Torrid - Earnings Call - Q3 2025

Executive Summary

• Q3 FY2024 net sales were $263.8M (down 4.2% YoY) and Adjusted EBITDA was $19.6M (7.4% margin), with gross margin expanding 285 bps to 36.1% on lower product costs and higher regular-price mix.
• Results fell below the company’s prior Q3 guidance (sales $280–$285M; Adj. EBITDA $23–$26M) and the company cut both Q4 and FY2024 outlooks; hurricanes and pre-election hesitancy also weighed on demand.
• Management is accelerating a product-refresh strategy (new sub-brands Festi, Nightfall, Retro Chic) and a store optimization program (30–40 closures in FY2024), targeting 80–100 bps EBITDA margin uplift in FY2025 from the fleet actions.
• Wall Street consensus from S&P Global was unavailable today; however, Q3 was a clear miss versus company guidance and FY2024 guidance was lowered across sales and EBITDA ranges (see Guidance Changes).

What Went Well and What Went Wrong

What Went Well

• Gross margin expanded 285 bps YoY to 36.1%, driven by reduced product costs and higher full-price mix; regular-price comp was +1% despite softer topline.
• Inventory discipline: inventory ended the quarter down 19% YoY; clean inventory and liquidity ($44M cash; ~$152M total liquidity) position the company for chasing winners.
• Early validation on refreshed categories (denim, novelty sweaters), and holiday kickoff: Black Friday/Cyber demand flat YoY with improved product margin; “more newness in the next 6 months than the past 6 years”.

What Went Wrong

• Q3 missed company guidance (sales $263.8M vs $280–$285M guided; Adj. EBITDA $19.6M vs $23–$26M guided); Q4 and FY2024 outlooks were reduced.
• Macro and weather headwinds: traffic deteriorated sharply in October; hurricanes during Torrid Cash reduced full-price comp by ~100 bps; heavier promotions were needed to ensure clean inventory.
• Assortment misstep: fall core product lacked sufficient newness/novelty, pressuring demand and comp (-6.5% total comp; clearance comp down 47%).

Transcript

Operator (participant)

A reminder, this conference is being recorded. It is now my pleasure to introduce Chinwe Abaelu. Thank you. You may begin.

Chinwe Abaelu (Chief Accounting Officer)

Good afternoon, everyone, and thank you for joining Torrid's call today to discuss our financial results for the third quarter of fiscal 2024, 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 of Torrid, Paula Dempsey, Chief Financial Officer, and Ashlee Wheeler, our Chief Strategy and Planning 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, December 3rd, 2024.

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. 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.

Lisa Harper (CEO)

Thanks, Chinwe.

Hello, everyone, and thank you for joining us today. I will begin by discussing our third-quarter performance and our strategies moving forward. Then I'll turn the call over to Ashlee to discuss our merchandising initiative. Paula will then provide our third-quarter financials and outlook. Let me start by acknowledging that we are clearly disappointed with our results this quarter. Sales trends began to soften in late September, and this continued through October. In hindsight, our fall assortments did not offer enough newness and novelty. Despite the weaker top-line sales, we delivered 285 basis points of gross profit expansion while carefully managing expenses. We ended the quarter with clean inventory levels down 19% to last year and $44 million in cash, which is $28 million higher than last year. Let me provide a little more color on our sales trend.

During the quarter, customers responded to products that were new and inspirational, such as our novelty sweaters and our relaunched denim program. However, we saw softness in our core collection, which was not innovative enough in an environment where consumer spending was constrained. We now recognize that our core product was too similar to what we'd been offering her, and we did not infuse it with enough freshness and fashion. In short, it was too much of the same thing she already had in her closet. Macro trends also had an outsized impact on our business. Trends in both traffic and regular price comp were positive in August and until mid-September, softened in late September, and deteriorated in October. The severe hurricanes in October, which occurred during our largest event of the quarter, Torrid Cash, also weighed on our sales trends.

We estimated that hurricanes impacted our full price comps by 100 basis points for the quarter. In addition, we found that our core customers behaved very differently in October, which we believe indicated hesitancy to spend prior to the election. We have seen improvement in customer engagement post-election and expect the trends to normalize over time. We recognize that the mindset of our customers changed over the past few years, and she's more willing to take fashion risks. In the past, we relied too much on what had worked and were hesitant to push boundaries. Our customer surveys tell us again and again that she wants more novelty and innovation from us. She wants to be inspired. Our organizational culture has now embraced this mindset, and our upcoming collections reflect more inspirational and relevant styling. Rest assured, we are not firing our core customer.

