Executive Summary / Key Takeaways

• Torrid Holdings (CURV) is executing a multi-phase transformation, leveraging a recently strengthened operational foundation and robust omnichannel capabilities to pivot towards product evolution and accelerated growth in the underserved plus-size women's apparel market.
• Recent financial performance reflects this transition, with Q1 2025 net sales down 4.9% to $266 million and Adjusted EBITDA at $27.1 million, impacted by strategic shifts like the temporary pause of the footwear business ($40-$45M FY25 revenue impact) and increased marketing investment, yet showing strength in core categories like denim and dresses.
• A key strategic pillar is the introduction of new, higher-margin sub-brands (e.g., Festi, Nightfall, Retro Chic), which are significantly overachieving initial expectations and are projected to grow from ~10% of the portfolio in FY25 to up to 30% in FY26, attracting new, younger customers and creating a halo effect for the core brand.
• Accelerated store optimization, targeting ~180 closures in FY25 (averaging ~$350k annual sales), aims to rightsize the footprint towards a 55/45 outdoor/mall mix, reduce fixed costs, and is expected to drive 150-250 basis points of EBITDA margin expansion in FY26 and beyond with minimal net sales impact (historically ~60% customer retention).
• Management guides for FY25 net sales of $1.03 billion to $1.055 billion and Adjusted EBITDA of $95 million to $105 million (including mitigating $20M in tariff impacts), anticipating a return to low-to-mid single-digit comparable sales growth and progression towards mid-teens EBITDA margins over the long term, contingent on successful execution and navigating macroeconomic headwinds.

Setting the Scene: A Niche Leader's Transformation

Torrid Holdings Inc. (NYSE:CURV) operates as a direct-to-consumer brand dedicated to serving the fashion needs of women who wear sizes 10 to 30. Positioned within the broader retail apparel landscape, Torrid distinguishes itself by focusing exclusively on this specific demographic, a segment that management consistently highlights as significantly underserved by traditional retailers. The company's mission is ambitious yet clear: to be "everything our customer needs in her closet," offering a diverse assortment of stylish apparel, intimates, and accessories meticulously crafted for the curvy figure.

Torrid's journey has involved pivotal strategic shifts. A notable early transformation in 2012 saw the company evolve from a market-driven brand to a vertical retailer, a move credited with fostering explosive growth by enabling the development of proprietary fit and quality standards that resonated deeply with its customer base. This period was followed by aggressive physical store expansion, particularly between 2015 and 2017, building a significant retail footprint across North America.

More recently, over the past two years, Torrid has concentrated on building a robust, scalable operational foundation. This involved critical investments and improvements across talent, supply chain, inventory management, and enterprise systems. These efforts were essential to address prior challenges, including a fractured supply chain and historically high inventory levels, and have paved the way for the company's current strategic focus: product evolution and accelerated growth.

Central to Torrid's operational strength and future growth potential is its differentiated technological infrastructure and capabilities. The company possesses strong data and digital capabilities, underpinned by a high loyalty program penetration of 93%. This data-centric approach informs a dynamic marketing program aimed at driving customer acquisition, reactivation, retention, and frequency.

Operationally, Torrid has invested in sophisticated omnichannel technology. Its distribution center boasts impressive efficiency, with 98% of orders leaving the facility the same day they are ordered, contributing to a 35% improvement in DC productivity over the last year. Crucially, the company has enabled ship-from-store capabilities across its entire fleet of 657 stores, including Canada. This allows for flexible fulfillment options, enabling customers to receive products via home delivery or store pickup, and empowers store associates to order any product for a customer regardless of in-store stock. These omni capabilities are described as dynamic and efficient, supporting optimal inventory investments by being agnostic to demand and fulfillment channels.

