Torrid Holdings Inc

Previous wording

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.

Current wording

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 three- and six-month periods ended August 3, 2024 compares sales for the 13- and 26-week periods ended August 3, 2024, respectively, with sales for the 13- and 26-week periods ended August 5, 2023. 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.

Previous wording

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.

Current wording

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, non-cash 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.

Previous wording

•interest income, net of other expense (income);

Current wording

•other income, net of other expense;

Previous wording

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.

Current wording

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. Although we intend to continue to tightly manage our inventory levels, shifts in these levels may result in fluctuations in the amount of regular price sales, markdowns, and merchandise mix, as well as gross margin.

Previous wording

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.

Current wording

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 are strategically working to expand and rebalance our store footprint, aiming for an optimal split between malls and outdoor centers. We will also continue to 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.

Previous wording

(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.

Current wording

(B)During the three months ended August 3, 2024 and July 29, 2023, share-based compensation includes $1.1 million and $0.2 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.

Previous wording

(C)Noncash deductions and charges includes non-cash losses on property and equipment disposals and the net impact of non-cash rent expense.

Current wording

(C)Non-cash deductions and charges includes non-cash losses on property and equipment disposals and the net impact of non-cash rent expense.

Previous wording

(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.

Current wording

(D)Other expenses include certain transaction and litigation fees, severance costs for certain key management positions 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.

Previous wording

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.

Current wording

Net sales decreased $4.5 million, or 1.6%, to $284.6 million for the three months ended August 3, 2024, from $289.1 million for the three months ended July 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 18 stores, or 2.8%, to 657 stores as of August 3, 2024, from 639 stores as of July 29, 2023.

Previous wording

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.

Current wording

Selling, general and administrative expenses for the three months ended August 3, 2024 increased $7.2 million, or 10.4%, to $76.8 million, from $69.6 million for the three months ended July 29, 2023. The increase was primarily due to a $3.6 million increase in headquarters general and administrative expenses driven by a $2.1 million increase in severance costs for certain key management positions, a $2.4 million increase in performance bonuses and a $1.1 million increase in other store operating costs. Selling, general and administrative expenses as a percentage of net sales increased 2.8% to 27.0% for the three months ended August 3, 2024 from 24.2% for the three months ended July 29, 2023. This increase was primarily driven by increased performance bonuses, headquarters general and administrative expenses and other store operating costs.

Previous wording

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.

Current wording

Interest expense was $9.1 million for the three months ended August 3, 2024, compared to $9.6 million for the three months ended July 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.

Previous wording

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.

Current wording

The provision for income taxes were $3.1 million and $4.0 million for the three months ended August 3, 2024 and July 29, 2023, respectively. Our effective tax rate was 26.9% for the three months ended August 3, 2024 and 37.9% for the three months ended July 29, 2023. The decrease in the effective tax rate for the three months ended August 3, 2024 as compared to the three months ended July 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 August 3, 2024.

Previous wording

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.

Current wording

Gross profit for the six months ended August 3, 2024 increased $12.4 million, or 5.8%, to $225.7 million, from $213.3 million for the six months ended July 29, 2023. This increase was primarily due to reduced product costs, merchandising payroll costs and store occupancy costs, partially offset by decreased net sales. Gross profit as a percentage of net sales increased 3.4% to 40.0% for the six months ended August 3, 2024 from 36.6% for the six months ended July 29, 2023. This increase was primarily driven by decreases in product costs and merchandising payroll costs, partially offset by decreased net sales.

Previous wording

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.

Current wording

Marketing expenses for the six months ended August 3, 2024 decreased $0.4 million, or 1.6%, to $25.8 million, from $26.2 million for the six months ended July 29, 2023. The decrease was primarily due to decreased spend on store and brand marketing, comparison shopping engines, retargeting, photography, email/SMS marketing, and marketing team payroll, partially offset by expenses associated with our model search campaign, and an increase in social media spend. Marketing expenses as a percentage of net sales increased 0.1% to 4.6% during the six months ended August 3, 2024 from 4.5% during the six months ended July 29, 2023. The increase was primarily driven by a deleverage of our marketing expenses as a result of lower net sales.

Previous wording

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.

Current wording

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 second quarter of fiscal year 2024, was $99.9 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.

Previous wording

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.

Current wording

Operating activities consist primarily of net income adjusted for non-cash items, including depreciation and amortization and share-based compensation, the effect of working capital changes and taxes paid.

Previous wording

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.

Current wording

Net cash provided by operating activities during the six months ended August 3, 2024 was $68.4 million compared to $31.7 million during the six months ended July 29, 2023. The increase in cash provided by operating activities during the six months ended August 3, 2024 was primarily as a result of increases in net income, accounts payable and accrued expenses and other current liabilities, partially offset by a smaller reduction in inventory purchases compared to the six months ended July 29, 2023.

Previous wording

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.

Current wording

Net cash flows used in investing activities during the six months ended August 3, 2024 was $10.2 million, compared to $9.6 million during the six months ended July 29, 2023. The increase in cash used in investing activities was primarily as a result of increased capital expenditures related to the opening of new stores and store relocations, partially offset by a decrease in capital expenditures in our West Jefferson, Ohio distribution center during the six months ended August 3, 2024, compared to the six months ended July 29, 2023.

Previous wording

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.

Current wording

Net cash used in financing activities during the six months ended August 3, 2024 was $16.0 million compared to $17.1 million during the six months ended July 29, 2023. The decrease in net cash used in financing activities was primarily due to a decrease in net repayments related to the ABL Facility, as amended.

Previous wording

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.

Current wording

As of August 3, 2024, we had $296.6 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 August 3, 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.