Torrid Holdings Inc.

Greetings. Welcome to Torrid Holdings Incorporated fourth quarter 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 Jean Fontana with ICR. Thank you. You may begin.

Good afternoon, everyone. Thank you for joining Torrid's call today to discuss fourth quarter and full year financial results for 2021, which we released this afternoon and can be found on our website at investors.torrid.com. With me today on the call are Liz Munoz, Chief Executive Officer of Torrid, and George Whaless, 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 familiar with. Management may make forward-looking statements including guidance and underlying assumptions. Board-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 SEC. This call will contain non-GAAP financial measures, such as adjusted EBITDA and adjusted EBITDA margins. 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 Liz Munoz.

Good afternoon, everyone, and thank you for joining us for the discussion of our fourth quarter and full year results. Firstly, I want to thank our employees for their incredible performance and commitment to our brand, our customers, and our mission. I would like to especially acknowledge our employees in the distribution center and in our stores who physically came into work throughout the pandemic. This dedication to our customer is at the core of everything we do, and we are so grateful for their service. There are three things I want you to take away from today's call. First, we delivered record performance in 2021, achieving top-line sales growth and strong profitability, far exceeding our long-term targets. Second, we made significant progress across all our growth strategies, And third, despite macro headwinds in 2022, we remain as confident as ever in our ability to achieve our long-term targets. Starting with our 2021 performance, net sales grew 31% versus 2020 and 23% versus 2019. Adjusted EBITDA increased by 144% over last year and 86% versus 2019, and adjusted EBITDA margin reached 19%. Importantly, we achieved these results in the face of pervasive supply chain challenges and cost pressures, demonstrating the strength of our brand and strong execution against our growth strategies. In Q4, we delivered 5% comparable sales growth despite the impact of Omicron on our business, especially during the Torrid Cash Event in January. The fourth quarter marked our 38th positive comp in the past 40 quarters, and demand for our brand remained strong. And despite the gross margin pressures related to these macro issues, We delivered $28 million in adjusted EBITDA, which was a 58% increase in pre-COVID 2019 levels. Importantly, we ended the quarter in a strong inventory position heading into the spring selling season. Second, we made significant progress on our growth strategies in 2021, and we are well positioned to advance these further in 2022. Specifically, We grew our current business by 42% to nearly $310 million in sales, far exceeding plans. We grew active customer count by an impressive 20% to $3.8 million, a record high. We delivered product innovation that contributed to a 9% increase in spend per customer. And we continued to advance our unified commerce model, delivering e-commerce growth of 18% While stores remained our number one way of acquiring new customers to the brand, we are extremely proud of this performance as we continue to expand our customer reach within this underserved $85 billion market. And now I would like to further highlight our progress on advancing our growth strategy. First, Curve. Curve is our largest growth opportunity, and we continue to be very excited about the pace and the consistency of its growth. Curve revenue grew 42% in 2021, and we see this becoming a $1 billion business. During the fourth quarter, we rolled out an expanded assortment of Curve to 74 stores. Sales in these stores achieved a mid-teens lift in performance to date, resulting in comp growth ahead of our fleet average. We also continue to see strong reception to our wire-free bra offering that delivers both comfort and sexiness and we remain focused on ushering customers into our bras to drive both retention and average spend. Looking ahead, by the end of the second quarter, we plan to launch a Curve dedicated online tab experience, which will enhance the way our customer experiences Curve on our website. We will also roll out our expanded Curve assortment to as much as one-third of the fleet over the course of the year. and we are very excited about a pilot of up to 10 curved standalone stores in the second half of 2022 focusing on markets where we see strong demands for intimate in 2022 we will continue to build our product offering and drive growth with innovation and launches that we know she wants in q1 We launched our Happy Camper collection within Curve, which brought much-needed outdoor wear to our girl. The collection has driven a 30-point increase in activewear sales comp in the four weeks post-launch and is a testament to our unique understanding of our customers' needs. This early success further demonstrates our ability to incubate and bring new ideas to market where we believe our customer is underserved. Our second strategy is focused on building brand awareness to acquire new customers as we continue to grow market share. We are funding top of funnel marketing investments to drive customer acquisition with spend focused on channels she engages in. This past quarter, we tested billboards in select markets and have seen a meaningful lift in acquisition in these test locations. Recently, we segmented our total addressable market of 90 million women into a subset of 20 million who have been identified as lookalikes to our core customer. In the first half of 2022, we are focusing our marketing efforts around this 20 million subset by increasing our media investment to the top 17 markets where she lives. We are also testing on TV where she still has a strong presence. And our TV spot called Say Yes is launching next month. Our third strategy is focused on increasing wallet share with existing customers by continually expanding our product offering through launches, introductions, and innovation, as