SEC Form 10-Q filed by Torrid Holdings Inc.
$CURV
Clothing/Shoe/Accessory Stores
Consumer Discretionary
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended May 4, 2024
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For transition period from to
Commission File Number 001-40571
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(Address of principal executive offices) | (Zip Code) | |||||||
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
| ☒ | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of June 10, 2024, there were approximately 104,350,021 shares of the registrant’s common stock outstanding.
Table of Contents
| PAGE | ||||||||
| Item 1. | Financial Statements (unaudited) | |||||||
Condensed Consolidated Balance Sheets as of May 4, 2024 and February 3, 2024 | ||||||||
Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended May 4, 2024 and April 29, 2023 | ||||||||
Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended May 4, 2024 and April 29, 2023 | ||||||||
Condensed Consolidated Statements of Cash Flows for the three months ended May 4, 2024 and April 29, 2023 | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor created thereby under the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical or current fact included in this Quarterly Report on Form 10-Q are forward-looking statements. Forward-looking statements reflect our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning (including their negative counterparts or other various or comparable terminology). For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those that we expected, including:
•the adverse impact of rulemaking changes implemented by the Consumer Financial Protection Bureau on our income streams, profitability and results of operations;
•changes in consumer spending and general economic conditions;
•the negative impact on interest expense as a result of rising interest rates;
•inflationary pressures with respect to labor and raw materials and global supply chain constraints that could increase our expenses;
•our ability to identify and respond to new and changing product trends, customer preferences and other related factors;
•our dependence on a strong brand image;
•increased competition from other brands and retailers;
•our reliance on third parties to drive traffic to our website;
•the success of the shopping centers in which our stores are located;
•our ability to adapt to consumer shopping preferences and develop and maintain a relevant and reliable omni-channel experience for our customers;
•our dependence upon independent third parties for the manufacture of all of our merchandise;
•availability constraints and price volatility in the raw materials used to manufacture our products;
•interruptions of the flow of our merchandise from international manufacturers causing disruptions in our supply chain;
•our sourcing a significant amount of our products from China;
•shortages of inventory, delayed shipments to our e-Commerce customers and harm to our reputation due to difficulties or shut-down of our distribution facility;
•our reliance upon independent third-party transportation providers for substantially all of our product shipments;
•our growth strategy;
•our failure to attract and retain employees that reflect our brand image, embody our culture and possess the appropriate skill set;
•damage to our reputation arising from our use of social media, email and text messages;
•our reliance on third-parties for the provision of certain services, including real estate management;
•our dependence upon key members of our executive management team;
•our reliance on information systems;
•system security risk issues that could disrupt our internal operations or information technology services;
•unauthorized disclosure of sensitive or confidential information, whether through a breach of our computer system, third-party computer systems we rely on, or otherwise;
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•our failure to comply with federal and state laws and regulations and industry standards relating to privacy, data protection, advertising and consumer protection;
•payment-related risks that could increase our operating costs or subject us to potential liability;
•claims made against us resulting in litigation;
•changes in laws and regulations applicable to our business;
•regulatory actions or recalls arising from issues with product safety;
•our inability to protect our trademarks or other intellectual property rights;
•our substantial indebtedness and lease obligations;
•restrictions imposed by our indebtedness on our current and future operations;
•changes in tax laws or regulations or in our operations that may impact our effective tax rate;
•the possibility that we may recognize impairments of long-lived assets;
•our failure to maintain adequate internal control over financial reporting; and
•the threat of war, terrorism or other catastrophes that could negatively impact our business.
The outcome of the events described in any of our forward-looking statements are also subject to risks, uncertainties and other factors described in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on April 2, 2024 and in our other filings with the SEC and public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not include all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the outcomes or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise except to the extent required by law. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
Investors and others should note that we may announce material information to our investors using our investor relations website (https://investors.torrid.com), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our company, our business and other issues. It is possible that the information that we post on social media could be deemed to be material information. We therefore encourage investors to visit these websites from time to time. The information contained on such websites and social media posts is not incorporated by reference into this filing. Further, our references to website URLs in this filing are intended to be inactive textual references only.
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Part I - Financial Information
Item 1. Financial Statements (Unaudited)
TORRID HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share and per share data)
| May 4, 2024 | February 3, 2024 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Inventory | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Prepaid income taxes | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Deposits and other noncurrent assets | |||||||||||
| Deferred tax assets | |||||||||||
| Intangible asset | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders' deficit | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued and other current liabilities | |||||||||||
| Operating lease liabilities | |||||||||||
| Borrowings under credit facility | |||||||||||
| Current portion of term loan | |||||||||||
| Due to related parties | |||||||||||
| Income taxes payable | |||||||||||
| Total current liabilities | |||||||||||
| Noncurrent operating lease liabilities | |||||||||||
| Term loan | |||||||||||
| Deferred compensation | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 15) | |||||||||||
| Stockholders' deficit | |||||||||||
Preferred shares: $ | |||||||||||
Common shares: $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders' deficit | ( | ( | |||||||||
| Total liabilities and stockholders' deficit | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TORRID HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands, except per share data)
| Three Months Ended | |||||||||||
| May 4, 2024 | April 29, 2023 | ||||||||||
| Net sales | $ | $ | |||||||||
| Cost of goods sold | |||||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Marketing expenses | |||||||||||
| Income from operations | |||||||||||
| Interest expense | |||||||||||
| Other expense, net of other income | |||||||||||
| Income before provision for income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Net income | $ | $ | |||||||||
| Comprehensive income: | |||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive loss: | |||||||||||
| Foreign currency translation adjustment | ( | ( | |||||||||
| Total other comprehensive loss | ( | ( | |||||||||
| Comprehensive income | $ | $ | |||||||||
| Net earnings per share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted average number of shares: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
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TORRID HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(In thousands)
| Three Months Ended May 4, 2024 | |||||||||||||||||||||||||||||||||||
| Common Shares | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Deficit | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at February 3, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 0 | — | — | ||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at May 4, 2024 | ( | ( | ( | ||||||||||||||||||||||||||||||||
Three Months Ended April 29, 2023 | |||||||||||||||||||||||||||||||||||
| Common Shares | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Deficit | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at January 28, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at April 29, 2023 | ( | ( | ( | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TORRID HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
| Three Months Ended May 4, 2024 | Three Months Ended April 29, 2023 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Write down of inventory | |||||||||||
| Operating right-of-use assets amortization | |||||||||||
| Depreciation and other amortization | |||||||||||
| Share-based compensation | |||||||||||
| Other | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Inventory | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Prepaid income taxes | |||||||||||
| Deposits and other noncurrent assets | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Accrued and other current liabilities | ( | ||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other noncurrent liabilities | ( | ( | |||||||||
| Deferred compensation | ( | ||||||||||
| Due to related parties | ( | ( | |||||||||
| Income taxes payable | |||||||||||
| Net cash provided by operating activities | |||||||||||
| INVESTING ACTIVITIES | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Proceeds from revolving credit facility | |||||||||||
| Principal payments on revolving credit facility | ( | ( | |||||||||
| Principal payments on term loan | ( | ( | |||||||||
| Proceeds from issuances under share-based compensation plans | |||||||||||
| Withholding tax payments related to vesting of restricted stock units and awards | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Increase in cash, cash equivalents and restricted cash | |||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
| SUPPLEMENTAL INFORMATION | |||||||||||
| Cash paid during the period for interest related to the revolving credit facility and term loan | $ | $ | |||||||||
| Cash paid during the period for income taxes | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES | |||||||||||
| Property and equipment purchases included in accounts payable and accrued liabilities | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TORRID HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation and Description of the Business
Corporate Structure
Torrid Holdings Inc. is a Delaware corporation formed on October 29, 2019 and capitalized on February 20, 2020. Sycamore Partners Management, L.P. (“Sycamore”) owns a majority of the voting power of Torrid Holdings Inc.’s outstanding common stock. Torrid Parent Inc. is a Delaware corporation formed on June 4, 2019 and is a wholly owned subsidiary of Torrid Holdings Inc. Torrid Intermediate LLC, formerly known as Torrid Inc., is a Delaware limited liability company formed on June 18, 2019 and a wholly owned subsidiary of Torrid Parent Inc. Torrid LLC is a wholly owned subsidiary of Torrid Intermediate LLC. Substantially all of Torrid Holdings Inc.’s financial position, operations and cash flows are generated through its wholly owned indirect subsidiary, Torrid LLC.
