Q2 2025 Torrid Holdings Inc Earnings Call

September 4, 2024

Speaker Change: Greetings, welcome to Torred Holdings, second quarter fiscal 2024 earnings costs at this time, all participants are now with Sennelie Mode.

Operator: 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Operator: If anyone's required operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded.

Speaker Change: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded.

Chinwe Abaelu: I will now turn the conference over to Chinwe Abaelu, Chief Accounting Officer and Senior Vice President. Thank you. You may begin.

Speaker Change: I will now turn the conference over to Chinwe Abaelu, Chief Accounting Officer and Senior Vice President. Thank you. You may begin.

Chinwe Abaelu: Good afternoon, everyone, and thank you for joining Torrid's call today to discuss our financial results for the second quarter of fiscal 2024, which we released this morning and can be found on our website at investors.torrid.com.

Chinwe Abaelu: Good afternoon everyone and thank you for joining Torrid's call today to discuss our financial results for the second quarter of fiscal 2024, which we released this morning and can be found on our website at investors.torrid.com

Chinwe Abaelu: With me today on the call, Alisa Harper, Chief Executive Officer of Torrid, Paula Dempsey, Chief Financial Officer, and Ashley Wheeler, our Chief Strategy and Planning Officer.

Speaker Change: with me today on the call, Lisa Harper, Chief Executive Officer of Torrid, Paula Dempsey, Chief Financial Officer, and Ashlee Wheeler, our Chief Strategy and Planning Officer.

Chinwe Abaelu: Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're already 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 words accept, believe, plan, anticipate, will, may, should, estimate, and other words in terms of similar meaning. All forward-looking statements are based on current expectations and assumptions as of today, September 4th, 2024. These statements are subject to risks and uncertainties that could cause actual results to differ materially.

Speaker Change: Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're already familiar with.

Speaker Change: Management may make forward-looking statements, including guidance and underlying assumptions.

Speaker Change: Forward-looking statements may include, but are not limited to, statements containing the words except belief, plan, anticipate, will, may, should, estimate, and other words in terms of similar meaning.

Speaker Change: All forward-looking statements are based on current expectations and assumptions. As of today, September 4th, 2024.

Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially.

Chinwe Abaelu: For further discussion of risks related to our business, see our filings with the SEC.

Speaker Change: For further discussion of risks related to our business.

Chinwe Abaelu: This call will contain non-GAAP financial measures, such as adjusted EBITDA. Reconciliation to these non-GAAP measures to the most comparable GAAP measures are included in the earnings release, furnished to the SEC, and available on our website.

Speaker Change: See our filing to the SBC.

Speaker Change: This call will contain non-gap financial measures, such as adjusted EBITDA.

Speaker Change: Reconciliation to these non-gap measures to the most comparable gap measures are included in the earnings relief, furnished to the SEC and available on our website.

Lisa Harper: With that, I will turn the call over to Lisa. Thank you, Chen Wei. Hello, everyone, and thank you for joining us today. We are pleased with our second quarter results, in which sales and adjusted EBITDA came in at the high end of our guidance range. For the quarter, sales were 285 million, and adjusted EBITDA was 35 million, resulting in 103 basis points of adjusted EBITDA expansion as a percentage of net sales to 12.2%. This was driven by strong regular price comps, which increased 6.4%, and our diligent inventory and expense management, which we will discuss shortly.

Speaker Change: With that, I will turn the call over to Lisa.

Lisa Harper: Thank you, Chinwe. Hello everyone and thank you for joining us today.

Speaker Change: We are pleased with our second quarter results in which sales and adjusted EBITDA came in at the high end of our guidance range.

Lisa Harper: For the quarter, sales were 285 million, and adjusted EBITDA with 35 million, resulting in 103 basis points of adjusted EBITDA expansion as a percentage of net sales to 12.2%.

Lisa Harper: This was driven by strong regular price comps, which increased 6.4% in our diligent inventory and extensive management, which we will discuss shortly.

Lisa Harper: Additionally, we successfully generated meaningful free cash flow, allowing us to end the quarter with 54 million in total cash.

Lisa Harper: Before Ashley and Paula provide more details on our second quarter performance, I'd like to take some time today to share where we are and our strategies for the business transformation. Our first phase, which is nearing completion, was focused on driving operational excellence. Phase two is focused on scaling that platform to expand product offerings, gaining additional wallet share, and building our active customer file while delivering top and bottom line growth. Since my return approximately two years ago, we have focused on many initiatives, building talent, improving operational execution, re-aligning product sourcing and driving supply chain capabilities, enhancing financial disciplines, optimizing inventory levels, and expanding technical and digital capabilities.

Speaker Change: Before Ashlee Impala provide more details on our second quarter performance, I'd like to take some time today to share where we are and our strategies for the business transformation.

Speaker Change: Our first phase, which is nearing completion, will focus on driving operational excellence.

Ashlee Impala: Phase 2 is focused on scaling that platform to the fan product offerings, gaining additional wallet share and building our active customer file while delivering top and bottom line growth.

Ashlee Impala: Since my return approximately two years ago, we have focused on many initiatives.

Ashlee Impala: Building Talent, improving operational execution, re-aligning product sourcing, and driving supply chain capabilities, enhancing financial disciplines, optimizing inventory levels, and expanding technical and digital capabilities.

Lisa Harper: We worked on building a scalable operational foundation that positions us to accelerate into the next phase of our strategy, which is product evolution and expansion. We've discussed many of these initiatives over the last several calls, but I'd like to highlight a few of these today. Historically, Torrid has had a best-in-class data and digital capabilities. Our direct business now delivers 60% of our total demand, and 93% of our customers are engaged in our loyalty program. Our data-centric approach to our business has allowed us to build a dynamic marketing program over the last several years that delivers both short- and long-term incremental EBITDA growth.

Ashlee Impala: We worked on building a scalable operational foundation that positions us to accelerate into the next phase of our strategy, which is product evolution and expansion.

Ashlee Impala: We've discussed many of these initiatives over the last several calls, but I'd like to highlight a few of these today.

Ashlee Impala: Historically, Taurus has had a best-in-class data and digital capabilities.

Ashlee Impala: Our direct business now delivers 60% of our total demand, and 93% of our customers are engaged in our Royalty Program.

Ashlee Impala: Our data centric approach to our business has allowed us to build a dynamic marketing program over the last several years that delivers both short and long-term incremental EBITDA growth.

Lisa Harper: We have focused on a balanced approach to acquisition, reactivation, retention, and frequency, and have the talent and disciplines to manage this dynamic process. Lately, we have seen an appreciable increase in brand awareness, increasing from the low 40s last year to 52% in our most recent measurement. We continue to have an industry-leading customer satisfaction score of 95%. Our focus on customer activation in our stores has increased most notably with the reintroduction of our casting-called model search, which had the highest engagement of any program of this type that we have ever executed.

Ashlee Impala: We have focused on a balanced approach to acquisition, reactivation, retention and frequency, and have the talent and disciplines to manage this dynamic process.

Ashlee Impala: Lately, we have seen an appreciable increase in brand awareness, increasing from the low 40s last year to 52% in our most recent measurement. We continue to have an industry-leading customer satisfaction score of 95%.

Ashlee Impala: Our focus on customer activation in our stores has increased most notably with the interdiction of our casting called model search, which has the highest engagement of any program of this type that we have ever executed.

Lisa Harper: We see opportunities to invest in broader digital and store activation, both of these in the upcoming years. We operate our stores at the center of our omni experience for our customers. We know that over 60% of our customers learn about the brand from their store experience, becoming the most evangelical lifetime value customers. Using stores as the primary source for customer acquisition allowed us to operate with a very favorable pack that supports first purchase profitability. If she tries product on in a store, she converts to a purchase at a rate of 50%. Store activated customers are the stickiest with the highest propensity to become omni customers, and omni customers spend 3.4 times the amount of single channel customers.

Ashlee Impala: We see opportunities to invest in broader digital and store activation, both of these in the upcoming years.

Speaker Change: We operate our stores as the center of our omni experience for our customers. We know that over 60% of our customers learn about the brand from their story experience, becoming the most evangelical lifetime value customers.

Speaker Change: Using stores at the primary source for customer acquisition, allows us to operate with a very favorable tax that supports first purchase profitability.

Speaker Change: If she tries product on an assaur, she converts to a purchase at a rate of 50%.

Speaker Change: Store-activated customers are the stickiest with the highest propensity to become omnipestumers.

Speaker Change: and Omnikustomers spend 3.4 times the amount of single-channel customers.

Lisa Harper: We have always been laser focused on our customers, as we acknowledge that she has minimal retail options dedicated to her, even though she represents approximately 2.3% of US women. While we remain committed to stores, we believe that we can better service our customers by right-sizing our store footprint. As our leases come up for renewal, our focus is on increasing our presence in lifestyle centers and improving the productivity of our current store base. We are her cheerleaders, as we introduce her to products that change her life, a claim that very few retailers can make. Our mission-driven store associates are most often customers that have experienced that life-changing store experience and found product that fits and flatters her while encouraging her to live her very best life.

Speaker Change: We have always been laser focused on our customers, as we acknowledge that she has minimal retail options dedicated to her, even though she represents approximately two-thirds of U.S. women.

Speaker Change: While we remain committed to stores, we believe that we can better surface our customers by right-sizing our store footprint.

Speaker Change: As our leaders come up for renewal, our focus is on increasing our presence in lifestyle centers and improving the productivity of our current sore-based.

Speaker Change: We are her cheerleaders, as we introduce her to products that change her life, a claim that very few retailers can make.

Speaker Change: Our mission-driven story associates are most often customers that have experienced that life-changing story experience, and found product that fits and flatters her while encouraging her to live her very best life.

Lisa Harper: We experience Torrid's tears over and over in our dressing rooms: tears of joy, release, and beauty.

Speaker Change: We experience towards tears over and over in our dressing rooms. Tears of joy, relief, and beauty.

Lisa Harper: Despite our clear focus on the customer, the company had not scaled our investments with our business. Systems needed to be updated; the supply chain was fractured and could not keep up with servicing the customer. We have implemented significant updates to our entire enterprise suite of systems, with a final phase to begin plated by the end of 2025, when we roll out our financial system upgrades. Our talented leadership and distribution and supply chain now provides excellent service levels that include 98% of orders that leave the DC the same day they're ordered, with a 35% improvement in distribution center productivity over the last year.

Speaker Change: Despite our clear focus on the customer, the company had not scaled our investments with our business. Systems needed to be updated, the supply chain was fractured and couldn't keep up with servicing the customer.

Speaker Change: We have implemented significant updates to our entire enterprise suite of systems with a final phase to begin played by the end of 2025 when we roll out our financial system upgrades.

Speaker Change: Our talented leadership and distribution and supply chain now provides excellent service levels that include 98% of orders that leave the DC the same day they are ordered with a 35% improvement and distribution center productivity over the last year.

Lisa Harper: We also now have the capability to ship directly to our customers from all of our 657 stores, including the recent expansion of that capability. Our customers can choose to have product delivered to their store, and our store associates can order any product for a customer and have it shipped to either their home or to their store. Simply put, our omni-capabilities are dynamics efficient and allow for all customer preferences. These fully flexible options allow for optimal inventory investments as we can be agnostic on demand and fulfillment choices. In addition to these changes, we have spent the last two years identifying and executing dramatic improvements in overall inventory investment and product costs.

Speaker Change: We also now have the capability to ship directly to our customers from all of our 657 stores, including the recent expansion of that capability in Canada.

Speaker Change: Our customers can choose to have product delivered to their store and their store associates can order any product for a customer and have it shipped to either their home or to their store.

Speaker Change: Simply put, our Omnicatabilities are dynamic, efficient and allow for all customer preferences.

Speaker Change: The fully flexible options allow for optimal inventory investments as we can be agnostic on demand in the fulfillment choices.

Speaker Change: In addition to these changes, we've spent the last two years identifying and executing dramatic improvements in overall inventory investment and product cost.

Lisa Harper: Our inventory at the start of Q3 2024 is approximately 40% lower than the inventory level when I rejoined the company. Additionally, our retail ticket prices had increased by 15% in 2022, and we were heavily committed to China as our primary country of origin. Two years later, our inventory is highly productive. Our product costs have decreased as we have focused on sourcing strategies with our strongest partners, and our China penetration will be in the mid teens by the end of the year. We have added opening price points to better balance our overall retail mix. This improvement in inventory position and quality has delivered appreciable expansion and gross margins, which were up 323 basis points in Q2 2024 compared to the same period last year.

Speaker Change: Our inventory at the start of Q320-24 is approximately 40% lower than the inventory levels when I rejoin the company.

Speaker Change: Additionally, our retail ticket prices had increased by 15% in 2022, and we were heavily committed to China as our primary country of origin.

