Greetings. Welcome to Torrid Holdings Incorporated Fourth Quarter Fiscal 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host Jean Fontana with ICR. Thank you. You may begin.

Good afternoon everyone. Thank you for joining Torrid’s call today to discuss fourth quarter and full year financial results for 2021, which we released this afternoon and can be found on our website at investors.torrid.com. With me today on the call are Liz Muñoz, Chief Executive Officer of Torrid; and George Wehlitz, Chief Financial Officer. Before we begin, I would like to remind you of the company's Safe Harbor language, which I'm sure you're familiar with. Management may make forward-looking statements including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our filings with the SEC. This call will contain non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margin. Reconciliations to these non-GAAP measures to the most comparable GAAP measure are included in the earnings release furnished with the SEC and available on our website. With that, I will turn the call over to Liz Muñoz. Liz Muñoz: Good afternoon everyone. And thank you for joining us for the discussion of our fourth quarter and full year results. Firstly, I want to thank our employees for their incredible performance and commitment to our brand, our customers and our mission. I would like to especially acknowledge our employees in the distribution center and in our stores who physically came into work throughout the pandemic. This dedication to our customer is at the core of everything we do and we are so grateful for this service. There are three things I want you to take away from today’s call. First, we delivered record performance in 2021, achieving topline sales growth and strong profitability far exceeding our long term target. Second, we made significant progress across…

Thank you, Liz and good afternoon, everyone. Before I begin, I would like to share how extraordinarily proud I am of what our team has accomplished during the past year. Our results demonstrate the strength of our brand as we continue to grow market share through both new and existing customers and maintained our focus on our strategic growth priorities, all while managing supply chain and macro headwinds. I will begin my discussion with a review of our financial results followed by our outlook. In my remarks, I will make select comparisons to the fourth quarter and full year of 2019 to normalize for the anomalies created by COVID-19 in the prior year to provide a better understanding of our growth. Net sales grew 5% to $314 million, compared to $298 million in the fourth quarter last year and increased 16% compared to 2019. Comparable sales grew 4.5% in the fourth quarter, which was driven primarily by an increase in transactions. We continued to attract new customers to the brand, leveraging our unified commerce model and delivering product that meets our needs. Our results came in better than the updated guidance we provided in January. Following a strong start to the fourth quarter, the increased prevalence of Omicron in late December and January impacted both stores and our distribution center. We saw temporary store closures and reduced hours in over 10% of our stores during a portion of December in January. In addition, labor shortages in our DC related to Omicron resulted in shipping delays to customers that impacted our sales by approximately $14 million. This impact was $7 million better than expected as the recovery and productivity levels in our distribution center enabled us to meet a portion of customer demand sooner than anticipated. Gross profit in the fourth…

Thank you [Operator Instructions] Our first question is from Mark Altschwager with Baird. Please proceed.

Great. Good afternoon. Thanks for taking my question. I guess, just first off regarding the sales guidance for the year, George I know you were giving some of the details on some of the revenue shifts. But the plan seems to embed a pretty big ramp after Q1. Could you maybe just give us a little bit more detail there? Because I know there were some sales that shifted out of Q4 into Q1. Now you're sort of speaking to an additional shift. So does any more color there on the confidence and that inflection through the year would be great?

Sure. So the shift primarily in Q1 was a $30 million event related toward cash shifting timing. And that shifted into Q2. So that was the big, big shift from between Q1 and Q2. For the year, we believe that, we saw most of the pressure coming in the first half of the year, which was embedded related to this stimulus. And that pent up demand that we saw in the first half of 2021, that we're up against in the first half of 2022. That easing out into Q3 and to Q4. So that's in conjunction with the inventory constraints that we also started getting in Q3 as well. And having been a better inventory position this year gives us the confidence of where we are, and especially given the inventory position that we currently have going into Q1 and going into Q3 after that.

