Torrid Holdings Inc.

Greetings and welcome to the Torrid Holdings, Inc. Second Quarter Fiscal 2022 Audience 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 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 your host, Ms. Adams. You may begin.

Good afternoon, everyone. Thank you for joining Torrid's call today to discuss second quarter financial results for 2022, which we released this afternoon and can be found on our website at investors.torrid.com. With me today on the call are Lisa Harper, Chief Executive Officer of Torrid, and Tanner McDiarmid, Interim 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. Forward-looking statements are based on expectations that involve risk and uncertainties that could cause actual results to differ materially. For a further discussion of risk 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. Reconciliation 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.

Thanks, Vince. Good afternoon, everyone, and thanks for joining us for discussion of our second quarter results. Before I start, I'd like to take a moment to acknowledge and thank the team at TORED that's been so resilient as we've navigated many important initiatives over the last quarter. I've been back at Torrid for four months now, and I'm continuously impressed by the passion and dedication of our employees. During the second quarter, we made progress against priorities that we laid out on our last call, and we remain focused on making the necessary improvements to drive long-term sustainable growth. As a reminder, my top three priorities for the business are Number one, to enhance promotional and marketing strategies to better balance margin and sales growth. Number two, to drive growth that costs multiple opportunities. And number three, to develop a more efficient and effective organization by realigning resources. On today's call, I'll update you on our second quarter results and provide details around the progress we've made around each of these priorities. Starting with our second quarter results, net sales grew 2% to $341 million. which was in line with the high end of our updated guidance. Although we have a very loyal customer at Torrid, we are not immune to the macro and industry-wide challenges that have impacted consumer sentiment and customer demand. Our storage experienced a decrease in year-over-year traffic as customers dealt with higher fuel prices and overall inflationary pressures that impacted demand. We were pleased, however, to see an increase in web traffic along with higher conversion rates. We also rolled out planned upgrades to our distribution center during the quarter that created temporarily unanticipated headwinds in our fulfillment process. We were able to successfully complete the upgrades in July, and the fulfillment center is now operational with orders shipping within our service level agreement. Customers have noticed the improvement in delivery time, and we are receiving positive feedback across our social channels on the changes. Gross margin rate was 34.9% for the quarter, and adjusted EBITDA came in at 52 million. During the quarter, we focused on clearing through seasonal inventory, which led to higher promotions and markdowns that impacted our gross margin rate. We will continue to focus on clearance through the first part of the third quarter, and we have bought receipts to be more balanced in the back half of the year. In addition to managing our inventory and upgrading the capacity in our distribution center, We also successfully launched a new ERP system during the quarter. These are enormous accomplishments, and the team and I are proud of the progress that we've made. This brings me to the three main priorities. Our first priority is to refine our marketing and promotional strategy. We continue to believe that there's an opportunity to reduce site-wide promotion and to realign our marketing and merchandising strategy. As we move into the back half of the year, we'll be testing into more category-focused promotions based on price elasticity with the goal of reducing discounts on styles with the strongest natural demand. We're implementing these changes on site, and we've started providing percentage discounts based on inventory and demand as opposed to blanket promotions. This is the first step in refining our promotional cadence and driving margin improvements. In marketing, we're focused on capturing customers through our dressing room experiences in stores where our most valuable customers discover and fall in love with the brand. Despite the pressure in the macro environment, stores remain our number one acquisition channel, and we know that customers acquired through the stores spend 25% more in their first year compared to those acquired on the web. We also have the strategic advantage of a profitable store fleet that offers an unparalleled shopping and sitting room experience, with new customers going on to engage with Torrid across both channels. In addition to driving customers into our stores, we've been refining our online marketing strategy, and we were able to deliver improved efficiencies in our spend while still building a healthy customer file through a focus on both acquisition and retention. During the second quarter, we began targeting lapsed customers more aggressively through email campaigns and our other digital channels, and we saw a 600 basis point comp improvement in reactivated customers versus the first quarter trend. We will continue to reevaluate our marketing spend throughout the year and reallocate to where we see the most opportunity to acquire and retain customers. This brings me to my second priority, which is driving growth across categories. We have exciting launches coming in the third quarter that we believe will help accelerate our business. Our modern workwear line, Studio by Torrid, launched today and is the biggest launch in our brand's history. We're excited to bring our customer an elevated assortment through a refined, comfort-based offering as she prepares for her return to work. We've also seen success with our woven, pants, sweaters, and dresses, and we'll be offering more fashion in these categories in the back half of the year. While product remains a competitive strength, we do believe our assortment has been too reliant on basics, and we are shifting our merchandising strategy to offer a better balance between fashion and basic style. Additionally, we will focus our assortment on more where to work and products with a celebratory end use. We are also adding more newness, color, and excitement for their upcoming fall assortment, and we're elevating our marketing approach through better storytelling around our product and fit across all channels. These efforts kick off starting with our studio launch and continue into the back half of the year with holiday. Within Curve, we're opening eight Curve test stores between now and the end of the year. We still believe in the long-term growth potential of Curve, and we have plans to innovate our assortment through an evolution in our bra and panty businesses. My third priority is to improve our organizational structure. As promised last quarter, we've made two key hires that I believe will be instrumental in helping us drive growth and scale in the business. Tim Martin, our new Chief Operating Officer and Chief Financial Officer, is a seasoned retail executive who brings more than 25 years of experience across a variety of consumer-facing companies. He has experience in the public markets and will be critical to unifying the operational and financial aspects of our business. Han Park recently joined as our Chief Technology Officer, reporting to Tim, and he will lead the team in building an integrated technology platform. Han also brings 25 years of information technology and consulting experience across retail and direct-to-consumer companies, and will be pivotal in helping to build more robust technology and digital capabilities. With respect to infrastructure, we have made significant progress across the organization. The changes to the distribution center have doubled our capacity and has more room to scale. As part of our efforts to drive efficiency, we negotiated a new private label credit card agreement that includes plans to streamline the cardholder experience through better marketing and technical enhancements. The upgrades we made to our Oracle ERP system will also allow for enhancements to our website and better integration of data across the organization. In closing, we believe that the changes we are making to the business will position us for long-term healthy growth. We expect to see the benefits of the changes as we move through the year and into fiscal 2023. And with that, I'd like to turn the call over to Tanner to provide more detailed financials on the quarter and our updated guidance.