# Torrid Holdings Inc.: Form 10-Q for the period ended Aug 3, 2024

- Company: [Torrid Holdings Inc.](/companies/curv.md) (CIK 1792781)
- Form: 10-Q
- Filed: 2024-09-09
- Accepted by EDGAR: Sep 9, 2024, 20:26 ET
- Period: 2024-08-03
- Accession: 0001628280-24-039863
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1792781/000162828024039863/thi-20240803.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1792781/000162828024039863/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-08-03.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-05-05 to 2024-08-03 | $284.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-02-04 to 2024-08-03 | $564.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-05-05 to 2024-08-03 | $174.4m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2024-02-04 to 2024-08-03 | $338.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-05-05 to 2024-08-03 | $110.3m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-02-04 to 2024-08-03 | $225.7m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-05-05 to 2024-08-03 | $76.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-02-04 to 2024-08-03 | $153.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-05-05 to 2024-08-03 | $20.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-02-04 to 2024-08-03 | $46.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-05-05 to 2024-08-03 | $3.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-02-04 to 2024-08-03 | $7.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-05-05 to 2024-08-03 | $8.3m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-02-04 to 2024-08-03 | $20.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-05-05 to 2024-08-03 | $0.08 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-02-04 to 2024-08-03 | $0.19 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-05-05 to 2024-08-03 | $0.08 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-02-04 to 2024-08-03 | $0.20 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-05-05 to 2024-08-03 | 106,074,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-02-04 to 2024-08-03 | 105,728,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-02-04 to 2024-08-03 | $68.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-02-04 to 2024-08-03 | $10.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-08-03 | $53.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-08-03 | $217.2m | us-gaap:AssetsCurrent |
| Total assets | at 2024-08-03 | $487.5m | us-gaap:Assets |
| Current liabilities | at 2024-08-03 | $245.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-08-03 | $676.4m | us-gaap:Liabilities |
| Long-term debt | at 2024-08-03 | $280.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-08-03 | $16.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-08-03 | −$188.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,294 characters.

*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 described below and in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on April 2, 2024 and in our other filings with the SEC and public communications.*

### Overview

We are a direct-to-consumer brand dedicated to offering a diverse assortment of stylish apparel, intimates, and accessories skillfully designed for curvy women in North America. Specializing in sizes 10 to 30, our primary focus is on providing fashionable, comfortable, and affordable options that meet the unique needs of our customers. Our extensive collection features high quality merchandise, including tops, bottoms, denim, dresses, intimates, activewear, footwear, and accessories. Our products are exclusive to us, with few exceptions, and each product is meticulously crafted to cater to the needs of the curvy woman, empowering her to love the way she looks and feels. Our collections are artfully curated to suit all aspects of our customers’ lives, including casual weekends, work, dressy and special occasions. Understanding the importance of affordability, we aim to keep our prices reasonable without compromising on quality. This allows us to build a meaningful connection with our customers, distinguishing us from other brands that often overlook plus-size consumers. Our brand experience and product offerings establish us as a differentiated and reliable choice for plus-size customers, which we believe sets us apart in the market. We strive to be everything our customer needs in her closet, consistently delivering products that make her feel confident and stylish.

### 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.

|  | August 3, 2024 | July 29, 2023 |
| --- | ---: | ---: |
| Number of stores (as of end of period) | 657 | 639 |

*(in thousands, except percentages)*

*(in thousands, except percentages)*

|  | Three Months Ended August 3, 2024 | July 29, 2023 | Six Months Ended August 3, 2024 | July 29, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Comparable sales(A) | (1)% | (18)% | (5)% | (16)% |
| Net income | $8,328 | $6,629 | $20,500 | $18,437 |
| Adjusted EBITDA(B) | $34,592 | $32,151 | $72,820 | $70,412 |

(A) Comparable sales for the three- and six-month periods ended August 3, 2024 compares sales for the 13- and 26-week periods ended August 3, 2024, respectively, with sales for the 13- and 26-week periods ended August 5, 2023.

(B) Please refer to “Results of Operations” for a reconciliation of net income 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. Comparable sales for the three- and six-month periods ended August 3, 2024 compares sales for the 13- and 26-week periods ended August 3, 2024, respectively, with sales for the 13- and 26-week periods ended August 5, 2023. Partial fiscal months are excluded from the computation of comparable sales. 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 and new store openings.

***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, non-cash 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;
- other income, net of other expense;
- 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 3.5 times more per year than our single-channel customer during fiscal year 2023.

