscal year 2024, compared to fiscal year 2023. Adjusting for the $24.1 million special one-time bonus and related taxes incurred during fiscal year 2023 in relation to the issuance of our Senior Secured Notes and a $14.1 million decrease in IPO-related stock-based compensation expense, personnel costs for our corporate employees decreased $4.5 million primarily reflecting a reduction to annual incentive plan expense, partially offset by higher wages and non-IPO-related stock-based compensation expense.

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Selling, general and administrative

The following table presents selling, general and administrative (“SG&A”):

SG&A for our retail and wholesale operations increased by $19.0 million, or 7.3%, during fiscal year 2024, compared to fiscal year 2023. The increase resulted primarily from growth in our store base which drove an increase in rent and utilities and store pre-opening expenses. In addition, we incurred elevated security costs which were offset by reduced expenditures on repairs and maintenance.

Corporate SG&A increased by $6.8 million, or 12.9%, during fiscal year 2024, compared to fiscal year 2023. The increase primarily reflects an increase in information technology expenses and an impairment charge on our long-lived assets, partially offset by reduced expenditures on professional services.

Depreciation and amortization

The following table presents depreciation and amortization:

The increase in depreciation and amortization resulted primarily from investments in new stores, offsite processing and information technology, as well as capital maintenance expenditures.

Interest expense, net

The following table presents interest expense, net:

The decrease in interest expense, net was primarily due to a lower weighted average face value of debt and to a lesser extent, a decrease in the weighted average interest rate. The weighted average face value of debt decreased 18.1% from $944.3 million during fiscal year 2023 to $773.8 million during fiscal year 2024 primarily due to the timing of debt repayments. Over the same period, the weighted average interest rate decreased 72 basis points from 10.18% to 9.46%. This decrease was primarily due to the execution of the Third Amendment to our Senior Secured Credit Facilities on January 30, 2024, which lowered the total margin on existing borrowings under the Term Loan Facility by 151 basis points.

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(Loss) gain on foreign currency, net

The following table presents (loss) gain on foreign currency, net:

n/m - not meaningful

Gains and losses on foreign currency relate primarily to movements in the Canadian dollar (“CAD”) relative to the U.S. dollar (“USD”). In fiscal year 2024, the USD strengthened against CAD resulting in remeasurement losses of $27.3 million arising primarily on USD-denominated debt held by one of our Canadian subsidiaries, which was the primary driver of foreign currency remeasurement gains and losses in both fiscal year 2024 and fiscal year 2023. We also recorded gains of $13.0 million in fiscal year 2024 on derivative instruments that we use to manage foreign currency exchange rate risk. The $9.8 million gain on foreign currency remeasurement in fiscal year 2023 resulted primarily from USD weakening against CAD, partially offset by losses of $3.1 million on derivative instruments that we use to manage foreign currency exchange rate risk.

Other income, net

The following table presents other income, net:

Other income, net is comprised primarily of miscellaneous income and expenses not directly related to our core operating activities.

Loss on extinguishment of debt

The following table presents loss on extinguishment of debt:

In fiscal year 2024, loss on extinguishment of debt of $4.1 million comprised of $0.7 million associated with the repricing of outstanding borrowings under our Term Loan Facility and $3.4 million associated with the redemption of $49.5 million aggregate principal amount of Senior Secured Notes.

In fiscal year 2023, the Company used net proceeds from its IPO, net proceeds from issuing $550.0 million aggregate principal amount of Senior Secured Notes and cash on hand to repay $485.8 million in outstanding borrowings on its Term Loan Facility and $55.0 million aggregate principal amount of its Senior Secured Notes, resulting in a loss on extinguishment of debt of $16.6 million.

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Income tax expense (benefit)

The following table presents income tax expense (benefit):

n/m - not meaningful

During fiscal year 2024, the Company recorded income tax expense of $20.4 million on income before income taxes of $49.4 million, resulting in an effective tax rate of 41.3%. During fiscal year 2023, the Company recorded an income tax benefit of $6.0 million on income before income taxes of $47.1 million, resulting in an effective tax rate of (12.8)%. The increase in our effective tax rate resulted primarily from the internal legal entity restructuring that occurred during fiscal year 2023 as discussed in Note 15. Income Taxes, and an increase to the valuation allowance.

Segment results

The following table presents net sales and profit by segment:

U.S. Retail

U.S. Retail sales increased by $52.5 million, or 6.7%, during fiscal year 2024, compared to fiscal year 2023. The increase in U.S. Retail sales resulted from growth in our store base, as well as a 2.7% increase in comparable store sales. The increase in comparable store sales was driven by higher transactions and average basket.

U.S. Retail segment profit decreased by $10.9 million, or 5.5%, during fiscal year 2024, compared to fiscal year 2023. The decrease in U.S. Retail segment profit primarily reflects the impact of new stores, including store pre-opening expenses, and the impact of new offsite processing facilities.

Canada Retail

Canada Retail sales decreased by $18.7 million, or 3.1%, during fiscal year 2024, compared to fiscal year 2023. The decrease in Canada Retail sales resulted from a 4.0% decrease in comparable store sales and the unfavorable impact of foreign currency exchange rates, partially offset by growth in our store base. The decline in comparable store sales was primarily driven by a decrease in transactions.

Canada Retail segment profit decreased by $24.8 million, or 13.0%, during fiscal year 2024, compared to fiscal year 2023. The decrease in Canada Retail segment profit primarily reflects deleverage of expenses as a percentage of net sales on comparable store sales.

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Non-GAAP Financial Measures

The Company reports its financial results in accordance with GAAP. We also present the following non-GAAP financial measures: Adjusted net income, Adjusted net income per diluted share, Adjusted EBITDA, Adjusted EBITDA margin and Constant-currency net sales. In the discussion that follows, we provide definitions and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. We have provided this non-GAAP financial information, which is not calculated or presented in accordance with GAAP, as information supplemental to, and in addition to, the financial measures presented in this Annual Report that are calculated and presented in accordance with GAAP. These non-GAAP financial measures should not be considered superior to, as a substitute for, or an alternative to, and should be considered in conjunction with, the GAAP financial measures presented elsewhere in this Annual Report. These non-GAAP financial measures may differ from, and therefore may not be directly comparable to, similarly-titled measures used by other companies.