Throughout these financial statements, the terms “Torrid,” “we,” “us,” “our,” the “Company” and similar references refer to Torrid Holdings Inc. and its consolidated subsidiaries.
Fiscal Year
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. Operating results for the three-month periods ended May 4, 2024 and April 29, 2023 are not necessarily indicative of the results that may be expected for any future interim periods, the fiscal year ending February 1, 2025, or for any future fiscal year.
The condensed consolidated balance sheet information at February 3, 2024 has been derived from the audited consolidated financial statements at that date, but does not include all of the disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements and related footnotes should be read in conjunction with our audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024. The unaudited condensed consolidated financial statements include Torrid and those of our wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Description of Business
We are a direct-to-consumer brand of apparel, intimates and accessories in North America aimed at fashionable women who are curvy and wear sizes 10 to 30. We generate revenues primarily through our e-Commerce platform www.torrid.com and our stores in the United States of America, Puerto Rico and Canada.
Segment Reporting
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Store Pre-Opening Costs
Note 2. Accounting Standards
Recently Adopted Accounting Standards during the Three-Month Period Ended May 4, 2024
We did not adopt any new accounting standards during the three-month period ended May 4, 2024.
Accounting Standards Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 will affect reportable segment disclosure requirements, primarily by requiring enhanced disclosures about significant segment expenses on an interim and annual basis. ASU 2023-07 will be effective for us on February 1, 2025, with the option to early adopt at any time prior to the effective date and will require adoption on a retrospective basis. We are currently evaluating the impact of the standard on our financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The ASU includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. ASU 2023-09 will be effective for us on February 1, 2025, with the option to early adopt at any time prior to the effective date and will require adoption on either a prospective or retrospective basis. We are currently evaluating the impact of the standard on our financial statements and disclosures.
Note 3. Inventory
Our inventory is comprised solely of finished goods and is valued at the lower of moving average cost or net realizable value. We make certain assumptions regarding net realizable value in order to assess whether our inventory is recorded properly at the lower of cost or net realizable value. These assumptions are based on historical average selling price experience, current selling price information and estimated future selling price information. Physical inventory counts are conducted at least once during the year to determine actual inventory on hand and shrinkage. We accrue our estimated inventory shrinkage in our stores for the period between the last physical count and current balance sheet date.
Note 4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
| May 4, 2024 | February 3, 2024 | ||||||||||
| Prepaid and other information technology expenses | |||||||||||
| PLCC Funds receivable | |||||||||||
| Prepaid advertising | |||||||||||
| Prepaid casualty insurance | |||||||||||
| Other | |||||||||||
| Prepaid expenses and other current assets | $ | $ | |||||||||
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Note 5. Property and Equipment
Property and equipment are summarized as follows (in thousands):
| May 4, 2024 | February 3, 2024 | ||||||||||
| Property and equipment, at cost | |||||||||||
| Leasehold improvements | $ | $ | |||||||||
| Furniture, fixtures and equipment | |||||||||||
| Software and licenses | |||||||||||
| Construction-in-progress | |||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | |||||||||
| Property and equipment, net | $ | $ | |||||||||
We recorded depreciation expense related to our property and equipment in the amounts of $9.3 million and $9.2 million during the three-month periods ended May 4, 2024 and April 29, 2023, respectively.
We group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. During the three-month periods ended May 4, 2024 and April 29, 2023, we did no
Note 6. Implementation Costs Incurred in Cloud Computing Arrangements that are Service Contracts
Our cloud computing arrangements that are service contracts primarily consist of arrangements with third party vendors for our internal use of their software applications that they host. We defer implementation costs incurred in relation to such arrangements, including costs for software application coding, configuration, integration and customization, while associated process reengineering, training, maintenance and data conversion costs are expensed. Subsequent implementation costs are deferred only to the extent that they constitute major enhancements. The short-term portion of deferred implementation costs are included in prepaid expenses and other current assets in the condensed consolidated balance sheets, while the long-term portion of deferred implementation costs are included in deposits and other noncurrent assets. Amortized implementation costs incurred in cloud computing arrangements that are service contracts are recognized in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.
Deferred implementation costs incurred in cloud computing arrangements that are service contracts are summarized as follows (in thousands):
| May 4, 2024 | February 3, 2024 | ||||||||||
| Internal use of third party hosted software, gross | $ | $ | |||||||||
| Less: Accumulated amortization | ( | ( | |||||||||
| Internal use of third party hosted software, net | $ | $ | |||||||||
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Note 7. Accrued and Other Current Liabilities
Accrued and other current liabilities consist of the following (in thousands):
| May 4, 2024 | February 3, 2024 | ||||||||||
| Accrued inventory-in-transit | $ | $ | |||||||||
| Accrued payroll and related expenses | |||||||||||
| Accrued loyalty program | |||||||||||
| Gift cards | |||||||||||
| Accrued sales return allowance | |||||||||||
| Accrued freight | |||||||||||
| Accrued marketing | |||||||||||
| Accrued sales and use tax | |||||||||||
| Accrued self-insurance liabilities | |||||||||||
| Deferred revenue | |||||||||||
| Accrued purchases of property and equipment | |||||||||||
| Accrued lease costs | |||||||||||
| Term loan interest payable | |||||||||||
| Other | |||||||||||
| Accrued and other current liabilities | $ | $ | |||||||||
Note 8. Leases
Our lease costs reflected in the tables below include minimum base rents, common area maintenance charges and heating, ventilation and air conditioning charges. We recognize such lease costs in the applicable expense category in either cost of goods sold, or selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.
Our lease costs during the three-month periods ended May 4, 2024 and April 29, 2023 consist of the following (in thousands):
| Three Months Ended | |||||||||||
| May 4, 2024 | April 29, 2023 | ||||||||||
| Operating (fixed) lease cost | $ | $ | |||||||||
| Short-term lease cost | |||||||||||
| Variable lease cost | |||||||||||
| Total lease cost | $ | $ | |||||||||
Other supplementary information related to our leases is reflected in the table below (in thousands, except lease term and discount rate data):
| Three Months Ended | |||||||||||
| May 4, 2024 | April 29, 2023 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows for operating leases | $ | $ | |||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | |||||||||
| Decrease in right-of-use assets resulting from operating lease modifications or remeasurements | $ | $ | |||||||||
| Weighted average remaining lease term - operating leases | |||||||||||
| Weighted average discount rate - operating leases | % | % | |||||||||
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Note 9. Revenue Recognition
We recognize revenue when our performance obligations under the terms of a contract or an implied arrangement with a customer are satisfied, which is when the merchandise is transferred to the customer and the customer obtains control of it. The amount of revenue we recognize reflects the total consideration we expect to receive for the merchandise, which is the transaction price.