Great, great, thank you. And then maybe for Liz, great to see the momentum behind Curve. Sounds like a lot of opportunities still ahead there as well. I'm curious in the near term here, are you seeing on-going pent up demand for more occasion oriented styles? And how are you thinking about balancing that opportunity in the near term as she returns to the events and into the office with a significant longer term opportunity with Curve? Thank you. Liz Muñoz: We're incredibly excited about Curve. We're still in the very early stages of it. As you may know, a third of our customers come to the brand can Curve. Curve customers spend three times more. We, we believe that we are benefiting from this mixing of comfort and sexiness that we built our wire free bra has been incredibly successful. We think there's still tremendous opportunity for growth in Curve. One of the one of the really big things we're very excited about is only 50% of our customers toward customers have bought into Curve. So we see that as a really, really important opportunity. So we tested a $20 reward for customers who did not buy a bra and we doubled the percent of bra purchasers in that test group. And that test was margin accretive. So we are pushing that whole program out. We're also going to test it on new customers who haven't purchased a bra. We have great store events that the customer is loving. And we do think that there are a lot of customer people have put on weight in captivity and so we see customers needing to buy new bras. We've also seen growth in all of our categories. That said, we're incredibly enthusiastic about some of the other products that we have going on. And the other thing I'll tell you is it's really important to note we are going to test 10 Curve standalone stores in 2022 which we are very very excited about. We are going to launch the Curve tabbed experience in Q2, which we also think will give a really amazing enhanced experience to the customer. So, lot’s going on with Curve. I will also just reiterate that bras are the number two leading category leading product that brings new customers to the brand. So I think the momentum that we have incurred will continue and not be impacted by all the other things that are going on.

Thank you. I will jump back in the queue. And George, best of luck to you.

Thank you.

Our next question is from Oliver Chen with Cowen and Company. Please proceed.

Hi, George it's been great working with you, best regards. Regarding the guidance, you've had really nice momentum and spend per customer and also the customer base. What's assumed in terms of those trends, continuing any metrics or thoughts there? And also, I would love some color on that better than expected DC flow. That was an upside surprise on that. That was great to hear about. And then finally Liz, you spoke about supply chain opportunities and speed and throughput. We just love some highlights about where you see the most opportunities there? Thank you.

Sure, Oliver. So regarding your first question related to customers and spend, we still see both of those growing into 2022 just did more modest rates to reflect the sales guidance that we have out there for 2022. But we still feel that there's ample room in both of those related to this, per spend. As Liz has said, we have everything in her closet. So we think there's opportunity there and moving them up between in tears from in our loyalty program as well. Regarding the DC, we did see significant improvement in the last two weeks related to our distribution center on absenteeism related to Omicron, we were seeing significant absenteeism and starting in late December and January into early January. And that shifted in the latter part of January back to more normal levels. And that's how we were able to pick up the increased productivity throughput in shipping more orders, and push that into Q4 rather than Q1. Liz Muñoz: And as far as supply chain, we will continue to do the things that have worked for us that are in our control. We are writing orders earlier. We are consolidating and positioning fabrics. We're leveraging long term relationships with factory owners, we are mostly direct. All that said, we also had a moment where we said we cannot accept what is happening as our futures. So we cannot allow these long lead times to become the default. And so we need to get speed back. And we formed a committee that is really thinking out of the box and coming up with different solutions around speed. And we just did that. So we'll give you a better update once we get rolling on that.

And in addition, Oliver we did do some repositioning of our ports. And so not exclusively using the west coast and moving towards some product to the east coast as well to spread that.

Thanks a lot. And Liz, I know you've been hard at work on pricing and looking across each item pretty surgically. How has that gone? And what is your framework for the next decisions you'll make? And related to that as just as if you could give us a sense of the promotional environment that you're seeing that would be helpful too. Thank you best regards. Liz Muñoz: Okay, great. Thanks, Oliver. So we as you know, we have taken prices up to mitigate inflation and we continually review pricing and make changes where appropriate. That's been a long term strategy at Torrid because we've been building and improving the product over the years. Quality and fit and value are important to her and she will pay for it. So for example, the average price of a Blue Jean at Torrid is $60. And I'll just give you an example of some of the pricing things that we have done and what sort of the results we got. We recently repriced our denim, increasing AIR across the board, and sales units per day actually increased post re-ticketing. So items that she sees tremendous value on she will pay for. As far as the promotional activity, we see promotional activity to be similar to 2021. And we are focused on the promotional events that we know are part of our D&A, and they form a bond with our customer. They drive engagement and I will tell you that a lot of these promotional events are also really good new customer acquisition tools. So things like toward cash in the love your bra band will continue. And then, we use incentives to get customers into categories we really want them to be in because they are very sticky like bras and blue jeans. And we've seen success in that. So I think it's going to continue as it's been and we will adjust and address as it comes at us.