Adjusted net income, Adjusted net income per diluted share, Adjusted EBITDA and Adjusted EBITDA margin

Adjusted net income, Adjusted net income per diluted share, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. We have included these non-GAAP financial measures as these are key measures used by our management and our board of directors to evaluate our operating performance and the effectiveness of our business strategies, make budgeting decisions, and evaluate compensation decisions. The Company presents Adjusted net income, Adjusted net income per diluted share, Adjusted EBITDA and Adjusted EBITDA margin because it considers these meaningful measures to share with investors as they best allow comparison of the performance of one period with that of another period. In addition, by presenting Adjusted net income, Adjusted net income per diluted share, Adjusted EBITDA and Adjusted EBITDA margin, the Company provides investors with management’s perspective of the Company’s operating performance.

Adjusted net income through fiscal year 2024 is defined as net income excluding the impact of loss on extinguishment of debt, IPO-related stock-based compensation expense, transaction costs, dividend-related bonus, loss (gain) on foreign currency, net, executive transition costs, certain other adjustments, the tax effect on the above adjustments, excess tax benefit from stock-based compensation and non-recurring tax benefit. Tax effect on adjustments as defined through fiscal year 2024 is calculated based on the overall effective tax rate for the respective years. We define Adjusted net income per diluted share as Adjusted net income divided by diluted weighted average common shares outstanding.

Adjusted EBITDA through fiscal year 2024 is defined as net income excluding the impact of interest expense, net, income tax expense (benefit), depreciation and amortization, loss on extinguishment of debt, stock-based compensation expense, non-cash occupancy-related costs, lease intangible asset expense, pre-opening expenses, store closing expenses, executive transition costs, transaction costs, dividend-related bonuses, loss (gain) on foreign currency, net, and certain other adjustments. We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales, expressed as a percentage.

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Beginning in fiscal year 2025, the Company is adjusting its approach for calculating the tax effect on adjustments within its Adjusted net income and Adjusted net income per diluted share metrics. Through fiscal year 2024, the Company applied the overall effective tax rate for the year to the respective adjustments in determining Adjusted net income and Adjusted net income per diluted share. Effective fiscal year 2025, the Company will utilize the tax rate specifically applicable to the respective adjustments. Details of these changes and a reconciliation of the definitions prior to fiscal year 2025 to the go-forward definition is presented in the table and related footnotes below.

A reconciliation of GAAP net income and GAAP net income per diluted share to Adjusted net income and Adjusted net income per diluted share is presented in the table below:

*May not foot due to rounding

(1)Presented pre-tax.

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(2)Removes the effects of the loss on debt extinguishment in relation to the repricing of outstanding borrowings under the Term Loan Facility on January 30, 2024, the partial repayment of outstanding borrowings under the Term Loan Facility on July 5, 2023 and February 6, 2023, and the partial redemption of our Senior Secured Notes on March 4, 2024 and July 3, 2023.

(3)Represents stock-based compensation expense for performance-based options triggered by completion of our IPO and expense related to restricted stock units issued in connection with the Company’s IPO.

(4)Transaction costs are comprised of non-capitalizable expenses related to offering costs, debt transactions and acquisitions.

(5)Represents dividend-related bonus and related payroll taxes paid in conjunction with our February 2023 dividends.

(6)Represents severance costs associated with executive leadership changes and retention costs associated with the 2 Peaches acquisition.

(7)Other adjustments include the effect of asset disposals. Fiscal year 2024 also includes an impairment charge on long-lived assets of $4.3 million. Fiscal year 2023 also includes legal and insurance settlement proceeds of $4.7 million.

(8)Tax effect on adjustments as defined through fiscal year 2024 is calculated based on the overall effective tax rate for the respective periods. The effective tax rate for fiscal year 2023 is adjusted to remove Section 162(m) limitations and the tax benefit of restructuring.

(9)Represents a one-time tax benefit of $31.3 million associated with an internal legal entity restructuring in fiscal year 2023.

(10)Tax effect on adjustments as defined beginning in fiscal year 2025 is calculated utilizing the tax rate specifically applicable to the respective adjustments.

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Beginning in fiscal year 2025, the Company is updating its definition of Adjusted EBITDA to include non-cash occupancy-related costs, pre-opening expenses and store closing expenses, all of which were excluded under its previous definition of Adjusted EBITDA. Details of these changes and a reconciliation of the definitions prior to fiscal year 2025 to the go-forward definition is presented in the table and related footnotes below.

A reconciliation of GAAP net income to Adjusted EBITDA is presented in the table below:

(1)Removes the effects of the loss on debt extinguishment in relation to the repricing of outstanding borrowings under the Term Loan Facility on January 30, 2024, the partial repayment of outstanding borrowings under the Term Loan Facility on July 5, 2023 and February 6, 2023, and the partial redemption of our Senior Secured Notes on March 4, 2024 and July 3, 2023.

(2)Represents non-cash stock-based compensation expense related to stock options and restricted stock units granted to certain of our employees and directors.

(3)Represents the difference between cash payments and straight-line lease expense.

(4)Represents lease expense associated with acquired lease intangibles. Prior to the adoption of Topic 842, this expense was included within depreciation and amortization.

(5)Pre-opening expenses include expenses incurred in the preparation and opening of new stores and processing locations, such as payroll, training, travel, occupancy and supplies.

(6)Costs associated with the closing of certain retail locations, including lease termination costs, amounts paid to third parties for rent reduction negotiations, and fees paid to landlords for store closings.

(7)Represents severance costs associated with executive leadership changes and retention costs associated with acquisitions.

(8)Transaction costs are comprised of non-capitalizable expenses related to offering costs, debt transactions and acquisitions.

(9)Represents dividend-related bonus and related payroll taxes paid in conjunction with our February 2023 dividends.

(10)Other adjustments include the effect of asset disposals. Fiscal year 2024 also includes an impairment charge on long-lived assets of $4.3 million. Fiscal year 2023 also includes legal and insurance settlement proceeds of $4.7 million.

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Constant-currency

The Company reports certain operating results on a constant-currency basis in order to facilitate period-to-period comparisons of its results without regard to the impact of fluctuating foreign currency exchange rates. The term foreign currency exchange rates refers to the exchange rates used to translate the Company's operating results for all countries where the functional currency is not the USD into USD. Because the Company is a global company, foreign currency exchange rates used for translation may have a significant effect on its reported results. In general, given the Company's significant operations in Canada, the Company's financial results are affected positively by a weakening of the USD against CAD and are affected negatively by a strengthening of the USD against CAD. References to operating results on a constant-currency basis mean operating results without the impact of foreign currency exchange rate fluctuations.

