Company History and Business Overview Torrid Holdings Inc. (CURV) is a leading direct-to-consumer brand dedicated to offering stylish and comfortable apparel, intimates, and accessories for plus-size women in North America. The company’s unwavering focus on the underserved plus-size market, coupled with its data-driven approach to product development and customer engagement, has positioned it as a formidable player in the rapidly evolving retail landscape.
Torrid was founded in 2001 with the mission of empowering curvy women and providing them with fashionable, well-fitting clothing options. The company’s journey has been marked by a series of strategic pivots and transformations, each designed to better serve its core customer base.
Torrid Holdings Inc. was formed in 2019 as a Delaware corporation, though its origins date back to 2001 when it began operations as a plus-size specialty retailer. The company has consistently focused on providing fashionable and affordable options for women sizes 10 to 30. In 2012, Torrid made a significant strategic shift by transitioning from a market-driven brand to a vertical retailer. This pivotal change allowed the company to develop its own proprietary products and build a strong brand identity centered around fit, quality, and customer empowerment.
The vertical integration proved to be a key milestone for Torrid, as it enabled the company to gain better control over the product development process and ensure its offerings met the unique needs of its plus-size customer base. This move helped Torrid distinguish itself in the market by providing a curated assortment of apparel, intimates, and accessories that were not readily available elsewhere.
Throughout its history, Torrid has faced various challenges, including adapting to the shift towards online shopping and evolving consumer preferences. In response, the company has invested heavily in enhancing its omni-channel capabilities, focusing on its e-commerce platform while leveraging its store network to provide a seamless shopping experience. Torrid has also had to navigate industry-wide issues such as supply chain disruptions and rising costs, requiring strategic management of its inventory and vendor relationships.
Prior to going public in 2021, Torrid was owned by Sycamore Partners, a private equity firm. Despite the challenges faced over the years, Torrid has maintained its strong focus on its core plus-size customer base, consistently delivering products that make its customers feel confident and stylish. This unwavering commitment to fit, quality, and empowerment has helped the company build a loyal customer following and establish itself as a leading brand in the plus-size fashion market.
Financial Performance and Ratios Torrid’s financial performance has shown resilience in recent years. For the fiscal year 2023, the company reported annual revenue of $1.29 billion and net income of $50.21 million. The company’s annual operating cash flow stood at $151.82 million, while its annual free cash flow was $140.25 million.
In the most recent quarter (Q2 2024), Torrid generated revenue of $284.64 million, representing a slight year-over-year decline of 1.6%. However, net income increased by 25.7% to $8.33 million. Operating cash flow and free cash flow also showed significant improvements, increasing by 28.5% and 29.4% respectively year-over-year, reaching $40.82 million and $37.65 million.
The company’s financial ratios showcase its solid financial footing. Torrid’s current ratio of 0.88 and quick ratio of 0.36 indicate a healthy level of liquidity, while its debt-to-equity ratio of -1.77 suggests a conservative capital structure.
Product Segments and Revenue Breakdown Torrid operates in a single reportable segment, which includes its e-Commerce platform and stores. The company’s revenue is primarily generated through the sale of merchandise, categorized into apparel and non-apparel products.
For the six months ended August 3, 2024, apparel was the largest product category, contributing $512.51 million, or 90.8% of total net sales. This category includes tops, bottoms, dresses, intimates, sleepwear, swimwear, and outerwear. The non-apparel category, which includes accessories, footwear, and beauty, generated $37.83 million, or 6.7% of total net sales. The remaining $14.07 million, or 2.5%, came from other sources, primarily private label credit card (PLCC) funds received.
Gross Profit and Operating Expenses Torrid’s gross profit for the six months ended August 3, 2024, increased by $12.40 million, or 5.8%, to $225.68 million, compared to the same period in the prior year. This improvement was mainly driven by reduced product costs, lower merchandising payroll costs, and lower store occupancy costs, partially offset by the decrease in net sales. The gross profit margin expanded by 340 basis points to 40.0% during this period.
