Torrid Holdings Inc Aktie

Greetings. Welcome to the Torrid Holdings Inc. Second Quarter Fiscal Year 2026 Earnings Conference Call.

[Operator Instructions]

Please note this conference is being recorded. I will now turn the conference over to Chinwe Abaelu. Please begin.

Good afternoon, everyone, and thank you for joining Torrid's call today to discuss our financial results for the second quarter of fiscal 2026, which we released this afternoon and can be found on our website at investors.torrid.com.

With me on the call today are Lisa Harper, Chief Executive Officer of Torrid, Ashlee Wheeler, our Chief Commercial Officer, and Paula Dempsey, the 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 may include, but are not limited to, statements containing the words expect, believe, plan, anticipate, will, may, should, estimate and other words and terms of similar meaning. All forward-looking statements are based on current expectations and assumptions as of today, September 3, 2026. These statements are subject to risks and uncertainties that could cause actual results to differ materially. For further discussion of risks related to our business, see our filings with the SEC.

With that, I'll turn it over to Lisa.

Thank you, Chinwe. Good afternoon, everyone, and thank you for joining us today as we discuss Torrid's financial results for the second quarter of fiscal 2026. With me on today's call are Ashlee Wheeler, our Chief Commercial Officer, and Paula Dempsey, our Chief Financial Officer. On today's call, I will review our second quarter performance, including the meaningful improvement we saw in the business as the quarter progressed, and I will share an update on our primary focus for 2026, which is customer file growth through acquisition, reactivation, and retention. Ashlee will then share a detailed update on the marketing initiatives driving that progress, and Paula will close with the financials and our outlook for the remainder of the year.

For the second quarter, we reported net sales of $231.7 million and adjusted EBITDA of $23.3 million or $12.1 million, excluding the tariff refund benefit, in line with our guidance range. We are encouraged by the underlying trends we are seeing in the business and are maintaining our full-year outlook while raising our reported guidance to reflect the tariff refunds received to date. This performance follows the transformative work completed in 2025 across channel optimization and assortment and pricing architecture. The disciplined execution of the business, underpinned by our 2026 Customer Growth Agenda, is beginning to pay off, setting the stage for a return to comparable sales growth in the back half of the year and beyond.

Total company comparable sales declined 6.3% in Q2. I want to spend a moment on the shape of the quarter because the headline number does not tell the full story. June was a genuinely difficult month for us, and we know we are not alone in that experience. The macro backdrop in June was challenging with elevated gas prices and other seasonal factors weighing in on discretionary spending. As I mentioned, the encouraging news is that the business meaningfully improved as the quarter progressed. July marked a significant pivot. We are seeing positive consistent improvement in customer reactivation, customer acquisition, and virtually every marketing channel we operate, along with momentum from our Casting Call events, which we relaunched nationwide on July 2.

Based on what we've seen so far in July and August, we believe the back half of the year is aligned with the trajectory we have been planning. Looking at category performance in Q2, we saw overall strength in knits and shorts. Dresses, driven by the combination of mainline Torrid and sub-brands, active, graphic tees, all showed positive momentum. I'm pleased with the course corrections we've made from both the design and the assortment balance perspective. We have also reintroduced the concept of Super Soft into our knit dressing, pairing a base knit with fashion items that change the end use of the product and create a versatile lifestyle-driven dressing occasion. The customer response to the Super Soft fabric and product has been very positive, and it's a category we expect to continue growing and expanding.

As we discussed previously, our restructured footwear sourcing strategy and assortment mix had created a first half comp headwind, and we are encouraged to see that headwind resolving. Footwear is performing ahead of our expectations and is also providing a nice tailwind from a margin and revenue standpoint as we enter the second half.

Turning to our sub-brand portfolio, performance continues to accelerate. Festi remains our strongest performing sub-brand, but we are seeing growing parity across the rest of the portfolio. We are also pleased to see LoveSick return to growth as it begins the anniversary of its launch. Within TRU, our activewear concept, we have leaned further into a leisure aesthetic and introduced opening price point fleece into the assortment.

Our sub-brand platform, built to scale, is delivering strong results with significant runway for growth. Year-to-date, sub-brands have delivered year-over-year growth of approximately 74%, and we remain on track to reach $110 million in 2026, which is 60% growth over 2025, and will represent approximately 12% of total net sales compared to 7% last year.

Turning briefly to our opening price point strategy, performance continues to meet our expectations, supporting both conversion and basket growth. OPP now represents approximately 35% of our overall assortment and is strategically represented across all major apparel categories, supported by a cost-engineered sourcing model which yields healthy product margins.

This quarter, we also introduced a new category we call internally Fashion at a Price, positioned as an accessible mid-tier price point, which is currently showing success in denim, fashion knits, woven tops, and sweaters. We're pleased to share that we've expanded our presence on third-party marketplaces. We're now live on Macy's since mid-July and have recently gone live on Target, and we'll go live with Walmart later this year. In each case, we operate on a model where we own and fulfill our own inventory. Marketplaces remain a relatively small part of our business today, but we see them as highly incremental as many of the customers we're reaching are new to file, reinforcing our belief that these partnerships support our broader customer acquisition strategy.

As I mentioned on our Q1 call, we substantially completed our store optimization program. To date, we've closed an additional 6 structurally unproductive locations, bringing the total to 177 closures since we initiated the program. Customer retention through this transition has remained strong, with our marketing efforts successfully redirecting traffic both online and to nearby stores. Equally important, the cost savings generated by the closure program are being reinvested directly and strategically into the initiatives designed to reignite growth in the customer file.

We entered 2026 with a singular objective, to grow our customer file through acquisition, reactivation, and retention. The marketing team, led by Ashlee, is the primary engine behind the progress, which she will speak to shortly.

In summary, the trends we saw play out this quarter reinforce our 2026 strategy. Business meaningfully strengthened as the quarter progressed, with July marking a clear inflection point. Our customers are responding to the course corrections we've made in assortment and design, and the categories that weighed on us last year are now contributing to growth again. Our business model is built to compound this momentum. Opening price point continues to deliver the values she's looking for. Our sub-brand portfolio is scaling ahead of plan. And our expanding marketplace presence is bringing new customers to the file. At the same time, the discipline we've shown in store optimization is freeing up capital to reinvest directly into acquisition, reactivation, and retention, all key drivers to our future success.

In short, the foundation we built is translating into real momentum, and we're confident it sets us up for a return to comparable sales growth in the back half of this year and beyond.

Now let me pass it to Ashlee for a detailed update on the team's marketing and customer growth progress.

Thank you, Lisa. The second quarter, particularly July, was the pivot point we've been building toward all year, and I'm glad to walk through what's underneath it. As we've shared previously, the growth and improved quality of our customer file is our primary initiative for this year. With our product assortments modernized, sub-brand scaling, pricing architecture and channels optimized, and a brand positioning and mission consistently clear, what was needed was a structural rebuilding of our marketing engine. I will cover where that rebuild stands and the progress we are seeing.

Comparable sales inflected positively in July, with all 11 of our marketing channels improving sequentially, and momentum has continued into August. When we look at our marketing channels cumulatively over the past few years, we dramatically shifted performance from double-digit declines to growth in marketing attributable revenue beginning in July. We saw year-over-year digital customer growth in both July and August. This is the direct result of a systematic, channel-by-channel rebuilding of a commercial marketing engine with clear discipline, ROAS accountability, a structured test cadence, and marketing spend that must earn its return before it scales. We now run the business through standardized KPIs, real-time dashboards, and structured commercial business reviews. We've also invested in talent to sustain it, adding a new SVP of Performance Marketing, a VP of Customer and Loyalty, and a Senior Director of CRM and Owned Customer Messaging. A very experienced team with backgrounds spanning Marc Jacobs, Victoria's Secret, Kohl's, and Claire's.

Paid media is the clearest proof point that discipline and growth are not in tension. In the second quarter, we saw double-digit growth in paid revenue on significantly less spend than a year ago, resulting in meaningful ROAS expansion year-over-year. Paid revenue now represents 12% of digital revenue, up from 9% a year ago.

Heading into the back half, we're reallocating a portion of our marketing investments to increase digital spend by roughly $1 million versus our original plan, still down 16% to last year compared to a 35% reduction in the first half, and directing it toward reactivation and prospecting, including paid social, product listing ads, and non-branded search. We also have a dedicated Festi media plan launching September 25 to accelerate the growth of our leading sub-brand. Lastly, we've completed the build of an internally developed media mix model that will be used in concert with the expertise of our digital agency to further optimize and maximize our paid media investments for the greatest return in revenue and customer file growth. We will begin to leverage this model to inform and refine our paid media strategy in the fourth quarter of this year.

Turning to search and AI discoverability, one of the areas we found immense opportunity was organic search. Revenue in this channel had eroded over the past several years, and that decline was structural. We've built a 5-pillar plan, expanding product content, category authority, knowledge content, technical discovery infrastructure and AI visibility, and we're already seeing it work.

Organic revenue has been positive year-over-year since June. Our average search ranking has improved over 3x and AI overview impressions are up meaningfully along with strong year over year organic search revenue growth. To put the scale of opportunity in context, we've lost a substantial share of organic revenue over the past few years. We're not going to recover that overnight, but our roadmap is explicit. Now that we've stopped the decline and are returning to growth, we will rebuild category authority and AI citation coverage over time.

Turning to our mobile app, which is our fastest growing and most resilient digital channel. Total digital demand inflected positively in July, up low single digits to last year, and that was driven by our mobile app, which grew double digits year over year.

We are placing significant emphasis on our mobile app, which converts approximately 7x the rate of our desktop and mobile web experiences. Push notifications delivered through the app have also proven meaningfully more productive than traditional email and SMS communications. Beginning in July, we made a concerted push to drive app engagement, including exclusive app offers and Casting Call activations that used QR codes to route customers to the app, and the results are encouraging. In July, we saw over 50,000 downloads, a significant lift from our monthly run rate. And app-generated revenue reached an all-time high of nearly 40% of digital revenue in the month, and that trend has continued into August as planned. We are rolling out additional enhanced mobile app capabilities in September, including in-app personalization and loyalty rewards visibility. We believe the mobile app will be a key lever as we head into the peak holiday season.

Moving to CRM and Customer Journey. If there's one place I'd point you to for the size of the prize ahead of us, it's CRM and Customer Journey. 45% of our customers shop with us only once per year, and that group represents just 12% of our demand. The second trip more than doubles the 1-time buyer's value and getting a store-only shopper onto our mobile app or web channel, becoming an omni customer, more than quadruples their annual spend. We are going after that gap directly. We're increasing behavioral triggers by 5x to 20% of our email sends, and those triggers convert at roughly 7x the rate of a standard batch send. We're leveraging our rich data to build affinity and propensity models so that we can reach individual customers with personalized and segmented content to drive conversion and increase customer lifetime value.

We've launched a dedicated second purchase journey built to capture a second sale in the most critical window of opportunity. We've layered in a lapse prevention and win-back series triggered by changes in shopping behavior, and we're introducing our credit card earlier in the new customer journey. Since private label credit card lifts spend among our insider loyalty tier, the segment most likely to be a 1-time shopper, by 1.7x. This work is just now taking flight, informed by a robust testing agenda, and we believe this will deliver significant revenue and productivity growth in our customer file.

