Torrid Holdings Inc. (CURV) Q3 2021 Earnings Report, Transcript and Summary

00:04 Greetings. Welcome to Torrid Third Quarter Fiscal twenty twenty one Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. 00:21 I will now turn the conference over to your host Jessica Schmidt. You may begin.

00:27 Good afternoon, everyone. Thank you for joining Torrid’s call to discuss its third quarter results, which we released this afternoon and can be found in our website at investors.torrid.com. With me on the call is Liz Muñoz, Chief Executive Officer of Torrid; and George Wehlitz, Chief Financial Officer. 00:45 Before we begin, I would like to remind you of the company's Safe Harbor language, which I'm sure you're all familiar with. Management may make forward-looking statements including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. 01:06 For a further discussion of risks related to our business, see our filings with the SEC. This call will contain non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margin. Reconciliations of these non-GAAP measures to the most comparable GAAP measure are included in the earnings release furnished with the SEC and available on our website. 01:28 Now, I would like to turn the call over to Liz Muñoz. Liz Muñoz: 01:32 Good afternoon everyone. Thank you for joining us for a discussion of our third quarter performance. Before I begin, I would like to take a moment to address George’s retirement, which I am sure you saw in today’s press release. George has been a tremendous partner over the last decade, during which time we have built an incredible relationship. 01:52 He was an integral part of our success, particularly as we transition to a public company and I want to thank him for his valuable contributions to Torrid, as well as congratulate him on his pending and well deserved retirement. George will remain in his role for the end of the first quarter of twenty twenty two at which point he will transition to serve in an advisory role. 02:17 I know George will always be available to us and we look forward to a seamless transition over the next several months. We are in the process of launching a comprehensive search of both internal and external candidates and we will update you on the progress we make as appropriate. 02:35 I also want to thank our employees and customers whose passion and loyalty contributed to our strong performance. We are especially grateful for our employees efforts as they navigate this difficult operating environment. 02:50 On today’s call, I will discuss our strong third quarter performance and detail our growth strategies. I will then turn the call over to George to discuss our financial performance in more detail and provide an update on our outlook. We are excited to be reporting another quarter of strong performance. 03:11 We delivered double-digit top line and EBITDA growth, while navigating the global supply challenges, further demonstrating the strength of our business model and the progress we are making against our long-term strategies. 03:25 Our mission at Torrid is to help curvy women everywhere know the confidence and excitement that comes from getting dressed every day in apparel and intimate that makes them love the way they look and feel. We continue to deliver on our mission again this quarter providing her with an unparallel fit and experience that we consistently refine and enhance. 03:50 Briefly highlighting our third quarter results, net sales grew thirteen percent compared to the third quarter of last year and nineteen percent compared to twenty nineteen. Our sales growth was driven by a comparable sales increase of fourteen percent, which includes e-commerce and stores marking our thirty seventh positive comp in the last thirty nine quarters. 04:17 Our adjusted EBITDA of fifty five million increased from last year's thirty one and our adjusted EBITDA margin expanded nearly seven hundred basis points to eighteen percent. Our results reflect continued execution against our key strategic initiatives and we are energized by the long runway that's still in front of us. 04:40 At Torrid, we have a powerful and nimble operating model and we remain committed to continuously building on our successes to evolve the business and keep our customers highly engaged with our brand with a constant flow of valuable feedback, we continuously test and innovate across all aspects of the organization. We use our learning to evolve our offering and experience, enabling us to deliver on our commitment to this underserved community. 05:12 Turning to each of our growth strategies, which include expanding Curve, deepening our customer relationships, increasing our brand awareness, and attracting new customers, as well as leveraging our infrastructure. 05:26 First, growing our Curve business. Curve is an important initiative for us and our customers as we are solving her fit challenges and intimates, providing our customer with something she never thought was possible, a bra that is both sexy and comfortable. 05:44 During the quarter, we further supported Curve with additional marketing campaigns that effectively targeted specific customer segments to encourage first Curve purchases. We tested product specific rewards to activate bras, which is part of our strategy to assure customers into specific categories that drive longer-term loyalty. 