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Torrid IPO: 5 things to know about the plus-size retailer as it hits public markets

Shares of Torrid Holdings Inc., which says it’s North America’s largest direct-to-consumer provider of women’s plus-size clothing and intimates by sales, soared 13% after the stock began trading on Thursday.

Based in City of Industry, Calif., in eastern Los Angeles county, Torrid is listing its shares on the New York Stock Exchange under the ticker “CURV.”

The company sold 11 million shares priced at $21 each, the high end of a proposed range of $18 to $21, after upsizing the deal from an earlier plan to offer 8 million shares. The company raised $231 million at a valuation of $2.3 billion, based on 110 million shares expected to be outstanding after the deal closes.

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There were eight banks underwriting the deal, led by Morgan Stanley, BofA Securities, Goldman Sachs and Jefferies.

Torrid is an emerging growth company, which means it does not have to make the same disclosures required of bigger public companies. A business remains an emerging growth company until it reaches a number of milestones, including annual revenue of more than $1.07 billion.

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Torrid’s Chief Executive Elizabeth Muñoz has served in the role since 2018. Chief Financial Officer George Wehlitz, Jr. has been in the position since January 2021, though he has led the company’s finance operations since 2013, when he became chief financial officer of legacy parent company Hot Topic.

Sycamore Partners Management has about $10 billion in aggregate in committed capital. After the offering, Sycamore will hold more than 50% of the voting power and Torrid will be a controlled company. Hot Topic is part of Sycamore’s portfolio.

Torrid’s target market are women between the ages of 25 and 40. More than half (58%) of Torrid’s customers in 2020 were younger than 40 and the average size worn was 18. The company also says the ethnic composition of its customers is in line with the U.S. population.

Data furnished by Torrid puts the U.S. women’s plus-size apparel and intimates market at $85 billion. This includes 90 million plus-size women wearing sizes 10 and up. Data from market intelligence platform Edited forecasts that this category will grow to $697 billion by 2027.

See: Victoria’s Secret shows how reluctance to embrace the plus-size market can hurt an apparel business

Torrid served 3.2 million active customers in 2020, ringing up sales totaling $974 million. In 2019, Torrid served 3.4 million customers with sales totaling $1.037 billion.

Between 2017 and 2020, the net sales compound annual growth rate (CAGR) for the company was 8%.

Net income in 2020 was $25 million, down from $42 million in 2019. In 2018, net income was $87 million.

For the 12 months ending May 1, 2021, sales were $1.143 billion and net income was $25 million.

For a category in which finding on-trend merchandise is a challenge, Torrid says in its prospectus that its “style is unapologetically youthful and sexy.”

With so few plus-size options, Torrid says these customers underspend by billions of dollars, putting the total addressable market at $104 billion. With less than 4% penetration among U.S. plus-size women and 78,000 plus-size women for every plus-size store versus 700 women for other women’s specialty apparel stores, Torrid sees a big growth opportunity.

“The average plus-size woman has historically struggled to find stylish products that fit well and 78% of plus-size women reported that they would spend more on clothing if they had more options available in their size,” the prospectus says.

There were 608 Torrid stores as of May 1, 2021, with e-commerce representing 48% of sales in 2019 and 70% of sales in 2020. Torrid stores had to shutter temporarily last year due to COVID-19.

Torrid also has a rewards program that allows it to collect data to better serve and target its customers. In 2020, 95% of net sales were attributable to loyalty members.

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Torrid is able to sell a majority of its merchandise at full price. Basic and core styles are reliable sellers.

“Further, we utilize a read-and-react testing approach with shallow initial buys to iterate our new product offering, thus minimizing fashion and inventory risk,” the prospectus says.

“Our merchandising strategy has enabled us to generate approximately 80% of our net sales from products sold at regular price, which we define as products sold at initial ticket price or with a standard marketing promotion (e.g., “Buy One Get One 50% Off”). “

Bras are also big business. Bras are the second most frequent item, behind tops, in a new customer’s first purchase. Torrid views its intimates line, Torrid Curve, as a growth driver.

The company has patent-pending technology for its bras that the prospectus says can’t be easily replicated.

Here are five more things to know about Torrid:

Torrid won’t offer a dividend. The company does not foresee paying a cash dividend for the foreseeable future. Torrid will not receive any proceeds from the sale of common shares, rather they will go to the selling shareholders.

Many Torrid stores are in malls. Mall traffic was in decline even before the COVID-19 pandemic.

“In centers that may experience declining customer traffic, certain of our expenses are contractually fixed and our ability to reduce these expenses if we were to experience sales declines is limited in the near term,” the prospectus said.

Debt and leases could be an issue. As of May 1, 2021, the company had $202.0 million in debt. Annual future occupancy payments for 2021 are estimated at $334.3 million.

Prior to the offering, Torrid expects to enter into a new credit facility consisting of a $350 million senior secured seven-year term loan facility and expects to amend its five-year revolving credit facility. The company plans to use the proceeds to pay transaction expenses, pay off the amended term loan credit agreement, and pay a special dividend to direct and indirect equity holders.

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Fit is a critical component of Torrid’s business. Torrid designs and develops most of its merchandise in-house, which drives consistent fit, quality and cost. The company also employs plus-size fit models rather than using mannequins during the fit process.

Most apparel brands that offer plus-size clothing use a “grading up” method, offering existing items in extended sizing, which Torrid says leads to a lesser product.

“Our consistent fit contributed to a return rate of only 9% for e-commerce purchases in 2020, whereas return rates for e-commerce purchases generally can be as high as 30%,” the prospectus says.

The body-positive movement gives Torrid a “cultural tailwind.” Torrid says it’s riding a wave of increased inclusivity that has driven change at brands like L Brands Inc.’s
LB,
+2.44%

Victoria’s Secret and opened doors for entrants like American Eagle Outfitters Inc.’s
AEO,
+0.16%

Aerie.

“Growing celebration of femininity, inclusivity and self-identity, along with the emergence of plus-size celebrities and influencers, inspires young curvy customers to demand more flattering and stylish clothing they are proud to wear,” the company wrote.

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