Torrid (CURV) - 2024 Q1 - Quarterly Report

FORM 10-Q Filing Information Registrant Information This section details Torrid Holdings Inc.'s Form 10-Q filing information, including its incorporation state, address, trading symbol, and filer status for the period ended April 29, 2023 - The report is a Quarterly Report on Form 10-Q for the period ended April 29, 2023[2] - As of June 2, 2023, there were approximately 103,868,568 shares of the registrant's common stock outstanding[5] Registrant Details | Detail | Value | | :--- | :--- | | Registrant Name | TORRID HOLDINGS INC. | | State of Incorporation | Delaware | | Principal Executive Offices | 18501 East San Jose Avenue, City of Industry, California 91748 | | Telephone Number | (626) 667-1002 | | Trading Symbol | CURV | | Exchange | New York Stock Exchange | | Filer Status | Non-accelerated filer, Smaller reporting company | Forward-Looking Statements Disclaimer and Risk Factors This section outlines the forward-looking nature of statements within the report, subject to the 'safe harbor' provisions, detailing numerous risks that could cause actual results to differ materially from projections - The report contains forward-looking statements subject to the 'safe harbor' of the Private Securities Litigation Reform Act of 1995, which are not guarantees of future performance and involve significant risks and uncertainties[10] - Key risks include changes in consumer spending and general economic conditions (e.g., rising interest rates, inflation)[11] - Operational risks involve supply chain constraints, dependence on brand image, increased competition, reliance on third-party manufacturers and transportation, and ability to adapt to consumer preferences[12] - Financial and regulatory risks include substantial indebtedness, changes in tax laws, potential asset impairments, and compliance with privacy and data protection laws[13] - The company uses its investor relations website, SEC filings, press releases, public conference calls, webcasts, and social media to communicate material information to investors[14] - The forward-looking statements are made only as of the report date, and the company undertakes no obligation to publicly update or revise them, except as required by law[15] Part I - Financial Information Item 1. Financial Statements (Unaudited) This section presents Torrid Holdings Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' deficit, and cash flows, with detailed explanatory notes Condensed Consolidated Balance Sheets - Total assets decreased by $11.782 million (2.23%) from January 28, 2023, to April 29, 2023[18] - Total liabilities decreased by $25.674 million (3.39%) over the same period, while total stockholders' deficit improved by $13.892 million (6.03%)[18] Condensed Consolidated Balance Sheets (in thousands) | Item | April 29, 2023 | January 28, 2023 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $217,159 | $216,121 | | Property and equipment, net | $108,144 | $113,613 | | Operating lease right-of-use assets | $168,819 | $177,179 | | Total assets | $515,482 | $527,264 | | Liabilities and Stockholders' Deficit | | | | Total current liabilities | $254,910 | $267,327 | | Total liabilities | $731,814 | $757,488 | | Total stockholders' deficit | $(216,332) | $(230,224) | Condensed Consolidated Statements of Operations and Comprehensive Income - Net sales decreased by $39.339 million (11.8%) YoY[20] - Gross profit decreased by $19.288 million (14.8%) YoY[20] - Income from operations decreased by $13.678 million (34.4%) YoY[20] - Net income decreased by $12.258 million (50.9%) YoY[20] - Basic and diluted EPS decreased by $0.12 (52.2%) YoY[20] Condensed Consolidated Statements of Operations and Comprehensive Income (in thousands, except per share data) | Item | Three Months Ended April 29, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Net sales | $293,854 | $333,193 | | Gross profit | $110,642 | $129,930 | | Income from operations | $26,063 | $39,741 | | Net income | $11,808 | $24,066 | | Basic net earnings per share | $0.11 | $0.23 | | Diluted net earnings per share | $0.11 | $0.23 | Condensed Consolidated Statements of Stockholders' Deficit - The total stockholders' deficit improved from $(230.224) million at January 28, 2023, to $(216.332) million at April 29, 2023, primarily due to net income