Across all of these initiatives, the common thread is a shift away from broad, undifferentiated marketing towards personalized, targeted engagement. This is about meeting a specific customer with a relevant message at the right moment, whether that is a follow-up after a recent purchase or an outreach delivered through the channel, and at the time of the day when she is most likely to engage.

Finally, Casting Call. As Lisa mentioned, on July 2, we announced the relaunch of our nationwide Casting Call platform and I want to spend a moment on it because it is a good example of the kind of community-driven marketing we believe is core to our long-term growth. Casting Call has evolved well beyond a traditional model search. It is a platform for confidence, connection, and community, and it speaks directly to something we hear consistently from our customers. A recent proprietary survey we conducted found that more than 1 in 3 plus-size women still experience gaps across the shopping journey, including limited sizing and trend options, inconsistent in-store experiences, and a lack of authentic representation. A Casting Call is one of the most powerful ways we address that gap.

This year's program included a Times Square activation in New York City to kick things off, in-person Casting Call events at malls across major U.S. cities, and in-store casting parties in select locations, alongside our continued partnership with Candice Huffine, who serves as our Casting Director and host. Several past winners also returned this year to support new applicants, appearing at live events and hosting virtual question-and-answer sessions. Applications opened on July 2 and will remain open through September of this year, with 3 winners ultimately becoming the new faces of Torrid. Casting Call continues to be one of the most powerful engines we have for building community and gathering authentic content. This Casting Call inverts the traditional influencer model entirely by investing in the women who have already chosen this brand at the highest level and letting their stories do the work, and it converts that community into our owned ecosystem.

In 2024, Casting Call delivered 10,000 new and 14,000 reactivated customers, as well as a 9 percentage point gain in unaided brand awareness. So far, applications are trending 9% ahead of 2024, and we've seen 80% of this year's attendees join our loyalty program. Importantly, our social audience is growing. Social engagement was up double digits during the second quarter, and brand sentiment continues to improve as well. Our social listening reflects meaningfully more positive commentary, a sign that the content and platform is resonating. We believe this reflects both our improved product assortment and the growing resonance of the community we are building through programs like Casting Call.

Lastly, I want to touch briefly on how we are using AI. AI and machine learning are integrated into many of our systems today across marketing, merchandising, assortment planning, and finance. And we also use AI internally as a strategic thought partner across the organization. Within marketing specifically, we are investing in making sure our brand is reachable, indexed, and accessible to large language models so that we are positioned for AI-powered shopping in a way we had not been previously. And we are already seeing early positive movement there. We are also using AI to accelerate dynamic content generation. We are still in the early innings of both efforts, but we see a tremendous opportunity leveraging AI for both customer engagement and marketing efficiency.

To summarize, we entered this year with a clear view of the work required and we are executing against it with focus and conviction. Torrid's powerful brand positioning and mission have always been clear, but a structural rebuild of the marketing engine to support it was necessary, and that is our strategic focus. After several years of a contracting file size, we are poised for file growth, both in size and productivity in the back half of this year, with an increase in customers acquired, reactivated, and retained year over year. Our paid marketing channels have turned a corner and are highly productive and scaling. Our CRM and organic search and AEO work is still in its early stages but already contributing, and Casting Call continues to strengthen our community and brand affinity. Every channel, every investment, every activation is pointed at the same outcome: growing the customer file, deepening loyalty, increasing customer lifetime value, and making the business more commercially powerful than it has ever been. It is early, but we're doing what works, and we look forward to updating you on our next call.

With that, I will turn the call over to Paula.

Thank you, Ashlee. Good afternoon, everyone, and thank you for joining us today. I'll start with a review of our second quarter results and then walk through our outlook for the balance of fiscal 2026. At a high level, we were pleased with how the quarter developed. Net sales results came in within our guidance range and adjusted EBITDA, excluding the tariff benefit, landed within our range as well. Just as important, our sales trends improved as the quarter progressed, and we returned to positive comparable sales in the month of July. We're encouraged by the direction of the business as we head into the back half.

Net sales for the second quarter were $231.7 million compared to $262.8 million a year ago. Comparable sales were down 6.3%. As Lisa noted, footwear remained a headwind in the quarter, an impact of roughly 100 basis points to comparable sales. As we complete the resourcing of that assortment, we expect it to turn to a tailwind in the second half of the year. Gross profit was $89.7 million versus $93.5 million last year and gross margin was 38.7% compared to 35.6% a year ago.

During the quarter, we recognized $11.1 million of IEEPA tariff refunds as a reduction in cost of goods sold. Excluding the benefit, gross margin was 33.9%, down 170 basis points from a year ago, primarily reflecting targeted promotions. SG&A expenses declined $8.6 million to $61.9 million, compared to $70.5 million a year ago, as we continue to realize savings from our store optimization program. As a percentage of net sales, SG&A was 26.7%.

Marketing investments increased $0.5 million to $13.3 million, driven by strategic investments behind our Casting Call event and customer file growth initiatives as described by Ashlee earlier. Net income for the quarter was $5.2 million or $0.05 per share compared to net income of $1.6 million or $0.02 per share last year. Adjusted EBITDA was $23.3 million, a 10% margin versus $21.5 million or 8.2% a year ago. Excluding the tariff benefit, adjusted EBITDA was $12.1 million, or a 5.2% margin, which is within our guidance range.

Turning to the balance sheet. We ended the quarter with $22 million in cash and cash equivalents and $39.7 million drawn on our revolving credit facility. We expect this to be the peak borrowing levels for the year. Total liquidity, including available borrowing capacity under the facility, was $74.4 million. We generated $10.1 million of cash from operations in the first half compared to a use of $2.3 million in the same period last year, reflecting tighter working capital discipline.

Inventory totaled $125.6 million, down 3.6% from the second quarter of last year, reflecting both tighter receipt management and the intentional reduction of our store base. During the quarter, we closed 6 stores, ending the period with 457 stores compared to 575 stores a year ago, effectively completing our store optimization program. Customer retention rates through these closures remain in line with our expectations.

Now to our outlook, which we have updated to reflect the tariff refund benefit we recognized in the second quarter. We remain on track to deliver approximately $40 million of expense savings in fiscal 2026 through our store optimization initiative. Through the first half, we have realized approximately $22 million of those savings. For the full year, we continue to project net sales of $940 million to $960 million. On adjusted EBITDA, we're raising our outlook to $76 million to $86 million, reflecting the $11.1 million tariff refund benefit recognized in the second quarter. Excluding that benefit, our outlook is unchanged at $65 million to $75 million, representing a margin expansion of up to 140 basis points versus fiscal 2025.

We continue to expect marketing to be approximately 5.5% of sales as we invest behind customer acquisition and retention, including our Casting Call events. Our outlook assumes tariffs of 12% to 15% in the back half of the year and does not contemplate any further tariff volatility. For the third quarter, we expect net sales of $230 million to $235 million and adjusted EBITDA of $15 million to $20 million. Looking specifically at the fourth quarter, we expect EBITDA margin to improve compared to last year. On gross margin, we're benefiting from tariff rate normalization, ongoing sourcing initiatives, improved assortment and occupancy related to store optimization. We will continue to realize savings in SG&A from our store optimization program.

In total, we would expect EBITDA margin improvement to be split roughly evenly, about half from gross margin expansion and half from SG&A leverage. As we move into the back half, we're encouraged by the trends we're seeing. The initiatives Ashlee outlined should drive customer file growth and combine with the return of footwear in the second half. We expect that to provide a tailwind to both sales and margins. On tariffs, during the second quarter, we received $11.4 million in IEEPA tariff benefits, $11.1 million recognized as a reduction in cost of goods sold, and $300,000 in interest income. As I noted, we have raised our full year adjusted EBITDA outlook to reflect this benefit as absorbed in COGS. We plan to file for an additional tranche of refunds, which we estimate at $1.5 million to $2.5 million. That amount is not yet included in our guidance and we will update you as the process advances.

We expect capital expenditure of $8 million to $10 million. Roughly half is directed at elevating our store fleet through refreshes, and the remainder is primarily focused on marketing system improvements.

In closing, we're encouraged by the improving sales trends we saw through the quarter, as our marketing builds awareness of the meaningful changes we have made to our assortment over the past year. Our sub-brands and opening price point initiatives continue to attract customers, both new and reactivated, while resonating with our existing ones. We believe these initiatives will continue to strengthen our performance and build long-term value for our shareholders.

With that, we'll open the call to your questions.

We will now be conducting a question and answer session.

[Operator Instructions]

Our first question is from Corey Tarlowe with Jefferies.

First on the July inflection. Can you just talk a little bit more about what happened there? Maybe quantify what improved versus earlier in the quarter? Was it more traffic, conversion, AUR, or customer acquisition? I think just more color around the change and the drivers would be really appreciated.

Corey, so July inflected positively. It was both traffic and conversion, but really a function of all 11 of our marketing channels inflecting positive. So we saw material movement in a positive direction across all 11 marketing channels. We saw digital customer reactivation positive, low single digit positive. And that was really the turning point, as well as frequency within our active file improving.

Got it. And then just on the gross margin. As you think about the puts and takes there, as you look to rebuild merchandise margins to 24 months, how should we be thinking about the opportunities there to continue to build on that?

In the back half, I'll answer part of it and then Ashlee will fill in. The back half, particularly this year, obviously will have a benefit from tariff on a year-over-year basis. We also have improved sourcing in terms of cost of goods. So one of the benefits of the tariff situation was a more robust kind of activist sourcing strategy, multi-country sourcing strategy that has allowed us to, I think, refine our pricing, improve our pricing, as well as the introduction of OPP and what we mentioned about fashion at a price, which is kind of at moderate level. So from a cost of goods perspective, which will flow through, we feel, into margin at the back half. That's a benefit that we see being realized as we move forward into third and fourth quarter.

I would add, Corey, there's a compounding effect to customer acquisition and customer reactivation improving into the back half of the year. So we saw it inflect positively in July. We've seen that continued into August and our guidance contemplates acceleration of both of those in the back half of the year. As we continue to feed the file with new customers and reactivated customers, it relieves pressure on product margins from a discounting standpoint. And that is contemplated.

And I'd highlight footwear, again, it has a high attachment rate as well as a high level of new customer acquisition for us. So I think as we are able to, and have been able to, reinvigorate and reintroduce that footwear business, that we're seeing the marketing channels benefit from that, but also there's been a margin, I think, pretty substantive margin improvement that's driven both from the attachment rate as well as the category in general.

[Operator Instructions]

Your next question comes from Brooke Roach with Goldman Sachs.

This is Carly on for Brooke. You called out continued strength in the sub-brands. Are they becoming incrementally more positive as customer acquisition tools or are they primarily driving larger baskets and wallet share among existing customers?

To start, we saw expansion of wallet among existing customers, but we know that they are key to customer acquisition and reactivation, and even more so as we head into the back half of this year. As I mentioned in my prepared remarks, we have a dedicated Festi media plan that launches the 25th of this month. And that will be our first dedicated paid marketing campaign around Festi, which is our largest sub-brand, and the one that we think will be the most accretive in terms of new customer acquisition and reactivation.

This now concludes our question-and-answer session. I would like to turn the floor back over to CEO, Lisa Harper, for closing comments.

Thanks for joining us today. We look forward to keeping you updated on our progress.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.

Greetings, and welcome to the Torrid Holdings, Inc. First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chinwe Abaelu. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining Torrid's call today to discuss our financial results for the first quarter of fiscal 2026, which we released this afternoon and can be found on our website at investors.torrid.com.

