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Edited Transcript of CURV.N earnings conference call or presentation 7-Sep-22 8:30pm GMT

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Q2 2022 Torrid Holdings Inc Earnings Call Sep 8, 2022 (Thomson StreetEvents) -- Edited Transcript of Torrid Holdings Inc earnings conference call or presentation Wednesday, September 7, 2022 at 8:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Lisa M. Harper Torrid Holdings Inc. - CEO & Director * Tanner MacDiarmid Torrid Holdings Inc. - Interim CFO * Vince Adams ================================================================================ Conference Call Participants ================================================================================ * Dana Lauren Telsey Telsey Advisory Group LLC - CEO & Chief Research Officer * Mark R. Altschwager Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst * Oliver Chen Cowen and Company, LLC, Research Division - MD & Senior Equity Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings, and welcome to the Torrid Holdings, Inc. Second Quarter Fiscal 2022 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to your host, Vince Adams you may begin. -------------------------------------------------------------------------------- Vince Adams, [2] -------------------------------------------------------------------------------- Good afternoon, everyone. Thank you for joining Torrid's call today to discuss second quarter financial results for 2022, which we released this afternoon and can be found on our website at investors.torrid.com. With me today on the call are Lisa Harper, Chief Executive Officer of Torrid; and Tanner MacDiarmid, Interim Chief Financial Officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're familiar with. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our filings with the SEC. This call will contain non-GAAP financial measures, such as adjusted EBITDA and adjusted EBITDA margin. Reconciliation to these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and available on our website. With that, I will turn the call over to Lisa. -------------------------------------------------------------------------------- Lisa M. Harper, Torrid Holdings Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Vince. Good afternoon, everyone, and thanks for joining us for discussion of our second quarter results. Before I start, I'd like to take a moment to acknowledge and thank the team at Torrid that's been so resilient as we've navigated many important initiatives over the last quarter. I've been back at Torrid for 4 months now, and I'm continuously impressed by the passion and dedication of our employees. During the second quarter, we made progress against priorities that we laid out on our last call, and we remain focused on making the necessary improvements to drive long-term sustainable growth. As a reminder, my top 3 priorities for the business are: Number one, to enhance promotional and marketing strategies to better balance margin and sales growth; number 2, to drive growth across multiple opportunities; and number 3, to develop a more efficient and effective organization by realigning resources. On today's call, I'll update you on our second quarter results and provide details around the progress we've made around each of these priorities. Starting with our second quarter results. Net sales grew 2% to $341 million, which was in line with the high end of our updated guidance. Although we have a very loyal customer at Torrid, we are not immune to the macro and industry-wide challenges that have impacted consumer sentiment and customer demand. Our storage experienced a decrease in year-over-year traffic as customers dealt with higher fuel prices and overall inflationary pressures that impacted demand. We were pleased, however, to see an increase in web traffic along with higher conversion rates. We also rolled out plant upgrades to our distribution center during the quarter that created temporarily unanticipated headwinds in our fulfillment process. We were able to successfully complete the upgrades in July, and the fulfillment center is now operational with orders shipping within our service level agreement. Customers have noticed the improvement in delivery time, and we are receiving positive feedback across our social channels on the changes. Gross margin rate was 34.9% for the quarter and adjusted EBITDA came in at $52 million. During the quarter, we focused on clearing through seasonal inventory, which led to higher promotions and markdowns that impacted our gross margin rate. We will continue to focus on clearance through the first part of the third quarter and we have bought receipts to be more balanced in the back half of the year. In addition to managing our inventory and upgrading the capacity in our distribution center, we also successfully launched a new ERP system during the quarter. These are enormous accomplishments and the team, and I'm proud of the progress that we've made. This brings me to the 3 main priorities. Our first priority is to refine our marketing and our promotional strategy. We continue to believe that there's an opportunity to reduce site-wide promotions and to realign our marketing and merchandising strategy. As we move into the back half of the year, we'll be testing into more category-focused promotions based on price elasticity with the goal of reducing discounts on styles with the strongest natural demand. We're implementing these changes on site, and