Michael Maher
Thank you, Mark, and good afternoon, everyone. As Mark indicated, we are pleased with our results for the first quarter. Total net sales increased 4.5% to $370 million. On a constant currency basis, net sales increased 7.1% and comparable store sales increased 2.8%. We are especially pleased with near double-digit sales growth in the US despite consumer sentiment materially weakening year to date.
We're also encouraged by our 310-basis-point sequential comparable store sales improvement in Canada, resulting in positive comparable store sales for the quarter even as the macroeconomic environment remains challenging. In the US, net sales increased 9.4% to $211 million and comparable store sales increased 4.2%, driven by growth in both transactions and average basket.
\In Canada, net sales declined 4.1%, reflecting a weaker Canadian dollar. On a constant currency basis, Canadian net sales increased 2.2% to $137 million and comparable store sales increased 0.6%, primarily driven by an increase in average basket.
Cost of merchandise sold as a percentage of net sales increased 80 basis points to 45.5%, with the increase reflecting the impact of new stores, partially offset by strong growth in on-site donations. OSDs plus GreenDrop accounted for 74% of supply versus 72% in the prior-year period. This growth ensures that we have fresh and compelling products for our customers and helps drive strong margins. Salaries, wages and benefits expense was $85 million. Excluding IPO-related stock-based compensation, salaries, wages and benefits as a percentage of net sales increased 190 basis points to 20.5%.
The increase was driven primarily by new store growth and an increase in incentive compensation expenses. Selling, general and administrative expenses as a percentage of net sales increased 160 basis points to 23.6%, primarily due to growth in our store base, rent and utilities and routine maintenance costs. Depreciation and amortization increased 6% to $19 million, reflecting investments in new stores, off-site processing and information technology. Net interest expense decreased 8% to $15 million, primarily due to reduced debt and lower average interest rates. GAAP net loss for the quarter was $4.7 million or $0.03 per diluted share.
Our net loss included a $2.7 million pretax loss on debt extinguishment. Adjusted net income was $3.6 million or $0.02 per diluted share. First quarter adjusted EBITDA was $43 million, and adjusted EBITDA margin was 11.6%. As we have previously mentioned, new stores are a headwind to adjusted EBITDA this year as we have a substantial number of new stores, which have not yet reached profitability compared to the prior year period. Our new stores typically achieve profitability by their second year of operations.
As these new stores continue to mature, we expect the headwind to profitability to subside. US segment profit was $39 million, down $1.6 million versus the prior year period, primarily due to new store growth and preopening expenses, partially offset by an increase in profit from our comparable stores. Canada segment profit was $25.3 million, down $9.4 million versus the prior year period due primarily to the aforementioned weaker Canadian dollar and deleverage of expenses as a percentage of sales. Our balance sheet remains strong with $73 million in cash and cash equivalents.
As we previously disclosed, we redeemed $44.5 million of our senior secured notes during the quarter or 10% of the outstanding balance, leaving us with a net leverage ratio of 2.4x at the end of the quarter. We repurchased approximately 1.4 million shares of our common stock during the quarter at a weighted average price of $8.43 per share. As of the end of the first quarter, we had approximately $6.3 million remaining on our share repurchase authorization. Finally, I'd like to discuss our outlook for the remainder of fiscal 2025. We are pleased with our results for the first quarter, although it's our smallest quarter of the year.
Despite continued economic pressure and policy uncertainty, we remain confident in our ability to execute against our plans. We are, therefore, reaffirming our previous outlook for the year. As a reminder, let me reiterate some important context for our outlook. First, we're at an inflection point in our long-term growth strategy. Between our 2024 and 2025 openings, we will have approximately 50 stores in their first year of operation in 2025.
On average, new stores generate approximately $3 million in sales in their first year and achieve profitability by their second year. We, therefore, expect new stores to be a meaningful driver of revenue growth this year, but a net headwind of approximately $10 million to adjusted EBITDA in 2025. We expect an inflection in profitability by 2026 as these stores mature and drive both top and bottom line growth. Second, we continue to take a conservative approach to planning comparable store sales growth with continued steady growth in the US and a cautious approach in Canada.
