Torrid Holdings Earnings Call: Digital Growth Amid Challenges

Torrid Holdings, Inc. ((CURV)) has held its Q1 earnings call. Read on for the main highlights of the call.

Torrid Holdings, Inc. recently held its earnings call, revealing a mixed sentiment. While the company celebrated strong growth in digital channels and the success of its sub-brands, it also faced challenges such as declining store sales, reduced gross margins, and the impact of tariffs and a paused footwear business.

Sub-brands Success

Sub-brands like Festi, Belle Isle, Nightfall, and Retro Chic have significantly outperformed expectations, attracting new and younger customers while reactivating lapsed ones. These sub-brands boast a high attachment rate of 90% to core Torrid products, indicating strong customer loyalty and integration with the main brand.

Digital Channel Growth

Torrid’s digital sales are nearing 70% of total sales and are projected to reach the mid-70% range by 2026. The digital channel is not only outperforming physical stores but also showing significant growth in new customer acquisition and retention, highlighting a shift in consumer shopping preferences.

Store Optimization Plan

The company plans to close approximately 180 stores in 2025, with minimal impact on net sales. This strategic move aims to optimize Torrid’s retail footprint, enhance customer experience, and improve EBITDA margins by 150 to 250 basis points by 2026.

Financial Health

Torrid ended the quarter with $23.7 million in cash and $141 million in total liquidity, having reduced total debt by $16.2 million year-over-year to $284.5 million. This demonstrates effective financial management and a focus on maintaining a healthy balance sheet.

Strong Marketing Performance

The company’s marketing strategies, including a successful Coachella activation, have led to increased engagement and new customer acquisition. Additionally, the mobile app has reached a new revenue high, showcasing the effectiveness of Torrid’s digital marketing efforts.

Decline in Comparable Store Sales

Despite the strength of digital channels, comparable store sales declined by 3.5%, reflecting ongoing challenges in the physical retail sector. This decline underscores the importance of Torrid’s focus on digital growth and store optimization.

Gross Margin Decline

Torrid experienced a gross margin decrease of 320 basis points to 38.1%, primarily due to planned promotional activities aimed at improving conversion rates. This highlights the company’s efforts to balance promotional strategies with profitability.

Pause in Footwear Business

The decision to pause the footwear business, due to sourcing challenges from China, is expected to impact revenue by $40 million to $45 million for the year. This pause reflects the complexities of global supply chains and their impact on business operations.

Tariff Impact

Torrid anticipates a net tariff impact of approximately $20 million for the remainder of the year, adding another layer of financial challenge amidst an already complex economic landscape.

Forward-Looking Guidance

In its forward-looking guidance, Torrid reported net sales of $266 million and adjusted EBITDA of $27.1 million for the first quarter of fiscal 2025, aligning with expectations. The company plans to close 180 stores by year-end to optimize its footprint and capitalize on online demand. Torrid is also expanding its sub-brands, aiming for a 30% portfolio penetration by 2026, and focusing on strategic initiatives to enhance profitability and customer experience.

In conclusion, Torrid Holdings, Inc.’s earnings call reflects a company navigating both opportunities and challenges. While digital growth and sub-brand success are promising, the decline in store sales and gross margins, along with tariff impacts, present hurdles. The company’s strategic focus on digital expansion and store optimization is poised to drive future growth and profitability.