Torrid Holdings' Margin Resilience Amid Tariff Pressures: A Strategic Play for FY26 Growth

In the face of escalating tariff pressures and a 7.7% year-over-year decline in net sales for Q2 2025, Torrid Holdings has embarked on a bold strategic overhaul to fortify its margins and position itself for long-term growth. By aggressively closing underperforming stores, accelerating digital transformation, and reallocating marketing spend, the company is demonstrating a disciplined approach to operational efficiency and margin expansion. These initiatives, coupled with proactive cost mitigation, are creating a compelling path to EBITDA resilience and FY26 profitability.

Store Optimization: Cutting Costs, Boosting Margins

Torrid’s decision to shutter up to 180 stores in FY25 is a cornerstone of its margin-resilience strategy. According to a report by Business Wire, the company closed 59 stores by the end of Q2 2025, with plans to close an additional 121 in the second half of the year [1]. These closures are projected to reduce fixed costs and free up capital for reinvestment in high-margin initiatives. Management has emphasized that store optimization will yield 150–250 basis points of EBITDA margin improvement net of increased marketing spend by FY26 [2].

The rationale is clear: underperforming stores drag on profitability, while digital channels offer higher scalability. By trimming its physical footprint, Torrid is streamlining operations and redirecting resources to areas with stronger growth potential. As stated in the Q1 2025 earnings call, CEO Lisa Harper noted that store closures would “allow for reinvestment in customer acquisition and omnichannel enhancements” [3]. This strategic pivot is critical in an environment where tariffs have already eroded adjusted EBITDA by $15 million in 2025 [1].

Digital Acceleration: A 70% Sales Mix by 2025

Parallel to store closures, Torrid is aggressively expanding its digital footprint. Digital sales now account for nearly 70% of total revenue, up from 45% in Q2 2024 [1]. The company aims to push this to 75% by FY26, leveraging omnichannel strategies to enhance customer engagement. This shift is not merely a response to declining physical sales but a calculated move to capitalize on higher-margin digital transactions.

Management has underscored that digital acceleration is central to margin expansion. For instance, the pause of the China-sourced footwear category—responsible for $40–$45 million in annual revenue—was a strategic decision to mitigate tariff impacts while preserving EBITDA neutrality in 2025 [1]. By focusing on high-margin sub-brands and optimizing digital experiences, Torrid is aligning its portfolio with trends that prioritize profitability over volume.

Marketing Reallocation: Precision Over Broad Spending

A key enabler of Torrid’s margin resilience is the reallocation of marketing spend. The company has shifted budgets from broad, low-impact campaigns to targeted customer acquisition and retention efforts. As highlighted in the Q1 2026 earnings call transcript, cost savings from store closures are being reinvested into digital marketing and loyalty programs [2]. This approach ensures that every dollar spent contributes to scalable, high-margin growth.

For example, Torrid’s decision to pause its footwear business—a move that neutralized EBITDA but reduced revenue—allowed the company to redirect $40–$45 million toward initiatives with higher returns. Management has also emphasized that discretionary cost reductions and project prioritization will offset the remaining $10 million in tariff exposure [3]. This disciplined capital allocation reflects a broader commitment to operational efficiency.

The Path to FY26: Margin Expansion and Strategic Confidence

While Q2 2025 results showed a 37.8% decline in adjusted EBITDA to $21.5 million [1], the company’s FY26 outlook is cautiously optimistic. Management projects a 150–250 basis point increase in EBITDA margins, driven by store optimization, digital acceleration, and cost discipline [2]. These gains will be critical in offsetting the $20 million net tariff impact anticipated for 2025 [3].

The strategic playbook is clear: Torrid is trading short-term pain for long-term gain. By closing underperforming stores, accelerating digital adoption, and reallocating marketing spend, the company is building a leaner, more agile business model. As Lisa Harper stated in the Q1 2025 earnings call, these initiatives are “part of a broader effort to adapt to evolving market conditions and strengthen competitive positioning” [3].

Conclusion

Torrid Holdings’ margin resilience amid tariff pressures hinges on its ability to execute a dual strategy of store optimization and digital acceleration. While Q2 2025 results highlight the challenges of this transition, the company’s FY26 projections suggest a path to meaningful EBITDA expansion. For investors, the key takeaway is that Torrid’s strategic reallocation of resources—coupled with disciplined cost management—positions it to navigate macroeconomic headwinds and emerge stronger in a competitive retail landscape.

Source:
[1] Torrid Reports Second Quarter 2025 Results [https://www.businesswire.com/news/home/20250904734938/en/Torrid-Reports-Second-Quarter-2025-Results]
[2] Torrid Holdings Inc. (CURV) Q1 FY2026 Earnings Call Transcript [https://finance.yahoo.com/quote/CURV/earnings/CURV-Q1-2026-earnings_call-329266.html]
[3] Torrid Reports First Quarter 2025 Results [https://investors.torrid.com/news/news-details/2025/Torrid-Reports-First-Quarter-2025-Results/default.aspx]