Greetings, and welcome to the Torrid Holdings Incorporated Fourth Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Chinwe Abaelu. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining Torrid's call today to discuss our financial results for the fourth quarter of fiscal 2024, which we released this afternoon and can be found on our website at investors.torrid.com. With me today on the call are Lisa Harper, Chief Executive Officer; and Paula Dempsey, Chief Financial Officer. Ashlee Wheeler, Chief Strategy and Planning Officer is also present and will be participating in the Q&A session. Before we get started, 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 may include, but are not limited to, statements containing the words expect, believe, plan, anticipate, will, may, should, estimate, and other words and terms of similar meaning. All forward-looking statements are based on current expectations and assumptions as of today, March 20, 2025. These statements are subject to risks and uncertainties that could cause actual results to differ materially. For 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. Reconciliations to these non-GAAP measures to the most comparable GAAP measures are included in the earnings release, furnished to the SEC, and available on our website. With that, I will turn the call over to Lisa.

Thank you, Chinwe. Hello, everyone, and thank you for joining us today. Let me jump right into it. As we enter the new fiscal year, we are excited about our product direction and positive customer response to our sub-brands. We are driving awareness through integrated marketing efforts, leveraging influencer programs, and enhanced storytelling. We have right-sized the level and quality of our inventory position, and we are chasing our successful sub-brand launches. We have developed and are actioning a clear path to optimize our store fleet, reducing fixed costs, and freeing up funds to invest in growth. With that said, we recognize we are operating in an uncertain consumer and macro environment. Similar to what you've heard from other retailers, we experienced some choppiness in our business during the early weeks of the quarter driven by macro and consumer uncertainty as well as adverse weather in February. That said, as the quarter has progressed, we are encouraged that we have experienced a trend line improvement in the business. We are managing the business with cautious optimism, controlling what we can control, taking an appropriate and prudent approach to spending, while operating with flexibility and agility and a clear focus on our three strategic priorities: enhancing our product assortment, driving customer growth, and executing our store optimization plan. Now, let me review our fourth quarter performance. For the fourth quarter, we exceeded expectations on both the top and bottom line, generating sales of $275.6 million and adjusted EBITDA of $16.7 million. We saw a positive response to our holiday and early spring lines that offered a variety of newness across our product portfolio. Momentum continued to build until the latter part of the quarter, culminating in a productive toward cash event in January and a very successful launch of three new…

Good afternoon, everyone. And thank you for joining us today. I will walk through our fourth quarter financial results, highlight key drivers of our performance, and provide an in-depth look at our strategic priorities and fiscal 2025 outlooks. We close the year with strong execution, delivering results that exceeded our guidance. Our ability to navigate a dynamic retail environment, coupled with disciplined cost control, enabled us to drive profit expansion. Sales trends improved throughout the quarter, and we leveraged our inventory management strategies to maintain a healthy balance sheet while ensuring we met customer demand. As we look at our financial position, we ended the quarter with $48.5 million in cash and cash equivalents, a significant increase from $11.7 million last year. With a balanced approach to managing working capital, we are well positioned to enter 2025 with solid liquidity and inventory discipline. Fourth quarter net sales totaled $275.6 million compared to $293.5 million last year. Excluding the impact of the 53rd week in fiscal 2023, sales increased 1.4%. Comparable sales were down 0.8% driven by a significant improvement in clearance price comp sales and regular price comps, demonstrating the effectiveness of our pricing strategies. Growth profit was $92.6 million compared to $101.2 million a year ago. Growth margins declined 90 basis points to 33.6%, primarily due to lower volume relative to last year, which was expected given the impact of the extra week in fiscal 2023. Excluding this timing shift impact on volume, our product margin performance increased year-over-year as we continue to balance promotional activity with maintaining a premium product offering that resonates with our core customer base. SG&A expenses were $73.8 million or 26.8% of net sales compared to $80.6 million or 27.5% of net sales last year. This decrease reflects our ongoing efforts to control costs,…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] And our first question comes from Brooke Roach with Goldman Sachs. Please proceed with your question.

Good afternoon, and thank you for taking our question. Lisa, I was hoping you could elaborate on your latest thoughts on the health of the Torrid consumer. What has driven the trend line improvement 1Q to-date, and what level of contribution do you expect to drive from the comp this year from scaling some of the recently successful sub-brands?

