Release Date: December 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Torrid Holdings Inc (NYSE:CURV) achieved a 285 basis point improvement in gross margin, reflecting reduced product costs and increased regular price sales.
• The company ended the quarter with a 19% reduction in inventory levels compared to the previous year, enhancing cash flow and positioning for improved agility.
• Torrid Holdings Inc (NYSE:CURV) reported a $28 million improvement in cash position year-over-year, ending the quarter with $44 million in cash.
• The company is launching new merchandise sub-brands and capsules, such as Fy, Nightfall, and Retro Chic, to appeal to a broader audience and drive customer engagement.
• Torrid Holdings Inc (NYSE:CURV) has made significant progress in refining its sourcing approach, reducing reliance on China and diversifying its supply chain.

Negative Points

• Torrid Holdings Inc (NYSE:CURV) experienced a 6.5% decline in comparable sales, attributed to a 47% drop in clearance sales.
• Sales trends softened in late September and continued to deteriorate through October, impacted by macroeconomic factors and severe weather events.
• The company's core collection lacked innovation, leading to weaker top-line sales as consumer spending was constrained.
• Traffic was down mid-single digits for the quarter, particularly impacted by hurricanes during the Torrid Cash event.
• Despite improvements, the company reported a net loss of $1.2 million for the quarter, compared to a net loss of $2.7 million in the same period last year.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Sign with CURV.

Q: Can you quantify the proportion of newness in the assortment planned for the first half of 2025 compared to the third quarter? What marketing strategies will drive traffic with this improved product newness? A: Lisa Harper, CEO: We are impacting every category with newness, updating 12 legacy products that generate substantial business. Categories like denim and sweaters are already seeing strong customer reactions. We are launching sub-brands like FSI, Nightfall, and Retro Chic to introduce newness. Marketing strategies include a robust influencer program and repeating the successful model search to engage customers and drive traffic.

Q: Can you help us understand the factors contributing to EBITDA margin expansion in 2025? Is it possible to expand margins even if comps don't return to growth next year? A: Paula Dempsey, CFO: Yes, we can still see EBITDA margin expansion through optimizing our store footprint and operational efficiencies. We are in a better place now than a year ago, and with the newness planned for 2025, we believe we will return to growth in comparable sales.

Q: What was the impact of macro versus micro factors on the business performance in the quarter and Black Friday? How do you see inventory levels changing with the introduction of newness? A: Lisa Harper, CEO: Traffic trends shifted dramatically from positive to negative in October, likely due to macro factors like weather and elections. We couldn't entice customers with promotions during this period. Inventory levels are expected to be flat to down low single digits by year-end, with a focus on replacing less productive choices with more inspirational ones.

Q: How are opening price points evolving with the introduction of new products? What changes are being made in talent and marketing to support these new initiatives? A: Lisa Harper, CEO: The new sub-brands will have a mix of price points, some higher and some lower, to target different customer needs. We have added Laura Linsky as Chief Merchandising Officer for apparel and accessories, and Kate Horton will focus on intimates. Marketing spend will increase slightly, with a focus on influencer campaigns and customer acquisition.

Q: How do you frame the assortment in terms of core versus new products? How does this compare to previous assortments? A: Lisa Harper, CEO: We are using denim as a proxy, where last year's skinny denim was 65% of the assortment, now reduced to the low 20s. We are introducing new core products like wide-leg and straight-leg jeans. The new sub-brands allow us to bring in new ideas and potentially develop them into core products over time.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.