The Canadian economy had shown some signs of stabilization, but tariffs while having almost no direct impact on our operations, have created additional uncertainty regarding consumer spending going forward. On a related note, our outlook for 2025 is based on an estimated exchange rate of USD0.70 per Canadian dollar, which negatively impacts our year-over-year comparisons for sales by approximately 1.7 percentage points and for adjusted EBITDA by approximately $6.5 million.
Finally, 2025 is a 53-week fiscal year. We estimate the 53rd week will add approximately 1.5% to total sales growth with no significant impact on net income, adjusted net income or adjusted EBITDA. There's also no impact on comparable store sales growth, which will be reported on a like-for-like 52-week basis.
With that context in mind, our full year outlook for 2025 includes the following: 25 to 30 new store openings, net sales of $1.61 billion to $1.65 billion, comparable store sales growth of 0.5% to 2.5% with the US continuing to outperform Canada, net income of $36 million to $52 million, or $0.21 to $0.31 per diluted share; adjusted net income of $62 million to $77 million, or $0.37 to $0.46 per diluted share; adjusted EBITDA of $245 million to $265 million; and capital expenditures of $125 million to $150 million.
Our outlook for net income assumes net interest expense of approximately $66 million and an effective tax rate of approximately 35% for adjusted net income, we're assuming an effective tax rate of approximately 27%. I'd like to briefly touch on our expectations for the second quarter. We expect total sales growth in the second quarter to be roughly consistent with the first quarter in the low to mid-single-digit percentage range, driven by low single-digit comparable store sales growth plus new stores, partially offset by foreign exchange rate impacts.
We plan to open four new stores during the quarter. We expect profit margins for the balance of the year to be higher than they were in the first quarter due to normal seasonality and the continued maturing of our new stores. For the second quarter, we expect adjusted net income and adjusted EBITDA margins to be slightly higher than our full year outlook for those margins.
We will provide more color on the second half during next quarter's call. But in general, we expect comparable store sales growth to be higher in the third quarter than the fourth quarter due to the softer comparison last year.
We expect adjusted net income and adjusted EBITDA to be roughly balanced between the third and fourth quarters. We plan to open roughly half of our new stores this year during the third quarter. This concludes our prepared remarks.
We would now like to open the call for questions. Operator?
Operator
(Operator Instructions) Randy Konik, Jefferies.
Randy Konik
I guess, Mark, first and foremost, can we kind of unpack a little bit more on the US strength that you're seeing? Are you seeing some trade down beneficiaries? Are you seeing any kind of interesting items like more customers new to file? Anything there would be super helpful.
And just a little bit more granularity on the traffic or transaction count versus basket would be super helpful on the US. And then on Canada, just give us a little bit more clarity. You kind of said stable in the first quarter, but pressure persist, I guess, with the quotes. Just give us a little more flavor on kind of how you see Canada unfolding from here? Are we kind of at the bottom?
We're going to bounce along that bottom for the next few quarters? Just kind of give us your flavor there.
Mark Walsh
Thanks, Randy. Look, why don't I start with Canada first, and maybe the guys can jump in and help me with the US piece of the answer. Look, I think on Canada, the team has done a great job of executing, Randy, I think, first and foremost, selection, that price value equation and just as importantly, our donation flow remains very, very strong. You add to that what has been a first quarter with economic indicators moving modestly in a better direction.
I think the results of those two factors really impacted the outcome and our positive comp. That said, I don't think Michael nor Jubran nor I would say we're ready to declare victory, but we're really encouraged by the sequential improvements in the Canadian business. Tariffs add certainly an unwelcome dimension around consumer sentiment. But what we see is donations continue to remain strong. There's been no meaningful change in demand trends since the beginning of the year, and that's rolled into April as well.