With me on the call today are Lisa Harper, Chief Executive Officer of Torrid; Ashlee Wheeler, our Chief Commercial Officer; and Paula Dempsey, the 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 may include, but are not limited to, statements containing the words expect, believe, plan, anticipate, will, may, should, estimate and other words and terms of similar meaning. All forward-looking statements are based on current expectations and assumptions as of today, June 4, 2026. These statements are subject to risks and uncertainties that could cause actual results to differ materially. For further discussion of risks related to our business, see our filings with the SEC.

With that, I'll turn it over to Lisa.

Thank you, Chinwe. Good afternoon, everyone, and thank you for joining us today as we discuss Torrid's financial results for the first quarter of fiscal 2026. With me on today's call are Paula Dempsey, our Chief Financial Officer; and Ashlee Wheeler, who was recently appointed Chief Commercial Officer. Prior to this appointment, Ashlee served as our Chief Planning and Strategy Officer. She joined the company in 2011 and has spent the better part of 15 years building expertise across many dimensions of the business.

In her expanded role, Ashlee now unifies performance marketing, e-commerce, pricing and promotional strategies and commercial analytics under a single leadership mandate, connecting the functions most critical to our growth agenda. She also continues to oversee merchandise planning and allocations. Congratulations, Ashlee. On today's call, I will open with a review of our first quarter performance and speak to the continued progress we're making against the strategic transformation initiatives we outlined in 2025: channel optimization and assortment and pricing architecture.

With these platforms established, I'll turn to our primary focus for 2026, customer file growth through acquisition, reactivation and retention. Ashlee will then share a detailed update on our marketing initiatives, and Paula will close with the financials and our outlook for the remainder of the year. For the first quarter, we reported net sales of $245.8 million, slightly above our guidance and adjusted EBITDA of $17.6 million at the high end of our guidance range. These results reflect disciplined execution across our strategic initiatives and importantly, signal progress in positioning us for comparable sales growth in the back half of the year and beyond.

Total company comparable sales declined 1.7% in Q1. Excluding footwear, Q1 comparable sales would have been plus 1.2%. As we communicated on the Q4 call, our fundamentally restructured footwear sourcing strategy and assortment mix is creating the first half comp headwind that we expect to resolve and turn positive in the second half of the year. Early reads on the reintroduced footwear assortments are encouraging. From a category standpoint, knit tops, bottoms and TRU, our activewear concept, were standouts in the first quarter. These categories delivered year-over-year volume growth despite operating fewer stores. This success reflects the broader product work we've done to sharpen our assortment and better serve our customer.

Shifting to our portfolio of Sub-Brands. They're off to a good start in the new fiscal year with the first quarter growth of 75% over last year. We continue to plan Sub-Brands growth at approximately 60% for the full year, reaching roughly $110 million, up from $70 million in 2025 and expanding from approximately 7% of total net sales to 12%. We entered 2026 with our Sub-Brands platform established and built to scale. Q1 is validation that our data-informed approach to chasing winners and refining our assortment mix is working.

We are pleased with the performance of our Opening Price Point strategy, which has proven to be both a conversion driver and a basket building lever. Scaled in Q1, OPP delivers a clear, consistent everyday value message across all channels, one that has resonated well with value-oriented customers. As a reminder, we are balancing our customer demand for accessible price points with 2 nonnegotiables, margin discipline and product quality. Maintaining our quality standards while delivering accessible value remains imperative. The program represented approximately 30% of apparel sales in the quarter at healthy product margins, supported by cost-engineered sourcing model.

Opening price points are strategically present across all major apparel categories and contributed directly to the outsized performance in dresses, knit tops and non-denim bottoms.

Turning to our store optimization initiative. In Q1, we substantially completed our store optimization program with an additional 20 closures of structurally unproductive locations, bringing the total to 171 closures since we initiated the program. That work is now largely behind us. We have strategically rightsized our store fleet to one that is more productive, aligned and better positioned to serve our customer where and how she prefers to shop with us. Customer retention through this transition has remained strong with our marketing efforts successfully redirecting traffic both online and to nearby stores. Equally important, the cost savings generated by the closure program are being reinvested directly and strategically into the initiatives designed to reignite growth in our customer file.

Every strategic decision we have made over the past 18 months has served a single objective, positioning Torrid to grow. In 2026, that objective has a specific and measurable form, strengthening our customer file through targeted retention, reactivation and acquisition strategy. The foundation is set, the investments are aligned and the work is underway. We've built a strong foundation for 2026, and our strategy is well aligned with today's consumer mindset. Our customer is shopping with intention, making deliberate choices about where she invests her dollars.

The good news is she continues to choose Torrid with engagement and loyalty from our core customers remaining strong. We've designed our business model specifically for this environment. Our opening price point strategy delivers the accessible value she's looking for. Our assortment architecture gives her choices at every price level and our targeted marketing reaches her with the right message at the right time. In short, we're positioned where we expect it to be.

Now let me pass it to Ashlee for an update on the comprehensive work she is leading.

Thank you, Lisa. I am thrilled to step into this role at such a pivotal moment. As Lisa mentioned, the work of optimizing our channels, product assortments and pricing architecture is set, and that foundation is solid. What you'll hear from me today is about what comes next, a deliberate full funnel shift into growth. Our mandate is clear: acquire new customers, reactivate those who have stepped away and deepen the loyalty and purchase frequency of existing customers.

Here's what that looks like in practice. This is not about spending more, but being more efficient with our marketing dollars and building on the community we have built. We've reinvigorated our CRM strategy with a sharper emphasis on segmentation and personalization. In paid media, we have a renewed focus on ROAS efficiency, scaling the highest performing channels while maintaining disciplined spend across all paid channels. We relaunched direct mail in February as a reactivation engine. We've reoriented organic social to be a genuine community platform focused on engagement, not just impressions.

And we've engaged a PR partner to amplify our earned media presence, positioning Torrid at the center of cultural conversation in women's plus-size fashion. We grew paid media revenue on less spend in Q1, driving significant ROAS, a proof point that efficiency and growth are complementary, not competing. We're managing our agency partnerships with greater rigor and building internal data science capabilities that will give us a stronger foundation for media mix investment decisions going forward. In our CRM channels, we've implemented AI capabilities to power smarter segmentation, personalization and optimization across e-mail and SMS. This work is moving quickly, and I'm encouraged by early results.

Direct mail, relaunched in February and programmed throughout the year is proving to be a productive reactivation and retention lever, and an essential touch point for our most loyal customers. We've seen a substantive incremental lift in retained and reactivated customers attributable to direct mail. Beyond the numbers, it gives us a powerful vehicle to reintroduce Torrid to lapsed audiences to show them how our product assortment has evolved and introduce our Sub-Brands. We will continue to scale this channel deliberately and productively throughout the year.

We are working systematically through the marketing funnel, optimizing for efficiency, deploying capital where it drives positive ROAS and making every investment accountable to file growth and customer lifetime value. There is meaningful work still ahead, but the early indicators give me confidence in our strategies. Beyond the discipline of traditional marketing metrics, there is something equally important and perhaps more defining, which makes Torrid unique. It is the depth of connection this brand has with its community.

With a loyalty program that captures over 90% of our customer base and a product advantage that goes far beyond fit, it changes the way she feels about herself. To scale that connection, we are relaunching an expanded reconceived Casting Call in July, not as a seasonal campaign, but as a year-round platform purpose-built to drive acquisition, reactivation and retention. Casting Call is more than a model search. It is a mechanism for identifying and elevating customer brand ambassadors. In 2024, Casting Call drove 10,000 new customers, reactivated over 14,000 and produced a 9 percentage point increase in unaided brand awareness. This year, we're thinking bigger. A Times Square activation is planned for August, followed by 4 mall-based casting events and more than 30 in-store casting parties throughout Q3, culminating in the announcement of our 2026 winner in November. This is a 5-month engagement arc by design.

Mall events and in-store casting parties are, by every measure, our highest converting new customer acquisition moment. They are fitting room experiences at scale, the place where a woman who has never worn Torrid discovered that it was made for her. For a lapsed customer, an invitation to a Casting Call event is a fundamentally different reactivation signal than a promotional offer. And for the women who are deeply loyal already, amplifying their voices only deepens that loyalty, driving increased lifetime value. Casting Call is one of the most powerful content engines we have. It inverts the traditional influencer model entirely by investing in the women who have already chosen this brand at the highest level and let their stories do the work, real customers, real sizes, real fit moments and testimonials. That content flows into our marketing channels year-round with an authenticity that paid media cannot replicate. This is community ambassadorship at scale, and it is one of Torrid's most durable competitive advantages.

To summarize, we entered this year with a clear view of the work required, and we are executing against it with focus and conviction. The marketing foundation has been reset. Channel efficiency is improving, own channels are smarter and more personalized. Direct mail is reactivating customers and Casting Call is being reimagined as a platform. We are executing against a fully integrated marketing strategy. Every channel, every investment, every activation is pointed at the same outcome, growing the file, deepening loyalty and making Torrid more commercially powerful than it has ever been.

With that, I'll turn the call over to Paula.

Thank you, Ashlee. Good afternoon, everyone, and thank you for joining us today. I'll begin with a review of our first quarter financial performance, then provide an update on our outlook for fiscal 2026. We're pleased with our performance this quarter as our sales exceeded our expectations and adjusted EBITDA came in at the high end of our guidance range. Net sales for the quarter were $245.8 million compared to $266 million in the prior year. Comparable sales declined 1.7%. As Lisa highlighted earlier, excluding footwear, first quarter comparable sales were positive 1.2%, reflecting continued strength across the core business.

Gross profit was $86.8 million versus $101.4 million last year, and gross margin was 35.3% compared to 38.1% in the prior year, reflecting a combination of tariffs and planned targeted promotions. SG&A expenses declined by $6.3 million to $63.7 million compared to $70 million a year ago as we continue to see tangible benefits from our store optimization program. As a percentage of net sales, SG&A leveraged 40 basis points to 25.9%.

Marketing investment decreased by $0.8 million to $14.5 million, driven by more effective channel allocation and data-driven targeting, allowing the company to achieve its marketing objectives with lower spend. Net income for the quarter was $414,000 or $0.00 per share compared to a net income of $5.9 million or $0.06 per share last year. Adjusted EBITDA was $17.6 million, a 7.2% margin versus $27.1 million and 10.2% a year ago.

We ended the quarter with $22.8 million in cash and cash equivalents and $32.8 million drawn on our revolving credit facility. Total liquidity at the end of the quarter, including available borrowing capacity under our revolving credit agreement was $100 million. Inventory totaled $142.6 million, down 4.6% from the first quarter of last year, reflecting both tighter receipt management and the intentional reduction of our store base.

During the first quarter, we closed 20 stores as part of our store optimization program. We expect to close an additional 7 to 8 stores in the second quarter, at which point the program will be substantially complete. We remain pleased with the customer retention rates, which are in line with the historical levels.

Turning to our outlook. We remain on track to deliver approximately $40 million of expense savings in fiscal 2026 through our store optimization initiatives. During the first quarter, we realized approximately $11 million of these savings, reinforcing our confidence in achieving the full year target. For the full year, we continue to expect net sales of $940 million to $960 million and adjusted EBITDA of $65 million to $75 million, representing margin expansion up to 140 basis points compared to fiscal 2025. We expect marketing expense to be approximately 5.5% of sales, reflecting continued focus on optimizing marketing effectiveness and maximizing return on investment across our customer acquisition and retention initiatives.