Further enhancing its operational and merchandising agility, Torrid is implementing a new merchandise financial assortment and allocation planning system (MFAPS). This system is designed to provide more accurate and productive assortment investments and greater inventory management control. With the first module rolled out in Q2 2024 and the remainder expected by early Q1 2025, the system will enable more robust micro-assorting by region and store, facilitating a wider breadth of assortment choice and better maximizing the return on inventory investments. Additionally, a recently launched global e-commerce platform is providing localized experiences and is expected to drive incremental international demand. In the intimates category, a focused effort is underway to rework core frames with new technology over the next two years, aiming to expand the catalog of franchises and provide more solutions for customers.

These technological advancements, particularly in omnichannel fulfillment and merchandising systems, provide a tangible competitive advantage. They enable faster inventory turns, more efficient capital deployment, enhanced customer experience, and the ability to support a broader product offering across channels. While competitors like Victoria's Secret (VSCO) and American Eagle Outfitters (AEO) possess advanced digital capabilities and supply chain efficiencies, Torrid's technology is specifically tailored to its niche market and complex omnichannel model, allowing it to leverage its unique customer data and physical footprint effectively. Compared to larger retailers like Target (TGT), Torrid's specialized systems offer deeper insights into the plus-size customer's preferences and shopping patterns, enabling more targeted product development and allocation, although Target's sheer scale provides logistical cost advantages.

Within the competitive landscape, Torrid faces both direct and indirect rivals. Direct competitors include brands like Victoria's Secret (VSCO) and American Eagle Outfitters (AEO) through Aerie, which have expanded their plus-size offerings, as well as large retailers like Target (TGT) and Urban Outfitters (URBN) with their own plus-size lines. Indirect competition comes from fast-fashion players like Shein and e-commerce giants like Amazon (AMZN), which offer lower-priced alternatives. While competitors like VSCO and AEO often boast higher gross and net margins (VSCO TTM Gross Margin ~37%, Net Margin ~3%; AEO TTM Gross Margin ~39%, Net Margin ~6%; TGT TTM Gross Margin ~28%, Net Margin ~4%; URBN TTM Gross Margin ~35%, Net Margin ~7%) compared to Torrid's TTM Gross Margin of 37.32% and Net Margin of 1.48%, Torrid differentiates itself through its exclusive focus, deep understanding of fit, and strong brand loyalty within its niche. Its technological capabilities, particularly in data analytics and omnichannel fulfillment, are crucial in defending its position against competitors with broader scale or faster production cycles.

Performance Reflecting Strategic Transition

Torrid's recent financial performance provides a window into the ongoing strategic transition. In the first quarter of fiscal year 2025, net sales decreased by 4.9% year-over-year to $265.97 million, primarily driven by a decrease in sales transactions and sales transaction values. Gross profit saw a more significant decline of 12.1% to $101.40 million, resulting in a 320 basis point decrease in gross profit margin to 38.1%. This margin contraction was attributed primarily to the decrease in net sales and an increase in merchandising payroll costs. Despite the top-line pressure, the company demonstrated expense discipline. Selling, general and administrative (SG&A) expenses decreased by 8.4% to $70.02 million, leading to a 100 basis point leverage as a percentage of net sales (26.3%). This reduction was driven by lower store and e-Commerce payroll costs, reduced headquarters expenses, decreased other store operating costs, and lower performance bonuses. Marketing expenses, however, increased by 19.9% to $15.36 million, rising 120 basis points as a percentage of net sales (5.8%), reflecting increased investment in social media, retargeting, and photographic production aimed at supporting new initiatives and customer acquisition. The net result was a decrease in income from operations to $16.03 million from $26.14 million in the prior year period, and net income of $5.94 million, down from $12.17 million. Adjusted EBITDA for Q1 2025 was $27.1 million, compared to $38.2 million in Q1 2024.

Looking back at prior periods provides crucial context for these results. Fiscal year 2024 saw net sales of $1.10 billion, down from $1.15 billion in FY23, with Adjusted EBITDA of $110 million, up from $92.05 million. Q4 2024 results exceeded expectations, with sales of $275.6 million and Adjusted EBITDA of $16.7 million. This quarter marked a significant sequential improvement in comparable sales, down only 0.8%, driven by a 1.6% increase in regular price comps and a moderation in the negative drag from clearance sales. Q3 2024 had been more challenging, with sales softening due to a lack of product newness and macro factors, resulting in a 6.5% comparable sales decline (1% regular price comp offset by a 47% clearance decline). Q2 2024 was highlighted as an inflection point, with strong regular price comps (+6.4%) and the peak impact of strategic clearance reductions (-50% clearance comp), demonstrating the initial benefits of improved inventory management and a shift away from "empty calorie sales."

