Executive Summary / Key Takeaways

• Torrid Holdings Inc. is undergoing a significant strategic transformation, pivoting to a digitally-led business model supported by aggressive store optimization and a strong focus on product innovation through new sub-brands.
• The company's new sub-brands are exceeding expectations, attracting new and younger customers, and are projected to drive substantial Adjusted EBITDA margin expansion of 150 to 250 basis points and a substantive increase in free cash flow by fiscal 2026.
• Torrid is accelerating store closures, targeting approximately 180 locations in fiscal 2025, to align with evolving customer preferences for online shopping, which now accounts for nearly 70% of total demand.
• Despite a challenging macroeconomic environment, reflected in updated lower net sales and Adjusted EBITDA guidance for fiscal 2025, Torrid is strengthening its financial foundation through debt reduction and share repurchases.
• Torrid's robust e-commerce platform and advanced data analytics capabilities serve as a critical technological differentiator, enabling rapid product adaptation, optimized inventory management, and enhanced customer engagement in the underserved plus-size market.

Torrid's Evolving Identity in Plus-Size Retail

Torrid Holdings Inc. (NYSE:CURV) stands as a direct-to-consumer apparel, intimates, and accessories brand, uniquely catering to fashionable curvy women who wear sizes 10 to 30 across North America. Established in late 2019, the company has built its foundation on serving a demographic that has historically been underserved by mainstream fashion retailers. This niche focus, combined with a strategic shift towards digital engagement, positions Torrid at a pivotal juncture in its growth trajectory.

The broader retail landscape is characterized by a significant migration of consumer preferences towards online shopping, heightened value consciousness, and persistent inflationary pressures impacting discretionary spending. Within this dynamic environment, Torrid's competitive standing is defined by its specialized approach. Direct competitors such as Victoria's Secret & Co. (VSCO), Gap Inc. (GPS), and Kohl's Corp. (KSS) offer broader product ranges but often lack Torrid's dedicated focus and deep understanding of the plus-size customer. Torrid's brand experience and product offerings establish it as a differentiated and reliable choice, fostering a strong sense of community and loyalty among its clientele.

Torrid's core technological differentiation lies in its sophisticated e-commerce platform and underlying data analytics capabilities. This digital infrastructure is not merely a sales channel; it functions as an "internal marketplace" that enables rapid product adaptation and deep customer insights. The company leverages a data-driven approach to design and product development, proactively incorporating sales performance, operational data, and thousands of customer reviews. This allows for quick responses to evolving fashion trends and customer feedback.

The company's loyalty program, with 95% customer enrollment, provides a vast repository of data on shopping patterns, which is critical for effective customer retention and targeted marketing. Furthermore, new inventory planning, allocation, and assortment systems are being implemented to micro-assort by region and store, enabling a wider breadth of choice and sub-brand expansion, thereby maximizing the return on inventory investments. The mobile app has also reached new revenue highs, supported by timely notifications and exclusive offers, reinforcing its role as a key touchpoint for high-value customers. These technological advancements collectively enhance Torrid's competitive moat by allowing it to efficiently serve its niche market, optimize its product offerings, and drive superior customer engagement.

A Strategic Pivot: Digital Dominance and Sub-Brand Innovation

Torrid's overarching strategy is a decisive response to evolving customer preferences, with digital sales now approaching 70% of total demand. The company is executing a comprehensive channel optimization strategy, aiming for a long-term demand mix of approximately 75% online and 25% in-store. This strategic realignment involves aggressive store footprint optimization, with 59 underproductive stores closed in the first half of fiscal 2025 and plans to close approximately 120 additional stores in the second half, bringing the total to about 180 closures for the year. This move is expected to significantly reduce fixed costs and improve working capital.

The cost savings from store closures are being strategically redeployed into customer acquisition and reactivation initiatives, primarily through increased digital marketing. Torrid has committed an incremental $5 million to digital marketing in the second half of fiscal 2025, raising the total marketing investment to approximately 6% of sales for the year. The company's popular "model search" event is also being relaunched with a digital-first approach, alongside robust influencer marketing campaigns, to expand brand awareness and attract new, younger demographics.