Speaker Change: Two years later, our inventory is highly productive, our product costs have decreased as we have focused on sourcing strategies with our strongest partners.

Speaker Change: and our Chinatization will be in the mid-teens by the end of the year.

Speaker Change: We have added opening price point to better balance our overall retail mix.

Speaker Change: This improvement in inventory position and quality has delivered appreciable expansion and gross margins, which were up 323 basis points in Q2 2024 compared to the same period last year.

Lisa Harper: It has also generated substantial improvement in working capital, resulting in 54 million in cash equivalence at the end of Q2 2024. Important to this discipline strategy is that we have eliminated many empty calorie sales. The second quarter was the inflection point for this, with our clearance sales comping negative 50%, while our regular price sales comp positive 6%. That yielded a blended comp of negative 0.8%. We believe Q2 represents the peak of our strategic clearance actions, and the combination of improving clearance sales comp and strong regular price sales comp should result in blended positive comps in the second half of the year.

Speaker Change: It is also generated substantial improvement in working capital. Resulting in 54 million in cash and cash equivalents at the end of Q2 2024.

Speaker Change: Important to this discipline strategy is that we have eliminated many empty calories sales.

Speaker Change: The second quarter was the inflection point for this, with our clearance sales comping negative 50% while our regular price sales comp positive 6%.

Speaker Change: That yielded a blended comp of negative 0.8%.

Speaker Change: We believe you to represent the peak of our strategic clearance actions and the combination of improving clearance sales comps and strong regular price sales comps to result in blended positive comps in the second half of the year. In addition to further product margin expansion.

Lisa Harper: In addition, to further product margin expansion. One of the biggest benefits of this inventory strategy is still ahead of us as we start to chase inventory again, with 10% of our receipts in Q4 of this year being chased based on customer demand. Chasing allows us to quickly reorder strong performing styles and also allows us to place product beds closer to delivery with greater insight into trends in customer preference. This I'm so impressed with our team's nimble and dynamic approach to making this happen.

Speaker Change: One of the biggest benefits of this inventory strategy is still ahead of us as we start to chase inventory again, with 10% of our receipts and Q4 of this year being chased based on customer demand.

Speaker Change: Chasing allows us to quickly reorder strong performing styles and also allows us to place products that's closer to delivery with greater insight into trends and customer preference.

Speaker Change: This is a game changer as we move forward and I'm so impressed with our team's nimble and dynamic approach to making this happen.

Lisa Harper: Our team has worked hard to build a platform that will support the transition of Torrid back into growth mode, with perhaps the most important element Stella had of us, because in retail, it is always about the product. When we converted Torrid from a market driven brand to a vertical retailer in 2012 prior to the underground of explosive growth, it was important to develop fit and quality that exceeded her expectations and give her products that flattered her. Our strategy was to give her what she was seen in the mall, but couldn't buy, and we could provide everything in her closet because she was so underserved.

Speaker Change: Our team has worked hard to build a platform that will support the transition of Torrid back into Gross mode, with perhaps the most important elements of Helahad of us, because in retail, it is always about the product.

Speaker Change: When we converted towards from a market driven brand to a vertical retailer in 2012, prior to the first round of explosive growth, it was important to develop fit and qualities that exceeded expectations and give her products that flatter to her.

Speaker Change: Our strategy was to give her what she would see in the mall, but couldn't buy, and we could provide everything in her closet because she was so underserved.

Lisa Harper: But over the years, innovation stalled to mitigate risk and protect the historical business results. Over the last year, we focused on re-examining our standards and process to rebuild the culture of innovation while ensuring our product is relevant and inspirational. But we know that there is one cardinal rule that we will not break. We will not fire our existing customer. Our average customer age has increased from 35 to 42 since 2018. This shows the power of the brand to retain customers, but it also highlights enormous opportunities. I'll use it to date. Last year, skinny denim was approximately 65% of our denim assortment.

Speaker Change: But over the years, innovation stalled to mitigate risk and protect the historical business results.

Speaker Change: Over the last year, we've focused on re-examining our standards and process to rebuild a culture of innovation, while ensuring our product is relevant and inspirational.

Speaker Change: But we know that there is one cardinal rule that we will not break. We will not fire our existing customer.

Speaker Change: Our average customer age has increased from 35 to 42 since 2018.

Speaker Change: This shows the power of the brand to retain customers, but it also highlights enormous opportunities.

Speaker Change: I'll use denim as a proxy for what we have implemented today.

Speaker Change: Last year, skinny denim was approximately 65% of our denim assortment.

Lisa Harper: Our approach to denim had to change to move forward and remain relevant to our customer. This year, skinny silhouettes have decreased to approximately 25% of our denim assortment, and we have added a wide range of silhouettes and finishes that the customer is loving. Wide legs, flair, utility, baggy, updated boot, and straight. We relaunched denim in August and are chasing product to satisfy the exciting demand. The team worked together and did a fantastic job, including design, tech design, product development, sourcing, merchandising, planning, and marketing to deliver this transformation. We have so much talent in the organization, and their excitement is palpable.

Speaker Change: Our approach to denim had to change to move forward and remain relevant to our customer.

Speaker Change: This year, Skinny Solar Letts have decreased to approximately 25% of our dynamosortment, and we have added a wide range of solar Letts and finishes that the customer is lucky. Wide-leg, flare, utility, baggy, updated boot and straight.

Speaker Change: We relaunched in him in August, and are chasing products to satisfy the exciting demand. The team worked together and did a fantastic job, including design, tech design, product development, sourcing, merchandising, planning and marketing to deliver this transformation.

Speaker Change: We have so much talent in the organization and their excitement is palpable.

Lisa Harper: In addition to a new energy and excitement, highlighting the team's ability to deliver world-class products for our core brands and collections, we know that the overall plus-size market opportunity is vast.

Speaker Change: In addition to a new energy and excitement highlighting the teens' ability to deliver world-class product for core brands and collections.

Speaker Change: We know that the overall plus-size market opportunity is vast.

Lisa Harper: To that end, we will be introducing multiple capital concepts next year to capture more of our current customers' wallet share, as well as appealing to broader demographics, most notably younger customers. You will start seeing this new product in January 2025 with the release of three Capital collections. While Torrid has developed a certain aesthetic over the years, we know that the customer's appetite for a variety of looks and price. And imagine our customer shopping a traditional brand. She sees products after product that's not for her. We will use this product expansion to test customer demand as well as to gauge the opportunity to introduce new customers to the brand.

Speaker Change: Two that ends, we will be introducing multiple capsule concepts next year to capture more of our current customers while at share, as well as appealing to broader demographics, most notably younger customers.

Speaker Change: You will start seeing this new product in January 2025 with the release of three capital collections.

Speaker Change: While Jordan has developed a certain aesthetic over the years, we know that the customer's appetite for a variety of looks and price points exist.

Speaker Change: Imagine our customer shopping for additional brands. She sees products after a product that's not for her.

Speaker Change: We will use this product expansion to test customer demand as well as to gauge the opportunity to introduce new customers to the brand.

Lisa Harper: In addition to product expansion and apparel, we are building a robust pipeline of innovation in our intimate category. For the next two years, we will be reworking our core frames to incorporate new technology, as well as expanding our catalog of franchises to provide more solutions to our customers. The expansion of incidents will also be supported by the existing platforms. Critical to this overall strategy is the ability to scale our curtain capability. We will leverage our existing Omni Store and web platform, our internal design, sourcing, merchandising, and planning teams, as well as distribution and supply chain.

Speaker Change: In addition to product expansion in a peril, we are building a robust pipeline of innovation in our Intimates category. For the next two years, we will be reworking our coreframes to incorporate new technology, as well as expanding our catalog of franchises to provide more solutions to our customers.

Speaker Change: The expansion of instruments will also be supported by the existing platforms.

Speaker Change: Clinical to this overall strategy is the ability to scale our curtain capability. We will leverage our existing omnistory and web platforms, our internal design, sourcing, merchandising and planning teams, as well as distribution and supply chain.

Lisa Harper: This strategy also gives us an opportunity to leverage what we have learned in our marketing efforts, and we believe this will result in expansion of both reactivated and new customers.

Speaker Change: This strategy also gives us an opportunity to leverage what we have learned in our marketing efforts and we believe this will result in expansion of both reactivated and new customers. There is more to come and we will look forward to sharing our progress with this initiative.

Lisa Harper: There is more to come, and we will look forward to sharing our progress with this initiative. Simply put, we will scale our existing capabilities, disciplined inventory practices, and Omni platforms to introduce new product concepts to our existing and new customers. This is the second phase of our transformation, product expansion, providing every type of product that you find in the other brands for this remarkably underserved sector. The teams are excited and deeply engaged in executing these new ideas, while also serving up more relevant product to the core tour of brand. We will use what we learned to inform and scale our third phase, which is focused on accelerated and optimized growth.

Speaker Change: Simply put, we will scale our existing capabilities, disciplined inventory practices, and omni platforms to introduce new product concepts to our existing and new customers.

Speaker Change: This is the second phase of our transformation, product expansion.

Speaker Change: Providing every type of product that you find in the other brands for this remarkably underserved sector.

Speaker Change: The teams are excited and deeply engaged in executing these new ideas while also serving up more relevant product to the core Tora brand.

Speaker Change: We will use what we learn to inform and scale our third phase, which is focused on accelerated and optimized growth.

Lisa Harper: We are confident that we have made the right changes to the business, positioning us to drive low to mid-single-digit growth in comps and mid-teens adjusted EBITDA margins over time. Key drivers of our adjusted EBITDA as a percentage of net sales are through expansion of our core product offering, adding new capital collections, and executing our store optimization program.

Speaker Change: We are confident that we have made the right changes to the business, positioning us to drive low to mid-single-digit growth in comps and mid-teens adjusted EBITDA margins over time.

Speaker Change: Key drivers of our adjusted EBITDA as a percentage of net sales are through expansion of our core product offering, adding new capital collections and executing our store optimization program.

Ashley Wheeler: With that, I would like to turn the call over to Ashley to discuss more details about Q2 results.

Speaker Change: and with that, I'd like to turn the call over to Ashlee to discuss more details about Q2 results.

Ashley Wheeler: Thank you, Lisa.

Ashley Wheeler: I will begin today by discussing our Q2 results and then give an update on our margin optimization strategies, as well as our merchandising and marketing initiatives. We are pleased with the trends we are seeing in our business as customers are responding to our newer collection, driving higher regular price sales. During the quarter, we continue to gain momentum with our regular price comps, increasing 6.4%, driven by strength across all payroll categories, and in particular, tops, denim, and dresses, which all saw double-digit positive comps at regular price. While our total comp was down 0.8%, this was attributable to a 50% decline in markdown sales, which we have been strategically managing, and which resulted in a significantly healthier inventory position throughout the quarter.

Ashlee: Thank you, Lisa. I will begin today by discussing our Q2 results and then give an update on our margin optimization strategies, as well as our merchandising and marketing initiatives.

Ashlee: We are pleased with the trends we are seeing in our business as customers are responding to our new or collection, driving higher regular price sales.

Speaker Change: During the quarter, we continue to gain momentum with our regular price constant increasing 6.4% driven by strengths across all parallel categories and in particular, top, denim and dresses which all saw double digit positive constant regular price.

Speaker Change: While our total comp was down 0.8%, this was attributable to a 50% decline in mark down sales, which we have been strategically managing, and which resulted in a significantly healthier inventory position throughout the quarter.

Ashley Wheeler: We expect the pressure of negative clearance sales comp to evade as we move through the back half of the year, having reached the peak of clearance comp headwind in the second quarter. By the fourth quarter, we anticipate the drag from negative markdown comps to be half of what we saw in the second quarter, which will be offset by healthy regular price selling, allowing us to deliver positive cons in total. We remain very encouraged by the health of our business as reflected in an apparel category comp that was up 3.6% in total. Gross margin expanded 323 basis points year over year, driven by reductions in both product cost and depth of discounting.

Speaker Change: We expect the pressure of negative clearance sales comes to a beat as we move through the back half of the year, having reached the peak of clearance comp headwind in the second quarter.

Speaker Change: By the fourth quarter, we anticipate the drag from negative Markdown Comps to be half of what we saw in the second quarter, which will be offset by healthy regular price selling, allowing us to deliver positive Comps in total.

Speaker Change: We remain very encouraged by the health of our business as reflected in an apparel category concept that was up 3.6% in total.

Speaker Change: Gross margin expanded 323 basis point to year over year, driven by reductions in both products cost and depth of discounting.

Ashley Wheeler: We continue to be very pleased with our management of inventory, having turned our inventory historically fast during the quarter and ending with 19% less inventory in total. And 52% less inventory at markdown than last year. We have built scarcity into our business model, which reduces our reliance on deep promotional discount, supported by a flexible chase discipline and dynamic on the channel fulfillment program. By the fourth quarter, 10% of our receipts will be chased better informed by trends in the business and in support of incremental sales demand. From a product standpoint, our design, merchandising, and planning teams remain laser-focused on delivering the most relevant, commercial, and balanced assortment that appeals to a broad range of customers and end use.