Our revenue, disaggregated by product category, consists of the following (in thousands):
| Three Months Ended | |||||||||||
| May 4, 2024 | April 29, 2023 | ||||||||||
| Apparel | $ | $ | |||||||||
| Non-apparel | |||||||||||
| Other | |||||||||||
| Total net sales | $ | $ | |||||||||
Amounts within Apparel include revenues earned from the sale of tops, bottoms, dresses, intimates, sleep wear, swim wear and outerwear. Amounts within Non-apparel include revenues earned from the sale of accessories, footwear and beauty. Amounts within Other primarily represent PLCC Funds received.
We have an agreement with a third party, which is amended from time to time, to provide customers with private label credit cards (“Credit Card Agreement”). Each private label credit card (“PLCC”) bears the logo of the Torrid brand and can only be used at our store locations and on www.torrid.com. A third-party financing company is the sole owner of the accounts issued under the PLCC program and absorbs the losses associated with non-payment by the PLCC holders and a portion of any fraudulent usage of the accounts. Pursuant to the Credit Card Agreement, we receive royalties, profit-sharing and marketing and promotional funds from the third-party financing company based on usage of the PLCCs. These PLCC Funds are recorded as a component of net sales in the condensed consolidated statements of operations and comprehensive income.
We recognize a contract liability when we receive consideration from a customer before our performance obligations under the terms of a contract or an implied arrangement with the customer are satisfied. During the three-month period ended May 4, 2024, we recognized revenue of approximately $7.5 million and $3.0 million related to our accrued loyalty program and gift cards, respectively, that existed at the beginning of fiscal year 2024. During the three-month period ended April 29, 2023, we recognized revenue of approximately $6.8 million and $3.2 million related to our accrued loyalty program and gift cards, respectively, that existed at the beginning of fiscal year 2023.
Note 10. Loyalty Program
We operate our loyalty program, Torrid Rewards, in all our stores and on www.torrid.com. Under this program, customers accumulate points based on purchase activity and qualifying non-purchase activity. Upon reaching a certain point level, customers can earn awards that may only be redeemed for merchandise. Unredeemed points typically expire after 13 months without additional purchase and qualifying non-purchase activity and unredeemed awards typically expire 45 days after issuance. We use historical redemption rates to estimate the value of future award redemptions and we recognize the estimated value of these future awards as a reduction of revenue in the condensed consolidated statements of operations and comprehensive income in the period the points are earned by the customer. As of the end of the first quarter of fiscal year 2024 and as of the end of fiscal year 2023, we had $11.9 million and $12.5 million, respectively, in deferred revenue related to our loyalty program included in accrued and other current liabilities in the condensed consolidated balance sheets. During the three-month periods ended May 4, 2024 and April 29, 2023, we recorded $0.6 million and $0.7 million, respectively, as a benefit to net sales. Actual results may differ from our estimates, resulting in changes to net sales.
Note 11. Related Party Transactions
Services Agreements with Hot Topic
Hot Topic Inc. (“Hot Topic”) is an entity indirectly controlled by affiliates of Sycamore. On March 21, 2019, we entered into an amended and restated services agreement with Hot Topic, which was subsequently amended on August 1, 2019, April 30, 2023 and May 3, 2024 (“Amended and Restated Services Agreement”). Under the Amended and Restated Services Agreement, Hot Topic provides us (or causes applicable third parties to provide) real estate leasing and construction management services. We record payments made to Hot Topic under these service agreements in the applicable expense category in either cost of goods sold, or selling, general and administrative expenses.
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During the three-month periods ended May 4, 2024 and April 29, 2023, Hot Topic charged us $0.5 million and $0.6 million, respectively, for various services under the applicable service agreements, all of which were recorded as components of selling, general and administrative expenses. As of the end of the first quarter of fiscal year 2024 and as of the end of fiscal year 2023, we owed $0.2 million and $0.2 million, respectively, to Hot Topic for these services which is included in due to related parties in our condensed consolidated balance sheets.
On August 1, 2019, we entered into a services agreement with Hot Topic, which was subsequently amended on July 31, 2022, September 30, 2022, December 1, 2022, January 1, 2024, and most recently, on May 30, 2024 (“Amended Reverse Services Agreement”). Under the Amended Reverse Services Agreement, Torrid provides Hot Topic with certain information technology services for a fixed fee. The May 30, 2024 amendment solely amends certain pricing information. The Amended Reverse Services Agreement will continue by its terms until terminated by us or Hot Topic.
During the three-month periods ended May 4, 2024 and April 29, 2023, we charged Hot Topic $0.3 million and $0.4 million, respectively, for these services. As of the end of the first quarter of fiscal year 2024 and as of the end of fiscal year 2023, Hot Topic owed us $0.1 million and $0.1 million, respectively, for these services.
Hot Topic incurs certain direct expenses on our behalf, such as payments to our non-merchandise vendors and each month, we pay Hot Topic for these pass-through expenses. As of the end of the first quarter of fiscal year 2024, the net amount we owed Hot Topic for these expenses was not material, and as of the end of fiscal year 2023, the net amount we owed Hot Topic for these expenses was $0.4 million, which is included in due to related parties in our condensed consolidated balance sheets.
Sponsor Advisory Services Agreement
On May 1, 2015, we entered into an advisory services agreement with Sycamore, pursuant to which Sycamore agreed to provide strategic planning and other related services to us. We are obligated to reimburse Sycamore for its expenses incurred in connection with providing such advisory services to us. As of the end of the first quarter of fiscal year 2024 and as of the end of fiscal year 2023, there were no no
From time to time, we reimburse Sycamore for certain management expenses it pays on our behalf. During the three-month periods ended May 4, 2024 and April 29, 2023, the amounts paid to Sycamore for these expenses were not
Other Related Party Transactions
MGF Sourcing US, LLC, an entity indirectly controlled by affiliates of Sycamore, is one of our suppliers. During the three-month periods ended May 4, 2024 and April 29, 2023, cost of goods sold included $12.0 million and $15.3 million, respectively, related to the sale of merchandise purchased from this supplier. As of the end of the first quarter of fiscal year 2024 and as of the end of fiscal year 2023, the net amounts we owed MGF Sourcing US, LLC for these purchases were $8.3 million and $8.9 million, respectively. This liability is included in due to related parties in our condensed consolidated balance sheets.
HU Merchandising, LLC, a subsidiary of Hot Topic, is one of our suppliers. During the three-month period ended May 4, 2024, cost of goods sold included $0.2 million related to the sale of merchandise purchased from this supplier, and during the three-month period ended April 29, 2023, cost of goods sold related to the sale of merchandise purchased from this supplier was not material. As of the end of the first quarter of fiscal year 2024, the amount due to HU Merchandising, LLC was $0.1 million, and as of the end of fiscal year 2023, the amount due to HU Merchandising, LLC was not material.
