Torrid Holdings Inc.

With me today on the call are Lisa Harper, Chief Executive Officer, and Paula Dempsey, Chief Financial Officer. Ashley Wheeler, Chief Strategy and Planning Officer, is also present and will be participating in the Q&A session. 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, March 20, 2025. 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 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.

Thank you, Chin-Wei. Hello, everyone, and thank you for joining us today. Let me jump right into it. As we enter the new fiscal year, we are excited about our product direction and positive customer response to our subbrands. We are driving awareness through integrated marketing efforts, leveraging influencer programs, and enhanced storytelling. We have right-sized the level and quality of our inventory position, and we are chasing our successful subbrand launches. We have developed and are actioning a clear path to optimize our store fleet reducing fixed costs, and freeing up funds to invest in growth. With that said, we recognize we are operating in an uncertain consumer and macro environment. Similar to what you've heard from other retailers, we experienced some choppiness in our business during the early weeks of the quarter, driven by macro and consumer uncertainty, as well as adverse weather in February. That said, as the quarter has progressed, we are encouraged that we have experienced a trendline improvement in the business. We are managing the business with cautious optimism, controlling what we can control, taking an appropriate and prudent approach to spending, while operating with flexibility and agility and a clear focus on our three strategic priorities, enhancing our product assortment, driving customer growth, and executing our store optimization plan. Now let me review our fourth quarter performance. For the fourth quarter, we exceeded expectations on both the top and bottom line, generating sales of $275.6 million and adjusted EBITDA of $16.7 million. We saw a positive response to our holiday and early spring lines that offered a variety of newness across our product portfolio. Momentum continued to build until the latter part of the quarter, culminating in a productive toward cash event in January, and a very successful launch of three new sub-brands, which drove tremendous excitement and engagement for both new and existing customers. We are encouraged by the acceleration in our regular price comp trends, which increased 1.6% for the quarter, while simultaneously the negative drag from clearance sales began to moderate. This resulted in a comparable sales of negative 0.8% for the quarter, marking a significant sequential improvement. In apparel, we delivered a positive Q4 comp driven by strength in denim, non-denim bottoms, and sweater, as well as dresses, which reached an all-time high demand in fourth quarter. We ended fiscal 2024 with $48.5 million in cash, an increase of $36.8 million compared to a year ago. Throughout fiscal 2024, we remained focused on right-sizing both the depth and quality of our inventory position, and I'm pleased with our substantial progress. We ended the year with inventory of 4%, which was entirely related to higher in transit levels. On a two year basis, our inventory levels are down 18% with a significantly higher mix of spring forward goods. Importantly, we expect our sub brands to comprise approximately 7 to 10% of our total receipt investment for this year, self funded by a reduction in depth across less productive choices and a more strategic approach to replenishment of core items. We remain disciplined in our approach to inventory management, but also investing in white space assortment opportunities and maximizing the potential of sub-brands. Turning to fiscal 2025, we are focused on three strategic priorities, enhancing our product assortment, driving customer growth, and executing our store optimization plan. Let's start with product. 2025 is the year of the product at Torrid, featuring more new items in the first half of the year than we've introduced in the past six years. We've recognized that our product offering became too one-dimensional. Our focus for 2025 is broadening our assortments to cater to a wider range of fashion aesthetics and provide more unique, differentiated choices. This strategic shift will enable us to expand our customer base while increasing our share of wallet with existing customers. Our new sub-brand concepts, which command higher margins, began rolling out in late December of 2024, and the initial response has been positive. Customers are loving the newness, variety, and differentiated looks that we are now offering. Bestie, our version of the boho trend, offers fresh silhouettes and a range of fabric treatments and textures, and arrived in 250 stores and online in late December. We are pleased with the response to Festy, which has exceeded our expectations, driving incremental traffic to stores, and is having a strong halo effect on our core