We are just addressing more of her lifestyle needs. Looking ahead, we're excited about the changes we have made to our business and believe the balance of newness improves beginning in the fourth quarter. Denim was the first category to be updated in late Q2 and continues to positive comp. Resort, which recently delivered, shows the first impact of the core product initiatives. Later this month, our first full deliveries of our new merchandise sub-brands will arrive in stores. These deliveries offer differentiated aesthetics to appeal to a broader audience. We know our customers' options are highly segmented and under-penetrated relative to the potential market size. Our customers continue to tell us in our surveys and mall intercepts that she prefers a store that is dedicated to her specific size range but wants more fashion.

We believe that our new product concepts address these needs and position us to deliver on our mission to provide everything in her closet. All of our concepts serve to encourage frequency in our existing customer, re-engage our last customer, and bring new customers to the brand with extensive integrated influencer campaigns. Our strategy is to provide an internally developed marketplace that leverages our core fit and product capabilities. We will have a curtains-up release of our first capsule, Festi, on December 27th in 250 stores and online. We know our customers are looking for new products right after the holidays, and our stores will be ready. Festi is a younger bohemian expression of fashion that introduces mini looks and silhouettes with fresh fabrics and finishes. We will launch two more niche concepts in January, Nightfall and Retro Chic.

We will also relaunch our active assortment in early spring, which is called Tru by Torrid. This is more lifestyle-based rather than the historical performance focus of our activewear product. We will be launching additional concepts in April and June of 2025. We are protecting our core merchandise while broadening our approach to relevant fashion by leveraging our robust digital capabilities. We'll also be distributing more modern choices throughout the entire store chain as our fulfillment capabilities allow us to expose more newness to the customer with the ability to open all of our inventory to web demand. This allows for margin optimization while improving the store experience for the customer. We've implemented new inventory planning, allocation, and assortment systems that will allow us to drive progress here. As part of our ongoing strategy to strengthen our product offerings, we have made significant progress in refining our sourcing approach.

With the upcoming launches of new concepts and progression of the core line, we expect the percentage of products sourced from China to decrease to the mid-teens, reflecting our efforts to diversify and optimize our supply chain. To that end, we have also invested in additional resources in design, product development, as well as merchandising. We have opportunity in all categories of our business: apparel, accessories, and intimates. Historically, Torrid has approached intimates similarly to apparel. This category requires different strategies, timelines, and product development processes than apparel. I'm pleased to announce today that Kate Horton, our current Chief Merchandising Officer, is now dedicating 100% of her focus to drive the growth in intimates. She has extensive experience in this category and is now focused on driving that business exclusively.

In addition, I'm thrilled to announce that Laura Willensky has joined Torrid as the Chief Merchandising Officer for apparel and accessories. Laura is an extremely talented merchandising executive with broad experience in specialty apparel, including J.Crew, Madewell, Victoria's Secret, and Talbots, as well as pure-play direct selling at Away, where she was most recently the Chief Commercial Officer. Laura brings a laser focus on the customer as well as a dynamic and strategic approach to the product assortments. All of this development has been exciting for the organization as we are able to reevaluate historical norms and constraints and add new ideas to excite our customer. Our customers are hungry for this. Our operational capabilities, expense management, and inventory improvements have provided a foundation to allow us to move quickly with a reinvigorated approach to product.

Although we underperformed in the third quarter relative to our expectations, we are confident that we have put in place the necessary changes to the business. What gives us this confidence is that when we have moved product forward by injecting more newness and innovation, those categories are already comping positive. We have an unprecedented influx of new products planned for Q4 and expanding next year. In fact, we have more newness coming in the next six months than we have had in the past six years. We are pleased with our sales trends over Black Friday weekend as customers responded to our latest offerings. Black Friday and Cyber sales were flat year-over-year with an improvement in product margin.

But given the volatility we have seen in our business and recognizing that there is still a considerable amount of the quarter ahead of us, we are taking a prudent approach to our fourth quarter outlook while we are encouraged by our start to holiday. 2025 is the year of product, and we are excited with the direction that we're moving with assortments that will inspire our customer. With a surge in new products and continued fine-tuning of our core assortments, we anticipate delivering positive, comparable sales in fiscal 2025. Now, I'd like to turn the call over to Ashlee and Paula to provide more detail on the quarter's results.

Ashlee Wheeler (Chief Strategy and Planning Officer)

Thank you, Lisa. Let me start by reiterating that despite a third quarter that fell short of our expectations, we remain confident in our long-term strategy of driving growth, product innovation, and assortment initiatives. Our regular price sales comp increased 1% year-over-year, and while our total comp was down 6.5%, this was attributable to a 47% decline in clearance sales, which reflects our strategic shift away from empty calorie sales. This favorable price-type mix, combined with cost of goods improvement, yielded over 285 basis points improvement in gross margin year-over-year. We expect the comp headwind from clearance sales to lessen in the fourth quarter to -25% to -30% and flatten in Q1 2025 as we begin to lap more reasonable inventory levels. We are already seeing this improvement now.