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Note 12. Debt Financing Arrangements
Our debt financing arrangements consist of the following (in thousands):
| May 4, 2024 | February 3, 2024 | ||||||||||
| ABL Facility, as amended | $ | $ | |||||||||
| Term loan | |||||||||||
| Amended Term Loan Credit Agreement | |||||||||||
| Less: current portion of unamortized original issue discount and debt financing costs | ( | ( | |||||||||
| Less: noncurrent portion of unamortized original issue discount and debt financing costs | ( | ( | |||||||||
| Total term loan outstanding, net of unamortized original issue discount and debt financing costs | |||||||||||
| Less: current portion of term loan, net of unamortized original issue discount and debt financing costs | ( | ( | |||||||||
| Total term loan, net of current portion and unamortized original issue discount and debt financing costs | $ | $ | |||||||||
Fixed mandatory principal repayments due on the outstanding term loan are as follows as of the end of the first quarter of fiscal year 2024 (in thousands):
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| $ | |||||
Term Loan Credit Agreement
On June 14, 2021, we entered into a term loan credit agreement (the “Term Loan Credit Agreement”) among Bank of America, N.A., as agent, and the lenders party thereto. On May 24, 2023, we entered into an amendment to the Term Loan Credit Agreement (the “Amended Term Loan Credit Agreement”). The Amended Term Loan Credit Agreement replaced the London Interbank Offered Rate (“LIBOR”) interest rate benchmark with the Secured Overnight Financing Rate (“SOFR”) benchmark. All other material terms of the Term Loan Credit Agreement remained substantially the same after giving effect to the Amended Term Loan Credit Agreement. In March 2020 and January 2021, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) and 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), respectively. ASU 2020-04 and ASU 2021-01 include practical expedients which provide entities the option to account for qualifying amendments as if the modification was not substantial in accordance with Accounting Standards Codification (“ASC”) 470, Debt. We elected this option, accordingly, the Amended Term Loan Credit Agreement did not have a material impact on our condensed consolidated financial statements.
The Term Loan Credit Agreement provides for term loans in an initial aggregate amount of $350.0 million, which is recorded net of an original issue discount (“OID”) of $3.5 million and has a maturity date of June 14, 2028. In connection with the Term Loan Credit Agreement, we paid financing costs of approximately $6.0 million.
The elected interest rate on May 4, 2024 was approximately 11 %.
As of the end of the first quarter of fiscal year 2024, we were compliant with our debt covenants under the Amended Term Loan Credit Agreement.
As of May 4, 2024, the fair value of the Amended Term Loan Credit Agreement was approximately $268.0 million. As of the end of fiscal year 2023, the fair value of the Amended Term Loan Credit Agreement was approximately $259.4 million. The fair value of the Amended Term Loan Credit Agreement is determined using current applicable rates for similar instruments as of the balance sheet date, a Level 2 measurement (as defined in “Note 18—Fair Value Measurements”).
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As of the end of the first quarter of fiscal year 2024, total borrowings, net of OID and financing costs, of $300.7 million remain outstanding under the Amended Term Loan Credit Agreement. During the three-month periods ended May 4, 2024 and April 29, 2023, we recognized $8.7 million and $8.6 million, respectively, of interest expense related to the Amended Term Loan Credit Agreement. During the three-month periods ended May 4, 2024 and April 29, 2023, we recognized $0.3 million and $0.3 million, respectively, of OID and financing costs related to the Amended Term Loan Credit Agreement. The OID and financing costs are amortized over the Amended Term Loan Credit Agreement’s seven-year term and are reflected as a direct deduction of the face amount of the term loan in our condensed consolidated balance sheets. We recognize interest payments, together with amortization of the OID and financing costs, in interest expense in our condensed consolidated statements of operations and comprehensive income.
Senior Secured Asset-Based Revolving Credit Facility
In May 2015, we entered into a credit agreement for a senior secured asset-based revolving credit facility with Bank of America, N.A., which was subsequently amended in October 2017, June 2019, September 2019 and June 2021 (“ABL Facility”). Under the ABL Facility, as amended, the aggregate commitments available are $150.0 million (subject to a borrowing base), and we have the right to request additional commitments up to $50 million plus the aggregate principal amount of any permanent principal reductions we may take (subject to customary conditions precedent). The principal amount of the outstanding loans are due and payable on June 14, 2026. On April 21, 2023, we entered into a fourth amendment to the ABL Facility (the “4th Amendment”). The 4th Amendment replaced the LIBOR interest rate benchmark with the SOFR benchmark. All other material terms of the ABL Facility, as amended, remained substantially the same after giving effect to the 4th Amendment. We elected to apply the practical expedients included in ASU 2020-04 and 2021-01, accordingly, the 4th Amendment did not have a material impact on our condensed consolidated financial statements.
As of the end of the first quarter of fiscal year 2024, the applicable interest rate for borrowings under the ABL Facility, as amended, was approximately 9 % per annum.
As of the end of the first quarter of fiscal year 2024, we were compliant with our debt covenants under the ABL Facility, as amended.
As of the end of the first quarter of fiscal year 2024, the maximum restricted payment utilizing the ABL Facility, as amended, that our subsidiaries could make from its net assets was $108.4 million.
We consider the carrying amounts of the ABL Facility, as amended, to approximate fair value because of the variable interest rate of this facility, a Level 2 measurement (as defined in “Note 18—Fair Value Measurements”).
Availability under the ABL Facility, as amended, as of the end of the first quarter of fiscal year 2024 was $116.1 million, which reflects no borrowings. Availability under the ABL Facility, as amended, at the end of fiscal year 2023 was $102.7 million, which reflects borrowings of $7.3 million. Standby letters of credit issued and outstanding were $11.4 million as of the end of the first quarter of fiscal year 2024 and $11.4 million as of the end of fiscal year 2023. We amortize financing costs associated with the ABL Facility, as amended, over the five-year term of the ABL Facility, as amended, and reflect them in prepaid expenses and other current assets and deposits and other noncurrent assets in our condensed consolidated balance sheets. During the three-month periods ended May 4, 2024 and April 29, 2023, amortization of financing costs for the ABL Facility, as amended, was not 0.3 million and $0.5 million, respectively. We recognize amortization of financing costs and interest payments for the revolving credit facility in interest expense in our condensed consolidated statements of operations and comprehensive income.
Note 13. Income Taxes
Effective Tax Rate
During the three-month periods ended May 4, 2024 and April 29, 2023, the provision for income taxes were $4.5 million and $4.7 million, respectively. The effective tax rates for the three-month periods ended May 4, 2024 and April 29, 2023 were 26.9 % and 28.6 %, respectively. The decrease in the effective tax rate for the three-month period ended May 4, 2024 as compared to the three-month period ended April 29, 2023 was primarily due to a decrease in the amount of non-deductible compensation for covered employees relative to income before provision for income taxes for the three-month period ended May 4, 2024.
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Uncertain Tax Positions
The amount of income taxes we pay is subject to ongoing audits by taxing authorities. Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts and circumstances existing at the time. We believe that we have adequately provided for reasonably foreseeable outcomes related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate. As of the end of the first quarter of fiscal year 2024, the total liability for income tax associated with unrecognized tax benefits, including interest and penalties, was $2.5 million ($2.1 million, net of federal benefit). As of the end of fiscal year 2023, the total liability for income tax associated with unrecognized tax benefits, including interest and penalties, was $2.5 million ($2.1 million, net of federal benefit). Our effective tax rate will be affected by any portion of this liability we may recognize.
We believe that it is reasonably possible that $0.4 million ($0.3 million net of federal benefit) of our liability for unrecognized tax benefits, of which the associated interest and penalties are not material, may be recognized in the next 12 months due to the expiration of statutes of limitations.