Thanks, Brooke. I feel the fundamental strength of the Torrid customer is still intact. As you know very well, we have an enormously dedicated customer, very high involvement in our loyalty program. Sorry about that. And so, we still see that engagement. We're seeing positive traffic trends. They are being a little bit more conservative in terms of conversion in the short term. We have -- we see that to be a little bit choppier, but we're certainly getting traffic, eyeballs and add to cart. I think overall, a little bit softer on more cautious in terms of the actual final purchase. And we've seen that improve, I think over the quarter and continue to see it improve. I feel that our strategy of what we're doing in terms of product, we are very careful to ensure that the core elements of the business that our customer relies on are covered in a kind of modernized way. And we're seeing continual improvement in things like denim, which is core to our business, improvement in non-denim bottoms and great dress business, I would say as we are going into this year. So, we're seeing positive momentum in traffic, positive in core categories, kind of green shoots that we're seeing. And then, that layered on with the sub-brand excitement and traffic that we're getting related to sub-brand shows us that this customer has an appetite for a broader range of products, for a broader range of aesthetics. So, fundamentally solid, very consistent through the multiple cohorts in terms of household income and those types of things. We're not seeing a distorted behavior on any kind of any of the household income cohorts. And we're encouraged by the traffic that we're getting as spring is ahead of us, and the enthusiasm and excitement we're seeing around the evolution of the product as a whole.

That's great. And then, just for Paula, can you quantify the impact of the 40 to 50 additional store closures this year? What impact does that have to revenues within your guide? And what benefit does that have to EBITDA margins as you annualize these closures?

Yes. So, the 40 to 50 closures, the majority of those will happen in Q4. So, we're going to take advantage of having the ability of, exit some of our leases. The majority of these leases will be on I want to say January 31st of 2026 which is still fiscal '25. So, you don't necessarily get that much of an impact this year. It primarily will be the next year, but having said that we are planning on closing between Q1 and Q2 currently just because some of the closures are already taking place, anywhere between 10 to 13 stores right now. So, you won't see a large impact just yet. You will see that impact more in the next year. As I think about that impact, so, we are gaining actually, we gained the benefits from the 35 closures from last year right so 2024 we closed 35 stores. We're going to see the benefits this year flow through, our financials not just in G&A but also in margins and we expect to see, higher improvements from the 40 to 50 stores in fiscal '26.

Great. Thanks so much. I'll pass it on.

Thank you. Our next question comes from Dylan Carden with William Blair. Please proceed with your question.

Thank you. Sticking with that topic, you mentioned kind of the percentage of your stores you have this opportunity over the coming years. I mean, do you anticipate this being a prolonged campaign of closings? And I'm kind of curious that 70% figure, I assume that's kind of year one and that it might taper off over time. Is there an opportunity here to kind of come back to some of these markets with maybe a different store or re-engage these customers in another way?

Yes, so we do have the ability to review 60% of our store fleet this year. Having said that, not of course, not all 60% of that fleet, a great majority of that is actually great stores currently. So, I think as we think about that, we have the opportunity this year and we'll also have a smaller opportunity, coming up in the next year. So, I don't see this being a prolonged, project, Dylan, necessarily. I would say probably in the next two or three years we'll continue to review since we have a large portion of our fleet, expiring. So, a lot of these stores are expiring, are stores that opened in the 2015 timeframe or around that timeframe. So, that's why we have the opportunity now. And I think we will have opportunities depending as we're measuring these store closures and measuring the market. As we exit some of these leases we may want to reopen in the same markets, right, just in a different format. So, for us the majority of these stores that we're exiting are in enclosed mall locations and our preference and our customer preference today is in power centers, outdoor centers. So, we'll continue to look for that, for those types of locations.

And Dylan, this is Lisa. As Paula said, just to reinforce, it's this year and then we have some opportunity next year, because if we go back to '15, '16, '17, that's when we were really aggressively opening stores. And so, a lot of those are coming up for review. The other thing is, I think that I'll let Ashlee answer the 70% transfer question. But I will say that we're testing other formats. As we learn more and more about sub-brands, as we learn more about the breadth of product that the customer wants to see, we are testing and looking at a larger store footprint that we'll be able to incorporate more ideas for the customers. They want the variety and we think our number one priority there is to provide as powerful an experience in the store environment as we provide online, and that we have a much more aligned presentation of the brand and much and really treating the stores as more of an innovative and exciting place to shop, which we're doing that not just with new store formats, but with updates in our existing stores. So, we're still investing in that. We still think it's important, but this is very opportunistic time to right-size some of the market. We blend into more outdoor centers and potentially, as we open stores, opening a little bit of a bigger store to incorporate more of these product ideas. We'll have Ashlee talk about the 70%, recovery rate.

Hi, Dylan. Related to the 70% retention or recapture rate, so because we have such a high propensity of Omni customers that are accustomed to shopping both of our channels, it's not a year-one retention, but a multiyear retention beyond that. So, it's really about just migrating the portion of her spend that she would otherwise spend in a closing store, to a nearby store in that market or our online channel where she's accustomed to shopping.

Got it. Thank you. And then, curious how new product performed in this period of sort of softer traffic, if there's any sort of insight there for the call?