Capital expenditures are expected to range from $8 million to $10 million, supported by our disciplined approach to capital allocation. Approximately half of our planned spend is dedicated to maintaining and modernizing the store fleet through selective refreshes, fixture replacements and point-of-sale infrastructure upgrades. Importantly, a significant portion of these investments were completed during the first quarter, resulting in a more front-loaded capital profile and positioning us to realize the benefits of these investments throughout the remainder of the year.

For the second quarter, we expect sales of $232 million to $240 million and adjusted EBITDA of $12 million to $16 million. Our outlook also contemplates continued investment in marketing at levels more consistent with the first quarter spending, supporting customer file growth initiatives, including the return of Casting Call this summer.

Looking to the back half of the year, we anticipate improved performance supported by 3 key growth drivers: continued momentum in our customer growth initiatives, progress in our Opening Price Point strategy to drive conversion and value perception and the return of our footwear program to full strength, which has historically enhanced attachment rates and overall customer spend.

Turning to tariffs. As of May, we have received an initial portion of the tariff refunds utilized with an additional recoveries expected as the claims process progresses. We have filed for the first phase of refunds with an expected recovery in the range of $9 million to $11 million. A second phase of refunds is forthcoming. The submission portals are not yet open, but we anticipate an additional $1.5 million to $2.5 million for that tranche. Neither phase of tariff refunds is contemplated in our current guidance, and we will provide updates as those processes advance.

In terms of our guidance, for the first half of the year, we contemplated tariffs at the current rate of 10%. And for the second half, our assumption steps up to 15%, reflecting the possibility of further escalation later in the summer. It is worth noting that should tariffs remain at 10% for the full year, that outcome would provide an offset against potential freight-related headwinds.

As we close out the first quarter, we're encouraged by the early progress of our strategic initiatives, including store optimization, merchandising enhancements, expanded opening price points to enhance our customer value, growth in our Sub-Brands and customer growth initiatives, which are beginning to drive improved operating performance. While the consumer environment remains dynamic, we remain focused on disciplined execution, growing and engaging our customer file, enhancing our value proposition and expanding profitability. We believe these initiatives will continue to support our performance and drive long-term value creation for our shareholders.

Now we will open the call to answer your questions. Operator?

[Operator Instructions] And our first question comes from the line of Janine Stichter with BTIG.

You've got Ethan on for Janine. Just want to start, you mentioned promotions in the Q1 gross margin. Just how did promotions play out in the quarter compared to your prior expectations? And what are you expecting for the rest of the year?

Ethan, this is Ashlee. So promotional activity in the first quarter was planned and actualized according to plan. In terms of forward view, we expect very much the same. So a certain level of promotions is embedded within our guidance and consistent with prior years. That said, opening price point has allowed us to be less dependent on promotion to drive behavior or acceleration in product. So in terms of elevated levels of promotion, not in excess of plan or what we've seen previously.

Got it. That's very helpful. And then can you just give some more color on overall tops performance in Q1 and quarter-to-date so far?

Overall tops, first of all, the knit-top business, as we mentioned in our comments, positive revenue comp as well as margin expansion driven by the OPP product as well as the entire knits complex has done very, very well and had a dramatic turnaround and is continuing to perform and exceeding our expectations. Our Graphics business specifically is back on track in terms of margin performance. So an outsized margin expansion there, a little bit less top line, but that was purposeful. Our sweater business has been good in the first quarter. And our woven tops business, we think, is a customer shift out of wovens and into knits. And so in general, we're happy with the progress that we've seen in the tops complex, primarily driven by OPP and knits.

And we have reached the end of the question-and-answer session. And therefore, I do see one question is -- I do have -- we have one question from the line of Brooke Roach with Goldman Sachs.

This is [indiscernible] on for Brooke Roach. You guided to comparable sales growth in the back half of the year. Can you speak to the drivers of your confidence in the stronger comp delivery in the second half? And as a follow-up, how is the current macro environment affecting your customer spending behavior? Are you seeing any trade down within your assortment?

We are guiding to a positive comp in the back half of the year. If you recall, the footwear business, which has historically been upwards of a $50 million business annually with a pretty strong attachment rate. We paused that in order to resource and restructure it in an elevated tariff environment. That business remains a headwind for us throughout the first half of this year, which we've shared previously. In the back half of the year, it becomes a tailwind for us, and it provides sizable comp benefit through the back half of the year.

In addition to that, the Casting Call expansion that I spoke about, we do expect to start seeing growth in the customer file attributable to the reignited marketing focus as well as the Casting Call -- and then as far as trends in the business, we are on plan for the second quarter within our guidance as communicated. In terms of customer behavior, I can tell you that in the first quarter from a KPI standpoint, we're very pleased with the conversion metrics we're seeing. We saw double-digit growth in conversion as well as low single-digit growth in our units per transaction. So both of those KPIs, strong indicators of product acceptance and the customers' resilience.

And our next question comes from the line of Lorraine Hutchinson with Bank of America.

[indiscernible] on for Lorraine. I was wondering a little bit if you could talk about what you're seeing in terms of rate pressure and the impact to margins.

Lorraine, this is Paula. So currently, we are not -- we're able to mitigate any pressure that we're seeing right now. And our guidance does contemplate that impact. But I would tell you that at this point, it's nothing substantial to the business. It's also worth noting that from a sourcing base, we're 70% DDP. So we have fully negotiated costs for 70% of our goods for the balance of the year. So we are protected from any type of variability on the freight side for at least 70% of the goods on order.

And it looks like we have now reached the end of the question-and-answer session. And therefore, I'd like to turn the floor back to CEO, Lisa Harper, for closing comments.

Thanks so much for joining us today. We look forward to sharing the second quarter results on our next call.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.

Greetings. Welcome to Torrid Holdings Fourth Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Chinwe Abaelu. Thank you, and you may begin.

Good afternoon, everyone, and thank you joining towards call today to discuss our financial results for the fourth quarter and full year of fiscal 2025, 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; and Paula Dempsey, Chief Financial Officer. Ashlee Wheeler, our Chief Strategy and Planning Officer, is also present and will be participating in the Q&A session.

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 may include, but are not limited to, statements containing the words expect, believe, plan, anticipate, will, may, should, estimate and other words and terms of similar meaning. All forward-looking statements are based on current expectations and assumptions as of today, March 19, 2026. These statements are subject to 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. Reconciliations 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.

Thank you, Chinwe, and hello, everyone. Thank you for joining us today. On today's call, I'll review our fourth quarter and full year 2025 performance and discuss the substantial progress and transformation we've made over the past 2 years. We have optimized our channel, product and pricing platforms. With these foundational elements now in place, I'll outline our primary focus for 2026 and which is accelerating customer file growth through retention, reactivation and acquisition.

Finally, I'll turn the call over to Paula to discuss the financial details and our outlook for the year ahead. I'm pleased to report that for 2025, we reached the top end of our net sales outlook delivering $1 billion and exceeded the high end of the adjusted EBITDA range achieving $63.6 million. For Q4, we registered net sales of $236.2 million and adjusted EBITDA of $5.1 million. These results reflect early progress in our strategic initiatives. Throughout the year, we made deliberate decisions to strengthen our foundation, optimizing our footprint, launching our sub-brand strategy, causing and relaunching our footwear category and later in the year, sharpening our product assortment around core franchises, fabrications, silhouettes.

The trends we experienced in Q4 and give us confidence we are moving in the right direction and position us well for comparable sales growth in 2026. From a category perspective, we saw strength in dresses, demonstrating growth for 4 consecutive quarters. We also saw acceleration in sub brands and a turnaround in knit tops, which comped positively for the latter half of the fourth quarter. Intimates and Activewear, both categories gained momentum and are poised for growth in 2026. Additionally, we reintroduced footwear with great success, having paused the category to resource it in the elevated tariff environment.

We sold out of the limited assortment in record time and look forward to being back in the footwear business at scale and more profitably in the back half of 2026. As we close 2025 and enter 2026, we have strategically rightsized our channels, reinvigorated our product and optimized our pricing platforms. With these foundational elements now in place, our primary focus for 2026 is accelerating customer file growth through targeted segmented marketing to acquire new customers, reactivate lapsed ones and increase purchase frequency among our most loyal shoppers. This is our #1 priority, and we are deploying resources, talent and capital accordingly.

I'll expand on this initiative momentarily, but first, an update on our channel optimization initiatives. As we've discussed on prior calls, we identified up to 180 structurally unproductive stores for closure. These locations averaged roughly $350,000 to annual sales. We completed 85% of the closures by Q4 or 151 stores in 2025, and we've closed an additional 11 thus far in Q1. We are on track to finalize the full optimization plan by the first half of the year. Essentially, our channel platform is now optimized, supported by a more productive and strategically aligned store fleet.

Our retention metrics validate that our strategy is working. Customer retention from last year's store closures is meeting and, in many cases, exceeding our model. This demonstrates the strength of our omnichannel ecosystem. We're also seeing customers shift to nearby stores and markets impacted by closures, driving increased traffic and transactions, resulting in dramatically improved 4-wall profitability in our remaining store fleet. Even more encouraging, our 2025 closure retention rates are outperforming 2024 results with more customers shifting to our digital platform.

Our enhanced retention strategies, including targeted multitouch communications are seamlessly migrating customers to nearby stores and online channels. While this tells us is simple, our most loyal customers are truly channel agnostic. This seamless and frictionless omnichannel platform we've built, combined with our commitment to superior and consistent fit, allows our customers to remain highly engaged with confidence in their channel of preference. Our product platform is built and now scaling effectively. We entered 2026 with 5 sub-brands live and critically, 80% of our assortment planning and buying decisions are now data informed, covering both product selection and seasonality.

2025 was our learning year. We launched all 5 sub-brands and received real customer feedback across the board. We stayed agile reading demand signals, adjusting by midstream, chasing winners and refining our assortment mix. Those learnings are now embedded in our 2026 plans. But we've done more than just learned. As we shared on our Q3 call, we fundamentally strengthened our merchandising foundation. We've implemented stronger guardrails in our merchandising process and build out a more robust assortment planning function, both of which I'm directly overseeing.

This represents a much more integrated way of working. Design, merchandising, planning and product development now operates as a cohesive unit. The new guardrails that anchored and proving categories, while still allowing us to expand strategically and maximize opportunity. is a disciplined approach that balances innovation with reliability. Our sub-brands are driving meaningful growth. They generated over $70 million in sales in 2025, and we're projecting roughly 60% growth in 2026 to approximately $110 million. growing from approximately 7% of total net sales in 2025 to 12% in 2026.

Importantly, this growth is margin accretive. Our sub-brands carry higher product margins than our core assortments because they are bought with scarcity and achieve higher full price sell-through. But the benefits extend beyond margins. our sub-brands or customer acquisition engines, attracting new shoppers, reactivating lapsed customers and driving higher spend among our most valuable customers. These lifestyle concepts deliver the newness and excitement that broadens our appeal while deepening engagement with our existing base.