Note 14. Share-Based Compensation
Our share-based compensation expense, by award type, consists of the following (in thousands):
| Three Months Ended | |||||||||||
| May 4, 2024 | April 29, 2023 | ||||||||||
| Restricted stock units | $ | $ | |||||||||
| Restricted stock awards | |||||||||||
| Performance stock units | |||||||||||
| Stock options | |||||||||||
| Restricted cash units | |||||||||||
| Employee stock purchase plan | |||||||||||
| Share-based compensation before income taxes | |||||||||||
| Income tax detriment (benefit) | ( | ||||||||||
| Net share-based compensation expense | $ | $ | |||||||||
RSUs
Restricted stock unit (“RSU”) activity, including performance-based stock units (“PSUs”), consists of the following (in thousands, except per share amounts):
| Shares | Weighted average grant date fair value per share | ||||||||||
| Nonvested, February 3, 2024 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | ( | $ | |||||||||
| Nonvested, May 4, 2024 | $ | ||||||||||
As of the end of the first quarter of fiscal year 2024, unrecognized compensation expense related to unvested RSUs, including PSUs, was $5.9 million, which is expected to be recognized over a weighted average period of approximately 2.4 years.
Restricted Stock Awards
Restricted stock award activity consists of the following (in thousands, except per share amounts):
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| Shares | Weighted average grant date fair value per share | ||||||||||
| Nonvested, February 3, 2024 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | |||||||||||
| Nonvested, May 4, 2024 | $ | ||||||||||
As of the end of the first quarter of fiscal year 2024, unrecognized compensation expense related to unvested restricted stock awards was $0.1 million, which is expected to be recognized over a weighted average period of approximately 0.6 years.
Stock Options
Stock option activity consists of the following (in thousands, except per share and contractual life amounts):
| Shares | Weighted average exercise price per share | Weighted average remaining contractual life (years) | Aggregate intrinsic value | ||||||||||||||||||||
| Outstanding, February 3, 2024 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Exercised | |||||||||||||||||||||||
| Forfeited | ( | $ | |||||||||||||||||||||
| Outstanding, May 4, 2024 | $ | $ | |||||||||||||||||||||
| Exercisable, May 4, 2024 | $ | $ | |||||||||||||||||||||
As of the end of the first quarter of fiscal year 2024, unrecognized compensation expense related to unvested stock options was $5.0 million, which is expected to be recognized over a weighted average period of approximately 3.0 years.
RCUs
Restricted cash units (“RCUs”) are awarded to certain employees, non-employee directors and consultants and
represent the right to receive a cash payment at the end of a vesting period, subject to the employee’s continued employment or service as a director or consultant. In general, RCUs vest in equal installments each year over 4 years. RCUs are cash-settled with the value of each vested RCU equal to the lower of the closing price per share of our common stock on the vesting date or a specified per share price cap. We determined that RCUs are in-substance liabilities accounted for as liability instruments in accordance with ASC 718, Compensation—Stock Compensation, due to this cash settlement feature. RCUs are remeasured based on the closing price per share of our common stock at the end of each reporting period. As of the end of the first quarter of fiscal year 2024, the liability associated with unvested RCUs was $0.3 million, which is included in accrued and other current liabilities in the condensed consolidated balance sheet.
Note 15. Commitments and Contingencies
Litigation
In November 2022, a class action complaint was filed against us in the U.S. District Court for the Central District of California (“the Court”), captioned Sandra Waswick v. Torrid Holdings Inc., et al. An amended complaint was filed in May 2023. The amended complaint alleges that certain statements in our registration statement on Form S-1 related to our IPO and in subsequent SEC filings and earnings calls were allegedly false and misleading. On December 1, 2023, the Court granted defendants’ motion to dismiss with leave to amend. Plaintiffs filed a further amended complaint on December 22, 2023, and defendants again moved to dismiss on January 26, 2024. Two shareholder derivative complaints were filed in September and October 2023 in the U.S. District Court for the District of Delaware against us (as a nominal defendant) and certain officers and directors, captioned Allegra Morgado v. Lisa Harper, et al. and Nicole Long v. Lisa Harper, et al. The derivative complaints similarly allege that certain statements were allegedly false and misleading and that the individual defendants breached their fiduciary duties. The derivative cases have been consolidated and stayed, pending further developments in the securities class
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action. We believe that these allegations are without merit and intend to vigorously defend ourselves against these claims. We are currently unable to determine the probability of the outcome of this matter or the range of reasonably possible loss, if any.
From time to time, we are involved in other matters of litigation that arise in the ordinary course of business. Though significant litigation or awards against us could seriously harm our business and financial results, we do not at this time expect these other matters of litigation to have a material adverse effect on our condensed consolidated financial statements.
Indemnities, Commitments and Guarantees
During the ordinary course of business, we have made certain other indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These indemnities include those given to various lessors in connection with facility leases for certain claims arising from such facility or lease and indemnities to our Board of Directors ("Board") and officers to the maximum extent permitted. Commitments include those given to various merchandise vendors and suppliers. From time to time, we have issued guarantees in the form of standby letters of credit as security for workers’ compensation claims (our letters of credit are discussed in more detail in “Note 12—Debt Financing Arrangements”). The durations of these indemnities, commitments and guarantees vary. Some of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments we could be obligated to make. We have not recorded any liability for these indemnities, commitments and guarantees in the accompanying condensed consolidated financial statements as no demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our condensed consolidated financial statements.
Note 16. Share Repurchases
On December 6, 2021, our Board authorized a share repurchase program under which we may purchase up to $100.0 million of our outstanding common stock. Repurchases may be made from time to time, depending upon a variety of factors, including share price, corporate and regulatory requirements, and other market and business conditions, as determined by us. We may purchase shares of our common stock in the open market at current market prices at the time of purchase, in privately negotiated transactions, or by other means. The authorization does not, however, obligate us to acquire any particular amount of shares, and the share repurchase program may be suspended or terminated at any time at our discretion. As of May 4, 2024, we had approximately $44.9 million remaining under the share repurchase program. For the three-month periods ended May 4, 2024 and April 29, 2023, we did not
Note 17. Earnings Per Share
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Note 18. Fair Value Measurements
We carry certain of our assets and liabilities at fair value in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value require us to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets or liabilities in markets that are not active; or other inputs other than quoted prices that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities, including interest rates and yield curves, and market corroborated inputs.
Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These are valued based on our estimates and assumptions that market participants would use in pricing the asset or liability.
Financial assets and liabilities measured at fair value on a recurring basis as of the end of the first quarter of fiscal year 2024 consisted of the following (in thousands):
| May 4, 2024 | Quoted Prices in Active Markets for Identical Items (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Money market funds (cash equivalent) | $ | $ | $ | $ | |||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Deferred compensation plan liability (noncurrent) | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
Financial assets and liabilities measured at fair value on a recurring basis as of the end of fiscal year 2023 consisted of the following (in thousands):
| February 3, 2024 | Quoted Prices in Active Markets for Identical Items (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Money market funds (cash equivalent) | $ | $ | $ | $ | |||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Deferred compensation plan liability (noncurrent) | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
The fair value of our money market funds is based on quoted prices in active markets. The deferred compensation plan liability represents the amount that would be earned by participants if the funds were invested in securities traded in active
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Note 19. Deferred Compensation Plan
Note 20. Employee Benefit Plan
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those described below and in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on April 2, 2024 and in our other filings with the SEC and public communications.
Overview
Torrid is a direct-to-consumer brand of apparel, intimates and accessories in North America aimed at fashionable women who are curvy and wear sizes 10 to 30. Torrid is focused on fit and offers high quality products across a broad assortment that includes tops, bottoms, denim, dresses, intimates, activewear, footwear and accessories. Our proprietary product offering delivers a superior fit for the curvy woman that makes her love the way she looks and feels. Our style is unapologetically youthful and sexy. We believe our customer values the appeal and versatility of our curated product assortment that helps her look her best for any occasion, including weekend, casual, work and dressy, all at accessible price points. Through our product and brand experience we connect with customers in a way that other brands, many of which treat plus-size customers as an after-thought, have not.