and share-based compensation, partially offset by other comprehensive loss[22] Condensed Consolidated Statements of Stockholders' Deficit (in thousands) | Item | Balance at January 28, 2023 | Balance at April 29, 2023 | | :--- | :--- | :--- | | Total Stockholders' Deficit | $(230,224) | $(216,332) | Key Changes (Three Months Ended April 29, 2023, in thousands) | Item | Amount | | :--- | :--- | | Net income | $11,808 | | Issuance of common shares and withholding tax payments | $(123) | | Share-based compensation | $2,377 | | Other comprehensive loss | $(170) | Condensed Consolidated Statements of Cash Flows - Net cash provided by operating activities increased by $2.05 million (22.3%) YoY[26] - Net cash used in investing activities decreased by $1.101 million (16.3%) YoY[26] - Net cash used in financing activities decreased by $5.802 million (87.9%) YoY, primarily due to a decrease in share repurchases and term loan principal payments[26] - Overall cash, cash equivalents, and restricted cash increased by $4.691 million in Q1 2023, compared to a decrease of $4.212 million in Q1 2022[26] Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Three Months Ended April 29, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,223 | $9,173 | | Net cash used in investing activities | $(5,660) | $(6,761) | | Net cash used in financing activities | $(800) | $(6,602) | | Increase (decrease) in cash, cash equivalents and restricted cash | $4,691 | $(4,212) | | Cash, cash equivalents and restricted cash at end of period | $18,626 | $25,075 | Note 1. Basis of Presentation and Description of the Business - Torrid Holdings Inc. is a Delaware corporation, with Sycamore Partners Management, L.P. owning a majority of its voting power[27][32] - The company operates as a direct-to-consumer brand of apparel, intimates, and accessories for curvy women in North America (sizes 10-30), primarily through its e-Commerce platform and stores[27][32] - The company has one reportable segment, encompassing both e-Commerce and store operations[29][33] - Fiscal year 2023 is a 53-week year, while fiscal year 2022 was 52 weeks[29][33] - A voluntary change in accounting policy in Q4 FY2022 reclassified royalties, profit-sharing, and marketing funds (PLCC Funds) from a reduction in SG&A expenses to net sales, applied retrospectively[35][36] - This change enhances comparability with industry peers and provides greater transparency[35][36] Note 2. Accounting Standards - No new accounting standards were adopted during the three-month period ended April 29, 2023[38] - The company has concluded that there are no recent accounting pronouncements not yet adopted that are applicable to its operations[39] Note 3. Inventory - Inventory consists solely of finished goods, valued at the lower of moving average cost or net realizable value[40] - Assumptions for net realizable value are based on historical, current, and estimated future selling prices[40] - Estimated inventory shrinkage is accrued between physical counts[40] Note 4. Prepaid Expenses and Other Current Assets - Prepaid expenses and other current assets increased by $1.827 million (9.1%) from January 28, 2023, to April 29, 2023, primarily driven by an increase in prepaid and other information technology expenses[41] Prepaid Expenses and Other Current Assets (in thousands) | Item | April 29, 2023 | January 28, 2023 | | :--- | :--- | :--- | | Prepaid and other information technology expenses | $12,960 | $9,048 | | Prepaid advertising | $1,067 | $1,068 | | Prepaid casualty insurance | $1,347 | $2,557 | | Other | $6,503 | $7,377 | | Total | $21,877 | $20,050 | Note 5. Property and Equipment - Net property and equipment decreased by $5.469 million (4.8%) from January 28, 2023, to April 29, 2023[42] - Depreciation expense was $9.2 million for the three months ended April 29, 2023, compared to $9.3 million for the same period in 2022[42][43] - No impairment charges were recognized during the three-month periods ended April 29, 2023, and April 30, 2022[43] Property and Equipment, Net (in thousands) | Item | April 29, 2023 | January 28, 2023 | | :--- | :--- | :--- | | Property and equipment, at cost | $310,574 | $308,936 | | Less: Accumulated depreciation and amortization | $(202,430) | $(195,323) | | Property and equipment, net | $108,144 | $113,613 | Note 