Product innovation is at the heart of Torrid's strategic pivot, with fiscal 2025 declared "the year of the product." The company has launched several new sub-brands, including Festi (boho trend), Belle Isle (preppy/East Coast), Nightfall (edgy fashion), Retro Chic (vintage-inspired), LoveSick (targeting younger demographics), and StudioLuxe (higher-end, desk-to-drinks). These sub-brands are designed to offer differentiated aesthetics and are resonating strongly with customers, exceeding initial expectations. They are attracting new and younger customers, reactivating lapsed ones, and creating a "halo effect" for core Torrid offerings, with approximately 90% of sub-brand customers adding other core products to their baskets.

These sub-brands are expected to represent 25% to 30% of the total assortment by fiscal 2026, up from approximately 10% in fiscal 2025. Crucially, they boast a higher margin profile due to limited promotions and higher full-price sell-through, contributing directly to the anticipated Adjusted EBITDA margin expansion. The growth of these new concepts is self-funded by reducing less productive SKUs within the core Torrid line. Furthermore, Torrid has diversified its sourcing away from China, with current exposure in the low single digits, and temporarily paused its shoe offerings due to their 100% China-sourced nature and lower margins, a decision expected to be EBITDA neutral despite a $40-45 million revenue impact in fiscal 2025.

Financial Performance: Navigating Headwinds with Strategic Discipline

Torrid's financial performance in the second quarter and first six months of fiscal 2025 reflects the ongoing strategic transformation amidst a challenging macro environment. For the three months ended August 2, 2025, net sales decreased by 7.7% to $262.8 million from $284.6 million in the prior year, primarily driven by a decrease in sales transaction values. Comparable sales for the quarter declined by 6.9%. Gross profit for the quarter fell 15.2% to $93.5 million, with the gross margin contracting by 3.1 percentage points to 35.6%. This margin compression was attributed to lower net sales, increased store depreciation, merchandising payroll costs, and the deleverage of store occupancy costs.

Despite top-line pressures, Torrid demonstrated disciplined expense management. Selling, general and administrative (SG&A) expenses for the second quarter decreased by 8.2% to $70.5 million, primarily due to reductions in store and e-commerce payroll, other store operating costs, headquarters expenses, and share-based compensation. As a percentage of net sales, SG&A leveraged by 0.2 percentage points to 26.8%. Marketing expenses, while decreasing slightly in absolute terms to $12.8 million, increased as a percentage of net sales to 4.9% due to the lower revenue base. Net income for the quarter was $1.6 million, or $0.02 per diluted share, a significant decline from $8.3 million, or $0.08 per diluted share, in the prior year. Adjusted EBITDA for Q2 2025 stood at $21.5 million, down from $34.6 million, resulting in an Adjusted EBITDA margin of 8.2% compared to 12.2% previously.

For the six months ended August 2, 2025, net sales decreased by 6.3% to $528.8 million, and net income was $7.5 million, or $0.07 per diluted share, compared to $20.5 million, or $0.19 per diluted share, in the prior year period. Adjusted EBITDA for the six-month period was $48.7 million, down from $72.8 million. The company's liquidity remains robust, with $21.5 million in cash and cash equivalents as of August 2, 2025, and total liquidity, including available borrowing capacity under its ABL facility, at $111.7 million. Total outstanding indebtedness, net of unamortized original issue discount and financing costs, was $288.4 million. In June 2025, Torrid repurchased 6.03 million shares of common stock for $20 million at $3.32 per share, demonstrating a commitment to shareholder returns.

