Torrid Sees Sales and Traffic Cool Off
Torrid’s first-quarter net sales dropped 11.8 percent to $293.9 million, in what the company said was the most challenging quarter from a year-over-year comparison basis due to inflationary pressures.
The plus-size fashion company generated net income of $11.8 million in the quarter, down 48.9 percent year over year.
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In a Nutshell: Torrid CEO Lisa Harper said on a June 7 earnings call that while the quarter was challenging, the retailer will continue evaluating its cost structure to identify areas where it can improve.
“During the quarter, we managed our business prudently and delivered adjusted EBITDA results in line with our expectations, despite the headwinds created by the economic landscape and weather,” Harper said. “While traffic was volatile and challenging both in-store and online, we experienced good momentum in terms of conversion and average unit retail. These positive indicators demonstrate the effectiveness of our strategy to enhance customer engagement and loyalty.”
She also said that online sales continued to account for more than half of the company’s total net sales. Mark Mizicko, chief commercial officer, noted that Torrid has started to see traction on its margin trends online and is currently testing changes to promotions and customer discounts.
“While overall results were not what we were hoping for, we nonetheless saw many bright spots in the business and have many opportunities to build upon these successes for the balance of this year and for next year,” Mizicko said.
Those successes include the launch of four new fabrics, which went over well with customers, according to the company, presenting the potential for expansion. The Curve business’ swim apparel and coverups drove the quarter with interest in the new category of beachwear as well as strength in novelty and prints. The outdoor active assortment driven by stretch woven, ripstop and Super Soft Performance Jersey also performed well.
“[W]hile we have strengths in the business that we will build on, overall, we can do better at aligning our inventory levels with customer demand at both an item and attribute level,” Mizicko said. “Balancing our assortments across fabrics, colors and fit will allow us to build the business on the back of past success.”
Inventory at the end of the quarter was $175 million, compared to $179 million for the same period last year. Torrid ended the quarter with inventory levels comparatively down 2 percent. Excluding early inventory receipt of around $10 million at the end of the first quarter, inventory declined approximately 8 percent year-over-year.
“Giving the uncertainty in the macro environment, we expect the second quarter to follow similar demand trends that we have seen in the first quarter,” Dempsey said. “For the second quarter, we project net sales to be between $280 million and $295 million, and adjusted EBITDA to be between $32 million and $38 million.”
For the full year, Dempsey told investors that Torrid estimates its sales to be between $1.095 billion and $1.145 billion, with adjusted EBITDA to be between $115 and $130 million.
Net Sales: Net sales decreased 11.8 percent to $293.9 million, compared to $333.2 million for the first quarter of last year. The decline is attributed to Torrid experiencing a traffic slowdown, interim CFO Paula Dempsey said, starting midway through the quarter. Comparable sales decreased 14 percent in the first quarter.
“Despite the presence of short-term obstacles, the long-term view of our business remains positive and we continue to leverage our strategic initiatives as that to evolving consumer demand and optimize operational efficiencies to drive sustainable growth,” Dempsey said. “We are confident in our ability to create long term value for our shareholders.”
The gross profit margin was 37.7 percent, compared to 39 percent first quarter of last year. The decrease of 134 basis points was mainly due to inflationary impact on product costs, an increase in store occupancy and merchandising payroll, which Dempsey said was partly mitigated by the enhanced pricing strategies, among other things.
SG&A expenses in the quarter were $71 million compared to $72 million for the first quarter in the prior year. As a percentage of sales, SG&A was 24.3 percent compared to 21.7 percent year over year, with the increase in the rate of net sales primarily driven by store payroll due to wage pressures in the market.
Net Earnings: Net income for the quarter was $11.8 million, or $0.11 per share, compared to net income of $24.1 million, or $0.23 per share, in the first quarter of last year.
“In addition to GAAP measures, we believe that our adjusted EBITDA is an important measure that we used to evaluate and manage our business,” Dempsey said.
Adjusted EBITDA came in at $38.3 million or 13 percent of net sales, which Harper said was in line with expectations despite the headwinds created by the economic landscape and weather. This was down from the $51.8 million in the 2022 first quarter, which comprised 23.2 percent of net sales.
CEO’s Take: “While the first quarter presented us with some challenges, we remain optimistic about our future,” Harper said. “Our focus is on driving store growth and loyalty remains unwavering and we will continue to adapt to the ever-evolving retail landscape. We are confident that our strategies will enable us to navigate through the current environment and position us for success in the long run.”
