Torrid Holdings Inc.

Greetings and welcome to Torrid's second quarter of 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Jessica Schmidt with ICR. Thank you. You may begin.

Good afternoon, everyone. Thank you for joining Torrid's call to discuss its second quarter results, which we released this afternoon and can be found on our website at investor.torrid.com. With me on the call is Liz Munoz, Chief Executive Officer of Torrid, and George Wayless, Chief Financial Officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're all 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 SBC. This call will contain non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margins. Reconciliations of these no-gap measures to the most comparable gap measure are included in the earnings release, furnished to SEC, and available on our website. Now I would like to turn the call over to Liz Munoz.

Good afternoon, everyone. I'd like to thank you for joining our earnings call. We are super excited to be hosting our first earnings call as a public company following our successful IPO. today we will be discussing our strong financial performance for the second quarter and providing detail on the growth strategies that position us to deliver strong and sustainable financial performance over the long term before i get started i'd like to thank our associates and our customers throughout this trying and difficult environment our associates remain dedicated to and focused on serving our customers who are truly at the center of everything we do. Our IPO in July was a tremendous milestone for everyone at Torrid and we could not have achieved any of this success without the commitment and enthusiasm of our associates as well as the loyalty of our customers. At Torrid, our mission is to help curvy women everywhere know the confidence and excitement that comes from getting dressed every day in apparel and intimates that accept, celebrate and honor her and her body. We aim to be the best direct-to-consumer apparel and intimates brand for women across a wide range of sizes from 10 to 30 by providing an unparalleled fit and a meaningful customer experience that truly empowers curvy women to love the way they look and feel. We attribute the strength of our brand to our maniacal focus on fit and on delivering an incredible customer experience that underscores our commitment to this underserved market. Turning briefly to our extraordinary performance in the second quarter, and George will discuss this in much greater detail, net sales grew 34% to the second quarter of last year and 29% compared to 2019. We were very pleased with the strong growth in our business. which was driven by new and existing customers. We saw heightened customer demand for new outfits as she returned to a more social lifestyle. Our comparable sales growth is a continuation of our long track record, reflecting positive comps in 36 of the last 38 quarters. Adjusted EBITDA of $87 million was meaningfully above last year's 34, and our EBITDA margin expanded over 1,300 basis points to a record 26%. All that said, we are still in the early innings of our growth and the opportunity is massive. But before sharing our strategies, I would like to take a moment to ground everyone on why Torrid is so uniquely positioned within a highly attractive and underserved market. First, we operate in a large and growing market that is categorically underserved and has meaningfully untapped potential. Apparel and Intimates for women, size 10 to 30, is an $85 billion market that is growing two times faster than the U.S. women's apparel market. No one serves this customer the way we do because it takes years years and years of focus, dedication, and expertise to build the arsenal of fit and solution-based products that we offer her. Second, our deep connection with our customers has allowed us to build a loyal and passionate customer base, as well as create exceptional visibility into our customers' preferences. We have a comprehensive and growing loyalty program with over 3 million members, which make up 95% of our sales. Within social media, we have two and a half million followers across Facebook, Instagram, Pinterest, YouTube, and more recently, TikTok, with a growing customer following and an abundance of impactful user-generated content that our customer loves to see. Our customer testimonials are powerful examples of this authentic connection we have created. And I would like to share a letter I just received to demonstrate how we are changing her life. It starts with, I can't begin to tell you how good your clothes make me feel. I never thought I could feel as beautiful. To wear clothes I love that fit me the way clothes should is nothing short of a miracle. Your clothes have given me a confidence I didn't know I had in me anymore. I am brought to tears just writing this because I'm so thankful to you and to all. Thank you for helping me love myself. Thank you for making it fun to get dressed every day. That is just one of many that we receive and it is a testament to how much she loves our product. Third, our data-driven, low-risk merchandising model helps us provide a broad assortment of proprietary products with a distinct style, and we provide them when and where she wants them. Our flexible operating model allows us to quickly read and react to our customers' preferences and to consistently meet her needs for great, fitting, quality product at a tremendous value. Our close relationships with our customers provides us with constant valuable feedback that we deploy to continually provide her with the things she needs and wants. We further leverage this feedback and our extensive fit capabilities to expand into categories that drive high loyalty, such as blue jeans, bras, swim, and shoes. The effectiveness of our merchandising strategy is illustrated by our ability to grow our business across all of our categories year after year, as well as by our consistently high penetration of regular price sell-throughs at over 80% of our total sales and also supported by our wildly low 9% return rate. And finally, we have created a dynamic direct-to-consumer unified commerce model that truly offers an inspiring shopping experience whenever and wherever she wants to shop the Torrid brand. Our stores offer an immersive fit experience, and that, along with our passionate associates, helps her find what she needs to look and feel as great as she can. For so many of our customers, there is no other place where she can get dressed up and hear, oh my gosh, you look amazing. This only happens in our stores. This exceptional in-store experience in turn fuels growth in our e-commerce business. Our e-commerce platform provides convenient access to our broad product assortment and accounted for nearly 70% of our net sales in the trailing 12 months ending Q2 of 2021. In that Q2, we saw sustained momentum in our e-commerce business, while traffic to our stores continued to improve sequentially as customers returned to in-store shopping. To further enhance our shopping experience, we have invested in omnichannel capabilities, including buy online, pick up in store, ship-from-store, curbside pickup, order-in-store, and Zoom store consultations. We launched ship-from-store in 400 locations in the second quarter