Torrid's Q2 2025: Contradictions Emerge on Sub-Brand Impact, Tariff Effects, Customer Behavior, and Inventory Management

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 4, 2025

Financials Results

• Revenue: $262.8M, down 7.7% YOY (vs $284.6M prior year)
• EPS: $0.02 per share, down 75% YOY (vs $0.08 prior year)
• Gross Margin: 35.6%, compared to 38.7% in the prior year

Guidance:

• FY2025 net sales expected at $1.015B–$1.030B.
• Q3 net sales expected at $235M–$245M.
• FY2025 adjusted EBITDA expected at $80M–$90M.
• Q3 adjusted EBITDA expected at $16M–$21M.
• FY2025 capex expected at $10M–$15M.
• 2H incremental marketing +~$5M; FY marketing ~6% of sales.
• Tariffs: total FY2025 impact ~ $15M; up to $10M incremental headwind; ~80% mitigated.
• Closing up to ~180 stores in FY2025; majority of remaining ~120 closures in 2H.

Business Commentary:

• Revenue and EBITDA Performance:
• Torrid Holdings reported net sales of $263 million for Q2 2025, with a comp sales decline of 6.9% for the quarter.

• The decline in sales was attributed to headwinds from restructuring the footwear business and delaying a model search activation until Q3.

• Sub-brand Expansion and Customer Engagement:

• Torrid's 5 new sub-brands are expected to represent 25% to 30% of their assortment next year, with penetration set to more than double in the third quarter.

• The strategic expansion is driven by the performance of sub-brands, which generate a halo effect, driving customer attachment and reactivation.

• Store Optimization and Customer Retention:

• The company plans to close up to 180 stores this year, reallocating resources to align with customer shopping preferences.

• This optimization strategy aims to retain at least 60% of customers, leveraging proactive customer outreach to mitigate the impact of store closures.

• Marketing Investments and Tariff Impact:

• Torrid increased its digital marketing spend by $5 million in the second half of 2025, raising total investment to 6% of net sales.
• The company anticipates up to $10 million in incremental headwinds due to increased tariffs, but has mitigated 80% of the total $15 million tariff impact for fiscal 2025.

Sentiment Analysis:

• Net sales declined to $262.8M from $284.6M; comparable sales -6.9%. Gross margin fell to 35.6% from 38.7%. Management raised 2H marketing by ~$5M and cited tariff headwinds, but reaffirmed closing up to 180 stores and guided FY net sales of $1.015B–$1.030B and adjusted EBITDA of $80M–$90M, expecting 150–250 bps EBITDA margin expansion in 2026.

Q&A:

• Question from Corey Tarlowe (Jefferies): How healthy is the customer and what lift are you seeing from sub-brands through the year?
  Response: Top-tier customer engagement is strong; sub-brands are resonating and expected to be ~10% of FY25 sales and 25%–30% in FY26, supported by increased marketing.

• Question from Corey Tarlowe (Jefferies): Context on the EBITDA outlook change and the role of promotions/investments for the rest of the year and into next year?
  Response: EBITDA pressure is primarily from tariffs (mitigated ~80%, with ~$10M remaining) and higher promotions; added 2H marketing is upper-funnel to set up 2026 growth.

• Question from Savannah Sommer (Goldman Sachs): Longer-term sub-brand mix potential and margin timeline as they scale?
  Response: Sub-brands carry product margins hundreds of bps higher; penetration targets 25%–30% in 2026 with potential to grow beyond via pop-ups, stand-alones, and refixtured stores.

• Question from Ethan Saghi (BTIG): How did the business perform exiting Q2 through August?
  Response: June semiannual sale was strong; holiday peaks were softer; consumer remains value-oriented, so promotions continued through August.

• Question from Ethan Saghi (BTIG): Any pushback on price increases and plans for more in 2H?
  Response: Tariff-related price moves are minimal and targeted with no specific pushback; launching opening price point offerings to reach ~25% of apparel sales next year.