06:09 These marketing campaigns successfully drove sales in the bra category contributing to both revenue growth and higher margin in the quarter. In Q3, we ran a test and select stores where we doubled the size of our Curve assortment and we were pleased with the results. Our Curve offerings rose incremental revenue, basket size, and conversion in these stores. 06:34 We also see evidence that Curve is attracting new customers with bras remaining the number two entry item for new Torrid customers. 06:44 Looking ahead, we will expand the reach of our Torrid Curve intimate business building on the traction we've gained in attracting new customers, increasing loyalty and driving higher overall basket size. 06:57 In the fourth quarter, we will launch in-store bra fitting events to further engage our customers, and we will build on our targeted marketing campaigns to drive Curve purchases. We remain on track to launch a dedicated Curve experience on our website next year and plan to expand the combined Curve and Torrid assortment to over twenty five percent of our stores by the end of twenty twenty two. We could not be more excited about the significant opportunity ahead for Curve. 07:29 Turning to our second growth strategy, deepening our relationships with existing customers, our flow of new product creates excitement and engagement with our customers. During the quarter, we saw strength in our casual offerings, including denim, active lounge, and fleet. Trends in dressier and where to work items were compelling as our customer continues to return to a more normal behavior across social activities than work. 07:56 We also launched our third Lovesick collection, which was met with a favorable response. Performance in our licensed product offering was also strong with sales growing almost twice as fast as the overall brand. In licensing, we used learnings from past successes and leveraged our customers affinity for holiday celebrations. 08:19 For example, we launched a limited Halloween collection where we saw exceptional response from our existing customers and drew new customers to Torrid. As we go forward, we will continue to create excitement in product innovation. We are expanding our unparalleled fit capabilities to categories that address additional needs our customer is asking of Torrid including footwear, sleep, brand, collaborations and special occasions. 08:47 For example, we enhanced the fit of our wide calf boots, which are available in multiple shaft sizes by continuing to leverage our extensive fit capabilities. The customer response has been strong, and we will continue to build on this success to serve our customer in additional ways that meet her needs. We also continue to make enhancements to our e-commerce platform to create excitement and deepen our engagement with our customers. 09:19 During the third quarter, we added a daily drop navigation option to highlight our most recent fresh arrivals, which has quickly become one of the highest generators of unique visits on our website, second only to the new arrivals option. 09:35 We also began accepting applications for our Torrid credit card directly on our website, resulting in a significant increase in applications. We will continue to improve the features, functionality, and creativity of our website to expand our overall storytelling. 09:53 We will build on these learnings and test new initiatives as we evolve our website to continue to enhance the online experience. We also leverage our loyalty program to deepen our relationships and expand our wallet share. During the quarter, we leveraged our loyalty program to create engagement on social media and strategically drive customer purchases to targeted categories. 10:19 For example, we offered bonus points to loyalty customers who shared product reviews on social media platforms, resulting in a significant increase in our Facebook and Pinterest engagement. While this program engages our customer and generates content, it also provides us with valuable feedback that we can deploy to continually enhance our offering. We will accelerate this reward program, which was highly successful at incentivizing customer reviews during the quarter. 10:52 Taking a look at our third growth strategy, [Technical Difficulty] marketing investments and digital initiatives, creative community events, key collaboration and website [enhancements] [ph] during the quarter. We also selectively opened new stores, which serve as a low cost source of new customer acquisition and an important competitive advantage as this customer more actively seeks in person sitting interactions. 11:21 In September, we also launched a marketing campaign with the tag line, Sexy Has No Size. This campaign highlighted our denim and bras and featured a diverse group of models of different sizes. As part of the company, we conducted paid partnerships with digital female focused publications such as POPSUGAR and Refinery29 to launch integrated marketing support. 11:46 We generated over twenty one million impressions in Q3 through these partnerships, which we expect to drive increased awareness and subsequent new customer acquisition over time. We are in the early stages of building our influencer ambassador program to drive brand awareness authentically with people our customers can relate to. We are pleased with the result of our pilot as it demonstrated its ability to build brand awareness. 12:16 The content generated during the quarter drove over two million impressions. We continue to evaluate and expand this program based on early reception and early learnings. Our digital marketing strategy is an important component of our overall marketing initiative, and we will continue to test new store traffic driving programs. 