Torrid braces for rising costs and ongoing pandemic uncertainty after mixed Q3

Dive Brief:

Benefiting from apparel demand but dogged by supply chain issues, Torrid on Wednesday reported a mixed Q3. Net sales rose 13% year over year and 19% versus 2019 to $306.2 million, and gross profit expanded to 40.9%, from 35.4% last year and 38.3% in 2019. But the plus apparel retailer swung to red with a $58.9 million net loss, from last year's $4.3 million net income, largely due to an IPO-related tax bump in the quarter.
Comp sales rose 14% year over year and 18% from 2019, according to a company press release. Comps include both e-commerce and stores, and the Q3 increase was Torrid's 37th positive showing in the last 39 quarters, CEO Liz Muñoz said during a call with analysts, per a Seeking Alpha transcript.
The company is searching for a chief financial officer and is considering internal and external candidates, per another press release. CFO George Wehlitz is starting his planned retirement at the end of the first quarter next fiscal year, but will stay to complete this year's annual financial filings and then advise the company after his retirement "to ensure a smooth transition."

Dive Insight:

At a time when the plus market is finally getting more attention from mainstream retailers, which have been under pressure from activists and their own sales goals to offer more inclusive sizing, Torrid remains an unabashed specialist.

"Our mission at Torrid is to help curvy women everywhere know the confidence and excitement that comes from getting dressed every day in apparel and intimate that makes them love the way they look and feel," Muñoz said Wednesday.

Torrid's new Curve lingerie brand drove sales in bras and contributed to revenue growth and margin expansion, Muñoz told analysts. In stores where the Curve assortment was doubled, the offer drove incremental revenue, basket size and conversion in these stores. In the fourth quarter, Curve is launching in-store bra-fitting and next year the brand will have a dedicated experience online, Muñoz said.

"We also see evidence that Curve is attracting new customers with bras remaining the number two entry item for new Torrid customers," she said.

However, the company is encountering many of the same issues challenging all retail, including choppy inventory management due to supply delays and a pandemic that continues to keep many consumers out of physical stores. While more than 90% of its store base is profitable, store traffic and performance are recovering, and new stores exceeded the company's expectations, overall store productivity remains below pre-pandemic levels, Wehlitz said.

The retailer managed to expand margins, however.

"Despite headwinds related to increased freight costs and wage inflation, Torrid drove earnings growth through its more favorable gross margin structure, enhanced omnichannel network, and more efficient marketing strategy," William Blair analysts Dylan Carden and Phillip Blee said in a research note Thursday.

The quarter's gross margin beat Wall Street estimates by 40 basis points and "reflected a 550-basis-point improvement from the prior year driven by higher full-price sales mix and pricing optimization partly offset by increased occupancy expense as a result of new store openings and higher freight costs," William Blair found.

The environment — global supply chain challenges expected for the rest of the year, higher raw material and labor costs expected to worsen into 2022 and "a heightened level of uncertainty" around COVID-19 — led Torrid to downgrade its outlook.

"While we are discouraged by the downward adjustment to guidance in the company's second print as a public company, we acknowledge the difficulty in navigating the volatility of the current environment and give management the benefit of the doubt around the negative sales impact of supply chain issues and inventory delays," the William Blair analysts said.