We are pleased with our management of inventory during the quarter despite a top-line sales miss, having ended the quarter with 19% less inventory in total and 34% less markdown inventory than last year. Torrid Cash Redemption, which remains our most productive loyalty event, was particularly impacted by hurricanes in late September and October. As a result, traffic was down mid-single digits for the quarter, which was lower than our expectations. We estimate the impact of hurricanes during Torrid Cash to have had 100 basis points impact to our full price comp for the quarter, resulting in a plus one comp versus what would have otherwise been a plus two regular price comp.

We saw our customers behave very differently in late September and October, particularly our most engaged customers, resulting in a need to promote more heavily to drive demand and ensure we did not carry forward fall product into the fourth quarter. From a product standpoint, we saw continued growth and positive comps in denim driven by freshness and innovation in fabric, wash treatment, and a broad range of leg shapes, which built on the momentum from Q2, as well as sweaters where the assortment offered a variety of newness and novelty. Additionally, intimate apparel foundations categories delivered strong regular price comps. In an environment where consumers are more discerning and judicious about spending, we see our customers buying closer to need, particularly in the case of higher ticket categories like jackets and outerwear that experience downward comp pressure.

And yet, she's equally inspired by and responsive to newness, innovation, and on-trend styles that give her a reason to purchase. And in categories that we've moved forward in, we saw strong positive full-price comps. In the third quarter, our assortment broadly did not offer enough newness and was too similar to seasons past. We conducted extensive customer survey work and intercepts, which reflected consumer sentiment consistent with product sales performance in the third quarter and affirms our strategy for the fourth quarter and beyond. Our customer craves inspiring fashion that fills every need in her life at great value. As we move forward, we remain committed to superior fit as table stakes for our customer but acknowledge that our design filter had become too narrow and specific over time.

We are thrilled to answer this call with our upcoming fashion sub-brands combined with progressive movement in our core line. Moving into the fourth quarter, our collections reflect an improved balance of core, trend-right fashion, and novelty. We will also benefit from our ability to chase back into proven winners. While it is still early, we are encouraged by the initial response to our holiday party and shine collection, as well as our knit dressing and cozy assortments. As Lisa mentioned, Festi, the first of our new capsules, will arrive in stores in late December. We are delighted to offer our existing customer new, elevated, and differentiated styles and equally excited about reactivating and attracting new customers to the brand by offering something she can't find broadly in the marketplace in a fit that flatters her.

We will launch two additional concepts in the first half of 2025 while continuing to energize the core Torrid assortment with a balance of modern on-trend styling. The implementation of our merchandise financial assortment and allocation planning system remains on track. By the end of the first quarter of 2025, we will have more robust capability to micro-assort by region and store, enabling a wider breadth of assortment choice and sub-brand expansion throughout the fleet and online, better maximizing the return on inventory investments and creating a more inspiring shopping experience for our customers across both channels. Lastly, we are pleased with our performance over the Black Friday and Cyber holiday period. Total sales demand for the period was flat to last year and met our expectations. We are excited about the opportunities ahead of us and look forward to updating you on our continuing progress.

With that, I will pass the call to Paula.

Paula Dempsey (CFO)

Thank you, Ashlee. Good afternoon, everyone, and thank you for joining us today. I will now provide a detailed discussion of our third quarter performance before transitioning into our outlook for fiscal 2024. Starting with the third quarter, we achieved notable gross margin expansion and maintained disciplined expense management. However, these gains were tempered by softer-than-expected sales trends, particularly during the end of September and into October. Despite these challenges, one of our key focus areas has been optimizing inventory levels. I'm pleased to share that we ended the quarter with inventory down 19% year-over-year. This strategic reduction has strengthened our cash position, which now stands at $44 million, representing a $28 million improvement compared to last year. Now, let's dive into our financial details. Net sales for the third quarter were $263.8 million compared to $275.4 million last year. Comparable sales declined 6.5%.

Regular price comp was +1%, while clearance comp was down 47%. Gross profit grew by 4% to $95.2 million compared to $91.5 million last year. This reflects a significant improvement in gross margin, which expanded by 285 basis points to 36.1%. This increase is primarily due to reduced product costs and an increase in sales of regular price products. SG&A expenses were $74.9 million, or 28.4% of net sales, compared to $71.9 million, or 26.1% of net sales last year. The increase is largely due to performance bonuses, which were not incurred last year. Marketing expenses were $13.1 million, almost flat to last year. As a percentage of net sales, marketing expenses rose slightly, up 35 basis points to 4.9%. This reflects targeted efforts to enhance customer acquisition and strengthen brand engagement.

Net loss was $1.2 million, or -$0.01 per share, compared to a net loss of $2.7 million, or -$0.03 per share in the same period last year. Turning to adjusted EBITDA, this metric increased to $19.6 million, slightly up from a year ago of $19.4 million. Adjusted EBITDA is a percentage of net sales expanded by 40 basis points to 7.4%. This improvement underscores our ability to deliver operational efficiency despite the softer top-line performance. Looking at the balance sheet, we ended the quarter with $44 million cash and no borrowings on our revolving credit agreement. Total liquidity, which includes our available borrowing capacity, remains robust at $152 million. Additionally, we reduced our total debt to $293 million compared to $314 million at the end of the third quarter last year. Inventory management continues to be a critical area of focus.