Outlook and Value Creation: A Clear Path to Margin Expansion

Torrid's forward-looking guidance reflects a cautious yet confident stance on its strategic initiatives. For the full fiscal year 2025, the company has updated its net sales outlook to a range of $1.015 billion to $1.030 billion, acknowledging the current macro environment and sales variability. Adjusted EBITDA for the full year is now projected between $80 million and $90 million, incorporating the impact of higher tariffs and increased marketing investments. For the third quarter of fiscal 2025, net sales are expected to be between $235 million and $245 million, with Adjusted EBITDA in the range of $16 million to $21 million.

A key assumption underpinning this outlook is the successful execution of the store optimization strategy. The acceleration of store closures, targeting approximately 180 locations in fiscal 2025, is expected to yield substantial cost savings. Management anticipates that these efforts, combined with continued inventory productivity and the higher margin profile of sub-brands, will deliver 150 to 250 basis points of Adjusted EBITDA margin expansion in fiscal 2026. This margin expansion is projected to be net of planned incremental marketing investments, underscoring the efficiency gains expected from the strategic shift.

The company also anticipates a substantive increase in free cash flow in fiscal 2026, which will be strategically deployed to reduce debt and repurchase shares. Torrid currently has approximately $45 million remaining under its active $100 million share repurchase authorization. Capital expenditures for fiscal 2025 are forecasted between $10 million and $15 million, primarily focused on enhancing the digital experience, refreshing existing stores, and improving fulfillment capabilities to support its omnichannel growth strategy. The strategic decision to introduce "opening price point" products, aiming for 25% of apparel sales next year, is expected to address customer value sensitivity and broaden market appeal.

Risks and Competitive Dynamics: Sustaining Differentiation in a Shifting Market

While Torrid's strategic direction is clear, several risks and competitive dynamics could influence its trajectory. Changes in consumer spending and general economic conditions, particularly given the observed "customer sensitivity and value orientation," pose a continuous challenge. Inflationary pressures on labor and raw materials, coupled with global supply chain constraints, could further increase expenses and impact profitability. The company also faces the risk of new or increased duties or tariffs on imported goods, with fiscal 2025 expected to see a total tariff impact of approximately $15 million, though 80% of this cost has been mitigated.

Legal and regulatory risks are also present, including class action lawsuits related to alleged misleading pricing practices and data security breaches. Torrid is a defendant in six consolidated class action lawsuits concerning potentially unauthorized access to data stored in a data warehouse. These legal proceedings could result in significant liabilities and reputational damage.

In the competitive landscape, Torrid's specialized focus on plus-size women provides a strong competitive moat, particularly through its deep understanding of fit and customer loyalty. However, this niche also exposes it to intense competition from broader retailers like Gap Inc. (GPS) and Kohl's Corp. (KSS), which offer wider product assortments and extensive distribution networks. The increasing dominance of digital sales, while a strategic focus for Torrid, also exposes it to fierce e-commerce competition from online giants like Amazon (AMZN), potentially leading to higher customer acquisition costs. Torrid's technological capabilities, such as its data-driven product development and loyalty program, are crucial in maintaining its competitive edge by fostering strong customer relationships and rapidly adapting to market demands.

Conclusion

Torrid Holdings Inc. is in the midst of a profound strategic transformation, repositioning itself as a digitally-led, product-innovation powerhouse dedicated to the underserved plus-size market. The company's aggressive store optimization plan, coupled with the successful launch and expansion of its high-margin sub-brands, forms the bedrock of its future profitability and free cash flow generation. While the current macroeconomic environment presents headwinds, reflected in updated fiscal 2025 guidance, Torrid's disciplined expense management, proactive sourcing diversification, and commitment to enhancing its technological infrastructure underscore a resilient operational framework.

The anticipated Adjusted EBITDA margin expansion and substantive increase in free cash flow by fiscal 2026, driven by these strategic initiatives, highlight a compelling long-term investment thesis. By leveraging its deep customer insights and robust digital capabilities, Torrid is not merely adapting to market shifts but actively shaping its future, aiming to deliver sustained profitable growth and enhanced shareholder value through a focused, customer-centric approach.