Torrid Holdings Inc. (CURV), a leading direct-to-consumer brand specializing in stylish plus-size apparel and intimates, has shown resilience and adaptability despite recent challenges.
As the women’s plus-size market continues to evolve, Torrid remains committed to empowering its customers with trend-focused designs and an inclusive approach. The company’s recent Q2 2024 results highlight an inflection point, supported by strategic changes in inventory management, pricing, and store operations.
Revenue Inflection and Operational Adjustments
Torrid’s second quarter fiscal 2024 results marked a significant improvement compared to the earlier part of the year. Revenue reached $284.6 million, exceeding internal expectations, and comparable sales declined by just 0.8% year-over-year, a marked improvement from the 9% drop in Q1 2024. Notably, full-price selling grew by nearly 7%, signaling a shift towards healthier revenue streams driven by better assortment management and strategic focus on high-demand products.
The company’s ability to pivot and react to market demands was demonstrated in its inventory approach. By reserving more space for “chase” inventory—products ordered mid-season based on current sales data—Torrid aims to ensure flexibility and relevance. Management projects this category will comprise 10% of inventory by the end of the year and 15% in subsequent periods. Denim bottom adjustments, moving from 65% skinny jeans last year to 25% this year, highlight Torrid’s responsiveness to changing fashion trends.
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Mixed Margins and Strategic Investments
Torrid’s gross margins improved by 320 basis points in Q2 2024 due to reduced clearance activity. However, these gains were offset by a 300 basis point rise in SG&A expenses, attributed to performance bonuses and investments in strategic technology. While the decision to reward performance bonuses despite a challenging year may raise concerns, the technology investments align with Torrid’s focus on long-term operational efficiency.
The company’s pricing strategy remains a point of contention. Torrid continues to operate with high sticker prices, frequently accompanied by promotions such as Torrid Cash and aggressive seasonal sales, which effectively reduce prices by up to 30%.
While this strategy boosts volume during promotional periods, customer sentiment indicates pricing dissatisfaction. Simplifying the pricing structure could help improve consumer trust and reduce dependence on sales cycles.
Store Portfolio Optimization: Shifting Away from Enclosed Malls
Torrid is accelerating its store closure program, planning to shut 20-25 additional locations beyond the 10-15 closures initially announced for 2024. This move reflects the company’s intention to shift away from enclosed mall locations, which currently comprise 65% of its store footprint. Management aims to reduce this percentage to 50% over the next three to five years, favoring open-space malls and online channels.
This strategy aligns with broader retail trends and positions the brand closer to its target demographic. Valuation Challenges and Competitive Landscape Despite operational improvements, Torrid’s valuation remains under scrutiny. The company’s earnings yield of 5% is relatively low for a retailer in its category, suggesting that current market expectations for growth may be overly optimistic.
For Torrid to be considered undervalued, analysts argue it must consistently deliver earnings growth exceeding 7% annually, a benchmark it has yet to achieve. Furthermore, the rise of weight-reduction medications like Ozempic presents a demographic challenge.
These drugs are gaining traction among Torrid’s core customer base, potentially reducing the demand for plus-size apparel over time. Addressing this potential shift will require Torrid to diversify its offerings and reinforce its brand loyalty among customers.
Strategic Initiatives: A Path Forward
Torrid’s plans to launch three lifestyle capsule collections in late 2024 and early 2025 offer a glimpse into its evolving strategy. These collections aim to provide customers with fresh and diverse options, reinforcing the brand’s appeal while ensuring it remains relevant in a competitive market.
By focusing on delivering trends already proven popular in the broader apparel industry, Torrid avoids the risk of creating untested designs, a pragmatic approach for a niche retailer.
The company’s efforts to enhance inventory flexibility, as well as its decision to streamline store locations, reflect its commitment to adapting to a dynamic retail landscape. However, the path to sustained growth will require more significant innovations in pricing, marketing, and operational efficiency.
A Cautious Yet Hopeful Outlook
Torrid Holdings Inc. is navigating a challenging environment with a mix of strategic adjustments and tactical improvements. While its Q2 2024 results show promising signs of stabilization, the company faces hurdles in achieving consistent growth and addressing demographic shifts. Its gross margin improvements, flexible inventory strategies, and store optimization efforts are commendable, but questions about valuation and pricing strategies persist.
For long-term investors, Torrid offers a unique position within the growing plus-size market, valued at $85 billion. However, the stock may need to trade at a lower price or deliver substantial growth to present a compelling opportunity. For now, Torrid remains a hold as the company works to solidify its foundation and demonstrate sustained momentum.
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