As mentioned earlier, inventory levels decreased by 19% year-over-year, ending the quarter at $138 million compared to $171 million a year ago. This reduction reflects our commitment to maintaining healthy inventory levels, enhancing cash flow, and positioning ourselves for improved agility in response to market demand. During our previous earnings call, we outlined our store optimization plan, and today, we're very excited to provide an update on this critical initiative. Over the past year, our comprehensive analysis of the store portfolio confirmed a strong customer preference for outdoor shopping centers, which continue to outperform enclosed malls in both conversion rates and profitability. At present, 65% of our stores are located in enclosed malls, while 35% operate in outdoor centers. To achieve our goal of a balanced 50/50 mix, we remain on track to close a total of 30-40 stores by the end of fiscal 2024.

These closures are being carefully timed with lease expirations ensuring minimal financial disruption this fiscal year, and we estimate to deliver 80 to 100 basis points of EBITDA margin expansion in fiscal 2025. We're confident that this strategy will drive adjusted EBITDA expansion with limited revenue impact as customers transition to nearby locations or to our strong e-commerce platform. This ongoing optimization effort reflects our commitment to aligning our store portfolio with evolving consumer preferences and building a stronger, more profitable foundation for future growth. As leases come up for renewal, we will continue to evaluate opportunities to fine-tune our store fleet for maximum efficiency and profitability. Furthermore, we anticipate that our launch of our sub-brands at the end of this fiscal year and into fiscal 2025 will enhance in-store experience and generate customer excitement.

The sub-brands will roll out across 250-350 locations with the goal of driving improvements in traffic, conversion rates, and customer file growth. In summary, our third quarter results demonstrated our ability to execute strategically despite net sales coming softer than anticipated. We achieved significant growth margin expansion, reflecting improved product costs and inventory management. Our efforts to optimize operations and tightly manage expenses resulted in meaningful gain in profitability with adjusted EBITDA improving year-over-year. We also made substantial progress on our store optimization strategy, which will enhance profitability and align our footprint with evolving customer preferences. These actions underscore our focus on our long-term growth and operational excellence as we prepare for fiscal 2025. Now, turning to our outlook for the remainder of 2024. Given our uneven performance, we're taking a more conservative approach to the fourth quarter net sales and EBITDA outlook.

As a reminder, last year's fourth quarter included $22 million in sales and $2.5 million in adjusted EBITDA for the 53rd week. For the fourth quarter, we expect sales to range from $255 million-$270 million and adjusted EBITDA to be between $9 million-$15 million. For the full year, we now expect sales to range between $1.083-$1.098 billion and adjusted EBITDA of $101 million-$107 million. Capital expenditure is expected to be between $20 million-$25 million, which includes investments in technology as well as the opening of 12-16 new stores. As we enter fiscal 2025, we're confident that our carefully crafted product strategy, combined with our ongoing operational excellence, will drive comparable sales growth into low to mid-single digits and deliver an improvement in EBITDA margins.

To conclude, our strategic priorities remain firmly aligned and unchanged, driving improvements in comparable sales, healthy margins, making targeted investments to fuel growth, and maintaining robust working capital performance. These focus areas position us to deliver sustainable value and continued success. I will now turn the call over to the operator to begin the question-and-answer portion of our call.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we pull for questions. And our first question comes from Brooke Roach, Goldman Sachs.

Brooke Roach (Managing Director and Equity Research Analyst)

Good afternoon and thank you for taking our question. Lisa, I was hoping you could quantify the proportion of newness in the assortment that you have planned in the first half of 2025 in comparison to the third quarter. And then help us understand what marketing and consumer engagement strategies you have to drive traffic with that improved product newness. Should we anticipate any changes in Torrid Cash events or other marketing strategies such as model search?

Lisa Harper (CEO)

Thanks, Brooke. I don't have an exact percentage of newness. What I will tell you, excuse me, is that we are impacting every category. There are 12 products, 12 legacy products that generate a substantial amount of our business. They need to be updated and addressed, but we will protect those businesses. Categories that we've already updated that we're seeing really strong support and continue, strong reaction from the customers, obviously, denim, we've talked a lot about that. Sweaters, dresses are improving. We are impacting every aspect of the business while protecting kind of core franchise programs and updating them. In terms of what we're doing, and I would say separate to the core line, we talked a lot about it of these sub-brands that we're launching. Again, it's crawl, walk, run for that business.

