Torrid Holdings Inc.

greetings and welcome to toward holdings second quarter fiscal 2025 earnings conference call at this time all participants are in a listen only mode a question and answer session will follow the formal presentation if any much require operator assistance during conference please press star zero or your telephone keypad please note that this conference is being recorded it is now my pleasure to pass it over to chinwe abuelo thank you you may begin

Good afternoon, everyone, and thank you for joining Torrid's call today to discuss our financial results for the second quarter of fiscal 2025, which we released this afternoon and can be found on our website at investors.torrid.com. With me on the call today are Lisa Harper, Chief Executive Officer of Torrid, Paula Dempsey, Chief Financial Officer, Ashley Wheeler, our 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. Managements 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 and terms of similar meaning. All forward-looking statements are based on current expectations and assumptions as of today, September 4th, 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. With that, I'll turn it over to Lisa.

Thanks, Chin-Wei. Hello, everyone, and thank you for joining us. Today I will review our second quarter performance and provide an update on our strategic initiatives, including the enhancement of our product assortment, driving customer growth, and executing our store optimization plan. We are currently executing our strategic plan. Our five new sub-brands are resonating with the customers and will represent 25 to 30% of our assortment next year. We're on track for meaningful cost savings in fiscal 2026 as we execute our store optimization plan by closing up to 180 stores this year, reallocating our resources to respond to our customers' shopping preference. We believe this strategic shift, combined with continued inventory productivity, will deliver a substantive increase in free cash in 2026, as well as delivering approximately 150 to 250 basis points of adjusted EBITDA margin expansion. That margin expansion is net of planned incremental marketing investments. We plan to utilize the growing free cash flow to reduce debt and repurchase shares, which we believe positions us to deliver stronger performance and create long-term shareholder value. Let's go over our second quarter results. We delivered net sales of $263 million and EBITDA of $21.5 million, in line with our expectations. Our comp sales were down 6.9% for the quarter, due in part to headwinds related to restructuring our footwear business and the movement of our model search activation from Q2 to Q3. We experienced strong demand during our semi-annual sale event in June, but softer holiday peaks over Memorial Day and 4th of July which led us to be more promotional than we had anticipated to drive conversion. We continued to see customer sensitivity and value orientation given the current environment. During the quarter, we saw strength in bottoms, both denim and non-denim, dresses and swim, which were offset by tops due to the softness and graphic tees and an over-penetration of crop tops. Having said that, we are seeing green shoots in our tops category as we address short-term product misses. We expect graphics to continue to underperform for the balance of the year with improvements in late Q4 and into 2026. Now turning back to our strategic initiative. We remain incredibly pleased with the performance of our sub-brands and expect the penetration to more than double in the third quarter, and next year we'll reach 25% to 30% of our total assortment. This growth will support adjusted EBITDA margin expansion in 2026 through its higher margin profile due to limited promotions and higher full-price sell-throughs. These lifestyle concepts enable us to offer unique collections, which provide more newness and excitement, while also catering to a broader customer base. The most recent LUFSIC launch exemplifies this strategy, targeting younger demographics with strong engagement rates. Sub-brands generate a halo effect, driving attachment rates to core categories like denim, pants, and intimate apparel, while supporting customer reactivation through targeted community and influencer marketing. We're scaling this strategy through increased delivery frequency, enhanced newness, and additional sub-brand launches. On the marketing front, we are bringing back our popular model search event with a new look and feel. This year's event will be primarily digital and will kick off on September 9th. Historically, our model search has been a very strong customer activation event for us, and we are optimistic that the new format will enable us to reach an even broader audience. We also began to scale our digital marketing efforts toward awareness and new customer acquisition with a diversified approach of paid media, organic social, and a more robust influencer marketing campaign. During the quarter, we launched a Torrid Summer, an influencer-based campaign. These event-based activations were held across the country in key metropolitan areas, creating millions of impressions. Each brand-building moment drove customer engagement and social relevance. We will continue to scale these types of activations into 2026, prioritizing customer file growth through strategic digital marketing efforts, continued influencer marketing campaigns, and organic social media initiatives. We are investing behind these initiatives to increase brand awareness and consideration through top of funnel marketing and have made a strategic decision to increase our digital marketing spend for the balance of this year above the original budget by approximately $5 million, yielding a total investment of approximately 6% in 2025 versus the 5% previously budgeted. Based on the results of this increase, we will make the determination of the total increased investment for 2026. Next, our channel optimization strategy represents a decisive response to evolving customer preferences. With digital sales approaching 70% of total demand, we are executing a comprehensive realignment that capitalizes on this fundamental shift while strengthening customer relationships across all touchpoints. To that end, We have been closely tracking customer retention throughout the course of our store closures, and the results remain in line with our objectives. Our target is to retain at least 60% of customers consistent with historical performance following closures. Encouragingly, retention trends from the 2025 closures are outperforming fiscal 2024, with a greater share of customers migrating to our online platform. This reinforces that our most loyal customers are increasingly channel agnostic and continue to engage with us regardless of format. These outcomes are supported by the more robust retention strategy we introduced this year, which incorporates a multifaceted approach with proactive customer outreach before, during, and after a store closure. Building on this foundation, during the first half of the year, we executed the closure of 59 underproductive stores in line with our plans. We remain on track to close approximately 120 additional stores in the back half of the year, bringing total closures to about 180. These decisions are deliberate and strategic, strengthening the overall fleet and redirecting demand to higher return channels. Importantly, when paired with our enhanced retention playbook, this optimization demonstrates that we can both rationalize our physical footprint and preserve, if not strengthen, long-term customer relationships. As I mentioned, beginning in 2026, we will redeploy a portion of the fixed cost savings from the closure of unproductive stores into acquisition-focused marketing efforts to grow the customer file size. A portion will go toward increased digital marketing efforts and a portion toward more robust organic social influencer marketing. And to reiterate, We expect to realize 150 to 250 basis points of adjusted EBITDA margin expansion in 2026 and a substantive increase in free cash, which will be deployed to retire debt and buyback stock. We currently have an active $100 million authorization for share or purchase, of which we have approximately $45 million remaining. We also intend to deploy free cash flow to further reduce our debt fortifying our balance sheet for long-term financial flexibility. At the same time, we remain committed to investing selectively to initiatives that drive profitable growth and improve customer retention, ensuring that our capital decisions not only provide immediate returns, but also strengthen the foundation for future growth. In closing, I want to thank all of our talented team members for their unwavering dedication and support. We remain confident in our strategic direction, and the progress we're making positions us to drive improved business performance and meaningful shareholder value creation over time. With that, I'll turn it over to Paula.