Greetings, and welcome to the Torrid Holdings Inc. First Quarter Fiscal 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chinwe Abaelu, Chief Accounting Officer and Senior Vice President. Thank you, and you may begin.

Good afternoon, everyone, and thank you for joining Torrid Holdings Inc.'s call today to discuss our financial results for the first quarter of fiscal 2025, which we released this afternoon and can be found on our website at investors.torrid.com. With me on the call today are Lisa Harper, Chief Executive Officer of Torrid, Paula Dempsey, Chief Financial Officer, and Ashlee Wheeler, our Chief Strategy and Planning Officer, who 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 am sure you are 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, 06/05/2025. 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 thanks for joining us today. I am excited to update you on the progress we are making across our strategic business initiatives, namely enhancing our product assortment, driving customer growth, and executing our store optimization plan. I am also pleased to report that we delivered on our first quarter sales and EBITDA guidance. Now an update on our strategic business initiatives. Performance of our sub-brands continues to reinforce our belief that the strategy is working. Festi, Belle Isle, Nightfall, and Retro Chic have all had multiple deliveries at this point, and they are overachieving our expectations from two to six times what we had originally planned. These sub-brands are designed and marketed for distinctive lifestyles, targeting a broader range of plus-size consumers. They are revolutionizing our collections to embrace diverse fashion sensibilities and deliver truly differentiated options. This calculated expansion has attracted new clientele and has deepened relationships with our current customers, driving increased spending across our portfolio. Importantly, our sub-brands are attracting new and younger customers, reactivating lapsed customers, while also creating a halo effect for our mainline Torrid offerings. With the margin structure higher than our core Torrid product, we are doubling down on our efforts to further expand our strategy with planned launches of new sub-brands throughout the year, while also increasing the delivery frequency on existing sub-brands from the current six to eight times a year to 12 times annually. Growing their penetration from approximately 10% this year to up to 30% of our portfolio in 2026. We will continue to fund the growth of our sub-brands through reductions in less productive Torrid SKUs, enabling us to deliver compelling high-margin products. Now shifting to our channel optimization initiative. Our customers continue to send a strong message that they prefer an…

Thank you, Lisa. Good afternoon, everyone, and thank you for joining us today. I will walk through our first quarter financial performance, discuss progress against our strategic priorities, and share our outlook and guidance for fiscal 2025, along with how we are positioning the business for long-term value creation. We delivered results in line with expectations for both net sales and EBITDA in Q1. After a slow start to the quarter in February, we saw improving sales momentum as the quarter progressed. Importantly, we began to realize tangible benefits from our store optimization initiative launched last year, which supported a reduction in SG&A and reinforced our focus on profitability and disciplined cost control. Net sales for the first quarter were $266 million compared to $279.8 million in the prior year. Comparable store sales declined 3.5%, reflecting continued pressure in our physical retail location, partially offset by strength in our digital channel. Our performance reflects the continued evolution of our consumer shopping behavior, and we remain focused on adapting accordingly. Gross profit was $101.4 million, down from $115.4 million last year, with gross margin declining 320 basis points to 38.1%. The decline in margin rate was driven by planned promotional initiatives to improve conversion rates. We maintained an effective approach to expense management. SG&A was favorable by $6.5 million, resulting in $70 million in Q1 compared to $76.5 million in the prior year. As a percentage of sales, SG&A leveraged 100 basis points to 26.3% versus last year. This expense discipline remains a critical lever as we navigate the current environment. The year-over-year favorability in SG&A was driven by our store optimization efforts, as well as prioritization of company-wide projects and contract renegotiations. We strategically increased marketing investments to $15.4 million from $12.8 million a year ago, deploying funds to support…

Thank you. We will now be conducting a question and answer session. For participants using speaker equipment, one moment please while we poll for questions. Our first question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Hi. This is Mary on for Lorraine. Could you talk a little bit about how we should think about the cadence of newness for the second half? Hi. The cadence of newness per product. Yeah. Just in terms of, like, your sub-brand launches, just how we should think about that for the remainder of the year.

Right. We have another new sub-brand launching in August, which is Lovesick, which is geared toward a younger customer at a slightly lower price point. And then we have StudioLuxe that will launch in September, which is a higher-end kind of desk-to-drinks concept. We've been in the back half of the year accelerating the timing of our launches for the existing brands, Belle Isle, Festi, Nightfall, and Retro Chic. So by the end of the year, we'll be delivering, I would say, into the fourth quarter, we'll be delivering all of those brands on a monthly basis.

Thank you.

Thank you. Our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Hi, this is Savannah Summer on for Brooke Roach. Thank you so much for taking our question. It's great to see the momentum with the sub-brands. You've discussed them as being an avenue for new customer acquisition, and I'm curious if you could discuss what trends you've been seeing with these new customers following their initial sub-brand purchase. Are you seeing them shop across the broader assortment and other sub-brands? And is there any unique differences in shopping behavior by channel or category to call out versus your legacy customer? Thank you.

Hi. This is Ashlee. We are seeing really positive movement in the customer file related to these sub-brands, acquiring and reactivating new and younger customers than our average age in our existing file. Additionally, we're seeing really positive movement among existing customers with an increased lifetime value attached to them. So I'm really seeing incremental purchase behavior from that group as well as really high transaction size. We're seeing a very high attachment rate as well. So about 90% of the time, those that are participating in the sub-brands are adding other core Torrid products to their basket. And I would add that it is performing substantially higher online than in stores. Although we've distributed Belle Isle particularly to 350 stores and Festi to an average of about 200 to 250 stores, we continue to see a predominance of the demand coming from the digital channel. So we think it's important to continue to bring newness to the store environment, but we're certainly, I think, by reaching a broader audience, reactivating a broader audience, and bringing younger customers into the brand, seeing a predominance even more than our average breakout towards the digital channel.