Operational achievements have been fundamental to this performance trajectory. The dramatic reduction in inventory levels, down 19% year-over-year at the end of Q3 2024 and approximately 40% lower than two years prior, has been a key focus, enhancing cash flow and agility. This disciplined inventory management, coupled with improved sourcing strategies, has contributed to gross margin expansion in prior quarters (e.g., 323 bps in Q2 2024). The ability to chase inventory, with 10% of Q4 2024 receipts being chased based on demand, is a significant operational improvement enabling faster response to trends and more productive inventory. The strategic reduction in clearance sales, while impacting total comps in the short term, is viewed as essential for long-term margin health and brand positioning.

Liquidity remains healthy, providing flexibility for strategic investments. As of May 3, 2025, Torrid held $23.7 million in cash and cash equivalents and had $117.3 million available under its ABL Facility. Total outstanding debt, net of discounts, was $284.5 million. The company has consistently reduced total debt over the past year, improving its debt ratio.

While net cash used in operating activities increased in Q1 2025 compared to the prior year, primarily due to changes in working capital accounts like accounts payable and accrued liabilities, management believes current cash levels and ABL availability are sufficient to meet working capital and anticipated capital expenditures for at least the next 12 months.

Strategic Initiatives Driving Future Growth

Torrid's path forward is defined by strategic initiatives aimed at leveraging its strengthened foundation and addressing the vast opportunity in the plus-size market. The core of this strategy lies in product evolution and expansion, described as Phase 2 of the company's transformation. Recognizing that its core offering had become somewhat stagnant, Torrid is injecting significant newness, planning more new items in the first half of FY25 than in the past six years.

A key component is the introduction of multiple sub-brands or capsule collections, designed to cater to a wider range of fashion aesthetics and appeal to broader demographics, particularly younger customers. Concepts like Festi (bohemian), Nightfall (edgy), Retro Chic (vintage), Belle Isle (preppy), Lovesick (junior/lower price point), and StudioLuxe (higher-end) are being rolled out. These sub-brands are already overachieving initial expectations, performing 2 to 6 times better than planned, and have a higher margin structure than core products. They are successfully attracting new and younger customers, reactivating lapsed buyers, and creating a positive "halo effect" for the mainline Torrid brand, with a high attachment rate (~90%) of customers adding core items to their sub-brand purchases. Management plans to increase the penetration of these sub-brands from approximately 10% of the portfolio in FY25 to up to 30% in FY26, funded by reducing less productive core SKUs and increasing delivery frequency to 12 times annually.

Concurrently, the company is modernizing its core assortment, exemplified by the successful relaunch of denim in late Q2 2024, shifting from a heavy reliance on skinny silhouettes (65% last year to ~25% this year) to a wider range of trend-right shapes. Innovation is also a focus in intimates, with plans to rework core frames with new technology over the next two years.

Another critical initiative is the acceleration of the store optimization plan. With approximately 60% of leases up for renewal in FY25, Torrid is targeting the closure of around 180 underperforming stores this year (60 in H1, 120 in H2), many timed with lease expirations to minimize financial impact. These stores average only about $350,000 in annual sales, significantly below the fleet average. The strategy aims to rightsize the physical footprint and rebalance the mix from the current 65% enclosed malls / 35% outdoor centers to approximately 55% / 45%, as outdoor centers have proven to be more productive. Management expects minimal net sales impact from these closures, citing historical customer retention rates of around 60% (transferring to online or nearby stores), supported by enhanced multi-touch communication and incentives. The cost savings from these closures are planned to be partially reinvested into customer acquisition marketing and store refreshes (135 planned for Q3 2025) to enhance the in-store experience and better showcase the new product. This optimization is projected to yield 150-250 basis points of EBITDA margin expansion in FY26 and beyond.

