Women’s plus-size apparel retailer Torrid Holdings (NYSE:CURV) missed Wall Street’s revenue expectations in Q3 CY2024, with sales falling 4.2% year on year to $263.8 million. Next quarter’s revenue guidance of $262.5 million underwhelmed, coming in 9.3% below analysts’ estimates. Its GAAP loss of $0.01 per share was significantly below analysts’ consensus estimates.

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Lisa Harper, Chief Executive Officer of Torrid, stated, “Our third quarter results were below our expectations as our fall assortments did not offer enough newness and novelty. We also saw the environment change meaningfully from the end of September and into October. Despite the weaker top line sales, we delivered a positive full-price comp, 285 basis points of gross profit expansion, and modest Adjusted EBITDA(1) growth. We ended the quarter with clean inventory levels, down 19% to last year, and $44 million in cash.”

Company Overview

Promoting a message of body positivity and inclusiveness, Torrid Holdings (NYSE:CURV) is a plus-size women’s apparel and accessories retailer.

Apparel Retailer

Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

Torrid is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage.

As you can see below, Torrid’s sales grew at a sluggish 2.3% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts).

This quarter, Torrid missed Wall Street’s estimates and reported a rather uninspiring 4.2% year-on-year revenue decline, generating $263.8 million of revenue. Company management is currently guiding for a 10.6% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 1.4% over the next 12 months, similar to its five-year rate. This projection doesn't excite us and indicates its newer products will not catalyze better top-line performance yet.

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Store Performance

Number of Stores

A retailer’s store count influences how much it can sell and how quickly revenue can grow.

Torrid operated 655 locations in the latest quarter. It has opened new stores quickly over the last two years and averaged 2.4% annual growth, faster than the broader consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Torrid’s demand has been shrinking over the last two years as its same-store sales have averaged 8.9% annual declines. This performance is concerning - it shows Torrid artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.

In the latest quarter, Torrid’s same-store sales fell by 6.5% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

Key Takeaways from Torrid’s Q3 Results

We struggled to find many strong positives in these results as its revenue and EBITDA missed analysts' expectations. Its full-year revenue and EBITDA guidance also fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 20.1% to $3.70 immediately following the results.

Torrid may have had a tough quarter, but does that actually create an opportunity to invest right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.