Great. Thanks so much for the color. I'll pass it on.

Our next question comes from the line of Alex Stratton with Morgan Stanley. Please proceed with your question.

Hi. This is Katie on for Alex. Thank you for taking our question. I just wanted you to look at 2Q specifically. I think the midpoint of your guidance implies a sizable sales growth deceleration. Is there anything going on there? And does that reflect quarterly trends? Or what should we know there?

Hi. This is Paula. How are you? Yeah. So as we had discussed earlier on our call, we are pausing right now our shoe business until further notice. So the majority of that business is currently sourced from China. And that business tends to be lower margin. So at this point, we're pausing it and just essentially reevaluating other partners to support the reentry into that business at higher, more profitable margins. So that impacts about $40 million to $45 million in sales for the year, kind of spread evenly through the balance of the year.

Got it. Thank you. And I don't know if you're giving any color on quarter-to-date trends or if that's in line with your guidance there.

Just think through the guidance, we're continuing to see overall choppy customer behavior, but it's going in both directions. We have some softer times and some stronger times. So we feel and are observing that finds slightly closer to need. And so seasonal categories are coming, their demand is coming in a little bit later. We continue to see strength in our digital channel and look forward to really strong performance as we go through the back of the year where there's a semi-annual sale, our Torrid Cash event, as well as our Afterparty.

Great. Thank you so much.

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

Appreciate it. I'm sure you covered this. Apologies. There's a lot going on tonight. But the planned promotional or the use of promotion strategically through the quarter kind of mixed in with this flow of newness that you're seeing. Can you just remind us sort of the promotional strategy from here? Should those things exist or coexist? And is that more a reflection of the current market? And then as far as the online versus retail channels, is online more promotional or more promotional channels? Thanks.

Hi. This is Ashlee. So we are continuing to be, I would say, as promotional as we typically are. Our cadence of major events, like Torrid Cash, as you mentioned, will be four times a year as historically have been. And as planned. Two semi-annual sale events. And we're responding to general consumer, I would say, consciousness or value orientation with promotional events, which she's been very, very responsive to. So that will continue, and that's implied in our guidance.

Okay. Then I'm just kind of curious about the acceleration in closures. What's behind that? How you're arriving at kind of the 75%, 25% split is the right level? Yes, can we sort of start there?

Sure. I think that, Dylan, the customer continues to tell us that she prefers to shop online. We have talked previously. We're in the mid-sixties in terms of penetration. That penetration keeps growing. That business keeps comping online. We are now acquiring more customers online than we are in the store channel. So all of the trends, and I think we've supported this with marketing strategies, with investment in digital marketing, with the sub-brand strategy and the expansion of product categories, I think the web experience for us is a dramatically powerful channel of her storytelling for our customer. And as we do that, she continues to migrate online. We still are seeing omni power, and we feel strongly that, you know, by closing these underperforming stores, we'll be able to move the fixed expenses associated with those stores. Some of that will go to a higher level of profitability for the company, and some of that will go toward the rightsizing of the digital investment that needs to happen to continue to drive this new customer to the brand. As we see the younger customers coming in, as we see the reactivated customers coming in, the experience for the breadth of it for the product categories, being able to visualize them, outfit them, tell the stories about them has, I think, we've done a tremendous job in driving that visual representation of the brand. So it is the best expression of the brand. We're not giving up on stores at all. We are rightsizing the portfolio. So if you do the math, this ends up at about being 450 stores with this round of closures. And we think we're leaving very few markets. So it's really about the thinning out of existing markets. The customers will still have a close-by store, and just to reinforce, we've seen with the closures, as most recently with the fourth-quarter closures, that we are still transferring slightly higher than 60% of those customers and sales to nearby stores or online. So as we're doing that, we're just rightsizing the business to the demands of the customer and being able to reallocate our resources to the right channel. I think sub-brands have illustrated to us and substantiated our theory that this customer wants more choices and is willing to pay for them, meaning she's willing to pay more for more fashion. And our experience with their response to the sub-brands and the halo effect that it provides to the core business is best expressed online. So that became very, very clear to us that it was time to restructure our portfolio to a digitally led perspective. I hope that answered that.

Much so. Thank you. And last one, can you square the circle? You mentioned it there, the 60% retention but full-year negligible sales impact of closing the stores. Is that just some sort of function of when you're closing them, the fact that you retain maybe increased marketing in other online channels? Just how you get to that kind of neutral impact? Thanks.

Right. So most of those stores will close toward the end of the quarter, and at the same time, we will be ramping up our marketing spend in relation to that. So based on what we've learned from our digital marketing investments over the last eighteen months, we have a high confidence level in our ability to offset the small amount that doesn't naturally transfer with new customer acquisition through the digital channel.

Thank you. And those stores, by the way, are very, very low volume. So, it's less of a hill to climb in terms of replacing those revenue dollars.

Thanks.

And we have reached the end of the question and answer session. I would like to turn the floor back to CEO, Lisa Harper, for closing remarks.

Great. Thanks so much for joining us today. We look forward to sharing the progress in our next call as we reflect on Q2. Thanks so much.

Thank you. And this does conclude today's conference. You may disconnect your line at this time. Thank you for your participation. Have a great day.