Torrid Holdings Inc.: Form 10-Q for the period ended Oct 28, 2023

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the section entitled "Risk Factors."

Overview

Torrid is a direct-to-consumer brand of apparel, intimates and accessories in North America aimed at fashionable women who are curvy and wear sizes 10 to 30. Torrid is focused on fit and offers high quality products across a broad assortment that includes tops, bottoms, denim, dresses, intimates, activewear, footwear and accessories. Our proprietary product offering delivers a superior fit for the curvy woman that makes her love the way she looks and feels. Our style is unapologetically youthful and sexy and we are maniacally focused on fit. We believe our customer values the appeal and versatility of our curated product assortment that helps her look her best for any occasion, including weekend, casual, work and dressy, all at accessible price points. Through our product and brand experience we connect with customers in a way that other brands, many of which treat plus-size customers as an after-thought, have not.

Key Financial and Operating Metrics

We use the following metrics to assess the progress of our business, inform how we allocate our time and capital, and assess the near-term and longer-term performance of our business.

(in thousands, except percentages)

(A) Please refer to "Results of Operations" for a reconciliation of net income (loss) to Adjusted EBITDA.

Comparable Sales. We define comparable sales for any given period as the sales of our e-Commerce operations and stores that we have included in our comparable sales base during that period. We include a store in our comparable sales base after it has been open for 15 full fiscal months. If a store is closed during a fiscal year, it is only included in the computation of comparable sales for the full fiscal months in which it was open. Partial fiscal months are excluded from the computation of comparable sales. Comparable sales allow us to evaluate how our unified commerce business is performing exclusive of the effects of new store openings. We apply current year foreign currency exchange rates to both current year and prior year comparable sales to remove the impact of foreign currency fluctuation and achieve a consistent basis for comparison. Comparable sales allow us to evaluate how our unified commerce business is performing exclusive of the effects of non-comparable sales.

Number of Stores. Store count reflects all stores open at the end of a reporting period. In connection with opening new stores, we incur pre-opening costs, which primarily consist of payroll, travel, training, marketing, initial opening supplies, costs of transporting initial inventory and fixtures to store locations, and occupancy costs incurred from the time of possession of a store site to the opening of that store. These pre-opening costs are included in our selling, general and administrative expenses and are expensed as incurred.

Adjusted EBITDA. Adjusted EBITDA is a supplemental measure of our operating performance that is neither required by, nor presented in accordance with GAAP and our calculation thereof may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA represents GAAP net income (loss) plus interest expense less interest income, net of other expense (income), plus provision for less (benefit from) income taxes, depreciation and amortization ("EBITDA"), and share-based compensation, noncash deductions and charges and other expenses. We believe Adjusted EBITDA facilitates operating performance comparisons from period to period by isolating the effects of certain items that vary from period to period without any correlation to ongoing operating performance. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting the overall expected performance of our business and for evaluating on a quarterly and annual basis actual results against such expectations. Further, we recognize Adjusted EBITDA as a commonly used measure in determining business value and, as such, use it internally to report and analyze our results and as a benchmark to determine certain non-equity incentive payments made to executives.

Adjusted EBITDA has limitations as an analytical tool. This measure is not a measurement of our financial performance under GAAP and should not be considered in isolation or as an alternative to or substitute for net income (loss), income (loss) from operations or any other performance measures determined in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Among other limitations, Adjusted EBITDA does not reflect:

• interest expense;
• interest income, net of other expense (income);
• provision for income taxes;
• depreciation and amortization;
• share-based compensation;
• non-cash deductions and charges; and
• other expenses.

Factors Affecting Our Performance

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q in the section titled "Risk Factors."

Customer Acquisition and Retention. Our success is impacted not only by efficient and profitable customer acquisition, but also by our ability to retain customers and encourage repeat purchases. It is important to maintain reasonable costs for these marketing efforts relative to the net sales and profit we expect to derive from customers. Failure to effectively attract customers on a cost-efficient basis would adversely impact our profitability and operating results. New requirements for consumer disclosures regarding privacy practices, and new application tracking transparency framework that requires opt-in consent for certain types of tracking were implemented by third party providers in 2021, which has increased the difficulty and cost of acquiring and retaining customers. These changes may adversely affect our results of operations.