Each brand with their distinct positioning, inspired aesthetic and lifestyle appeal, allow for broad reach and market share expansion. We're exploring multiple paths forward, not just through our direct channels, but also through pop-up experiences and expanded in-store assortments. We'll be testing these concepts throughout the year to determine the best approach for scaling these sub-brands, representing a disciplined approach to their growth. As I mentioned, our intimate apparel business showed strong momentum in Q4. We're building on that strength with the relaunch of curve, our intimate apparel brand this February, and we'll see the launch of 2 new bras in the back half of 2026.

Bras are a pillar of our product portfolio that drives strong customer acquisition and reactivation and long-term loyalty. Finally, as we discussed on our Q3 call, we refocused the foundation of our product assortment on core franchises, fabrications and silhouettes that resonate with our customers. We have previously stepped away from essential fabrications like Supersoft, a key favorite among our core customer base. Recognizing this gap, we began reintroducing these franchises in Q4 and immediately saw positive sales momentum in a turnaround in our tops business.

Building on this success, we've introduced the knit dressing capsule collection built around that franchise, we will expand in a meaningful way in the fall of this year. Shifting briefly to footwear. In Q4, we selectively reintroduced a curated assortment. And as I mentioned, the results are encouraging. We fundamentally restructured our sourcing strategy and assortment mix, this more disciplined approach delivers the shoe offering that drives stronger attachment rates and improved profitability. This will allow us to recapture both the direct revenue and attachment driven sales we lost during the absence of footwear.

The temporary pause of the footwear business had a 260 basis point negative comp impact to the full year in 2025 and a 460 basis point negative impact to the fourth quarter. Looking ahead, we'll face a first half headwind to comp and then a positive impact to the second half of the year. Now for an update on our opening price point strategy, which is exceeding our expectations. Developed and close partnership across merchandising, design, planning and product development teams, this strategy is acred in customer insight. We're successfully balancing customer demand for accessible price points with 2 nonnegotiables: margin discipline and product quality, maintaining our quality standards while delivering accessible value remains imperative.

OPP now represents approximately 30% of our total assortment and nearly 40% in stores, represented across jeans, leggings, non-denim bottoms and anchored in tops and graphic tees, this collection of most loved items are offered at an approachable value and provide everyday price parity across our e-commerce and brick-and-mortar channels. We are seeing the most loved opening price point collection drive conversion and UPT in both channels, and we believe that this will be a critical component of customer file growth, driving reactivation, acquisition and frequency, built on our disciplined product development platform, this assortment is cost engineered in support of opening price point value and leveraging the strength of our sourcing partnerships, lease platform fabric to enable speed.

The combination of these efforts and the unit acceleration we see in the early stages of this initiative, point to a highly accretive strategy with even greater runway ahead. As I've mentioned, our primary focus in 2026 is growing our customer file. We're implementing several targeted strategies to accomplish this critical goal. First, we are doubling down on reactivation of lapsed customers, leveraging our wealth of customer data to reintroduce customers to the expansive assortment offering of core opening price points and sub-brands. Second, and this goes hand in hand with reactivation. We are deeply committed to more informed customer segmentation and personalization across our own and organic marketing channels.

Early results are promising in our ability to drive incremental reactivation of lapsed customers and frequency among our most active. This includes greater e-mail segmentation, personalized content and messaging strategies testing initiatives and the reintroduction of direct mail to augment owned marketing channels. Our intent is to work methodically through the full marketing funnel, continuing to allocate resources and investments to channels and tactics that drive positive ROA and increase customer lifetime value. Third, we're strengthening the marketing and analytics infrastructure to support these efforts. We have redeployed senior marketing and analytical talent oriented around individual marketing channels, messaging and content strategies in support of a more comprehensive and effective commercial plan that is laser-focused on customer file growth.

And fourth, we are continuing to evolve and refine our loyalty program, of which over 95% of our active customers are engaged with a focus on strengthening the value proposition, ensuring the program remains a meaningful reason for customer engagement with our brand and most importantly, drive long-term retention and increase customer lifetime value. Our mission is clear. to leverage the foundational work we've completed across our channel, product and pricing platforms, to acquire new customers, reactivate lapsed customers and increased purchase frequency among our most loyal shoppers. This is our #1 priority, and we're deploying resources, talent and capital accordingly.

We know the most efficient path to customer file growth is through increased retention efforts and reactivation of our lapsed customer population, followed by new customer acquisitions. We have over 7 million lab customers who are reachable through owned marketing channels. The cost of reactivating these customers through segmentation and personalized communication costs roughly 1/3 of a new customer acquired through paid digital media channels. Leaning into this pool, leveraging in-house owned and organic marketing channels in a more strategic way, supports our marketing spend outlook consistent with prior years, in the 5% to 5.5% of net sales range.

We have completed a substantial 2-year transformation, strategically optimized our channel, product and pricing platforms. Q4 results reflect an early progress on our strategic initiatives, including the store footprint optimization, the sub-brand expansion, the footwear reintroduction and a product assortment anchored in core franchises and opening price points. The foundational platform is now built. We are entering a phase of maximization and scale.

I'd like to take this opportunity to speak to the entire organization and thank them for their extraordinary dedication and resilience throughout the year and this transformational journey. Your hard work, adaptability and commitment to excellence have been the driving force behind our progress. The operational improvements we've achieved would have not been possible without your daily efforts and unwavering focus on execution.

With that, I'll turn the call over to Paula.

Thank you, Lisa. Good afternoon, everyone, and thank you for joining us today. I will begin with a review of our full year 2025 results, and our fourth quarter financial performance. Then walk through the strategic progress we have made on our multiyear transformation and close with our outlook for fiscal 2026. Fiscal 2025 was a year of intentional structural change. We delivered full year sales of $1 billion in line with our guidance and an adjusted EBITDA of $63.6 million, slightly ahead of expectations.

Most importantly, we achieved as well simultaneously executing a significant transformation of our physical footprint, proactively managing an estimated $50 million in gross tariff headwinds and maintaining the inventory discipline that leaves us entering fiscal 2026 in a balanced inventory position. The headline result is that we entered 2026 with a fundamentally stronger operating structure.

Turning to the fourth quarter. Net sales were $236.2 million compared to $275.6 million in the prior year. Comparable sales declined 10%, which includes 460 basis points of negative comp impact due to the temporary pause of the shoe business. Gross profit was $70.9 million versus $92.6 million last year, and gross margin was 30% compared to 33.6% in the prior year, reflecting promotional activities product mix and deleverage on a reduced sales base. SG&A expenses declined by $11.4 million to $62.4 million compared to $73.8 million a year ago.

As a percentage of net sales, SG&A leveraged 40 basis points to 26.4%. This is a meaningful proof point, our cost structure is coming down drastically, supporting our EBITDA margin expansion, which is precisely the outcome, our store optimization program was designed to produce. We expect this leverage to continue and accelerate through fiscal 2026 as the full benefit of our rationalized footprint flow through. Marketing investment decreased by $1.9 million to $13.5 million. Net loss for the quarter was $8.1 million or $0.08 per share compared to a net loss of $3 million or $0.03 per share last year.

Adjusted EBITDA was $5.2 million, a 2.2% margin versus $16.7 million and 6.1% margin a year ago. We ended the quarter with $200 million in cash and cash equivalents and $31 million drawn on our revolving credit facility. Total liquidity at the end of the year including available borrowing capacity under our revolving credit agreement was $84.9 million providing adequate liquidity to execute our plan. Inventory totaled $136.5 million, down 8%, reflecting both tighter receipt management and the intentional reduction of our store base.

Aligned with our store optimization program, during the fourth quarter, we closed 77 stores, bringing our full year total to 151 closures for fiscal 2025. We expect to close up to an additional 30 stores by the end of the first half of fiscal 2026 at which -- at this point, the program will be substantially complete. Customer retention rates from closed locations have performed consistently with historical levels, validating both the network strategy and the underlying brand health. Our customers are finding us where we remain open and online, and we minimized exit costs by structuring closures around natural lease expirations wherever possible significantly reducing the cash cost of the program and preserving liquidity.

Most importantly, the financial impact is substantial and compounding. For fiscal 2025, we realized approximately $18.5 million in lower operating expenses from this year's 151 closures, plus the 35 stores closed in the prior year. As we move into fiscal 2026 with a fully rationalized footprint, we expect to capture an additional $40 million in expense savings.

Now turning to our outlook. As Lisa mentioned, we entered 2026 in a much stronger position. We have strategically optimized our channels, products and pricing platform. For the full year, we expect net sales of $940 million to $960 million and adjusted EBITDA of $65 million to $75 million, representing margin expansion up to 140 basis points off of fiscal 2025. Capital expenditures are expected in the range of $8 million to $10 million, reflecting continued reinvestment discipline. For the first quarter, we expect sales of $236 million to $244 million and adjusted EBITDA of $14 million to $18 million.

The EBIT expansion reflects the full year benefit of our optimized cost structure and the compounding effect of those operating savings flowing through the P&L. It is worth providing some context on the bridge from our $40 million in expected cost savings to our EBITDA guidance range calling for midpoint growth of 10% to $70 million. I want to be transparent about what is moving in both directions. On the offset side, the lower sales base naturally reduces gross margin dollars, which absorbs a portion of the cost savings. We're also resetting our incentive compensation program in fiscal 2026, which represents a meaningful year-over-year headwind as we return to a more normalized bonus structure. Taken together, these offsets explain the gap between the gross cost savings and the net EBITDA outcome. What the guidance reflects the business where the structural cost work is fully embedded and the underlying earnings power is growing even after absorbing those headwinds.

In closing, the store optimization program is largely complete. The cost structure has been reset, inventory is aligned to our full year plan, and the team demonstrated it can execute through complexity, tariff pressures, demand volatility and a major operational transformation. Our path forward centers on growing our customer file and expanding EBITDA margin.

Now we will open the call to answer your questions. Operator?

[Operator Instructions] And our first question comes from Janine Stichter with BTIG.

Was hoping to hear a little bit more about the learnings from the first year of sub-brands. Maybe help us understand some of the differences in the brands that you've launched this year, what's working, what's not. And then as we think about 12 sub-brands, 12% of sales next year, I think at one point, you had talked about it being 25% to 30% of the assortment. Is that still the right number? Just trying to reconcile those 2 figures.

Okay. Janine, so sub-brands, we are still very happy with the progress in that business. I think that what we've made a decision is to be more conservative about the growth cycle of that business. We're still happy. The margin is a benefit overall. Some of the brands are incredibly strong. I would say, of the 5 brands I would highlight [ best ], nightfall and retro as being very consistent performers, with Vest particularly being the #1 sub-brand and with the largest opportunity for expansion. We are -- Bell has a very high level of seasonality. So we're adjusting that itself better in the first half of the year than the back half of the year. And we're still exploring the opportunity with Lovesick, which is the younger oriented brand. So we are still feeling very bullish and have seen very positive momentum in that business.

We think that it will expand A little bit more in the front half than the back half really because we will be lapping in the back half of full presentation of all brands. And they -- we launched them sequentially in the first half of last year. I think as you said earlier in the mid-20s as a mix. I think we'll be more in the mid-teens as we play. I think we talked about going up to about $110 million estimated opportunity this year. And so we're still very happy with how they're performing. And we'll be testing some additional store in store opportunities as well as potential pop-ups later this year for sub-brands, as we see the stores performing better with the store optimization program, it gives us some room to add some of those businesses to stores more very judiciously, but to expand that opportunity.