12:38 On Instagram, we increased our video content reels and adjusted our messaging in response to changes on Instagram to drive engagement. We will continue to invest in both existing and emerging social media platforms. We are creating engaging social media videos, that we will leverage across different platforms to drive increased brand awareness and followers. 13:02 We also continued to leverage our community events to effectively activate customers, and we will use them in new and creative ways. We plan to offer a VIP holiday event during the fourth quarter, exclusively for our top loyalty members. 13:19 Building off the success of our May twenty twenty one model search, called TeamTorrid, we held a similar event for all of our employees in August. This model search generated inspiring stories and engaging content across our communities. The selected winners will be featured in our spring twenty twenty two marketing campaign. The winners from TeamTorrid are on our website and we are thrilled with the results, which demonstrate our commitment to inclusivity and diversity as we represent the real world. 13:53 We are also proud to have held our eighth annual breast cancer awareness campaign, a cause important to us and to our community. This year, we collaborated with the National Breast Cancer Foundation and designed specific product to support this cause. The collaborations were both excitement and engagement and we successfully raised over five hundred thousand dollars. 14:19 In addition, to our digital marketing and brand awareness initiatives, our omni-channel strategy remains core to our customer acquisition and brand engagement. Even post-COVID, stores continue to be the number one way in which a customer first discovers Torrid. During the third quarter, we opened eleven new stores bringing our store base to six nineteen locations. 14:46 As a reminder, over ninety percent of our store base is profitable. New store performance exceeded our expectations and generated over a third of sales from new customers, ahead of pre-COVID levels. The majority of our openings were an outlet or optimal locations, and we remain committed to engaging our customer where she wants to shop. 15:11 Our stores offer an immersive bid experience and passionate associates designed to make her feel great. This experience is particularly important for a customer who has struggled with fit her entire life making our store base a significant competitive advantage. Going forward, we are further leaning into the power of our store base with our localized marketing initiatives. 15:37 And finally, our fourth growth strategy enhancing our infrastructure. We continue to improve our omni-channel channel capabilities, including the expansion of ship from store on additional products. We also saw continued growth in our buy online and pickup in store capabilities. We love this feature as it encourages customers to shop additional product while in stores to pick up our online order. 16:03 Our omni-channel capabilities enhance our direct-to-consumer unified commerce model, providing a seamless experience to our customers. As we head into the fourth quarter, and fiscal twenty twenty two, we will continue to leverage our organization and infrastructure investments, as well as build upon our existing capabilities to drive profitable growth. 16:26 We will expand and refine our omni-channel channel offering as we continue to adapt the changing consumer environment, which we believe is an ongoing process. Over the next few months, we will launch our next generation Torrid app to enhance the experience and improved search functionality. 16:45 Overall, we are pleased with our accomplishments this quarter and thus far for the year, particularly given the challenging operating environment. We along with the rest of the industry are facing global supply chain headwinds. We have strong long-term vendor relationships and a diversified manufacturing base and we are working closely with our partners to mitigate the current challenges. 17:07 Our priority is getting our products into the U.S. and specifically into our customer’s hands in addition to managing the costs associated with these deliveries. As always, we are focused on delivering for our customer and meeting her needs, despite the current operating environment. While we expect supply chain headwinds to continue at least into the first half of twenty twenty two, we are successfully navigating the current environment and our underlying operating model remains strong. 17:39 In conclusion, we are proud of our third quarter performance, especially in light of the challenging environment. The results we have delivered so far in twenty twenty one reflect our multi-lever growth strategy and demonstrate the power of our brand. We have a significant opportunity ahead of us to expand brand awareness and accelerate customer acquisition within our large and underserved market with just a small percentage of the eighty five billion dollar plus size women's market. We remain in the early innings of our growth. 18:14 We will continue to execute behind our proven growth strategies to deliver profitable growth and create long-term shareholder value. 18:22 I will now turn the call over to George to discuss our third quarter financial performance in greater detail. He will also provide you with our financial outlook for the fourth quarter and the full-year.