Speaker Change: We continue to be very pleased with our management of inventory, having turned our inventory historically fast during the quarter and ending with 19% less inventory in total and 52% less inventory at Markdown the last year.

Speaker Change: We have built scarcity into our business model, which reduces our reliance on deep promotional discount, supported by a flexible Chase discipline and dynamic on new channel fulfillment program.

Speaker Change: By the fourth quarter, 10% of our receipts will be chased, better informed by trends in the business and in support of incremental sales demand.

Speaker Change: From a product standpoint, our design, merchandising, and planning teams, for being laser focused on delivering the most relevant, commercial, and balanced assortment that appeals to a broad range of customers and end-use.

Ashley Wheeler: Positive regular price comps and historically high regular price sell through the cross all major apparel and intimate categories reflect the great progress made in product offering and buy accuracy. Apparel is in a cycle of big shifts in silhouette and styling, with a variety of shapes and proportion. This is certainly true for done and leg shapes from skinny to super flare and everything in between, not seen in a very long time. This shift and leg shape results in a need for different proportions and top footwear and third pieces, which was reflected in growth and unit per transaction during the second quarter.

Speaker Change: Positive regular price constant and historically high regular price fell through the cross all major apparel and intimate categories. Reflect the great progress made in product offering and buy accuracy.

Speaker Change: A peril is in a cycle of big shifts in silhouette and styling with a variety of shapes and proportion. This is certainly true for denim leg shapes from skinny to super flare and everything in between not seen in a very long time.

Speaker Change: This shift in leg shape resulted in needs for different proportions and tops, footwear and third pieces, which was reflected in growth in units per transaction during the second quarter.

Ashley Wheeler: We recently launched our fall denim campaign that includes a wide variety of leg shapes and wash range, with styling that is much more relevant and useful. While still early, we are very encouraged by the initial response and believe we are well positioned to support our customers' wardrobe refresh needs from head to toe. Building on the progress and positive momentum in our core, we recognize further opportunities to expand our product offering to appeal to a broader range of customers and expand the share of wallet among existing customers. We will launch several capsule collections with differentiated aesthetics that range and appeal from one that caters to a younger, more leading edge fashion and price conscious customer to one with a more classic preppy look and feel, as well as three other lifestyle concepts.

Speaker Change: We recently launched our fall denim campaign that includes a wide variety of leg shapes and wash range with styling that is much more relevant and useful. While still early, we are very encouraged by the initial response and believe we are well positioned to support our customers' wardrobe refresh needs from head to toe.

Speaker Change: Filting on the progress and positive momentum in our core format, we recognize further opportunities to expand our product offering to appeal to a broader range of customers and expand the share of wallet among existing customers.

Speaker Change: We will launch several capsule collections with differentiated aesthetics that range in appeal. From one that caters to a younger, more leading-edge fashion and price-conscious customer, to one with a more classic, preppy look and feel, as well as three other lifestyle concepts.

Ashley Wheeler: To further support our sortment expansion and maximize assortment productivity, we are in the process of implementing a merchandise financial assortment and allocation planning system. This suite of systems will allow for more accurate and productive assortment investments and even greater inventory management. As much progress as we've made in inventory and assortment management in the last year, we believe there's still room to improve the productivity of our core assortment that will allow us to reinvest that inventory into new capsule collections that will deliver incremental customer style growth and lifetime value. We successfully rolled out the first of four modules in the second quarter and are currently utilizing data from this platform to inform investment decision.

Speaker Change: To further support our sort of an expansion and maximize assortment productivity, we are in the process of implementing our merchandise financial assortment and allocation planning system. This suite of systems will allow for more accurate and productive assortment investments and even greater inventory management.

Speaker Change: As much progress as we've made an inventory and assortment management in the last year, we believe there's still room to improve the productivity of our core assortment that will allow us to reinvest that inventory into new capsule collection that will deliver incremental customer's file growth and lifetime value.

Speaker Change: We successfully rolled out the first of four modules in the second quarter and are currently utilizing data from this platform to inform investment decisions.

Speaker Change: In the back half of the year, and early part of 1st quarter 2025, we will launch the remaining module.

Speaker Change: Which will provide the ability to optimize regional and store specific assortment planning, blending product, store and customer attribute to curate and even more productive assortment.

Ashley Wheeler: Additionally, we've recently launched a global platform of our e-commerce website, which offers a localized customer experience for our customers in Canada, as well as other countries worldwide. We have seen a very positive response and believed this will yield incremental demand in the back half of 2024 and beyond.

Speaker Change: Additionally, we've recently launched a global platform of our e-commerce website, which offers a localized customer experience for our customers in Canada as well as other countries worldwide. We have seen a very positive response and believe this will yield incremental demand in the back half of 2024 and beyond.

Ashley Wheeler: Turning to marketing, our Toward Casting Call event was incredibly successful in driving engagement, brand awareness, and customer file growth. We received over 11,000 applications to be the next face of Toward and have seen a nine percentage point gain in brand awareness since the campaign launch. The campaign not only reached a new broad base of customers, but it drove a high teams reactivation rate among previously engaged customers, such that our year-to-date growth and newly acquired and reactivated customers is positive year over year. We are thrilled to announce the winner of this year's casting call and the new face of Toward to our entire community later today.

Speaker Change: Turning to marketing, our toward casting call event was incredibly successful in driving engagement, brand awareness, and customer file growth.

Speaker Change: We received over 11,000 applications to be the next face of Torrid and have seen a 9 percentage point gain in brand awareness since the campaign launch.

Speaker Change: The campaign not only reached a new broad base of customers, but it drove a high team's reactivation rate among previously engaged customers.

Speaker Change: Such that our year-to-date growth in newly acquired and reactivated customers is positive year-over-year. We are thrilled to announce the winner of this year's casting call and the new face-of-tourage to our entire community later today.

Ashley Wheeler: We have other exciting in-store activations plans throughout the back half of the year, including various try-on and fit-focused events, as well as an event with ThredUp where customers are eligible to trade in previously-loved denim for credit toward a new pair of toward denim. We are committed to in-store activations of the meaningful part of our marketing and brand ecosystem, which foster community and provide an immersive and unparalleled fit experience. Lastly, we continue to improve the value proposition of our loyalty program, which drives our industry-leading retention rate and supports growth and customer lifetime value. We have expanded the opportunities for customers to earn loyalty points through various purchase and community engagement behaviors, which we believe will result in increased transaction frequency among our very loyal customer base.

Speaker Change: We have other exciting, in-store activations planned throughout the back half of the year, including various try-on and fit-focused events, as well as an event with ThreadUp, where customers are eligible to trade and previously loved to denim for credit toward a new pair of denim.

Speaker Change: We are committed to install activations of the meaningful part of our marketing and brand ecosystem, which foster community and provide an immersive and unparalleled fit experience.

Speaker Change: Lastly, we continue to improve the value proposition of our loyalty program, which strives our industry-leading retention rate and supports growth and customer lifetime value.

Speaker Change: We have expanded the opportunities for customers to earn loyalty points through various purchase and community engagement behaviors, which we believe will result in increased transaction frequency among our very loyal customer base.

Ashley Wheeler: We are incredibly proud of the progress we have made. We are excited about the positive momentum we see in the business and the tremendous opportunities in front of us. We look forward to updating you on our continuing progress.

Speaker Change: We are incredibly proud of the progress we have made, we are excited about the positive momentum we see in the business and the tremendous opportunities in front of us. We look forward to updating you on our continuing progress. With that, I will pass the call to Paula.

Paula Dempsey: With that, I will pass the call to Paula.

Paula Dempsey: Thank you, Ashley. Good morning, everyone, and thank you for joining us today. I will now begin with a detailed discussion of our second quarter performance, followed by our outlook for fiscal 2024. We are very pleased with our second quarter results. Our sales and adjusted EBRA came in at the high end of our guidance as customers responded favorably to our product offering, while we continue to tightly manage inventory levels, aiming the quarter with inventory down 19% from the previous year. All of this drove our total cash in cash equivalent to 54 million, an increase of 35 million compared to the same period last year.

Paula Dempsey: Thank you Ashlee. Good morning everyone and thank you for joining us today. I will now begin with a detail discussion of our second quarter performance followed by our outlook for fiscal 2024.

Paula Dempsey: We're very pleased with our second quarter results. Our sales and adjustment ebra, teaming at the high end of our guidance as customers responded favorably to our product offering, while we continue to slightly manage events or a level, ending the quarter with a inventory down 19% from the previous year.

Paula Dempsey: All of this drove our total cash in cash of prevalence to 54 million and increase of 35 million compared to the same period last year.

Paula Dempsey: For the second quarter, net sales came in at 285 million compared to 289 million last year. Comparable sales declined 0.8% due primarily to lower levels of markdown sales relative to a year ago, which had a minus 50% comp offset by a positive 6.4% comp in regular price sales. We continue to expect this impact of clearance rebate in the back half of the year, as we began to anniversary more normalized inventory levels. Growth profit increased 7.4% to 110 million from 103 million last year, reflecting a growth margin increase of 323 basis points to 38.7, driven by lower product cost and fewer markdowns.

Paula Dempsey: For the second quarter, Net Sales came in at 285 million compared to 289 million last year.

Speaker Change: Comparable sales declined 0.8% primarily to lower levels of Markdown sales relative to a year ago, which had a minus 50% of set by a positive 6.4% comp in regular price sales.

Speaker Change: We continue to expect this impact of clearance debate in the back half of the year, as we began to reverse remort normalized inventory levels.

Speaker Change: Rose Profit increased 7.4% to 110 million from 103 million in last year. Reflecting a gross margin increase of 323 basis points to 38.7, driven by lower product cost and fewer markdowns.

Paula Dempsey: As tuning expenses in the quarter or 76.8 million or 27% of net sales compared to 69.6 million or 24% of net sales last year, the increase is primarily driven by performance bonuses, strategic technology investments, and a one-time expense of 2.1 million or 80 basis points related to employee severance. As a reminder, we did not incur performance bonus expense last year. Marketing expenses in the quarter were 30 million compared to 12.9 million in the second quarter of last year. As a percentage of net sales, marketing increased 10 basis points to 4.6% compared to 4.5% in the second quarter of last year.

Speaker Change: As cheating expenses in the quarter were 76.8 million or 27% of Nat's bail compared to 69.6 million or 24% of Nat's bail last year.

Operator: of 2024 Earnings Conference Call. At this time, all participants are no listen only mode. A question and answer session will follow the formal presentation.

Operator: If anyone's required operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded.

Speaker Change: The increases primarily driven by performance bonuses, strategic technology investments, and a one-time expensive 2.1 million or 80 basis points related to employees that are in.

Chinwe Abaelu: I will now turn the conference over to Chinwe Abaelu, Chief Accounting Officer, and Senior Vice President. Thank you. You may begin. Good afternoon, everyone, and thank you for joining Torrid's call today to discuss our financial results for the second quarter of fiscal 2024, which we released this morning and can be found on our website at investors.torrid.com. With me today on the call, Alisa Harper, Chief Executive Officer of Torrid, Paula Dempsey, Chief Financial Officer, and Ashley Wheeler, our Chief Strategy and Planning Officer.

Speaker Change: As a reminder, we did not incur performance bonus expense last year.

Speaker Change: Marketing expenses in the quarter were $30 million compared to $12.9 million in the second quarter of last year. As a percentage of themselves, marketing increased 10 basis points to $4.6 compared to $4.5 per second in the second quarter of last year.

Paula Dempsey: Net income was 8.3 million, or 8 cents per share, compared to net income of 6.6 million, or 6 cents per share, for the same period last year. Included in this figure is a one-time expense of 2.1 million for employee severance, which is equivalent to 2 cents per share. In addition to gap measures, we believe that adjusted EBITDA is an important measure that we use to evaluate and manage our business. I just said EBITDA increased 7.5% to 34.6 million compared to 32.2 million a year ago. I just said EBITDA as a percentage of net sales increased 103 basis points to 12.2%.

Speaker Change: Medingcom was 8.3 million or 8 cents per share compared to Medingcom of 6.6 million or 6 cents per share for the same period last year. Included in this figure is a one-time expensive 2.1 million for employee severance, which is equivalent to 2 cents per share.

Speaker Change: In addition to gap measures, we believe that I just said EBITDAP is an important measure that we use to evaluate and manage our business.

Speaker Change: I just have even increased 7.5%.

Speaker Change: 234.6 million compared to 32.2 million our year ago.

Speaker Change: I just an e-bitter as a percentage just not sales increased 103 basis points to 12.2%.

