Torrid Holdings reports disappointing Q3 results, driven by tops missteps; outlines corrective actions and optimistic 2026 outlook.

Greetings and welcome to Torrid Holdings third 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 anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Chinwe Abayomi, Chief Accounting Officer and Senior Vice President. Thank you. You may begin.

Good afternoon everyone and thank you for joining Torrid Holdings' call today to discuss our financial results for the third quarter of fiscal 2025, which we released this afternoon and can be found on our website@investors.taurid.com with me on the call today are Lisa Harper, Chief Executive Officer of Torrid Holdings, and Paula Dempsey, the Chief Financial Officer. Ashley Wheeler, our Chief Strategy and Planning Officer, is also present and will be participating in the Q and 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 word 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, December 3, 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.

Thank you Chinwe hello everyone and thank you for joining us today. I'll review our third quarter performance and provide an update on our strategic initiatives including the enhancement of our product assortment, our commitment to the growth of our sub brands, the expansion of opening price point strategy and execution on our store optimization plan. Then I'll turn the call over to Paula to discuss the financials. We are clearly disappointed with our overall performance this quarter. Despite some areas of strength, it was more than offset by missteps in our overall assortment mix that we are addressing head on with decisive corrective actions and I'll discuss that shortly. For the quarter, while sales came in at the low end of our guidance, profitability was dampened by deeper promotional activity than we had planned, impacting our adjusted EBITDA. We delivered third quarter sales of 235 million and adjusted EBITDA of 9.8 million. I want to be clear, these results largely reflected execution issues that are within our control. Let me walk you through the factors that influenced our results this quarter delivered strong performance in several key categories with denim, non denim dresses and intimates meeting our expectations all generating positive comparable growth. However, this improvement was more than offset by missteps in our tops and jackets category. Tops represented approximately half of the year over year sales missed this quarter. Specifically, we shifted too heavily toward fashion forward designs at the expense of our core assortments and established franchises. While innovation is important, the shift moved us too far from the functional replenishable items. Our customer feedback has been invaluable in guiding our course correction. We are successfully attracting and reactivating consumers who embrace our elevated fashion and lifestyle offerings across our sub brands. However, our loyal long standing customers continue to rely on us for their core wardrobe essentials and their solution oriented products and trusted fabrics with evolutionary rather than revolutionary style updates. Our denim category exemplifies the balanced approach we're implementing going forward. In Q3, we successfully integrated fashion elements while preserving our core franchise DNA, delivering mid single digit growth on top of last year's double digit performance. This demonstrates our ability to innovate within our customers expectations and we're applying those learnings across all categories. Moving forward, we are taking decisive action to address these challenges with clear timelines and measurable outcomes. First, we've strengthened our merchandising foundation by implementing enhanced guardrails in our merchandising process and building a more robust assortment planning function. I'm personally overseeing both initiatives to ensure rapid execution and accountability. Secondly, we're actively addressing near term assortment gaps. We've initiated chase orders for our key franchises, focusing on the core fabrications and silhouettes our customers expect in both knits and woven tops. These products will begin arriving in January, positioning us to see sequential improvement in knit and woven performance by the end of Q4 with accelerating momentum into Q1. 