***Overall Economic Trends.*** Our results of operations during any given period are often impacted 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.*** The growth of our business is impacted, in part, by the size of 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. Although we intend to continue to tightly manage our inventory levels, shifts in these levels may result in fluctuations in the amount of regular price sales, markdowns, and merchandise mix, as well as gross margin.

***Investments.*** We have invested significantly to strengthen our business, including augmenting leadership across our organization and enhancing our infrastructure and technology in order to realize growth. We anticipate that our operating expenses will grow as we continue to increase our spending on advertising and marketing and hire additional personnel primarily in marketing, product design and development, merchandising, technology, operations, customer service and general and administrative functions. We are strategically working to expand and rebalance our store footprint, aiming for an optimal split between malls and outdoor centers. We will also continue to 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.

***Impact of Infectious Disease Outbreaks.*** Infectious disease outbreaks may cause general business disruption worldwide which could directly or indirectly impact our business, results of operations, cash flows, and financial condition. This could have a negative impact on our business including, but not limited to, 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.

### Components of Our Results of Operations

***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 ABL Facility, as amended, and our Amended Term Loan Credit Agreement.

***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 August 3, 2024 Compared to Three Months Ended July 29, 2023

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

|  | Three Months Ended August 3, 2024 | % of Net Sales | July 29, 2023 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $284,638 | 100.0% | $289,144 | 100.0% |
| Cost of goods sold | 174,380 | 61.3% | 186,467 | 64.5% |
| Gross profit | 110,258 | 38.7% | 102,677 | 35.5% |
| Selling, general and administrative expenses | 76,838 | 27.0% | 69,591 | 24.2% |
| Marketing expenses | 13,007 | 4.6% | 12,898 | 4.5% |
| Income from operations | 20,413 | 7.1% | 20,188 | 7.0% |
| Interest expense | 9,142 | 3.2% | 9,606 | 3.3% |
| Other income, net of other expense | (124) | 0.0% | (89) | 0.0% |
| Income before provision for income taxes | 11,395 | 3.9% | 10,671 | 3.7% |
| Provision for income taxes | 3,067 | 1.0% | 4,042 | 1.4% |
| Net income | $8,328 | 2.9% | $6,629 | 2.3% |

26

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

|  | Three Months Ended August 3, 2024 | July 29, 2023 |
| --- | ---: | ---: |
| Net income | $8,328 | $6,629 |
| Interest expense | 9,142 | 9,606 |
| Other income, net of other expense | (124) | (89) |
| Provision for income taxes | 3,067 | 4,042 |
| Depreciation and amortization(A) | 8,922 | 9,081 |
| Share-based compensation(B) | 2,188 | 1,908 |
| Non-cash deductions and charges(C) | 125 | (101) |
| Other expenses(D) | 2,944 | 1,075 |
| Adjusted EBITDA | $34,592 | $32,151 |

(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 August 3, 2024 and July 29, 2023, share-based compensation includes $1.1 million and $0.2 million, respectively, 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 certain transaction and litigation fees, severance costs for certain key management positions and the reimbursement of certain management expenses, primarily for travel, incurred by Sycamore on our behalf, which are not considered to be part of our core business.

#### Net Sales

Net sales decreased $4.5 million, or 1.6%, to $284.6 million for the three months ended August 3, 2024, from $289.1 million for the three months ended July 29, 2023. 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 18 stores, or 2.8%, to 657 stores as of August 3, 2024, from 639 stores as of July 29, 2023.

#### Gross Profit

Gross profit for the three months ended August 3, 2024 increased $7.6 million, or 7.4%, to $110.3 million, from $102.7 million for the three months ended July 29, 2023. This increase was primarily due to reduced product costs and an increase in sales of regular-priced products, partially offset by decreased net sales. Gross profit as a percentage of net sales increased 3.2% to 38.7% for the three months ended August 3, 2024 from 35.5% for the three months ended July 29, 2023. This increase was primarily driven by reduced product costs and an increase in sales of regular-priced products, partially offset by decreased net sales.

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended August 3, 2024 increased $7.2 million, or 10.4%, to $76.8 million, from $69.6 million for the three months ended July 29, 2023. The increase was primarily due to a $3.6 million increase in headquarters general and administrative expenses driven by a $2.1 million increase in severance costs for certain key management positions, a $2.4 million increase in performance bonuses and a $1.1 million increase in other store operating costs. Selling, general and administrative expenses as a percentage of net sales increased 2.8% to 27.0% for the three months ended August 3, 2024 from 24.2% for the three months ended July 29, 2023. This increase was primarily driven by increased performance bonuses, headquarters general and administrative expenses and other store operating costs.