Paula Dempsey: Moving to the balance sheet, we ended the quarter with cash and cash equivalence of 54 million and no borrowings on our revolving credit agreement. Our total liquidity, including available borrowing capacity under our revolving credit agreement, was 154 million. Total debt at the end of the quarter was 297 million compared to 313 million in the second quarter of 2023. Our inventory levels continue to improve, ending the quarter with inventory down 19% to 128 million compared to 158 million a year ago.

Speaker Change: Moving to the balance sheet, we ended the quarter with cash and cash equivalent of 54 million and no borrowers on our revolving credit agreement.

Chinwe Abaelu: These statements are subject to risks and uncertainties that could cause actual results to different materially. For further discussion of risks related to our business, see our contain non-gap financial measures, such as adjusted EBITDA. Reconciliation to these non-gap measures to the most comparable gap measures are included in the earnings release, furnished to the SEC, and available on our website.

Speaker Change: Our total liquidity, including available bar and capacity, under our revolving credit agreement, was 154 million.

Speaker Change: Total debt at the end of the quarter was 297 million compared to 313 million in the second quarter of 2023.

Speaker Change: Our inventory levels continue to improve adding the quarter-worth inventory down 19% to 128 million compared to 158 million a year ago.

Alisa Harper: With that, I will turn the call over to Alisa. Thank you, Chen Wei.

Paula Dempsey: Before we transition to our outlook, I would like to discuss store openings and closures for the remainder of the year by providing an update on our ongoing fleet optimization efforts. We recently completed a detailed analysis of our current store base, where approximately 65% of our locations are situated in enclosed malls, with a remainder in outdoor centers. Given that our customers show a clear preference for outdoor centers, which has also yielded higher conversion rates and profitability, we recognize a critical role that these locations will play in our growth trajectory. In response, we're strategically working to rebalance our store footprint, aiming for an equal split between mall and outdoor centers in the next few years.

Alisa Harper: Hello, everyone, and thank you for joining us today. We are pleased with our second quarter results in which sales and adjusted EBITDA came in at the high end of our guidance range. For the quarter, sales were 285 million, and adjusted EBITDA was 35 million, resulting in 103 basis points of adjusted EBITDA expansion as a percentage of net sales to 12.2%. This was driven by strong regular price comps, which increased 6.4% in our diligent inventory and expense management, which we will discuss shortly. Additionally, we successfully generated meaningful free cash flow, allowing us to end the quarter with 54 million in total cash.

Speaker Change: Before we transition to our outlook, I would like to discuss store openings and closures for the remainder of the year by providing a update on our ongoing fort fleet optimization efforts.

Speaker Change: We recently completed a detailed analysis of our current store-based, where approximately 65% of our locations are situated in enclosed malls.

Speaker Change: with a remainder in outdoor suners.

Speaker Change: Given that our customer shows clear preference for outdoor centers, which has also yield higher conversion rates and profitability, we recognize that the critical role that these locations will play in our growth trajectory.

Speaker Change: In response, we're strategically working to rebalance our source footprint aiming for an equal split between mall and outdoor centers in the next few years as part of this initiative.

Paula Dempsey: As part of this initiative, we plan to close our usual cadence of 10 to 15 stores this year, with an additional 20 to 25 closures expected by the end of fiscal 2024. We anticipate that these closures will contribute approximately 80 to 110 basis points of adjusted EBITDA expansion as a percentage of net sales in fiscal 2025. With minimal impacts on our top line revenue as we redirect customers to nearby stores or our online channels. These additional closures will be timed with lease aspirations, ensuring limited impacts on our financials for fiscal 2024. We will continue to optimize our sore fleet as leases come up from renew over the coming years, with the ultimate goal of creating a balanced mix in our sore fleet.

Alisa Harper: Before Ashley and Paula provide more details on our second quarter performance, I'd like to take some time today to share where we are and our strategies for the business transformation. Our first phase, which is nearing completion, was focused on driving operational excellence. Phase two is focused on scaling that platform to expand product offerings, gaining additional wallet share and building our active customer file, while delivering top and bottom line growth. Since my return approximately two years ago, we have focused on many initiatives, building talent, improving operational execution, re-aligning product sourcing and driving supply chain capabilities, enhancing financial disciplines, optimizing inventory levels, and expanding technical and digital capabilities. We worked on building a scalable operational foundation that positions us to accelerate into the next phase of our strategy, which is product evolution and expansion.

Speaker Change: We plan to close our usual cadence of 10 to 15 stores this year. Wasn't additional 20 to 25 closures expected by the end of fiscal 2024?

Speaker Change: Want to dissipate that these closures will contribute approximately 80 to 110 basis points of adjusted e-bitter expansion as a percentage of that sales in fiscal 2025.

Speaker Change: With minimal impact on our top line revenue as we redirect customers from nearby stores or our online channels.

Speaker Change: These additional closures will be times with least expiration, ensuring limited impacts on our fine year, so we'll be back in the next few days.

Speaker Change: We will continue to optimize our source fleet as Lisa's come-up for review over the coming years, with the ultimate goal of creating a balanced mix in our source fleet.

Paula Dempsey: As we turn our attention to the remainder of 2024, we're pleased with the progress made in the first half and are focused on driving positive, comparable sales while we continue to expend growth margin, which will lead to healthier just as even results in the second half. While current sales trends are encouraging, we're narrowing our full-year sales guidance and taking a cautious approach as we now have six months of actual performance data to guide our outlook in the second half. We now 1.135 billion and 1.145 billion. We're raising the lower end of our just at EBITDA guidance to 110 million, while keeping the high end of our guidance at 116 million.

Alisa Harper: We've discussed many of these initiatives over the last several calls, but I'd like to highlight a few of these today. Historically, Torrid has had a best-in-class data and digital capabilities. Our direct business now delivers 60% of our total demand, and 93% of our customers are engaged in our loyalty program. Our data-centric approach to our business has allowed us to build a dynamic marketing program over the last several years that delivers both short and long-term incremental EBITDA growth.

Speaker Change: As we turn our attention to the remainder of 2024, we're pleased with what the progress made in the first half and are focused on driving positive comparable sales while of continuing to expend growth margin which will lead to healthy adjusted EBITDA results in the second half half.

Speaker Change: While current sales trends are encouraging, we're narrowing our full-year sales guidance and taking a cautious approach as we now have six months of actual performance data to guide our outlook in the second half.

Speaker Change: We now project net sales for the fiscal year to range between 1.135 billion.

Alisa Harper: We have focused on a balanced approach to acquisition, reactivation, retention, and frequency, and have the talent and disciplines to manage this dynamic process. Lately, we have seen an appreciable increase in brand awareness, increasing from the low 40s last year to 52% in our most recent measurement. We continue to have an industry leading customer satisfaction score of 95%. Our focus on customer activation in our stores has increased most notably with the reintroduction of our casting-called model search, which had the highest engagement of any program of this type that we have ever executed.

Speaker Change: and 1.145 billion. We're raising the lower end of our just at even a guidance to 110 million while keeping the high end of our guidance at 116 million.

Paula Dempsey: We expect positive comparable sales and robust growth margins to continue, driven by improvements in product costs, better opening prices, and fewer promotions due to sustained reduction in inventory levels. SG&A and marketing expenses as a percentage of sales are expected to remain consistent with the second half of fiscal 2023. Capital expenditure is expected to be between 20 to 25 million, which includes investments in systems and technology, as well as the opening of 12 to 16 new stores.

Speaker Change: We expect positive comparable sales and robust gross margins to continue. Driven buying provides and product costs that are opening prices and fewer promotions due to sustained reductions in inventory levels.

Speaker Change: As June and Marketing expenses as a percentage of sales are expected to remain consistent with the second half of fiscal 2023.

Alisa Harper: We see opportunities to invest in broader digital and store activation, both of these in the upcoming years. We operate our stores at the center of our omni experience for our customers. We know that over 60% of our customers learn about the brand from their store experience, becoming the most evangelical lifetime value customers. Using stores as the primary source for customer acquisition, allows us to operate with a very favorable pack that supports first purchase profitability.

Speaker Change: Capital Expenditure is expected to be between 20 to 25 million, which includes investment in new systems and technology as well as the opening of 12 to 16 new stores.

Paula Dempsey: Now, let me provide some comments on our expectations for the third quarter of fiscal 2024. For the third quarter, we project net sales to be in the range of 280 to 285 million and are just at EBITDA to be between 23 and 26 million.

Speaker Change: Now let me provide some comments on our expectations for the third order of Cisco 2020-24.

Speaker Change: For the third quarter, we project Nat Fale to be in the range of 280 to 285 million and are just an video to be between 23 and 26 million.

Paula Dempsey: To conclude, our solid Q2 results for 2024 highlight the ongoing improvements across our business. This year, our priorities have not changed and include improving comparable sales, expanding margins, making strategic investments in technology in our workforce, and delivering strong working capital results.

Alisa Harper: If she tries product on in a store, she converts to a purchase at a rate of 50%. Store activated customers are the stickiest with the highest propensity to become omni customers, and omni customers spend 3.4 times the amount of single channel customers.

Speaker Change: Chukon Clude, our solid future results for 2024 High-Lite Young Bowing Governments across our business. This year, our priorities have not changed and including improving comparable sales, expanding margins, making strategic investments in technology and our workforce, and delivering strong working capital results.

Operator: I will now turn the call over to the operator to begin the question-and-answer portion of our call. Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation toll 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 a participant choosing speaker equipment and maybe necessary to pick up your handset before pressing the star keys.

Alisa Harper: We have always been laser focused on our customers, as we acknowledge that she has minimal retail options dedicated to her, even though she represents approximately 2.3 of US women. While we remain committed to stores, we believe that we can better service our customers by right sizing our store footprint. As our leases come before we renew all, our focus is on increasing our presence in lifestyle centers and improving the productivity of our current store base.

Speaker Change: I will now turn the call over to the operator to begin the question and answer portion of our calls.

Speaker Change: Thank you.

Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation total indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: for a participant using speaker equipment, and maybe necessary to pick up your hands at before pressing the start use.

Dana Telsey: Our first question is from Dana Telsi.

Dana Telsey: Would Telsi Advisory Group please proceed? Hi, good evening, everyone.

Alisa Harper: We are her cheerleaders, as we introduce her to products that change her life, a claim that very few retailers can make. Our mission-driven store associates are most often customers that have experienced that life-changing store experience, and found product that fits and flatters her while encouraging her to live her very best life. We experience Torrid's tears over and over in our dressing rooms, tears of joy, release, and beauty.

Speaker Change: Our first question is from Dean at TLC with TLC Advisory Group, please proceed.

Dana Telsey: As you think about the fleet optimization program that you just announced was 65% located in closed malls, what is your ultimate target for what the fleet should look like, whether number of stores, locations, and this 20 to 25 additional closures by the end of this year, how do you think about the cadence of closures going forward? Then Lisa, congratulations on the progress on regular price comps. What are you seeing in terms of pricing and the full price felt through, how you're thinking about product costs and the ability for pricing, and then just anything more on category performance and cadence through the quarter.

Speaker Change: Hi, good thing everyone.

Speaker Change: As you think about the Fleet Optimization Program that you just announced with 65% located in closed malls

Speaker Change: One of you ultimately target for what the fleet should look like, for their number of stores, locations.

Speaker Change: and this 20 to 25 additional closures by the end of this year, how do you think about the cadence of closures going forward? And then Lisa, congratulations on the progress on regular price, price, cons.

Alisa Harper: Despite our clear focus on the customer, the company had not scaled our investments with our business. Systems needed to be updated, the supply chain was fractured and could not keep up with servicing the customer. We have implemented significant updates to our entire enterprise suite of systems with a final phase to begin plated by the end of 2025. When we roll out our financial system upgrades, our talented leadership and distribution and supply chain now provides excellent service levels that include 98% of orders that leave the DC the same day they're ordered with a 35% improvement and distribution center productivity over the last year.

Speaker Change: What are you seeing in terms of pricing and the full price sell through how you're thinking about product costs and the ability for pricing, and then just anything more on category performance and cadence through the quarter. Thank you.

Dana Telsey: Thank you.

Paula Dempsey: Hi, Dana. This is Paula. I'll take the first part on this legislation. So when it comes to cadence for the 20 to 25 additional closures this year, they will most likely all happen at the end of Q4. We're timing it pretty well with when the lease is will expire, so there will be no actual impact to our profitability.

Speaker Change: Hi, Dana. This is Paula. I'll take the first part on the plate of the organization. So, when it comes to cadence for the 20-25 edition of closures this year...

Speaker Change: They will most likely all happen at the end of Q4, we're timing it pretty well with when the Lisa's will expire, so there will be no actual impact too.

