Torrid Holdings Inc.

Greetings and welcome to the Torrid Holdings Third Quarter Fiscal 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vince Adams, SVP Finance. Thank you, Vince. You may begin.

Good afternoon, everyone. Thank you for joining Torrid's call today to discuss third 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 Tim Martin, Chief Operating Officer and 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, This call will contain non-GAAP financial measures, such as adjusted EBITDA and adjusted EBITDA margin. 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 Lisa.

Thanks, Vince. Good afternoon, everyone, and thanks for joining us for a discussion of our third quarter results. I'd like to start the call by recognizing the Torrid team for their complete dedication to business as we face a choppy macroeconomic backdrop. Despite external pressures, we've remained steadfast in our goal to deliver exceptional product anchored on our world-class fit. I'd also like to officially introduce Tim Martin, who is joining today's call as our Chief Operating Officer and Chief Financial Officer. Tim brings a wealth of experience to Torrid, and he will be instrumental and helping us deliver on our strategic priorities. I look forward to you learning more about TEM and Torrid as we move forward. Now moving into our quarter results. Despite the challenging environment in late Q3, our net sales and adjusted EBITDA were within our expectations. During the quarter, we saw the customer respond favorably to new product introductions, including the launch of our studio line of where-to-work styles. However, similar to the trends experienced at other retailers, we saw a slowdown in consumer demand during the month of October that coincided with our Torrid Cash event, which typically makes up a large portion of quarterly sales. As a result of this softness, the comparable Torrid Cash event was down double digits versus last year and prior quarters, which negatively impacted performance. As we worked to right-size our inventory levels in the third quarter, we added incremental discounts and promotions, which pressured margins. We were able to make headway clearing through inventory, ending the quarter with total inventory up 25% to last year. While this was a significant improvement relative to the second quarter, it is still somewhat higher than we would like, primarily due to the softer demand we experienced late in the quarter. We are focused on ending the year with clean inventory and expect to be promotional in the fourth quarter to end the year well positioned for 2023. We also continue to work on the priorities that I laid out previously. Key among these was enhancing our promotional and marketing strategies to better balance margin and sales growth. We are still in the test and learn stage of our promotional changes, and there continues to be significant opportunities for us to improve margins. Elevated inventory levels have limited our ability to pull back heavily on promotions this year. As we moved into 2023, we expect inventory levels to be much more balanced, which should enable us to further adjust our promotional strategy with the goal of expanding margin. We have had an opportunity to test different types of margin-enhancing promotions that we will be able to implement more fully next year. In terms of marketing, we are focused on driving customers to store, and building the quality and quantity of our customer file. We know that stores are where the majority of new customers first discover and fall in love with our brand, and we view stores as a critical acquisition and engagement vehicle. For example, during the quarter, approximately 30% of the customers shopping in new stores were new to the Torrid brand, and these customers typically spend 25% more in their first year compared to those acquired on the web. Stores and store acquisition is clearly an important strategy of growth for us. In order to build a healthy customer file, we are focused on re-engagement of LAPS customers and improving retention. Our marketing efforts to re-engage LAPS customers continue to show promise and we generated another 500 basis point improvement in reactivated customers on top of the improvement seen last quarter. On social media, we're more focused than ever on product, We saw a 160% increase in product conversation versus the prior quarter, largely driven by the success of our studio collection and the strong reception to the launch. We also executed an influencer campaign last quarter focused on jeans, which highlighted our world-class fit. Customers consistently note that our fit is what compels them to shop at Torrid, and we continue to see low return rates, which speak to the integrity of that fit. Turning to merchandising and products, we introduced new growth categories within the product assortment, starting with the launch of the studio collection in September, which was executed with a full 360-degree integrated marketing campaign that spanned all channels. Given the shift in customer preference for wear-to-work styles, this was the ideal time for the launch. The collection was very strong and drove a 30 percentage point improvement in workwear sales growth versus the prior quarter. We also launched a new collection called Bestie that was a nod to the iconic trends that defined the 2000s. This collection featured classic styles including baby tees and retro graphics, and we saw our most loyal customers respond to the product with a VIP customer penetration that was more than double our typical VIP penetration across other categories. As we moved through the quarter, we offered new fashion and color including cozy and cold weather products and novelty fabrics and prints. We are encouraged to see her response to new products and we have even more newness slated for the fourth quarter. Our holiday assortment features an expanded breadth of products focusing on glitz, glam and pretty for all of our holiday occasions. Our most loyal customers respond well to our special collections and we have many planned for this fourth quarter including a retro chic collection, a new curve assortment with holiday colors, and we've added another drop of our Betsy Johnson collection. In closing, our team remains focused on making product and operational improvements that will position us to deliver sustainable long-term growth. We're seeing science strategy refinements are working, and we're excited about what product is doing as we continue to capture her interests with relevant fashion and perfect fitting basics. The positive feedback and momentum that we received with our studio launch is carrying forward into next year as we bring our customer-compelling assortment anchored on an exceptional set. Our new product launches and seamless customer experience build relevancy with our customer, which would lead to increased visit frequency and higher conversion rates. We are excited about their changes and how they build going into next year. And with that, I'll turn the call over to Tim to provide more detailed financials on the quarter and our updated guidance.