And so I think it's too soon to call whether the change in consumer sentiment has had an impact on our business. And our approach is going to be straightforward in Canada. We're going to maintain production levels that provide that customer our thrifter with the selection they expect and demand. We're going to stay sharp on price value, and we're going to continue to innovate operationally. And look, I think what we do really well is we stay connected with our consumers with offers that resonate.
Remember, 72% of our sales comes from our loyalty program. On the US side, unpacking the basket, AUR items sold solid, transactions solid. Again, we're seeing that same trend continue. We have not seen a degradation of that trend into the early part of the second quarter.
So in both Canada and the US, we feel like we've got good momentum as we head into the second quarter and the trend line has continued in the aggregate. Michael, Jubran add anything to that?
Michael Maher
I think you covered it.
Randy Konik
I guess one more follow-up, maybe perhaps for Jubran or Mark again. Just on the idea of continuous improvement process, you talked about that in the script. Maybe kind of give us some perspective on what are some of the one, two or three things you guys have been kind of working on across the field to improve kind of the way the stores operate and so on and so forth.
Jubran Tanious
Yes, Randy, this is Jubran. It's a good question. Well, the first thing that I would say is automated book processing, ABP, is our acronym for that. That is currently servicing roughly half our fleet, 170 stores, real breakthrough in technology and processing, and we've loved the result. The question is, how do you continue to build on that?
And so we are in the process of expanding that model. It may take a little bit different form depending on how many stores you have clustered in a market, but clearly, a technology that we can continue to leverage. And then inside the central processing centers and the smaller off-site processing warehouses, Randy, I'll be honest with you, it's tough to put our finger on one thing.
I would tell you there's a whole basket of tactical improvements that have to do with mechanizing movement, economy of movement by our team members, who do a great job. I mean, we're seeing our cost per item continue to fall in those locations, and that's not a one-and-done.
I mean, this is truly about year-on-year continuous improvement in all things, and well, that's on top of the unlock that those facilities provide in terms of new store growth, which I think Mark mentioned earlier. So, you're really getting a few different strands of goodness from that, that we expect to continue into the future.
Operator
Michael Lasser, UBS. Please go ahead.
Michael Lasser
Good evening. Thank you so much for taking my question. It's likely that there's going to be significant pricing that will be taken across the retail sector, maybe not by all of the retailers that Savers typically benchmarks itself against, but maybe against many of them, would Savers use that as an opportunity to raise prices selectively, or would it let the price gap widen, and to what degree would widening price gaps drive incremental comp upside from here?
Mark Walsh
Great question, Michael, and thanks for it. Look, I think I'll start by reiterating the fact that this is a business that is not exposed to tariff pressure. So we're unique in that perspective in the retail landscape, and yes, the competitive analytics that we utilize are clear.
We've got a great value proposition versus discount retailers pre-tariffs, and we're very confident in our positioning. If the tariffs do cause that value gap to widen, it represents obvious opportunities for us, trial, loyalty growth, market share gains.
I would not say we're going to put a P&L on saying we're going to raise prices. We think that if there is price gap widening, it's a great opportunity for us to get that and build our customer base and add to our loyalty mix.
Michael Lasser
Thank you very much for that. My second question is, if indeed there is a tougher macro environment and the labor market really starts to weaken, do you think, A, that has an impact on some of the sourcing, meaning that consumers are simply going to be less likely to donate goods, or B, if there's an inflationary environment, could that mean that you're going to have to pay your charity partners a bit more for the goods that they're getting for donation and that could have some impact on your margins? Thank you very much.
Jubran Tanious
Yes. Michael, this is Jubran. Good questions. I'll take the supply question first. And I think inside that question and we've stated this in the past, our reliance on the on-site donation, right?
These are donations that we're receiving on behalf of our nonprofit or donation centers. The first thing I would say is we have seen robust growth in on-site donation across all countries so far year to date. We have not seen any change in the volume performance, and that's not happened stance.