6. Implementation Costs Incurred in Cloud Computing Arrangements that are Service Contracts - Net deferred implementation costs increased by $1.767 million (17.9%) from January 28, 2023, to April 29, 2023[45] - Amortization expense for these costs was approximately $1.0 million for the three months ended April 29, 2023, up from $0.6 million in the prior year period[45] Deferred Implementation Costs in Cloud Computing Arrangements (in thousands) | Item | April 29, 2023 | January 28, 2023 | | :--- | :--- | :--- | | Internal use of third party hosted software, gross | $19,340 | $16,612 | | Less: Accumulated amortization | $(7,733) | $(6,772) | | Internal use of third party hosted software, net | $11,607 | $9,840 | Note 7. Accrued and Other Current Liabilities - Accrued and other current liabilities decreased by $18.219 million (16.7%) from January 28, 2023, to April 29, 2023, primarily due to decreases in accrued inventory-in-transit and accrued payroll and related expenses[46] Accrued and Other Current Liabilities (in thousands) | Item | April 29, 2023 | January 28, 2023 | | :--- | :--- | :--- | | Accrued inventory-in-transit | $14,080 | $20,878 | | Accrued payroll and related expenses | $13,299 | $20,232 | | Accrued loyalty program | $12,696 | $13,389 | | Gift cards | $10,360 | $12,300 | | Accrued sales return allowance | $7,026 | $6,562 | | Accrued freight | $6,237 | $5,840 | | Accrued marketing | $4,098 | $4,103 | | Accrued sales and use tax | $3,599 | $3,666 | | Accrued self-insurance liabilities | $2,989 | $2,853 | | Deferred revenue | $1,683 | $1,471 | | Accrued purchases of property and equipment | $1,255 | $2,825 | | Accrued lease costs | $2,958 | $3,593 | | Term loan interest payable | $189 | $188 | | Other | $10,159 | $10,947 | | Total | $90,628 | $108,847 | Note 8. Leases - Total lease cost increased by $2.639 million (16.3%) YoY, driven by higher variable lease costs[48] - Cash paid for operating leases increased by $1.124 million (7.8%) YoY[48] - Right-of-use assets obtained for new operating lease liabilities were $4.364 million in Q1 2023, similar to $4.342 million in Q1 2022[48] Lease Costs (in thousands) | Item | Three Months Ended April 29, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Operating (fixed) lease cost | $13,651 | $12,785 | | Short-term lease cost | $28 | $53 | | Variable lease cost | $5,142 | $3,344 | | Total lease cost | $18,821 | $16,182 | Other Lease Information | Item | April 29, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Weighted average remaining lease term - operating leases | 6 years | 6 years | | Weighted average discount rate - operating leases | 6% | 6% | Note 9. Revenue Recognition - Revenue is recognized when merchandise is transferred to the customer and control is obtained[49] - The transaction price reflects the total consideration expected[49] - Apparel sales decreased by $32.74 million (11.2%) YoY[50] - Non-apparel sales decreased by $9.908 million (27.0%) YoY[50] - PLCC Funds (Other) increased by $3.309 million (69.2%) YoY[50] - The company recognized $6.8 million from its loyalty program and $3.2 million from gift cards in Q1 2023, compared to $7.8 million and $3.6 million respectively in Q1 2022[52] Revenue Disaggregated by Product Category (in thousands) | Category | Three Months Ended April 29, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Apparel | $258,913 | $291,653 | | Non-apparel | $26,848 | $36,756 | | Other (PLCC Funds) | $8,093 | $4,784 | | Total net sales | $293,854 | $333,193 | Note 10. Loyalty Program - The Torrid Rewards loyalty program allows customers to accumulate points for purchases and non-purchase activities, redeemable for merchandise[53] - Unredeemed points and awards typically expire after 13 months and 45 days, respectively[53] - Deferred revenue for the loyalty program decreased by $0.693 million (5.2%) from January 28, 2023, to April 29, 2023[53] - The program resulted in a $0.7 million benefit to net sales in Q1 2023, compared to a $0.1 million reduction in Q1 2022[53] Deferred Revenue Related to Loyalty Program (in thousands) | Item | April 29, 2023 | January 28, 2023 | | :--- | :--- | :--- | | Accrued loyalty program | $12,696 | $13,389 | Impact on Net Sales (in thousands) | Item | Three Months Ended April 29, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Benefit (reduction) to net sales | $0.7 | $(0.1) | Note 11. Related Party Transactions - Torrid has services agreements with Hot Topic Inc. (an entity indirectly controlled by Sycamore), for IT, distribution, logistics, and real estate services[54][55] - Hot Topic charged Torrid $0.6 million for services in both Q1 2023 and Q1 2022[56] - Torrid also provides IT services to Hot Topic, charging $0.4 million in Q1 2023[57] - The net amount owed to Hot Topic for pass-through expenses was $0.6 million as of April 29, 2023, down from $1.1 million at January 28, 2023[58][59] - MGF Sourcing US, LLC (Sycamore-controlled) is a supplier; cost of goods sold included $15.3 million from MGF in Q1 2023, down from $17.0 million in Q1 2022[60][61] - Amounts owed to MGF were $8.9 million as of April 29, 2023, down from $11.6 million at January 28, 2023[62] - No amounts were due or paid under the Sponsor Advisory Services Agreement with Sycamore in Q1 2023 or Q1 2022[63] Note 12. Debt Financing Arrangements - The New Term Loan Credit Agreement was amended on May 24, 2023, to replace LIBOR with SOFR as the interest rate benchmark, with no material impact on financial statements[65] - The elected interest rate on the New Term Loan Credit Agreement was approximately 11% as of April 29, 2023[68] - Interest expense related to this loan was $8.6 million in Q1 2023, up from $5.5 million in Q1 2022[70] - The Existing ABL Facility, as amended, had $11.95 million in borrowings and $130.7 million in availability as of April 29, 2023[71][72] - The applicable interest rate was approximately 8% per annum[73] - The company was compliant with all debt covenants under both agreements as of April 29, 2023[75] Debt Financing Arrangements (in thousands) | Item | April 29, 2023 | January 28, 2023 | | :--- | :--- | :--- | | Existing ABL Facility, as amended | $11,950 | $8,380 | | New Term Loan Credit Agreement (net of OID and financing costs) | $316,805 | $320,841 | | Total outstanding debt | $328,755 | $329,221 | Term Loan Fixed Mandatory Principal Repayments (in thousands) | Year | Amount | | :--- | :--- | | 2023 | $13,125 | | 2024 | $17,500 | | 2025 | $17,500 | | 2026 | $17,500 | | 2027 | $17,500 | | 2028 | $240,625 | | Total | $323,750 | Note 13. Income Taxes - The provision for income taxes decreased by $4.656 million (49.6%) YoY[76] - The effective tax rate increased to 28.6% in Q1 2023 from 28.1% in Q1 2022, primarily due to an increase in non-deductible compensation relative to income before taxes[76][78] - The total liability for unrecognized tax benefits was $3.8 million ($3.3 million net of federal benefit) as of April 29, 2023, unchanged from January 28, 2023[79] - It is reasonably possible that $1.7 million ($1.6 million net of federal benefit) of this liability may be recognized in the next 12 months due to the expiration of statutes of limitations[79] Provision for Income Taxes (in thousands) | Item | Three Months Ended April 29, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Provision for income taxes | $4,727 | $9,383 | | Effective tax rate | 28.6% | 28.1% | Note 14. Share-Based Compensation - Total share-based compensation expense before income taxes remained relatively stable YoY, increasing by $8 thousand (0.3%)[80] - Unrecognized compensation expense for unvested RSUs (including PSUs) was $9.1 million, expected to be recognized over approximately 2.8 years[86][87] - Unrecognized compensation expense for unvested restricted stock awards was $1.2 million, expected to be recognized over approximately 0.5 years[90] - Unrecognized compensation expense for unvested stock options was $7.0 million, expected to be recognized over approximately 3.6 years[92] - The weighted average grant date fair value for PSUs granted in Q1 2023 was $1.66 per share, and for stock options was $1.95 per option[94] Share-Based Compensation Expense (in thousands) | Award Type | Three Months Ended April 29, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Restricted stock units | $640 | $501 | | Restricted stock awards | $945 | $1,677 | | Performance stock units | $281 | $0 | | Stock options | $435 | $194 | | Restricted cash units | $111 | $0 | | Employee stock purchase plan | $76 | $108 | | Total before income taxes | $2,488 | $2,480 | | Income tax benefit | $(308) | $(288) | | Net share-based compensation expense | $2,180 | $2,192 | Note 15. Commitments and Contingencies - A class action complaint was filed in November 2022 (amended May 2023) alleging false and misleading statements in IPO registration and subsequent SEC filings[96] - The company believes these allegations are without merit and intends to vigorously defend itself, currently unable to determine the probability or range of loss[97] - The company is involved in other ordinary course litigation but does not expect any pending matters to have a material adverse effect on its financial condition[98] - No liability has been recorded for indemnities, commitments, and guarantees as no demands have been made[99] Note 16. Stockholders' Deficit - Torrid is authorized to issue 1.0 billion shares of common stock ($0.01 par value) and 5.0 million shares of preferred stock ($0.01 par value)[100] - As of April 29, 2023, 103,827,701 shares of common stock were issued and outstanding, with no preferred stock[100] Note 17. Share Repurchases - The Board authorized a $100.0 million share repurchase program on December 6, 2021[101] - As of April 29, 2023, approximately $44.9 million remained under the program[101][102] - No shares were repurchased during the three months ended April 29, 2023, compared to $22.865 million in repurchases in the prior year period[102] Share Repurchase Activity (in thousands, except share and per share amounts) | Item | Three Months Ended April 29, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Number of shares repurchased | 0 | 2,918,556 | | Total cost | $0 | $22,865 | | Average per share cost | N/A | $7.83 | Note 18. Earnings Per Share - Basic EPS is calculated by dividing net income by the weighted average common shares outstanding[103] - Diluted EPS includes potentially dilutive common share equivalents in periods of net income[103] - Approximately 0.2 million potentially dilutive common share equivalents were included in diluted EPS for Q1 2023[103] - Approximately 1.0 million restricted stock awards/RSUs and 2.0 million stock options were excluded as anti-dilutive or due to unachieved performance conditions[103] Weighted Average Number of Shares (in thousands) | Item | Three Months Ended April 29, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Basic | 103,800 | 106,226 | | Diluted | 104,027 | 106,243 | Note 19. Fair Value Measurements - Fair value is defined as the exchange price in an orderly transaction[105] - Assets and liabilities are classified into a three-level hierarchy based on the observability of inputs (Level 1: quoted prices in active markets; Level 2: observable inputs other than Level 1; Level 3: unobservable inputs)[106][107][108] - Money market funds are Level 1, based on quoted prices in active markets[110] - The deferred compensation plan liability is Level 2, determined by quoted prices of similar assets or cash withheld[110] Financial Assets and Liabilities Measured at Fair Value (in thousands) | Item | April 29, 2023 (Level 1) | April 29, 2023 (Level 2) | January 28, 2023 (Level 1) | January 28, 2023 (Level 2) | | :--- | :--- | :--- | :--- | :--- | | Money market funds (cash equivalent) | $32 | $0 | $29 | $0 | | Deferred compensation plan liability (noncurrent) | $0 | $4,541 | $0 | $4,246 | Note 20. Deferred Compensation Plan - The Torrid LLC Management Deferred Compensation Plan allows highly compensated employees to defer salary and bonuses, with associated investment returns[111] - All deferrals and earnings are 100% vested and represent general unsecured obligations of the company[111] - Total deferred compensation plan liabilities increased by $0.1 million (1.8%) from January 28, 2023, to April 29, 2023[111] Deferred Compensation Plan Liabilities (in thousands) | Item | April 29, 2023 | January 28, 2023 | | :--- | :--- | :--- | | Total Deferred Compensation Plan liabilities | $5,700 | $5,600 | | Current portion (included in accrued and other current liabilities) | $1,200 | $1,400 | Note 21. Employee Benefit Plan - The Torrid 401(k) Plan allows eligible employees to contribute up to 80% of their compensation[112] - The company may contribute 50% of the first 4% of eligible contributions[112] - Company contributions to the 401(k) Plan remained consistent at $0.2 million for both Q1 2023 and Q1 2022[112] Company Contributions to 401(k) Plan (in thousands) | Period | Amount | | :--- | :--- | | Three Months Ended April 29, 2023 | $0.2 | | Three Months Ended April 30, 2022 | $0.2 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Torrid Holdings Inc.'s financial condition, operating results, liquidity, and cash flows for the three months ended April 29, 2023, compared to the prior year Overview - Torrid is a direct-to-consumer brand specializing in apparel, intimates, and accessories for fashionable curvy women (sizes 10-30) in North America, focusing on fit, quality, and a youthful, sexy style[114] - The company aims to connect with customers through its proprietary product offering and brand experience, differentiating itself from brands that treat plus-size customers as an afterthought[114] Key Financial and Operating Metrics - Comparable sales decreased by 14% in Q1 2023, a significant decline from a 2% decrease in Q1 2022[116] - Net income decreased by 50.9% YoY[116] - Adjusted EBITDA decreased by 26.1% YoY[116] - The number of stores increased by 13 (2.1%) YoY to 638[116] - Adjusted EBITDA is a non-GAAP measure used to assess operating performance by isolating the effects of certain items that vary without correlation to ongoing operating performance[119][120] Key Financial and Operating Metrics | Metric | April 29, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Number of stores (as of end of period) | 638 | 625 | | Comparable sales | (14)% | (2)% | | Net income (in thousands) | $11,808 | $24,066 | | Adjusted EBITDA (in thousands) | $38,260 | $51,779 | Factors Affecting Our Performance - Customer Acquisition and Retention: Success depends on efficient and profitable customer acquisition and retention, with new privacy requirements increasing difficulty and cost[122] - Customer Migration to Omni-channel: Omni-channel customers purchase more frequently and spend approximately 3.4 times more per year than single-channel customers[123] - Overall Economic Trends: Consumer spending on clothing is sensitive to economic conditions, with recent high inflation leading to softening demand and increased costs for wages, transportation, and products[124] - Demographic Changes: Growth is partly due to an increase in the plus-size population, particularly women aged 25-40; slower growth in this demographic could adversely affect results[125] - Growth in Brand Awareness: Continued investment in brand marketing and partnerships is crucial for net sales growth and profitability[126] - Inventory Management: A data-driven approach to design and product development, with frequent new merchandise introductions, aims to keep customers engaged and manage inventory levels[127] - Impact of COVID-19: The pandemic's full impact remains uncertain, with potential risks from resurgences, changes in consumer behavior, labor issues, and supply chain disruptions[128] - Investments: Significant investments are being made in leadership, infrastructure, technology, advertising, marketing, and store expansion to improve customer experience and drive long-term growth[129][130] - Seasonality: Torrid's business is generally not seasonal, with Adjusted EBITDA strongest in the first half of the year due to more favorable merchandise margins and lower advertising/shipping expenses[131] Components of Our Results of Operations - In Q4 FY2022, the company voluntarily changed its accounting policy to classify PLCC Funds as net sales instead of a reduction to SG&A, applied retrospectively, to enhance comparability and transparency[132] - Net Sales: Reflects merchandise sales, shipping revenue, PLCC Funds, and gift card breakage income, less returns, discounts, and loyalty points[133] - Net Sales: Influenced by active customer base, product assortment, marketing, and customer spending habits[133] - Gross Profit: Net sales less cost of goods sold, which includes merchandise costs, freight, inventory shrinkage, merchandising payroll, and store occupancy expenses[134] - Gross Profit: Reviewed inventory levels to identify slow-moving merchandise and use markdowns[134] - Selling, General and Administrative Expenses (SG&A): All operating costs not in cost of goods sold or marketing, including payroll investments for long-term growth[135] - Marketing Expenses: Primarily targeted online performance marketing, store and brand marketing, public relations, and payroll for the marketing