Customer Migration from Single to Omni-channel. We have a history of converting customers from single-channel customers to omni-channel customers, defined as active customers who shopped both online and in-store within the last twelve months. Customers that shop across multiple channels purchase from us more frequently and spent approximately 3.4 times more per year than our single-channel customer during fiscal year 2022.

Overall Economic Trends. Our results of operations during any given period are often affected by the overall economic conditions in the markets in which we operate. Consumer purchases of clothing generally remain constant or may increase during stable economic periods and decline during recessionary periods, inflationary periods and other periods when disposable income is adversely affected. Recent historic high rates of inflation have led to a softening of consumer demand. We have encountered inflation on our wages, transportation and product costs, and a material increase in these costs without any meaningful offsetting price increases may reduce our future profits.

Demographic Changes. Our business has experienced growth over recent periods due, in part, to an increase in the plus-size population. Slower or negative growth in this demographic, specific to certain geographic markets, income levels or overall, could adversely affect our results of operations.

Growth in Brand Awareness. We intend to continue investing in our brand, with a specific focus on growing brand awareness, customer engagement, and conversion through targeted investments in performance and brand marketing. We have made significant historical investments to strengthen the Torrid brand through our marketing efforts, brand partnerships, events and expansion of our social media presence. If we fail to cost-effectively promote our brand or convert impressions into new customers, our net sales growth and profitability may be adversely affected.

Inventory Management. Our strategy is built around a base of core products that provide our customer with year-round style. At the same time, we introduce new lines of merchandise approximately 16 times per year, thus providing a consistent flow of fresh merchandise to keep our customer engaged, encourage repeat business and attract new customers. We employ a data-driven approach to design and product development, proactively and quickly incorporating sales and operational performance information alongside customer feedback from thousands of product reviews. We engage in ongoing dialogue with customers through social media and customer surveys. Shifts in inventory levels may result in fluctuations in the amount of regular price sales, markdowns, and merchandise mix, as well as gross margin.

Impact of COVID-19. The COVID-19 pandemic has caused general business disruption worldwide. The full extent to which the COVID-19 pandemic will directly or indirectly affect our business, results of operations, cash flows, and financial condition will depend on future developments that are uncertain. A resurgence in the pandemic or the emergence of new variants of the coronavirus could have a negative impact on our business including, but not limited to, new closure requirements with respect to some or all of our physical locations, changes in consumer behavior, difficulties attracting and retaining employees and supply chain disruptions.

Investments. We have invested significantly to strengthen our business, including augmenting leadership across our organization and enhancing our infrastructure and technology. We anticipate that our operating expenses will grow as we continue to increase our spending on advertising and marketing, product design and development, merchandising, technology, operations, customer service and general and administrative functions. We will also continue to selectively expand our store footprint and make investments to improve the customer experience both in-store and online. We believe that such investments will increase the number and loyalty of our customers and, as a result, yield positive financial performance in the long term.

Seasonality. While seasonality frequently impacts businesses in the retail sector, our business is generally not seasonal. Accordingly, our net sales do not fluctuate as significantly as those of other brands and retailers from quarter to quarter and any modest seasonal effect does not significantly change the underlying trends in our business. Additionally, we do not generate an outsized share of our net sales or Adjusted EBITDA during the holiday season. Typically, our Adjusted EBITDA generation is strongest in the first half of the year as we benefit from more favorable merchandise margins, lower advertising and lower shipping expenses relative to the second half of the year. The lack of net sales seasonality provides structural cost advantages relative to peers, including reduced staffing cyclicality and seasonal distribution capacity needs.

Components of Our Results of Operations

In the fourth quarter of fiscal year 2022, we made a voluntary change in our accounting policy regarding the classification of PLCC Funds (as defined in “Note 1–Basis of Presentation and Description of the Business”) we receive pursuant to the Credit Card Agreement (as defined in “Note 9–Revenue Recognition”). Historically, we recorded PLCC Funds as a reduction to selling, general and administrative expenses in the consolidated statements of operations and comprehensive (loss) income. Under the new policy, we record PLCC Funds in net sales in the consolidated statements of operations and comprehensive (loss) income. This reclassification does not have any impact on income from operations, income before provision for income taxes, net income or earnings per share and there was no cumulative effect to stockholders’ deficit or net assets. The recognition of PLCC Funds in net sales is preferable because it will enhance the comparability of our financial statements with those of many of our industry peers and provide greater transparency into performance metrics relevant to our industry by showing the gross impact of the funds received as net sales instead of as a reduction to selling, general and administrative expenses.