We've done enough research. We have enough surveys to know that what drives the donor is a donation experience that is reliably fast, friendly, and convenient, and so we strive to do that in every store, and if we do that well and execute, and we control that, we would expect on-site donations to continue to grow.
As far as what some macro environment could cause, that's a very difficult question to answer. I'd say, A, we haven't seen any evidence of that in our stores; and B, we know what we can control that drives performance. With regard to an inflationary environment that could affect our staffing, the first thing I would say is, as we sit today, labor availability has not been an issue for us.
Turnover has actually declined in both countries. Vacancies are low, as low as they've been over the last several years. So, yes, wage increases are a normal part of our business.
The best thing that we can do is continue to stay ahead of it. And if there's anything over the last few years, Michael, that we've done regarding competitive wage rates is how our internal team, the frequency with which they assess each market so that we get ahead of that. We obviously place a tremendous premium on team member engagement in our stores.
All those things work together for Savers Value Village to be a compelling place to work. So I can't predict the future precisely, but feel good on both fronts.
Operator
Matthew Boss, JPMorgan.
Matthew Boss
Thanks and congrats on a nice quarter. So, Mark, in the US business, maybe if we think about the two straight quarters now of mid-single-digit comps, could you break down this inflection in business? Maybe if we think about new customer acquisition relative to existing customer spend? And also, any noticeable change that you've seen in spending across income cohorts?
Mark Walsh
Well, I would say we're really pleased about the way our loyalty program is growing. Another good quarter for us, sequentially year over year. What's really fabulous about what we're seeing is our loyalty cohorts are growing at both the younger cohorts and the highest household income cohorts. So I think in those two that's the perfect storm for us moving forward. So we love what's happening in that regard.
In terms of basket AUR items sold, again, we've seen continued sequential positive improvement in basket and transactions. It's driving that comp growth, and we've not seen any particular things that are worrisome as we get into the second quarter for that trend continuing. Did I miss anything, Michael?
Matthew Boss
Got it. Great. And then maybe, Michael, to follow up, could you break down the drivers of first quarter gross margin contraction? And then just walk through the gross margin puts and takes to consider in the second quarter relative to the back half?
Michael Maher
Yes, you got it, Matt. So, the deleverage around 80 basis points that we saw in the first quarter was virtually entirely driven by deleverage on the new stores. Remember that we've got a significant cohort of 2024 class new stores that opened in the back half of the year. They're still in their first year of operation. They weren't open at this time last year.
So that's creating pressure on the margins. Now, offsetting that were two factors. The biggest one being, as Jubran mentioned earlier, really healthy growth in our on-site donations. The metric we like to cite on-site donations plus GreenDrop combined was 74% of our total volume during the quarter, which was up from 72% a year ago. So that was a nice tailwind to our margins during the quarter that helped offset the new store deleverage.
And then as, Jubran also mentioned, just the continued improvements that we're making in off-site processing are helping to reduce the gaps between that and on-site processing cost in stores. So as far as the -- looking ahead to the second quarter, I do expect that we'll continue to see deleverage in margin due to the new store openings.
I think it's going to be most pronounced in the first half of the year because, again, of the nature of those 2024 openings that were backloaded. I think that deleverage probably will be slightly better in the second quarter than it was in the first, and then we expect to see continued improvement as we move into the back half of the year.
Operator
Mark Altschwager, Baird.
Mark Altschwager
Thank you. Good afternoon. I guess first on the guide, maybe for Michael. The prior guide implied some comp acceleration through the year. The reaffirmed guide after the stronger Q1 now implies more consistency versus Q1 levels. Any change to your thinking regarding the drivers that could yield some acceleration in the upcoming quarters?
Michael Maher
Yes. Great question, Mark. I think what I would say, first of all, just in terms of general context is that while we're pleased with the results so far, including our start to Q2, there's a lot of the year left to go. And the macro pressures remain, especially in Canada. There's some additional policy uncertainty in both countries.
