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Torrid Plans 25 New Stores a Year for ‘Wildly Underserved’ Shoppers

Torrid reported a 34 percent increase in second-quarter sales to $332.9 million in its first earnings report as a public company, coupled with net income of $38.8 million. On a two-year basis, the specialty women’s retailer generated sales increases of 29 percent.

In a Nutshell: The plus-size chain, which caters to women sizes 10 to 30, saw its stock jump as high as 31 percent on Thursday in the wake of the earnings report.

As of July 31, Torrid had 608 stores, but the company will continue to selectively open approximately 25 new stores annually in targeted markets, CEO Liz Muñoz said in an earnings call. George Wehlitz, chief financial officer of Torrid, said most of these new stores will be off-mall, which have responded better in the pandemic recovery period than their mall-based counterparts.

The company launched ship-from-store in 400 locations in the second quarter, and has plans to further expand its BOPIS offering. Additionally, it expects to launch its next-generation mobile app by early next year.

Torrid’s Curve lingerie line will get its own dedicated website next year due to its success in bringing in new customers, enhancing loyalty and boosting basket size, according to Muñoz.

At the end of the quarter, inventory was $110.3 million, down approximately 14 percent compared to $128 million in the year-ago period. Wehlitz noted that the combination of global supply chain challenges such as port congestion and manufacturing disruptions alongside strong sell-through were behind the depressed levels.

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“While we continue to carefully monitor the supply chain situation and take proactive measures, such as air freighting goods and pulling forward purchase orders as appropriate, the situation is highly dynamic,” Wehlitz told Wall Street analysts. “We’re also facing inflationary pressures from rising product costs and anticipated wage increases.”

Muñoz said that the retailer expects to run lean for the remainder of the year, but remains flexible due to an assortment that by large isn’t trend-specific or seasonally focused.

“Torrid does not rely on the fourth quarter like traditional retailers,” Muñoz said. “Our fourth quarter is in general, kind of the same size as every other quarter. We’re not one of the retailers that does 60 percent of their business in that last quarter. It is just like another quarter for us and I think that’s going to help us, unlike many others as we head into these ‘wobbly’ times. Our collection is so vast that we do have a lot of opportunities to flex in different directions.”

Wehlitz said that Torrid will be selectively adjusting pricing when appropriate throughout the second half to largely mitigate the macro pressures.

Gross margin was 45 percent in the second quarter, increasing 1,290 basis points (12.9 percentage points) from the 32.1 percent in the same period last year and 520 basis points (5.2 percentage points) over the 39.8 percent from 2019. The year-over-year improvement was mostly due to less discounting. Margins also benefited from leveraging distribution expenses, store occupancy costs and store depreciation expenses on higher sales as compared to the prior year.

Aiding Torrid’s ability to retain profit is its e-commerce returns rate, which is only 9 percent, the same number that the company reported in 2020, and notably below the industry’s roughly 40 percent average.

For third quarter of fiscal 2021, the company expects net sales between $305 million and $315 million and adjusted EBITDA between $47 million and $52 million. Full-year estimates peg Torrid sales between $1.29 billion and $1.31 billion, with adjusted EBITDA of between $248 million and $258 million.

Capital expenditures for the plus-size women’s retailer are expected to reach approximately $25 million, reflecting the approximately 25 new store openings.

Cash and cash equivalents at the end of the quarter totaled $50.5 million, compared to $123 million at the end of fiscal year 2020. Cash flow from operations for the six-month period ended July 31, 2021 was $106.5 million, up from $61.4 million for the 2020 period.

Net Sales: Net sales at Torrid increased 34 percent to $332.9 million, compared to $249.2 million in the second quarter of 2020, and jumped 29 percent from $257.4 million reeled in during the 2019 quarter. The increase was driven by continued growth in both e-commerce business and improvement in store productivity trends.

Comparable sales increased 30 percent from last year, driven by an increase in transactions and a higher average transaction size and 26 percent above two-years-ago comparable sales.

Net Earnings: Second-quarter net income was $38.8 million, or 35 cents per share, an increase of 131 percent from net income of $16.8 million, or 15 cents per share in the second quarter of 2020.

Adjusted net income was $39.1 million, or 36 cents per share, an increase of 372 percent from last year’s second-quarter adjusted net income of $8.3 million, or 8 cents per share.

Adjusted EBITDA was $86.5 million, or 26 percent of net sales, compared to $34.2 million, or 13.7 percent of net sales, in the second quarter of 2020. This compares to $39.7 million or 15.4% of net sales in the second quarter of 2019.

CEO’s Take: Muñoz addressed Old Navy’s recent Bodequality launch, as well as other competing plus-size campaigns, citing the high total addressable market Torrid can serve.

“There are plenty of big girls to go around that are wildly underserved—close to 90 million—so I personally welcome other people coming into this space,” Muñoz said, “I think it excites the customer about her possibilities. That said, I also will remind you that Old Navy has been doing plus for a long time before Torrid. I used to wear them…and they’ve had it in stores and pulled it out of stores. We do extensive competitor research, we are and always have been aware of all the competitors in the space, and they have traditionally not had any impact on our business.”