Alisa Harper: We also now have the capability to ship directly to our customers from all of our 657 stores, including the recent expansion of that capability in Canada. Our customers can choose to have product delivered to their store and our store associates can order any product for a customer and have it shipped to either their home or to their store. Simply put, our omni-capabilities are dynamics, efficient, and allow for all customer preferences. These fully flexible options allow for optimal inventory investments as we can be agnostic on demand and fulfillment choices.

Paula Dempsey: And then, in regards to where our target should be, we're really targeting more on that 15-15 percent. It will take us a few years to get there. It's not going to be overnight. We're going to be balancing off the while we're doing these closures. So not only we're going to be closing them, but there's also going to be openings in outdoor centers. So I would expect the fleet to be as well balanced like anywhere in the next three to five years.

Speaker Change: to our profitability. And then in regards to where our target should be, we're really targeting more on that 15-50%.

Speaker Change: It will take us a few years to get there. It's not going to be overnight. We're going to be balancing our speed while we're doing these closures. So not only we're going to be closing them, but there's also going to be opening these things out of the more centers.

Speaker Change: So I would expect the fleet to be a well balanced place in anywhere in the next three to five years.

Paula Dempsey: And then, on the other questions, we have a lot there. So, as I mentioned in the comments, we're happy with our full price itself through. We're turning faster than we've turned in a while. I don't know if it's historically the fastest ever, but we definitely made progress in terms of that. We're really comfortable with our inventory levels and productivity of that. We've removed the empty calorie sales in terms of clearance sales and really have focused on developing scarcity in the model again and really being able to reinforce that with the chase model. I think all of those combined together are exemplified our strategy and then really proud of the organization and their capability to make these, I think, pretty dramatic shifts in terms of how we're managing inventory and managing chase.

Alisa Harper: In addition to these changes, we have spent the last two years identifying and executing dramatic improvements in overall inventory investment and product costs. Our inventory at the start of Q3 2024 is approximately 40% lower than the inventory levels when I rejoin the company. Additionally, our retail ticket prices had increased by 15% in 2022 and we were heavily committed to China as our primary country of origin. Two years later, our inventory is highly productive, our product costs have decreased as we have focused on sourcing strategies with our strongest partners, and our China penetration will be in the mid teens by the end of the year.

Speaker Change: and then on the other questions, we have a lot there.

Speaker Change: and Ashlee mentioned in the comments, we're happy with our first fight for ourselves, we're turning faster than we've turned in a while. I don't know if it's historically the fastest ever, but it's what we definitely need progress.

Speaker Change: In terms of that, we're really comfortable with our inventory levels and productivity of that.

Speaker Change: We removed the empty calorie fails in terms of chronic sales and really a focus on.

Speaker Change: and developing scarcity in the model again and really be able to reinforce that with the chase model. I think all of those combined together are exemplified our strategy and really proud of the organization and their capability to make these.

Alisa Harper: We have added opening price points to better balance our overall retail mix. This improvement in inventory position and quality has delivered appreciable expansion and gross margins, which were up 323 basis points in Q2 2024 compared to the same period last year. It has also generated substantial improvement in working capital, resulting in 54 million in cash equivalence at the end of Q2 2024.

Speaker Change: I think pretty dramatic shifts in terms of how we're managing inventory and managing change so really happy about that even with the change we're still seeing benefits in terms of cost of good

Paula Dempsey: So really happy about that. Even with the chase, we're still seeing benefit in terms of cost of goods. We're a platforming fabric that's giving us some additional savings in terms of cost of goods. And we're really reinforcing what we've talked about previously, which was the focus on our core vendors and their capabilities and these really strong partners. With them, as we move forward into that itself, all of those that combined into the capability and bringing us the capability to continue to see some improvement in cost of goods. Again, it won't be at the level that we are currently, that we've seen for this year, but we still have opportunity.

Speaker Change: War of Black Farming Fabrics, that's giving us some additional savings in terms of cost to guys, then we're really reinforcing what we've talked about previously, which was the focus on our core vendors and their capabilities and these.

Alisa Harper: Important to this discipline strategy is that we have eliminated many empty calorie sales. The second quarter was the inflection point for this with our clearance sales comping negative 50% while our regular price sales comp positive 6%. That yielded a blended comp of negative 0.8%. We believe Q2 represents the peak of our strategic clearance actions and the combination of improving clearance sales comps and strong regular price sales comp should result in blended positive comps in the second half of the year in addition to further product margin expense.

Speaker Change: Billy Strong Partner.

Speaker Change: This done has to be moved forward into it itself. All of those that combined into the capable and bringing us capability to continue to see some...

Speaker Change: and moving in Costa Good. Again, it will see as the levels that we are currently, that we've seen for this year, but we still have opportunity.

Paula Dempsey: We also still have opportunity in inventory productivity where some of our core kind of model stock assumptions that we've made historically have room for improvement.

Speaker Change: We also still have opportunity in inventory productivity where some of our core kind of mouthstock assumptions that we've made historically.

Paula Dempsey: So that we see, even with these dramatic improvements in inventory, we still think that we have opportunity to improve how we're managing model stock some core programs. And it's actually mentioned we have a new system that will be fully, that's part like half. Two of the four modules are in play right now, and the balance of them will be done by the early first quarter, but this will allow us more specificity and detail and to store-by-store allocation based on the customer demands in those. of specific regions and geography. So, a lot more to come on both the PataCoste and Ventory Optimization with always kind of that idea of the full price sell through improving and being able to chase into that, which will augment that sell through over time.

Speaker Change: have room for improvements so that we see even with these dramatic improvement and inventory while we still think that we have.

Alisa Harper: One of the biggest benefits of this inventory strategy is still ahead of us as we start to chase inventory again, with 10% of our receipts in Q4 of this year being chased based on customer demand. Chasing allows us to quickly reorder strong performing styles and also allows us to place product beds closer to delivery with greater insight into trends in customer preference. This is so impressed with our team's nimble and dynamic approach to making this happen.

Speaker Change: Um, of opportunity to improve how we're managing level stocks and core programs and as Ashlee mentioned, we have a new system that will be fully, that's part, like a half.

Speaker Change: Two of the four modules are in play right now, and the balance of them will be done by the early first quarter, but this will allow us more specificity and detail and to store by store allocation based on the customer demands in those specific regions and geography.

Speaker Change: And last morning come on Ghost of Hot Acosta, Ventoria Optimization, with always kind of that idea of the full price follow through, improving and being able to chase into that which will augment that self through over time.

Alisa Harper: Our team has worked hard to build a platform that will support the transition of Torrid back into growth mode, with perhaps the most important element Stella had of us, because in retail, it is always about the product. When we converted Torrid from a market driven brand to a vertical retailer in 2012 prior to the first round of explosive growth, it was important to develop fit and quality that exceeded her expectations and give her products that flattered her.

Paula Dempsey: Categories, performance; I just reinforced what Ashley said: denim. We're so very happy with that. In fact, we've moved through all of our platform fabrics that are replenishing our platform fabrics there as we chase products into the fourth quarter and first quarter of next year, and then knit tops, particularly sweater jackets, the working dresses are working. So, really happy with the balance performance through multiple categories.

Speaker Change: Category performance, I just reinforced what Ashlee said, denim, we're so very happy with that in fact.

Speaker Change: Wheeler.

Speaker Change: We moved through all of our platform fabrics that are re-planishing of our platform fabrics there as we chase products into the fourth quarter and first quarter of next year.

Alisa Harper: Our strategy was to give her what she was seeing in the mall but couldn't buy, and we could provide everything in her closet because she was so underserved. But over the years, innovation stalled to mitigate risk and protect the historical business results. Over the last year, we focused on re-examining our standards and process to rebuild a culture of innovation while ensuring our product is relevant and inspirational.

Speaker Change: and then mid-top, particularly sweaters jacket for working dresses or working, so really happy with the balance performance through multiple categories.

Corey Tarlowe: Thank you. Our next question is from Corey Tarlowe with Jeffries. Please proceed.

Speaker Change: Thank you.

Tina: Thanks, Tina

Tina: Our next question is from Corey Tarlo with Jeffries, please proceed.

Corey Tarlowe: Thanks.

Alisa Harper: But we know that there is one cardinal rule that we will not break. We will not fire our existing customer. Our average customer age has increased from 35 to 42 since 2018. This shows the power of the brand to retain customers, but it also highlights enormous opportunities.

Corey Tarlowe: Lisa, you provide a really interesting stabbing for further marks around your ability to chase. I think you mentioned there was something like 10% or a cell of your buy is still open for the fourth quarter. Is there any way to put that into context to talk about where we've been in terms of your ability to chase and the inventory that you had availability in prior season versus what you have now and what that might mean for the P&L going forward as we head to the back half here?

Tina: Thanks!

Speaker Change: You provide your really interesting stabbing with other marks around your ability to chase. I think you mentioned it was something like 10%.

Corey Tarlo: or so of your buy is still open for the fourth quarter. Is there any way to put that into context to talk about sort of where we've been in terms of your ability to chase and the inventory that you had availability and prior season?

Alisa Harper: I'll use denim as a proxy for what we have implemented to date. Last year, skinny denim was approximately 65% of our denim assortment. Our approach to denim had to change to move forward and remain relevant to our customer. This year, skinny silhouettes have decreased to approximately 25% of our denim assortment, and we have added a wide range of silhouettes and finishes that the customer is loving. Wide legs, flair, utility, baggy, updated boot, and straight.

Speaker Change: First is what you have now and what that might mean for the PNL going forward as we head to the back half here.

Lisa Harper: Sure, hey Corey, we really haven't chased in an appreciable way since 2016, I would say. So, this ability to chase is kind of reawakening a muscle that the organization did have but hasn't really utilized in a bit. We're currently 10% of our receipts in queue for our chase receipts. So, we're in, you know, our employee currently. We're being able to fill all of that open to buy, and so that's exciting. You know, I think that chase could get a little bit higher than this, maybe 15% at the most. But, you know, we're more to come on that.

Speaker Change: George, hey Corey, um, be...

Speaker Change: We really haven't chased in an appreciable way since 2015, I would say.

Speaker Change: So this ability to chase is kind of...

Alisa Harper: We relaunched denim in August and are chasing product to satisfy the exciting demand. The team worked together and did a fantastic job, including design, tech design, product development, sourcing, merchandising, planning, and marketing to deliver this transformation.

Speaker Change: Reawaking a muscle that the organization did have, but hasn't really utilized a bit.

Speaker Change: We are currently 10% of our receipts and two four are chased receipts, so we are in flight currently. We are being able to still all of that open to buy and so that's...

Alisa Harper: We have so much talent in the organization and their excitement is palpable. In addition to a new energy and excitement, highlighting the team's ability to deliver world-class products for core brands and collections, we know that the overall plus-size market opportunity is vast.

Speaker Change: That's exciting. You know, I think that Chase could get a little bit higher than this, maybe 15% at the most.

Speaker Change: But you know we're more to come on that, who's think obviously there's margin opportunity as you are chasing closer to the man understanding customer preference there's many of these things.

Lisa Harper: You think obviously there's margin opportunity as you are chasing closer to need, closer to demand, understand customer preferences. Many of these chase styles are reordered based on initial self-reduced. So, you know, it overall makes our inventory more and more productive as we have more information before making the investment.

Alisa Harper: To that end, we will be introducing multiple capsule concepts next year to capture more of our current customers' wallet share, as well as appealing to broader demographics, most notably younger customers. You will start seeing this new product in January 2025 with the release of three capsule collections. While Torrin has developed a certain aesthetic over the years, we know that the customer's appetite for a variety of looks and price points exists.

Speaker Change: The Chase Styles are reordered based on initial self-rude. So, you know, it's overall makes our inventory more and more productive. That's we have more information before making.

Lisa Harper: And it's core to our strategy of inventory productivity, and being able to manage that more effectively will be this chase capability, and our vendors are in a product development strategy team are doing a great job and being able to meet these needs.

Speaker Change: The McKinney Investment and Corridor Strategy of Immentory.

Alisa Harper: And imagine our customer shopping a traditional brand. She sees products after product that's not for her. We will use this product expansion to test customer demand as well as to gauge the opportunity to introduce new customers to the brand.

Speaker Change: Productivity and being able to manage that more effectively will be this chase capability. And our vendors are in a product development. We're doing a great job in being able to meet these needs.

Alisa Harper: In addition to product expansion and apparel, we are building a robust pipeline of innovation in our intimate category. For the next two years, we will be reworking our core frames to incorporate new technology, as well as expanding our catalog of franchises to provide more solutions to our customers. The expansion of instruments will also be supported by the existing platforms. Critical to this overall strategy is the ability to scale our curtain capability.

Corey Tarlowe: That's great.

Corey Tarlowe: And then could you just provide some more color on the cadence throughout the quarter and then maybe any trends you're seeing quarter to date? Thanks so much. Yeah, I mean, trends throughout the quarter, Corey May was really strong, early part of June as well. I think we saw similar to many retailers, a tougher for the July holiday, but then we had a very, very strong finish to the quarter with a really, really strong tour and cash events that we were proud of in July. So, I think a little bumping in around the Fourth of July holiday, but otherwise the quarter competed our expectation.

