Greetings, and welcome to Torrid Holdings Second Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. It is now my pleasure to pass it over to 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 second 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; Ashlee Wheeler, our 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, September 4, 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. With that, I'll turn it over to Lisa.

Thanks, Chinwe. Hello, everyone, and thank you for joining us. Today, I will review our second quarter performance and provide an update on our strategic initiatives, including the enhancement of our product assortment, driving customer growth and executing our store optimization plan. We are currently executing our strategic plan. Our 5 new sub-brands are resonating with the customers and will represent 25% to 30% of our assortment next year. We're on track for meaningful cost savings in fiscal 2026 as we execute our store optimization plan by closing up to 180 stores this year, reallocating our resources to respond to our customers' shopping preferences. We believe this strategic shift, combined with continued inventory productivity, will deliver a substantive increase in free cash in 2026 as well as delivering approximately 150 to 250 basis points of adjusted EBITDA margin expansion. That margin expansion is net of planned incremental marketing investments. We plan to utilize the growing free cash flow to reduce debt and repurchase shares, which we believe positions us to deliver stronger performance and create long-term shareholder value. Let's go over our second quarter results. We delivered net sales of $263 million and EBITDA of $21.5 million, in line with our expectations. Our comp sales were down 6.9% for the quarter due in part to headwinds related to restructuring our footwear business and the movement of our model search activation from Q2 to Q3. We experienced strong demand during our semiannual sale event in June, but softer holiday peaks over Memorial Day and 4th of July, which led us to be more promotional than we had anticipated to drive conversion. We continue to see customer sensitivity and value orientation given the current environment. During the quarter, we saw strength in bottoms, both denim and non-denim, dresses and swim, which were…

Thank you, Lisa. Good afternoon, everyone, and thank you for joining us today. I'll begin with a review of our second-quarter financial performance and then provide our outlook and guidance for fiscal 2025. Our second quarter results were in line with our expectations for both net sales and adjusted EBITDA. While sales trends fluctuated throughout the quarter, we remain focused on disciplined expense management and execution of our store optimization strategy. Net sales for the second quarter were $262.8 million compared to $284.6 million in the prior year. Comparable sales declined 6.9%. Gross profit was $93.5 million compared to $110.3 million last year. Gross margin was 35.6% compared to 38.7% a year ago. SG&A was favorable by $6.3 million, resulting in $70.5 million in Q2 compared to $76.8 million in the prior year. As a percentage of net sales, SG&A leveraged 20 basis points to 26.8% versus last year. The year-over-year favorability in SG&A continues to be primarily driven by our store optimization efforts as well as prioritization of company-wide projects. We strategically increased our marketing investments by 30 basis points in Q2 compared to last year to support the rollout of new sub-brands. We also invested in creative brand-building campaigns to attract new and younger customers. Net income was $1.6 million or $0.02 per share compared to a net income of $8.3 million or $0.08 per share in the prior year quarter. Adjusted EBITDA was $21.5 million, representing an 8.2% adjusted EBITDA margin versus $34.6 million and 12.2% adjusted EBITDA margin last year. We ended the quarter with cash and cash equivalents of $21.5 million compared to $53.9 million in the prior year. As of August 2, we had $7.9 million drawn on our revolving credit facility. During the quarter, we repurchased approximately 6 million shares of our common…

[Operator Instructions] And our first question comes from the line of Corey Tarlowe with Jefferies.

Lisa, how would you characterize the health of your customer and the appetite for newness that you've infused into the business? And then is there a way to put context around the lift that you're seeing from some of the sub-brands in stores and what that's expected to look like over the remainder of the year?

Sure. Thanks, Corey. I would say that our -- the health of our existing customers is very strong. We see continued improvement in terms of especially our top-tier customers of their engagement and the transactions associated with that. We made an assessment, I would say, 18 months ago or so, maybe a little bit longer that we needed to reinvigorate the quality and innovation and relevancy of our product. And we've worked very hard over that time period and are very pleased with the customer reaction to the launch of those sub-brands and the halo that it gives some of our core businesses like denim and non-denim bottoms and intimates. So we're really pleased with that. We launched our very first sub-brand right after Christmas last year, 12/27/24. And we didn't have a robust delivery of sub-brands in the first half of the year after those initial launches, primarily because we wanted to see if they were going to work before we really chased into them. So the launches that -- based on the success of the launches in the first part of the year, we have chased into the back part of the year. And all of the sub-brands, except for LoveSick, will deliver on a monthly basis from here until the -- and on the go-forward. As that happens, we would expect sub-brands to be about a total of 10% of our total business next year. And as we -- I mean, this year, and as we annualize all of that, we expect it to be about 25% to 30% of the business next year. We are bringing new customers to the brand and in some cases, younger customers to the brand through these launches. LoveSick is a little early in terms of assessing the customer impact, the…

Did I just wanted to follow up. I just wanted to follow up on the outlook for the year. Is there a way you could put into context the EBITDA outlook change? And I know you're investing more in marketing, but how are you thinking about the other aspects around promotions and investments in the business as we look throughout the remainder of this year and maybe what stays in the business or what comes out even as you think about what next year could look like as well?

