Q3 2025 Torrid Holdings Inc Earnings Call
Speaker Change: Greetings, and welcome to the Torrid Holdings Incorporated 3rd Quarter Fiscal 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.
Speaker Change: If anyone should require operator assistance, please press star zero on your telephone keypad. A reminder, this conference is being recorded. It is now my pleasure to introduce Chinwe Abaelu. 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 third quarter of fiscal 2024 which we released this afternoon and can be found on our website at investors.torrid.com.
Chinwe Abaelu: With me today on the call are Lisa Harper, Chief Executive Officer of Torrid, Paula Dempsey, Chief Financial Officer, and Ashley 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 familiar with.
Management may make forward-looking statements, including guidance and underlying assumptions.
Chinwe Abaelu: Forward-looking statements may include, but are not limited to, statements containing the words expect, believe, plan, anticipate, will, may, should, estimate, and other words and terms of similar meaning.
Chinwe Abaelu: For further discussion of risks related to our business, see our filings with the SEC.
Chinwe Abaelu: This call will contain non-GAAP financial measures such as adjusted EBITDA. Reconciliations 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.
With that, I will turn the call over to Lisa.
Lisa Harper: Thanks, Chinwe. Hello, everyone, and thank you for joining us today. I will begin by discussing our third quarter performance and our strategies moving forward. Then I'll turn the call over to Ashley to discuss our merchandising initiatives. Paula will then provide our third quarter financials and outlook.
Lisa Harper: Let me start by acknowledging that we are clearly disappointed with our results this quarter. Sales trends began to soften in late September and this continued through October.
Lisa Harper: In hindsight, our fall assortments did not offer enough newness and novelty.
Lisa Harper: Despite the weaker top line sales, we delivered 285 basis points of gross profit expansion while carefully managing expenses.
Lisa Harper: Let me provide a little more color on our sales trend.
Lisa Harper: During the quarter, customers responded to products that were new and inspirational such as our novelty sweaters and our relaunched denim program. However, we saw softness in our core collection, which was not innovative enough in an environment where consumer spending was constrained.
Lisa Harper: We now recognize that our core product was too similar to what had been off been offering her and we did not infuse it with enough freshness and fashion.
Lisa Harper: In short, it was too much of the same thing she already had in her closet.
Lisa Harper: Macro trends also had an outsized impact on our business. Trends in both traffic and regular price comp were positive in August until mid-September, softened in late September, and deteriorated in October.
Lisa Harper: The severe hurricanes in October, which occurred during our largest events of the quarter toward cash, also weighed on our sales trend. We estimated that hurricanes impacted our full price comps by 100 basis points for the quarter.
Lisa Harper: In addition, we found that our core customers behaved very differently in October, which we believe indicated hesitancy to spend prior to the election. We have seen improvement in customer engagement post-election and expect the trends to normalize over time.
Lisa Harper: We recognize that the mindset of our customer has changed over the past few years and she's more willing to take fashion risks. In the past, we relied too much on what had worked and were hesitant to push boundaries.
Lisa Harper: Our customer surveys tell us again and again that she wants more novelty and innovation from us. She wants to be inspired. Our organizational culture has now embraced this mindset, and our upcoming collections reflect more inspirational and relevant styling.
Lisa Harper: Rest assured, we are not firing our core customer. We are just addressing more of her lifestyle needs.
Lisa Harper: Looking ahead, we are excited about the changes we have made to our business and believe the balance of newness improves beginning in the fourth quarter.
Lisa Harper: Denim was the first category to be updated in late Q2 and continues to positive comp. Resort, which recently delivered, shows the first impact of the core product initiatives.
Lisa Harper: Later this month, our first full deliveries of our new merchandise sub-brands will arrive in stores.
Lisa Harper: These deliveries offer differentiated aesthetics to appeal to a broader audience.
Lisa Harper: We believe that our new product concepts address these needs and position us to deliver on our mission to provide everything in our closet.
Lisa Harper: All of our concepts serve to encourage frequency in our existing customer, re-engage our last customer, and bring new customers to the brand with extensive integrated influencer campaigns.
Lisa Harper: Our strategy is to provide an internally developed marketplace that leverages our core fit and product capabilities.
Lisa Harper: We will have a curtains-up release of our first capsule, Festy, on December 27th in 250 stores and online. We know our customers are looking for new products right after the holidays, and our stores will be ready.
Lisa Harper: Festy is a younger, bohemian expression of fashion that introduces many looks and silhouettes with fresh fabrics and finishes.