Net Sales. Net sales reflects our revenues from the sale of our merchandise, shipping and handling revenue received from e-Commerce sales, PLCC Funds and gift card breakage income, less returns, discounts and loyalty points/awards. Revenue from our stores is recognized at the time of sale and revenue from our e-Commerce channel is recognized upon shipment of the merchandise to the home of the customer; except in cases where the merchandise is shipped to a store and revenue is recognized when the customer retrieves the merchandise from the store. Net sales are impacted by the size of our active customer base, product assortment and availability, marketing and promotional activities and the spending habits of our customers. Net sales are also impacted by the migration of single-channel customers (i.e., customers shopping only in-store or online) to omni-channel customers (i.e., customers shopping both in-store and online), who on average spend significantly more than single-channel customers in a given year.

Gross Profit. Gross profit is equal to our net sales less cost of goods sold. Our cost of goods sold includes merchandise costs, freight, inventory shrinkage, payroll expenses associated with the merchandising department, distribution center expenses and store occupancy expenses, including rent, common area maintenance charges, real estate taxes and depreciation.

Merchandising payroll costs and store occupancy costs included within cost of goods sold are largely fixed and do not necessarily increase as volume increases. We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise and generally use markdowns to clear that merchandise. The timing and level of markdowns are driven primarily by customer acceptance of our merchandise. The primary drivers of our merchandise costs include the raw materials, labor in the countries where we source our merchandise, customs duties, and logistics costs.

Selling, General and Administrative Expenses. Selling, general and administrative expenses include all operating costs not included in cost of goods sold or marketing expenses.

Marketing Expenses. We continue to make investments in marketing in an effort to grow and retain our active customer base and increase our brand awareness. Marketing expenses consist primarily of (i) targeted online performance marketing costs, such as retargeting, paid search/product listing advertising, and social media advertisements, (ii) store and brand marketing, public relations and photographic production designed to acquire, retain and remain connected to customers and (iii) payroll and benefits expenses associated with our marketing team.

Interest Expense. Interest expense consists primarily of interest expense and other fees associated with our Existing ABL Facility, as amended, and New Term Loan Credit Agreement, as amended.

Provision for Income Taxes. Our provision for income taxes consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.

Results of Operations

Three Months Ended October 28, 2023 Compared to Three Months Ended October 29, 2022

The following table summarizes our consolidated results of operations for the periods indicated (in thousands):

(A) In the fourth quarter of fiscal year 2022, we made a voluntary change in our accounting policy regarding the classification of PLCC Funds in the consolidated statements of operations and comprehensive (loss) income. The reclassification is applied retrospectively to all prior periods presented. See "Note 1–Basis of Presentation and Description of the Business" for further information.

The following table provides a reconciliation of net (loss) income to Adjusted EBITDA for the periods presented (in thousands):

(A) Depreciation and amortization excludes amortization of debt issuance costs and original issue discount that are reflected in interest expense.

(B) During the three months ended October 28, 2023, share-based compensation includes $0.1 million for awards that will be settled in cash as they are accounted for as share-based compensation in accordance with ASC 718, Compensation—Stock Compensation, similar to awards settled in shares.

(C) Non-cash deductions and charges includes non-cash losses on property and equipment disposals and the net impact of non-cash rent expense.

(D) Other expenses include severance costs for certain key management positions and certain litigation fees.

Net Sales

Net sales decreased $24.8 million, or 8.3%, to $275.4 million for the three months ended October 28, 2023, from $300.2 million for the three months ended October 29, 2022. This decrease was primarily driven by a decrease in sales transactions and a decrease in PLCC Funds, partially offset by improved pricing strategies. The total number of stores we operate increased by 14 stores, or 2.2%, to 643 stores as of October 28, 2023, from 629 stores as of October 29, 2022.