But the first one is Festi, which is a very boho line that we'll launch 12/27 when people return to the malls after Christmas. They like to see newness. They get excited about new product. And we'll see that. We have follow-ups on that product about every six weeks, four to six weeks for the balance of the year. Then we'll launch Nightfall, which is kind of a traditional legacy edgy concept for Torrid, where we are able to really speak to that niche customer, and then Retro Chic, which is another niche customer that we'll appeal to. So it's newness in the core line as well as newness in the sub-brands, with an eye toward protecting core franchises, core knits, core wovens, core non-denim bottoms, and denim. And we'll see as we move through the year the balance between the newness in the Torrid core line and the sub-brands.

We're doing this all based on our same kind of table stakes fit and quality and are really excited. What we hear from the customers over and over again is they want newness. They're big supporters of Torrid, and they want newness from us. We think about our brand filter differently than maybe we thought about it about a year ago, which is the filter is the size range, and the opportunity is all of the end uses that she has in her life. And that shift is dramatic as we became, over time, really attached to the legacy aspect of the Torrid product and less kind of inspirational and creative about all of the needs that she has in her life. And because she's so underserved, our ability to deliver that.

I'm so proud of what the team's been able to do in a very short amount of time, and I'm excited that the product's starting to roll in, and you'll see it imminently. So all of those are very positive movements. The other thing that we're doing, we talked a lot over the last year about digital marketing, paid social, and how we think about those and incremental spends in those areas. The model search was incredibly successful for us, and we'll be repeating that this year with some tweaks to it, but a really, really positive engagement, new customer acquisition. We're adding a really robust influencer program to highlight the new concepts and new sub-brands as well as to highlight the newness in Torrid.

And I'll tell you, in photo shoots that we've had so far and the engagement that we've had with influencers and with some of our normal models, there's a lot of enthusiasm about what they're seeing. And I'm excited about the customer seeing it and the shareholders being able to see it as well. Torrid Cash, we don't really see a lot of changes in that. The only changes are there will be a we know that they'll pay more for higher-end product at that time for special items during that time. And so we're feeding that in more actively and with more clarity in terms of that merchandise mix.

And we are also kind of we're moving them a little earlier in the quarter so that we're not having such a large requirement on an event that ends up at the end of the quarter so that we have a little bit more visibility to the overall results. So I'm really pleased that we've addressed the product. We've started working on that in spring of this year and really, again, proud of the team and proud of the organizational cultural shifts that are allowing us to do this really quickly. And I think it's going to be an exciting year in 2025 because we fixed so many operational things, and now we have a chance to listen to our customer and provide product that inspires her as we move forward.

Brooke Roach (Managing Director and Equity Research Analyst)

Great. And if I could just ask a follow-up for Paula. Paula, you gave some helpful guardrails on early thoughts on 2025, low to mid-single digit sales growth and improvement in EBITDA margins. Can you help us understand the puts and takes of that EBITDA margin expansion? Is it possible for the business to expand margins even if comps don't return to growth next year or if things take a little bit longer than your expectations?

Paula Dempsey (CFO)

Yeah. Brooke, that's a great question. I would say yes. We would still be able to see EBITDA margin expansion, especially as we focus on optimizing our store footprint. So from that standpoint, we would still see it. But to Lisa's point, with all the newness that we were going to be bringing in 2025, we feel very good, and we believe that we will return to growth from a comparable sales. I mean, we are in a better place now than we were, right, a year ago from a comp sale. So we are tracking in the right direction. So I would say yes all across. Just looking at all of our operational efficiencies and projects that we have for next year, aside from comp sales growth, we should still see that EBITDA margin expansion.

Brooke Roach (Managing Director and Equity Research Analyst)

Great. Thanks so much. I'll pass it on.

Operator (participant)

Thank you. Our next question comes from Corey Tarlowe, Jefferies.

Corey Tarlowe (Senior VP and Equity Research Analyst)

Great. Thanks. Lisa, recognizing there was a lot of volatility in the business in the quarter, could you talk a little bit about your view as to what was maybe macro versus micro? I would be curious to hear your perspective as you assess the business performance throughout the quarter and Black Friday. And then just one thing that I think we've talked a lot about, especially over the last year, has been your inventory control. But as you bring in a lot of the newness, I'm curious to get your perspective on the shape of the growth or change in inventory for the remainder of the year and perhaps into the early parts of next year.

Lisa Harper (CEO)

Sure. Thanks, Corey. Micro versus macro, we've had a lot of conversations about this. And most of my prepared remarks today were focused on product because that is the side of this that we can control. But there are core KPIs that were very dramatic shifts for us that were anomalous to anything that we've seen before in October. The good news is there's been recovery in November. As we said, Black Friday and Cyber was flat to last year with margin expansion, with product margin expansion. So we were pleased with that. That hit our forecasts. But we saw positive traffic and regular price sales in August, moving on through the quarter to very deep negative traffic trends in October. And so we had an incremental new line in late September, Fall 3, and we had an extended Torrid Cash.