And then as default COVID list said, yes, looking at 22 of the more than normalized year related to that. But if you're looking compared to 2021, remember that the first half of the year, we were much, more impacted by the stimulus and the pent up demand, and there was less promotional activity going on because of what she was spending, and she had available to spend. So it can be more of a normalized that as we look more towards the SP [ph] COVID levels, but if you're comparing to 2021, more pressure in the first half of the year, and that kind of monitoring is up in the back half the year.

Thank you best regards.

Our next question is from Brooke Roach with Goldman Sachs. Please proceed.

Good afternoon. Thank you so much for taking our question. Liz, I'd love to hear a little bit overall about how you think about the health of your customer right now. You mentioned inflation earlier, and everyone's watching the rising food prices. Have you seen any change among your customers and how their purchasing with the brand in the past few months, maybe among income cohorts. Are there any signs of trading down within your good, better, best, product architecture? Liz Muñoz: We have not seen any evidence of her trading down. I mean, that said, Listen, we know inflationary pressures are real. They're real for all of us. And we honestly the reality is that predicting her demand is going to be difficult in these times. That said, we've been conservative in our forecast. And I think she's going to focus on things that are centered around value for her. So she's going to shift, she will look for products that have multiple end uses and multiple wear occasions, things she can wear to work and wear out somewhere else. She will focus on products that have solutions, things that enhance her body that make her feel that you know that are more comfortable or, or things focused around that. And then I think she's going to buy into highly emotional things. And finally, we're going back to work. So she will need to replenish her wear to work, clothing. And I think that's going to be a really big opportunity for us because comfort is going to be really important. It is what we do really well in our wear to work. And as I mentioned, we are re-launching our studio sub brand in the back half of the year. And we think that the studio was really comfort based where to work products across a lot of categories. And we think it's the right product at the right time. So we're very excited about that as well.

Great, thank you. And then maybe one for George, can you dive in a little bit more on your gross margin expectations for the year, and help us shape how you're thinking about the puts and takes between promotions, pricing in terms of what you're doing in terms of customer facing pricing, higher unit costs and transportation expense? Thank you.

I mean transportation costs; we believe that those will continue to 2022 the increases that we saw in Q4 as they will go all the way up through 22. We think we'll start anniversarying some of that in the last part of Q4, comparing 2021 to 2022. From a product cost standpoint, those also will continue. We also as Liz said continuing to look at price increases. So we will throughout the year be looking at that on an on-going basis and increasing prices where we see again, the value for the customer from that standpoint. And again, related to what we're looking at, as far as cadence again, Q1 and Q2, the most impacted site improvements and going into Q3, and then it really lapping the cost in Q4. So turning positive from that standpoint from a gross margin standpoint.

Thanks so much. I'll pass it on.

Our next question is from Lorraine Hutchinson with Bank of America. Please proceed.

Hi, this is Alicia [ph] on for Lorraine Hutchinson. Thank you for taking our question. Can you talk about the performance of the e-commerce channel versus stores during for 4Q and also if possible quarter-to-date. And then what are your sales assumptions by channel for the year please

From Q4 perspective, e-commerce performed very well. And, we're very happy with the results of our e-commerce business. As Liz also said, we really look at it together with the stores and e-com business for our unified models since they support each other. But just individually, the channel did perform well, it will be and we're looking at it to continue to perform into 2022. And we basically again, combined the two, when we're looking at ourselves, we don't separate it out by channel, but it is something that we're going to be increasing. Our penetration rate was around 63% for 2021. And we think it'll be somewhere around 63% to 65% as we go into 2022. So growth in that channel.

Thank you.

Our next question is from Kimberly Greenberger with Morgan Stanley. Please proceed.