The Company believes disclosure of constant-currency net sales is helpful to investors because it facilitates period-to-period comparisons of its results by increasing the transparency of its underlying performance by excluding the impact of fluctuating foreign currency exchange rates. Constant-currency results have no standardized meaning prescribed by GAAP, are not prepared under any comprehensive set of accounting rules or principles and should be read in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

Constant-currency results have limitations in their usefulness to investors and may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies.

Constant-currency information compares results between periods as if exchange rates had remained constant period-over-period. During fiscal year 2024, as compared to fiscal year 2023, the USD was stronger relative to CAD and the Australian dollar (“AUD”) which resulted in an unfavorable foreign currency impact on our operating results. The Company calculates constant-currency net sales by translating current-period net sales using the average exchange rates from the comparative prior period rather than the actual average exchange rates in effect.

A reconciliation of GAAP net sales to constant-currency net sales is presented in the table below:

n/a - not applicable

Liquidity and Capital Resources

Overview

We have historically financed our operations primarily with cash generated by operating activities and proceeds from debt issuances. These sources of liquidity and capital have also been the primary means by which we funded a dividend payment of $262.2 million in fiscal year 2023. Although we do not anticipate paying any cash dividends in the foreseeable future, any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including restrictions in our current and future debt instruments, our future earnings, capital requirements, financial condition, prospects, and applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits.

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Our primary short-term requirements for liquidity and capital are to meet general working capital needs, fund capital expenditures and to make interest payments on our debt. Our primary long-term liquidity and capital needs relate to repaying the principal balance on our debt and making lease payments on our retail stores and processing facilities. We may also use cash on our balance sheet, cash generated from operations or proceeds from new borrowings, or any combination of these sources of liquidity and capital, to pay for acquisitions, to fund growth initiatives, to pay down debt or to conduct repurchases of our common stock under our share repurchase program, or any combination of the foregoing. Our primary sources of liquidity and capital are cash generated from operations and proceeds from borrowings, including borrowings on our Revolving Credit Facility. As of December 28, 2024, $123.8 million was available to borrow under the Revolving Credit Facility.

We believe our existing cash and cash equivalents and cash provided by our operating activities are sufficient to fund our liquidity needs for the next 12 months.

See Note 7. Indebtedness to our audited consolidated financial statements for details of our indebtedness.

Share repurchase authorization

We announced on November 9, 2023 the authorization of a share repurchase program of up to $50.0 million of our common stock. Under the program, we may purchase shares from time to time in compliance with applicable securities laws, that may include Securities Act Rule 10b-18. The program is currently set to expire on November 8, 2025. Although our Board of Directors has authorized the share repurchase program, we are not obligated to repurchase any specific dollar amount or to acquire any specific number of shares under the program. In addition, the share repurchase program may be suspended, modified, or terminated at any time without prior notice. The amount, timing, and execution of our share repurchase program will be based upon a variety of factors, including the share price of our common stock, general market conditions, alternative uses for capital, our financial performance, and other considerations. Any repurchases will be funded by available cash and cash equivalents.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Comparison of fiscal year 2024 and fiscal year 2023

Net cash provided by operating activities

Net cash provided by operating activities was $134.3 million for fiscal year 2024, compared to $175.2 million for fiscal year 2023, a decrease of $40.9 million. The $40.9 million decrease is primarily due to a $25.7 million increase in income taxes paid, net and an $11.7 million decrease in operating income.

Net cash used in changes in operating assets and liabilities during fiscal year 2024 consisted primarily of a $122.6 million change in operating lease liabilities and a $10.7 million change in accrued payroll and related taxes. The change in operating lease liabilities resulted from lease payments. The change in accrued payroll and related taxes resulted primarily from the annual payment of incentive compensation to our employees, partially offset by increases in accrued payroll and insurance reserves. As of December 30, 2023, we had accrued $24.4 million for employee incentive compensation which was paid during the first quarter of fiscal year 2024. As of December 28, 2024, we had accrued $7.9 million for employee incentive compensation, the majority of which we plan to pay during the first quarter of fiscal year 2025.

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Net cash used in changes in operating assets and liabilities during fiscal year 2023 consisted primarily of a $110.4 million change in operating lease liabilities and a $10.9 million change in inventory. The change in operating lease liabilities resulted from lease payments. The change in inventories is primarily due to the timing of processing and higher processing costs.

Net cash used in investing activities

Net cash used in investing activities was $80.5 million for fiscal year 2024 and $92.4 million for fiscal year 2023. Expenditure in both periods consisted primarily of investments in new stores, offsite processing and information technology, as well as capital maintenance expenditures. In fiscal year 2024, we also received net proceeds of $28.5 million on settlement of derivative instruments, including $28.1 million related to the April 2024 termination of our cross currency swaps, and made a net payment of $3.2 million related to the 2 Peaches Acquisition.

Net cash used in financing activities

Net cash used in financing activities was $76.6 million for fiscal year 2024, consisting primarily of $55.5 million of principal payments on our long-term debt and $31.7 million of share repurchases under our $50.0 million share repurchase program, partially offset by net proceeds of $11.9 million related to settlement of an interest rate swap with an other-than-insignificant financing element at inception, including $9.6 million related to the April 2024 termination of the aforementioned interest rate swap.

Net cash used in financing activities was $17.0 million for fiscal year 2023, consisting primarily of $524.9 million of net proceeds from the issuance of our Senior Secured Notes and $305.7 million of net proceeds from our IPO, offset by $547.9 million of principal payments on our long-term debt, the payment of $262.2 million in dividends and a net repayment of $42.0 million on our Revolving Credit Facility.

Critical Accounting Estimates

Our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report are prepared in accordance with GAAP. Preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from our estimates under different assumptions or conditions. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. We believe that the assumptions and estimates associated with the impairment assessments of our goodwill and indefinite-lived intangible assets and income taxes have the greatest potential impact on our consolidated financial statements. Accordingly, we believe these policies are most critical to aid in fully understanding and evaluating our Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income, and Consolidated Statements of Cash Flows.

Impairment of goodwill and indefinite-lived intangible assets

We assess goodwill and our indefinite-lived intangible assets for impairment annually, or more frequently if events or changes in circumstances indicate that an asset may be impaired. We assess definite-lived intangible assets and other long-lived assets (collectively, “long-lived assets”) for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable.

We account for acquired businesses using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values with the differences between consideration and net assets acquired being recorded as goodwill.

