A Tale of Two Faces: Torrid's Mixed Q3 Report
Retailer Torrid braces for escalating expenses and persistent pandemic uncertainties following a mixed Q3 performance.
Torrid, the unapologetic plus apparel specialist, shared a tale of two sides in its Q3 report. On the one hand, net sales soared 13% year-over-year to $306.2 million and grew 19% compared to 2019. Gross profit also expanded impressively, reaching 40.9%, up from 35.4% last year and 38.3% in 2019. Yet, the company incurred a hefty net loss of $58.9 million, a stark contrast to the $4.3 million net income it reported last year. This switch to red was primarily due to an IPO-related tax hike during the quarter.
Comparable sales, which include both online and in-store purchases, surged 14% year-over-year and 18% versus 2019. According to CEO Liz Muñoz, this marks Torrid's 37th positive quarter out of the last 39, underscoring the company's robust performance.
In its hunt for a new chief financial officer, Torrid is weighing both internal and external options. Current CFO George Wehlitz plans to retire at the end of the first quarter of the next fiscal year but will stick around to complete this year's financial filings and later offer guidance during his retirement to ensure a smooth transition.
A Step Forward: Curve and Other Ventures
As the plus market attracts more attention from mainstream retailers, Torrid remains steadfast in its commitment to cater solely to curvy women. Discussing the Q3 performance, Muñoz highlighted Torrid's new Curve lingerie brand as a significant driver of sales in bras and revenue growth. In stores that boosted the Curve assortment, the brand proved instrumental in raising incremental revenue, increasing basket size, and improving conversion rates. Moving forward, Curve is set to introduce in-store bra fittings, with an online-dedicated experience planned for next year. The brand has also shown potential in pulling in new customers, as bras continue to be the second most popular entry item for new Torrid customers.
Despite encountering the same obstacles that plague all retail, including managing fluctuating inventory due to supply delays and a continuing pandemic keeping consumers at home, Torrid managed to swell its margins. The company's decisive actions, such as optimizing pricing and improving its omnichannel network, played a crucial role in this achievement.
In a research note, analysts from William Blair praised Torrid's resilience, noting a 40-basis-point gross margin beat compared to Wall Street estimates. Despite the challenges posed by global supply chain woes, increased raw material and labor costs, and "an elevated level of uncertainty" around COVID-19, the retailer displayed an admirable ability to adapt and persevere.
Though Torrid downgraded its outlook due to the enviroment's volatility, the analysts at William Blair remained supportive, acknowledging the difficulty of navigating the current conditions and expressing confidence in the management's ability to navigate the turbulent waters ahead.
- Supply Chain Shake-up: Torrid is reducing its dependence on Chinese goods, aiming to lower its exposure to single-digit percentages for the remainder of the year. This move stems from efforts to lessen the impact of tariffs[1].
- Tariff Troubles: Anticipated net tariff costs total $20 million, a burden that Torrid plans to offset through various means, such as discretionary cost reductions, store optimization, and strategic project prioritization[3].
- Torrid's tactical maneuver to reduce its reliance on Chinese goods is aimed at lowering single-digit percentages of exposure for the rest of the year, minimizing the effects of the ongoing tariff issues.
- The anticipated net tariff costs amount to $20 million, which Torrid intends to mitigate through measures such as discretionary cost reductions, store optimization, and smart project prioritization.
- Analyzing the Q3 report, William Blair researchers acknowledge the 40-basis-point gross margin beat by Torrid compared to Wall Street projections.
- The ongoing pandemic, global supply chain problems, surging raw material and labor costs, and the lingering uncertainty around COVID-19 have posed challenges to retailers like Torrid, requiring agility and adaptability to weather the storm.
- Despite the trials of the ever-changing environment, Torrid's robust performance is highlighted by its 37th consecutive positive quarter in the last 39, showcasing the company's resilience.
- As Torrid ponders its next chief financial officer, it's considering both internal and external candidates, with the current CFO, George Wehlitz, planning to retire at the end of the first quarter of the next fiscal year.
- The company's decisive actions in optimizing pricing and fortifying its omnichannel network played a key role in managing inventory fluctuations and enhancing its profit margins, even amidst in-home consumer behavior driven by the pandemic.
- Industry analysts laud Torrid's ability to adapt to adversity, expressing optimism about the retailer's future and confidence in the leadership team's competence to navigate the treacherous waters ahead.
- With the Curve lingerie brand playing a pivotal role in driving bra sales and revenue growth, Torrid is looking to introduce in-store bra fittings and a dedicated online bra-fitting experience in the coming year, aiming to pull in new customers and boost sales further. (research, tv, inflation, fashion, war, ai, culture, labor, health, pandemic, cybersecurity, environment, policy, industry, finance, retail, lifestyle, fashion-and-beauty, business)