2026. Looking ahead, we've completed a comprehensive review of our spring summer 2026 buying strategy. We're rebalancing our investments to deliver the right mix across categories, fits, fabrics and end uses, ensuring we meet our customers where they are while maintaining our innovative edge. These actions reflect our commitment to operational excellence and customer centricity. We have clear visibility into the path forward and confidence in our ability to return these categories to growth. Shifting to Footwear Our strategic decision to pause the footwear category in response to tariff driven cost pressures was sound, but we underestimated the attachment rate impact. The loss of this anchor category resulted in lower overall basket sizes and transaction frequency, leading to what we estimate as an approximate 12.5 million in lost sales this quarter, of which 10 million was contemplated. The timing amplified the impact as October represents our peak boot selling season which historically drives some of our highest attachment rates of the year, we've taken decisive action to quickly course correct. We reintroduced a carefully curated footwear assortment in mid November and early performance has been encouraging. We've restructured our sourcing and SKU mix to mitigate tariff exposure while maintaining the category's ability to drive attachment. Based on what we're seeing, we expect to scale footwear back to historical sale levels of approximately 40 million in 2026, but importantly an improved profitability given our more disciplined approach to the category. This positions us to recapture both the direct footwear revenue and the attachment driven sales we lost during the temporary pause. Now turning to our strategic initiatives, we are focused on enhancing our product offering by expanding sub brands and strategically introducing an opening price point strategy designed to increase market share through customer acquisition and increase frequency among our loyal customers. Our sub brand strategy is working and is on track to deliver approximately 80 million in sales this year, attracting new reactivating laps and increasing spend among our high value customers. These lifestyle concepts offer unique collections that provide newness and excitement while broadening our customer base. Importantly, sub brands create a halo effect driving attachment rates to core categories and supporting customer reactivation through targeted community and influencer marketing. Looking ahead to 2026, we're implementing a more strategically balanced assortment architecture. Approximately 30% of our assortment offering will be opening price points developed in close partnership with our merchandising, design and product development teams to ensure we maintain our quality standards while delivering excellent accessible value to customers. We are excited about momentum in our intimates business with three new bra launches planned for 2026, our first substantive bra introduction since 2019 representing significant innovation in this important category. Bras as a category drives strong customer acquisition and loyalty and engagement and we believe there is significant Runway in this business. On the marketing front, we are committed to a balanced approach with emphasis on both mid and upper funnel awareness and acquisition as well as lower funnel conversion and retention. This includes increased digital media investment, a robust influencer strategy and several in person activations. In 2026 you will see even greater expansion of these community and brand building engagement efforts. Our popular model search campaign ran from September to November this year and was done through our digital channels supporting a broader reach. We had an incredible response again this year, so much so that we selected five top models, one from each age demographic ranging from 18 to 50 plus, showcasing the range and relevance of our brand and community Additionally, we have improved the value proposition of our loyalty program and our private label credit card which drives significant expansion and customer lifetime value. We remain committed to our store optimization strategy and I'm pleased to report we're executing exceptionally well against our plan. As consumer preferences continue to shift toward digital channel, we're proactively right sizing our physical footprint to deploy capital more efficiently and enhance shareholder return. Our execution remains on Track. We closed 15 stores in Q3, bringing our year to date total to 74 stores and we continue to expect approximately 180 closures for the full year. Importantly, we're seeing strong retention metrics aligned with our expectations that validate our approach. Customer retention from this year's closures is running in line with our expectations, demonstrating the strength of our omnichannel ecosystem, the success of our enhanced retention strategies including multi touch communication plans and our ability to successfully migrate customers to nearby locations and digital channels. With 95% of customers engaged in our loyalty program, we remain well positioned to effectively migrate customers to nearby stores and digital channels. The financial benefits are substantial and will accelerate as we move through this optimization. These closures are expected to contribute significant adjusted EBITDA margin benefit in 2026 while also generating significant free cash flow improvement that will provide increased flexibility for future strategic investments. Now I'll turn the call over to Paula to discuss the financials.