#### Marketing Expenses

Marketing expenses for the three months ended August 3, 2024 increased $0.1 million, or 0.8%, to $13.0 million, from $12.9 million for the three months ended July 29, 2023. Marketing expenses as a percentage of net sales increased 0.1% to 4.6% during the three months ended August 3, 2024 from 4.5% during the three months ended July 29, 2023. The increase in both marketing expenses and marketing expenses as a percentage of net sales was primarily driven by expenses associated with our model search campaign, and an increase in social media spend, partially offset by decreased spend on store and brand marketing, comparison shopping engines, retargeting, photography, and email/SMS marketing.

#### Interest Expense

Interest expense was $9.1 million for the three months ended August 3, 2024, compared to $9.6 million for the three months ended July 29, 2023. The decrease was primarily due to a lower Amended Term Loan Credit Agreement balance due to principal payments and reduced borrowings under the ABL Facility, as amended.

#### Provision for Income Taxes

The provision for income taxes were $3.1 million and $4.0 million for the three months ended August 3, 2024 and July 29, 2023, respectively. Our effective tax rate was 26.9% for the three months ended August 3, 2024 and 37.9% for the three months ended July 29, 2023. The decrease in the effective tax rate for the three months ended August 3, 2024 as compared to the three months ended July 29, 2023 was primarily due to a decrease in the amount of non-deductible compensation for covered employees relative to income before provision for income taxes for the three months ended August 3, 2024.

### Six Months Ended August 3, 2024 Compared to Six Months Ended July 29, 2023

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

|  | Six Months Ended August 3, 2024 | % of Net Sales | July 29, 2023 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $564,409 | 100.0% | $582,998 | 100.0% |
| Cost of goods sold | 338,730 | 60.0% | 369,679 | 63.4% |
| Gross profit | 225,679 | 40.0% | 213,319 | 36.6% |
| Selling, general and administrative expenses | 153,304 | 27.2% | 140,819 | 24.2% |
| Marketing expenses | 25,819 | 4.6% | 26,249 | 4.5% |
| Income from operations | 46,556 | 8.2% | 46,251 | 7.9% |
| Interest expense | 18,519 | 3.3% | 19,074 | 3.2% |
| Other income, net of other expense | (14) | 0.0% | (29) | 0.0% |
| Income before provision for income taxes | 28,051 | 4.9% | 27,206 | 4.7% |
| Provision for income taxes | 7,551 | 1.3% | 8,769 | 1.5% |
| Net income | $20,500 | 3.6% | $18,437 | 3.2% |

28

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

|  | Six Months Ended August 3, 2024 | July 29, 2023 |
| --- | ---: | ---: |
| Net income | $20,500 | $18,437 |
| Interest expense | 18,519 | 19,074 |
| Other income, net of other expense | (14) | (29) |
| Provision for income taxes | 7,551 | 8,769 |
| Depreciation and amortization(A) | 18,181 | 18,318 |
| Share-based compensation(B) | 3,846 | 4,396 |
| Non-cash deductions and charges(C) | 67 | (56) |
| Other expenses(D) | 4,170 | 1,503 |
| Adjusted EBITDA | $72,820 | $70,412 |

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

(B) During the six months ended August 3, 2024 and July 29, 2023, share-based compensation includes $1.4 million and $0.4 million, respectively, 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 certain transaction and litigation fees, severance costs for certain key management positions and the reimbursement of certain management expenses, primarily for travel, incurred by Sycamore on our behalf, which are not considered to be part of our core business.

#### Net Sales

Net sales decreased $18.6 million, or 3.2%, to $564.4 million for the six months ended August 3, 2024, from $583.0 million for the six months ended July 29, 2023. 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 18 stores, or 2.8%, to 657 stores as of August 3, 2024, from 639 stores as of July 29, 2023.

#### Gross Profit

Gross profit for the six months ended August 3, 2024 increased $12.4 million, or 5.8%, to $225.7 million, from $213.3 million for the six months ended July 29, 2023. This increase was primarily due to reduced product costs, merchandising payroll costs and store occupancy costs, partially offset by decreased net sales. Gross profit as a percentage of net sales increased 3.4% to 40.0% for the six months ended August 3, 2024 from 36.6% for the six months ended July 29, 2023. This increase was primarily driven by decreases in product costs and merchandising payroll costs, partially offset by decreased net sales.