Selling, general, and administrative (SG&A) expenses increased by $12.50 million, or 8.9%, to $153.30 million for the six months ended August 3, 2024. This was primarily due to a $6.80 million increase in headquarters-related general and administrative expenses, including higher severance costs, performance bonuses, and other store operating costs. As a percentage of net sales, SG&A expenses increased by 300 basis points to 27.2%.
Marketing expenses decreased by $0.40 million, or 1.6%, to $25.82 million for the six-month period, driven by lower spending on store and brand marketing, comparison shopping engines, retargeting, photography, and email/SMS marketing, partially offset by increased expenses associated with the company’s model search campaign and higher social media spending. As a percentage of net sales, marketing expenses increased slightly by 10 basis points to 4.6%.
Quarterly Performance and Outlook In the company’s latest quarterly report (Q2 2024), Torrid demonstrated its ability to navigate the evolving retail landscape. The company reported net sales of $285 million, a slight decrease from the prior-year period. However, this decline was largely attributed to a strategic reduction in markdown sales, which drove a 323-basis-point expansion in gross margin to 38.7%.
Comparable sales declined 0.8% in Q2 2024, primarily due to lower levels of markdown sales, which had a -50% comp. However, regular price sales showed a positive 6.4% comp, indicating strong demand for the company’s core offerings.
Torrid’s management team remains optimistic about the company’s future, narrowing its sales guidance for the full fiscal year 2024 to be between $1.135 billion and $1.145 billion. The company has also raised the lower end of its adjusted EBITDA guidance to $110 million, while keeping the high end at $116 million.
For Q3 2024, Torrid projects net sales to be in the range of $280 million to $285 million and adjusted EBITDA to be between $23 million and $26 million. The company expects positive comparable sales and robust gross margins to continue in the second half of the year, driven by improvements in product costs, better opening prices, and fewer promotions due to reduced inventory levels.
Strategic Initiatives and Store Optimization As part of its ongoing efforts to optimize its store fleet, Torrid plans to close 10-15 stores in fiscal 2024, with an additional 20-25 store closures planned by the end of fiscal 2024. This initiative is aimed at improving overall profitability and focusing resources on the most productive locations and online channels.
Liquidity and Capital Structure As of the end of Q2 2024, Torrid reported cash and cash equivalents of $54.34 million. The company has access to additional liquidity through its $150 million ABL Facility, of which $99.9 million remained undrawn at the end of the quarter. This strong liquidity position provides Torrid with financial flexibility to support its ongoing operations and strategic initiatives.
Industry Trends and Market Position Torrid operates in the growing plus-size apparel market, which is expected to expand at a compound annual growth rate (CAGR) of 6.8% from 2023 to 2028. This growth is driven by increased acceptance and demand for inclusive fashion. Torrid’s focus on this specific market segment, combined with its data-driven approach to product development and customer engagement, positions the company well to capitalize on these favorable industry trends.
Risks and Challenges Despite Torrid’s impressive performance, the company faces several risks and challenges common to the retail industry. These include fluctuations in consumer spending, changes in fashion trends, and intense competition from other plus-size and mainstream apparel brands.
Additionally, the company’s reliance on a limited number of large suppliers and the potential for supply chain disruptions could impact its ability to meet customer demand. Torrid’s ongoing efforts to diversify its supplier base and enhance its supply chain capabilities will be crucial in mitigating these risks.
Conclusion Torrid Holdings Inc. (CURV) has carved out a unique niche in the plus-size fashion market, leveraging its data-driven strategies and customer-centric approach to drive innovation and growth. Despite the challenges facing the retail industry, the company’s strong financial position, robust omnichannel capabilities, and focus on product relevance position it well for continued success. With a clear strategy for store optimization, a growing e-commerce presence, and a dedicated focus on its core plus-size customer base, Torrid is well-positioned to capitalize on the expanding market for inclusive fashion. As the company continues to transform the plus-size fashion landscape, investors may find Torrid’s long-term growth prospects compelling in the evolving retail sector.
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