So with all of that, we still feel really good about our ability to execute through that. And just given where we are in the year, we felt like it was appropriate for us to hold guidance at this point. As far as what's assumed in the comp range and what it would take for that to change, I guess what I would say is this, that while the macro thus far has generally been stable, the high end of our range would contemplate and be consistent with continued acceleration in the US and strengthening in the US economy and further recovery in our Canadian business.
So thus far, like Mark said earlier, what we've seen generally has been some stability. We are watching the consumer confidence, the potential impact of tariffs on consumer spending more broadly, have not seen it thus far in our business. But that's sort of the context for the guidance.
Mark Altschwager
And then thinking about supply, I think you flagged robust growth in on-site donations. Is that an acceleration in what you've seen? And if so, what's driving it? And then used sales yield is actually down a bit year over year. Help me understand, is that primarily a function of the newer stores as well? Or just maybe give us some color on the quality of supply you're seeing and to what extent that's a factor there?
Jubran Tanious
Yes. Good questions, Mark. This is Jubran. Why don't I grab the first one around on-site donation and Michael can jump in on the second? I would not describe our on-site donation growth across all the countries as an acceleration.
I would say what we've seen is nice, healthy, stable growth. And that cuts across multiple regions, multiple vintages of stores. I mean even very mature stores, what you find is that if you do what I mentioned earlier, showing up to the donor in a reliably fast, friendly and convenient way, you remain the donation destination of choice, and you're much more likely to get the advocacy where that donor will tell their friend, family member, neighbor about us.
So I wouldn't describe it as an acceleration. I would say it's a continuation of good, stable, robust comp growth on on-site donations that, frankly, we expect to continue.
Michael Maher
So Mark, you asked about the sales yield, and that's sort of a corollary to the healthy growth in the on-site donations. We're able to process more volume very cost effectively. And even if that means a marginal erosion in the sales yield, you'll also notice in that same table in the release where you see that improvement in the cost per pound processed. And so it's still profitable at the margins for us, and it helped us to drive some healthy business at healthy margins during the quarter.
Operator
Brooke Roach, Goldman Sachs.
Brooke Roach
Mark, you noted in the prepared remarks that new stores are performing in line with your expectations. How much variability versus the mean do you see in individual stores for those newly opened stores? And then longer term, how are you thinking about the EBITDA margin potential of the business? Is high teens still achievable?
Jubran Tanious
I can. Brooke, this is Jubran. I can jump in on the variability question around new stores. one thing that is challenging is that you don't necessarily have a trend. Again, as Michael mentioned earlier, the preponderance of stores in 2024 opened in that back half, including Q4.
So you're going through the winter months and some winter-sensitive markets. But by and large, not seeing huge fluctuations. I mean our model has gotten more and more precise about predicting what transactions, sales and on-site donations are going to do. So there's a little bit of variability here and there, but nothing that is outside of our expectations, particularly over the mid-range, multiple months in a row.
Michael Maher
And then, Brooke, your question about the long-term financial model, this is Michael, we still see high teens EBITDA margins as our long-term financial algorithm. In the near term, as we've indicated before, there will be some pressure on that just by virtue of our accelerated growth and the impact of new stores. But as we continue to fill that new store pipeline and those two and three and four-year-old stores are starting to contribute meaningful earnings growth, we think that will counteract the impact of whatever the new store class is for any given year, and we should see a return to high teens EBITDA margins over the longer term.
Operator
Peter Keith, Piper Sandler.
Peter Keith
Nice quarter, guys. And this is a low mark. This could be a low mark for tariff questions on recent earnings calls. So kudos to you on that. I was wondering, there's been quite a few retail bankruptcies and liquidations in recent quarters.
And just as you're starting to look at real estate for '26 or perhaps even '27, what are you seeing out there in terms of availability and maybe rent dynamics? And also on a related note, could you give us an update on how the 2 Peaches integration has been going?
Jubran Tanious
Yes, sure. Peter, Jubran. I'll kick us off and guys can jump in if I miss anything. So your first question on really taking advantage of opportunities that may come our way. So first of all, we absolutely are looking.