Gross Profit

Gross profit for the three months ended October 28, 2023 decreased $10.4 million, or 10.2%, to $91.5 million, from $101.9 million for the three months ended October 29, 2022. This decrease was primarily due to a decrease in sales transactions and a decrease in PLCC Funds, partially offset by decreased e-Commerce shipping costs as a result of fewer packages shipped. Gross profit as a percentage of net sales decreased 0.8% to 33.2% for the three months ended October 28, 2023 from 34.0% for the three months ended October 29, 2022. This decrease was primarily driven by a decrease in PLCC Funds, an increase in distribution costs and deleverage of store occupancy costs as a result of lower net sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended October 28, 2023 increased $2.5 million, or 3.7%, to $71.9 million, from $69.3 million for the three months ended October 29, 2022. The increase was primarily due to a $1.8 million increase in headquarters general and administrative expenses, a $1.6 million increase in performance bonuses and a $1.0 million increase in other store operating costs, partially offset by a $1.3 million decrease in share-based compensation expense. Selling, general and administrative expenses as a percentage of net sales increased 2.9% to 26.1% for the three months ended October 28, 2023 from 23.2% for the three months ended October 29, 2022. This increase was primarily driven by increased headquarters general and administrative expenses, increased other store operating costs and deleverage of store payroll costs as a result of lower net sales.

Marketing Expenses

Marketing expenses for the three months ended October 28, 2023 increased $0.1 million, or 0.8%, to $12.7 million, from $12.6 million for the three months ended October 29, 2022. Marketing expenses as a percentage of net sales increased 0.4% to 4.6% during the three months ended October 28, 2023 from 4.2% during the three months ended October 29, 2022. This increase was primarily driven by an increase in digital marketing and deleverage of our marketing expenses as a result of lower net sales.

Interest Expense

Interest expense was $9.8 million for the three months ended October 28, 2023, compared to $8.4 million for the three months ended October 29, 2022. The increase was primarily due to an increase in the variable interest rate associated with the New Term Loan Credit Agreement, as amended, during the three months ended October 28, 2023 compared to the three months ended October 29, 2022.

(Benefit from) Provision for Income Taxes

The benefit from income taxes was $0.4 million for the three months ended October 28, 2023, compared to a provision for income taxes of $4.1 million for the three months ended October 29, 2022. Our effective tax rate was 12.5% for the three months ended October 28, 2023 and 36.3% for the three months ended October 29, 2022. The decrease in the effective tax rate for the three months ended October 28, 2023 as compared to the three months ended October 29, 2022 was primarily due to a decrease in income before provision for income taxes during the three months ended October 28, 2023 as compared to the three months ended October 29, 2022 and an increase in state income taxes relative to loss before benefit from income taxes for the three months ended October 28, 2023, partially offset by a decrease in the amount of non-deductible compensation for covered employees and state income taxes relative to loss before benefit from income taxes for the three months ended October 28, 2023.

Nine Months Ended October 28, 2023 Compared to Nine Months Ended October 29, 2022

The following table summarizes our consolidated results of operations for the periods indicated (in thousands):

(A) In the fourth quarter of fiscal year 2022, we made a voluntary change in our accounting policy regarding the classification of PLCC Funds in the consolidated statements of operations and comprehensive (loss) income. The reclassification is applied retrospectively to all prior periods presented. See "Note 1–Basis of Presentation and Description of the Business" for further information.

The following table provides a reconciliation of net income to Adjusted EBITDA for the periods presented (in thousands):

(A) Depreciation and amortization excludes amortization of debt issuance costs and original issue discount that are reflected in interest expense.

(B) During the nine months ended October 28, 2023, share-based compensation includes $0.4 million for awards that will be settled in cash as they are accounted for as share-based compensation in accordance with ASC 718, Compensation—Stock Compensation, similar to awards settled in shares.

(C) Non-cash deductions and charges includes non-cash losses on property and equipment disposals and the net impact of non-cash rent expense.

(D) Other expenses include severance costs for certain key management positions and certain litigation fees.