Speaker Change: That's great and then could you just provide some more color on the cadence throughout the quarter and then maybe any transgender scene recorded a date, thanks so much

Speaker Change: I think we saw similar to many retailers a tougher fourth-inch ally holiday.

Alisa Harper: We will leverage our existing Omni Store and web platform, our internal design sourcing, merchandising and planning teams, as well as distribution and supply chain. This strategy also gives us an opportunity to leverage what we have learned in our marketing efforts, and we believe this will result in expansion of both reactivated and new customers.

Speaker Change: But then we had a very, very strong finish to the quarter with a really, really strong, torrent cash event that we were proud of in July. So I think a little bumpyness around the fourth of July holiday, but otherwise.

Corey Tarlowe: As for the start of Q3, with a month in, we are on track. Great. Thank you so much, and best of luck. Thank you.

Speaker Change: Porter, Peter R. Expectation. As of the start of Q3 with a month in, we are on track.

Alisa Harper: There's more to come, and we will look forward to sharing our progress with this initiative. Simply put, we will scale our existing capabilities, disciplined inventory practices, and Omni platforms to introduce new product concepts to our existing and new customers.

Alex Straton: Great.

Speaker Change: Great, thank you so much and that's the work.

Alex Straton: Our next question is from Alex Straton, with Morgan Stanley. Please proceed. Perfect. Thanks, Plopper, taking the question. Just a couple of Apollo on the full year sale of guidance, really kind of a two-part question. I know you trimmed the high end. Can you just walk us through sort of what's driving a little bit more conservatism there? And then, despite trimming, we do still have that confidence improvement, assuming the back half. So just, you know, a little bit more detail, illuminating what gives you confidence there.

Speaker Change: Thank you. Thank you.

Speaker Change: Our next question is from Alex Stratton with Morgan Stanley, please proceed.

Speaker Change #100: You're a big thanks to Robert taking the question. Just a couple of reports on the full-year sales guidance.

Alisa Harper: This is the second phase of our transformation, product expansion, providing every type of product that you find in the other brands for this remarkably underserved sector. The teams are excited and deeply engaged in executing these new ideas, while also serving up more relevant product to the core tour of brand.

Speaker Change #101: is a really kind of a two-part question. I know you trimmed the high end. Can you just walk us through sort of what's driving a little bit more conservatism there?

Speaker Change #102: and then, despite trimming, we do still have that comp in for a minute soon in the back app, so just a little bit more detail, illuminating what gives you confidence there.

Alisa Harper: We will use what we learned to inform and scale our third phase, which is focused on accelerated and optimized growth. We are confident that we have made the right changes to the business, positioning us to drive low to mid-single-digit growth in comps and mid-teens adjusted EBITDA margins over time. Key drivers of our adjusted EBITDA as a percentage of net sales are through expansion of our core product offering, adding new capital collections, and executing our store optimization program.

Paula Dempsey: And then just secondly, just for Lisa, just on the average customer age, increasing over time, some of that data you gave is the goal to bring that back down or just help me understand, I guess, what the strategy is there. If you're okay with where it sits or what the plan is from here. Thanks a lot. Yeah.

Speaker Change #103: and then just secondly just for Lisa just on the average customer age, increasing over time. Some of that dating you gave is the goal to bring that back down or just help me understand, I guess, what the strategy is there if you're okay with where it sits or what the plan is from here. Thanks a lot.

Paula Dempsey: Hi, Alex. This is Paula. So I think in regards to guidance for the second half of the year, we're really just tightening our guidance, right? Six months of actual have already taken flight. So we know we have a good understanding of where the business is. So I think from our perspective, we just tighten our guidance from the top-line standpoint. We do expect, you know, and you saw our guidance for Q3 and Q4. We do expect for, you know, for our results to start, you know, reflecting that inflection point that Lisa has brought up. And specifically Q4, we do have, you know, one thing that you have to remember is that last year we had an extra week, right?

Speaker Change #103: Hi Alex, it's Paula. So I think in regards to guidance for the second half of the year, we're really just tightening our guidance, right? Six months of actual have already taken place. So we know we have a good.

Ashley Wheeler: And with that, I'd like to turn the call over to Ashley to discuss more details about Q2 results. Thank you, Lisa. I will begin today by discussing our Q2 results and then give an update on our margin optimization strategies, as well as our merchandising and marketing initiatives. We are pleased with the trends we are seeing in our business as customers are responding to our newer collection, driving higher regular price sales. During the quarter, we continue to gain momentum with our regular price comps, increasing 6.4%, driven by strengths across all payroll categories, and in particular, tops, denim, and dresses, which all saw double-digit positive cons at regular price.

Speaker Change #104: Understating of where the business is, so I think from our perspective, we just type in our guidance for let's offline to end point.

Speaker Change #105: We do expect, you know, and you saw our guidance for two-three and two-four. We do expect for our results to start.

Speaker Change #106: and Reflecting that Infliction Point, that Lisa has brought up and specifically to for, we do have, you know.

Speaker Change #107: One thing that you have to remember is that last year we had an extra week, right? So, and we were very clear that last year that was worth about $22 million.

Paula Dempsey: And we were very clear that last year that was worth about $22 million. So I don't think we're being that conservative with our quarter for Q4. It's a realistic quarter in which we are, you know, we're chasing inventory. We're also launching. We're going to be wanting to be careful during that time to be able to get to where our targets are. So hopefully that covers.

Ashley Wheeler: While our total comp was down 0.8%, this was attributable to a 50% decline in markdown sales, which we have been strategically managing, and which resulted in a significantly healthier inventory position throughout the quarter. We expect the pressure of negative clearance sales comp to evade, as we move through the back half of the year, having reached the peak of clearance comp headwind in the second quarter. By the fourth quarter, we anticipate the drag from negative markdown comps to behalf of what we saw in the second quarter, which will be offset by healthy regular price selling, allowing us to deliver positive cons in total.

Speaker Change #108: So, I don't think we're being that conservative with our quarter for two four. It's a realistic quarter in which we are, you know, for chasing, even though we're also launching, we're going to be launching these capsules.

Speaker Change #108: During that time, to be able to get to where our colleagues are, so hopefully that covers.

Lisa Harper: And hi Alex, I'll talk about that average customer age.

Lisa Harper: My goal or goal as an organization would be to rebalance that age a little bit younger. But again, I think the thickness of our customer is world class. We're really happy that they stay with the brand. Our core franchise have really resulted in great levels of productivity and demand because it's super demand. But our focus on customer on product innovation as we move forward with the capital concepts and making sure, like I spoke to the denim assortment, become making sure we are relevant commercial in terms of those decisions. I think that will all guide toward growing the total customer file, and as we grow that customer file, I expect the average age of it will come down.

Speaker Change #108: and Hi-O. So, talk about that average customer age.

Ashley Wheeler: We remain very encouraged by the health of our business as reflected in an apparel category comp that was up 3.6% in total. Gross margin expanded 323 basis point to year over a year driven by reductions in both product cost and depth of discounting. We continue to be very pleased with our management of inventory having turned our inventory historically fast during the quarter and ending with 19% less inventory in total and 52% less inventory.

Speaker Change #109: My goal, our goal, as an organization, would be to rebalance that age a little bit younger. By again, I think the kickiness of our customer is...

Speaker Change #109: World Class were really happy that they gave it the brand.

Speaker Change #110: Our core franchises have really resulted in great levels of productivity and demand. But our focus on customer product innovation has been moved forward with the capital concepts and making sure, like I spoke to the denim assortment, become making sure we are relevant commercial in terms of those decisions.

Ashley Wheeler: We have built scarcity into our business model, which reduces our reliance on deep promotional discount supported by a flexible chase discipline and dynamic on the channel fulfillment program. By the fourth quarter, 10% of our receipts will be chased better informed by trends in the business and in support of incremental sales demand. From a product standpoint, our design, merchandising, and planning teams remain laser focused on delivering the most relevant commercial and balanced assortment that appeals to a broad range of customers and end use.

Speaker Change #110: I think that will all guide toward growing the total customer file and as we grow that customer file I expect the average age of it will come down slightly.

Lisa Harper: and slightly.

Lisa Harper: I think that it's important to note; I mean, we announced the winner of the model search today, and most of our applicants in that model search were in their 29. I think, was the average age of that. We had a lot of activation and interest in that. We had the most involvement and engagement that we've ever had in this type of program before, and the cost and the competitors were targeted right into that core age group, naturally, without us managing it in any other way. And so I'm excited with some of the product initiatives that we have. While we will not walk away from our private and true dedicated evangelical customer, we certainly have an opportunity to expand those product offerings to incorporate different mindset.

Speaker Change #110: I think that it's important to note, I mean we announce the winner of the model search today, and most of our...

Speaker Change #111: Applicants in that model search were in their, like, 29, I think was the average age of that. We had a lot of, um, activation and, um, interest in that. We had the most.

Ashley Wheeler: Positive regular price comps and historically high regular price sell through the cross all major apparel and intimate categories reflect the great progress made in product offering and buy accuracy. Apparel is in a cycle of big shifts in silhouette and styling with a variety of shapes and proportion. This is certainly true for done and leg shapes from skinny to super flare and everything in between not seen in a very long time. This shift in leg shape results in a need for different proportions in top, footwear, and third pieces, which was reflected in growth and unit per transaction during the second quarter.

Speaker Change #112: involvement and engagement that we've ever had in this type of program before and target and the competitors were targeted right into that core, age group naturally, without us managing it in any other way.

Speaker Change #112: and so I'm excited with some of the...

Speaker Change #112: I'm going to show you those that we have.

Speaker Change #113: While we will not walk away from our tried-and-true dedicated evangelical customer, we certainly have an opportunity to expand those product offerings to incorporate different mindsets and age groups into the brand while leveraging all of our capabilities in our web and store platform. So, excited about the opportunity associated with that and very focused on ensuring that we protect the core business while we look.

Ashley Wheeler: We recently launched our fall denim campaign that includes a wide variety of leg shapes and wash range with styling that is much more relevant and youthful. While still early, we are very encouraged by the initial response and believe we are well positioned to support our customers wardrobe refresh needs from head to toe. Building on the progress and positive momentum in our core format, we recognize further opportunities to expand our product offering to appeal to a broader range of customers and expand the share of wallet among existing customers.

Lisa Harper: And that's an age groups into the brand while leveraging all of our capabilities and our web and store platforms. So excited about the opportunity associated with that and very focused on ensuring that we protect the core business while we look to expand product and expand the opportunity. Thanks a lot.

Speaker Change #112: to expand product and expand the opportunity.

Alex Straton: Good luck, ladies.

Dylan Cardin: Thank you. Our next question is from Dylan Cardin with William Blair. Please proceed. Thanks a lot.

Speaker Change #112: Thanks for watching, love my videos.

Speaker Change #112: Thank you all for your time.

Ashley Wheeler: We will launch several capsule collections with differentiated aesthetics that range and appeal from one that caters to a younger more leading edge fashion and price conscious customer to one with a more classic preppy look and feel as well as three other lifestyle concepts. To further support our sortment expansion and maximize assortment productivity, we are in the process of implementing a merchandise financial assortment and allocation planning system. This suite of systems will allow for more accurate and productive assortment investments and even greater inventory management.

Speaker Change #112: Our next question is from Dylan Kardon, with William Blair, please proceed.

Dylan Cardin: Just curious sort of a broader discussion on structural margin. I mean, you've rattled off so much that you've done to improve just the broader efficiency of the business, really soup to nuts. And I'm just kind of curious, are we playing here for, you know, a return to kind of where you were, you know, low teams that pre-pandemic, or is there more efficiency than, you know, relative to that period. And I guess, you know, when from a timing standpoint, you might expect flowing through some of the nice gross margin that you're seeing.

Dylan Kardon: Thanks a lot. I just curious, sort of a broader discussion on structural margin. I mean, you've rattled off so much that you've done to improve just the broader efficiency of the business, really, souped to nuts. And I'm just kind of curious, are we playing here for...

Speaker Change #115: You know, return to kind of where you are, you know, low teams, that pre-pandemic, wars, or more efficiency even, you know, relative to that period. And I guess...

Speaker Change #115: You know, when from a timing standpoint, you might expect flowing through some of the nice gross margin that you're seeing.

Ashley Wheeler: As much progress as we've made an inventory and assortment management in the last year, we believe there's still room to improve the productivity of our core assortment that will allow us to reinvest that inventory into new capsule collections that will deliver incremental customer style growth and lifetime value. We successfully rolled out the first of four modules in the second quarter and are currently utilizing data from this platform to inform investment decisions.