Thank you Lisa Good afternoon everyone and thank you for joining us today. I'll begin with a review of our third quarter financial performance and then provide our outlook for the remainder of fiscal 2025. While sales landed at the low end of our guidance, softer demand in our digital channel required higher than planned promotional activity which pressured adjusted ebitda. At the same time, we continue to realize meaningful benefits from our store optimization initiative resulting in an 11.5% year over year reduction in net G and A. We remain committed to disciplined inventory management and ended the quarter with inventory down 6.8% compared to last year. Net sales for the third quarter were 235.2 million compared to 263.8 million in the prior year. Comparable sales declined 8.3% and our tariff related pause in the shoe category drove approximately 400 basis points to this overall decline as we temporarily scaled back while navigating elevated import costs in the category. Gross profit was 82.2 million versus 95.2 million last year. Gross margin was 34.9% compared to 36.1% in the prior year reflecting higher promotions and deleverage on the lower sales base. SG&A expenses continue to reflect the disciplined cost structure we're building. Across the enterprise, SGA was favorable by 8.6 million resulting in 66.3 million for the quarter compared to 74.9 million a year ago. As a percentage of net sales SG and a leverage 30 basis points to 28.2% this year. Over year improvement is a direct result of our multi year transformation to structurally reduce operating expenses. Benefits from our store optimization initiative and our focused approach to organizational prioritization are enabling us to reduce fixed costs. These gains reflect more than store closures alone. They represent a broader shift toward a more efficient, more variable cost structure designed to flex with demand, strengthen margin resilience and enhance free cash flow. As store optimization progresses, we expect further SGA leverage and incremental liquidity benefits. In fiscal 26. Marketing investment increased by 2.7 million to 15.7 million as we leaned intentionally into customer acquisition and brand visibility during the quarter. These investments support our long term plan to strengthen top of the funnel, improve brand relevance and drive traffic. We continue to refine our marketing mix toward higher return channels with more personalized targeting and improved attribution. The timing shift of our model search event from Q2 to Q3 also drove this increase. This event continues to deliver high engagement and long term customer loyalty. Net loss for the quarter was 6.4 million or $0.06 per share compared to net loss of 1.2 million or $0.01 per share last year. Adjusted EBITDA was 9.8 million representing a 4.2% margin versus 19.6 million and a 7.4% margin a year ago. We ended the quarter with 17.2 million in cash compared to 44 million last year. As of November 1st we had 14.9 million drawn in our revolving credit facility with with approximately 86.2 million of remaining availability. Inventory totaled 128.8 million down 6.8% from last year reflecting both lower receipts and our reduced store base. Turning to store optimization, which remains a cornerstone of our multi year transformation, during the quarter we closed 15 stores and remain on track to close up to 180 stores in fiscal 2025. Customer retention from these closures continue to perform consistently with historical levels. The stores we're exiting are structurally unproductive and closures are aligned with natural lease expirations, minimizing exit costs. On a Q3 year to date basis, we have realized approximately 18 million in lower operating expenses from closing 74 stores this year and 35 total stores in the prior year and these savings are already reflected in our performance as we move through Q4 and complete the planned closures for fiscal 25. We expect even greater savings in fiscal 26, which will enhance our liquidity position. This initiative is both a structural realignment reflecting where our customers increasingly choose to shop, with about 70% of demand originating online, and a proactive liquidity strategy designed to protect the business, strengthen our balance sheet and enhance the resilience of our operating model. Overall, we believe store optimization will deliver substantial adjusted EBITDA margin expansion in fiscal 26. We are updating our outlook for the remainder of the year to reflect third quarter performance and current trends. We now expect full year net sales in the range of 995 million to 1.002 billion and adjusted EBITDA in the range of 59 million to 62 million for the full year. Capital expenditure is expected in the range of 13 million to 15 million. In closing, we're executing a disciplined and deliberate transformation of our retail footprint. By taking advantage of natural lease expirations to rightsize our store fleet, we're structurally improving our cost base and strengthening the long term health of the business. The combination of lower fixed costs, enhanced digital capabilities and a more productive store base is expected to drive sustainable margin expansion and generate meaningful incremental liquidity as we move into fiscal 2026. Now we'll open the call to your questions Operator.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Janine Stitcher with BTIG. You may proceed with your question.