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Goodwill is reviewed for impairment annually in the Company’s fourth quarter and whenever circumstances indicate goodwill might be impaired. The Company has the option of performing a qualitative assessment that involves evaluating relevant events and circumstances to determine whether it is more likely than not (i.e. a likelihood of greater than 50%) that the fair value of a reporting unit is less than its carrying amount. If not, no further impairment testing is performed. If the assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs a quantitative assessment by comparing the carrying value of the reporting unit to the estimated fair value of the reporting unit, both as of the testing date. If the carrying value of the reporting unit exceeds the estimated fair value, the Company will recognize an impairment charge equal to the amount by which the carrying value exceeds the reporting unit’s estimated fair value up to but not to exceed the total amount of goodwill allocated to the reporting unit.

While the Company generally performs a qualitative assessment, we may choose periodically to forgo the qualitative assessment and proceed directly to a quantitative analysis. Factors considered in determining whether to forgo the qualitative assessment and proceed directly to the quantitative analysis include the significance of the excess of a reporting unit’s estimated fair value over its carrying value at the last quantitative assessment date, the amount of time between quantitative assessments, the desirability of establishing an updated baseline quantitative analysis, and other performance and market indicators. In fiscal year 2024, we forwent the qualitative assessment by performing a quantitative analysis and concluded that the fair values of both our reporting units were substantially higher than their carrying values.

Similar to goodwill, our indefinite-lived trade names and trademarks are not amortized, but reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. In fiscal year 2024, we forwent the qualitative assessment by performing a quantitative analysis and concluded that the fair values of our indefinite-lived trade names and trademarks were substantially higher than their carrying values.

Each reporting period, we perform an evaluation of the remaining useful life of our indefinite-lived trade names and trademarks to determine whether events and circumstances continue to support an indefinite life. We consider the life of our indefinite-lived trade names and trademarks to be appropriate.

Income taxes

Management makes estimates, assumptions, and judgments to determine our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. We utilize the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss, capital loss, and tax credit carryforwards. A valuation allowance is established against deferred tax assets if it is more likely than not that they will not be realized. Income tax expense represents the current expense incurred for the period plus or minus the change during the period in net deferred tax assets and liabilities.

Recent Accounting Pronouncements

See Note 2. Summary of Significant Accounting Policies to our audited consolidated financial statements for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.

Item 7. 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 our audited consolidated financial statements and related notes and other financial information included in this Annual Report. 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 I, Item 1A “Risk Factors” or in other parts of this Annual Report.

Overview

We are the largest for-profit thrift operator in the United States and Canada and operate a total of 326 stores under the Savers®, Value Village®, Value Village Boutique™, 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 or via on-site donations (“OSDs”) at Community Donation Centers (“CDCs”) at our stores as well as through 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 of approximately $5. Our most engaged customers are members of our Super Savers Club® loyalty program. As of December 30, 2023, we had 5.3 million total active members enrolled in our U.S. and Canadian loyalty programs who have made a purchase within the last 12 months, compared to 4.8 million total active members as of December 31, 2022. Active members drove 70.3% of point-of-sale transaction value during both fiscal year 2023 and fiscal year 2022. Beginning in the third quarter of fiscal year 2023, the Company updated its active loyalty member statistics for both the current year and prior year to include active members in all stores.

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 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 2019 to 2023, 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 our customers and at the same time reduce transportation costs and emissions typically associated with the production and distribution of new merchandise.

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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 in all of our stores to significantly enhance store efficiency and shorten lines, thereby further improving the shopping experience.

We display 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.

Key Events and 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-time bonus to certain of our employees and directors participating in our management equity incentive plan, who were unable to participate in the dividend. As of December 30, 2023, $495.0 million aggregate principal amount of Notes remain outstanding.

Reverse stock split

On May 26, 2023, in anticipation of the IPO, we effectuated a reverse stock split of our 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 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.

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 $295.0 million after deducting discounts and commissions of $22.8 million and offering expenses of $19.7 million. We used the net proceeds from our IPO, together with cash on our balance sheet, to redeem $55.0 million aggregate principal amount of the Notes, repay $252.4 million aggregate principal amount of outstanding borrowings under the Term Loan Facility, pay accrued interest on these borrowings and pay a premium on the partial redemption of our Notes.

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 condition was satisfied. During fiscal

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year 2023, we recognized $28.0 million of expense related to performance-based options that vested upon completion of our IPO and $38.8 million of expense related to amortization of the remaining outstanding performance-based options that are recognized 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). During fiscal year 2023, we recognized $2.3 million of expense related to the amortization of these restricted stock units which vest in equal installments over a one-year or three-year period from the date of grant.

Emerging growth company status

Upon completion of our IPO on July 3, 2023, we ceased to be an emerging growth company (“EGC”) under the Jumpstart Our Business Startups (“JOBS”) Act. The previous EGC status allowed us 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 from new or revised financial accounting standards until those standards would otherwise apply to private companies.

In anticipation of losing EGC status, we have prepared for the auditor attestation requirements pursuant to Section 404 of the Sarbanes-Oxley Act and are 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.

Share repurchase authorization

We announced on November 9, 2023 the authorization of a share repurchase program of up to $50.0 million of our common stock. Under the program, we may purchase shares from time to time in compliance with applicable securities laws, that may include Securities Act Rule 10b-18. The program is currently set to expire on November 8, 2025. The timing and amount of any shares purchased will be based upon a variety of factors, including the share price of the common stock, general market conditions, alternative uses for capital, our financial performance, and other considerations. The share repurchase program does not obligate us to purchase any minimum number of shares, and the program may be suspended, modified, or discontinued at any time without prior notice. Any repurchases will be funded by available cash and cash equivalents. As of December 30, 2023, no shares have been repurchased under this program.

Term Loan Repricing

On January 30, 2024, we entered into an amendment (the “Third Amendment”) to the Senior Secured Credit Facilities. Among other things, the Third Amendment (i) removes the SOFR adjustment margin, (ii) reduces the margin on existing borrowings under the Term Loan Facility from a range of 4.25% to 5.50% to a range of 2.75% to 4.00%, (iii) revises the leverage-based pricing grid applicable to borrowings under the Term Loan Facility such that, among other things, a lower leverage ratio than was previously required is needed to obtain a 0.25% reduction in margin, (iv) provides for a 0.25% reduction of the margin applicable to term loan borrowings if we achieve certain public corporate family ratings and (v) increases the limit on the customary incremental uncommitted revolving credit facility that does not require consent of the required lenders to the greater of (a) $102.0 million and (b) 50% of EBITDA for the prior four quarters.

Changes in the Board of Directors

On February 23, 2024, Scott Graves, a member of the Board of Directors (the “Board”) of the Company, resigned from the Board and the Compensation Committee of the Board (the “Compensation Committee”), effective immediately. Mr. Graves’ departure is not due to any disagreement with the Company or the Board on any matter relating to the operations, policies or practices of the Company.