Key Financial and Operating Metrics
We use the following metrics to assess the progress of our business, inform how we allocate our time and capital, and assess the near-term and longer-term performance of our business.
| May 4, 2024 | April 29, 2023 | ||||||||||
| Number of stores (as of end of period) | 658 | 638 | |||||||||
| Three Months Ended | |||||||||||
| (in thousands, except percentages) | |||||||||||
| May 4, 2024 | April 29, 2023 | ||||||||||
Comparable sales(A) | (9) | % | (14) | % | |||||||
| Net income | $ | 12,172 | $ | 11,808 | |||||||
Adjusted EBITDA(B) | $ | 38,227 | $ | 38,260 | |||||||
(A)Comparable sales for the first quarter of fiscal year 2024 compares sales for the 13-week period ended May 4, 2024 with sales for the 13-week period ended May 6, 2023. Comparable sales for the first quarter of fiscal year 2023 compares sales for the 13-week period ended April 29, 2023 with sales for the 13-week period ended April 30, 2022.
(B)Please refer to “Results of Operations” for a reconciliation of net income to Adjusted EBITDA.
Comparable Sales. We define comparable sales for any given period as the sales of our e-Commerce operations and stores that we have included in our comparable sales base during that period. We include a store in our comparable sales base after it has been open for 15 full fiscal months. If a store is closed during a fiscal year, it is only included in the computation of comparable sales for the full fiscal months in which it was open. Comparable sales for the first quarter of fiscal year 2024 compares sales for the 13-week period ended May 4, 2024 with sales for the 13-week period ended May 6, 2023. Comparable sales for the first quarter of fiscal year 2023 compares sales for the 13-week period ended April 29, 2023 with sales for the 13-week period ended April 30, 2022. Partial fiscal months are excluded from the computation of comparable sales. We apply current year foreign currency exchange rates to both current year and prior year comparable sales to remove the impact of foreign currency fluctuation and achieve a consistent basis for comparison. Comparable sales allow us to evaluate how our unified commerce business is performing exclusive of the effects of non-comparable sales and new store openings.
Number of Stores. Store count reflects all stores open at the end of a reporting period. In connection with opening new stores, we incur pre-opening costs, which primarily consist of payroll, travel, training, marketing, initial opening supplies, costs of transporting initial inventory and fixtures to store locations, and occupancy costs incurred from the time of possession of a store site to the opening of that store. These pre-opening costs are included in our selling, general and administrative expenses and are expensed as incurred.
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Adjusted EBITDA. Adjusted EBITDA is a supplemental measure of our operating performance that is neither required by, nor presented in accordance with GAAP and our calculation thereof may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA represents GAAP net income (loss) plus interest expense less interest income, net of other expense (income), plus provision for less (benefit from) income taxes, depreciation and amortization (“EBITDA”), and share-based compensation, noncash deductions and charges and other expenses. We believe Adjusted EBITDA facilitates operating performance comparisons from period to period by isolating the effects of certain items that vary from period to period without any correlation to ongoing operating performance. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting the overall expected performance of our business and for evaluating on a quarterly and annual basis actual results against such expectations. Further, we recognize Adjusted EBITDA as a commonly used measure in determining business value and, as such, use it internally to report and analyze our results and as a benchmark to determine certain non-equity incentive payments made to executives.
Adjusted EBITDA has limitations as an analytical tool. This measure is not a measurement of our financial performance under GAAP and should not be considered in isolation or as an alternative to or substitute for net income (loss), income (loss) from operations or any other performance measures determined in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Among other limitations, Adjusted EBITDA does not reflect:
•interest expense;
•interest income, net of other expense (income);
•provision for income taxes;
•depreciation and amortization;
•share-based compensation;
•noncash deductions and charges; and
•other expenses.
Factors Affecting Our Performance
We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q in the section titled “Risk Factors.”
Customer Acquisition and Retention. Our success is impacted not only by efficient and profitable customer acquisition, but also by our ability to retain customers and encourage repeat purchases. It is important to maintain reasonable costs for these marketing efforts relative to the net sales and profit we expect to derive from customers. Failure to effectively attract customers on a cost-efficient basis would adversely impact our profitability and operating results. New requirements for consumer disclosures regarding privacy practices, and new application tracking transparency framework that requires opt-in consent for certain types of tracking were implemented by third party providers in 2021, which has increased the difficulty and cost of acquiring and retaining customers. These changes may adversely affect our results of operations.
Customer Migration from Single to Omni-channel. We have a history of converting customers from single-channel customers to omni-channel customers, defined as active customers who shopped both online and in-store within the last twelve months. Customers that shop across multiple channels purchase from us more frequently and spent approximately 3.5 times more per year than our single-channel customer during fiscal year 2023.
Overall Economic Trends. Our results of operations during any given period are often impacted by the overall economic conditions in the markets in which we operate. Consumer purchases of clothing generally remain constant or may increase during stable economic periods and decline during recessionary periods, inflationary periods and other periods when disposable income is adversely affected. Recent historic high rates of inflation have led to a softening of consumer demand. We have encountered inflation on our wages, transportation and product costs, and a material increase in these costs without any meaningful offsetting price increases may reduce our future profits.
Demographic Changes. The growth of our business is impacted, in part, by the size of the plus-size population. Slower or negative growth in this demographic, specific to certain geographic markets, income levels or overall, could adversely affect our results of operations.
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Growth in Brand Awareness. We intend to continue investing in our brand, with a specific focus on growing brand awareness, customer engagement, and conversion through targeted investments in performance and brand marketing. We have made significant historical investments to strengthen the Torrid brand through our marketing efforts, brand partnerships, events and expansion of our social media presence. If we fail to cost-effectively promote our brand or convert impressions into new customers, our net sales growth and profitability may be adversely affected.
Inventory Management. Our strategy is built around a base of core products that provide our customer with year-round style. At the same time, we introduce new lines of merchandise approximately 16 times per year, thus providing a consistent flow of fresh merchandise to keep our customer engaged, encourage repeat business and attract new customers. We employ a data-driven approach to design and product development, proactively and quickly incorporating sales and operational performance information alongside customer feedback from thousands of product reviews. We engage in ongoing dialogue with customers through social media and customer surveys. Shifts in inventory levels may result in fluctuations in the amount of regular price sales, markdowns, and merchandise mix, as well as gross margin.
Investments. We have invested significantly to strengthen our business, including augmenting leadership across our organization and enhancing our infrastructure and technology in order to realize growth. We anticipate that our operating expenses will grow as we continue to increase our spending on advertising and marketing and hire additional personnel primarily in marketing, product design and development, merchandising, technology, operations, customer service and general and administrative functions. We will also continue to selectively expand our store footprint and make investments to improve the customer experience both in-store and online. We believe that such investments will increase the number and loyalty of our customers and, as a result, yield positive financial performance in the long term.
Seasonality. While seasonality frequently impacts businesses in the retail sector, our business is generally not seasonal. Accordingly, our net sales do not fluctuate as significantly as those of other brands and retailers from quarter to quarter and any modest seasonal effect does not significantly change the underlying trends in our business. Additionally, we do not generate an outsized share of our net sales or Adjusted EBITDA during the holiday season. Typically, our Adjusted EBITDA generation is strongest in the first half of the year as we benefit from more favorable merchandise margins, lower advertising and lower shipping expenses relative to the second half of the year. The lack of net sales seasonality provides structural cost advantages relative to peers, including reduced staffing cyclicality and seasonal distribution capacity needs.