Hi, good afternoon. Thanks for taking my question. Can you elaborate a bit on some of the product missteps that you talked about? What cues are you getting from the consumer to tell you that this is where the challenges and this is what needs to be fixed? And then you talked about the promotions being higher on the digital channel. Maybe elaborate on why that is or why you think that is and what you saw in stores during the period? Thank you.

Thanks Janine hi, it's Lisa. The merchandising missteps were very focused on tops as we mentioned. So tops were about half of the total revenue missed for the quarter. Shoes were about 40% and then jackets because of their seasonal importance were about 10% for the quarter. So it was pretty we talked through the shoe situation, which is a pause based on the tariff we reintroduced shoes and boots recently are having a great response to them. We'll continue to build that business back up and recapture that revenue as we move into 2026. But for the quarter, the biggest miss and the biggest action was really focused around the tops category. What I would say from a merchandising miss perspective was the abdication of a couple of our core fabrications and core kind of entry point solution based products for the customer. And so we've been able to chase that product very quickly. It's longer tops, more tunics, brushed waffles, super soft knits, and challis in the woven category. So it's very focused on a few fabrications, very focused on a few end uses. And because we were able to platform that fabric, we're being we're back into some of those businesses and the fifth week of December and three throughout January and February in terms of receipts. So we expect to see improvement in those categories as we move into early first quarter as we'll have, I think chased the bulk of what we feel is missing in the assortment right now. So what we've done to avoid that in the future is really enhancement. Although we have pretty substantive guardrails to this, this was a merchandising miss that was obviously. Very disappointing and frustrating for the organization for the quarter. And so we put enhanced guardrails around the process. We've put in a robust assortment planning, multifunctional approach to the categories particularly. And we are just increasing oversight and I'm involved in every step of that. I would say that as an organization they were able to effectively kind of innovate and balance product assortments in all areas except for tops. So I would say that all areas except for tops and jackets, the biggest benefits of that innovation and expansion to the core product is present in denim, non denim dresses and intimates. And so those areas were able to positive comp, as we mentioned in the prepared remarks, they weren't able to offset the detriment of the tops Ms. So if you think about the total MIPS for the quarter, I'll restate it. It's about 50% tops, about 40% shoes and related transactions with shoes, and then about 10% in jackets for the quarter. And I'll turn it over to Ashley to answer the promotional conversation.

Hi Janine, I'd say that the accelerated. Promotional activity was in large part correlated to the myths in the top space so as Lisa noted, in the absence of some of those core franchises, entry price points, solution based items and a swing into more highly novel or more fashion oriented assortments, it put a little more pressure on promotional activity. Aur for example, in the absence of those entry price point categories. That said, I think we've done a really nice job making sure that we're coming out of the season clean. So there are no, no inventory issues to speak of related to some of these missteps in assortment.

Perfect. And then maybe just one more for me. You know, the full year guidance implies I think a mid teens revenue decline in Q4. Anything you can share about where you're tracking quarter to date versus that guidance.

Obviously we are able to incorporate current performance into that guidance. We don't anticipate a recovery, substantive recovery in either tops or shoes for the balance of this quarter. We'll start to see some improvement in tops in first quarter. We'll still be have a drag in shoes as we go through the fourth quarter and the first half of next year. So contemplate all of that is contemplated into that guidance.

All right, thank you very much.

Thanks.

Our next question comes from Brooke Roach with Goldman Sachs. You may proceed with your question.

Good afternoon and thank you for taking our question. Lisa. For a couple of years now, the balance of fashion versus basics and opening price point versus stretch product has been something that the business has been chasing. What's changing in the processes to ensure that you have both those opening price point and balanced items in your assortment and planning architectures and other than oversight, how do we ensure that this is something that's more systematic on a go forward basis as we look into 20, 26 and beyond.

Thanks Brooke. I just called you by your last name. I apologize. Thanks Brooke. So I would say that the issue, the overall issue and opportunity in this business is about innovation and remaining relevant and commercial. That is balanced against the need of the customer and the request of the customer, focus of the customer on price point. And so as we go into first quarter of next year, we will be in terms of opening price point, close to 30% of sales and assortment associated with those categories of businesses that service our customer in terms of core products, solution oriented, high quality at a price that she has shown us that she reacts to and values that is built into the architecture, the assortment architecture. As we move forward, it is something that we have embedded in that process. Both sides of this are important. First of all, we have to move forward and remain relevant. I think that we've been able to do that with sub brands. We've been able to do that in the categories that I mentioned before, denim, non denim dresses and intimates. And the myth really is in the tops area, which had. Abdicated and exited through. Merchandising direction to many of the core programs. Those core programs are bought and will be already had been planned to receipt received as we get into January receipts going into 2026 sales. And it's part of the assortment architecture. So the need for the business to move forward and innovate with product was important as our customer feedback had been that our styling was. Not keeping up with their demands. We balanced that, I think in every area except for the misstep in tops where we will be going into first quarter with a much stronger opening price point strategy across the board. But primarily the highest level of opening price point will be in tops as we move forward. It's built into the assortment architecture of the business. Ashley, you want to add anything?