Net Sales

Net sales decreased $128.5 million, or 13.0%, to $858.4 million for the nine months ended October 28, 2023, from $986.9 million for the nine months ended October 29, 2022. This decrease was primarily driven by a decrease in sales transactions, partially offset by improved pricing strategies. The total number of stores we operate increased by 14 stores, or 2.2%, to 643 stores as of October 28, 2023, from 629 stores as of October 29, 2022.

Gross Profit

Gross profit for the nine months ended October 28, 2023 decreased $58.5 million, or 16.1%, to $304.8 million, from $363.4 million for the nine months ended October 29, 2022. This decrease was primarily due to a decrease in sales transactions, a decrease in PLCC Funds and increases in store occupancy costs and merchandising payroll costs, partially offset by decreases in distribution costs and e-Commerce shipping costs as a result of fewer packages shipped. Gross profit as a percentage of net sales decreased 1.3% to 35.5% for the nine months ended October 28, 2023 from 36.8% for the nine months ended October 29, 2022. This decrease was primarily driven by increases in store occupancy costs and merchandising payroll costs and deleverage of store depreciation expense as a result of lower net sales, partially offset by improved pricing strategies and a decrease in e-Commerce shipping costs as a result of fewer packages shipped.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended October 28, 2023 decreased $7.4 million, or 3.4%, to $212.7 million, from $220.1 million for the nine months ended October 29, 2022. The decrease was primarily due to a $4.3 million decrease in store payroll costs, a $2.8 million decrease in performance bonuses, a $1.6 million decrease in share-based compensation expense, a $1.5 million decrease in losses on property and equipment disposals and a $1.4 million decrease in other store operating costs, partially offset by a $4.3 million increase in headquarters general and administrative expenses. Selling, general and administrative expenses as a percentage of net sales increased by 2.5% to 24.8% for the nine months ended October 28, 2023 from 22.3% for the nine months ended October 29, 2022. This increase was primarily driven by increased headquarters general and administrative expenses and deleverage of store payroll costs and other store operating costs as a result of lower net sales, partially offset by decreased performance bonuses.

Marketing Expenses

Marketing expenses for the nine months ended October 28, 2023 decreased $5.1 million, or 11.6%, to $39.0 million, from $44.1 million for the nine months ended October 29, 2022. This decrease was primarily due to decreased television marketing and regional marketing events, partially offset by an increase in digital marketing. Marketing expenses as a percentage of net sales was 4.5% during the nine months ended October 28, 2023 and October 29, 2022. Marketing expenses as a percentage of net sales decreased during the nine months ended October 28, 2023 as a result of decreased television marketing and regional marketing events, and these decreases were offset by an increase in digital marketing and deleverage of marketing expenses as a result of lower net sales.

Interest Expense

Interest expense was $28.8 million for the nine months ended October 28, 2023, compared to $21.4 million for the nine months ended October 29, 2022. The increase was primarily due to an increase in the variable interest rate associated with the New Term Loan Credit Agreement, as amended, during the nine months ended October 28, 2023 compared to the nine months ended October 29, 2022.

Provision for Income Taxes

The provision for income taxes was $8.4 million for the nine months ended October 28, 2023, compared to a provision for income taxes of $23.5 million for the nine months ended October 29, 2022. Our effective tax rate was 34.8% for the nine months ended October 28, 2023 and 30.3% for the nine months ended October 29, 2022. The increase in the effective tax rate for the nine months ended October 28, 2023 as compared to the nine months ended October 29, 2022 was primarily due to increases in the amount of non-deductible compensation for covered employees and state income taxes relative to income before provision for income taxes for the nine months ended October 28, 2023.

Liquidity and Capital Resources

General

Our business relies on cash flows from operations as our primary source of liquidity. We do, however, have access to additional liquidity, if needed, through borrowings under our Existing ABL Facility, as amended. Availability under the Existing ABL Facility, as amended, as of the end of the third quarter of fiscal year 2023, was $137.5 million, which reflects borrowings of $5.1 million. Our primary cash needs are for merchandise inventories, payroll, rent for our stores, headquarters and distribution center, capital expenditures associated with opening new stores and updating existing stores, logistics and information technology. We also need cash to fund our interest and principal payments on the New Term Loan Credit Agreement, as amended, and make discretionary repurchases of our common stock. The most significant components of our working capital are cash and cash equivalents, merchandise inventories, prepaid expenses and other current assets, accounts payable, accrued and other current liabilities and operating lease liabilities. We believe that cash generated from operations and the availability of borrowings under our Existing ABL Facility, as amended, or other financing arrangements will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our Existing ABL Facility, as amended, or otherwise to enable us to service our indebtedness, or to make capital expenditures in the future. Our future operating performance and our ability to service or extend our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