We could not, besides the traffic, we promoted regular price to try to drive behavior. The normal elasticity models did not apply. So there really wasn't anything that we could do to entice the customer to change her to go back to a more normalized kind of behavior. The behavior changed pretty dramatically. Now, I can attribute that to weather, hurricanes, election, a lot of things, but I can't slice and dice that from my perspective. All that we can tell you is that traffic changed dramatically from the beginning of the quarter to the end of the quarter, from positive to -11% in the end of the quarter, and again, recovered in November post-election. So we saw that. So that's all I can base that on, that idea that we really couldn't entice her to spend with normal kind of promotional activities.

Our most valuable, highly engaged customer was the least engaged for that time period, and the recovery happened post-election, and that's circumstantial. I understand. I just have my KPIs. I can't layer it in a more broad effort, but those indications to us indicate that there is a substantial macro impact to how the quarter played out, very differently than we've experienced and very obviously different from our expectations. The good news is when we found that out. When we were experiencing it, we went and did mall intercepts. We did additional surveys. We went out to our customers, and there was no negative about the brand. It was really like, "I just need to see more fashion. I want to see more fashion.

I will spend the money on more fashion, on innovative, inspirational product." And so the good news is we already had that in work. We already had that on the water, and we're already starting to see the beginning of that. So micro versus macro, I can take responsibility for the product piece of it, but I do think there was a substantive impact, macro impact on the quarter. Inventory control, I'm going to give that to Ashlee, if you don't mind.

Ashlee Wheeler (Chief Strategy and Planning Officer)

Hi, Corey. So even with all of the newness coming, we expect to end the year, as we've said before, flat to down, low single digits, and believe that we can return to growth, so positive comp in 2025 on relatively flat inventory year-over-year. So it's really about replacing less productive choices with more productive, new, and inspirational ones.

Corey Tarlowe (Senior VP and Equity Research Analyst)

Got it. Thank you so much. Best of luck.

Ashlee Wheeler (Chief Strategy and Planning Officer)

Thanks, Corey.

Operator (participant)

Thank you. Our next question comes from Dana Telsey, Telsey Advisory Group.

Dana Telsey (CEO and Chief Research Officer)

Hi, good afternoon, everyone. As you think about, I think last quarter we talked about opening price point. What did you see as you went through the third quarter in terms of opening price points? Where are the prices relative to where you want to be? And with the introduction of some of these new products, how are the price points going to be versus the average? And then, Lisa, where are you on talent given the addition of the new Chief Merchant? What else would you like to see? Any other changes you'd like to see? And with these new capsules coming in, how are you planning marketing spend to introduce those? Thank you.

Lisa Harper (CEO)

Thanks, Dana. We still have OPP in the mix. I would say it's less important in the back half of the year than it is in the front half of the year. Overall, our AOV was up for the year, so for the quarter, excuse me, so I think that the mix was reasonable. I would say that the new capsules that we're bringing in the sub-brands are a mix. Some of them are higher price points. Some of them are the same price points that we have now, and some of them are lower price point concepts, so it really is a marketplace approach where we are targeting each of these sub-brands to speak to a customer that enters the brand through a size range and a need, a problem that she needs solved, or an inspiration that she's asking for, and we've broadened that mix.

And so some of the price points on the top end will increase a bit, but we'll also add lower price points. So the blend will end up most likely very similar to where we are now. It'll just be more of a broad range. On the talent question, I'm really thrilled to add Laura to the team and have Kate focus completely on intimates. We have a big opportunity in intimates, and we've always treated it in an organization like apparel, kind of like an adjunct to the apparel process. It's not the appropriate way to manage those product categories. And having a dedicated team and the talent to lead that initiative, I think, will pay off as we're able to bring new products to market and manage that side of the business more in an activist way. Laura has a lot of experience and specialty.

We worked together years ago when she started. She was the merchant that started Janie and Jack. We are Gymboree. She's worked at J.Crew for a long time managing women's and kids. She was one of the people who started Madewell. She was most recently at Away as the Chief Commercial Officer. So a great merchandising executive focused on the customer, focused on telling the customer stories and really inspiring and activating that customer. That'll be critical as we are broadening our scope in terms of an end-use product for this mix. I know you asked me a question about capsules at the end and.

Dana Telsey (CEO and Chief Research Officer)

And marketing?

Lisa Harper (CEO)

Marketing, thank you. Sorry, I didn't get the whole question written down. As I mentioned, I think that one of the big opportunities for us that we've touched on, but I think that we will integrate even more aggressively next year, is this opportunity to engage influencers. And I mean big-scale influencers as well as medium and micro influencers into this mix. And so we're using influencers in our photography campaigns. We're really engaging them in the mix broadly. We would expect next year marketing to go up slightly as a percentage of total sales. And so we are adding money to marketing to be able to support the new customer acquisition. The other thing we're going to do is really front-load some of our marketing spend to drive customer acquisition earlier in the mix. I also think that we have an enormous opportunity.