Brooke, I might add if we take. A look at the categories where we. Executed well in the third quarter. So denim as a proxy is a place where we stayed committed to the franchises that the customer knows us for. The Bombshell franchise, for example, we stayed very committed, but we expanded upon that, gave her more innovation through leg shape, wash treatment, finish. And that system has worked very, very well. It's worked well for us in dresses where we've stayed committed to end use, covering every aspect of her life and been very focused on multi end use. It's worked well. Tops where we misstepped in the third quarter, we did not do that and we walked away from very critical end use and solutions. We have to get back and stay focused on the same balance that we applied in denim and in dresses to. Our tops category, which is the largest. Category of the business.

That's really helpful. As a follow up, have you seen any larger or outsized shifts in engagement among any specific income, demographic or age cohort of your consumer? Maybe set another Are you seeing any changes in the demographic makeup of your business of which customers are engaging with. You the best. In terms of customer.

Demographics or income cohorts? Performance has stayed consistent across all of those. What we observed in the third quarter. Very different from previous quarters, is our most loyal, our most engaged customers pull. And we saw that come through reduced frequency and fewer purchases in the tops departments in particular.

Great. Thanks so much. I'll pass it on.

Thanks, Brooke.

Our next question comes from Corey Carlo with Jefferies. You may proceed with your question.

Great, thanks and good afternoon. Leslie, can we just Talk a little bit about the sub brand momentum and any updates there as that's continued to build in the assortment and how you think about this quarter's results may alter or change the approach in the sub brand strategy. Thanks so much.

Thanks Corey. No change in the sub brand strategy. I think that we have a clear winner in the Feste brand and think that that will expand. Nightfall and Retro are continuing to perform very, very well. Belle Isle is more, we've identified it more as a first half brand than a back half brand. And so we'll be adjusting kind of the sales momentum associated with Belle Isle to be probably more 60% first half, 40% back half. And then we've introduced Tru Interactive business which we're very happy with the results there. And Lufsik is still kind of, I would say in test mode we don't have a lot of revenue associated with that as we move into next year as we're able to refine that assortment moving forward. I think in general very, very pleased with the sub brand momentum and expect it to continue to grow dramatically as we go into 2026.

Great. That's really helpful. And then just to follow up, can we talk about the leverage profile and how that changes with all these store closures and what the perhaps new leverage profile might be as we think about easier laps in 2026 and what that could mean from a margin perspective. Thanks so much.

Hi Corey, this is Paula. So as we think about 2026 with the store closures, what's going to happen is our profile will be more flexible from an expenses standpoint. So of course less fixed expenses and we'll have the ability to be more dynamic from that standpoint. I think from a. A gross margin, the profile may be staying closely the same to where that total enterprise is today. But what you're going to see is a substantial EBITDA margin expansion in 2026 with the store closures. So currently we are seeing the store closure optimization work really well. We have delivered over $18 million of cost reductions loan. We expect that number to be much greater in 2026 when we annualize 180 stores. And so that will also strengthen our liquidity substantially for 2026.

Great. Thanks so much and best of luck.

Our next question comes from Alex Stratton with Morgan Stanley. You may proceed with your question.