Okay. Great. And then maybe just on the retention and lapsed customer reactivation. What have you learned about the reasons why some of these customers have not stayed with the brand? And maybe just elaborate more on the communications that you're going forth with now to reactivate those lapsed customers.

Janine, this is Ashlee. We've heard time and time again from lapsed customers that one of the primary reasons for spending losses economic pressure price, which we have addressed through opening price point. And in the prepared remarks, Lisa expanded on opening price point as an initiative that now represents about 30% of the business will expand to be closer to 40%. We're seeing incredible response to that. We're seeing it as a vehicle to reactivate customers through a more approachable value pricing as well as acquire new customers that way. We're seeing it drive frequency among existing customers as well. .

Beyond that, we recognize with the 7 million customers in our [indiscernible] file, they are marketable through our own channels. We have enormous opportunities through more advanced targeted segmentation and personalization of messaging, using product affinity, as a starting point as well as other demographic and kind of price preference among that population to get them back into the brand.

Our next question comes from the line of Dana Telsey with Telsey Group.

Can you talk a little bit about the cadence that you saw of sales during the holiday season quarter-to-date, what it looks like. Any thoughts on how the shaping of this year is go tariff expenses, what you have built into the model on margins with the puts and takes? And lastly, the return of footwear. How do you expect that to come back, impact on margins? And are there other categories, Lisa, that you're looking to that could be sales drivers going forward?

I'm going to do this backwards and I'm going to take the category conversation, and then I'll talk about tariffs and categories, and then I'll let Ashlee go through the rhythm of the business. We do have obviously, tariff pressure in the first quarter, as everyone does. And we think we've managed this well even with other types of supply chain challenges. Now where we have very, very good relationships with our vendors, and they've been great partners with us. And so we've been able to manage that pretty consistently. From a category basis, shoes are -- I'll just remind you, when the tariffs came, we were running a pretty much, I would say, even EBITDA business and shoes from that specific shoe business, but we had a very high level of attachment. .

So we were keen on reengineering to make sense both from a margin perspective as well as the customer acquisition modality and attachment to other types of products. We tested the new vendor structure and the new look and feel and quality of the product in November, and it was a resounding success. I'm very happy with the results. We've got some inventory coming in, in the first half of the year, but we still have headwinds, substantive headwinds, I think, in the first quarter and second quarter related to footwear, we'll be back in stock in the June-July time period. and we expect to have a benefit in that business in the back half. The way that we've tested it and the way that we're rolling it out allows us to expand margin in footwear as well as recapture the associated sales from customers who come to the brand through footwear.

Other categories that we see expanding outside of the OTP, which actually touches many of the categories of the business, I think denim, non-denim, tops, dresses, sweaters in the back half. The other categories would be active -- we have a fleece program rolling out that we think will be very advantageous. And then the expansion of OPP and some of these broader categories as we move forward. Those would be the bulk of the categories for expansion. Ashlee, remind me if I've forgotten something. So I'll let you go through the business rhythm.

Sure. Dana, we're pleased with fourth quarter as communicated, holiday performed as expected. We really saw improvement in the business in January. If you recall, we talked in our third quarter call about chasing into core franchises, core fabrication, particularly in our tops business. And those goods arrived late December for January selling, and we immediately saw the business turn in those categories. Our knits top business, for example, which is the second largest department in our portfolio started to comp positive as a function of those chase receipts. We continue to see really positive momentum in the categories that we've chased into further supported by opening price point.

As for the shape of 2026, footwear, as Lisa communicated, will continue to be a headwind in the front half of the year. The largest headwind will be felt in the first quarter abates a little bit in the second quarter, and then we'll provide a benefit on a year-over-year basis starting in the third quarter when we launched the boot business in a fulsome way. Additionally, in the back half of the year, we'll see the launch of 2 bras that will support expansion in the curve business as well as some additional fleet programs and net dressing capsules. So there's more to come in the back half of the year.

Our next question comes from the line of Brook Roach with Goldman Sachs.

Lisa, I was hoping we could dive a little bit deeper into your marketing plans for the year, specifically around pricing, promo and loyalty. what's changing the loyalty program as you look to reactivate lapsed customers and increased dollars per spend on active customers today? And how does that tie into your plans for toward cash and marketing?

Great. So we've talked a lot about price and beyond the opening price point. So as we survey our customers, more than half of our customers articulate that one of their reasons for lapsing would be their personal financial situation, and they would like to see more price parity in terms of both channel and opening price point in our core businesses. So we've talked a lot about that, and that's moving forward. I would say the biggest shift that we'll see this year in promotion is that we're putting less pressure on toward cash redemption. And so that has been dwindling over time. And we've just reset our expectations for the redemption in those categories. So we'll be able to pull back on our reliance on that piece of that.

I think the other piece for us for the customers is price point messaging versus percentage of messaging. And I think all of those things are working well. We also have a lot more multiples in our promos right now. So that multiple is in bralettes and knits and woven tops, those types of things that have been -- I got to test very well for us and are exceeding our expectations. So promos will shift out of so much reliance on to our cash, a bit more into everyday opening price point opportunities and price parity between channels, which we also think that's important.

Royalty has been pretty consistent for us. What we're looking to build in the loyalty piece is a bit more frequency. It's -- retention isn't as much of an issue there as we think we have opportunity in driving a bit more frequency among those loyalty customers with better citations. We just did a special sale for them a couple of weeks ago that we delivered in a very different way than we've normally deliver. It was very well received and the conversion on that was quite good. So we're testing different tactics to highlight their loyalty levels and giving them more attention. We've also reinstituted the ICON level in our loyalty program, which is top on the top of those customers so that we ensure that we continue to get very robust feedback from the loyalty -- the customers.

And some of the decisions that we've made are completely driven or very much driven by the feedback that we get from our customers and with every level of communication, every touch point that we have. So that's been the play. I would say that we feel like there's a grassroots version of marketing that will augment what we do in more of the paid spend, and I'll let Ashlee talk a little bit more about that.

We recognize that we have an enormous amount of opportunity to leverage our owned organic channels, particularly to reactivate customers but also to drive frequency among our existing loyalty members through really precise targeting, personalized or segmented content and messaging in a way that we haven't. We have an enormous amount of data on our customers with over 95% of them participating in our loyalty program. gives us a great advantage to communicate to them in a more personalized way, and that's going to be one of our key focuses for the year. .

Additionally, we've entered direct mail as a modality, an additional touchpoint portion of that will be allocated to loyalty customers or active customers of a frequency driving touch point, and we'll really leverage that in a more powerful way toward acquisition and reactivation.

Great. And then just one follow-up for Paula. As you look on a multiyear basis, you think that double-digit EBITDA margins are achievable? And if so, how should we be thinking about the core drivers of achieving that recovery in margin rate? .

Yes. Brooke, Yes, I do believe so. And I will tell you that our plan, we have up to 150 basis points of EBITDA margin increase in fiscal '26. And that's really through leveraging our SG&A platform. As we progress throughout the year, we're going to see that leverage increases more and more. But even with the Q1 guidance that we have provided, you will see us starting towards SG&A in which at the end of the year, you're going to see that gap increase and therefore driving that to the bottom to the profitability. So yes, 150 basis points of leverage by this year is very much a possibility and for that to continue to grow in the next few years is probably a good assumption.

Our next question comes from the line of Corey Tarlowe with Jefferies.

Great. Lisa, I guess, a high-level strategic question. 2025 sort of felt like a defensive year closing stores. What do you think more is left on the defensive side of the equation as opposed to when do you feel like you can really get to playing offense? And is that the way to kind of think about what 2026 should be? And then I have a follow-up.

Corey, I do think about us pivoting into a more offensive -- that's not a good way to say that, more offense-oriented approach. And I think what we've done to restructure the channel expense base, to expand product and now this is really more about refinement. I think our -- I think the -- what we were talking about in terms of segmentation and refocus on owned and organic marketing efforts have -- is a great opportunity for us and should expand the customer file this year. We are also seeing the -- I think, reinvigoration of the loyalty interest in the business through sub-brands. So we are seeing those aspects of the business.

I think product I feel great about, OPP is working very, very well, and we'll expand. Sub-brands are working well and expanding. And we are -- we've cut a substantive amount of fixed expense from underperforming stores. The stores that are open right now are exceeding our expectations in terms of their performance. So we're starting to see that turn. And have actually put a little bit more pressure on store sales as we move through the year, which we think is a better mix in terms of the margin opportunity there. But we do think, and I think my message overall is intended to share that we've accomplished the store closure very effectively and executed that very well. we've integrated and introduced the OPP through multiple categories of the business and are pleased with how that's working. Our store profitability are improving.

We're bringing back footwear. We're expanding other categories of the business. And so we do feel like we're in the position to start reaping the benefits of this as we move through the year.

Got it. That's helpful. And then just as a follow-up, how are you thinking about pricing and promotions for 2026?

I think one of the things that helps us with OPP is we actually generate a similar out-the-door price point as well as enhanced margin as we are cost engineering these products due to volume opportunities. As I mentioned, Torrid cash has less pressure on it this year as we are moving into more aligned integrated channel promotions that are more price pointed. And then I think the last piece of that is targeted promotions or targeted promotions throughout segmentation efforts that we think early on, we're seeing nice results on. So a much more targeted opportunity and using those promotions to reactivate and build frequency of our customers, and using the OPP product on one end and the sub-brands on the other to really engage a broad swath of our customers and build that frequency, build their basket.

So we're seeing early results in segmentation to be positive. Early results in segmentation and the loyalty program to be positive. And really think being more personalized and surgical about those messages, both from a product and promotional basis as what the business needs, and we're prepared to do that this year.

Our next question comes from Dylan Carden with William Blair. .

Can you guys hear me?

Yes.

Awesome. I just wanted to ask a general question about your consumer. How are they behaving? How have they changed over the last 6 months? Are you expecting anything from refunds? Any changes in the performance of different demographics?

Performance within the customer file from a demographic basis has been very consistent. We've seen consumer behavior or our customers' behavior to be very consistent as well. As Lisa talked about earlier, when we survey customers, the most frequent response we got is related to price or economic pressures that she's feeling. And we've been able to answer that with opening price point in a very effective way. .

Got you. So on the refunds, do you expect that to lift any of you like your OPP sales or anything on that front that you're embedding in the outlook?

We're encouraged with the trends of the business that we're seeing now, whether or not that's related to tax refunds, I can't say for certain, but we are encouraged by the trends that we're seeing in the business so far this quarter.

I would say we don't have anything outsized embedded into the guidance related to accelerated tax refunds.

There are no further questions at this time, which now concludes our question-and-answer session. I would like to turn the call back over to Lisa for closing comments.

Thank you. Thanks, everyone, for joining us today. We look forward to sharing the progress in the business as we move forward and we release Q1. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.

Greetings, and welcome to Torrid Holdings Third Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Chinwe Abaelu, Chief Accounting Officer and Senior Vice President. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining Torrid's call today to discuss our financial results for the third quarter of fiscal 2025, which we released this afternoon and can be found on our website at investors.torrid.com. With me on the call today are Lisa Harper, Chief Executive Officer of Torrid; and Paula Dempsey, the Chief Financial Officer. Ashlee Wheeler, our Chief Strategy and Planning Officer, is also present and will be participating in the Q&A session. 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 may include, but are not limited to, statements containing the words expect, believe, plan, anticipate, will, may, should, estimate and other words and terms of similar meaning. All forward-looking statements are based on current expectations and assumptions as of today, December 3, 2025. These statements are subject to risks and uncertainties that could cause actual results to differ materially. For further discussion of risks related to our business, see our filings with the SEC. With that, I'll turn it over to Lisa.