We've done a great job with customer reactivation this year, and I think that will accelerate as we bring new ideas to the marketplace. So some of it is organic and owned customers that we're going to be able to reignite, and some of it is investing more broadly in digital, but also specifically in influencer campaigns to support these new ideas.

Dana Telsey (CEO and Chief Research Officer)

Got it. And just broadly speaking, given the newness that's coming in the product, how much of the assortment going forward will be core? How much of it will be new? And just how do you frame the assortment in terms of what it should be looking like compared to what you had?

Lisa Harper (CEO)

The easiest way right now is to use denim as a proxy, and so last year, our skinny denim was 65% of our assortment and our sales in denim. This year, it's in the low 20s, and we've picked up wide-leg, flare, straight, all of the relevant, obviously. All of you know that there's a lot going on in denim right now, but that mix is a very different mix than it was a year ago. That being said, I still consider those silhouettes as being core. Even though they're new to us, flare, wide-leg, straight, believe it or not, took us a while to get to a straight leg in the mix. All of those would now be considered core businesses, and some of them we're buying as such. We're putting them in the wall. We're investing so that they really are becoming core to our mix.

It's not just the old core. It's also developing new core in those categories. The same thing applies in non-denim. Our loungewear business used to be a seasonal business. It's a year-round business now. We just introduced a wide-leg weekend pant, which has had remarkable receptivity by the customer. That weekend franchise has now become core. What we're doing with the capsules, in addition to bringing new ideas like Boho or Preppy or other ideas to the mix, we have more latitude a little bit as we're bringing in these sub-brands to bring in new ideas to see what ignites the customers. Some of those will move to Torrid core products over time.

So in Festi, even though we're delivering it to 250 stores, we identified some woven tops and knit tops out of the Festi development cycle that we feel like are relevant potential core businesses for Torrid. And those will blend into that mix over time. It's an incubation, but it's also an end-use that we think is really exciting moving forward and how we'll move the core brand of Torrid from a very tightly held, controlled, legacy-driven business to something that has a lot of legs, a lot of breadth, and the opportunity for growth.

Dana Telsey (CEO and Chief Research Officer)

Thank you.

Lisa Harper (CEO)

Thanks, Dana.

Operator (participant)

Thank you. And our next question comes from Alex Straton, Morgan Stanley.

Alex Straton (Equity Research Analyst and Managing Director)

Thanks, all, for taking the question. Just on the return to growth next year, I just wanted to clarify. Is that comp or total sales or both? And then what exactly is the build you're assuming? Is it pressure on the front half followed by an improvement in the back half? I'm just trying to understand the build to get to positive. And then the second question is just on when you start lapping that change in the strategy on clearance sales. I think you said the first quarter, but I just wanted to confirm. And I'm wondering, just bigger picture, if there's any change you all are having in mindset on whether that was the right strategy to pull back out of that. Thanks a lot.

Lisa Harper (CEO)

So next year is about comp and top line. So both are positive. We expect that they're going to get, I'm going to get in trouble for saying this, Alex, but we expect it to be positive for the entire year by quarter. I would say that the clearance sales are going to return to a more normalized level in Q1. So that's when we lap the deep kind of negative headwinds of clearance. I think fundamentally, it gets us to a much healthier place. Hindsight being 2020, I might have done it over two years instead of one year, but I'm really glad that we are in such a healthy place in terms of inventory and margin expansion.

I think that allows us now to really focus and leverage those capabilities to drive growth through the right investments of the right products and distributed and assorted and allocated properly. In hindsight, maybe I could have done it over two years, but I would. The number associated with this is a dramatic number. It's tens of millions of dollars of empty calorie sales that we walked away from this year that really will drive us to a much healthier place, has driven us to a much healthier place. The hard work is done in that sector from both inventory management and how we've managed clearance. We want to be more emotional and inspirational to the customer as we move forward and wean ourselves off kind of this clearance mentality or being over inventory to manage that as well as kind of our promotional structure.

I feel strongly that we're at the pivot. Third quarter was strange with the October shift, but we feel like everything's on the water coming in to be able to deliver these growth numbers next year. We've done the hard work of getting the right foundation set for the business and starting from the right place, both from the free cash it delivered as well as really rationalizing what our inventory needs are to drive growth. We feel comfortable.

Alex Straton (Equity Research Analyst and Managing Director)

Thanks, all. Good luck.

Lisa Harper (CEO)

Thanks.

Operator (participant)

Thank you. And our final question comes from Marni Shapiro, Retail Tracker.