Okay, great. Thanks so much. Liz, I wanted to start with the active customer data that you put out today, it looks like there was about a 14% increase in active customers from year end of 2019, to year end of 2021. And obviously, customer spend is up, as you noted. I'm wondering if you can, if you look at that, the additional acquired customers just under 500,000, is there any way to help us understand what portion of those customers are coming to Torrid through the stores, and what portion found you online? And then if you could just talk about some of your customer acquisition strategies for 2022 online or in store understanding that some of the stuff that marketing like in television is sort of meant to be, channel agnostic? Thank you. Liz Muñoz: Okay, so first on, I think question number one was, how many customers came in through stores? What percentage is about 50 -- 50%? And I think the next question was, what are we doing from a customer acquisition standpoint? I'll tell you the things we did in 2021 that worked really well. We scaled investment in digital channels, where she spends the most time which is Facebook, Instagram, Pinterest, and YouTube. That said, we also, we believe that our stores are a significant competitive advantage. So we leveraged our 600 plus store fleet for new customer acquisition by launching geo targeted digital marketing campaigns that generate local store awareness. They drive store traffic, and they highlight some of the benefits of going into a store like a bra fitting. We tested billboards as consumer behavior shifted out of captivity, and more into real life and found success in that. And then we continually heavily invest in marketing that features bras and blue jeans, because those are the stickiest. I think what we're also super excited go forward is this 20 million woman women subset that we've identified that align from a demographic and psychographic point of view. And we're reaching these women where they are the reason we're running TV ads is because this customer, these 20 million, a very large percent of them percentage of them are outside TV watchers, watching four plus hours of TV a day. So our mission is always to find her where she is and reach her in that way. And then finally, we're going to continue to scale our investments in digital channels that have worked for us. And we are running billboards in 17 markets that are in the areas where this 20 million subset exist. So excited about what we've accomplished in 2021. And what's coming in 2022.

Hey Kimberly, just as a follow up to that. If you remember, as Liz said, over 50% of new customers came through their stores. If you remember in 2020, when a lot of the stores were impacted by closures, we were at 30%. So we definitely saw as the stores reopened, she did come back to stores, she's loving the store experience. So that piece of it's really, really helpful, as well as new stores that we opened. We saw a really good lift as far as what they were doing as far as acquiring new customers and even from a sales performance that they were performing better pre-COVID new store opening. So from a whole store customer experience standpoint, we're very happy with where she's kind of now coming back to the store interacting with the store and can hit continuing her journey with us as a store and then we can convert her from a store customer into an omni channel customer and that customer will spend much, much more so.

Okay, that is a great rundown. Thank you both for that. George, I wanted to follow up on your comments on the higher transportation costs, you lap those in the fourth quarter here in 2022. Are there any pieces of the higher transportation costs that you experienced in the third and fourth quarter last year that strike you is transitory or temporary as compared to those that will be more permanent in the P&L? And then I just had one question on inventory after that.

Yes, I think most of the transportation costs I wish was transitory, but every time we think there might be something transitory about it, it just continues to something else happen. So we're not really thinking and have it planned that way that is going to be transitory. The one is, the amount of airfreight that we spent in 2021. But we're anticipating that we may not have to think quite that much. But there could be a point that we might need to do that as well. So that would be the one with it could be somewhat transitory.

Okay, great. Thank you so much. And then the question on Inventory is for Liz, it sounds like you're going to work on some speed to sort of get back to perhaps more of a read and react model at some point in 2022, or 2023. Perhaps just to help us understand the current level of inventory that you've got. Could you maybe contrast it, it looks like inventories up about 40%, compared to two years ago, with sales up about 20% compared to two years ago, in 2021. Clearly, you're looking for some additional sales growth here in the upcoming year. So maybe just using 2019 as a benchmark, how much should we think about the inventory investment rising in 2022, as compared to the inventory you would have been buying in 2019?

Yes, so from a comparison, which at the end of the year 2021, compared to 2019, our inventory and total was up, but if you look at it from an excluding in transit, because again, with this delay, related to the supply chain, and the transit times, it has increased what we have in transit, in the water, not in our buildings. If you exclude that we were up 12% compared to 19%. So very in line with what we're looking at from a salesperson perspective. We feel very good about with what we have inventoried. We feel good about the composition of what we have in the inventory, and we feel good about what's coming in, as well as what we factored in, again, as Liz said, timing wise of trying to place orders earlier to get the product. And so I think from an inventory perspective, we have the inventory to be able to support higher sales than we have put into the guidance. And I think, from an inventory perspective, as we look throughout the year, I think we're going to, we would definitely be higher than we were at 2019. But again, it will be moderated to what we think we can have from a investment standpoint of what's keeping ourselves current and in line with our expectations of what we're going to do deal support from a sales perspective.

Okay, thanks so much.

Our next question is from Dana Telsey with Telsey Advisors. Please proceed.

Good afternoon, everyone. And George, best of luck on the retirement.

Thank you.

