Release Date: June 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Torrid Holdings Inc (CURV, Financial) delivered higher-than-expected adjusted EBITDA for Q1 2024, driven by strong gross margin expansion and disciplined expense management.
- The company generated $280 million in sales and $38 million in adjusted EBITDA for the quarter.
- Inventory levels were down 17% compared to a year ago, reflecting effective inventory management.
- Positive customer response to the spring collections, with a balanced mix of casual and dressy styles.
- Successful marketing initiatives, including the Torrid Casting Call Model Search, which drove significant traffic and improved customer acquisition and engagement.
Negative Points
- Comparable store sales declined by 9% primarily due to lower levels of clearance sales compared to the previous year.
- SG&A expenses increased to $76.5 million, driven by performance bonuses and technology investments.
- Marketing expenses as a percentage of net sales increased slightly, indicating higher costs in this area.
- The company is in the early stages of reevaluating its store fleet, which may indicate potential challenges in optimizing store locations.
- The need for significant improvements in the Curve product line, with new bra launches not expected until the back half of 2024 and early 2025.
Q & A Highlights
Q: Can you elaborate on the top-line guidance for the year and the assumptions driving the expected improvement in the back half? Also, how does the current consumer outlook compare to a few months ago?
A: Paula Dempsey (CFO): The improvement in the second half is primarily due to a reduction in the negative impact of clearance sales. Ashlee Wheeler (Chief Planning Officer): We expect sequential improvement in our regular price business and a decrease in the drag from clearance comps, which will drive higher top-line results. Consumer sentiment has been positive, with better receptivity to our products, even with fewer promotions.
Q: What are the early reads on the store reevaluation, and what are your expectations for the store fleet in terms of growth and profitability?
A: Lisa Harper (CEO): We are reevaluating our store mix, aiming for a 50-50 split between mall and outdoor centers. Outdoor centers deliver higher EBITDA margins and sales. We believe stores are critical for customer acquisition and plan to enhance store activations and events to drive growth and profitability.
Q: How is the shift to wide-leg denim impacting Torrid, and how do you plan to leverage this trend?
A: Paula Dempsey (CFO): We are seeing positive responses to various leg shapes in denim and non-denim, including wide-leg, flare, and boot. This variety allows us to offer more options and drive sales. Ashlee Wheeler (Chief Planning Officer): We are also seeing positive comps in tops and dresses, which complement the denim trends.
Q: Can you elaborate on the new customer acquisition and lapsed customer reactivation results? What actions are you planning to retain these customers?
A: Lisa Harper (CEO): We are seeing positive reactions from our model search events, which have boosted new customer acquisition and reactivation. We plan to expand store activations and enhance our loyalty program to drive frequency and retention. Ashlee Wheeler (Chief Planning Officer): We are also leveraging insights from our digital marketing agency to optimize our marketing investments and drive enterprise value.
Q: Can you quantify the gross margin benefit from markdowns and lower product costs this quarter? What is the expected benefit for the remainder of the year?
A: Paula Dempsey (CFO): The majority of our gross margin benefit in Q1 came from regular-priced items. We expect similar benefits in Q2 and Q3, with a slight tempering in Q4. Ashlee Wheeler (Chief Planning Officer): About two-thirds of the product margin expansion in Q1 was from lower product costs, and one-third from reduced discounting. This relationship will continue in Q2, with a shift towards reduced discounting benefits in the latter half of the year.
Q: Can you provide an update on Curve and the performance of edgier, sexier products? Are these attracting a younger shopper?
A: Lisa Harper (CEO): We are reworking our Curve assortment and plan to launch new bras in the back half of this year and early 2025. The edgier, sexier products are performing well and attracting a younger mindset while still catering to our existing customers. We are also focusing on balancing our assortment with more casual options and maintaining strong inventory management.
Q: How are you addressing the issue of popular products selling out quickly in stores?
A: Lisa Harper (CEO): We are implementing better planning and merchandising systems to ensure a consistent in-stock position for core items like denim and graphics, while allowing fashion items to turn faster. This approach aims to provide a strong assortment and maintain customer satisfaction.
Q: Who are your favorite co-tenants in off-mall locations?
A: Lisa Harper (CEO): Co-tenants are not as critical as being in the right centers. Our stores perform well in almost every outdoor center we enter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