Torrid business. As a result, we are chasing into Festy for the back half of the year. In January, we launched Nightfall, an edgy, dark fashion aesthetic, and Retro Chic, a more playful, vintage-inspired collection, online. Nightfall and Retro Chic launched with exceptional strength, raking among our top revenue-driving campaign. Customer feedback was overwhelmingly positive, with praise focused on the range of lifestyle aesthetics and end use. Both collections generated strong site engagement at launch, with key items selling out quickly. Paid media performance exceeded expectations, delivering high engagement and view-through rates. Most significantly, these sub-brands are attracting younger customers, with new buyers averaging in their mid-30s for both Nightfall and Retro Chic. While our most engaged VIP customers have comprised the largest share of demand for these collections at launch, we anticipate a steady increase in new customer acquisition through these sub-brands as awareness expands. Initial results clearly demonstrate strong demand for these fresh lifestyle concepts and affirm our strategy of building an internal marketplace for this wildly underserved customer. As we continue to maximize the potential of these sub-brands, we remain equally committed to the modernization and evolution of our core Torrid assortment and are encouraged by the improvement we're seeing in the heart of the business. Turning to marketing, our marketing initiatives are centered on driving customer file growth. We have engaged a fresh lineup of influencers who truly embody the lifestyle and spirit of Torrid and each sub-brand. They live and breathe the culture authentically, seamlessly integrating our brand into their everyday lives. We are bringing back Torrid Casting Call, our highly successful model search campaign, which remains one of our most productive new customer activations. We received over 11,000 applications to be the new face of Torrid last year, and we anticipate an even more successful campaign this year with 8 to 10 casting events and multiple in-store casting parties planned. In both physical stores and digital platforms, we're elevating our storytelling to create a seamless brand experience. Online, we've invested in richer content and influencer collaborations while using data-driven insights to personalize recommendations. In stores, we're equipping our teams with advanced tools like RFID technology and enhanced training to bring our brand story to life through visual merchandising, events, and strategic product launches across our sub-brands. We see opportunities to enhance the expression of our brand in stores to align with the online experience, and we are in the early stage of attesting a handful of store refreshes. Our priority is consistent messaging across all touchpoints, ensuring customers encounter the same compelling narrative, whether on social media, our website, or in our stores. This integrated approach drives deeper engagement, strengthens customer loyalty, and enhances brand equity and supports sustainable revenue growth. Our third initiative focuses on optimizing our retail footprint by strategically closing underperforming locations while creating a more balanced mix between enclosed malls and outdoor shopping centers. We successfully closed 35 stores in fiscal 2024 and are targeting to close an additional 40 to 50 stores in fiscal 2025 with the potential for the number to increase as we continue to evaluate store performance alignment with channel demand, which would further reduce our fixed cost base and free up capital to fund growth investments. Importantly, our analysis of past closures shows consistent results with an average customer retention rate of 60%, rising to nearly 70% in markets with multiple store clusters. This demonstrates our ability to maintain customer relationships and effectively shift demand to nearby locations or our digital channels. These results reinforce our confidence in right-sizing our store fleet while substantially reducing costs. We're reinvesting a portion of these savings into targeted marketing of initiatives that drive customer file growth through new acquisitions and reactivation. Additionally, we're allocating more resources to our productive stores to better showcase our sub-brands positioning us to generate higher profit flow through over time. As I mentioned earlier, we significantly improved our cash position from $11.7 million a year ago to $48.5 million, and we ended the year with $158 million in liquidity. Our strong financial condition provides us with the confidence and flexibility to strategically invest in areas of our business that we believe will drive long-term profitable growth. I'd like to take this opportunity to thank our teams across the organization as well as the Board of Directors for their hard work and dedication to support our efforts, position our business for success, and long-term value creation for all stakeholders. Now, I'll turn the call over to Paula.