Impact of Infectious Disease Outbreaks. Infectious disease outbreaks may cause general business disruption worldwide which could directly or indirectly impact our business, results of operations, cash flows, and financial condition. This could have a negative impact on our business including, but not limited to, closure requirements with respect to some or all of our physical locations, changes in consumer behavior, difficulties attracting and retaining employees and supply chain disruptions.
Components of Our Results of Operations
Net Sales. Net sales reflects our revenues from the sale of our merchandise, shipping and handling revenue received from e-Commerce sales, PLCC Funds and gift card breakage income, less returns, discounts and loyalty points/awards. Revenue from our stores is recognized at the time of sale and revenue from our e-Commerce channel is recognized upon shipment of the merchandise to the home of the customer; except in cases where the merchandise is shipped to a store and revenue is recognized when the customer retrieves the merchandise from the store. Net sales are impacted by the size of our active customer base, product assortment and availability, marketing and promotional activities and the spending habits of our customers. Net sales are also impacted by the migration of single-channel customers (i.e., customers shopping only in-store or online) to omni-channel customers (i.e., customers shopping both in-store and online), who on average spend significantly more than single-channel customers in a given year.
Gross Profit. Gross profit is equal to our net sales less cost of goods sold. Our cost of goods sold includes merchandise costs, freight, inventory shrinkage, payroll expenses associated with the merchandising department, distribution center expenses and store occupancy expenses, including rent, common area maintenance charges, real estate taxes and depreciation. Merchandising payroll costs and store occupancy costs included within cost of goods sold are largely fixed and do not necessarily increase as volume increases. We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise and generally use markdowns to clear that merchandise. The timing and level of markdowns are driven primarily by customer acceptance of our merchandise. The primary drivers of our merchandise costs include the raw materials, labor in the countries where we source our merchandise, customs duties, and logistics costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses include all operating costs not included in cost of goods sold or marketing expenses.
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Marketing Expenses. We continue to make investments in marketing in an effort to grow and retain our active customer base and increase our brand awareness. Marketing expenses consist primarily of (i) targeted online performance marketing costs, such as retargeting, paid search/product listing advertising, and social media advertisements, (ii) store and brand marketing, public relations and photographic production designed to acquire, retain and remain connected to customers and (iii) payroll and benefits expenses associated with our marketing team.
Interest Expense. Interest expense consists primarily of interest expense and other fees associated with our ABL Facility, as amended, and our Amended Term Loan Credit Agreement.
Provision for Income Taxes. Our provision for income taxes consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.
Results of Operations
Three Months Ended May 4, 2024 Compared to Three Months Ended April 29, 2023
The following table summarizes our consolidated results of operations for the periods indicated (dollars in thousands):
| Three Months Ended | |||||||||||||||||||||||
| May 4, 2024 | % of Net Sales | April 29, 2023 | % of Net Sales | ||||||||||||||||||||
Net sales | $ | 279,771 | 100.0 | % | $ | 293,854 | 100.0 | % | |||||||||||||||
| Cost of goods sold | 164,350 | 58.7 | % | 183,212 | 62.3 | % | |||||||||||||||||
| Gross profit | 115,421 | 41.3 | % | 110,642 | 37.7 | % | |||||||||||||||||
Selling, general and administrative expenses | 76,466 | 27.3 | % | 71,228 | 24.3 | % | |||||||||||||||||
| Marketing expenses | 12,812 | 4.6 | % | 13,351 | 4.5 | % | |||||||||||||||||
| Income from operations | 26,143 | 9.3 | % | 26,063 | 8.9 | % | |||||||||||||||||
| Interest expense | 9,377 | 3.4 | % | 9,468 | 3.3 | % | |||||||||||||||||
| Other expense, net of other income | 110 | 0.0 | % | 60 | 0.0 | % | |||||||||||||||||
| Income before provision for income taxes | 16,656 | 6.0 | % | 16,535 | 5.6 | % | |||||||||||||||||
| Provision for income taxes | 4,484 | 1.6 | % | 4,727 | 1.6 | % | |||||||||||||||||
| Net income | $ | 12,172 | 4.4 | % | $ | 11,808 | 4.0 | % | |||||||||||||||
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The following table provides a reconciliation of net income to Adjusted EBITDA for the periods presented (in thousands):
| Three Months Ended | |||||||||||
| May 4, 2024 | April 29, 2023 | ||||||||||
| Net income | $ | 12,172 | $ | 11,808 | |||||||
| Interest expense | 9,377 | 9,468 | |||||||||
| Other expense, net of other income | 110 | 60 | |||||||||
| Provision for income taxes | 4,484 | 4,727 | |||||||||
Depreciation and amortization(A) | 9,259 | 9,238 | |||||||||
Share-based compensation(B) | 1,658 | 2,488 | |||||||||
Non-cash deductions and charges(C) | (58) | 43 | |||||||||
Other expenses(D) | 1,225 | 428 | |||||||||
| Adjusted EBITDA | $ | 38,227 | $ | 38,260 | |||||||
(A)Depreciation and amortization excludes amortization of debt issuance costs and original issue discount that are reflected in interest expense.
(B)During the three months ended May 4, 2024 and April 29, 2023, share-based compensation includes $0.4 million and $0.1 million, respectively, for awards that will be settled in cash as they are accounted for as share-based compensation in accordance with ASC 718, Compensation—Stock Compensation, similar to awards settled in shares.
(C)Noncash deductions and charges includes non-cash losses on property and equipment disposals and the net impact of non-cash rent expense.
(D)Other expenses include severance costs for certain key management positions and certain litigation fees, and the reimbursement of certain management expenses, primarily for travel, incurred by Sycamore on our behalf, which are not considered to be part of our core business.
Net Sales
Net sales decreased $14.1 million, or 4.8%, to $279.8 million for the three months ended May 4, 2024, from $293.9 million for the three months ended April 29, 2023. This decrease was primarily driven by a decrease in sales transactions and a decrease in PLCC Funds, partially offset by improved pricing strategies. The total number of stores we operate increased by 20 stores, or 3.1%, to 658 stores as of May 4, 2024, from 638 stores as of April 29, 2023.
Gross Profit
Gross profit for the three months ended May 4, 2024 increased $4.8 million, or 4.3%, to $115.4 million, from $110.6 million for the three months ended April 29, 2023. This increase was primarily due to improved merchandise margin and decreased merchandising payroll costs and distribution center expenses. Gross profit as a percentage of net sales increased 3.6% to 41.3% for the three months ended May 4, 2024 from 37.7% for the three months ended April 29, 2023. This increase was primarily driven by improved merchandise margin due to reduced product costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended May 4, 2024 increased $5.2 million, or 7.4%, to $76.5 million, from $71.2 million for the three months ended April 29, 2023. The increase was primarily due to a $4.3 million increase in performance bonuses and a $3.2 million increase in headquarters general and administrative expenses, partially offset by a $2.3 million decrease in store and e-Commerce payroll costs. Selling, general and administrative expenses as a percentage of net sales increased 3.0% to 27.3% for the three months ended May 4, 2024 from 24.3% for the three months ended April 29, 2023. This increase was primarily driven by increased performance bonuses and headquarters general and administrative expenses.
Marketing Expenses
Marketing expenses for the three months ended May 4, 2024 decreased $0.6 million, or 4.5%, to $12.8 million, from $13.4 million for the three months ended April 29, 2023. The decrease was primarily due to decreases in
performance marketing, such as retargeting, email/SMS marketing, store marketing and marketing team payroll, partially offset by increases in social media and model search spend. Marketing expenses as a percentage of net sales increased 0.1% to 4.6% during the three months ended May 4, 2024 from 4.5% during the three months ended April 29, 2023. This increase was due to deleverage of our marketing expenses as a result of lower net sales.