and have plans to further expand our BOPUS offering as well. We will continue to build upon these capabilities as we launch our next generation mobile app by early next year. We believe our stores will continue to play an integral role in customer acquisition and providing an immersive customer experience post-COVID. Longer term, we will continue to selectively open approximately 25 new stores annually in targeted markets. From an organizational standpoint at Torrid, we are committed to cultivating a workplace where diverse perspectives and experiences are welcomed and respected. During the second quarter, we advanced our diversity and inclusion goals with the implementation of a four-course series called Leading for Inclusivity, encouraging our leaders to support and foster both open dialogues and collaboration. Among other initiatives, we also launched an internal D&I website to provide employees with diversity, equity, and inclusion resources, as well as information and educational opportunities. This initiative is important to all of us at Torrid, and one we are committed to. Our organization is diverse in many ways, with 93% of our employees identifying as female, and we will continue to do the work to hire into and promote diversity and inclusion in all areas of our business. Looking ahead to third quarter and beyond, we remain focused on executing our strategic plan and leveraging our existing infrastructure to drive profitable, sustainable long-term growth. Our key drivers of growth consist of the following. First, we have significant opportunity to grow our Torrid Curve Intimates business. We believe the Intimates category will continue to drive customer acquisition, enhance customer loyalty, and increase basket size. As evidence of this, bras are the number two entry item purchased by new Torrid customers in both stores and online. Our bras are game changers for our customers. From our patent pending 360 smoothing technology, to our revolutionary wire-free bra. We are truly giving her things she has asked for, but in a very new and compelling way. To continue the momentum in our Curve business, we are in the process of testing an expanded assortment of Curve products in select stores, of which we are seeing promising results, and we plan to launch a dedicated Curve web experience in 2022. We are supporting this with marketing campaigns that target specific customer segments with personalized offerings to encourage first purchases of Torrid Curve. Second, we are taking initiatives to deepen our customer relationships and expand wallet share with our existing customer base. We constantly offer product flows to create customer excitement and keep her engaged. Some recent examples include brand collaborations like Betsy Johnson, the launch of Lovesick, and our unique licensed offerings. We also plan to leverage our customers' trust in products and fit by expanding our offering into nascent categories such as footwear, scrubs, and special occasions, among others. We're also building on our loyalty program to improve customer engagement through various activation initiatives. These include offers that strategically drive customer purchases across categories that deliver long-term customer value. For example, we know a customer that buys into bras, jeans, and tops is our most valuable. So we are sending customers who have purchased tops and denim from Torrid a reward to be used on bras to drive our curve business. We are highly encouraged by the participation in this test, by the incremental results on bra customers, and that it is still merch margin accretive. Third, we are focused on attracting new customers to Torrid by increasing brand awareness and accelerating customer acquisition across all channels. Our brand awareness is approximately 31% today, and we only have captured 4% of the potential customer base in the United States, illustrating the massive opportunity ahead of us. To capture this opportunity, we are continuing to invest in social media channels where we are currently present, as well as testing emerging platforms. We are expanding our influencer ambassador program, which we launched during the second quarter and are encouraged by the social engagement we're seeing. We are also expanding our presence on TikTok, which we know is a big untapped opportunity for us. We will also continue to invest in community events both online and in-store to drive customer engagement and further our commitment to represent the diversity of our brand. In May, we launched a virtual casting call to discover and celebrate inspiring women within their communities. We had over 7,000 applicants and our customers chose 10 winners who we will feature in our holiday 2021 campaign. We are following up this successful campaign with one focused on highlighting our own employees and associates, many of which started out as toward customers before joining our company. We are also continuing collaborations which generate excitement and support causes that are important to us and to our community. During the second quarter, we launched our Celebrate Love Collection, which is a collaboration with GLAAD, and our performance exceeded all of our expectations. In the third quarter, we will launch our Breast Cancer Awareness Collection with the National Breast Cancer Foundation. And finally, we will continue to leverage the investments we've made in our organization and our infrastructure, particularly related to data analytics and omni-channel capabilities to drive continued profitable growth. As evidenced by our company record EBITDA margining Q2, our investments in our distribution facility and rollout of omni-channel capabilities provide a significant operating leverage, which we will continue to benefit from as we grow. And before I turn the call over to George, I would like to discuss the macro challenges we are seeing as an industry today. Our manufacturing base and our long-term relationships with our vendors remain very strong. Our primary concerns are around getting products into the United States and the related costs. The global supply chain remains challenged with the resurgence of COVID in certain markets, as well as port congestion, higher freight costs, coupled with inflation. While we believe these challenges are largely transitory and will not impact our long-term view of the business, we are actively taking steps to mitigate the pressure in any area we can, which George will speak to more in a moment. In conclusion, over the last four years, we've taken measures to enhance our infrastructure and strategies, which have enabled us to establish a leading market position in North America. What's even more exciting is that we believe we are just getting started. We have enormous opportunity to serve this meaningfully underserved customer segment in a way that she has never experienced. I am inspired by the brand loyalty we have garnered over the years, as well as by the passion of our team. We are confident that our proven strategy will drive profitable long-term growth for years to come. I will now turn the call over to George to discuss our second quarter financial performance in greater detail. He will also provide you with our financial outlook for the full year as we grow and build upon the success of our brand.