we started providing percentage discounts based on inventory and demand as opposed to blanket promotions. This is the first step in refining our promotional cadence and driving margin improvements. In marketing, we were focused on capturing customers through our dressing room experiences in stores where our most valuable customers discover and fall in love with the brand. Despite the pressure in the macro environment, stores remain our #1 acquisition channel, and we know that customers acquired through the stores spend 25% more in their first year compared to those acquired on the web. We also have the strategic advantage of a profitable store fleet that offers an unparalleled shopping and fitting room experience with new customers going on to engage with Torrid across both channels. In addition to driving customers into our stores, we've been refining our online marketing strategy, and we were able to deliver improved efficiencies in our spend while still building a healthy customer file through a focus on both acquisition and retention. During the second quarter, we began targeting lapsed customers more aggressively through e-mail campaigns and our other digital channels, and we saw a 600 basis point comp improvement in reactivated customers versus the first quarter trend. We will continue to reevaluate our marketing spend throughout the year and reallocate to where we see the most opportunity to acquire and retain customers. This brings me to my second priority, which is driving growth across categories. We have exciting launches coming in the third quarter that we believe will help accelerate our business. Our modern work wear line, Studio by Torrid launched today and is the biggest launch in our brand's history. We're excited to bring our customer an elevated assortment through our refined comfort-based offering as she prepares for her return to work. We've also seen success with our woven, pants, sweaters and dresses and will be offering more fashion in these categories in the back half of the year. While product remains a competitive strength, we do believe our assortment has been too reliant on basics and we are shifting our merchandising strategy to offer a better balance between fashion and basic styles. Additionally, we will focus our assortment on more where to work and products with the celebratory end use. We are also adding more newness, color and excitement with our upcoming fall assortment, and we're elevating our marketing approach through better storytelling around our product and fit across all channels. These efforts kick off starting with our studio launch and continue into the back half of the year with holiday. Within Curve, we're opening 8 Curve test stores between now and the end of the year. We still believe that the long-term growth potential of Curve, and we have plans to innovate our assortment through an evolution in our bra and panty businesses. My third priority is to improve our organizational structure. As promised last quarter, we made 2 key hires that I believe will be instrumental in helping us drive growth and scale in the business. Tim Martin, our new Chief Operating Officer and Chief Financial Officer, is a seasoned retail executive who brings more than 25 years of experience across a variety of consumer-facing companies. He has experience in the public markets and will be critical to unifying the operational and financial aspects of our business. Han Park, recently joined as our Chief Technology Officer, reporting to Tim, and he will lead the team in building an integrated technology platform. Han also brings 25 years of information technology and consulting experience across retail and direct-to-consumer companies and will be pivotal in helping to build more robust technology and digital capabilities. With respect to infrastructure, we have made significant progress across the organization. The changes to the distribution center have doubled our capacity and has more room to scale. As part of our efforts to drive efficiency, we negotiated a new private label credit card agreement that includes plans to streamline the cardholder experience through better marketing and technical enhancements. The upgrades we made to our Oracle ERP system will also allow for enhancements to our website and better integration of data across the organization. In closing, we believe that the changes we are making to the business will position us for long-term healthy growth. We expect to see the benefits of the changes as we move through the year and into fiscal 2023. And with that, I'd like to turn the call over to Tanner to provide more detailed financials on the quarter and our updated guidance. -------------------------------------------------------------------------------- Tanner MacDiarmid, Torrid Holdings Inc. - Interim CFO [4] -------------------------------------------------------------------------------- Thank you, Lisa, and good afternoon, everyone. We will begin with a detailed discussion of our financial results, followed by an update on our outlook for the rest of the year. Starting with the second quarter results. Net sales grew 2% to $341 million compared to $333 million last year and comparable sales in the quarter were up 1%. This is on top of the 30% comp in the second quarter of last year. As Lisa discussed, we experienced challenges related to the macro environment that impacted our expected demand this past quarter. We also made upgrades to our distribution platform to increase capacity for e-comm