Great. Thanks so much. Maybe for Paula, I think you said you expect significant EBITDA margin expansion next year. Not sure if I heard that right, but if so, can you just elaborate more on that? And what type of level is in reach. And then just on a, as a follow up to the sales guidance for the fourth quarter, worse pressure than the third quarter is what's implied. So is that reflecting what you've seen quarter to date and what areas exactly they're getting worse from a quarter over quarter perspective. Thanks a lot.

So going to Q4 guidance, we are all in for Q4 guidance. So what you're seeing is essentially accounting for what Lisa had mentioned before, the MISS and tops along with shoes, there is also a season season seasonality impact in our business, typically in Q4. So it goes along with that seasonality impact. As we moved into fiscal 26 with store closures and EBITDA margin growth, what you're going to see there is, if. You recall, a lot of these stores. That we're closing, actually most of them are very highly unproductive stores. So by closing them we're essentially. Giving money back to the business through reductions in many items in the P and L. Right. So such as store payroll or store occupancy, et cetera, et cetera, et cetera. So we're going to see a greater amount of savings from that standpoint. And just to touch base again, we're seeing retention, customer retention, sales retention from these store closures to be well aligned with our historical rates, which is a great sign for us. So everything is going really well from that standpoint. I would say as you know, we are on track to closing up to 180 this year. And. I think that's, that's all we have from a soar optimization at this point.

Great, thank you.

Our next question comes from Dana Telsey with Telse Advisory Group. You may proceed with your question.

Hi, good afternoon Lisa and everyone. As you think about the current merchandising adjustments that are being made, what are you seeing in the competitive landscape? Do you think of this more as an internal issue that torrid needs to fix or is there changes in the competitive landscape? And whether it's product assortment, price point or where your customer is going. Thank you.

Thanks, Dana. I do think there's a seasonal aspect to it. I think obviously a lot of this is self inflicted driven by really advocating core products in the knit and woven top categories. I do think seasonally there are a lot of options that other brands have extended sizes and it's more sweatshirt oriented, sweater oriented that are not as fit specific. We certainly didn't see this impact in the TOPS business in the first half of this year. So it really did accelerate as we go into third quarter I think we have a real opportunity to build back with the opening price point strategies that we discussed and Keith applications that our customer really values. More tunics in the mix, more kind of figure flattering solution oriented products in the knit category and then more where to work and blouse business in the woven categories. But I do think that in the third quarter there is an ability to choose tops and among a broader range of retailers because just the seasonal impact of being less fit specific and more oversized. While we, you know, to that end we didn't see the degradation in any of our bottoms businesses which are more fit specific or address business which also we were able to have. Great representation of end uses and fit solutions. So I feel like it's isolated, very clearly isolated. I do think it could have been, I don't have any data to really support it, but just broadly from a mindset it could have had a larger impact because of the seasonal nature of the products in the knit and woven categories during the time. So again quickly move to address it. When I think Ashley mentioned earlier about, you know, our less frequency in terms of tops purchases in the third quarter, tops really are a frequency driver for us so that they don't buy denim as often or dresses as often, but they do buy tops more often. And I think that opportunity to, you know, by tops other places it might have been enhanced by, you know, by that timing. I do think anything that we've seen in terms of surveying with our customers, they're still very dedicated to Taured, they're very interested in shopping at Taured. They're still maintaining their strong relationship and our loyalty program continues to be very highly penetrated. So we have a lot of opportunity to communicate and connect with this customer and understand exactly what's missing. And as I mentioned, the one thing that continues to come up is opening price point that I would say we did have fits and starts with over the last several years but very deeply invested and committed to based on the analysis of our previous OPP programs and the expansion related to that. So I think we're going to be able to recapture her tops purchase in addition to maintaining the denim and dress purchase from her as we introduce these reintroduce these core businesses at an opening price point.

Did I answer the question? Thank you. Thank you.

This now concludes our question and answer session. I would like to turn the floor back over to Lisa Harper for closing comments.

Thank you for joining us today. We look forward to sharing the progress on the store optimization program and the re merchandising of our tops area as we join you for the fourth quarter and fiscal 25 conference call. Thank you.

Ladies and gentlemen. Thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.