18:36 Thank you, Liz, and good afternoon, everyone. Thank you for joining us. I will begin with a detailed discussion of our financial results, followed by an update on our outlook. In my remarks, I will make select comparisons to the third quarter of twenty nineteen to normalize for the anomalies created by COVID-nineteen, in the prior year to provide a better understanding of our growth. 18:58 For the third quarter, net sales grew thirteen percent to three zero six million, compared to two seventy million last year and increased nineteen percent from twenty nineteen. Our growth was primarily driven by the continued strength in our e-commerce business and the ongoing recovery in store productivity. 19:18 We are particularly pleased with our sales performance, given the inventory constraints caused by the supply chain challenges we faced during the quarter. Comparable sales growth of fourteen percent in the third quarter was driven by both an increase in transactions and higher ALV. We continue to attract new customers to the brand and drive increased spend per customer, either as a result of our focus on expanding our current business, driving customer engagement, as well as leveraging our omni-channel presence. 19:50 Gross profit in the third quarter was one hundred and twenty five million or forty point nine percent of net sales. This compares to ninety six million or thirty five point four percent of net sales in the third quarter of last year and ninety eight million or thirty eight point three percent of net sales in twenty nineteen. 20:08 This five fifty basis point expansion in our gross profit margin from the prior year was primarily driven by reduced promotional activity and pricing initiatives, partially offset by an increase in store occupancy expense and higher freight costs related to the supply chain disruptions. We expect the impact of these higher freight costs to persist in the fourth quarter, which I will speak to shortly. 20:33 Selling, general and administrative expenses in the quarter were sixty six million, compared to sixty seven million for the third quarter in the prior year. As a percentage of sales, SG and A decreased approximately three hundred basis points to twenty one point seven percent, compared to twenty four point seven percent in the third quarter of last year. This improvement was primarily due to leverage in our store expenses and lower share based compensation, partially offset by an increase in store operating costs and additional costs associated with being a public company. 21:06 Marketing expenses in the quarter were fifteen million, compared to fourteen million for the third quarter and the year. As a percentage of sales, marketing declined approximately thirty basis points to four point nine percent, compared to five point two percent in the third quarter of last year. 21:23 The lower than planned marketing costs were due to the strategic decision to moderate marketing investments during the quarter as a result of reduced product availability associated with shipping delays. 21:35 Turning to profitability. In addition to GAAP measures, we believe that adjusted EBITDA and adjusted net income are important measures that we use to evaluate and manage our business. The adjustments are particularly relevant this quarter and for the remainder of the year due to the one-time non-cash impact on GAAP earnings from the charge associated with re-valuing our legacy incentive units as part of our IPO last quarter. 22:02 Adjusted EBITDA was fifty five million dollars or eighteen percent of net sales, compared to thirty one million dollars or eleven point four percent net sales in the third quarter of twenty twenty. This compares to thirty three million or twelve point seven percent of net sales in the third quarter of twenty nineteen. 22:20 For the quarter, our tax rate was two fifty seven percent, compared to fifty eight percent in twenty twenty, due to an increase in the amount of non-deductible items associated with share based compensation. This increase was largely driven by one hundred and eleven million dollars non-cash charge associated with revaluing our legacy incentive unit as part of our IPO. 22:43 Net loss for the quarter was fifty nine million or zero point five four dollars per share. Compared to net income of four million or zero point zero four dollars per share for the same period last year. Adjusted net income was twenty eight million or zero point two five dollars per diluted share, an increase of fifty three percent from adjusted net income of eighteen million or zero point one seven dollars per diluted share in the third quarter of twenty twenty. 23:10 Turning to the balance sheet, cash and cash equivalent at the end of the quarter totaled sixty two million. Our cash flow from operations is strong totaling one hundred and twenty five million for the nine month period ended October thirty, twenty twenty one as we continue to deliver profitable growth and efficiently managing our working capital needs. 23:30 Total debt at the end of the quarter was three forty one million, reflecting the new term loan recorded in the prior quarter. As a result of our strong adjusted EBITDA growth and cash generation this quarter, our net debt to adjusted EBITDA was one point zero seven at quarter-end, which is an improvement from one point two two at the end of the second quarter. 23:53 Inventory at the end of the quarter was one hundred and fifty nine million, compared to one hundred and twenty four million last year at one hundred and forty million in the third quarter of twenty nineteen. Excluding in-transit levels, our inventory was slightly down from prior year. Although our available inventory is modestly below optimal levels, we took measures to air freight, and feel very comfortable with the radical inventory levels to meet the consumer demand that is reflected in our fourth quarter forecast. We opened eleven stores in the third quarter bringing us to a total of six nineteen stores. 24:31 Turning to our outlook. Although, we are very encouraged by the performance thus far in twenty twenty one, we recognize the industry wide global supply chain challenges will persist in Q4 and into twenty twenty two. We are closely monitoring the situation and continuing to take proactive measures to mitigate the impact, including selectively air freighting goods, and placing orders earlier, as well as offsetting some of the associated cost pressures by consolidating fabric orders and selectively increasing prices. 25:03 While we are taking proactive measures to manage our supply chain many of these initiatives will not begin to benefit until starting it early next year. For the full-year, we are narrowing our guidance to a net sales range between one point two nine billion and one point three billion, compared to our prior guidance range of one point two nine billion to one point three one billion. 25:26 We are also narrowing our outlook for adjusted EBITDA to the higher end of our prior guidance. The range is now two fifty two million to two fifty seven million compared to our previous guidance range of two forty eight million to two fifty eight million. 25:42 Our outlook assumes gross profit margin pressure in the fourth quarter resulting from higher transportation, raw material, and labor cost, consistent with our industry peers as well as elevated promotions related to two potential future inventory delays. 25:58 Capital expenditures are expected to be approximately twenty three million for fiscal twenty twenty one, reflecting roughly twelve new store openings in the fourth quarter or approximately totaled twenty three new stores in twenty twenty one. We are also planning to close approximately five stores in the fourth quarter. 26:17 We announced a share repurchase program authorized by our Board of Directors, under which we may repurchase up to one hundred million dollars of our outstanding common stock. Our first priority remains to invest in our business and we may opportunistically make purchases from time to time depending upon a variety of factors, including share price, corporate and regulatory requirements, and other marketed business conditions. 26:43 We remain confident in our long term growth outlook and believe this is another tool to enhance our total shareholder return. We will update you on our share repurchases as appropriate. As we look beyond twenty twenty one, we are excited about the long term opportunity and we remain focused on executing our strategic growth initiatives. 27:03 As Liz as mentioned, I will continue my role as CFO through the end of the first quarter twenty twenty two to ensure a smooth transition and will continue to serve as an advisor to the company thereafter. Liz and I had built an incredible relationship during our decade of working together and this has been a tremendous experience and journey for me. I have every confidence that Torrid has an amazing future and will continue to support the business and its future growth opportunities. 27:29 With that, I will now open it up for questions and turn it over to the operator.