On February 26, 2024, upon the recommendation of the Nominating, Governance and Sustainability Committee of the Board (the “NGS Committee”), the Board appointed Mr. Jordan Smith to fill the Board vacancy created by Mr. Graves’ resignation. In addition, upon the recommendation of the NGS Committee, the Board appointed Mr. Aaron Rosen, a member of the Board, as chairperson of the Board and as chairperson of the Compensation Committee. On the same date, Mr. Rosen resigned from the Audit Committee and the NGS Committee.

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Partial Redemption of Senior Secured Notes

On March 4, 2024, we redeemed $49.5 million aggregate principal amount of the Notes and paid accrued interest and a premium on the partial redemption. Subsequent to the partial redemption, the Company had total borrowings of $767.3 million outstanding.

Key Performance Indicators

We use the key business metrics below 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:

____________

n/m – not meaningful

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(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 by 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 store 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)Comparable store daily sales growth represents net sales by stores in the relevant geography that were or would have been open for the entirety of both periods if not for temporary closures due to the COVID-19 pandemic, divided by the aggregate number of days those stores were open. Comparable store daily sales growth is the percentage change in comparable store daily sales over the comparable period in the prior fiscal year. Comparable store daily 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 daily sales growth is measured in local currency for Canada, while total comparable store daily sales growth is measured on a constant currency basis.

(3)Total comparable store sales growth, total comparable store daily sales growth and total number of stores include our Australia retail locations, in addition to the United States and Canada.

(4)We define sales yield as retail sales generated per pound processed on a currency neutral and comparable store 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 fiscal year 2023, our comparable store sales growth was 4.7%, primarily reflecting growth in transaction volume.

During fiscal year 2022, our comparable store sales growth was 13.5%, compared to 44.5% for fiscal year 2021. The 13.5% increase in comparable store sales growth during fiscal year 2022 primarily reflects the impact of pandemic related store closures during fiscal year 2021 which we did not experience during fiscal year 2022. The 44.5% increase in comparable store sales growth during fiscal year 2021 primarily reflects a higher percentage of open store days during 2021 resulting from reduced pandemic related restrictions.

Comparable store daily sales growth

Comparable store daily sales growth is a metric designed to adjust for temporary store closures due to COVID-19. Since there were no store closures during fiscal years 2023 and 2022 due to COVID-19, we discontinued presenting comparable store daily sales growth beginning in fiscal year 2023 since it would produce the same result as comparable store sales growth. Our percentage of open store days was 90.2% in fiscal year 2021, compared to 77.3% in fiscal year 2020.

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 the number of stores in low-growth markets.

Our number of open stores increased to 326 stores as of December 30, 2023, from 314 stores as of December 31, 2022. The increase in stores resulted from the opening of five new stores in the United States and seven new stores in Canada.

Our number of open stores increased to 314 stores as of December 31, 2022 from 306 stores as of January 1, 2022. The increase in stores resulted from the opening of eight net new stores, consisting of two in the United States, four in Canada and two in Australia.

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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 2019 to 2023, we have found that items sourced through OSDs have a cost per pound that is on average less than 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 fiscal years 2023, 2022 and 2021 we processed 984 million, 985 million and 860 million pounds of supply, respectively, of which 73.6%, 72.6% and 72.0% was comprised of supply from OSDs and GreenDrop, respectively.

Sales yield

We define sales yield as retail sales generated per pound processed on a currency neutral and comparable store basis. We believe investors can use this metric as an indicator of 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 basis, our sales yield for fiscal year 2023 was $1.48, compared to $1.39 for fiscal year 2022. The 6.5% improvement in sales yield primarily reflects price inflation as we have strategically increased prices to compensate for higher processing costs, and an increase in supply quality, partially driven by an increase in OSD mix as a percentage of total pounds processed, which together drove more items sold per pound processed at higher price points.

On a currency neutral and comparable store basis, our sales yield for fiscal year 2022 was $1.39, compared to $1.30 for fiscal year 2021. The 6.9% improvement in sales yield primarily reflects a shift in consumer purchasing toward items 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 reported basis, divided by total pounds of goods processed. We believe investors can use this metric 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 fiscal year 2023 was $0.63, compared to $0.61 for fiscal year 2022, primarily reflecting increases in material acquisition and processing costs largely driven by higher wages, partially offset by the scaling of our business.

Cost of merchandise sold per pound processed during fiscal year 2022 was $0.61, compared to $0.55 for fiscal year 2021, primarily reflecting wage subsidies received in fiscal year 2021 that were not received in fiscal year 2022, higher wages paid to our team members in fiscal year 2022 and a decrease in the percentage of inventory received from OSDs. Excluding the receipt of wage subsidies in fiscal year 2021, our adjusted cost of merchandise sold per pound processed was $0.57 for fiscal year 2021.

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Results of Operations

The following table sets forth our results of operations for each of the periods presented:

Comparison of fiscal year 2023 and fiscal year 2022

Net sales

The following table presents net sales:

Retail net sales increased by $61.9 million, or 4.5%, during fiscal year 2023 compared to fiscal year 2022. The increase in net sales resulted primarily from comparable store sales growth of 4.7% and a 3.8% increase in the number of stores year over year, partially offset by the unfavorable impact of foreign currency during fiscal year 2023.

Wholesale sales increased by $1.1 million, or 1.5%, during fiscal year 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 increased by $19.7 million, or 3.3%, during fiscal year 2023, compared to fiscal year 2022.

As a percentage of net sales, cost of merchandise sold remained consistent year over year at 41.3% during fiscal year 2023, compared to 41.7% during fiscal year 2022.

Personnel costs classified within cost of merchandise sold increased to $368.6 million during fiscal year 2023, compared to $343.4 million during fiscal year 2022. The increase in personnel costs resulted primarily from higher wages, increased labor to support transaction growth in our retail stores and an increase in the number of stores from 314 stores as of December 31, 2022 to 326 stores as of December 30, 2023.

Salaries, wages and benefits

The following table presents salaries, wages and benefits expense:

Salaries, wages and benefits expense increased by $92.6 million, or 33.8%, during fiscal year 2023, compared to fiscal year 2022.

Personnel costs for our retail and wholesale operations decreased by $1.9 million, or 1.0%, primarily from the rollout of self-checkout kiosks in our U.S. and Canada stores, partially offset by higher wage rates and 12 new stores since December 31, 2022.

