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Torrid Holdings: Moving Ahead of the Curve

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Globally, the spend on plus-size clothing and apparel among women is showing an upward trend. According to a ResearchandMarkets.com report, this market was worth $178.56 billion in 2019 and is projected to grow at a Compounded Annual Growth Rate (CAGR) of 4.3% between 2020 and 2028.

Torrid Holdings (CURV) serves the plus-size market and is a direct-to-consumer brand that offers apparel and intimates, specifically for women. The brand targets women in the 25-to-40 year age group who are curvy and wear sizes ranging from 10 to 30. (See Torrid Holdings stock chart on TipRanks)

I am neutral on this stock.

Q2 Results

On Thursday, the stock surged 32.4% as the company delivered a blowout second quarter, after having listed on the New York Stock Exchange (NYSE) back in June. The company posted revenues of $332.9 million, an increase of 34% year-over-year, surpassing consensus estimates of $277.8 million. EPS came in at $0.35 per basic share, surpassing analysts’ estimates of $0.09 per share.

George Wehlitz, Torrid Holdings’ CFO, said, “We are extremely pleased with the underlying momentum in our business, which has continued into the third quarter. While we continue to benefit from the momentum in consumer demand, we are carefully monitoring the global supply chain challenges that are expected to persist into the back half of the year, and we are taking actions to mitigate the impact on our business.”

Outlook for Q3 and FY21

For Q3, CURV has projected net sales to range between $305 million to $315 million while for FY21, it expects revenues to vary from $1.29 billion to $1.31 billion. Adjusted EBITDA is anticipated to be between $47 million to $52 million for Q3, and between $248 million and $258 million for FY21.

Analyst’s Take

Jeffries analyst Janine Stichter came away bullish, with a Buy rating and a price target of $30 (29.5% upside) on the stock, following the Q2 results. Stichter commented, “As the leader in the plus-size market with strong digital capabilities, Torrid looks well-placed to benefit from outsized growth in the sector while driving share gains.”

The analyst noted that the rise in comparable sales year-over-year to 30% in Q2 was well ahead of consensus estimates of 8%, while the company’s gross margin of 45% exceeded consensus estimates of 38.5%.

Stichter noted that while CURV’s supply challenges in the second half of the year were expected, they appeared to be manageable. According to the analyst, the company’s management “acknowledged a challenging sourcing environment, with shipping delays and port congestion, as well as production challenges in some categories.”

The analyst believes that there is “further opportunity to unlock higher spend out of the plus-size customer, which represents nearly 70% of US consumers, but less than half of apparel spend.”

Stichter is also of the opinion that CURV's revenues, especially when it comes to the intimates wear category, could double to $500 million by FY24. Furthermore, according to the analyst, “Intimates are a key customer acquisition vehicle and the #2 point of entry to the brand.”

Turning to the rest of the Street, analysts are bullish about Torrid Holdings, with a Strong Buy consensus rating, based on 7 Buys and 1 Hold.

The average Torrid Holdings price target of $29.14 implies 25.8% upside potential from current levels.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article​.

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