27:34 [Operator Instructions] Our first question is from Lorraine Hutchinson with Bank of America. Proceed with your question.

28:07 Thanks. Good afternoon. I just wanted to dig into the source and cost pressures a bit more. Can you quantify the incremental pressure in 3Q? And then how are you thinking about that within your guidance range for gross margin in 4Q? And looking into the first half, would you expect to be able to offset all of those in the first half? Or do you think you'll still have some gross margin pressure then?

28:36 Yes, Lorraine. So, looking at 3Q to 4Q, if we're looking at comparing to twenty twenty, we'll still see some pressures related to the store occupancy as we had to bring abatement last year, we'll see some moderation in the amounts that we have related to seeing more impact related to the wage pressures more in Q4, again related to how we actually purchased and the time timeframe in which we purchased them seeing more of those costs coming into Q4 and we'll see that coming in continuing into twenty twenty two for that piece of it. But from a mitigation standpoint, we are doing that on many fronts related to looking at selected price increases, what we can do with our vendors as far as how do we manage production issues? How do we do in consolidating the fabrics? 29:26 So, a number of initiatives as we said, we have really good relationship with many of our vendors who are really partnering with us and how we can control some of those costs and we’ve [indiscernible] some of the goods as far as production as well. So, we're looking how we're doing that as far as production from the unit standpoint as well.

29:44 Thanks. And then, can you talk about the performance of e-commerce and stores versus your initial expectations for the third quarter?

29:53 Both remain very strong. As we've opened stores and the stores have come back online, we have continued to see increased productivity from the stores. She has really engaged at the store level coming back to the store even with all of the COVID type things going on, she really is experiencing that interaction that's what she's craving. So, we do see her coming back into the stores for that piece and we still see her coming online. So, we're very pleased with both channels at this point and how they're performing.

30:26 Thank you.

30:29 Our next question is from Kimberly Greenberger with Morgan Stanley. Please proceed with your question. Kimberly, your line is now open.

30:43 Thank you so much. Sorry about that. I wasn't sure that I was entirely clear on the supply chain impacts to revenue in both the third quarter and the fourth quarter. I know you talked about the global issues and the delays, but could you specifically talk about whether you encountered out of stocks if there were meaning delays that impacted revenue growth in certain categories? Just any ability to help us understand if it was supply driven, the revenue relative – given the revenue in third quarter came in at the low end of your third quarter expectation rather than the high end, was the variance simply out of stocks in certain categories or were you seeing less consumer demand?

31:44 Yes. We saw – basically not from a consumer demand, we didn't see any pullback from that end of it. It was mostly related to being the delays in the inventory coming in and we haven't really quantified the exact dollar amount what that is, that we do believe that had we had the optimal amount of inventory that we are wanting and when we wanted that our sales would have implemented much higher than we currently had reported at this point. So, mostly delighted to the delays not to consumer pullback.

32:12 Okay. So, it wasn’t necessarily the absence of inventory just that the inventory came in much later than you expected. And so you didn't get a full opportunity, I guess to sell it during the quarter. Is that how I should understand it George?

32:27 Correct.

32:28 Okay. Got it. And then is there any sort of quantification you can help us with on the fourth quarter? How much of an impact if you have an estimation on the supply chain delays, what sort of impact on top line that could have in the fourth quarter? And then just a follow-up to Lorraine’s question on the recovery in stores, how was revenue here in the third quarter in-store compared to Q3 of twenty nineteen? Thanks so much.

33:07 Well I’ll take the last part first. We actually are seeing, like I said, we still see an increase in productivity in the stores. We are still below nineteen levels from pre-COVID, but we are seeing an increase in store traffic and store performance at this point. 33:26 Again, exceeding what we had expected at this point relates to the stores. So, we're very pleased with the traffic that's coming through and her experience in the stores at that point related to the revenue piece, we are seeing still delays in Q4 for product receipts. We are seeing some lessening a little bit in getting some higher inventory levels compared to prior year, but we are still seeing some delays for that. 33:55 We've built in what we believe in our guidance for sales and built those delays in at this point for our fourth quarter forecast.

34:04 Thank you.

34:08 Our next question is from Oliver Chen with Cowen. Please proceed with your question.

34:13 Hi, thank you. We were curious on the classifications or parts of the assortment that were most impacted by the supply chain issues that you mentioned. You also mentioned promotions are having guidance that incorporates the potential from promotions. What do you see happening in terms of different levers or frameworks you're thinking about in those different scenarios and which you may need to execute that? And the third question, air freight. I know you strategically moved it, but how did you decide what was prudent as you balance the incremental costs in the air freight relative to the sales opportunity and what you chose to do there? Thank you.