Yes. There are a few things, obviously, that have impacted us we've talked about, obviously, the largest being tariffs. And so we think the total hit for tariffs this year is cumulatively about $50 million. We've offset 80% of that and offset $40 million of that impact. And essentially, the impact of the EBITDA for the balance of the year really just presumes that we don't have more expenses to cut or more margins to drive associated with that last $10 million of tariff impact. We've done a lot on the sourcing side, and we'll continue to move on the sourcing side to offset that as we move forward. But I think primarily, the impact is that hit of tariff that is above and beyond what we had contemplated in our previous communications as well as -- why don't I let Ashlee talk about some of the promotional efforts and things like that.

Yes. Corey, so from a promotional standpoint, as Lisa noted, we have continued to see some choppiness with the customer. So we've responded to that with some additional promotional activity that wasn't originally contemplated to drive conversion efforts. We expect that to continue throughout the balance of the year in this environment. And then, beyond the $10 million associated with tariffs that Lisa mentioned, the incremental marketing investment. But at this point, we're really positioning more upper funnel awareness and consideration focused to drive the type of behavior and set us up for 2026 growth to support sub-brand acceleration.

And our next question comes from the line of Brooke Roach with Goldman Sachs.

This is Savannah Sommer on for Brooke Roach. There was a lot of ground covered on the call, and it's really great to see the continued momentum with the sub-brands. You've discussed planning the sub-brands to be 25% to 30% of the assortment next year. I was curious what you expect that mix to go to over time. How do you think about the margin opportunity and the associated timeline there as the brands continue to scale?

Are you asking scaling post '26?

Yes, that's correct.

Okay. So we've discussed before, and we're still very happy with the margin profile that we're seeing in sub-brands. And it's delivering hundreds of basis points higher in product margins than the bulk of the business. And we're seeing that consistently perform as we roll out more and more deliveries of these. I think there are a few ways that we contemplate expansion past 2026 in this business, whether there are -- and we'll test some of these ideas next year, whether there are stores that we convert to more of a focus on sub-brands. We've refixtured about 135 stores so far this year, and we'll refixture the balance of the stores by the beginning of next year. That allows that refixturing allows a lot more flexibility in the existing stores. We already deliver 4 or have delivered 3 and are adding a fourth sub-brand that are that will roll out to stores that have rolled out the stores and we will continue rolling out the stores through the back half of the year. Some of our brands go up to over 200 stores in terms of their distribution. So we are learning a lot this year in terms of what those expanded assortments provide to the store experience for the customer. There are things that we will test next year, the idea of pop-ups, the idea of stand-alones for some of these brands. Our 2 largest brands at this point are Belle Isle, which is the more preppy kind of East Coast mentality brand and then Festi, which is the more boho free-spirited type of brand. And those are 2 brands that would be candidates for pop-ups or a more expansive store assortment. And then we'll learn and keep you guys apprised of that as we move forward. The…

And our next question comes from the line of Janine Stichter with BTIG.

You've got Ethan Saghi on for Janine. So to start, could you provide any color on how the business performed exiting Q2 through August?

Yes. So I would say, based on the results of Q2, what we saw was a little bit softer performance throughout peak holiday period. So we didn't see the acceleration that we would normally see over, say, Memorial Day or 4th of July. But outside of that, the business performed as aligned with our expectations. We had a really, really strong June semiannual sale event that we were very pleased with. The consumer, as we've mentioned, remains a little bit value-oriented more so in this environment. And so we've responded to that with promotional activity to drive conversion efforts. And that's remained fairly consistent throughout August as well so far.

Got it. That's super helpful. And then just a follow-up for me. So have you seen any customer pushback following your price increases? And then just could you elaborate on how you're thinking about additional price increases for the back half of the year?

Our price increases related to tariffs are de minimis and very product-specific. It's not an across-the-board price increase. So we haven't had specific pushback related to price increases related to tariffs. We have, however, and have always had and consistently had the #1 complaint of our customers is pricing. And I'm not sure that we're the only retailer that experiences that. I had announced a couple, I don't know, maybe 1.5 years ago, really focused on opening price point product. And we did launch that. However, we lost -- I have to be honest, we lost our way a little bit as tariffs kind of came on board and we were managing a very, very different problem in terms of production and pricing, cost of goods, supply chain. While I feel like we've done -- the team has done a tremendous job in managing that, we still recognize that we have an opportunity an opening price point product. And to that point, as we move into next year, we anticipate about 25% of our assortment -- 25% of our sales in our apparel business will be opening price point. And that is a tremendous undertaking with merchandising design and product development, ensuring that we can uphold our quality but bring a better value to the marketplace for the customer. So if you think about kind of the range of our business next year, I think about 25% to 30% in sub-brands, about 25% in OPP and the balance is more of the core business. And that's how we're structuring it as we move forward. I think that is an enormous opportunity for us as probably as valuable as the product innovation that we brought to the marketplace. And I'm very excited about bringing that to the customer as we go into first quarter of next year.

And with that, there are no further questions at this time. I would like to pass it back to Lisa Harper for closing remarks.

Great. Thank you, everyone, for joining us today. We look forward to keeping you in the loop on our advancement of our strategic initiatives. Thanks. Look forward to talking to you next quarter.

Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect and have a wonderful day.