We are prospecting in every major market in North America. We are well aware of some of the boxes that have become available, some of our peer retailers, and we have acted on that. I can tell you, currently, we have some in our pipeline that are a direct result of that, and there will be more to come. So we very much like where our pipeline is at. But I also want to be cautious.
We've always said that we're not going to open new stores to open new stores, that we've got to be smart. We've got to take a disciplined approach. We will not open a new store unless we feel very good about that supply equation. And that starts, first and foremost, with that on-site donation. So encouraged by what we have.
Our pipeline for 2026 looks fabulous. I will tell you we are in a better position as we sit right now than we were this time last year. We've talked about wanting to feather these new store openings in a more balanced way across the year. Last year, the midpoint of our new store openings was September. This year, it's improved into August.
But ideally, we would be at June, July. So there's still more work to go. We're feeling very good about that in 2026. And then lastly, the tone of the conversations with landlords, it continues to be very, very positive as they see us as a part of their mix and as thrifting becomes more and more mainstream, particularly in the US.
Peter Keith
Okay. And then sorry, I did slip in a second question there on 2 Peaches. Could you just give us an update on how that's been going?
Jubran Tanious
I'm sorry, Peter. Yes, 2 Peaches. So a reminder to the group, 2 Peaches is a small acquisition, small seven-store chain in Atlanta, Georgia that we made last year. So far, we're right on track with where we thought we were going to be. Our plan had always been to elevate the selection, value atmospherics and overall experience of the Savers model to those customers.
We have done that in three of the stores. The results have been in line with what we expected. And we're on a very good track. I will say those seven stores are relatively de minimis to our overall P&L. But what's important is this represents a dedicated Southeast region of the US, where we have tremendous white space opportunity, and we are currently prospecting additional locations in the US Southeast, and we're excited about that. So going well.
Peter Keith
Okay. That's exciting. A separate question I had because maybe for Mark, just looking forward, certainly, it's an intriguing dynamic where retail prices for apparel and various items could go up quite a bit. You guys could see an improved value proposition. How are you thinking about that, going after that opportunity maybe from an advertising perspective?
I know you work with a number of influencers, but is advertising a lever that you could pull in a short period of time to maybe put more focus on the value proposition that you have?
Mark Walsh
That's a great question. Look, I think what we've done, and we've been very steadfast in our approach around marketing, been very productive. The influencer network we have continues to grow and is strong. We'll leverage that influencer network as we see fit. But I think it goes back to the comments I made earlier, as that value gap begins to widen, if it does, it does represent opportunities for us for trial, loyalty growth, market share gains, and we will absolutely use our resources within the influencer network to drive that message home beyond that current following to maybe expand that following to drive more traffic into the stores.
Operator
Anthony Chukumba, Loop Capital Markets.
Anthony Chukumba
So you mentioned that you opened your sixth central processing center and their off-site processing is servicing half of your new store openings, if I heard that correctly. What's the total number of stores that are being serviced right now through the CPCs?
Michael Maher
Second for you. Right now, it is 45, so about 9 per existing CPC.
Anthony Chukumba
Got it. Okay. And then so nine per existing CPC, like what do you think is kind of the max for CPC?
Jubran Tanious
That's a good question, Anthony. I think that's actually a moving target because what we're finding is that as we get more and more efficient in these facilities, you're able to have more stores serviced on a single eight-hour shift. So I hate to box us in with a ceiling on how many stores can be serviced by these because I think that number continues to grow.
But again, the key, and Mark mentioned this, and you just reiterated it, that it is really helping power our new store growth. New stores are being made possible that would not have existed without these off-site production facilities. And that will continue into 2026 and beyond.
Operator
There are no further questions at this time. I will now hand the call back to Mr. Mark Walsh for any closing remarks.
Mark Walsh
I'd just like to thank all of you for your continued interest in Sabre, and we're looking forward to recapping our second quarter in late July. Thanks again.
Operator
This concludes today's call. Thank you for participating. You may all disconnect.