well as enhancing the customer experience online, in stores, and with the new app. We once again delivered growth in every single category. illustrating our ability to identify and deliver product with unparalleled fit that addresses every occasion of her life the consistency and superiority of our fit is exemplified by our industry leading nine percent return rate which includes difficult to fit categories like swim and bras the quality of our fit and our offering is further demonstrated by the fact that one-third of our revenue comes from sizes 10 to 16. These customers can shop just about anywhere and they choose to shop at Torrid. We have a large and growing loyalty program with 3.5 million members representing 95% of our customers. We segment this program into three tiers. Our highest two tiers, loyalists and VIP, spend over three times more than the average Torrid customer. and we grew their average spend by 28% last year. Additionally, we are actively expanding our base toward credit card holders who make up over a third of brand sales and spend more than two times compared to non-card holders. Our strong loyalty is further driven by our ability to consistently deliver product innovation and create excitement for the customer. In fall 2022, we will relaunch Studio, which is modern workwear focused on a refined, comfort-based offering across our core categories. This collection is the biggest launch in our brand's history because it reaches across a number of categories and highlights new wash and wear fabrications. We are especially excited about this launch as she prepares for her return to work. Our fourth strategy is to advance our unified commerce model, offering our customer an inspiring experience wherever and however she wants to shop our brand. We will continue to invest in marketing. Stores remain the number one way in which new customers discover Torridge. This is part of the reason we are able to maintain attractive customer acquisition costs. We continue to expand our store base with the addition of 22 stores this year, which have collectively performed better than expectations. Our stores provide an unparalleled shopping and fitting room experience, combined with passionate and knowledgeable associates, enabling us to interact with customers in a deeply personal and powerful way. This experience fuels our e-commerce channel, which accounted for 63% of net sales in 2021 and has grown at a 31% CAGR over the past five years. We know that our unified commerce model drives higher revenue per customer and increased retention, evidenced by the omnichannel customer who shops 3.4 times more than the single-channel customer. We enhanced our digital shopping experience with the recent launch of our next-generation mobile app. The new app offers expanded search functionality, personalized notifications, and additional payment options. While it remains early, we are already seeing an increase in product views and higher order values on the app. We will continue to invest in our mobile app experience by expanding omnichannel capabilities such as BOPUS and Shop by Store, better integrating loyalty features, and creating a curved tab directly within the app. We will also be launching SMS texting in May. We believe that both the app and text messaging are strong tools for us to drive sales and engagement in a more personalized way. And finally, we continue to leverage our organization and infrastructure investments, including the launch of a new technology in our distribution center that will improve throughput and efficiency to help offset labor challenges. We expect it to go live in Q2 and will enable us to more than double our throughput. We are also addressing supply chain challenges, which we expect to persist into 2022 by managing areas that are within our control. As part of these efforts, we have formed a speed committee where we are analyzing our full production cycle in order to reduce lead times and increase efficiency. Sustainability and social impact is front of mind for us, and we have engaged an outside agency to help us refine our efforts and establish goals. We are still in the early stages, but we've started to look at how we are producing our apparel and make changes where we see opportunity. For example, now we manufacture about a third of our denim utilizing laser technology instead of water. Additionally, we are proud of our accomplishments in the past year with diversity and inclusion, which is important to me personally and important to our team. Our workforce has completed over 3,000 hours of training across the business to build deeper trust and equality within our teams, and we will continue to make D&I a focus at Torrid. And lastly, the Torrid Foundation raised and distributed over $2.5 million across the YWCA, GLAAD, and National Breast Cancer Foundation, and we remain committed to supporting these incredible organizations in the future. Looking ahead, while we recognize that we are in an uncertain environment given the rapid rise of inflation and gas prices, we remain confident in our ability to drive high single-digit annual net sales growth and low double-digit operating income growth over the long term. We have an incredible brand, and we are uniquely positioned to serve this customer with the product we know she wants and unparalleled fit. Finally, I would like to acknowledge that this is George's last call as our CFO. George has been an incredible partner to me and to the entire team at Torrid, and we will certainly, certainly miss him. And we thank him for his outstanding leadership and contributions, and we wish him the very best in his retirement. As I mentioned before, George will remain in the CFO role through April, and we have an ongoing search for a replacement considering both internal and external candidates. I have the utmost confidence in the strength of our finance team, and I am pleased that George has agreed to act as a strategic advisor to the company after his departure. I know that if I ever need him, he's only a phone call away. And with that, I will now hand the call over to George to provide more detailed financials on the quarter and the year.