order fulfillment, which caused temporary shipping disruptions that we corrected by the end of the quarter. Our fulfillment center is now fully operational, and we are seeing improved throughput and capacity that will limit delivery backlogs moving forward. Gross profit for the second quarter was $119 million or 34.9% of net sales. This compares to $150 million or 45% of net sales in the second quarter of last year. Approximately 600 basis points of the decline was due to higher discounts and promotions to clear inventory. The remainder of the decline was inflationary and related to increased product and transportation costs, partially offset by price increases. As Lisa mentioned, we plan on higher promotional activity through the first part of the third quarter to clear through inventory. Selling, general and administrative expenses in the quarter were $66 million compared to $179 million for the second quarter of the prior year. As a percentage of sales, SG&A decreased to 19.3% from 53.8% compared to the second quarter of last year due to lower share-based compensation and higher private label credit card income. The decrease in share-based compensation expense during the quarter was due to the re-measurement of our equity value during the second quarter of the prior year as part of our IPO. Additionally, we renegotiated our new private label credit card agreement that resulted in additional card income and drove 230 basis points decrease in SG&A as a percentage of net sales. Excluding share-based compensation and private label credit card income, our SG&A increased by 180 basis points versus the prior year, primarily caused by inflationary pressures, including higher wages. Marketing expenses in the quarter came in at $14 million compared to $11 million in the second quarter of last year. As a percentage of sales, marketing expense increased approximately 80 basis points compared to 3.2% in the second quarter of last year. During the quarter, we focused on driving improved marketing optimization through a shift of our digital spend and the customer reactivation efforts where we expect a greater return on investment. This shift in strategy, along with the rationalization of marketing tests in the quarter drove efficiencies in our spend. We will continue to invest in marketing where we see the most opportunity, including spend to drive new, existing and lapsed customers into our highly profitable store environment. Turning to profitability. Net income for the quarter was $23 million or $0.22 per share versus net income of $39 million or $0.35 per share for the same period last year. We had no adjustment to net income in the second quarter of 2022, but for comparison purposes, adjusted net income last year was $39 million or $0.36 per share. In addition to GAAP measures, we believe that adjusted EBITDA and adjusted net income are important measures that we use to evaluate and manage our business. Adjusted EBITDA came in at $52 million or 15.3% of net sales compared to $87 million or 26% of net sales in the second quarter of 2021. Now turning to the balance sheet. Our cash and cash equivalents at the end of the quarter totaled $23 million. Total liquidity at the end of the first quarter, including available credit was $162 million. During the quarter, we repurchased 9 million of common shares outstanding and had 45 million remaining on our stock repurchase program at the end of the quarter. Total debt at the end of the quarter was $335 million compared to $341 million in the second quarter of 2021. Our net debt to adjusted EBITDA was 1.7x at quarter end. Inventory at the end of the quarter was $181 million compared to $110 million in the prior year. Excluding in-transit, total inventory at the end of Q2 was up 40% to pre-pandemic 2019 compared to a 32% sales growth and increased product costs over that same time period. As we moved through the quarter, we remain focused on selling through excess inventory. And with our current planned sales and receipts, we remain comfortable with our inventory levels are positioned for the remainder of the year. We opened 5 Torrid stores and closed 3 stores in the second quarter and plan to open approximately 34 stores for the year, including 8 proved stores. Turning to the outlook. Given the uncertainty in the macro environment, we expect the second half of the year to follow similar demand trends that we've seen in the first half. For the third quarter, we project net sales to be between $290 million and $305 million for the quarter and adjusted EBITDA to be between $32 million and $38 million. This outlook assumes our gross margin rate will continue to be pressured as we clear through inventory. For the full year, we are forecasting sales to be between $1.26 billion and $1.3 billion. For adjusted EBITDA, we are projecting between $160 million and $175 million. As a result of higher interest rates on our term loan, we expect interest expense to be approximately $8 million in the third quarter. Capital expenditures are projected to be between $30 million and $33 million for fiscal 2022, reflecting infrastructure investments and our previously mentioned 34 new store openings. We are also planning to close approximately 9 stores this year. And finally, this is my last call as interim CFO of Torrid. I am incredibly honored to have served as CFO of such an inspiring company, and I want to thank Lisa and the entire team for their support. To ensure a smooth transition for Tim, I will continue to stay on with Torrid