Yes. What happened for us is we brought in a line on December 27 and then two new lines in the middle of January. So, unfortunately, at the very beginning of February, it was probably our -- we have the least amount of newness that we're planning to have. But we have seen improvement since those first couple of weeks with traffic and engagement with that business and happy with kind of the recovery in the business that we saw post that time period. I will say that we have Belle Isle launching next week, which is kind of a feminine preppy or East Coast oriented aesthetic. And then, we have new deliveries of Festi, Nightfall and Retro all happening in April in conjunction with Torrid Cash. So, we feel that we have a very powerful lineup ahead of us that will give us a lot more insight into those types of questions.

Dylan, I would add to that. I was going to add related to the newness in the sub-brands. So, even in an environment where I think there was a bit of uncertainty as we came into the year in February in particular, we've seen the sell through on these sub-brands there to be very, very high, and they've been excluded from all discounting. So, I think the consumer's appetite for newness and differentiated product remains, even in an environment of uncertainty.

Yes, thank you.

Thank you. And our next question comes from Alex Straton with Morgan Stanley. Please proceed with your question.

Hi. This is Katie Delahunt on for Alex. Thank you so much for taking our question. I was just wondering what is your guidance embedding on the tariff impact of the year?

Great. Hi, Katie. Right now, it includes all tariffs that we know about today. And so, there's again, one of the approaches that we've had to the year is kind of a flat approach really to enable us to be able to navigate the types of changes that we're encountering on a day-by-day, week-by-week basis. Again, we have a lot of flexibility in our sourcing structure. We've divested and derisked out of China. We are in Vietnam and so we're very cautious about potential opportunity there, but we are expanding into Cambodia, into Indonesia, into Egypt, into Turkey, into Bangladesh. So, we have a flexible structure in our sourcing categories and very good relationships with our vendors who are being great partners in this time period. So, again, we've only included what we know and there's not we're not hedging forward in terms of any type of additional tariffs. Essentially, we have no visibility to that at this time.

Great. Thank you. Maybe I can just ask one more. What is your guidance embedding in terms of the macro environment? Is it embedding consumer kind of stays to this more pressure level or any sort of improvement throughout the year?

Yes. This is Paula. Katie, we are being more prudent to our approach with our guidance in regards to our consumer during this time but as Lisa mentioned before and Ashlee, we have seen improvements in demand in the last few weeks. So, we don't have a broad approach. We are more prudent in our overall approach to the year based on the volatility that we experienced early. But we are not predictive of kind of other improvements or challenges as we move forward. We are looking at the overall consumer behavior in a very prudent way.

Great. Thank you so much.

Thank you. And our next question comes from Corey Tarlowe with Jefferies. Please proceed with your question.

Great. Thanks and good afternoon. Lisa, you mentioned in your remarks that the negative drag from clearance sales is moderating. I was just curious if you could talk a little bit more about the impact that you're seeing from promotions in your business and what you have embedded in the outlook going forward from a clearance and promotional perspective?

Sure. Hi, Corey. Thank you. The negative drag does moderate as we go forward into kind of positive territory, particularly February is a pretty high clearance month. And so, we saw some positive comps in the clearance side. We think that will moderate as the whole year goes out and we look for improvement both in the clearance bucket as well as right price as we move forward. We are anticipating more promotional activity. I think that kind of begs the question about the consumer mindset and kind of lack of clarity in terms of how the macro plays out this year. But we have embedded some pressure on first margins and related to potentially more promotional activity as we move along. I think you'll still see a solid margin kind of results for the year, but we've hedged that a little bit based on what could possibly happen for the year. There was something else that you asked about and what was embedded.

Just promotional and clearance cadence throughout the remainder of the year?

Yes. I mean, I think -- hi, Corey, this is Ashlee. As we've said before, we expect our clearance levels, and the sales to come from them to be more representative or consistent with history. So, we no longer have the drag from anniversarying very aggressive liquidation in 2023. We are seeing profitable clearance sales at the levels that we expected to at this point. We have had to respond to a little bit of the macro uncertainty, with a little bit more promotion in the first quarter, but we expect product margins for the year to be relatively flat year-over-year.

Great. That's very helpful. And then, just on the infusion of newness into the business with the new sub-brands, I've seen the product online in stores -- very exciting, it's selling out even online, certain items we've seen. So, is there kind of a way to put into context how sizable these new brands could be from a SKU perspective versus the overall? And then, how do you put that into context with how you're thinking about inventory growth, for the remainder of the year?

I can take that, Corey. So, yes. We are I think we're being, we're nurturing these I'll say to start. They represent close to 10% of the business for the year and about 10% of our receipt investment. So, not a huge investment per se out the gate, and we're self-funding them. So, we've found opportunities in the core line to reduce inventory depth in some cases, SKU count reduction within the core line of those that were the long tail of choices that were less productive to fund these. So, overall inventory for the year, we expect to be relatively flat. There will be some timing quarter-to-quarter that may look a little bit different year-over-year as we launch these. But all-in-all, our average inventory for the year will be pretty consistent with the levels we saw last year.