Dylan Cardin: Just for clarity, Dylan, you're referring to EBITDA margin? Yeah, I mean, either really operating or EBITDA. I mean, I think that, you know, we delivered 12.2% EBITDA margin in this quarter. We think we have opportunity to kind of rebalance margins and fourth quarter. I think we've over-invested. Our sales are pretty flat quarter to quarter. We don't have the same type of the seasonal gift giving bill that some players have. And I think we over-invest in that. So I think one piece of the opportunity and margin expansion is kind of right sizing the investment in fourth quarter.

Speaker Change #115: Just for clarity, Bill, and you're referring to Eva Dunmargin.

Speaker Change #116: Yeah, I mean either, really operating or even dubbed, maybe one of them thought that.

Speaker Change #117: I mean, I think that, you know, we delivered 12.2% even our margin in this quarter. We think we have opportunity to kind of rebalance margins in fourth quarter. I think we've over-invested our scales are pretty flat. Quarter to quarter. We don't have the same type of seasonal gift-giving build that some players have, and I think we over-invest in that. So I think...

Ashley Wheeler: In the back half of the year and the early part of first quarter 2025, we will launch the remaining module, which will provide the ability to optimize regional and store specific assortment planning, blending product, store and customer attribute to carry an even more productive assortment. Additionally, we recently launched a global platform of our e-commerce website, which offers a localized customer experience for our customers in Canada, as well as other countries worldwide.

Speaker Change #118: One piece of the opportunity and margin expansion is kind of right sizing the investment in fourth quarter.

Dylan Cardin: Whether it's payroll or marketing or some of the promotional pressure that you have, we don't feel like, with our position in terms of inventory and assortment, that we're going to have to be as promotional as perhaps the company has chosen to be in the past. So I do feel like, you know, we have a path back to the low teams. And I think over time, low to mid teams would be reasonable based on what I talked about the fourth quarter, but also that we built this platform, we built this operational platform that we can we feel very strongly that we can leverage at this point.

Speaker Change #119: Whether it's payroll or marketing or some of the promotional pressure that you have, we don't feel like with our position in terms of inventory and assortment that we're going to have to be as promotional as perhaps the company is chosen to be in the past.

Ashley Wheeler: We have seen a very positive response and believed this will yield incremental demand in the back half of 2024 and beyond. Turning to marketing, our toward casting call event was incredibly successful in driving engagement, brand awareness and customer file growth. We received over 11,000 applications to be the next face of toward and have seen a nine percentage point gain in brand awareness since the campaign launch. The campaign not only reached a new broad base of customers, but it drove a high teams reactivation rate among previously engaged customers, such that our year to date growth and newly acquired and reactivated customers is positive year over year.

Speaker Change #120: So I do feel like we have a path back to the low teams and I think over time, low mid teams would be reasonable.

Speaker Change #121: Based on what I talked about before, Corridor, but also that we built this platform. We built this operational platform that we can we feel very strongly that we can leverage at this point. So flow through, should...

Dylan Cardin: So flow through should. and be at or above current levels in terms of growth. And even a flow through should start. I want to say accelerate, but I think the flow through should be very stable. We feel like fundamental to this is the effectiveness have been made, the platform has been developed, and now it's about leveraging that and scaling that investment. So happy with our path back to the load of mid teams and feel like that can be accomplished in the next several years.

Speaker Change #121: The Adder above current levels in terms of growth and even a flow through Shed.

Ashley Wheeler: We are thrilled to announce the winner of this year's casting call and the new face of toward to our entire community later today. We have other exciting in-store activations plans throughout the back half of the year, including various try-on and fit focused events, as well as an event with threat up where customers are eligible to trade in previously-loved denim for credit toward a new pair of toward denim. We are committed to in-store activations of the meaningful part of our marketing and brand ecosystem, which foster community and provide an immersive and unparalleled fit experience.

Speaker Change #122: I want to say accelerated but I think the first move through should be very stable. We feel like fundamental to this is the effectiveness of the NAID, the platform has been developed and now it's about leveraging that and scaling that investment.

Speaker Change #122: Happy with our past back to the load of mid-teens and feel like that can be accomplished in the next several years.

Dylan Cardin: Thanks.

Paula Dempsey: And just a point of clarification on the store repositioning, is this that you're going to get to 50, 50 primarily through closures, or is there a healthier balance of closures with opening sort of further out? And then I guess I'm just curious, is 50 50 next to the end target, or if that's sort of where you're looking to get to in the more medium term. Yes, sorry.

Speaker Change #122: Thanks, and just a point of clarification on that story.

Speaker Change #122: Requisitionings, is this that you're going to get to 50-50?

Ashley Wheeler: Lastly, we continue to improve the value proposition of our loyalty program, which drives our industry-leading retention rate and supports growth and customer lifetime value. We have expanded the opportunities for customers to earn loyalty points through various purchase and community engagement behaviors, which we believe will result in increased transaction frequency among our very loyal customer base. We are incredibly proud of the progress we have made. We are excited about the positive momentum we see in the business and the tremendous opportunities in front of us.

Speaker Change #123: Primarily through closures or is there a healthier balance of closures with openings sort of further out and then I guess I'm just curious there's 50-50 next to the end target or is that to sort of where you're looking to get to in the more medium term.

Paula Dempsey: So yes, this is Paula. So we are targeting the 50 50, and like we said mentioned earlier, it will not be overnight. It will take three to five years to get there, but it's not going to be just through closures. It's not going to be closures and mix and with opening. So there is going to be a timing there that we may be closing more than then opening, and there might be times where we'll be opening more than closing. So it's going to be a mix, and that's why I believe it's going to be through five years to get to that 50 50 balance.

Speaker Change #123: Yes, sorry, sorry. So yes, this is Paula. So we are targeting the 50-50s and like Liz said, I mentioned earlier, it will not be overnight. It will take three to five years to get there. But it's not going to be just through closures. It's not like going to be closures and mix in with openings.

Ashley Wheeler: We look forward to updating you on our continuing progress.

Paula Dempsey: With that, I will pass the call to Paula. Thank you, Ashley.

Speaker Change #124: So there's going to be a time either that we may be closing more than an opening and there might be times where it will be opening more than closing so it's going to be a mix and that's why I believe it's going to fit through five years you get to that 50-50 balance.

Paula Dempsey: Good morning, everyone, and thank you for joining us today. I will now begin with a detailed discussion of our second quarter performance, followed by our outlook for fiscal 2024. We're very pleased with our second quarter results. Our sales and adjusted EBRA came in at the high end of our guidance as customers responded favorably to our product offering, while we continue to tightly manage inventory levels, ending the quarter with inventory down 19% from the previous year.

Paula Dempsey: Makes sense. And is 50 50 optimal or 50 50 to something that's achievable over the three to five years? That's, you know, it's, it's both to be fairly honest. I mean, we do have very good centers are in closed mall specifically, like into a graphic locations that might be, you know, like the button that be colder and etc. So we wouldn't necessarily want to get out of all enclosed malls, but I would say 50/50 if needs both. I mean, they still want me to know today. That's what we think is optimal, but things change over time, and we'll continue to analyze it.

Speaker Change #124: and the 50-50 optimal or 50-50-something that's achievable over the three to five years.

Speaker Change #124: That's, you know it.

Speaker Change #125: It's both to be fairly honest, I mean, we do have very good funners during closed malls, specifically liking to a graphic location that might be like the budget and the colder and etc. So we weren't necessarily wants you to get out of all enclosed malls, but I would say 50-50 it needs both.

Paula Dempsey: All of this drove our total cash in cash equivalent to 54 million, an increase of 35 million compared to the same period last year. For the second quarter, net sales came in at 285 million compared to 289 million last year. Comparable sales declined 0.8% due primarily to lower levels of markdown sales relative to a year ago, which had a minus 50% comp offset by a positive 6.4% comp in regular price sales.

Speaker Change #126: I mean, based on what we know today, that's what we think is optimal, that's been changed over time and we'll continue to analyze it. I think our path to getting there in the next three to five years is reasonable and I'll just reinforce that. Yeah, there's going to be a short term kind of slope.

Paula Dempsey: I think our past to getting there in the next three to five years is reasonable, and I'll just reinforce that. Yeah, there's going to be a short term kind of aspect of closures, but over time we're still opening, you know, I think 12 to 12 to 15 this year. So it's not an, you know, just a closure game. It isn't a net remix game. Yep.

Speaker Change #127: As that's a closure, but over time we're still opening, you know, I think 12th to 12th and 15th this year. So it's not just a closure game and it isn't a net remix game.

Paula Dempsey: We continue to expect this impact of clearance rebate in the back half of the year, as we begin to an anniversary more normalized inventory levels. Growth profit increased 7.4% to 110 million from 103 million last year, reflecting a growth margin increase of 323 basis points to 38.7 during by lower product cost and fewer markdowns. As tuning expenses in the quarter, or 76.8 million, or 27% of net sales, compared to 69.6 million or 24% of net sales last year.

Dylan Cardin: Thanks a lot. Nice work.

Operator: Thank you. As a reminder, just star one on your telephone keypad.

Speaker Change #127: [inaudible]

Speaker Change #127: As a reminder, to star one on your telephone keypad if you would like to ask a question. Our next question is from William Raider with Bank of America, please proceed.

William Raider: If you would like to ask a question, our next question is from William Raider with Bank of America. Please proceed. Hey guys, good morning. Sorry, we can't hear you. We lost William's line.

Speaker Change #128: Hey guys, good morning.

Speaker Change #129: Hello? Morning? Morning.

Speaker Change #130: Sorry we can't hear you up later. We lost Williams line.

Operator: We have no further questions at this moment, unless you want to pause, and I could see if I can reconnect him. What we'll just close at this time. Thank you guys so much for joining us today. We'll look forward to sharing our third quarter results with you imminently. So thank you. Thank you for your interest in this. Thank you.

Paula Dempsey: The increase is primarily driven by performance bonuses, strategic technology investments, and a one-time expense of 2.1 million or 80 basis points related to employee severance. As a reminder, we did not incur performance bonus expense last year. Marketing expenses in the quarter were 30 million compared to 12.9 million in the second quarter of last year. As a percentage of net sales, marketing increased 10 basis points to 4.6 compared to 4.5% in the second quarter of last year.

Speaker Change #131: We have no further questions at this moment unless you want to pause and I can see if I can reconnect him.

Speaker Change #132: Welcome to this time. Thank you guys so much for joining us today. We'll look forward to sharing our third quarter results with you. So thank you. Thank you for your interest in the company.

Operator: This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Speaker Change #133: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Paula Dempsey: Net income was 8.3 million or 8 cents per share compared to net income of 6.6 million or 6 cents per share for the same period last year. Included in this figure is a one-time expense of 2.1 million for employee severance, which is equivalent to 2 cents per share. In addition to gap measures, we believe that adjusted EBITDA is an important measure that we use to evaluate and manage our business. I just said EBITDA increased 7.5% to 34.6 million compared to 32.2 million a year ago.

Paula Dempsey: I just said EBITDA as a percentage of net sales increased 103 basis points to 12.2%. Moving to the balance sheet, we ended the quarter with cash and cash equivalence of 54 million and no borrowings on our revolving credit agreement. Our total liquidity, including available borrowing capacity under our revolving credit agreement, was 154 million. Total bet at the end of the quarter was 297 million compared to 313 million in the second quarter of 2023. Our inventory levels continue to improve ending the quarter with inventory down 19% to 128 million compared to 158 million a year ago.

Paula Dempsey: Before we transition to our outlook, I would like to discuss store openings and closures for the remainder of the year by providing an update on our ongoing fleet optimization efforts. We recently completed a detailed analysis of our current store base where approximately 65% of our locations are situated in enclosed malls with a remainder in outdoor centers. Given that our customers show a clear preference for outdoor centers, which has also yield higher conversion rates and profitability, we recognize a critical role that these locations will play in our growth trajectory.

Paula Dempsey: In response, we're strategically working to rebalance our store footprint aiming for an equal split between mall and outdoor centers in the next few years. As part of this initiative, we plan to close our usual cadence of 10 to 15 stores this year, with an additional 20 to 25 closures expected by the end of fiscal 2024. We anticipate that these closures will contribute approximately 80 to 110 basis points of adjusted EBITDA expansion as a percentage of net sales in fiscal 2025, with minimal impact on our top line revenue as we redirect customer streamer by source for our online channels.

Paula Dempsey: These additional closures will be timed with lease expiration, ensuring limited impacts on our financials for fiscal 2024. We will continue to optimize our sore fleet as leases come up from renew over the coming years, with the ultimate goal of creating a balanced mix in our sore fleet.

Paula Dempsey: As we turn our attention to the remainder of 2024, we're pleased with the progress made in the first half, and are focused on driving positive comparable sales, while we continue to expend growth margin, which will lead to healthier just at even results in the second half. While current sales trends are encouraging, we're narrowing our full-year sales guidance and taking a cautious approach, as we now have six months of actual performance data to guide our outlook in the second half.

