Torrid Holdings Inc.

Greetings and welcome to the Torrid Holdings Inc. Third Quarter Fiscal 2023 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, Chinwe Abelu. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining Torrid's call today to discuss our financial results for the third quarter of fiscal 2023, 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, Mark Mazzico, Chief Commercial Officer, and Paula Dempsey, our new 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 may include, but are not limited to, statements containing the words expect, believe, plan, anticipate, will, may, should, estimate, and other words in terms of similar meaning. All forward-looking statements are based on current expectations and assumptions as of today, December 7th, 2023. These statements are subject to risks and uncertainties that could cause actual results to differ materially. For 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. Reconciliations to these non-GAAP measures So the most comparable gap 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, Chinwe. Good afternoon, and thank you for joining us to discuss our third quarter results. Before I dive into our financial performance, I would like to take a moment to thank our more than 7,000 employees across the U.S. and Canada who are dedicated to the brand and to our customers. I'd also like to thank our more than 4 million active customer base for continuing to love the brand while providing the most value-added feedback. This quarter, the Torrey Foundation, with the support of our loyal customers and employees, contributed over three-quarters of a million dollars to the Breast Cancer Awareness Campaign. Thanks to you all. I'm also thrilled to announce the appointment of Paula Dempsey, Chief Financial Officer. This well-deserved promotion reflects the outstanding leadership and invaluable contributions Paula has made in the last 10 months since joining our team. And I believe she will continue to be instrumental in delivering our strategic growth plan. Thank you and congratulations, Paula. I'm happy to report that our assortment journey over the past year has begun to deliver positive results. We took a hard look at our assortment and understood the need to pivot towards a more casual and relevant style, ensuring a diverse range across our product lines. It's encouraging to see this shift resonate. From a store perspective, we've launched an initiative with our sitting room Fridays where our store teams personally try on our products. This hands-on approach has not only enhanced our team's understanding and enthusiasm for our products, but also infused a new dynamic into our store atmosphere. As a result, we're witnessing a positive response from a broad range of customers who are attracted to our brand's renewed energy and balanced casual approach. I will start by reviewing our performance in the third quarter, detailing our achievements and future strategies. Following that, Mark Mazzucco will take over to elaborate on our merchandising and marketing strategies. Paula will then review our financial aspects and offer insights into our projections for the rest of the year. I'm pleased to report a strong third quarter with sequential traffic improvement both in stores and on the web. For the quarter, we generated net sales of $275 million and adjusted EBITDA of $19 million. These results were higher than anticipated due to the strong demand experience during the quarter. We also ended the quarter with total inventory of $171 million, down 14% compared to the same period last year. We can attribute these results to a number of initiatives that started earlier in the year and that are now providing favorable results. During the quarter, we focused on executing our key initiatives. Number one, broadening our assortment and pricing strategy. Number two, strengthening our marketing message. And number three, optimizing our cost structure and inventory. Starting with broadening our assortment and pricing strategy, which refers to the importance of a balanced across casual and dressier options and a range of price points across the product portfolio, supported by expansion in key items and core programs. Initial results of this more balanced, strategic approach to assortment and pricing are promising, with an appeal across a broad range of customers. We will continue to scale this initiative in the spring of next year. Our second priority has been focused on strengthening our marketing efforts. I will highlight some of these strategies while Mark will go into a deeper discussion later on the call. Based on our recent strategic review, we proactively reallocated and increased our marketing investment, enhancing our reporting infrastructure to align more closely with our core objective of optimizing EBITDA. This re-calibration of resources and focus has already begun to bear positive results. During our testing period in October, we observed an uplift in both incremental revenue and EBITDA. This improved performance in digital marketing efficiency is not just driving top-line growth, but also contributing to a healthy flow-through to EBITDA. During this period of testing, we also witnessed a steady increase in our traffic trends, both on our websites and in stores, signaling a strong resonance of our brand with customers. Our strategic efforts to optimize our in-store assortment, coupled with our refined marketing approach, are reshaping the tone and content of our messaging across all channels. This synergy between in-store experience and digital engagement is creating a cohesive brand narrative, further solidifying our market position, and enhancing the overall customer journey. This outcome underscores the effectiveness of our agile and data-driven approach to resource allocation, affirming our commitment to driving sustainable and profitable growth. Finally, our strategic emphasis on cost and inventory management yielded strong outcomes. Our visit to our vendors in Asia this summer played a key role, resulting in a notable 120 basis point increase in our product margin after accounting for cost benefits and discounts. Furthermore, I am pleased to report that the pilot program consisting of three clearance stores, which was launched on September 10th, has proven to be a success. These developments will undoubtedly serve as the catalyst for the expansion of our overarching strategic initiatives. These stores, along with their feeder stores, have experienced a significant margin improvement relative to the rest of the fleet. By utilizing clearance stores, we are moving through markdowns more profitably and facilitating greater regular price assortment exposure in the feeder stores. Across the portfolio, we identified opportunities to rebalance investments in departments and channel breadth focusing on the ratio of web-exclusive choices, including pillar extensions versus one-off choices, to minimize regular price sell-through and reduce markdown exposure. These efforts, combined with improving demand, have led to a year-over-year inventory decrease of 14%. We anticipate further improvement in our inventory levels over the next year. Regarding SG&A, our results aligned with our estimates. We are committed to disciplined expense management without adversely affecting our future growth strategy. Our focus remains on investing in our core strategies to ensure a positive return. As we reflect on this quarter, it's clear that our targeted strategies in merchandising, both in depth and breadth, along with our smart marketing investments and rigorous attention to cost management are beginning to show real results. Yet, we remain prudent in this current market. We're currently steering several initiatives that I believe will solidify our position moving into the fourth quarter and next year. Moreover, I'm confident that our focused approach will lead to expansion in our EBITDA margin in the next year. And with that, I will now pass the call over to our Chief Commercial Officer, Mark Mazzico.