Marketing efforts are centered on driving customer file growth and brand awareness. Initiatives include leveraging the 95% loyalty program penetration, increasing digital spending for acquisition, engaging influencers, and successful events like the Torrid Casting Call (over 11,000 applications, 9 percentage point brand awareness gain, high-teens reactivation rate). The mobile app is also a growing key touchpoint for high-value customers.

Outlook and Risks

Management's outlook for fiscal year 2025 reflects the ongoing transition and current market dynamics. The company has guided for full-year net sales in the range of $1.03 billion to $1.055 billion. This revised outlook incorporates the strategic decision to temporarily pause the footwear business, which is expected to result in a revenue loss of approximately $40 million to $45 million for the year.

Adjusted EBITDA for FY25 is projected to be between $95 million and $105 million. This guidance includes an anticipated $20 million headwind from tariffs, which the company expects to fully mitigate through $20 million in expense reductions derived from the store optimization project and cuts in discretionary spending and project reprioritization. The quarterly cadence of Adjusted EBITDA is expected to be more evenly spread in FY25 compared to historical patterns, due to the strategic shift of marketing investments to the first half of the year to support new product launches, while cost reduction benefits are anticipated to have a greater impact in the second half.

For the second quarter of fiscal year 2025, the company expects net sales between $250 million and $265 million and Adjusted EBITDA between $18 million and $24 million, which includes a projected tariff impact of approximately $5 million.

Looking further ahead to fiscal year 2026, while formal guidance is not provided, management anticipates a benefit of 150 to 250 basis points of EBITDA margin expansion from the accelerated store optimization plan, net of reinvestments in marketing and store experience. This is expected to support enhanced profitability and sustainable top-line growth, with minimal impact on the top line from the store closures. Longer term, the company is targeting low-to-mid single-digit comparable sales growth and progression towards mid-teens Adjusted EBITDA margins.

However, the path forward is not without risks. Macroeconomic conditions, including consumer spending levels and inflationary pressures on labor and raw materials, remain a significant factor, contributing to a "choppy" and "uncertain" consumer environment noted by management. This can impact demand, requiring strategic promotional activity. Increased competition, particularly in the e-commerce space, poses a challenge, potentially impacting customer acquisition costs and market share. Tariffs, while planned to be mitigated in FY25, represent an ongoing risk to product costs. Supply chain disruptions and reliance on third-party manufacturers and transporters also present potential challenges. Execution risk is inherent in any significant strategic transformation, and the success of the product evolution, store optimization, and technology implementation initiatives is crucial to realizing the projected benefits. Furthermore, the company faces various legal proceedings, including class action lawsuits related to pricing practices and data security, the outcomes of which are currently uncertain.

Conclusion

Torrid Holdings is in the midst of a significant strategic transformation, moving beyond operational stabilization to focus on driving growth through product innovation and optimizing its distribution channels. By leveraging its strong operational foundation, robust omnichannel capabilities, and deep understanding of the underserved plus-size customer, the company is introducing new sub-brands and refreshing its core assortment to capture a wider range of fashion preferences and attract new demographics. The accelerated store optimization plan, while reducing the physical footprint, is strategically designed to enhance profitability and align with evolving customer shopping behaviors, with expected significant EBITDA margin benefits in the coming years.

While recent financial performance reflects the costs and impacts of these strategic shifts and macroeconomic headwinds, management's guidance points towards a return to comparable sales growth and continued margin expansion, supported by expense control, tariff mitigation, and the anticipated success of new product offerings. The company's technological investments in omnichannel fulfillment and merchandising systems provide a critical competitive edge in its niche market. The core investment thesis hinges on Torrid's ability to successfully execute this multi-faceted strategy, translating its unique market position and operational improvements into sustainable profitable growth and value creation for shareholders, navigating the competitive landscape and macroeconomic uncertainties with agility and discipline.