July 2023 Reduction in Workforce

In July 2023, we implemented a strategic reduction of approximately 5% of our workforce employed in our headquarters in City of Industry, California. We estimate that we will incur between approximately $1.0 million and $2.0 million in costs to implement the workforce reduction, comprised primarily of severance payments and continuing health care coverage over the severance period. The costs associated with the workforce reduction are expected to be incurred during fiscal year 2023. During the three- and nine-month periods ended October 28, 2023, we recognized $1.2 million and $1.5 million, respectively, of expense related to the workforce reduction in selling, general and administrative expenses in our condensed consolidated statements of operations and comprehensive (loss) income.

Cash Flow Analysis

A summary of operating, investing and financing activities are shown in the following table (in thousands):

Net Cash Provided By Operating Activities

Operating activities consist primarily of net income adjusted for non-cash items, including depreciation and amortization and share-based compensation, the effect of working capital changes and taxes paid.

Net cash provided by operating activities during the nine months ended October 28, 2023 was $33.7 million compared to $53.9 million during the nine months ended October 29, 2022. The decrease in cash provided by operating activities during the nine months ended October 28, 2023 was primarily as a result of a decrease in net income, a lower increase in accounts payable, an increase in prepaid income taxes, a decrease in amounts due to related parties and a decrease in other noncurrent liabilities. These decreases were partially offset by a decrease in inventory purchases and a lower decrease in accrued expenses and other current liabilities.

Net Cash Used In Investing Activities

Typical investing activities consist primarily of capital expenditures for growth (new store openings, relocations and major remodels), store maintenance (minor store remodels and investments in store fixtures), and infrastructure to support the business related primarily to information technology, our headquarters facility and our West Jefferson, Ohio distribution center.

Net cash flows used in investing activities during the nine months ended October 28, 2023 was $15.2 million, compared to $17.1 million during the nine months ended October 29, 2022. The decrease in cash used in investing activities was primarily as a result of a decrease in capital expenditures related to our West Jefferson, Ohio distribution center, partially offset by increased capital expenditures related to the opening of new stores and store relocations during the nine months ended October 28, 2023, compared to the nine months ended October 29, 2022.

Net Cash Used In Financing Activities

Financing activities consist primarily of (i) borrowings and repayments related to our Existing ABL Facility, as amended, (ii) borrowings and repayments related to the New Term Loan Credit Agreement and (iii) repurchases and retirement of our common stock.

Net cash used in financing activities during the nine months ended October 28, 2023 was $16.3 million compared to $47.0 million during the nine months ended October 29, 2022. The decrease in net cash used in financing activities is primarily as a result of a $31.7 million decrease in share repurchases and a $4.4 million decrease in principal payments on the New Term Loan Credit Agreement, as amended, due to the timing of payments relative to the end of our fiscal quarter, partially offset by a $5.4 million decrease in net borrowing from the Existing ABL Facility, as amended.

Debt Financing Arrangements

As of October 28, 2023, we had $308.7 million of outstanding indebtedness, net of unamortized original issue discount and debt financing costs, consisting of term loans under the New Term Loan Credit Agreement, as amended. As of October 28, 2023, we had borrowings of $5.1 million under the Existing ABL Facility, as amended. Please refer to "Note 12—Debt Financing Arrangements" for further discussion regarding our indebtedness.

Critical Accounting Policies and Significant Estimates

There have been no material changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

Our market risk profile as of January 28, 2023 is disclosed in our Annual Report on Form 10-K and has not materially changed. Please refer to "Note 12—Debt Financing Arrangements" for further discussion regarding our indebtedness.

Management's Evaluation of Disclosure Controls and Procedures

We, under the supervision of and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures are effective as of October 28, 2023, to ensure that information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes during the three months ended October 28, 2023 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.