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Interest Expense
Interest expense was $9.4 million for the three months ended May 4, 2024, compared to $9.5 million for the three months ended April 29, 2023. The decrease was primarily due to a lower Amended Term Loan Credit Agreement balance due to principal payments and reduced borrowings under the ABL Facility, as amended.
Provision for Income Taxes
The provision for income taxes were $4.5 million and $4.7 million for the three months ended May 4, 2024 and April 29, 2023, respectively. Our effective tax rate was 26.9% for the three months ended May 4, 2024 and 28.6% for the three months ended April 29, 2023. The decrease in the effective tax rate for the three months ended May 4, 2024 as compared to the three months ended April 29, 2023 was primarily due to a decrease in the amount of non-deductible compensation for covered employees relative to income before provision for income taxes for the three months ended May 4, 2024.
Liquidity and Capital Resources
General
Our business relies on cash flows from operations as our primary source of liquidity. We do, however, have access to additional liquidity, if needed, through borrowings under our ABL Facility, as amended. Availability under the ABL Facility, as amended, as of the end of the first quarter of fiscal year 2024, was $116.1 million, which reflects no borrowings. Our primary cash needs are for merchandise inventories, payroll, rent for our stores, headquarters and distribution center, capital expenditures associated with opening new stores and updating existing stores, logistics and information technology. We also need cash to fund our interest and principal payments on the Amended Term Loan Credit Agreement, and make discretionary repurchases of our common stock. The most significant components of our working capital are cash and cash equivalents, merchandise inventories, prepaid expenses and other current assets, accounts payable, accrued and other current liabilities and operating lease liabilities. We believe that cash generated from operations and the availability of borrowings under our ABL Facility, as amended, or other financing arrangements will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our ABL Facility, as amended, or otherwise to enable us to service our indebtedness, or to make capital expenditures in the future. Our future operating performance and our ability to service or extend our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.
July 2023 Reduction in Workforce
In July 2023, we implemented a strategic reduction of approximately 5% of our workforce employed in our headquarters in City of Industry, California. Costs to implement the workforce reduction were comprised primarily of severance payments and continuing health care coverage over the severance period. In July 2023, we recognized $1.5 million of expense related to the workforce reduction in selling, general and administrative expenses in our condensed consolidated statements of operations and comprehensive income. None of our employees are represented by a labor union or are party to a collective bargaining agreement.
Cash Flow Analysis
A summary of operating, investing and financing activities are shown in the following table (in thousands):
| Three Months Ended | |||||||||||
| May 4, 2024 | April 29, 2023 | ||||||||||
| Net cash provided by operating activities | $ | 27,624 | $ | 11,223 | |||||||
| Net cash used in investing activities | (7,008) | (5,660) | |||||||||
| Net cash used in financing activities | (11,859) | (800) | |||||||||
Net Cash Provided By Operating Activities
Operating activities consist primarily of net income adjusted for noncash items, including depreciation and amortization and share-based compensation, the effect of working capital changes and taxes paid.
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Net cash provided by operating activities during the three months ended May 4, 2024 was $27.6 million compared to $11.2 million during the three months ended April 29, 2023. The increase in cash provided by operating activities during the three months ended May 4, 2024 was primarily as a result of increases in accounts payable and accrued expenses and other current liabilities, partially offset by an increase in inventory purchases and a decrease in operating lease liabilities.
Net Cash Used In Investing Activities
Typical investing activities consist primarily of capital expenditures for growth (new store openings, relocations and major remodels), store maintenance (minor store remodels and investments in store fixtures), and infrastructure to support the business related primarily to information technology, our headquarters facility and our West Jefferson, Ohio distribution center.
Net cash flows used in investing activities during the three months ended May 4, 2024 was $7.0 million, compared to $5.7 million during the three months ended April 29, 2023. The increase in cash used in investing activities was primarily as a result of an increase in capital expenditures related to our West Jefferson, Ohio distribution center and increased capital expenditures related to the opening of new stores and store relocations during the three months ended May 4, 2024, compared to the three months ended April 29, 2023.
Net Cash Used In Financing Activities
Financing activities consist primarily of (i) borrowings and repayments related to our ABL Facility, as amended, (ii) borrowings and repayments related to the Amended Term Loan Credit Agreement and (iii) repurchases and retirement of our common stock.
Net cash used in financing activities during the three months ended May 4, 2024 was $11.9 million compared to $0.8 million during the three months ended April 29, 2023. The increase in net cash used in financing activities is primarily due to an increase in net repayments related to the ABL Facility, as amended.
Debt Financing Arrangements
As of May 4, 2024, we had $300.7 million of outstanding indebtedness, net of unamortized original issue discount and debt financing costs, consisting of term loans under the Amended Term Loan Credit Agreement. As of May 4, 2024, we had no borrowings under the ABL Facility, as amended. Please refer to “Note 12—Debt Financing Arrangements” for further discussion regarding our indebtedness.
Critical Accounting Policies and Significant Estimates
There have been no material changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our market risk profile as of February 3, 2024 is disclosed in our Annual Report on Form 10-K and has not materially changed. Please refer to “Note 12—Debt Financing Arrangements” for further discussion regarding our indebtedness.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
We, under the supervision of and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of May 4, 2024, to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
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Changes in Internal Control Over Financial Reporting
There were no changes during the three months ended May 4, 2024 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On December 6, 2021, our Board authorized a share repurchase program under which we may purchase up to $100.0 million of our outstanding common stock. Repurchases may be made from time to time, depending upon a variety of factors, including share price, corporate and regulatory requirements, and other market and business conditions, as determined by us. We may purchase shares of our common stock in the open market at current market prices at the time of purchase, in privately negotiated transactions, or by other means. The authorization does not, however, obligate us to acquire any particular amount of shares, and the share repurchase program may be suspended or terminated at any time at our discretion. During the three months ended May 4, 2024, we did not repurchase any shares of our common stock. As of May 4, 2024, we had approximately $44.9 million remaining under the share repurchase program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
EXHIBIT INDEX
| Exhibit Number | Description | Incorporated by Reference | ||||||||||||
| Form | Filing Date | Exhibit | ||||||||||||
| 3.1 | 8-K | July 6, 2021 | 3.1 | |||||||||||
| 3.2 | 10-K | March 28, 2023 | 3.2 | |||||||||||
10.1* | ||||||||||||||
10.2* | ||||||||||||||
10.3* | ||||||||||||||
10.4+* | ||||||||||||||
10.5+* | ||||||||||||||
| 31.1* | ||||||||||||||
| 31.2* | ||||||||||||||
| 32.1** | ||||||||||||||
| 32.2** | ||||||||||||||
| 101* | Interactive Data Files (formatted in Inline XBRL) | |||||||||||||
| 104* | Cover Page Interactive Data Files (Embedded within the Inline XBRL document and included in Exhibit 101) | |||||||||||||
| + | Indicates a management contract or compensatory plan or arrangement. | ||||
* | Filed herewith | ||||
** | Furnished herewith | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in City of Industry, California on June 12, 2024.
| Torrid Holdings Inc. | |||||
| By: | /s/ Lisa Harper | ||||
| Name: | Lisa Harper | ||||
| Title: | Chief Executive Officer and Director | ||||
| (Principal Executive Officer) | |||||
| By: | /s/ Paula Dempsey | ||||
| Name: | Paula Dempsey | ||||
| Title: | Chief Financial Officer | ||||
| (Principal Financial Officer) | |||||
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