Thank you, Chinwe. Hello, everyone, and thank you for joining us today. I'll review our third quarter performance and provide an update on our strategic initiatives, including the enhancement of our product assortment, our commitment to the growth of our sub-brands, the expansion of opening price point strategy and execution on our store optimization plan. Then I'll turn the call over to Paula to discuss the financials. We are clearly disappointed with our overall performance this quarter. Despite some areas of strength, it was more than offset by missteps in our overall assortment mix that we are addressing head on with decisive corrective actions, and I'll discuss that shortly.

For the quarter, while sales came in at the low end of our guidance, profitability was dampened by deeper promotional activity than we had planned, impacting our adjusted EBITDA. We delivered third quarter sales of $235 million and adjusted EBITDA of $9.8 million. I want to be clear, these results largely reflected execution issues that are within our control. Let me walk you through the factors that influenced our results. This quarter delivered strong performance in several key categories with denim, non-denim, dresses and intimates meeting our expectations, all generating positive comparable growth.

However, this improvement was more than offset by missteps in our tops and jackets category. Tops represented approximately half of the year-over-year sales miss this quarter. Specifically, we shifted too heavily towards fashion-forward designs at the expense of our core assortments and established franchises. While innovation is important, the shift moved us too far from the functional replenishable items. Our customer feedback has been invaluable in guiding our course correction. We are successfully attracting and reactivating consumers who embrace our elevated fashion and lifestyle offerings across our sub-brands.

However, our loyal long-standing customers continue to rely on us for their core ward drove essentials and their solution-oriented products and trusted fabrics with evolutionary rather than revolutionary style updates. Our denim category exemplifies the balanced approach we're implementing going forward. In Q3, we successfully integrated fashion elements while preserving our core franchise DNA, delivering mid-single-digit growth on top of last year's double-digit performance. This demonstrates our ability to innovate within our customers' expectations, and we're applying those learnings across all categories moving forward.

We are taking decisive action to address these challenges with clear time lines and measurable outcomes. First, we've strengthened our merchandising foundation by implementing enhanced guardrails in our merchandising process and building a more robust assortment planning function. I'm personally overseeing both initiatives to ensure rapid execution and accountability. Secondly, we're actively addressing near-term assortment gaps. We've initiated chase orders for our key franchises, focusing on the core fabrications and silhouettes our customers expect in both knits and woven tops.

These products will begin arriving in January, positioning us to see sequential improvement in knit and woven performance by the end of Q4 with accelerating momentum into Q1 2026. Looking ahead, we've completed a comprehensive review of our spring/summer 2026 buying strategy. We're rebalancing our investments to deliver the right mix across categories, fits, fabrics and end users, ensuring we meet our customers where they are while maintaining our innovative edge. These actions reflect our commitment to operational excellence and customer centricity. We have clear visibility into the path forward and confidence in our ability to return these categories to growth.

Shifting to footwear. Our strategic decision to pause the footwall category in response to tariff-driven cost pressures was sound, but we underestimated the attachment rate impact. The loss of this anchor category resulted in lower overall basket sizes and transaction frequency, leading to what we estimate as an approximate $12.5 million in lost sales this quarter, of which $10 million was contemplated. The timing amplified the impact as October represents our peak boot selling season, which historically drives some of our highest attachment rates of the year. We've taken decisive action to quickly course correct. We reintroduced a carefully curated footwear assortment in mid-November and early performance has been encouraging.

We've restructured our sourcing and SKU mix to mitigate tariff exposure while maintaining the category's ability to drive attachment. Based on what we're seeing, we expect to scale footwear back to historical sale levels of approximately $40 million in 2026, but importantly, an improved profitability given our more disciplined approach to the category. This positions us to recapture both the direct footwear revenue and the attachment-driven sales we lost during the temporary pause. Now turning to our strategic initiatives. We are focused on enhancing our product offering by expanding sub-brands and strategically introducing an opening price point strategy designed to increase market share through customer acquisition and increase frequency among our loyal customers.

Our sub-brand strategy is working and is on track to deliver approximately $80 million in sales this year, attracting new, reactivating lapsed and increasing spend among our high-value customers. These lifestyle concepts offer unique collections that provide newness and excitement while broadening our customer base. Importantly, sub-brands create a halo effect, driving attachment rates to core categories and supporting customer reactivation through targeted community and influencer marketing.

Looking ahead to 2026, we're implementing a more strategically balanced assortment architecture. Approximately 30% of our assortment offering will be opening price points, developed in close partnership with our merchandising design and product development teams to ensure we maintain our quality standards while delivering accessible value to customers. We are excited about momentum in our intimates business with 3 new bra launches planned for 2026, our first substantive bra introduction since 2019, representing significant innovation in this important category. Bras as a category drives strong customer acquisition and loyalty and engagement, and we believe there is significant runway in this business.

On the marketing front, we are committed to a balanced approach with emphasis on both mid- and upper funnel awareness and acquisition as well as lower funnel conversion and retention. This includes increased digital media investment, a robust influencer strategy and several in-person activation. In 2026, you will see even greater expansion of these community and brand-building engagement efforts. Our popular model search campaign ran from September to November this year and was done through our digital channels, supporting a broader reach. We had an incredible response again this year, so much so that we selected 5 top models, one from each age demographic ranging from 18 to 50-plus, showcasing the range and relevance of our brand and community.

Additionally, we have improved the value proposition of our loyalty program and our private label credit card, which drives significant expansion in customer lifetime value. We remain committed to our store optimization strategy, and I'm pleased to report we're executing exceptionally well against our plan. As consumer preferences continue to shift toward digital channels, we're proactively rightsizing our physical footprint to deploy capital more efficiently and enhance shareholder returns. Our execution remains on track. We closed 15 stores in Q3, bringing our year-to-date total to 74 stores, and we continue to expect approximately 180 closures for the full year.

Importantly, we're seeing strong retention metrics aligned with our expectations that validate our approach. Customer retention from this year's closures is running in line with our expectations, demonstrating the strength of our omnichannel ecosystem, the success of our enhanced retention strategies, including multi-touch communication plans and our ability to successfully migrate customers to nearby locations and digital channels. With 95% of customers engaged in our loyalty program, we remain well positioned to effectively migrate customers to nearby stores and digital channels.

The financial benefits are substantial and will accelerate as we move through this optimization. These closures are expected to contribute significant adjusted EBITDA margin benefit in 2026, while also generating significant free cash flow improvement that will provide increased flexibility for future strategic investments. Now I'll turn the call over to Paula to discuss the financials.

Thank you, Lisa. Good afternoon, everyone, and thank you for joining us today. I'll begin with a review of our third quarter financial performance and then provide our outlook for the remainder of fiscal 2025. While sales landed at the low end of our guidance, softer demand in our digital channel required higher-than-planned promotional activity, which has pressured adjusted EBITDA. At the same time, we continue to realize meaningful benefits from our store optimization initiatives, resulting in 11.5% year-over-year reduction in SG&A. We remain committed to disciplined inventory management and ended the quarter with inventory down 6.8% compared to last year.

Net sales for the third quarter were $235.2 million compared to $263.8 million in the prior year. Comparable sales declined 8.3% and our tariff-related pause in the shoe category drove approximately 400 basis points to this overall decline as we temporarily scaled back while navigating elevated import costs in the category. Gross profit was $82.2 million versus $95.2 million last year. Gross margin was 34.9% compared to 36.1% in the prior year, reflecting higher promotions and deleverage on the lower sales base. SG&A expenses continue to reflect the disciplined cost structure we're building across the enterprise. SG&A was favorable by $8.6 million, resulting in $66.3 million for the quarter compared to $74.9 million a year ago.

As a percentage of net sales, SG&A leveraged 30 basis points to 28.2%. This year-over-year improvement is a direct result of our multiyear transformation to structurally reduce operating expenses. Benefits from our store optimization initiatives and our focused approach to organizational prioritization are enabling us to reduce fixed costs. These gains reflect more than store closures alone. They represent a broader shift towards a more efficient, more variable cost structure designed to flex with demand, strengthen margin resilience and enhance free cash flow. As store optimization progresses, we expect further SG&A leverage and incremental liquidity benefits in fiscal '26.

Marketing investment increased by $2.7 million to $15.7 million as we leaned intentionally into customer acquisition and brand visibility during the quarter. These investments support our long-term plan to strengthen top of the funnel, improve brand relevance and drive traffic. We continue to refine our marketing mix towards higher return channels with more personalized targeting and improved attribution. The timing shift of our model search event from Q2 to Q3 also drove this increase. This event continues to deliver high engagement and long-term customer loyalty. Net loss for the quarter was $6.4 million or $0.06 per share compared to a net loss of $1.2 million or $0.01 per share last year.

Adjusted EBITDA was $9.8 million, representing a 4.2% margin versus $19.6 million and a 7.4% margin a year ago. We ended the quarter with $17.2 million in cash compared to $44 million last year. As of November 1, we had $14.9 million drawn on our revolving credit facility with approximately $86.2 million of remaining availability. Inventory totaled $128.8 million, down 6.8% from last year, reflecting both lower receipts and our reduced store base. Turning to store optimization, which remains a cornerstone of our multiyear transformation. During the quarter, we closed 15 stores and remain on track to close up to 180 stores in fiscal 2025.

Customer retention from these closures continue to perform consistently with historical levels. The stores we're exiting are structurally unproductive and closures are aligned with natural lease expirations, minimizing exit costs. On a Q3 year-to-date basis, we have realized approximately $18 million in lower operating expenses from closing 74 stores this year and 35 total stores in the prior year, and these savings are already reflected in our performance. As we move through Q4 and complete the planned closures for fiscal '25, we expect even greater savings in fiscal '26, which will enhance our liquidity position.

This initiative is both a structural realignment, reflecting where our customers increasingly choose to shop with about 70% of demand originating online and a proactive liquidity strategy designed to protect the business, strengthen our balance sheet and enhance the resilience of our operating model. Overall, we believe store optimization will deliver substantial adjusted EBITDA margin expansion in fiscal '26. We are updating our outlook for the remainder of the year to reflect third quarter performance and current trends. We now expect full year net sales in the range of $995 million to $1.002 billion and adjusted EBITDA in the range of $59 million to $62 million for the full year.

Capital expenditure is expected in the range of $13 million to $15 million. In closing, we're executing a disciplined and deliberate transformation of our retail footprint. By taking advantage of natural lease expirations to rightsize our store fleet, we're structurally improving our cost base and strengthening the long-term health of the business. The combination of lower fixed costs, enhanced digital capabilities and a more productive store base is expected to drive sustainable margin expansion and generate meaningful incremental liquidity as we move into fiscal 2026. Now we will open the call to your questions. Operator?

[Operator Instructions] Our first question comes from Janine Stichter with BTIG.

Could you elaborate a bit on some of the product missteps that you talked about? What cues are you getting from the consumer to tell you that this is where the challenge is and this is what needs to be fixed? And then you talked about the promotions being higher on the digital channel. Maybe elaborate on why that is or why you think that is and what you saw in the stores during the period.