Marni Shapiro (Managing Partner)

Hey, guys. Congratulations to Laura. I'm so happy that you guys are back together, and then she's gone from Rowing Blazers. Much better to have this girl power moment here. It feels to me like you guys have done a great job now sort of fixing all of the operations and fundamentals, and I can't think of a better way of putting this, but as you're turning on those product spigots and the customer's reacting, it's almost having a magnified effect on things like margin, etc. So can you just talk a little bit about that? Because you've, like you said, a lot of newness coming. Corey touched on the inventory. From my vantage point in your stores, anytime something new comes in, I never think you have enough inventory. It moves so fast.

So can you just kind of pair together a little bit like, "Here's where we are foundationally, and this is how we see turning on these spigots of fashion and how it's kind of dropping kind of quickly"? Because I know you're also spending on marketing. If you could just pull it together a little bit cleanly, a little bit more tightly.

Lisa Harper (CEO)

Okay. I'll try, Marni. If I understand you correctly, are you asking about the correlation between product expansion and kind of, to your words, turning on the product spigots and the inventory levels?

Marni Shapiro (Managing Partner)

Yeah. It feels as if foundationally, am I right to say that you guys are in very good shape on an operations kind of perspective here? And so now, as you start to kind of turn on these new brands or turn on new fashion product and it's selling, it feels like it should hit the bottom line. It feels almost in a magnified way because there's not problems in the way anymore. Old inventory in the way or old stores or.

Lisa Harper (CEO)

Yeah. So I get that absolutely that I feel like what we've done, and we were talking a little bit about that, ripping off the Band-Aid in terms of inventory, in terms of empty calorie clearance sales, in terms of old kind of legacy product that needed to be refreshed. So the core ponte business needs to be refreshed. It wasn't. We went broad in a lighter weight ponte. That's working really well, but we stuck a little bit too long to the legacy pieces. We're not doing that enough because we have enough newness to be able to inform how we invest going forward. The really exciting part about this is how we rank, how we buy, bringing in these new concepts that allow us almost a blank sheet of paper approach to how we broaden this product for the customer without risking the core business.

While we update the core business and bring in new ideas broadly, the operational acumen that we have, where we can fulfill from every store and we can do it very effectively, allows us to get more fashion deeper into the chain, all the way through the chain, and be more inspiring in the store environment and align the experience the customer is having on the web with the store experience and be more cohesive in that, and I think by cleaning up the inventory, by adding all these operational acumen and capabilities, and really leveraging this robust product design team and product development team that we have, and with what we've done with sourcing and cost of goods last year, all of those things combined to put us in a great place to kind of jump off and jump into this product expansion and growth scenario.

I know it might be hard. I mean, you look at it a little bit differently, Marni, but this customer is hungry for what everybody else is wearing. And we have to be able to deliver that in a way that's margin accretive, that's responsible from inventory management and allocation strategies and assortment by channel. And all of those things are in place. We have those capabilities, and now it's the fun part. And.

Marni Shapiro (Managing Partner)

That's how it feels to me. That's what I guess I'm getting at. All the hard stuff is done. So now, as you drop something like all of these new sub-brands or even your holiday assortment when you dropped it into stores because I see it online, but obviously, I go see it in stores, your sparkles, your holiday, your fashion sold in a minute. It was just gone. It feels to me, though, if you're dropping things like that on more and more of that without having to do all the grunt work of the other, that it should be much more margin accretive, and things should just move faster and smoother on top of just getting better sales.

Lisa Harper (CEO)

Right. So we're looking at top-line growth. We're looking at continued margin expansion. We're looking at, and let's be honest, there's a lot of hard work that got to this point. There's still more hard work ahead of us. But how we assort the merchant mindset that can manage this progression of the billion-dollar core business and then also be able to incorporate these additional ideas is incredibly exciting. And I'm happy to have Laura in the mix to do that. I'm happy to have Kate focus on intimates. I think that's where I felt like the investment needed to be made, and we've made it in merchandising, design, and product development. And I think we're excited about what's to come.

Marni Shapiro (Managing Partner)

I just have one more quick follow-up. On the product side, is part of the shift to make it a little bit more youthful?, and I don't mean trendy teen, just a little bit more youthful.

Lisa Harper (CEO)

Okay. Yeah. Yeah. When I left in 2016, the average customer age was 35, 36. When I came back, it was 42. I would like it to be 36. And so, yes, there's a blend here that I think is the right balance. And that aging of the customer, I think, is really attributable to the lack of product newness and innovation over those years.

Marni Shapiro (Managing Partner)

Yeah. Well, best of luck with the holiday season. I'll talk to you guys offline. Thank you.

Lisa Harper (CEO)

Thank you.

Marni Shapiro (Managing Partner)

Thank you.

Lisa Harper (CEO)

Are there any other last questions?

Operator (participant)

Yes. As the last question, I would like to turn the floor back to Lisa Harper for closing remarks.

Lisa Harper (CEO)

Okay. Thanks, everyone, for joining us today. I hope you all have a wonderful holiday season, and we look forward to sharing fourth-quarter results with you next year. Take care.

Operator (participant)

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time.