Personnel costs for our corporate employees increased by $94.5 million, or 121.6%. The increase resulted primarily from the recognition of $69.1 million of stock-based compensation expense in connection with our IPO and a special one-time bonus and related taxes of $24.1 million paid to certain of our employees and directors participating in our management equity incentive plan, which we paid in connection with the offering of the Notes. The remaining increase primarily reflects increased headcount and wage rates year over year.

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 condition was satisfied. During the fiscal year 2023, we recognized $28.0 million of expense related to performance-based options that vested upon completion of our IPO and $38.8 million of expense related to amortization of the remaining outstanding performance-based options that are recognized on a graded vesting basis over their expected vesting period. Fiscal year 2023 further includes $2.3 million of expense related to the amortization of restricted stock units granted in connection with our IPO that vest in equal installments over a one-year or three-year period from the date of grant.

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Selling, general and administrative

The following table presents selling, general and administrative expenses:

SG&A increased by $9.7 million, or 3.2%, during fiscal year 2023, compared to fiscal year 2022. The increase in SG&A resulted primarily from a $13.2 million increase in other expenses which includes general corporate and store expenses such as insurance and information technology, as well as loss on disposal of property and equipment, and an increase of $2.3 million in rent and utilities primarily reflecting the addition of 12 new retail stores in fiscal year 2023. These increases were partially offset by a $3.0 million decrease in professional service fees primarily reflecting lower third-party consulting fees and a $2.8 million decrease in marketing as the Company reduced expenditure on brand awareness in Canada, where we have highly recognizable brands, and in areas where we were able to leverage marketing spend incurred on our IPO.

Depreciation and amortization

The following table presents depreciation and amortization expense:

Depreciation and amortization during fiscal year 2023, increased by $5.4 million, or 9.7%, compared to fiscal year 2022. The increase in depreciation and amortization resulted primarily from investments in our store build-outs, CPCs, ABPs and store enhancement initiatives, as well as capital expenditures related to capital maintenance.

Interest expense, net

The following table presents interest expense, net:

____________

n/m – not meaningful

Total interest expense, net increased in fiscal year 2023 by $23.8 million, or 36.7%, compared to fiscal year 2022. The increase in interest expense, net resulted primarily from higher interest rates on our variable rate borrowings and the issuance of $550.0 million of Senior Secured Notes on February 6, 2023 at a fixed interest rate of 9.75%, partially offset by principal repayments on both our Term Loan Facility ($233.4 million on February 6, 2023 and $252.4 million on July 5, 2023) and Senior Secured Notes ($55.0 million on July 3, 2023). The weighted average face value of debt in fiscal year 2023 was $944.3 million and the weighted average

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interest rate paid on our debt was 10.18%, compared to $819.8 million and 7.48%, respectively, for fiscal year 2022.

Gains on our interest rate swaps increased by $8.9 million in fiscal year 2023 compared to fiscal year 2022 as short-term interest rates were higher in fiscal year 2023 than in fiscal year 2022.

Gain (loss) on foreign currency, net

The following table presents gain (loss) on foreign currency, net:

Gains and losses on foreign currency relate primarily to movements in the Canadian dollar (“CAD”) relative to the U.S. dollar (“USD”). In fiscal year 2023, the U.S. dollar weakened against the Canadian dollar resulting in remeasurement gains of $9.8 million arising primarily on USD-denominated debt held by one of our Canadian subsidiaries, which is the primary driver of foreign currency remeasurement gains and losses. We also recorded losses of $3.1 million on derivative instruments that we use to manage foreign currency exchange rate risk. The $30.0 million loss on foreign currency remeasurement in fiscal year 2022 resulted primarily from the U.S. dollar strengthening against the Canadian dollar and was partially offset by gains of $9.2 million on derivative instruments that hedge movements in the Canadian dollar.

Other income, net

The following table presents other income (expense), net:

Other income, net is comprised primarily of miscellaneous income and expenses not directly related to our core operating activities.

Loss on extinguishment of debt

The following table presents loss on extinguishment of debt:

____________

n/m – not meaningful

In fiscal year 2023, the Company used net proceeds from its IPO, net proceeds from issuing $550.0 million aggregate principal amount of Senior Secured Notes and cash on hand to repay $485.8 million in outstanding borrowings on its Term Loan Facility and $55.0 million aggregate principal amount of its Senior Secured Notes (the “Notes”), and consequently recognized a loss on debt extinguishment of $16.6 million.

In fiscal year 2022, we repaid a mortgage loan with a remaining principal balance of $2.7 million, resulting in a loss on extinguishment of debt of $1.0 million.

Income tax expense

The following table presents income tax expense:

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____________

n/m – not meaningful

During fiscal year 2023, the Company recorded an income tax benefit of $6.0 million on income before income taxes of $47.1 million, resulting in an effective tax rate of (12.8)%. For fiscal year 2022, we recorded $39.6 million of income tax expense on income before income taxes of $124.3 million, resulting in an effective income tax rate of 31.8%. The decrease in our effective income tax rate resulted primarily from the reduction of the partnership basis deferred tax liability discussed in Note 14, Income Taxes, an increase to the reduction in the valuation allowances, and an increase to the Internal Revenue Code Section 162(m) limitation.

Segment results

The following table presents net sales and profit by segment for the periods presented:

U.S. Retail

U.S. Retail net sales increased by $32.7 million, or 4.4%, during fiscal year 2023, compared to fiscal year 2022. The increase in net sales resulted primarily from comparable store sales growth of 4.4% and a 3.3% increase in the number of retail stores year over year. The increase in comparable store sales was primarily driven by growth in transaction volume.

U.S. Retail segment profit increased by $16.5 million, or 9.1%, during fiscal year 2023, compared to fiscal year 2022. The increase resulted primarily from higher net sales and enhanced efficiencies at our stores driven by improved leverage on retail labor and store selling, general and administrative expenses and improved OSD mix, partially offset by higher wages and increased material acquisition and logistics costs in our U.S. retail stores.

Canada Retail

Canada Retail net sales increased by $22.7 million, or 3.9%, during fiscal year 2023, compared to fiscal year 2022. The increase in net sales resulted primarily from comparable store sales growth of 5.0% and a 4.6% increase in the number of retail stores year over year, partially offset by the unfavorable impact of foreign currency. The increase in comparable store sales was primarily driven by growth in transaction volume.

Canada Retail segment profit increased by $16.0 million, or 9.2%, during fiscal year 2023, compared to fiscal year 2022. The increase in segment profit resulted primarily from higher net sales and enhanced labor efficiencies driven by the rollout of self-checkout kiosks in our Canada retail stores, partially offset by higher wages.