team, aimed at growing and retaining customers and increasing brand awareness[136] - Interest Expense: Primarily interest and fees from the Existing ABL Facility and New Term Loan Credit Agreement[137] - Provision for Income Taxes: Estimate of federal and state income taxes based on enacted rates, adjusted for credits, deductions, and uncertain tax positions[137] Results of Operations - Net Sales: Decreased by $39.3 million (11.8%) to $293.9 million, primarily due to fewer sales transactions, partially offset by increased PLCC Funds[141] - Net Sales: Store count increased by 13 to 638[141] - Gross Profit: Decreased by $19.3 million (14.8%) to $110.6 million, mainly from lower sales transactions and higher store occupancy/merchandising payroll costs[142] - Gross Profit: Gross profit margin decreased by 1.3 percentage points to 37.7% due to inflationary pressure, increased costs, partially offset by improved pricing and lower e-Commerce shipping[142] - Selling, General and Administrative Expenses: Decreased by $1.0 million (1.4%) to $71.2 million, driven by lower performance bonuses and store operating costs[143] - Selling, General and Administrative Expenses: Increased as a percentage of net sales by 2.6 percentage points to 24.3% due to deleverage from lower sales[143] - Marketing Expenses: Decreased by $4.6 million (25.7%) to $13.4 million, primarily due to reduced television and digital marketing[144] - Marketing Expenses: As a percentage of net sales, it decreased by 0.9 percentage points to 4.5%[144] - Interest Expense: Increased by $3.2 million to $9.5 million, mainly due to a higher variable interest rate on the New Term Loan Credit Agreement[145] - Provision for Income Taxes: Decreased by $4.7 million to $4.7 million[146] - Provision for Income Taxes: The effective tax rate increased to 28.6% from 28.1%, primarily due to higher non-deductible compensation relative to income before taxes[147] Consolidated Results of Operations (in thousands, except percentages) | Item | Three Months Ended April 29, 2023 | % of Net Sales | Three Months Ended April 30, 2022 | % of Net Sales | | :--- | :--- | :--- | :--- | :--- | | Net sales | $293,854 | 100.0% | $333,193 | 100.0% | | Cost of goods sold | $183,212 | 62.3% | $203,263 | 61.0% | | Gross profit | $110,642 | 37.7% | $129,930 | 39.0% | | Selling, general and administrative expenses | $71,228 | 24.3% | $72,215 | 21.7% | | Marketing expenses | $13,351 | 4.5% | $17,974 | 5.4% | | Income from operations | $26,063 | 8.9% | $39,741 | 11.9% | | Interest expense | $9,468 | 3.3% | $6,264 | 1.9% | | Income before provision for income taxes | $16,535 | 5.6% | $33,449 | 10.0% | | Provision for income taxes | $4,727 | 1.6% | $9,383 | 2.8% | | Net income | $11,808 | 4.0% | $24,066 | 7.2% | Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Item | Three Months Ended April 29, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Net income | $11,808 | $24,066 | | Interest expense | $9,468 | $6,264 | | Provision for income taxes | $4,727 | $9,383 | | Depreciation and amortization | $9,238 | $9,261 | | Share-based compensation | $2,488 | $2,480 | | Non-cash deductions and charges | $43 | $309 | | Other expenses | $428 | $(12) | | Adjusted EBITDA | $38,260 | $51,779 | Liquidity and Capital Resources - The company relies on cash flows from operations and has access to additional liquidity through its Existing ABL Facility[148] - Primary cash needs include inventory, payroll, rent, capital expenditures, debt payments, and share repurchases[148] - Operating Activities: Net cash provided increased by $2.05 million to $11.2 million, driven by a lower decrease in accrued expenses and reduced inventory purchases, partially offset by lower net income[151] - Investing Activities: Net cash used decreased by $1.1 million to $5.7 million, primarily due to reduced capital expenditures at the West Jefferson, Ohio distribution center[154] - Financing Activities: Net cash used decreased by $5.8 million to $0.8 million, mainly due to a $22.2 million decrease in share repurchases and a $4.4 million decrease in term loan principal payments, partially offset by a $20.7 million decrease in net borrowing from the ABL Facility[156] - As of April 29, 2023, total outstanding indebtedness was $316.8 million (net of OID and financing costs) under the New Term Loan