34:53 I'll take the air freight one first. We looked across the board related to the cost of air freight, especially in light of the increases we were seeing in air freight in addition to the ocean freight. Taking a look at what products made the most sense relative to how much the value of what that product is versus the cost of the air freight coming in, as well as if we had orders, we potentially just looked at air freighting a portion of the orders that we've had some of the products here to sell and then backfill with the ocean freight coming into it, but a lot of the product was related to some of the current product and then we did selectively do some denim as well, but we can do all categories the same. 35:36 We looked at each category, each product line separately to making sure we're kind of maximizing the impact of what that freight cost would be for air and making sure that we had available goods as appropriate in the stores. Liz Muñoz: 35:49 As far as delays to the product, it was relatively wide spread. The categories that we focused the most attention on, as far as delays were intimate, bras specifically; denim, there were delays involved. I think one of the categories that was probably hit a little harder on delays was shoes and accessories and into that world. But we sort of thought across the board, what we intend to do for Q4 as product comes in is obviously focus on products that may be seasonal, whether it's cozy or things like that that we want to make sure that we're managing well. But yes, overall, it was sort of across the board, as far as all categories. 36:47 I think what an upside for Torrid is, because we make every single thing in her closet, we are, I think less impacted by delays because what we offer her is the widespread.

37:03 Okay. And on the [Multiple Speakers].

37:03 [Indiscernible] relates to the promotions they did for Q4. So, yeah, we'll selectively look at the promotions related to truly seasonal goods, but I think we're very happy with our, you know as we're getting our inventory and how we're positioning ourselves as we go into Q1, and being very strategic about how we're doing promotions to try to make sure they were mitigating as much as that product is possible, they might have a shorter shelf life as far as seasonal goods.

37:29 Okay. Our last question, there's been a lot of privacy changes in digital marketing and third party data in IDSA. What are you seeing with customer acquisition costs and any trends we should know about with return on ad spend? And perhaps [indiscernible] deposits against this near term issues you're seeing with supply chain as well? Thank you.

37:51 So, we have seen an increase and expected an increase especially going into Q4 related to customer acquisition costs and have not seen anything significantly from what we actually have planned for at this point, but we did plan for an increase in Q4 and looking at that as we move forward. Liz Muñoz: 38:08 And that historically happens as more of the traditional retailers that really rely on Q4 to be a much bigger part of their business, they do spend a lot of money in Q4 in marketing. So they sort of drive the overall. The good news for us is that we don't rely on Q4 like a lot of the others do. So, it's not as a bigger deal for us on the increase, but Q4 always just costs more to market in general.

38:41 Thank you very much and George, best regards on the next steps. Great working with you.

38:47 Thanks Oliver. Liz Muñoz: 38:48 Thanks Oliver.

38:51 Our next question is from Dylan Carden with William Blair. Please proceed with your question.

38:56 Yes. Thanks. I just wanted to, kind of do a little deeper under the promotion commentary. Is the guidance here that promotions tick up in the fourth quarter? And I guess going on the lines of the quarter is not as big from a holiday standpoint, why that might be if that is the case? But even just from strategic standpoint, looks like promotions are kind of running in line with where they had been historically in an environment where a lot of people been able to pull more meaningfully back on that just, kind of given your strong engagement with the customer, why that might be and just generally what the strategy is with promotions in the back half? Thanks.

39:37 Sure. I'll start off with part of that. In Q4 specifically, in general for Q4 the promotional activity is higher. Again, we don't necessarily play the same seasonal issues that other retailers have, but we do have to play in the arena of Black Friday and Cyber Monday events. That promotional activity is typically deeper and that does bring down the increases of promotional rate for that quarter compared to other quarters. But it's not a new anomaly for us as we're having to play with the bigger broader macro issues there. 40:11 And then from a promotion standpoint, in general, we do use it as we've said more of a customer engagement tool, and really trying to keep her engaged along the way in that journey of what we're doing. So, Liz you want to add to that. Liz Muñoz: 40:26 Yes. I think it's just important to get that point across and George made it that we use promotions in a different way. We don't necessarily use promotions to drive product that's not working or things like that. We use them as an engagement tool and because our customer is so highly engaged, she does remember what we did the year before. She does have certain expectations around what we're going to do. 40:55 So, we just do follow along with that because it is an important part of how we keep her connected with the brand.

41:06 Okay. Thanks a lot. Liz Muñoz: 41:07 Welcome.

41:12 Our next question is from Brooke Roach with Goldman Sachs. Please proceed with your question.

41:17 Good afternoon and thank you so much for taking our question. Liz, George, I wonder if we could discuss a little bit the sequential cadence of sales that you saw throughout the quarter relative to twenty nineteen levels and maybe any early reads that you have on holiday? How strong was that consumer engagement throughout October and into November?