And I would just reinforce, the goal with this is new customers, an average younger customer broadly in the business, build frequency, share of wallet and then there's a margin expansion opportunity with the sub-brands as well. So, that in conjunction with what we're doing in the core line, I think our expression of the brand right now online particularly is as good as I've ever seen it. I think the kind of the curated aspect of the core line in addition to what we're doing with sub-brands has been very, very well received by the customer and there's a lot of excitement associated with that. This customer has always told us, if you give me more choice, I will spend more money and we're going to call her on it this year. So, the fundamental of the customer file growth, the demographics of the customer bringing a younger customer into the overall mix, I mean going from 42 to 35 as our core, and then building that frequency is at the very outset as we're nurturing this, all have positive indications.

Great, thanks.

We're achieving our goals of reactivation with these as we planned so far. As Lisa noted, the average age of the new customers coming through these sub-brands are in the mid-30s, which is what we were aiming for. And I think the new customer and the reactivated customer that's coming through, adopting this newness is allowing us to be less reliant on promotion in general. So, that was also a goal with this that we're pleased with.

Great. That's very helpful. Thank you so much.

Thanks, Corey.

Thank you. And our last question comes from Dana Telsey with the Telsey Advisory Group. Please proceed with your question.

Hi, everyone. Just one more focus back on the real estate optimization. Is there a store number that you're targeting or you think that's appropriate for Torrid after you rationalize the store base? And then on the gross margin and the SG&A, how do you think about the puts and takes and the cadence throughout the year that we should be mindful of, of what could be good guys or what could be bad guys? Thank you.

Hi, Dana, it's Paula. I don't think we have a number on our mind -- in our mind about how many stores we should keep or should not keep. So, this is a pretty detailed analysis and reviews that we continue to make to make sure that our demand channel aligns with our sales channel, and that's how we're going to continue to analyze just making sure we're aligning exactly the demand and the sales channels. So we believe because we have this opportunity in front of us this year, with 60% of our leases being able to be exited or and et cetera, we do have an opportunity to leave some of these older locations and older types of enclosed malls. So, this is where we are today. We believe that the opportunity right now in front of us it's 40 to 50 this year with potentially being higher depending on what we see with the closures that continue with the closures, right? So, that's one, and we continue really to be focused on keeping that balance of enclosed malls, moving more to outdoor centers, right? That's where we see that unit economics truly improve from a store perspective so we're going to continue to balance that fleet to be more in outdoor centers. But the opportunity to open new stores remains there. We are still planning on opening four to eight stores this year, but it will be in markets and locations that we believe would be profitable locations for us. And as far as our guidance for the year, we are taking a prudent approach to our top line sales and as you know, our top line typically stays pretty even throughout the year. When it comes to SG&A in general, you're going to see a little bit higher in the first-half because we have shifted some of the marketing expenses, investments that we typically do in Q4 into Q1 and Q2. Aside from that, we shouldn't really see that much more in G&A for the year compared to the prior year.

Thank you. And Lisa, with the sub-brands that seem to be trending, what are the other categories of sub-brands that you're most excited about for 2025?

So, we have four more to launch, four more ideas to launch. Bellisle launches next week. Then we'll launch Lovesick in early July. And Lovesick is for a younger, more junior-oriented customers. I would think of Hollister, I would think of Garageas kind of the mindset there. We're re-launching Active as the concept called True by Torrid, and then, we're going to re-launch Where to Work Again with Studio and Studio Luxe as we get into September. That's enough. So, the team is like, okay, that's enough. We're very -- I love Ashlee's word earlier that we're nurturing this. We have very specific goals and guidelines and expectations on each of these launches. We're being conservative and really using our ability to chase and manage our inventory in a very nimble way. And I think the marketing team has done a tremendous job with the launch of the first three that you can see online with Festi, Nightfall, and Retro Chic. So, that's really the story. Again, back to building an internal marketplace where we can fulfill every need of this customer that she's deeply underserved, she is deeply understored, and we feel like we can leverage our knowledge of this customer, our knowledge of her fit, and all of our other capabilities to drive these new customers to the brand and build frequency in our existing customers. So, so far so good, but I'll love to keep you guys in the loop and let you know, how that's working. But I'm very proud of the team's ability to execute on this, and really think that the brand is coming together in a very powerful way.

Thank you.

Thanks, Dana.

Thank you. There are no further questions at this time. I would like to turn the floor back to Lisa Harper for closing remarks.

Thanks, everyone, for joining us and for your interest in the company. We look forward to sharing the progress, and we'll speak to you again in June in this format. Take care.

Great. Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.