Paula Dempsey: We now project net sales for the fiscal year to range between 1.135 billion and 1.145 billion. We're raising the lower end of our just at even a guidance to 110 million, while keeping the high end of our guidance at 116 million. We expect positive comparable sales and robust growth margins to continue, driven by improvements in product costs, better opening prices, and fewer promotions due to sustained reductions in inventory levels. SGNA and marketing expenses as a percentage of sales are expected to remain consistent with the second half of fiscal 2023. Capital expenditure is expected to be between 20 to 25 million, which includes investments in the systems and technology as well as the opening of 12 to 16 new stores.

Paula Dempsey: To conclude, our solid Q2 results for 2024 highlight the ongoing improvements across our business. This year, our priorities have not changed and include improving comparable sales, extending margins, making strategic investments in technology in our workforce and delivering strong working capital results.

Operator: I will now turn the call over to the operator to begin the question and answer portion of our call. Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation total 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 a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Dana Telsey: Our first question is from Dana Telsi, would Telsi Advisory Group please proceed? Hi, good evening, everyone.

Paula Dempsey: As you think about the fleet optimization program that you just announced was 65% located in closed malls, what is your ultimate target for what the fleet should look like, whether number of stores, locations, and this 20 to 25 additional closures by the end of this year, how do you think about the cadence of closures going forward? And then Lisa, congratulations on the progress on regular price comps. What are you seeing in terms of pricing and the full price how you're thinking about product costs and the ability for pricing and then just anything more on category performance and cadence through the quarter.

Paula Dempsey: Thank you. Hi, Dana. This is Paula. I'll take the first part on this legislation. So when it comes to cadence for the 20 to 25 additional closures this year, they will most likely all happen at the end of Q4. We're timing it pretty well with when the lease is will expire, so there will be no actual impact to our profitability. And then in regards to where our target should be, we're really targeting more on that 15-15 percent.

Paula Dempsey: It will take us a few years to get there. It's not going to be overnight. We're going to be balancing our fleet while we're doing these closures. So not only we're going to be closing them, but there's also going to be openings in outdoor centers.

Paula Dempsey: So I would expect the fleet to be as well balanced like anywhere in the next three to five years. And then on the other questions, we have a lot there. So I actually mentioned in the comments, we're happy with our full price itself through. We're turning faster than we've turned in a while. I don't know if it's historically the fastest ever, but we definitely made progress in terms of that we're really comfortable with our inventory levels and productivity of that.

Paula Dempsey: We've removed the empty calorie sales in terms of clearance sales and really have focused on developing scarcity in the model again and really being able to reinforce that with the chase model. I think all of those combined together are exemplified our strategy and then really proud of the organization and their capability to make these, I think, pretty dramatic shifts in terms of how we're managing inventory and managing change. So really happy about that.

Paula Dempsey: Even with the change, we're still seeing benefit in terms of cost of goods. We're a platforming fabric that's giving us some additional savings in terms of cost of goods. And we're really reinforcing what we've talked about previously, which was the focus on our core vendors and their capabilities and these really strong partners. With them, as we move forward into that itself, all of those that combined into the capability and bringing us the capability to continue to see some improvement in cost of goods.

Paula Dempsey: Again, it won't be at the level that we are currently, that we've seen for this year, but we still have opportunity. We also still have opportunity and inventory productivity where some of our core kind of model stock assumptions that we've made historically have room for improvement.

Paula Dempsey: So that we see even with these dramatic improvement in inventory, we still think that we have opportunity to improve how we're managing model stock and core programs. And it's actually mentioned we have a new system that will be fully, that's part like half. Two of the four modules are in play right now and the balance of them will be done by the early first quarter, but this will allow us more specificity and detail and to store by store allocation based on the customer demands and the of specific regions and geography.

Paula Dempsey: So a lot more to come on both the Pata Cost and Ventory Optimization with always kind of that idea of the full price sell through improving and being able to chase into that which will augment that sell through over time. Categories, performance, I just reinforced what Ashley said. We're so very happy with that. In fact, we've moved through all of our platform fabrics that are replenishing our platform fabrics there as we chase products into the fourth quarter and first quarter of next year and then knit tops particularly sweaters jackets, the working dresses are working. So really happy with the balance performance through multiple categories. Thank you.

Corey Tarlowe: Our next question is from Corey Tarlowe with Jeffries, please proceed. Great, thanks. Lisa, you provide a really interesting stabbing for further marks around your ability to chase. I think you mentioned there was something like 10% or a cell of your buy is still open for the fourth quarter.

Lisa Harper: Is there any way to put that into context to talk about where we've been in terms of your ability to chase and the inventory that you had availability in prior season versus what you have now and what that might mean for the P&L going forward as we head to the back half here? Sure, hi Corey. We really haven't chased in an appreciable way since 2016 I would say. So this ability to chase is kind of reawakening a muscle that the organization did have but hasn't really utilized in a bit.

Lisa Harper: We're currently 10% of our receipts in Q4 are chase receipts so we're in our employee currently. We're being able to fill all of that open to buy and so that's exciting. I think that chase could get to a little bit higher than this. Maybe 15% at the most but we're more to come on that. You think obviously there is margin and opportunity as you are chasing closer to demand, understanding customer preferences.

Lisa Harper: Many of these chase styles are reordered based on initial self-reduced so it's overall makes our inventory more and more productive as we have more information before making the investment. And it's core to our strategy of inventory productivity and being able to manage that more effectively will be this chase capability and our vendors are in a product development strategy team are doing a great job and being able to meet these needs.

Lisa Harper: That's great and then could you just provide some more color on the cadence throughout the quarter and there may be any trends you're seeing in quarter to date? Thanks so much. I want to talk about what I should say. Yeah I mean trends throughout the quarter quarter may with really strong early part of June as well. I think we saw similar to many retailers, a tougher for the July holiday, but then we had a very, very strong finish to the quarter with a really, really strong tour and cash events that we were proud of in July.

Lisa Harper: So, I think a little bumping in around the fourth of July holiday, but otherwise the quarter competed our expectation. As for the start of Q3, with a month in, we are on track. Great. Thank you so much, and best of luck. Thank you. Great.

Alex Straton: Our next question is from Alex Straton, with Morgan Stanley, please proceed. Perfect. Thanks for taking the question.

Paula Dempsey: Just a couple of Apollo on the full year sale of guidance, really kind of a two-part question. I know you trimmed the high end. Can you just walk us through sort of what's driving a little bit more conservatism there? And then despite trimming, we do still have that comp improvement, assuming the back half. So just a little bit more detail, illuminating what gives you confidence there.

Lisa Harper: And then just secondly, just for Lisa, just on the average customer age, increasing over time, some of that data you gave is the goal to bring that back down or just help me understand, I guess, what the strategy is there if you're okay with where it sits or what the plan is from here. Thanks a lot. Yeah, hi Alex, this is Paula. So I think in regards to guidance for the second half of the year, we're really just tightening our guidance right six months of actual have already taken flight, so we know we have a good understanding of where the business is.

Lisa Harper: So I think from our perspective, we just tighten our guidance from the top lines and point, we do expect, you know, and you saw our guidance for Q3 and Q4, we do expect for, you know, for our results to start, you know, reflecting that inflection point that Lisa has brought up. And specifically Q4, we do have, you know, one thing that you have to remember is that last year we had an extra week, right?

Lisa Harper: And we were very clear that last year that was worth about $22 million. So I don't think we're being that conservative with our quarter for Q4, it's a realistic quarter in which we are, you know, we're chasing inventory. We're also launching, we're going to be launching in Tesla during that time to be able to get to where our targets are. So hopefully that that covers.

Lisa Harper: And I'll talk about that average customer age. My goal, our goal as an organization would be to rebalance that age a little bit younger, but again, I think the thickness of our customer is world class, we're really happy that they stay with the brand. Our core franchises have really resulted in great levels of productivity and because it's super demand, but our focus on customer product innovation as we move forward with the capital concepts and making sure like I spoke to the denim assortment become making sure we are relevant commercial in terms of those decisions.

Lisa Harper: I think that will all guide toward growing the total customer file and as we grow that customer file, I expect the average age of it will come down, and slightly. I think that it's important to note, I mean, we announced the winner of the model search today, and most of our applicants in that model search were in their 29, I think, was the average age of that. We had a lot of activation and interest in that.

Lisa Harper: We had the most involvement and engagement that we've ever had in this type of program before, and the cut and the competitors were targeted right into that core age group naturally, without us managing it in any other way. And so I'm excited with some of the product initiatives that we have, while we will not walk away from our product and truth, dedicated evangelical customer, we certainly have an opportunity to expand those product offerings to incorporate different mindsets.

Lisa Harper: And age groups into the brand while leveraging all of our capabilities and our web and store platforms. So excited about the opportunity associated with that, and very focused on ensuring that we protect the core business, while we look to expand product and expand the opportunity. Thanks a lot, good luck, ladies. Thank you.

Dylan Carden: Our next question is from Dylan Cardin with William Blair, please proceed. Thanks a lot. Just curious, sort of a broader discussion on structural margin. I mean, you've rattled off so much that you've done to improve just the broader efficiency of the business, really soup to nuts. And I'm just kind of curious, are we playing here for, you know, return to kind of whether you were, you know, low teams that pre pandemic, or is there more efficiency than, you know, relative to that period.

Dylan Carden: And I guess, you know, when, from a timing standpoint, you might expect flowing through some of the nice gross margin that you're seeing. Thanks. Just for clarity, Dylan, you're referring to EBITDA margin? Yeah, I mean, either really operating or EBITDA. I mean, I think that, you know, we delivered 12.2% EBITDA margin in this quarter. We think we have opportunity to kind of rebalance margins and fourth quarter. I think we've over-invested. Our sales are pretty flat quarter to quarter.

Dylan Carden: We don't have the same type of the seasonal gift-giving build that some players have. And I think we over-invested in that. So I think one piece of the opportunity and margin expansion is kind of right sizing the investment in fourth quarter, whether it's payroll or marketing or, you know, some of the promotional pressure that you have. We don't feel like with our position in terms of inventory and assortment that we're going to have to be as promotional as perhaps the company has chosen to be in the past.

Dylan Carden: So I do feel like, you know, we have a path back to the low teams. And I think over time, low-to-mid teams would be reasonable based on what I talked about the fourth quarter, but also that we built this platform. We built this operational platform that we feel very strongly that we can leverage at this point. So flow through should... Be at or above current levels in terms of growth and even a flow through should start.

Dylan Carden: I want to say accelerate, but I think the flow through should be very stable. We feel like fundamental to this is the investments have been made, the platform has been developed, and now it's about leveraging that and scaling that investment.

Dylan Carden: So happy with our path back to the low to mid teams and feel like that can be accomplished in the next several years. Thanks. And just a point of clarification on the store repositioning is this that you're going to get to 50 50 primarily through closures or is there a healthier balance of closures with opening sort of further out. And then I guess I'm just curious is 50 50 next the end target or if that's sort of where you're looking to get to in the more medium term.

Dylan Carden: So yes, this is Paula. So we are targeting the 50 50 and like we said mentioned earlier, it will not be overnight. It will take three to five years to get there, but it's not going to be just through closures. We're going to be closures and mix in with opening. So there is going to be a timely there that we may be closing more than an opening and there might be times where we'll be opening more than closing.

Dylan Carden: So it's going to be a mix and that's why I believe it's going to be through five years to get to that 50 50 balance. Makes sense and it's 50 50 optimal or 50 50 to something that's achievable over the three to five years. That's, you know, it's it's both to be fairly honest. I mean, we do have very good centers are in closed mall specifically liking to graphic locations that might be, you know, like the button and be colder and etc.

Dylan Carden: So we wouldn't necessarily want to get out of all all in closed malls, but I would say 50 50 if needs both. I mean, they still want me to know today. That's what we think is optimal, but things change over time and we'll continue to analyze it. I think our past to getting there in the next three to five years is reasonable, and I'll just reinforce that. Yeah, there's going to be a short term kind of aspect of closures, but over time we're still opening, you know, I think 12 to 12 to 15 this year. So it's not an, you know, just a closure game. It isn't a net remix game. Yep. Thanks a lot. Nice work. Thanks. As a reminder, just star one on your telephone keypad.

William Raider: If you would like to ask a question, our next question is from William Raider with Bank of America, please proceed. Hey guys, good morning. Sorry, we can't hear you.

Operator: We lost William's line. We have no further questions at this moment, unless you want to pause, and I can see if I can reconnect him.

Operator: What we'll just close at this time. Thank you guys so much for joining us today. We'll look forward to sharing our third quarter results with you, imminently. So thank you. Thank you for your interest in this. Thank you.

Operator: This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Q2 2025 Torrid Holdings Inc Earnings Call

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