as a consultant. And with that, I will now turn it over to the operator for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from the line of Mark Altschwager with Baird. -------------------------------------------------------------------------------- Mark R. Altschwager, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [2] -------------------------------------------------------------------------------- So just starting out with the sales guidance. The guidance for the back half of the year doesn't appear to incorporate much improvement in trend from where the business has been tracking recently. But at the same time, shipping disruptions have been corrected, and you do sound pretty excited about the product flow for the back half. So I'm hoping you can just walk us through your thinking a bit more on what the back half of the year might look like? -------------------------------------------------------------------------------- Tanner MacDiarmid, Torrid Holdings Inc. - Interim CFO [3] -------------------------------------------------------------------------------- Yes. I think, given the macroeconomic environment and -- [volumes] is a little bit conservative with the forecast in back half of the year. We're projecting the back half to be on trend with what we've seen in the first half of the year, and that's relatively flat to last year. That being said, we are optimistic about all the things that we say mentioned in our commentary on product and operations and our ability to execute. -------------------------------------------------------------------------------- Mark R. Altschwager, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [4] -------------------------------------------------------------------------------- Okay. And then on the pricing and promotional strategies, much of the industry seems to be planning for more aggressive promotions in the back half. So I was hoping you can give us some perspective on how you're planning to navigate that and whether there's been any change to -- or whether the broader promotional environment has affected your plans at all regarding testing some new strategies? -------------------------------------------------------------------------------- Lisa M. Harper, Torrid Holdings Inc. - CEO & Director [5] -------------------------------------------------------------------------------- Sure. I think it's very difficult to extract the pressure of clearing through excess inventory that's been ramping in the sector for the first half, particularly the second quarter from those impacts of the macro environment. We're -- as I've said before, the focus here is really not just pulling back on overall promotions, but in rightsizing the promotion to a specific product category or even to the SKU level, so that our messaging can be and up 2 percentage off instead of a flat percentage off, which has been our tradition, particularly on the web channel. So whereas historically, we've spent up to 20%, 25%, 30%, 35% off on web. Now the messaging will switch to up to 35% off and will determine the actual promotional discounts on the items based on the demand of those items. So the same modeling that we do to price our markdowns based on price elasticity and availability, we'll use -- we'll -- we're starting to use that for our pricing on our overall day in and day out promotions. I do feel like, over time, as we bring in more and more newness in product categories based on what the customer has been asking for, that -- and as we adjust our inventory levels as we have done for the back half of this year, we'll be able to moderate that over time. And we're certainly not espousing -- eliminating promotions or canceling promotions, we're just about optimizing them toward gross margin results. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. -------------------------------------------------------------------------------- Unidentified Analyst, [7] -------------------------------------------------------------------------------- This is [Amanda] on for Kimberly. Can you please just speak to your monthly sales trends during the quarter as well as anything you're seeing quarter-to-date? -------------------------------------------------------------------------------- Lisa M. Harper, Torrid Holdings Inc. - CEO & Director [8] -------------------------------------------------------------------------------- We have the same in the second quarter. I think we were very consistent with what we've heard from the market, which was on June 13th, when the average gas price in the U.S. at $5, it definitely had an impact in the direct correlation to overall traffic. That, at the same time, was when we accelerated promotions to deal with the over-inventory situation. So that was kind of a combination, and once again, very difficult to extract broad backward trends from the results that we had as we were dealing with the over-inventory situation. We -- as we mentioned in our comments, we did have positive traffic trends online, not in stores, but we had good conversion trends across the board in the second quarter. The third quarter results, I won't get into at this point, but we're still deeply through the middle of this month and another week or 2, focused on clearing through these goods as we get out of the Labor Day holiday and into setting fall. And so, we have seen similar trends as we have dealt with clearance and promotion on our excess inventory, and we expect to see improvement in both traffic and conversion on both