Other

Other net sales include our Australian retail stores and our wholesale operations. Net sales for our other businesses increased by $7.6 million, or 7.1%, during fiscal year 2023, compared to fiscal year 2022. The

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increase resulted primarily from a $6.5 million increase in net sales for our Australian stores. Segment profit for our other businesses increased by $6.2 million, or 18.5%.

Comparison of fiscal year 2022 and fiscal year 2021

Net sales

The following table presents net sales:

Our net sales increased by $233.1 million, or 19.4%, during fiscal year 2022 compared to fiscal year 2021. The increase in net sales resulted primarily from a reduction in COVID-19 related store closures in Canada, the acquisition of 2nd Ave., which occurred in November 2021, and an increase in sales yield. The increase in sales yield was most prominent in our retail business and resulted from a shift in consumer purchasing toward items at higher price points.

As public health restrictions continued to ease in fiscal year 2022, our percentage open store days increased to 100% in Canada during fiscal year 2022, compared to 81.3% during fiscal year 2021. The increase in percentage open store days contributed to a $110.7 million increase in net sales in Canada, of which $101.4 million is classified as retail sales.

New stores acquired in the 2nd Ave. Acquisition accounted for an increase of $78.4 million in retail sales during fiscal year 2022.

During fiscal year 2022, our sales yield, which we define as retail sales generated per pound processed on a currency neutral and comparable store basis, increased to $1.39 per pound processed during fiscal year 2022, compared to $1.30 during fiscal year 2021.

We supported the increase in sales volume by accepting significantly more inventory through both our OSD and delivered supply channels during fiscal year 2022. Total pounds processed increased by 14.5% to 985 million pounds during fiscal year 2022, compared to 860 million pounds during fiscal year 2021.

Wholesale sales increased by $22.9 million, or 46.5%, during fiscal year 2022. The increase in wholesale sales resulted primarily from higher price points, an increase in processing volume and the expansion of our wholesale operations resulting from the 2nd Ave. Acquisition.

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 increased by $125.5 million, or 26.4%, during fiscal year 2022, compared to fiscal year 2021. As a percentage of net sales, cost of merchandise sold also increased to 41.7% during fiscal year 2022, compared to 39.4% during fiscal year 2021. Similarly, the cost of merchandise sold per pound processed increased to $0.61 per pound during fiscal year 2022 from $0.55 per pound during fiscal year 2021.

The increase in cost of merchandise sold per pound processed resulted primarily from an increase in personnel costs related to wage subsidies received in fiscal year 2021 that were not received in fiscal year 2022, higher wages paid to our team members in fiscal year 2022 and a decrease in the percentage of inventory received from OSDs.

Personnel costs classified within cost of merchandise sold increased to $343.4 million during fiscal year 2022, compared to $276.0 million during fiscal year 2021. The increase in personnel costs resulted primarily

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from an increase in open store days in Canada, higher wages for store employees and a full year of operations for the 2nd Ave. stores. Furthermore, during fiscal year 2021, we received a total of $21.7 million in wage subsidies in Canada, of which $13.4 million was classified as a reduction to cost of merchandise sold. We did not receive any wage subsidies during fiscal year 2022. Excluding the receipt of wage subsidies, cost of merchandise sold per pound would have been $0.57 per pound processed during fiscal year 2021.

Our total pounds processed increased by 14.5%, reaching 985 million pounds during fiscal year 2022, compared to 860 million pounds during fiscal year 2021. While our OSDs processed increased to 619 million pounds in fiscal year 2022, compared to 605 million pounds in fiscal year 2021, the percentage of inventory received from OSDs decreased to 62.9% from 70.4%, as our percentage of delivered supply from NPPs and GreenDrop increased. We acquired GreenDrop in the 2nd Ave. Acquisition, and GreenDrop accounted for 9.9% of supply in fiscal year 2022. Delivered supply from our NPPs generally have a higher cost per pound than inventory received from OSDs.

Salaries, wages and benefits

The following table presents salaries, wages and benefits expense:

Salaries, wages and benefits expense increased by $33.8 million, or 14.1%, during fiscal year 2022, compared to fiscal year 2021.

Salaries, wages and benefits for our retail and wholesale operations increased by $14.7 million, or 8.1% during fiscal year 2022, compared to fiscal year 2021. The increase in retail and wholesale personnel costs resulted primarily from the 2nd Ave. Acquisition, which contributed to an additional $14.6 million of personnel costs. Furthermore, during fiscal year 2021, we received $8.3 million of wage subsidies for our retail and wholesale employees, which were classified as a reduction to salaries, wages and benefits. These subsidies did not reoccur during fiscal year 2022, and we do not currently expect to receive wage subsidies in future periods. These amounts were partially offset by a decrease in employee bonuses in fiscal year 2022 compared to fiscal year 2021.

Salaries, wages and benefits for our corporate employees increased by $19.1 million, or 32.6%, during fiscal year 2022, compared to fiscal year 2021. The increase in corporate personnel costs resulted from increased headcount as we onboarded personnel related to the acquisition of 2nd Ave. and expanded our finance, accounting and legal functions as we prepare to operate as a public company and scale the business to support more retail locations. Corporate personnel costs during fiscal year 2022 also includes a $6.5 million one-time bonus related to the December 2022 Dividend.

Selling, general and administrative

The following table presents selling, general and administrative expenses:

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Selling, general and administrative expense increased by $41.5 million, or 15.9%, during fiscal year 2022, compared to fiscal year 2021. The increase in selling, general, and administrative expenses resulted primarily from increases in occupancy, supplies, and repairs and maintenance.

Occupancy increased by $23.5 million, which resulted primarily from the reclassification of $7.7 million in right-of-use asset amortization expenses previously classified as depreciation and amortization under prior accounting guidance (which has since been superseded), $6.1 million of additional expenses related to the 2nd Ave. Acquisition and a $2.2 million increase in utility expenses. We also incurred additional occupancy expense in relation to our new retail stores and CPC facilities.

The increase and repairs and maintenance and supplies expenses of $3.6 million and $4.7 million, respectively, resulted primarily from a reduction in COVID-19 related store closures in Canada.

Other expenses increased by $7.9 million, or 20.9%, during fiscal year 2022, compared to fiscal year 2021 primarily as a result of a reduction in COVID-19 related store closures in Canada as well as an increase of $3.1 million related to disposals of property and equipment.