Thanks, Janine. It's Lisa. The merchandising missteps were very focused on tops, as we mentioned. So tops were about half of the total revenue miss for the quarter. Shoes were about 40% and then jackets because of their seasonal importance were about 10% for the quarter. So it's pretty -- we've talked through the shoe situation, which is a pause based on the tariffs. We've reintroduced shoes and boots recently are having a great response to them. We'll continue to build that business back up and recapture that revenue as we move into 2026. But for the quarter, the biggest miss and the biggest action was really focused around the tops category.

What I would say from a merchandising miss perspective was the advocation of a couple of our core fabrications and core kind of entry point solution-based products for the customer. And so we've been able to chase that product very quickly. It's longer tops, more tunics, brushed waffles, super soft knits and Sally in the woven category. So it's very focused on a few fabrications, very focused on a few end uses. And because we are able to platform that fabric, we're being -- we're back into some of those businesses in the fifth week of December and throughout January and February in terms of receipts. So we expect to see improvement in those categories as we move into early first quarter as we'll have, I think, chased the bulk of what we feel is missing in the assortment right now.

So what we've done to avoid that in the future is really enhance, although we have pretty substantive guardrails to this, this was a merchandising this was obviously very disappointing and frustrating for the organization for the quarter. And so we put enhanced guardrails around the process. We've put in a robust assortment planning, multifunctional approach to the categories, particularly. And we are just increasing oversight, and I'm involved in every step of that. I would say that as an organization, they were able to effectively kind of innovate and balance product assortments in all areas except for tops. So I would say that -- I would -- all areas except for tops and jackets.

The benefits of that innovation and expansion to the core product is present in denim, non-denim dresses and intimates. And so those areas were able to positive comp. As we mentioned in the prepared remarks, they weren't able to offset the detriment of the tops miss. So if you think about the total miss for the quarter, I'll restate it, it's about 50% tops, about 40% shoes and related transactions with shoes and then about 10% in jackets for the quarter. And I'll turn it over to Ashlee to answer the promotional conversation.

Janine, I'd say that the accelerated promotional activity was in large part correlated to the miss in the top space. So as Lisa noted, in the absence of some of those core franchises, entry price point solution-based items and a swing into more highly novel or more fashion-oriented assortment. It put a little more pressure on promotional activity, AUR, for example, in the absence of those entry price point categories. That said, I think we've done a really nice job making sure that we're coming out of the season clean. So there are no inventory issues to speak of related to some of these missteps in assortment.

Perfect. And then maybe just one more for me. The full year guidance implies, I think, a mid-teens revenue decline in Q4. Anything you can share about where you're tracking quarter-to-date versus that guidance?

Obviously, we are able to incorporate current performance into that guidance. We don't anticipate a recovery, substantive recovery in either tops or shoes for the balance of this quarter. We'll start to see some improvement in tops in first quarter. We'll still be -- have a drag in shoes as we go through the fourth quarter and the first half of next year. So contemplate -- all of that is contemplated into that guidance.

Our next question comes from Brooke Roach with Goldman Sachs.

Lisa, for a couple of years now, the balance of fashion versus basics and opening price point versus stretched product has been something that the business has been chasing. What's changing in the processes to ensure that you have both those opening price points and balance items in your assortment and planning architectures? And other than oversight, how do we ensure that this is something that's more systematic on a go-forward basis as we look into 2026 and beyond?

Thanks, Brooke. I just called you by your last, I apologize. Thanks, Brooke. So I would say that the issue -- the overall issue and opportunity in this business was -- is about innovation and remaining relevant and commercial. That is balanced against the need of the customer and the request of the customer -- the focus of the customer on price point. And so as we go into first quarter of next year, we will be in terms of opening price point, close to 30% of sales and assortment associated with those categories of businesses that service our customer in terms of core products, solution-oriented, high quality at a price that she has shown us that she reacts to and values.

That is built into the architecture, the assortment architecture as we move forward. It is something that we are -- have embedded in that process. Both sides of this are important. First of all, we have to move forward and remain relevant. I think that we've been able to do that with sub-brands. We've been able to do that in the categories that I mentioned before, denim, non-denim dresses and intimates. And the miss really is in the tops area, which had advocated and exited through merchandising direction to many of the core programs. Those core programs are bought and will be -- already have been planned to receive as we get into January receipts going into 2026 sales, and it's part of the assortment architecture.

So the need for the business to move forward and innovate with product was important as our customer feedback had been that -- our styling was not keeping up with their demand. We've balanced that, I think, in every area, except for the misstep in tops, where we will be going into first quarter with a much stronger opening price point strategy across the board, but primarily the highest level of opening price point will be in tops as we move forward. It's built into the assortment architecture of the business. I don't know, Ashlee, do you want to add anything?

Brooke, I might add, if we take a look at the categories where we executed well in the third quarter, so denim as a proxy is a place where we stayed committed to the franchises that the customer knows us for, the Bombshell franchise, for example. We stayed very committed, but we expanded upon that, gave her more innovation through leg shape, wash treatment, finish. And that system has worked very, very well. It's worked well for us in dresses where we've stayed committed to end use covering every aspect of her life and been very focused on multi-end use, it's worked well.

Tops where we misstepped in the third quarter, we did not do that, and we walked away from very critical end use and solutions. We have to get back and stay focused on the same balance that we applied in denim and in dresses to our tops category, which is the largest category of the business.

That's really helpful. As a follow-up, have you seen any larger or outsized shifts in engagement among any specific income demographic or age cohort of your consumer? Maybe said another way, are you seeing any changes in the demographic makeup of your businesses which customers are engaging with you the best?

In terms of customer demographics or income cohorts, performance has stayed consistent across all of those. What we observed in the third quarter, very different from previous quarters is our most loyal, our most engaged customers pulled back, and we saw that come through reduced frequency and fewer purchases in the tops departments in particular.

Our next question comes from Corey Tarlowe with Jefferies.

Leslie, can we just talk a little bit about the sub-brand momentum and any updates there as that's continued to build in the assortment and how you think about this quarter's results may alter or change the approach in the sub-brand strategy?

Thanks, Corey. No change in the sub-brand strategy. I think that we have a clear winner in the [indiscernible] brand and think that, that will expand. Nightfall and retro are continuing to perform very, very well. Belle Isle is more -- we've identified it more as a first half brand than a back half brand. And so we'll be adjusting kind of the sales momentum associated with Belle Isle to be probably more 60% first half, 40% back half. And then we've introduced Tru in our active business, which we're very happy with the results there. And Lovesick is still kind of, I would say, in test mode. We don't have a lot of revenue associated with that as we move into next year as we're able to refine that assortment moving forward.

I think in general, very, very pleased with the sub-brand momentum and expect it to continue to grow dramatically as we go into 2026.

Great. That's really helpful. And then just a follow-up. Can we talk about the leverage profile and how that changes with all the store closures and what the perhaps new leverage profile might be as we think about easier lapse in 2026 and what that could mean from a margin perspective?

Corey, this is Paula. So as we think about 2026 with the store closures, what's going to happen is our profile will be more flexible from an expenses standpoint. So of course, less fixed expenses, and we'll have the ability to be more dynamic from that standpoint. I think from a gross margin, the profile may be staying closely the same to where that total enterprise is today. But what you're going to see is a substantial EBITDA margin expansion in 2026 with the store closures. So currently, we are seeing the store closure optimization work really well. We have delivered over $18 million of cost reductions this year alone. We expect that number to be much greater mid 2026 when we annualize 180 stores. And so that will also strengthen our liquidity substantially for 2026.

Our next question comes from Alex Straton with Morgan Stanley.

Maybe for Paula, I think you said you expect significant EBITDA margin expansion next year. I'm not sure if I heard that right. But if so, can you just elaborate more on that and what type of level is in reach? And then just on -- as a follow-up to the sales guidance for the fourth quarter, worse pressure than the third quarter is what's implied. So is that reflecting what you've seen quarter-to-date? And what areas is that are getting worse from a quarter-over-quarter perspective?

So going to Q4 guidance, we are all in for Q4 guidance. So what you're seeing is essentially accounting for what Lisa had mentioned before, the miss in tops along with shoes. There is also a seasonality impact in our business typically in Q4. So it goes along with that seasonality impact. As we moved into fiscal '26 with store closures and EBITDA margin growth, what you're going to see there is, if you recall, a lot of these stores that we're closing, actually, most of them are very highly unproductive stores. So by closing them, we're essentially giving money back to the business through reductions in many items in the P&L, right?

So such as store payroll or store occupancy, et cetera, et cetera, et cetera. So we're going to see a greater amount of savings from that standpoint. And just to touch base again, we're seeing retention, customer retention, sales retention from these store closures to be well aligned with our historical rates, which is a great sign for us. So everything is going really well from that standpoint. I would say as we are on track to closing up to 180 this year. And I think that's all we have from a store optimization at this point.

Our next question comes from Dana Telsey with Telsey Advisory Group.

As you think about the current merchandising adjustments that are being made, what are you seeing in the competitive landscape? Do you think of this more as an internal issue that Torrid needs to fix? Or is there changes in the competitive landscape and whether it's product assortment, price point or where your customer is going?

Thanks, Dana. I do think there's a seasonal aspect to it. I think, obviously, a lot of this is self-inflicted driven by really advocating core products in the knit and woven top categories. I do think seasonally, there are a lot of options that other brands have extended sizes, and it's more sweat shirt-oriented, sweater oriented that are not as fit specific. We certainly didn't see this impact in the tops business in the first half of this year. So it really did accelerate as we go into third quarter. I think we have a real opportunity to build back with the opening price point strategies that we discussed and keep fabrications that our customer really values. More tunics in the mix, more kind of figure flattering solution-oriented products in the knit category and then more kind of wear-to-work and blouse business in the woven categories.

But I do think that in the third quarter, there is an ability to choose tops among a broader range of retailers because just the seasonal impact of being less fit specific and more oversized. I don't -- while we -- to that end, we didn't see the degradation in any of our bottoms businesses, which are more fit specific or our dress business, which also we were able to have great representation of end uses and fit solutions. So I feel like it's isolated, very clearly isolated. I do think it could be -- could have been -- I don't have any data to really support it, but just broadly from a mindset, it could have had a larger impact because of the seasonal nature of the products in the knit and woven categories during the time.

So again, quickly move to address it. When I think Ashlee mentioned earlier about our less frequency in terms of tops purchases in the third quarter, tops really are a frequency driver for us so that they don't buy denim as often or dresses as often, but they do buy tops more often. And I think that opportunity to by tops other places might have been enhanced by that timing. I do think anything that we've seen in terms of surveying with our customers, they're still very dedicated to Torrid. They're very interested in shopping at Torrid. They're still maintaining their strong relationship and our loyalty program continues to be very highly penetrated.

So we have a lot of opportunity to communicate and connect with this customer and understand exactly what's missing. And as I mentioned, the one thing that continues to come up is opening price point that I would say we did have fits and starts with over the last several years, but very deeply invested and committed to based on the analysis and of our previous OPP programs and the expansion related to that. So I think we're going to be able to recapture her tops purchase in addition to maintaining the denim and dress purchase from her as we introduce -- reintroduce these core businesses at an opening price point. Did I answer the question, Dana?

This now concludes our question-and-answer session. I would like to turn the floor back over to Lisa Harper for closing comments.

Thank you for joining us today. We look forward to sharing the progress on the store optimization program and the remerchandising of our tops area as we join you for the fourth quarter and fiscal '25 conference call. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines, and have a wonderful day.