Good afternoon, everyone, and thank you for joining us today. I will walk through our fourth quarter financial results. highlight key drivers of our performance, and provide an in-depth look at our strategic priorities and fiscal 2025 outlook. We closed the year with strong execution, delivering results that exceeded our guidance. Our ability to navigate a dynamic retail environment coupled with disciplined cost control enabled us to drive profit expansion. Sales trends improved throughout the quarter, and we leveraged our inventory management strategies to maintain a healthy balance sheet while ensuring we met customer demand. As we look at our financial position, we ended the quarter with $48.5 million in cash and cash equivalents, a significant increase from $11.7 million last year. With a balanced approach to managing working capital, we are well-positioned to enter 2025 with solid liquidity and inventory discipline. Fourth quarter net sales totaled $275.6 million compared to $293.5 million last year. Excluding the impact of the 53rd week in fiscal 2023, sales increased 1.4%. Comparable sales were down 0.8%, driven by a significant improvement in clearance price comp sales and regular price comps, demonstrating the effectiveness of our pricing strategies. Growth profit was 92.6 million compared to 101.2 million a year ago. Growth margin declined 90 basis points to 33.6%, primarily due to lower volume relative to last year, which was expected given the impact of the extra week in fiscal 2023. Excluding this timing shift impact on volume, our product margin performance increased year over year. as we continue to balance promotional activity with maintaining a premium product offering that resonates with our core customer base. SG&A expenses were $73.8 million, or 26.8% of net sales, compared to $80.6 million, or 27.5% of net sales last year. This decrease reflects our ongoing efforts to control costs optimize labor efficiencies, and streamline operational processes while still investing in key growth initiatives. Marketing expenses totaled $15.4 million compared to $16.5 million in the prior year, representing 5.6% of net sales in line with last year. We continue to refine our digital and omnichannel marketing efforts to maximize our return on investment and drive customer acquisition. We delivered net loss of $3 million or negative 3 cents per share compared to a net loss of 4.1 million or negative 4 cents per share in the prior year quarter. Adjusted EBIT increased to 16.7 million from 16.4 million last year, despite the prior year benefit of 2.3 million from the 53rd week. Our adjusted EBITDA margin expanded 50 basis points to 6.1%, reinforcing our ability to drive profitability. Our financial position remains strong, underscoring our ability to navigate the evolving retail landscape. We ended the quarter with $48.5 million in cash and cash equivalents and no borrowings on our revolving credit facility. Operating cash flow increased by 2x to $77.4 million from a year ago. Total liquidity, including available borrowing capacity, stands at $158 million. Additionally, we reduced total debt to $288.6 million, down from $312 million a year ago, further strengthening our balance sheet, adding financial flexibility, and improving our debt ratio by 22% to 2.2%. Inventory management remains a cornerstone of our strategy. We closed the year with $148.5 million in inventory, a 4% increase from the previous year, primarily due to in transit timing while reflecting an 18% reduction on a two-year basis. This disciplined approach ensures that we remain nimble, allowing us to quickly respond to shifts in consumer demand. We continue to focus on improving product mix and sell-through rates, enabling us to deliver more compelling and profitable assortment. One of our key strategic initiatives is the ongoing optimization of our store fleet. This project is designed not only to ensure we operate in locations that maximize our unit economics, but also to align our sales demand channels more effectively. We remain strong believers in the power of physical stores. However, we also recognize an opportunity to optimize our footprint by closing underperforming locations and reinvesting a portion of those savings into marketing strategies that drive long-term customer growth. Our historical data, as well as insights from recent closures, indicate that we can retain up to 70% of our customers when a store closes. Fiscal 2025 presents a significant opportunity to reassess our real estate portfolio as nearly 60% of our leases are set to expire or have kick-out clauses coming due this year. This flexibility enables us to exit certain locations without any financial impact. Additionally, this shift enables us to increase our penetration in outdoor centers where we have consistently seen higher conversion rates and profitability. ensuring our locations align with our customer preferences. For fiscal 2025, we plan to close an additional 40 to 50 stores while selectively opening four to eight new locations in high-performing markets. By optimizing our fleet, we can balance our store mix, better serve our customers, and drive higher profitability in the long term. As we enter the new fiscal year, We remain encouraged by the positive response to our product affordments and brand positioning. However, like others in the industry, we're navigating a dynamic consumer environment. We are approaching the year with a balanced and strategic outlook, focusing on growth while maintaining financial discipline. Key components of our guidance include full-year sales expected to range between $1.080 billion and 1.100 billion, reflecting our prudent approach given the current environment. Adjusted EBITDA is projected to range between 100 million and 110 million, supported by ongoing margin expansion initiatives and cost efficiencies. Capital expenditures are forecasted to be between 15 and 20 million, with a focus on continued technology upgrades that started in the prior year store refreshes, and infrastructure improvements that enhance both the customer experience and operational efficiency. As Lisa previously mentioned, the first quarter got off to a choppy start, but we're encouraged by the trendline improvement we're seeing in the business. In the first quarter, we expect sales to range between $264 million and $274 million, with adjusted EBITDA anticipated between $24 million and $28 million. reflecting our shift in our marketing spend. To better align with our fiscal 2025 strategies, we are reallocating marketing investments from the fourth quarter to the first half of the year to support our programs such as the sub-brand launches and model search. Looking ahead, we're confident in our strategy and ability to drive sustainable growth. Our focus remains on delivering elevated product experience, enhancing our marketing approach, and refining the customer journey across all touchpoints. While the macroeconomic environment presents challenges, our financial discipline, strategic initiatives, and commitment to innovation position us well for long-term success. We remain committed to balancing short-term execution with long-term value creation, ensuring that we continue to strengthen our brand, optimize our operations, and enhance shareholder returns. With that, I'll turn the call back to the operator for Q&A.