41:40 Brooke, related to our customer engagement, it was strong throughout the quarter in general. We're very happy with how she engaged in the frequency and to the amount of her spend in Q3 and total. And as going into Q4, related to promotional [indiscernible] her spend into Q4 so far. We built in and are very pleased with what we did before the Black Friday through Cyber Monday and that's built into our updated guidance for Q4. And again, we have not seen a pullback in her spend and she's still engaged with Torrid and continue to spend.

42:20 Thank you. And then as we think about some of the input cost increases that are coming down the pipeline across the entire industry into next year, can you discuss a little bit how you're thinking about how the first half might play out as you think about the continued supply chain challenges? The increased input costs and the pricing initiatives that you have for the brand? Thank you. Liz Muñoz: 42:42 So, I think, one of the things that's important to note is Torrid has a long legacy of addressing price increases. So, we do have a good format and system that we like. We always approach pricing from a customer value perspective, and we tend to look at price increases from a garment to garment perspective. 43:10 We do think there's opportunity there and there are areas where we can build increased price. I will tell you that since I've been here eleven years, we have increased pricing on categories a year-over-year For example, when I started here eleven years ago, opening price point on a blue jean was thirty eight dollars to forty eight dollars, today it’s seventy eight to eighty eight. And I can tell you that's sort of across the board. 43:37 So, I think we're good at that, and I think we do it very strategically from a customer centered perspective. We're also looking at garment by garment and looking at construction and the decisions we make on each garment and making sure that we are leveraging as much cost improvement from a garment perspective as we can. I would say those are really – the focus is, we are also consolidating fabrics in order drive better fabric cost.

44:10 And we'll also, as we go into twenty twenty two, we'll still see some of these inflationary pressures going into twenty twenty two. As Liz talked about, we are utilizing some of these offsets as we go into twenty two and we'll see some of those take into effect in early to late part of twenty twenty two, as well as related to the actual, looking at our guidance, we’re actually providing guidance for twenty twenty two during our Q4 earnings call.

44:40 Thanks so much. I'll pass it on. Liz Muñoz: 44:43 Thank you.

44:44 Our next question is from Mark Altschwager with Baird. Please proceed with your question.

44:50 Great. Good afternoon. Thanks for taking the question. I guess with respect to the nineteen percent growth versus twenty nineteen, any more detail you can provide on what the customer growth looks like relative to spend per customer and what's embedded overall for fiscal twenty twenty one outlook in terms of customer growth?

45:12 Yes, we saw both an increase in her spend, as well as the number of active customers that we've acquired during Q3 as we've seen all year long. So, we in both channels related to how we're acquiring it is improving both throughout Q3 and the year for this standpoint. We have embedded additional growth into Q4 as well and that's in our guidance. And we're on track if not beating what we had expected to have as far as the number of active customers, as well as the spend per customer.

45:48 Okay. Thank you. And then, following up on the twenty twenty two comments, understand you don’t want to give the more formal detailed guidance until the Q4 call, but yet, can you just say overall, I mean can twenty twenty two be a gross algorithm year as we think about kind of a high single digit sales growth or low double digit EBITDA growth that you had been speaking to? Thank you.

46:13 Yes. Again, we haven't done any formal guidance for twenty two. We will do that during our Q4. I think we still remain committed to our long term thesis for our overall sales to be in the high single digits and our EBITDA growth to be in the mid-teens.

46:31 Thank you.

46:32 Thank you.

46:36 [Operator Instructions] Our final question is from Dana Telsey with Telsey Advisory Group. Please proceed with your question.

46:57 Good afternoon, everyone. Can you give a little more color on the real estate area lately? Are you still on track? I believe it was twenty five stores, how are you thinking about next year and real estate cost and the opportunity for expense leverage? Thank you.

47:15 Sure Dana. From a real estate perspective, we are at the twenty three, twenty five just with construction delays, there could be some stores that fall into the [Technical Difficulty] part of twenty twenty two, but we are on track with what we had thought we would do as far as number store locations. From that standpoint and looking at twenty twenty two, we're probably looking at a similar number of around approximately twenty five stores. 47:41 We're very happy with the new stores that they’ve started out with related to how they opened. Their opening from a grand opening standpoint and in customer reaction, very positively even actually better than our pre-COVID openings both from a sales perspective, but also from a new customer acquisition perspective. 47:59 So, we're very happy with our new stores, and we're happy with our existing fleet as well at being out there and again, we're seeing positive trends from our existing fleet over ninety percent of our existing fleet is EBITDA positive at this point. So, we're very happy with it.