channels, as we move forward to the back half of the quarter. Again, I would reinforce generally that we do have a conservative approach to the back half of the year, and we're not looking for dramatic improvement in either traffic or conversion as we move to the back of the year -- back half of the year. But we do have, I think, a very strong product and very strong inventory where we bought down about 7% in dollars in the back half, and about low teens and units. So we feel like we have an opportunity to drive traffic with -- and conversion at a healthier margin as we move to the back half of the year, but we're not baking in a lot of that upside yet. -------------------------------------------------------------------------------- Unidentified Analyst, [9] -------------------------------------------------------------------------------- GAnd then just one more for me. We've seen in our store checks that your assortment feels like it's broadening out in its appeal. And I know you just mentioned that you launched your expansion to workwear. So can you kind of just talk about how you're thinking about your merchandise strategy overall in long term? Should we expect a meaningful shift there? -------------------------------------------------------------------------------- Lisa M. Harper, Torrid Holdings Inc. - CEO & Director [10] -------------------------------------------------------------------------------- Did you say broadening now in the appeal? -------------------------------------------------------------------------------- Unidentified Analyst, [11] -------------------------------------------------------------------------------- Yes, that's correct. -------------------------------------------------------------------------------- Lisa M. Harper, Torrid Holdings Inc. - CEO & Director [12] -------------------------------------------------------------------------------- Okay. So yes, I think that once again, Torrid is in a market position that we can provide a customer everything in their closet. We focus on a 34-year-old customer in terms of mindset, so that ranges through in terms of [demographics] to a younger-looking assortment as well more fashion-oriented. But we're very focused on the launch of things like Studio that gives her a lot of flexibility and alternatives in her dressing. So it is a broader assortment generally because she doesn't have choices in the marketplace. And we know that every new category that we've added, every concept that we've added, has very strong appeal because we can provide everything in a closet, not changing the focus of the customer from a demographic or a psychographic perspective, but giving her more options and more choices to make within the assortment. Does that answer your question? -------------------------------------------------------------------------------- Unidentified Analyst, [13] -------------------------------------------------------------------------------- Yes, definitely. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- Our next question comes from the line of with Oliver Chen from Cowen. -------------------------------------------------------------------------------- Oliver Chen, Cowen and Company, LLC, Research Division - MD & Senior Equity Research Analyst [15] -------------------------------------------------------------------------------- Looking ahead in terms of the assortment and changes you're making, how would you prioritize the biggest opportunities? And how are you broadly thinking about pricing and averaging at retails just to be sure that you're offering a compelling value. In nearer term, as we understand the clearance and the inventory you need to get through, how many more quarters will that take? And what are the right guardrails to trying to minimize impact to long-term brand equity in terms of offering discounting? -------------------------------------------------------------------------------- Lisa M. Harper, Torrid Holdings Inc. - CEO & Director [16] -------------------------------------------------------------------------------- Sure. So I'll answer the last part of your question first, which is I would say right now that we're really comfortable with the mix of inventory between clearance and regular price online. And we're at 2019 levels and store between a mix of clearance and regular price. We think that it is getting progressively better. And as I've mentioned, we're -- the inventory purchased in the back half of the year is down 7% year-over-year. So we feel like that this quarter is the quarter where we're really dealing -- the last quarter where we're dealing with this excess inventory issue. It will improve as we go into the back half of the third quarter as well as in the fourth quarter. I didn't write down the first part of your question. -------------------------------------------------------------------------------- Oliver Chen, Cowen and Company, LLC, Research Division - MD & Senior Equity Research Analyst [17] -------------------------------------------------------------------------------- Pricing promotion. -------------------------------------------------------------------------------- Lisa M. Harper, Torrid Holdings Inc. - CEO & Director [18] -------------------------------------------------------------------------------- The pricing promotion, thanks. So once again, we're not really taking pricing up anymore in the back half of the year over what we did in the front half of the year. And so we look at an item-by-item basis and the market value -- what we ascertain to be the value to the customer and the comparable pricing in the marketplace. Thus, we're making all of our retail decisions. On the promotion side, once again, I think from a product basis on Studio, on things that we've done for the back half of the year, which are more focused on celebration, a better mix of dressy, sexy, where the work combines with our regular casual assortment. I think that gives us more breadth of price in the midst and an opportunity to cautiously pull back on the depth of the discount, but still understanding that the macro challenge is promotionally heavy. I will say that fundamentally, the customer is very dedicated to Torrid, looks at new and now every day on the website, shops us constantly. And when we get great feedback as soon as we introduce new looks and new categories of business -- And we're starting to see that as we go into the later third -- back half of the third quarter and into fourth quarter. So from a pricing basis, market-driven value oriented in terms of the value to the customer. And then from the product mix and innovation, I feel like we -- we're offering the customer a lot of newness in the back half of this year. -------------------------------------------------------------------------------- Oliver Chen, Cowen and Company, LLC, Research Division - MD & Senior Equity Research Analyst [19] -------------------------------------------------------------------------------- Okay. And as you think about what's happening in the business and the tweaks and opportunities you're pursuing, what about store count and growing the store base? Is it still the right time for that and that opportunity? Would love to hear your thoughts there. And then lastly, curve has always been a big opportunity. I would love your thoughts on -- toward curve and some key priorities of what you see for what's next there in that assortment. -------------------------------------------------------------------------------- Lisa M. Harper, Torrid Holdings Inc. - CEO & Director [20] -------------------------------------------------------------------------------- So in terms of store growth, what I will say is that our store fleet is very profitable. And it generates a very, very desirable economic model in terms of customer acquisition and the lifetime value of that customer, the quality of that customer. As I mentioned in my comments, if they come through the store channel, which is where we get most of our new customers, they spend more 25% more in the first year and they become, I think, 60% of them become omni customers by their second year. And so they are, by far, most valuable customers. Our Net Promoter Scores and our stores are some of the highest I've ever seen in retail. So it is a great experience for our customer to enter through the store channel. That being said, it's profitable, it's great for customer acquisition. And so definitely, it's part of our strategic review as we move forward in determining how we should be looking at stores and rolling out stores. So it's definitely on the map and definitely part of how we are looking at growing strategically in the future. I think that it is actually a competitive advantage for us, particularly as our customers sales are driven and that dressing room experience really converts them and makes them a very valuable customer, is critical to our business, we feel. As far as curve, I believe very strongly and I can see signs that it has a dramatic growth opportunity. I feel like we're -- I know that we're opening the 8 stores. The first one will open the first week of October, and they'll all be opened by the first week of December. And we'll -- we have a point of view on that, and we'll be able to actually test and react to how the customer responds to that experience. I feel like we can offer and we are focused on offering a broader range of product categories in that mix yes, and appealing to a broader range of customers. So the opportunity to acquire a slightly younger customer through that concept is an opportunity for us. The other thing that we think about with that is how we focus on category businesses and how we use this to grow in conjunction with Torrid and graduating from curve into the Torrid mix. So there's a lot of strategic work being done right now to ensure the way that we test and learn and react and analyze that business is appropriate to supporting long-term growth and the intimate side of the business. Once again, as I mentioned in earlier comments, earlier answers that this is -- this customer wants to buy everything in their closet from us, and we have an opportunity to continue to build the breadth and depth and the growth of this category. So I'm still very positive about it. I just want to make sure that we're doing all the appropriate analytics and planning it in an aggressive but responsible way. And more to come on that. So definitely clearly at the top of the list in terms of strategic expansion and investment, and we'll continue to move forward with that. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from the line of Dana Telsey with the Telsey Advisory Group. -------------------------------------------------------------------------------- Dana Lauren Telsey, Telsey Advisory Group LLC - CEO & Chief Research Officer [22] -------------------------------------------------------------------------------- Lisa, as you think about the buckets underneath the margin, whether it's product costs, transportation costs, marketing expense, just the drivers, how do you envision the back half of the year? And is there a difference between the first half and the second half? And then with the work wear line that you introduced, any initial reaction to what percent of the store? Is it meeting your expectations? Does sales velocity differ by region or by channel? -------------------------------------------------------------------------------- Lisa M. Harper, Torrid Holdings Inc. - CEO & Director [23] -------------------------------------------------------------------------------- So Dana, I'll answer the second question first. And it launched today, I can tell you that the top of 8 of the 10 items that were sold so far this morning were in that line. So that's a good sign, but way too early to kind of give you that regional or channel breakdown. Again, it's our largest launch ever. And it's very broad, and we are excited to really provide the type of products that she has been asking for. So I'm excited about that. The margin conversation, I think is -- there's not a lot of difference in kind of what's underlying it in terms of transportation costs year-over-year or cost of goods year-over-year. That's pretty much baked in at this point. I think the opportunity for the back half of the year, and we don't have a lot baked into our model, let's be honest about it because we are a little bit of a wait and see at this point as we make sure that she responds appropriately and the way that we expect her to renew inventory level as well as assortment. So the biggest opportunity for margin movement in the back half of the year is not having an excessive amount of inventory to clear and then the desirability of the product and being able to adjust our promotional stance and depth based on that. So the back half of this year, it's not cost of goods changing dramatically. It's really not a big change in freight. We have some advantage in the fourth quarter. But in general, it's -- we're conservative as we're thinking about that. It's really about inventory levels and units being down in the low teens from last year. Dollars being down mid to 7% and then the opportunity to really bring in new categories that she's been asking for and build the desirability. A little bit of, I think, trend of the broader marketplace. But these are really important things that I think we've added to our assortment for the back half of the year that she's been asking for. And will -- the opportunity for margin expansion is from the demand and desirability of the product. -------------------------------------------------------------------------------- Dana Lauren Telsey, Telsey Advisory Group LLC - CEO & Chief Research Officer [24] -------------------------------------------------------------------------------- And just one other quick thing. As we approach the upcoming holiday season sooner rather than later, any shifts that you're making, whether it's marketing or how you're thinking about holiday for this year? -------------------------------------------------------------------------------- Lisa M. Harper, Torrid Holdings Inc. - CEO & Director [25] -------------------------------------------------------------------------------- I would just say broadly, our storytelling and marketing are launches in marketing as top of mind. We're doing more launches in the back half of this year than we've done in a while. And I think we've always had great response. We have a couple of new plans in studios. We have some little black dresses that we're bringing in. We have some more dressy and sexy options that we haven't really had for a while. And so, I think more focused on storytelling. The other piece that we highlighted in the comments is really the focus on retention and reactivation that we're seeing positive results in with our customer file. As we bring in these new categories of business, bringing them back to the store, back to the Torrid experience, back to the fitting room is something that we're focused on, and some marketing, both digitally and then also from brand marketing as we move forward. Does that answer your question? -------------------------------------------------------------------------------- Dana Lauren Telsey, Telsey Advisory Group LLC - CEO & Chief Research Officer [26] -------------------------------------------------------------------------------- Yes, it does. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- And we have reached the end of the question-and-answer session. I'll now turn the call back over to Lisa Harper for closing remarks. -------------------------------------------------------------------------------- Lisa M. Harper, Torrid Holdings Inc. - CEO & Director [28] -------------------------------------------------------------------------------- Great. I do want to highlight something I didn't answer in the questions. The amount of improvements we made to the infrastructure in the quarter, the doubling of the capacity in the distribution center and delivering on SLAs and the relaunch of an ERP, which is not for the weakest heart, was accomplished by the team in the second quarter. So I really want to congratulate them on that. I also want to thank Tanner for his leadership and guidance as we've moved through those last 4 months, and we really enjoyed working with you and looking forward to continuing that experience. And we look forward to talking to all of you guys again on the third quarter call very soon. Take care. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.