Lisa Harper: We will launch two more niche concepts in January, Nightfall and Retro Chic.
Lisa Harper: We will also relaunch our active assortment in early spring, which is called True by Torrid.
Lisa Harper: This is more lifestyle-based rather than the historical performance focus of our activewear product.
Lisa Harper: We will be launching additional concepts in April and June of 2025.
Lisa Harper: We are protecting our core merchandise while broadening our approach to relevant fashion by leveraging our robust digital capabilities.
Lisa Harper: We'll also be distributing more modern choices throughout the entire store chain as our fulfillment capabilities allow us to expose more newness to the customer with the ability to open all of our inventory to web demand.
Lisa Harper: This allows for margin optimization while improving the store experience for the customer.
Lisa Harper: We've implemented new inventory planning, allocation, and assortment systems that will allow us to drive progress here.
Lisa Harper: As part of our ongoing strategy to strengthen our product offerings, we have made significant progress in refining our sourcing approach.
Lisa Harper: With the upcoming launches of new concepts and progression of the core line, we expect the percentage of products sourced from China to decrease to the mid-teens, reflecting our efforts to diversify and optimize our supply chain.
Lisa Harper: To that end, we have also invested in additional resources in design, product development, as well as merchandising.
Lisa Harper: We have opportunity in all categories of our business, apparel, accessories, and intimates.
Historically, Torrid has approached intimates similarly to apparel.
Lisa Harper: This category requires different strategies, timelines, and product development processes than apparel. And I'm pleased to announce today that Kate Horton, our current Chief Merchandising Officer, is now dedicating 100% of her focus to drive the growth in intimates.
Lisa Harper: She has extensive experience in this category and is now focused on driving that business exclusively.
Lisa Harper: In addition, I'm thrilled to announce that Laura Walensky has joined TORID as the Chief Merchandising Officer for Apparel and Accessories.
Lisa Harper: Laura is an extremely talented merchandising executive with broad experience in specialty apparel including J. Crew, Madewell, Victoria's Secret, and Talbot's, as well as pure play direct selling at Away, where she was most recently the chief commercial officer.
Lisa Harper: Laura brings a laser focus on the customer as well as a dynamic and strategic approach to the product assortment.
Speaker Change: All of this development has been exciting for the organization as we are able to re-evaluate historical norms and constraints and add new ideas to excite our customer. Our customers are hungry for this.
Speaker Change: Our operational capabilities, expense management, and inventory improvements have provided a foundation to allow us to move quickly with a reinvigorated approach to product.
Speaker Change: Although we underperformed in the third quarter relative to our expectations, we are confident that we have put in place the necessary changes to the business.
Speaker Change: What gives us this confidence is that when we have moved product forward by injecting more newness and innovation, those categories are already comping positive.
Speaker Change: We have an unprecedented influx of new product plan for Q4 and expanding next year. In fact, we have more newness coming in the next six months than we have had in the past six years.
Speaker Change: We are pleased with our sales trends over Black Friday weekend, as customers responded to our latest offerings. Black Friday and cyber sales were flat year-over-year, with an improvement in product margin.
while we are encouraged by our Start the Holiday.
Speaker Change: 2025 is the year of product, and we are excited with the direction that we're moving with assortments that will inspire our customer. With the surge in new products and continued fine-tuning of our core assortments, we anticipate delivering positive comparable sales in fiscal 2025.
Speaker Change: Now I'd like to turn the call over to Ashley and Paula to provide more detail on the quarter's results.
Speaker Change: Thank you, Lisa. Let me start by reiterating that despite a third quarter that fell short of our expectations, we remain confident in our long-term strategy of driving growth through product innovation and assortment initiatives.
Speaker Change: Our regular price sales comp increased 1% year-over-year, and while our total comp was down 6.5%, this was attributable to a 47% decline in clearance sales, which reflects our strategic shift away from empty calorie sales.
Speaker Change: We expect the comp headwind from clearance sales to lessen in the fourth quarter to negative 25 to negative 30 and flatten in Q1 2025 as we begin to lap more reasonable inventory levels.
Speaker Change: We are already seeing this improvement now. We are pleased with our management of inventory during the quarter, despite a top-line sales miss, having ended the quarter with 19% less inventory in total and 34% less markdown inventory than last year.
Speaker Change: Toward Cash Redemption, which remains our most productive loyalty event, was particularly impacted by hurricanes in late September and October. As a result, traffic was down mid-single digits for the quarter, which was lower than our expectations.
Speaker Change: We estimate the impact of hurricanes during toward cash to have had a hundred basis points impact to our full price comp for the quarter Resulting in a plus one comp versus what would have otherwise been a plus two regular price comp
Speaker Change: We saw our customers behave very differently in late September and October, particularly our most engaged customers, resulting in a need to promote more heavily to drive demand and ensure we did not carry forward fall product into the fourth quarter.
Speaker Change: From a product standpoint, we saw continued growth and positive comps in denim driven by freshness and innovation in fabric, wash treatment, and a broad range of leg shapes, which built on the momentum from Q2, as well as sweaters where the assortment offered a variety of newness and novelty.
Additionally, Intimate Apparel Foundations categories delivered strong regular price comps.
Speaker Change: In an environment where consumers are more discerning and judicious about spending, we see our customers buying closer to need, particularly in the case of higher ticket categories like jackets and outerwear that experience downward comp pressure.
Speaker Change: And yet, she's equally inspired by and responsive to newness, innovation, and on-trend styles that give her a reason to purchase. And in categories that we've moved forward in, we saw strong, positive full-price comps.
Speaker Change: In the third quarter, our assortment broadly did not offer enough newness and was too similar to seasons past.
Speaker Change: Our customer craves inspiring fashion that fills every need in her life at great value.
Speaker Change: Moving into the fourth quarter, our collections reflect an improved balance of core, trend-right fashion, and novelty. We will also benefit from our ability to chase back into proven winners.
Speaker Change: While it is still early, we are encouraged by the initial response to our holiday party and shine collection, as well as our knit dressing and cozy assortment.
Speaker Change: As Lisa mentioned, Feste, the first of our new capsules, will arrive in stores in late December.
Speaker Change: We will launch two additional concepts in the first half of 2025 while continuing to energize the core Torrid assortment with a balance of modern on-trend styling.
Speaker Change: The implementation of our merchandise financial assortment and allocation planning system remains on track.
Speaker Change: By the end of the first quarter of 2025, we will have more robust capabilities to microassort by region and store, enabling a wider breadth of assortment choice and sub-brand expansion throughout the fleet and online, better maximizing the return on inventory investments and creating a more inspiring shopping experience for our customers across both channels.
Speaker Change: We are excited about the opportunities ahead of us and look forward to updating you on our continuing progress. With that, I will pass the call to Paula.
Paula Dempsey: Thank you, Ashley. Good afternoon, everyone, and thank you for joining us today. I will now provide a detailed discussion of our third quarter performance before transitioning into our outlook for fiscal 2024.
Paula Dempsey: Starting with the third quarter, we achieved notable growth margin expansion and maintained disciplined expense management. However, these gains were tempered by softer than expected sales trends, particularly during the end of September and into October.
Now, let's dive into our financial details.
Paula Dempsey: Net sales for the third quarter were $263.8 million compared to $275.4 million last year. Comparable sales declined 6.5%. Regular price comp was positive 1% while clearance comp was down 47%.
Paula Dempsey: Gross profit grew by 4% to $95.2 million compared to $91.5 million last year. This reflects a significant improvement in gross margin, which expanded by 285 basis points to 36.1%.
Paula Dempsey: This increase is primarily due to reduced product costs and an increase in sales of regular price products.
Paula Dempsey: SG&A expenses were $74.9 million or 28.4% of net sales compared to $71.9 million or 26.1% of net sales last year. The increase is largely due to performance bonuses, which were not incurred last year.
Paula Dempsey: Marketing expenses were $13.1 million, almost flat to last year. As a percentage of net sales, marketing expenses rose slightly, up 35 basis points to 4.9%. This reflects targeted efforts to enhance customer acquisition and strengthen brand engagement.
Paula Dempsey: Turning to adjusted EBITDA, this metric increased to $19.6 million, slightly up from a year ago of $19.4 million. Adjusted EBITDA is the percentage of net sales expended by 40 basis points to 7.4%.
Paula Dempsey: Looking at a balance sheet, we ended the quarter with 44 million cash and no borrowings on our revolving credit agreement.
Paula Dempsey: Total liquidity, which includes our available borrowing capacity, remains robust at $152 million. Additionally, we reduced our total debt to $293 million, compared to $314 million at the end of the third quarter last year.
Paula Dempsey: This reduction reflects our commitment to maintaining healthy inventory levels, enhancing cash flow, and positioning ourselves for improved agility in response to market demand.
Paula Dempsey: During our previous earnings call, we outlined our store optimization plan, and today, we're very excited to provide an update on this critical initiative. Over the past year, our comprehensive analysis of the store portfolio confirmed a strong customer preference for outdoor shopping centers.
Paula Dempsey: which continue to outperform in closed malls in both conversion rates and profitability.
Paula Dempsey: At present, 65% of our stores are located in enclosed malls while 35% operate in outdoor centers.
Paula Dempsey: To achieve our goal of a balanced 50-50 mix, we remain on track to close a total of 30 to 40 stores by the end of fiscal 2024.
Paula Dempsey: These closures are being carefully timed with lease expirations, ensuring minimal financial disruption this fiscal year, and we estimate to deliver 80 to 100 basis points of EBITDA margin expansion in fiscal 2025.
Paula Dempsey: We're confident that this strategy will drive adjusted EBITDA expansion with limited revenue impact as customers transition to nearby locations or to our strong e-commerce platform.
Paula Dempsey: This ongoing optimization effort reflects our commitment to aligning our store portfolio with evolving consumer preferences and building a stronger, more profitable foundation for future growth.
Paula Dempsey: As leases come up per renewal, we will continue to evaluate opportunities to fine-tune our store fleet for maximum efficiency and profitability.
Paula Dempsey: Furthermore, we anticipate that our launch of our sub-brands at the end of fiscal year
Paula Dempsey: of this fiscal year and into fiscal 2025 will enhance in-store experience and generate customer excitement. The sub-brands will roll out across 250 to 350 locations with the goal of driving improvements in traffic, conversion rates, and customer file growth.
Paula Dempsey: We achieved significant growth margin expansion, reflecting improved product cost and inventory management.
Paula Dempsey: Our efforts to optimize operations and tightly manage expenses resulted in meaningful gain profitability with adjusted EBITDA improving year over year. We also made substantial progress on our store optimization strategy which will enhance profitability and align our footprint with evolving customer preferences.
Paula Dempsey: These actions underscore our focus on our long-term growth and operational excellence as we prepare for fiscal 2025.
Now turning to our outlook for the remainder of 2024.
Paula Dempsey: Given our uneven performance, we're taking a more conservative approach to the fourth quarter net sales and EBITDA outlook.
Paula Dempsey: As a reminder, last year's fourth quarter included $22 million in sales and $2.5 million in adjusted EBITDA for the 53rd week.
Paula Dempsey: For the fourth quarter, we expect sales to range from $255 million to $270 million and adjusted EBITDA to be between $9 million and $15 million.
Paula Dempsey: For the full year, we now expect sales to range between $1.083 billion and $1.098 billion and are just an even of $101 million to $107 million.
Paula Dempsey: Capital expenditure is expected to be between $20 to $25 million, which includes investments in technology, as well as the opening of 12 to 16 new stores.
Thank you.
Paula Dempsey: As we enter fiscal 2025, we are confident that our carefully crafted product strategy combined with our ongoing operational excellence will drive comparable sales growth in the low to mid-single digits and deliver an improvement in EBITDA margins.
To conclude, our strategic priorities remain firmly aligned and unchanged.
Paula Dempsey: driving improvements in comparable sales, healthy margins, making targeted investments to fuel growth, and maintaining robust working capital performance.
Paula Dempsey: These focus areas position us to deliver sustainable value and continued success.
Speaker Change: I will now turn the call over to the operator to begin the question and answer portion of our call.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions.
Speaker Change: The first time I've seen this video, I've been watching this video for a long time.
And our first question comes from Brooke Roach, Goldman Sachs.
Good afternoon and thank you for taking our question.
Speaker Change: Lisa, I was hoping you could quantify the proportion of newness in the assortment that you have planned in the first half of 2025 in comparison to the third quarter, and then help us understand what marketing and consumer engagement strategies you have to drive traffic with that improved product newness. Should we anticipate any changes in Torrid cash events or other marketing strategies such as model search?
Thanks, Brooke.
Lisa Harper: I don't have an exact percentage of newness. What I will tell you, excuse me, is that we are impacting every category. And there are 12.
Products, 12 legacy products that generate
Lisa Harper: a substantial amount of our business. They need to be updated and addressed, but we will protect those businesses.
Lisa Harper: categories that we've already updated that we're seeing really strong support and continue strong reaction from the customers obviously denim we've talked a lot about that sweaters dresses are improving and so we are impacting every aspect of the business while protecting kind of core franchise programs and updating them
The
In terms of what we're doing,
And I would say that the
Speaker Change: Lisa Harper, Paula Dempsey, Mark Mizicko, Chinwe Abaelu, Mark Mizicko, Chinwe Abaelu,
Speaker Change: The first one is Festy, which is a very boho wine that we will launch 12-27 when people return to the malls after Christmas. They like to see newness. They get excited about new product. And we'll see that. We have follow-ups on that.
product about every six weeks.
Then we'll launch Nightfall, which is kind of a traditional...
Speaker Change: legacy edgy concepts for Torrid, where we are able to really speak to that niche customer and then Retro Chic, which is another niche customer that we'll appeal to. So it's newness in the core line, as well as newness in the sub-brands. With an eye toward protecting core franchises.
Speaker Change: core knits, core wovens, core non-denim bottoms and denim and and we'll see us as we move through the year the balance between the Newness and the Torrid core line and the sub brands.
Speaker Change: We think about our brand filter differently than maybe we thought about it about a year ago, which is the filter is the size range.
Speaker Change: And the opportunity is all of the end uses that she has in her life.
Speaker Change: inspirational and creative about all of the needs that she has in her life, and because she's so underserved, our ability to deliver that.
Speaker Change: I'm so proud of what the team's been able to do in a very short amount of time, and I'm excited that the product's starting to roll in, and you'll see it imminently. So all of those are very positive movements. The other thing that we're doing, we talked a lot over the last year about digital...
Speaker Change: We're adding a really robust influencer program to highlight the new concepts, the new sub-brands, as well as to highlight the newness in Torrid.
Speaker Change: And I'll tell you in photo shoots that we've had so far and the engagement that we've had with influencers and with some of our normal models, there's a lot of enthusiasm about what they're seeing and I'm excited about the customer seeing it and the shareholders being able to see it as well.
Speaker Change: Toward cash, we don't really see a lot of changes in that. The only changes are there will be a—we know that they'll pay more for higher-end product at that time, for special items during that time, and so we're feeding that in more actively and with more clarity in terms of that merchandise mix.
Speaker Change: And we are also kind of, we're moving them a little earlier in the quarter so that we're not having such a large requirement on an event that ends up at the end of the quarter so that we have a little bit more visibility to the overall results.
Speaker Change: Again, proud of the team and proud of the organizational and cultural shifts that are allowing us to do this really quickly and I think it's going to be an exciting year in 25 because we've fixed so many operational things and now we have a chance to listen to our customer and provide product that inspires her as we move forward.
Thank you.
Speaker Change: Great. And if I could just ask a follow-up for Paula. Paula, you gave some helpful guardrails on early thoughts on 2025, low to mid-single-digit sales growth, and improvement in EBITDA margins.
Speaker Change: don't return to growth next year or if things take a little bit longer than your expectations.
Speaker Change: Brooke, that's a great question. I would say yes. We would still be able to see EBITDA margin expansion, especially as we focus on optimizing our SOAR footprint.
So, from that standpoint, we would still see it.
Speaker Change: But to Lisa's point, with all the newness that we were going to be bringing in 2025, we feel very good and we believe that we will return to
Speaker Change: to growth from a comparable sales. I mean, we are in a better place now than we were right a year ago from a comp sale. So, we are tracking in the right direction. So, I would say yes, all across.
Speaker Change: Just looking at all of our operational efficiencies and projects that we have for next year aside from comp Sales growth we should still see that even in margin expansion
Great, thanks so much. I'll pass it on.
Thank you. Our next question comes from Chloe Tarlow, Jeffries.
Speaker Change: Great, thanks. Lisa, recognizing there was a lot of volatility in the business in the in the quarter.
Could you talk a little bit about...
Speaker Change: in your view as to what was maybe macro versus micro.
Speaker Change: It would be curious to hear your perspective as you assess the business performance throughout the quarter and Black Friday. And then just one thing that I think we've talked a lot about, especially over the last year, has been your inventory control.
Thank you.
Speaker Change: of the growth or change in inventory for the remainder of the year and perhaps into the early parts of next year.
Sure. Thanks, Corey.
Speaker Change: But there are core KPIs that were very dramatic shifts for us that were anomalous to anything that we've seen before in October. The good news is there's been recovery in November. As we said, Black Friday and cyber was flat to last year with margin expansion, with product margin expansion. So we were pleased with that. That hit our forecast.
Speaker Change: But we saw positive traffic and regular price sales in August.
Speaker Change: Lisa Harper, Paula Dempsey, Lisa Harper, Mark Mizicko, Chinwe Abaelu, Mark Mizicko,
Speaker Change: Besides the traffic, we promoted regular price to try to drive behavior.
Speaker Change: Lisa Harper, Paula Dempsey, Mark Mizicko, Chinwe Abaelu, Mark Mizicko, Chinwe Abaelu,
Speaker Change: hurricanes, election, a lot of things, but I can't slice and dice that from my perspective. All I can, all that we can tell you is that traffic changed dramatically from the beginning of the quarter to the end of the quarter, from positive to
negative
Speaker Change: in the end of the quarter. And again, recovered in November post-election, so we saw that. So that's all I can base that on, that idea that
Speaker Change: We really couldn't entice her to spend with normal kind of promotional activities. Our most valuable, highly engaged customer was the least engaged for that time period, and the recovery happened post-election.
Speaker Change: And that's circumstantial, I understand from my, you know, I just have my KPIs, I can't layer it in a more broad effort, but those indications to us.
Speaker Change: indicate that there is a substantial macro impact to how the quarter played out.
Speaker Change: very differently than we've experienced and very obviously different from our expectations. The good news is...
Speaker Change: When we found that out, when we were experiencing it, we went and did mall intercepts. We did additional surveys.
Speaker Change: We went out to our customers and there was no negative.
Speaker Change: about the brand. It was really like, I just need to see more fashion. I want to see more fashion. I will spend the money on more fashion, on innovative, inspirational product.
Speaker Change: And so the good news is we already had that in work. We already had that on the water, and we're already starting to see the beginning of that. So micro versus macro, I can take responsibility for the product piece of it, but I do think there was a substantive macro impact on the quarter.
Speaker Change: inventory control. I'm going to give that to Ashley if you don't mind.
Speaker Change: Even with all of the newness coming, we expect to end the year, as we've said before, flat to down, so single digits, and believe that we can return to growth, so positive comp in 2025, on relatively flat inventory year over year.
Speaker Change: It's really about replacing less productive choices with more productive, new and inspirational ones.
Speaker Change: Got it. Thank you so much. Best of luck. Thanks, Frank.
Speaker Change: Thank you. Our next question comes from Dana Telsey, Telsey Advisor Group.
Dana Telsey: Hi, good afternoon, everyone. As you think about it, I think last quarter we talked about opening price point. What did you see as you went through the third quarter in terms of opening price points? Where are the prices relative to where you want to be?
Dana Telsey: How are the price coins going to be versus the average? And then, Lisa, where are you on talent, given the addition of the new chief merchant? What else would you like to—any other changes you'd like to see? And with these new capsules coming in, how are you planning marketing spend to introduce those? Thank you.
Speaker Change: Overall, our AOV was up for the quarter, so I think that the mix was reasonable. I would say that
Speaker Change: The new capsules that we're bringing in the sub-brands are a blend or a mix. Some of them are higher price points, some of them are the same price points that we have now, and some of them are lower price point concepts.
So, it really is a marketplace.
Speaker Change: where we are targeting each of these sub-brands to speak to a customer that enters the brand through a size range and a need.
Speaker Change: Lisa Harper, Paula Dempsey, Lisa Harper, Mark Mizicko, Chinwe Abaelu, Mark Mizicko,
It will just be more of a broad range.
Speaker Change: We have a big opportunity in intimates, and we've always treated it in an organization like apparel, kind of like an adjunct to the apparel process.
Speaker Change: It's not the appropriate way to manage those product categories and having a dedicated team and the talent to lead that initiative I think will pay off.
Speaker Change: Laura has a lot of experience and specialty. We worked together years ago when she started, she was the merchant that started Janie and Jack.
Speaker Change: She's worked at J.Crew for a long time managing women's and kids. She was one of the people who started Madewell. She was most recently at Away as the chief commercial officer.
Speaker Change: a great merchandising executive, focused on the customer, focused on telling the customer's stories and really inspiring and activating that customer. That'll be critical as we are broadening our scope in terms of an end-use product for this mix.
Speaker Change: I know you asked me a question about capsules at the end. And marketing.
Speaker Change: Marketing, thank you. Sorry, I didn't get the whole question written down.
Speaker Change: As I mentioned, I think that one of the big opportunities for us that we've touched on, but I think that we will integrate even more.
aggressively next year is this opportunity to engage influencers.
Speaker Change: and, I mean, big-scale influencers as well as medium and micro-influencers.
Speaker Change: into this mix. And so we're using influencers in our photography campaigns. We're really engaging them in the mix broadly. We would expect next year marketing to go up slightly as a percentage of total sales.
And so we are adding money.
to marketing to be able to support.
the new customer acquisition.
Speaker Change: The other thing we're going to do is really front load some of our marketing spend to drive customer acquisition earlier in the mix. I also think that we have an enormous opportunity. We've done a great job with customer reactivation this year, and I think that will accelerate as we bring new ideas to the marketplace.
Speaker Change: So, some of it is organic and owned customers that we're going to be able to reignite and some of it is investing in, more broadly in digital, but also specifically in influencer campaigns to support these new ideas.
Speaker Change: I really at the easiest way right now is to use denim as a proxy and so last year our skinny denim was 65% of our assortment and our sales in denim.
Speaker Change: This year, it's in the low 20s, and we've picked up wide legs, flare, straight, all of the relevant, obviously. All of you know that there's a lot going on in denim right now, but that mix is a very different mix than it was a year ago.
Speaker Change: That being said, I still consider those silhouettes as being poor, even though they're new to us, flair, wide leg.
Speaker Change: Straight, believe it or not, took us a while to get to a straight leg in the mix. All of those would now be considered core businesses and some of them we're buying as such, we're putting them in the wall, we're investing so that they really are becoming core to our mix.
Speaker Change: So, it's not just the old core, it's also developing new core in those categories. The same thing applies in non-denim, so our twill business used to be a seasonal business, it's a year-round business now. We just introduced a wide-leg weekend pant, which has had remarkable receptivity by the customer, and so that weekend franchise has now become core. So, what we're doing with the capsules, in addition to bringing new ideas like boho or preppy or, you know, other ideas to the mix.
We're also...
Speaker Change: We have a more latitude a little bit as we're bringing in these sub-brands to bring in new ideas To see what ignites the customers and some of those will move to Torrid core products over time So in Festy even though we're delivering at 250 stores We identified some woven tops and knit tops out of the Festy development cycle that we feel like are relevant
Speaker Change: potential core businesses for TORID, and those will blend into that mix over time.
It's an incubation, but it's also an end-use.
Speaker Change: that we think is really exciting moving forward and how we'll move the core brand of Torrid from a very tightly held, controlled, legacy-driven business to something that has a lot of legs, a lot of breadth, and the opportunity for growth.
Thank you.
Thanks Dana.
Thank you.
Speaker Change: Thank you. And our next question comes from Alex Stratton, Morgan's family.
Speaker Change: Thanks a lot for taking the question. Just on the return to growth next year, I just wanted to clarify, is that comp or total sales or both? And then what exactly is the build you're assuming? Is it like pressure on the front half followed by an improvement in the back half? I'm just trying to understand the build to get to positive. And then the second question is just on when you start lapping that change in the strategy on clearance sales. I think you said the first quarter, but I just wanted to confirm. And I'm wondering, just bigger picture, if there's any change you all are having in mindset on whether that was the right strategy to pull back out of that. Thanks a lot.
Speaker Change: So next year is about comp and top line, so both are positive. We expect it to be a
Speaker Change: I'm going to get in trouble for saying this, Alex, but we expect it to be positive for the entire year by quarter.
I would say that the
Clearance
Speaker Change: Sales are going to return to a more normalized level in Q1, so that's when we lapped the deep kind of negative headwinds of clearance. I think fundamentally it gets us to a much healthier place. And, you know, hindsight being
2020
Speaker Change: Lisa Harper, Paula Dempsey, Lisa Harper, Mark Mizicko, Chinwe Abaelu, Mark Mizicko, Chinwe Abaelu, Mark Mizicko, Chinwe Abaelu, Mark Mizicko, Chinwe Abaelu.
Speaker Change: Wean ourselves off kind of this clearance mentality or being over inventory to manage that as well as kind of our promotional structure. So I feel strongly that we're at the pivot. Third quarter was
with the October shift.
Speaker Change: But we feel like everything's on the water coming in to be able to deliver these
and these growth numbers next year.
Speaker Change: We've done the hard work of getting the right foundation set for the business and starting from the right place.
Speaker Change: both from the free cash it delivered as well as really rationalizing what our inventory needs are to drive growth. We feel comfortable.
Thanks a lot. Good luck.
Thanks.
Speaker Change: Thank you. And our final question comes from Marnie Shapiro, Retail Tracker.
Speaker Change: Hey guys, congratulations to Laura. I'm so happy that you guys are back together and then she's gone from throwing blazers. Much better have this girl power moment here.
Speaker Change: It feels to me like you guys have done a great job now sort of fixing all of the operations and fundamentals. And as you're...
Speaker Change: I can't think of a better way of putting this, but as you're turning on those product spigots and the customer's reacting, it's almost having a magnified effect on things like margin, et cetera. So.
Speaker Change: Can you just talk a little bit about that? Because you've, like you said, a lot of newness coming. Corey touched on the inventory. From my vantage point in your stores, anytime something new comes in,
Speaker Change: I never think you have enough inventory. It moves so fast. So can you just kind of pair together, you know, a little bit like
Speaker Change: Here's where we are foundationally, and this is how we see turning on these spigots of fashion and how it's kind of dropping kind of quickly. Because I know you're also spending on marketing. If you could just pull it together a little bit cleanly, a little bit more tightly.
Okay, I'll try Marnie. If I understand you correctly...
Speaker Change: Are you asking about the correlation between product expansion and, kind of, to your words, turning on the product?
It feels like it should.
Speaker Change: Lisa Harper, Paula Dempsey, Mark Mizicko, Chinwe Abaelu, Mark Mizicko, Chinwe Abaelu,
Speaker Change: Yeah, so, you know, I get that, absolutely, that I feel like the, what we've done, and we were talking a little bit about that.
legacy.
product that needed to be refreshed.
Speaker Change: So, like, the core Ponte business needs to be refreshed. It wasn't, you know, it went, it didn't, we went rather than a lighter weight Ponte.
Speaker Change: That's working really well, but we stuck a little bit too long to the legacy pieces We're not we're not doing that enough because we have enough newness to be able to inform how we invest going forward The really exciting part about this is how we rank you know how we buy
Speaker Change: bringing in these new concepts that allow us almost a white sheet of paper approach to how we broaden this product for the customer without risking the core business while we update the core business and bring in new ideas broadly.
Speaker Change: the operational acumen that we have where we can fulfill from every store and we can do it very effectively.
Speaker Change: product design team and product development team that we have and with what we've done with sourcing and cost of goods last year. All of those things combined to put us in a great place to kind of jump off and jump into this product expansion and growth scenario.
Speaker Change: It might be hard, I mean, you look at it a little bit differently, Marnie, but this customer is hungry for what everybody else is wearing. And we have to be able to deliver that in a way that's margin accretive.
Speaker Change: responsible from inventory management and allocation strategies and assortment and by channel and all of those things are in place.
Speaker Change: or even your holiday assortment when you dropped it into stores. I see it online, but obviously I go see it in stores.
Speaker Change: Your sparkles your holiday your fashion sold in a in a minute. It was just it was gone
Speaker Change: And it feels to me, though, if you're dropping things like that on more and more of that.
Speaker Change: without having to do all the grunt work of the other that it should be much margin accretive and it should things should just move faster and smoother on top of just getting better sales.
Speaker Change: All right, so we're looking at top-line growth, we're looking at continued margin expansion, we're looking at, and, but let's be honest, there's a lot of hard work that got to this point, there's still more hard work ahead of us.
But how we assort the merchant
Mindset that
Lisa Harper, Paula Dempsey, Mark Mizicko, Chinwe Abaelu
Speaker Change: and I'm happy to have Laura in the mix to do that. I'm happy to have Kate focused on Intimus. I think that's where I felt like the investment needed to be made and we've made it in merchandising, design, and product development. And I think we're excited about what's to come.
Speaker Change: I just have one more quick follow-up. On the product side, is part of the shift to make it a little bit more youthful? And I don't mean trendy teen, just a little bit more youthful?
Speaker Change: Yeah, I've talked, but when I left in 16, the average customer age was 35-36. When I came back, it was 42. I would like it to be 36.
Speaker Change: And so, yes, there's a blend here that I think is the right balance and that is really, that aging of the customer I think is really attributable to the lack of product newness and innovation over those years. Yeah. Well, best of luck with the holiday season. I'll talk to you guys offline. Thank you. Thank you.
Thank you.
Operator, is that the last question?
Speaker Change: Yes, as the last question, I would like to turn the floor back to Lisa Harper for closing remarks.
Lisa Harper: Okay, thanks everyone for joining us today. I hope you all have a wonderful holiday season and we look forward to sharing fourth quarter results with you next year. Take care.
Speaker Change: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time.