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended August 3, 2024 increased $12.5 million, or 8.9%, to $153.3 million, from $140.8 million for the six months ended July 29, 2023. The increase was primarily due to a $6.8 million increase in headquarters general and administrative expenses, including a $2.2 million increase in severance costs for certain key management positions, a $6.7 million increase in performance bonuses and a $2.0 million increase in other store operating costs, partially offset by a $2.1 million decrease in store and e-Commerce payroll costs. Selling, general and administrative expenses as a percentage of net sales increased 3.0% to 27.2% for the six months ended August 3, 2024 from 24.2% for the six months ended July 29, 2023. This increase was primarily driven by increased performance bonuses, headquarters general and administrative expenses and other store operating costs.

#### Marketing Expenses

Marketing expenses for the six months ended August 3, 2024 decreased $0.4 million, or 1.6%, to $25.8 million, from $26.2 million for the six months ended July 29, 2023. The decrease was primarily due to decreased spend on store and brand marketing, comparison shopping engines, retargeting, photography, email/SMS marketing, and marketing team payroll, partially offset by expenses associated with our model search campaign, and an increase in social media spend. Marketing expenses as a percentage of net sales increased 0.1% to 4.6% during the six months ended August 3, 2024 from 4.5% during the six months ended July 29, 2023. The increase was primarily driven by a deleverage of our marketing expenses as a result of lower net sales.

#### Interest Expense

Interest expense was $18.5 million for the six months ended August 3, 2024, compared to $19.1 million for the six months ended July 29, 2023. The decrease was primarily due to a lower Amended Term Loan Credit Agreement balance due to principal payments and reduced borrowings under the ABL Facility, as amended.

#### Provision for Income Taxes

The provision for income taxes were $7.6 million and $8.8 million for the six months ended August 3, 2024 and July 29, 2023, respectively. Our effective tax rate was 26.9% for the six months ended August 3, 2024 and 32.2% for the six months ended July 29, 2023. The decrease in the effective tax rate for the six months ended August 3, 2024 as compared to the six months ended July 29, 2023 was primarily due to a decrease in the amount of non-deductible compensation for covered employees relative to income before provision for income taxes for the six months ended August 3, 2024.

### 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 ABL Facility, as amended. Availability under the ABL Facility, as amended, as of the end of the second quarter of fiscal year 2024, was $99.9 million, which reflects no borrowings. 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 Amended Term Loan Credit Agreement, 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 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 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. Costs to implement the workforce reduction were comprised primarily of severance payments and continuing health care coverage over the severance period. In July 2023, we recognized $1.5 million of expense related to the workforce reduction in selling, general and administrative expenses in our condensed consolidated statements of operations and comprehensive income. None of our employees are represented by a labor union or are party to a collective bargaining agreement.

### Cash Flow Analysis

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

|  | Six Months Ended August 3, 2024 | July 29, 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $68,447 | $31,695 |
| Net cash used in investing activities | (10,180) | (9,593) |
| Net cash used in financing activities | (15,981) | (17,118) |

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### 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 six months ended August 3, 2024 was $68.4 million compared to $31.7 million during the six months ended July 29, 2023. The increase in cash provided by operating activities during the six months ended August 3, 2024 was primarily as a result of increases in net income, accounts payable and accrued expenses and other current liabilities, partially offset by a smaller reduction in inventory purchases compared to the six months ended July 29, 2023.

### 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 six months ended August 3, 2024 was $10.2 million, compared to $9.6 million during the six months ended July 29, 2023. The increase in cash used in investing activities was primarily as a result of increased capital expenditures related to the opening of new stores and store relocations, partially offset by a decrease in capital expenditures in our West Jefferson, Ohio distribution center during the six months ended August 3, 2024, compared to the six months ended July 29, 2023.

### Net Cash Used In Financing Activities

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

Net cash used in financing activities during the six months ended August 3, 2024 was $16.0 million compared to $17.1 million during the six months ended July 29, 2023. The decrease in net cash used in financing activities was primarily due to a decrease in net repayments related to the ABL Facility, as amended.

### Debt Financing Arrangements

As of August 3, 2024, we had $296.6 million of outstanding indebtedness, net of unamortized original issue discount and debt financing costs, consisting of term loans under the Amended Term Loan Credit Agreement. As of August 3, 2024, we had no borrowings under the 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 February 3, 2024.

## Market risk

As filed, 230 characters.

Our market risk profile as of February 3, 2024 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.

## Controls and procedures

As filed, 1,329 characters.

### 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 (our principal executive officer) and Chief Financial Officer (our principal 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 Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of August 3, 2024, to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the 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 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 August 3, 2024 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 143 characters.

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

Filed Sep 9, 2024.
Source: SEC EDGAR, the filing index for accession 0001628280-24-039863. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.