Torrid Holdings Inc. (NASDAQ:CURV) is a leading direct-to-consumer brand of apparel, intimates, and accessories catering to fashionable women who wear sizes 10 to 30. The company has demonstrated impressive financial performance, with annual revenue reaching $1.15 billion and net income of $116.19 million in the most recent fiscal year. Torrid's strong operating cash flow of $42.77 million and free cash flow of $16.77 million further highlight its financial strength and ability to invest in growth initiatives.
In the first quarter of fiscal 2024, Torrid reported net sales of $279.8 million, a decrease of 4.8% compared to the prior-year period. This decline was primarily driven by a decrease in sales transactions and a decrease in private label credit card (PLCC) funds, partially offset by improved pricing strategies. Gross profit for the quarter increased by 4.3% to $115.4 million, with gross margin expanding by 360 basis points to 41.3%. This expansion was driven by lower product costs and fewer markdowns.
Torrid's net income for the first quarter of fiscal 2024 was $12.2 million, or $0.12 per share, compared to $11.8 million, or $0.11 per share, in the prior-year period. Adjusted EBITDA, a key metric the company uses to evaluate its performance, was $38.2 million, in line with the prior-year period.
Business Overview
Torrid is a direct-to-consumer brand that generates the majority of its revenue through its e-commerce platform, www.torrid.com, and its network of 658 stores across the United States, Puerto Rico, and Canada as of the end of the first quarter of fiscal 2024. The company's product offering spans a wide range of categories, including apparel, intimates, and accessories, catering to the fashion needs of curvy women.Torrid's strategy is focused on delivering a superior fit and style for its target customer base, the plus-size woman. The company's proprietary product development process and data-driven approach to design and merchandising have enabled it to create a curated assortment that resonates with its customers. Torrid's brand experience, which emphasizes inclusivity and self-confidence, has also been a key driver of customer loyalty and engagement.
Operational Initiatives and Outlook
Torrid is executing on several strategic initiatives to drive continued growth and margin expansion. The company is focused on improving its merchandising assortment, strengthening its marketing message, and optimizing profitability and working capital through cost and inventory management.In the first quarter, Torrid saw positive regular price sales and margin improvements in its tops and denim businesses, supported by a shift in opening price points and a diverse range of leg shapes. The company is also expanding its in-store assortments by adding best-performing e-commerce exclusives, which has led to higher sell-throughs and margins.
Torrid's clearance store initiative, which allows the company to sell store markdowns more effectively and profitably, has also contributed to the gross margin expansion. The company plans to have 15 clearance stores by the end of the second quarter and approximately 150 feeder stores, which it believes is the optimal balance for its total fleet.
On the marketing front, Torrid launched its Torrid Casting Call, a nationwide model search to find the Face of Torrid for 2025. The campaign has driven significant traffic and a positive swing in new customer acquisition and reactivated customer comps. Torrid plans to host a final full-scale casting call event and 100 in-store casting parties this summer before the ultimate winner is chosen in September.
For the full fiscal year 2024, Torrid expects net sales to range between $1.135 billion and $1.155 billion. The company has tightened its adjusted EBITDA guidance to $109 million to $116 million, reflecting the margin benefits from its recent first-quarter results. Torrid anticipates gross margins to remain robust, driven by improvements in product costs, better opening price points, and fewer promotions due to sustained reductions in inventory levels.
Financial Strength and Liquidity
Torrid's balance sheet remains strong, with $21 million in cash and cash equivalents and no borrowings on its revolving credit facility as of the end of the first quarter of fiscal 2024. The company's total liquidity, including available borrowing capacity under its revolving agreement, was $137 million.Torrid's inventory levels continue to improve, with inventory down 17% to $145 million at the end of the first quarter compared to the prior-year period. The company's focus on inventory management and working capital efficiency has been a key driver of its financial performance.
Risks and Challenges
While Torrid has demonstrated impressive financial and operational performance, the company faces several risks and challenges that investors should consider. These include the potential impact of macroeconomic conditions on consumer spending, competition from other brands and retailers, and the company's reliance on third-party manufacturers and logistics providers.Additionally, Torrid's success is heavily dependent on its ability to maintain and enhance its brand image, as well as its capacity to adapt to changing customer preferences and shopping behaviors. The company's growth strategy, which includes store expansion and investments in technology and marketing, also carries execution risks.