Credit Agreement, and $12.0 million under the Existing ABL Facility[157] - Availability under the ABL Facility was $130.7 million[157] Summary of Cash Flow Activities (in thousands) | Activity | Three Months Ended April 29, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,223 | $9,173 | | Net cash used in investing activities | $(5,660) | $(6,761) | | Net cash used in financing activities | $(800) | $(6,602) | Critical Accounting Policies and Significant Estimates - There have been no material changes to the critical accounting policies and estimates as discussed in the Annual Report on Form 10-K for the fiscal year ended January 28, 2023[158] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that the company's market risk profile has not materially changed since the Annual Report on Form 10-K for the fiscal year ended January 28, 2023 - The market risk profile has not materially changed as of January 28, 2023, compared to the Annual Report on Form 10-K[159] - Further details regarding indebtedness and related market risks can be found in Note 12—Debt Financing Arrangements[159] Item 4. Controls and Procedures Management, including the CEO and Interim CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of April 29, 2023, with no material changes to internal control over financial reporting - Management, under the supervision of the CEO and Interim CFO, concluded that the company's disclosure controls and procedures were effective as of April 29, 2023[160] - No material changes in internal control over financial reporting occurred during the three months ended April 29, 2023[161] Part II - Other Information Item 1. Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business but does not currently anticipate any to have a material adverse effect on its financial condition or operations - The company is not currently party to any legal proceedings expected to have a material adverse effect on its business, financial condition, operating results, or cash flows[163] - Reserves for specific legal matters are established when an unfavorable outcome is probable and the loss is reasonably estimable[163] Item 1A. Risk Factors This section indicates that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended January 28, 2023, have occurred[164] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares of its common stock during the three months ended April 29, 2023, under its $100.0 million share repurchase program, leaving approximately $44.9 million remaining - The Board authorized a $100.0 million share repurchase program on December 6, 2021[165] - No shares of common stock were repurchased during the three months ended April 29, 2023[165] - As of April 29, 2023, approximately $44.9 million remained available under the share repurchase program[165] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[166] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to the registrant[167] Item 5. Other Information This section indicates that there is no other information to report - No other information is reported in this section[168] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, credit agreement amendments, a separation agreement, and certifications from executive officers - Exhibit 3.1: Amended and Restated Certificate of Incorporation[171] - Exhibit 3.2: Amended and Restated Bylaws[171] - Exhibit 10.1*: Amendment No. 4 to the Credit Agreement (ABL Facility), dated April 21, 2023[171] - Exhibit 10.2*: Amendment No. 1 to the Term Loan Credit Agreement, dated May 24, 2023[171] - Exhibit 10.3+: Separation Agreement with Anne Stephenson, dated March 31, 2023[171] - Exhibit 31.1 and 31.2*: Certifications of Principal Executive Officer and Principal Financial Officer (Sarbanes-Oxley Act Section 302)[171] - Exhibit 32.1** and 32.2**: Certifications of Principal Executive Officer and Principal Financial Officer (18 U.S.C. Section 1350)[171] - Exhibit 101* and 104*: Interactive Data Files (Inline XBRL)[171] Signatures Report Signatures The report is duly signed on behalf of Torrid Holdings Inc. by its Chief Executive Officer and Director, Lisa Harper, and Interim Chief Financial Officer, Paula Dempsey, on June 7, 2023 - The report was signed on June 7, 2023, by Lisa Harper, Chief Executive Officer and Director, and Paula Dempsey, Interim Chief Financial Officer[174][176]