Festi, Nightfall, And Retro Chic Will Drive Customer Engagement And Boost Revenue Growth

Key Takeaways

• New merchandising initiatives and sub-brands aim to boost customer engagement and broaden the audience, potentially increasing revenue and sales.
  
• Store optimization plan and improved sourcing strategies aim to reduce costs and increase margins, potentially boosting profits and efficiency.
  
• Torrid Holdings faces challenges in revenue growth and consumer confidence, with strategic shifts and macroeconomic risks impacting sales and potential execution risks with new products.

Catalysts

Operates in women’s plus-size apparel and intimates market in North America.

• The implementation of new merchandising initiatives and the introduction of new product concepts and sub-brands like Festi, Nightfall, and Retro Chic are expected to drive customer engagement and cater to a broader audience, which could lead to an increase in revenue and comparable sales in fiscal 2025.
  
• The company is focusing on optimizing its sourcing approach to decrease its dependency on China, which could potentially reduce costs and improve net margins over time.
  
• The ongoing store optimization plan, which includes the closure of underperforming stores and transitioning to more profitable outdoor shopping centers, is expected to deliver 80 to 100 basis points of EBITDA margin expansion in fiscal 2025.
  
• A significant reduction in inventory levels and improvements in inventory management may allow the company to operate more efficiently and optimize margins, which can positively impact earnings.
  
• Enhanced marketing strategies, including a robust influencer program and digital marketing efforts, aim to drive new customer acquisition and brand engagement, potentially increasing revenue and supporting top-line growth.

Torrid Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Torrid Holdings's revenue will decrease by 0.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.4% today to 5.2% in 3 years time.
• Analysts expect earnings to reach $58.1 million (and earnings per share of $0.56) by about December 2027, up from $15.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.8x on those 2027 earnings, down from 31.2x today. This future PE is lower than the current PE for the US Specialty Retail industry at 16.4x.
• Analysts expect the number of shares outstanding to decline by 0.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.04%, as per the Simply Wall St company report.

Torrid Holdings Future Earnings Per Share Growth

Risks

• Torrid Holdings experienced a decline in comparable sales by 6.5% in the third quarter, indicating potential challenges in maintaining revenue growth.
  
• The company faced reduced traffic and hesitancy from customers to spend during October, which might continue to impact revenue if consumer confidence doesn't improve.
  
• Torrid Holdings' strategic shift away from clearance sales resulted in a 47% decline, reducing empty calorie sales but potentially impacting revenue if the strategy doesn't lead to increased regular-price sales quickly.
  
• Macroeconomic uncertainties, such as consumer hesitancy linked to political events and weather disruptions, pose risks to future sales performance and could affect the company's net margins if these events recur or persist.
  
• The reliance on launching multiple new product lines and sub-brands carries execution risks. If these initiatives fail to resonate with consumers or if inventory planning misaligns with demand, it could negatively impact earnings and revenue.

Valuation

• The analysts have a consensus price target of $4.2 for Torrid Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.0, and the most bearish reporting a price target of just $3.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.1 billion, earnings will come to $58.1 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 9.0%.
• Given the current share price of $4.54, the analyst's price target of $4.2 is 8.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.