48:18 Okay. And then one follow-up. In particular regarding the inflation dynamics, cotton, how important is that for you? And then was anything you want to expand on with any of the newer categories, footwear, special occasion or scrubs that would be of interest beyond the internet? Thank you. Liz Muñoz: 48:37 Yes. So, cotton was not – is not as big as fiber to us that it might be at other companies. I think it's in the three percent range of our products, are cotton heavy. So, we have not seen a specific impact around cotton. We're seeing sort of price challenges throughout, kind of across the board, cotton not necessarily being the biggest or the most meaningful denim. The areas of which we have cotton, I think there's lots of opportunity for driving higher prices just because our customer sees so much value specifically in cotton and in tees where it’s mostly located. 49:30 As far as new categories, you know, we, even with the delays we've had in boots, we have seen a really, really good business and a good response from the customer. We have spent years building our shoes, putting reinforcements in it for stability, cushion for this larger customer and frankly wide with tasks are very, very difficult to come by. So, we're excited about what we have accomplished there and I think there's more opportunity. 50:02 We think there's more opportunity with collaborations that drive excitement and engagement with the brand and we currently have a couple on our website today that we believe have done very well. 50:16 And then I would say, go forward categories, we think Lovesick is an opportunity to continue to bring again their customer to the brand and it has performed really well. And with scrubs, we did a test, we know that we are not experts in the world of scrubs. So, we put a test out there. There was really one intended to learn more about what the customer does and doesn't want. We know that we can deliver on fit. We want to make sure that the fabric we create is one that is really meaningful for her, so you will see scrubs continuing to go forward, and we did hear excitement from our customer for offering that. 50:57 And then with special occasion, we will continue to look at making sure that we have, even if it's just a few wedding dresses for her as weddings ramp up in the back half of the year and other items that – whether it's the little [black dress] [ph] or things that she can wear to parties and occasions.

51:19 Thank you.

51:23 Our next question is from Oliver Chen with Cowen. Please proceed with your question.

51:28 Hi. Thanks for getting me in. We had a bigger picture question about ESG and sustainability, Liz what's on your mind for key priorities as you think about this more broadly and what do you think the customer and or the younger customer or the customer in general cares about the most? Thanks. Liz Muñoz: 51:48 So, ESG, particularly around sustainability is something that we are working on. We have and we have a committee that we put together and we have an outside resource that is really helping us form what our point of view will be and what our commitment will be both to ourselves into our customer over the long term. So, what we're focusing on now is, what will it look like and what does the journey look like and are we going to come out and say by twenty twenty five, we will be this. 52:23 So that's what we're actively working on. For me, I – one of the things that I'm most excited about and it's one step is that denim is a little offensive and how it's produced, lots of water, lots of different things used. We have managed to move at least the third of our assortment to a far more sustainable method as for production that does not involve water at all, but is either processed with lasers or with other treatments that create a blue jean that looks like it's been stonewashed. The customer would never know, but no water was involved. 53:03 So, we're excited about that. And we're really going to tackle like category by category. I think what's important to our customer is that we are focused on and that we have some sort of long term plan to reduce our footprint and to really offer things that are far more sustainable.

53:26 Okay. And the comments on Curve are really encouraging. What's the nature of the Curve customer that you see, and as you do acquire new customers more generally, what have been priorities in terms of keeping them engaged? And if there's any distinctions? Thanks a lot. Liz Muñoz: 53:45 When you ask about the customer, do you mean their age or their demographic and are they different from the Torrid customer? I'm just curious.

53:54 Yes. I was curious about that and any characteristics that stand out in terms of acquiring customer with the Curve brand and product portfolio or perhaps they don't differ so much either? Liz Muñoz : 54:10 The customer differs slightly and that she is slightly younger than the Torrid core customer. That's really I think the biggest shift. I think what's exciting about Curve is that it is – bras in particular are the second core category that brings a new customer to the brand. And what we have found is, we do very distinctive prints on our bras that are very special whether it's beautiful florals that are hand rendered or whatever we do, but what we have found is in the marketing of those bras, she gets so excited about how differentiated the prints are that as a new customer she buys into it immediately. 54:59 The other thing that I think has really set Curve apart is, we have two phenomenal wire free bras. I think this is a big vast space in the market. The customer really, really wants the comfort of a wire free bra, but is not willing to give up the sexiness or the profile or what it does for her. We have both a push up wire free bra and a wire free bra that she has just been incredibly excited to have. 55:31 And then I think finally, I think this is one of the things that people maybe often don't understand about the plus size customer, but she is playful, and she loves lingerie and is very excited about being given offerings of lingerie that is sexy that really makes her feel like she's beautiful and all of that. So, I think the lingerie part also has been a great sort of exciting moment in the business and another void in the market.

56:06 Thank you very much. Best regards. Liz Muñoz: 56:09 Thank you.

56:11 We have reached the end of the question and answer session, and I will now turn the call over to Elizabeth Muñoz for closing remarks. Liz Muñoz: 56:19 I just want to thank everyone on the call for your interest in this brand. We continue to be very excited about the future of Torrid, what we're doing for the customer, how we are changing her life, how excited she is about, not only our brands, but are stores and what we do for her. So, we look forward to more discussion with all of you. And again, thank you so much for coming into our call. We’ll see you soon.

56:50 This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.