Depreciation and amortization

The following table presents depreciation and amortization expense:

Depreciation and amortization during fiscal year 2022 increased by $8.4 million, or 17.7%, compared to fiscal year 2021. The increase in depreciation and amortization resulted primarily from capital expenditures related to store improvements and the opening of our CPCs in addition to the 2nd Ave. Acquisition in November 2021. These increases were partially offset by our adoption of ASC Topic 842, “Leases,” which resulted in the reclassification of amortization expense for certain acquired leases to selling, general and administrative expense.

Interest expense

The following table presents interest expense:

____________

n/m – not meaningful

Total interest expense increased in 2022 by $11.2 million, or 20.9%, compared to 2021. The increase in interest expense resulted from an increase in interest rates on our variable rate debt as well as an increase in the average principal amount outstanding under the Term Loan Facility due primarily to $225.0 million of additional borrowings in November 2021 to fund the 2nd Ave. Acquisition. Our effective interest rate paid under our credit facilities was 7.48% in 2022, compared to 6.38% in 2021.

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(Loss) gain on foreign currency, net

The following table presents (loss) gain on foreign currency, net:

____________

n/m – not meaningful

The loss on foreign currency remeasurement in 2022 relates primarily to the U.S. dollar strengthening against the Canadian dollar. This impacted our U.S. dollar-denominated term loan held by one of our Canadian subsidiaries. The gain on derivative instruments relates primarily to our cross-currency swaps which act as an economic hedge against movements in the Canadian dollar.

Other income (expense), net

The following table presents other income (expense), net:

____________

n/m – not meaningful

Other income (expense), net was comprised primarily of miscellaneous income and expenses not directly related to our core operating activities.

Loss on extinguishment of debt

The following table presents loss on extinguishment of debt:

In 2022, we repaid a mortgage loan with a remaining principal balance of $2.7 million, resulting in a loss on extinguishment of debt of $1.0 million. In 2021 we refinanced our debt and entered into the Senior Secured Credit Facilities, resulting in a loss on extinguishment of debt of $47.5 million.

Income tax expense (benefit)

The following table presents income tax expense (benefit):

____________

n/m – not meaningful

During fiscal year 2022, we recorded an income tax expense of $39.6 million on income before income taxes of $124.3 million, resulting in an effective income tax rate of 31.8%. During fiscal year 2021, we recorded an income tax benefit of $5.5 million on income before income taxes of $77.9 million, resulting in an effective tax rate of (7.1)%. The increase in our effective income tax rate resulted primarily from a 59.5 million release of our valuation allowance during fiscal year 2021, which was partially offset by a $24.8 million tax on distributions received from our Canadian subsidiary.

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Segment results

The following table presents net sales and profit by segment for the periods presented:

U.S. Retail

U.S. Retail net sales increased by $103.2 million, or 16.0%, during fiscal year 2022, compared to fiscal year 2021. The increase resulted primarily from the inclusion of the stores acquired in the 2nd Ave. Acquisition for the entirety of fiscal year 2022, as well as a 4.5% increase in comparable store sales growth and an 8.9% increase in comparable store sales yield. Stores acquired in the 2nd Ave. Acquisition added an additional $78.4 million of net sales during fiscal year 2022.

U.S. Retail segment profit increased primarily as a result of the increase in net sales.

Canada Retail

Canada Retail net sales increased by $101.4 million, or 21.1%, during fiscal year 2022, compared to fiscal year 2021. The increase resulted primarily from a reduction in COVID-19 related store closures in fiscal year 2022. Our percentage open store days was 100% during fiscal year 2022 in Canada, compared to 81.3% for fiscal year 2021.

Canada Retail segment profit increased by $25.8 million, or 17.4%, during fiscal year 2022, compared to fiscal year 2021. The increase in segment profit resulted primarily from an increase in sales volume by our Canadian stores and leveraging of our fixed costs as our operations in Canada returned to pre-pandemic levels. The increase in segment profitability was partially offset by wage subsidies received in fiscal year 2021 which did not reoccur during fiscal year 2022.

Other

Other net sales include our Australian retail stores and our wholesale operations. Net sales for our other businesses increased by $28.5 million, or 36.4%, during fiscal year 2022. The increase resulted primarily from our wholesale operations due to higher price points, an increase in processing volume and the expansion of our wholesale operations resulting from the 2nd Ave. Acquisition.

Segment profit for our other businesses increase by $17.2 million, primarily as a result of an increase in net sales.

Non-GAAP Financial Measures

The Company reports its financial results in accordance with GAAP. We also present the following non-GAAP financial measures: Adjusted net income, Adjusted net income per diluted share, Adjusted EBITDA, Adjusted EBITDA margin, Constant-currency net sales and Free cash flow. In the discussion that follows, we provide definitions and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. We have provided this non-GAAP financial information, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in this Annual Report that are calculated and presented in accordance with GAAP. These non-GAAP financial measures should not be considered superior to, as a substitute for, or an alternative to, and should be considered in conjunction with, the GAAP financial

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measures presented elsewhere in this Annual Report. These non-GAAP financial measures may differ from, and therefore may not be directly comparable to, similarly-titled measures used by other companies.

Adjusted net income, Adjusted net income per diluted share, Adjusted EBITDA and Adjusted EBITDA margin

Adjusted net income, Adjusted net income per diluted share, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. We have included these non-GAAP financial measures as these are key measures used by our management and our board of directors to evaluate our operating performance and the effectiveness of our business strategies, make budgeting decisions, and evaluate compensation decisions. They also best allow comparison of the performance of one period with that of another period.

Adjusted net income is defined as net income excluding the impact of loss on extinguishment of debt, IPO-related stock-based compensation expense, COVID-19 related adjustments, transaction costs, dividend-related bonus, (gain) loss on foreign currency, net, certain other adjustments, the tax effect on the above adjustments and non-recurring tax (benefit) expense. We define Adjusted net income per diluted share as Adjusted net income divided by diluted weighted average common shares outstanding.

We define Adjusted EBITDA as net income excluding the impact of interest expense, net, income tax (benefit) expense, depreciation and amortization, loss on extinguishment of debt, stock-based compensation expense, non-cash occupancy-related costs, lease intangible asset expense, pre-opening expenses, store closing expenses, executive transition costs, COVID-19 related adjustments, transaction costs, dividend-related bonuses, (gain) loss on foreign currency, and certain other adjustments. We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales, expressed as a percentage.

A reconciliation of GAAP net income and GAAP net income per diluted share to Adjusted net income and Adjusted net income per diluted share is presented in the table below: