Torrid Holdings Inc. Q1 FY2026 earnings call

- **Strategic Transformation Completion** * Substantially completed the multi-phase store optimization program in Q1, with 20 additional structurally unproductive store closures bringing the total to 171 closures since program launch. Only 7-8 additional closures are planned for Q2 to fully complete the program. * The optimized, right-sized store fleet is more productive, and customer retention through the transition has remained in line with historical levels; 70% of traffic from closed stores is retained, redirected to online channels or nearby open stores. * Cost savings from the store closure program are reinvested into customer file growth initiatives. The company expects to achieve $40 million in total annual expense savings from the program in fiscal 2026, with $11 million of savings already realized in Q1. * Previously launched strategic initiatives (channel optimization, assortment refinement, pricing architecture restructuring) are now fully established, shifting the company's core 2026 focus to customer file growth via acquisition, reactivation, and retention.

- **Commercial and Marketing Updates** * The company shifted to full-funnel growth-focused marketing, prioritizing efficiency over unproductive spend. In Q1, paid media revenue grew on lower total marketing spend, delivering improved ROAS. Marketing spend for Q1 totaled $14.5 million, a $0.8 million year-over-year decrease, driven by more effective channel allocation. * Key marketing initiatives: reinvigorated CRM with AI-powered segmentation and personalization for email and SMS; relaunched direct mail in February 2026 as a reactivation lever, which has already delivered a measurable incremental lift in retained and reactivated customers; reoriented organic social toward community engagement rather than just impressions; and added a new PR partner to expand earned media presence. * The company will re-launch Casting Call, its customer brand ambassador program, as a year-round engagement platform in July 2026 (expanded from a seasonal campaign). The 2026 program includes a Times Square activation, regional casting events, and over 30 in-store casting parties, designed to drive new customer acquisition, lapsed customer reactivation, and deeper loyalty for existing customers. In 2024, the program drove 10,000 new customers and a 9 percentage point increase in unaided brand awareness.

- **Product and Pricing Strategy** * The scaled opening price point (OPP) strategy delivers consistent everyday value across all channels, driving conversion and basket growth while maintaining margin discipline and product quality standards. OPP has directly driven stronger performance across key categories including dresses, knit tops, and non-denim bottoms. * Sub-brands are on track to hit 60% full-year 2026 net sales growth, reaching ~$110 million (up from $70 million in 2025), with a data-driven assortment refinement strategy supporting scalable growth.

1. Core Apparel: Excluding footwear, core apparel delivered positive 1.2% comparable sales growth in Q1. Standout core categories (knit tops, bottoms, activewear concept Torrid True) achieved year-over-year volume growth despite a reduced store count. The opening price point (OPP) program represented approximately 30% of total apparel sales in the quarter, with healthy product margins supported by a cost-engineered sourcing model. The knit tops (NIT TOPS) category delivered positive revenue comp and margin expansion driven by OPP offerings, and the graphics sub-category saw outsized margin expansion on a purposefully reduced top line. 2. Footwear: Restructuring of Torrid's footwear sourcing and assortment mix created a comparable sales headwind in Q1, driving the total company comparable sales decline of 1.7%. Management expects footwear headwinds to resolve and turn positive in the second half of fiscal 2026. 3. Sub-brands: Sub-brands delivered 75% year-over-year net sales growth in Q1 fiscal 2026, reaching approximately 9% of total net sales (on track to hit 12% of full-year 2026 net sales). 4. Total Company: Q1 2026 net sales totaled $245.8 million, compared to $266 million in Q1 2025. Gross profit was $86.8 million (35.3% gross margin) versus $101.4 million (38.1% margin) in the prior year quarter. SG&A expenses were $63.7 million, a $6.3 million year-over-year decline, equaling 25.9% of net sales (a 40 basis point leverage improvement). Adjusted EBITDA was $17.6 million (7.2% margin) versus $27.1 million (10.2% margin) in Q1 2025.

- Full-year fiscal 2026 guidance is maintained at $940 million to $960 million in net sales, and $65 million to $75 million in adjusted EBITDA, representing up to 140 basis points of margin expansion compared to fiscal 2025. - Q2 2026 guidance is set at $232 million to $240 million in net sales, and $12 million to $16 million in adjusted EBITDA. - Full-year marketing expense is expected to equal approximately 5.5% of net sales, consistent with the continued focus on ROAS efficiency for customer growth initiatives. - Capital expenditures are projected to range from $8 million to $10 million, with approximately half of the planned spend allocated to store fleet maintenance and modernization. Capital spending is front-loaded, with most of the planned investments completed in Q1 2026. - Management expects comparable sales to turn positive in the second half of fiscal 2026, driven by the lapping of footwear restructuring headwinds, growing contributions from customer file growth initiatives, and further traction from the OPP strategy. - Current full-year guidance assumes a 10% tariff rate in the first half of 2026 and a 15% tariff rate in the second half. Expected tariff refunds (a $9 million to $11 million first tranche and $1.5 million to $2.5 million second tranche) are not included in the current guidance.

- There is uncertainty around potential tariff escalation in the second half of 2026, with guidance already incorporating a planned step-up in the assumed tariff rate to account for this risk. - Freight cost volatility represents a potential margin headwind, though 70% of the company's ordered goods for the rest of the year are covered by fully negotiated DDP terms that mitigate most near-term variability. - The consumer macroeconomic environment remains dynamic, which could impact customer spending behavior. - Ongoing execution risk remains for the company's new customer growth and marketing initiatives, even though early indicators are positive.

Q: How did promotional activity in Q1 compare to expectations, and what is the outlook for promotions for the rest of the year? Also, can you share an update on tops category performance? A: Q1 promotional activity came in exactly as planned, and planned promotion levels are already embedded in full-year guidance, consistent with historical levels. The opening price point strategy has reduced the company's reliance on promotional activity to drive customer purchasing. For the tops category, the NIT knit tops segment delivered positive revenue comp and margin expansion driven by opening price point offerings, and the entire knit tops complex has seen a dramatic turnaround that exceeded expectations. The graphics sub-category achieved large margin expansion on a purposefully reduced top line, and the overall tops category performance is healthy and meeting expectations.

Q: What drives management's confidence in positive comparable sales in the second half of 2026, and how is the macro environment impacting customer spending and trade-down activity? A: The primary driver of the second half improvement is the resolution of footwear-related headwinds from the 2026 restructuring. Footwear, an approximately $50 million annual business that historically improves customer attachment rates, was a headwind in the first half and will become a comp tailwind in the back half. Additionally, management expects customer file growth from the expanded marketing initiatives and the reimagined Casting Call program to contribute to improved comp performance. Q1 KPI show strong product acceptance, with double-digit conversion growth and low single-digit growth in units per transaction, indicating customer resilience with no unexpected pullback in spending.

Q: What impact is freight cost pressure having on Torrid's margins? A: Current freight pressure is manageable, and the impact of any expected headwind is already incorporated into the full-year guidance, with no substantial impact to the business at this time. 70% of Torrid's goods ordered for the remainder of the year are on DDP terms with fully negotiated locked-in costs, protecting the company from most near-term freight cost variability.