As we think about some loose like you're talking in terms of whether it's Curve, whether it's the new work, work, clothing, whether it's also the new Happy Camper. I think items you described, it feels like the assortment is adjusting and capturing more of the interests of the consumer. What else should we expect to change is the new merchandise coming in at a higher margin than the old and what do you see as the opportunity on the accessories side but we're another things how should we continue to see the merchandise assortment develop and what does it mean on the margin profile go forward? Thank you. Liz Muñoz: So we will see more expansion but more focused on products. I think there's a big rebound from the pandemic, right. She spent the last few years buying things to be in the house. We see a very clear shift where she is starting to rebuild her wardrobe and prepare to go back to work. We think that's going to be a big focus for the rest of the year for her incredibly excited about studio because what we do with work wear is very different, incredibly attractive, fits great, but also very comfort related. So I think the shift is going to be more into those kinds of products. I don't know that it's going to have any outsized impact on margin one way or the other, on what she's buying there. The other thing that we're going to do is what we do really well is identify areas in which she is wildly underserved. So Happy Camper was a result of us knowing that there was very little camping and hiking clothing for her. I do think and, and we will focus on dressy, building our dress business back up from sort of the downside that it had during the pandemic as a really big focus. And then I would say, from an accessories perspective, shoes are something I'm very excited about, and I think are a big opportunity. If you search wide with shoes for women, you'll see what's out there. It is a very big whitespace. And we've spent the last three years really perfecting our fit, our construction and what we're doing with shoes, and we're very excited about them.

Got it. And then just follow up on your stores. It sounds like the store productivity in 2022 of the new stores was better than you expected. What does this mean for how you're planning the class of 2022? And is there a cadence to the store openings this year? Thank you.

Sure. So our cadence that we're looking at is 25 towards doors and up to about 10 Curved standalone stores. We could flex that number of debts if need be and if we have more opportunities. So we're open to that piece of it, we're not married to the exact number, it's more what we're seeing in the environment and what we can make our criteria we're looking at from an investment standpoint. So there could be some more opportunity that we can take advantage of for that piece of it. I don't think we're going to make any significant shifts at this place. But we're again, very happy with the results that we saw in 2021 from our stores. And we're evaluating those on an on-going basis for 2022 as well.

Thank you.

Our next question is from Oliver Chen with Cowen and Company. Please proceed.

Hi, thanks again on ESG is a great topic that you brought up Liz. Just would love your initial thoughts on the opportunity indoor. The industry thinks about this a lot. Water seems like a big, big topic in terms of an opportunity to advance there. Thank you very much. Liz Muñoz: Yes, so like I said, we're in the early stages. We started down this road, and then the pandemic occurred. And we really had to redeploy our forces to navigate that. But we're back on track. We've brought an outside organization to help us think about what the next five years look like and what we want to accomplish. That said, I know that water is a big deal. And denim in particular is a big offender of wasting a lot of water. So this shift to laser technology, which I have to tell you, you can't tell the difference between a gene that's been laser treated, and one that's been stone washed. So what we're doing now is we're just opportunistic in areas where we see we can do better, we're doing it. I think there's a lot less packaging that can go into garments. We're going to take anywhere that we can take a hang tag or something that's on the garment that's just going into the trash. We are eliminating. We're looking at packaging that goes into stores and where the waste is. So it's not just sustainability. It's also the amount of stuff that that we put on our garments. And that goes into the trash. So we're going to update you more on this as we roll forward and have a more concrete plan. But this is something that's important to this whole organization. And we're excited about what we can do here.

Okay, thank you. And finally, you have a very loyal customer, which is love, your thoughts on the Torrid loyalty program and how that will integrate with your mobile app and the vision for some key opportunities there. Thanks a lot. Liz Muñoz: Yes, I was so the mobile app has features that, that new features that we didn't have before that really integrate the loyalty program that give her information. She can pay her credit card bill there. She can check on what's going on. And I think over the long haul, what we want the app to be is something that she checks every day because it's sort of and I don't want to say gamified, because that's not the term, but something that she checks on is excited to see that there's new updates, push notifications come through there. So I think our long term intent for the app is that we form a very close and intimate relationship with her on that. But the loyalty has been integrated, and it's it looks really good, and it functions really well.

Thank you very much.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Liz for closing comments. Liz Muñoz: Okay well, first of all, I would like to reiterate, a big thank you to George for the years of just amazing business, amazing friendship and guidance. And also to thank him for the extraordinary organization that he's built. We have just such an incredible finance team. He's done a remarkable job. And I am going to personally miss him very much. And just want to thank you all for joining us for your interest in our remarkable brand. And we look forward to telling you more about what's going on at our next call. So again, thank you and have a great day.

That concludes today's conference. You may disconnect your lines at this time. And thank you for your participation.