UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October~~July 29, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-40571

TORRID HOLDINGS INC.

(Exact name of registrant as specified in its charter)


Delaware						84-3517567
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)
18501 East San Jose Avenue City of Industry, California (Address of principal executive offices)						91748 (Zip Code)

(626) 667-1002

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, par value $0.01 per share

CURV

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of ~~December 5, 2022,~~September 1, 2023, there were approximately ~~103,659,642~~104,071,462 shares of the registrant's common stock outstanding.

Table of Contents


		PAGE
	Part I - Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of ~~October~~July 29, ~~2022~~2023 and January ~~29, 2022~~28, 2023	5
	Condensed Consolidated Statements of Operations and Comprehensive Income ~~(Loss)~~ for the three and ~~nine~~six months ended ~~October~~July 29, ~~2022~~2023 and ~~October~~July 30, ~~2021~~2022	6
	Condensed Consolidated Statements of Stockholders' Deficit for the ~~nine~~six months ended ~~October~~July 29, ~~2022~~2023 and ~~October~~July 30, ~~2021~~2022	7
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~October~~July 29, ~~2022~~2023 and ~~October~~July 30, ~~2021~~2022	98
	Notes to Unaudited Condensed Consolidated Financial Statements	109
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2824
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3632
Item 4.	Controls and Procedures	3632
	Part II - Other Information
Item 1.	Legal Proceedings	3734
Item 1A.	Risk Factors	3734
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3734
Item 3.	Defaults Upon Senior Securities	3734
Item 4.	Mine Safety Disclosures	3734
Item 5.	Other Information	3734
Item 6.	Exhibits	3835
Signatures		3936

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements ~~that~~within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to ~~risks and uncertainties.~~the “safe harbor” of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical or current fact included in this Quarterly Report on Form 10-Q are forward-looking statements. ~~Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business.~~ You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "plan," "intend," "believe," "may," "will," "should," "can have," "likely" and other words and terms of similar meaning (including their negative counterparts or other various or comparable terminology) ~~in connection with any discussion of the timing or nature of future operating or financial performance or other events.~~. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside our control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements, including:

•~~successfully manage risks relating to the spread of COVID-19, including any adverse impacts on our supply chain, workforce, facilities, customer services and operations;~~

•changes in consumer spending and general economic conditions;

•the negative impact on interest expense as a result of rising interest rates;

•inflationary pressures with respect to labor and raw materials and global supply chain constraints that could increase our expenses;

•our ability to identify and respond to new and changing product trends, customer preferences and other related factors;

•our dependence on a strong brand image;

•~~damage to our reputation arising from our use of social media, email and text messages;~~

•increased competition from other brands and retailers;

•our reliance on third parties to drive traffic to our website;

•the success of the shopping centers in which our stores are located;

•our ability to adapt to consumer shopping preferences and develop and maintain a relevant and reliable omni-channel experience for our customers;

•our dependence upon independent third parties for the manufacture of all of our merchandise;

•availability constraints and price volatility in the raw materials used to manufacture our products;

•interruptions of the flow of our merchandise from international manufacturers causing disruptions in our supply chain;

•our sourcing a significant amount of our products from China;

•shortages of inventory, delayed shipments to our e-Commerce customers and harm to our reputation due to difficulties or shut-down of our distribution ~~facilities~~facility (including as a result of COVID-19);

•our reliance upon independent third-party transportation providers for substantially all of our product shipments;

•our growth strategy;

•our ~~leasing substantial amounts of space;~~

•~~our~~ failure to attract and retain employees that reflect our brand image, embody our culture and possess the appropriate skill set;

•damage to our reputation arising from our use of social media, email and text messages;

•our reliance on third-parties for the provision of certain services, including ~~distribution and~~ real estate management;

•our dependence upon key members of our executive ~~management;~~management team;

•our reliance on information systems;

•system security risk issues that could disrupt our internal operations or information technology services;

•unauthorized disclosure of sensitive or confidential information, whether through a breach of our computer system or otherwise;

•our failure to comply with federal and state laws and regulations and industry standards relating to privacy, data protection, advertising and consumer protection;

•payment-related risks that could increase our operating costs or subject us to potential liability;

•claims made against us resulting in litigation;

•changes in laws and regulations applicable to our business;

•regulatory actions or recalls arising from issues with product safety;

•our inability to protect our trademarks or other intellectual property rights;

•our substantial indebtedness and lease obligations;

•restrictions imposed by our indebtedness on our current and future operations;

•changes in tax laws or regulations or in our operations that may impact our effective tax rate;

•the possibility that we may recognize impairments onof long-lived assets;

•our failure to maintain adequate internal ~~controls;~~control over financial reporting; and

•the threat of war, terrorism or other catastrophes that could negatively impact our ~~business, including as a result of the current conflict between Russia and Ukraine.~~business.

The outcome of the events described in any of our forward-looking statements are also subject to risks, uncertainties and other factors described 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 Securities and Exchange Commission ("SEC") on March ~~30, 2022~~28, 2023 and in our other filings with the SEC and public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, it is impossible for us to anticipate all factors that could affect our actual results. We caution you that the important factors referenced above may not ~~contain~~include all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the ~~consequences~~outcomes or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or ~~otherwise.~~otherwise except to the extent required by law. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

Investors and others should note that we may announce material information to our investors using our investor relations website (https://investors.torrid.com), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our investors and the public about our company, our business and other issues. It is possible that the information that we post on social media could be deemed to be material information. We therefore encourage investors to visit these websites from time to time. The information contained on such websites and social media posts is not incorporated by reference into this filing. Further, our references to website URLs in this filing are intended to be inactive textual references only.

Part I - Financial Information

Item 1. Financial Statements (Unaudited)

TORRID HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share and per share data)


		October 29, 2022		January 29, 2022			July 29, 2023		January 28, 2023
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	18,559	$	29,025	Cash and cash equivalents	$	18,544	$	13,569
Restricted cash	Restricted cash	318		262		Restricted cash	366		366
Inventory	Inventory	199,877		170,608		Inventory	157,819		180,055
Prepaid expenses and other current assets	Prepaid expenses and other current assets	23,464		14,686		Prepaid expenses and other current assets	23,958		20,050
Prepaid income taxes	Prepaid income taxes	1,153		6,345		Prepaid income taxes	4,082		2,081
Total current assets	Total current assets	243,371		220,926		Total current assets	204,769		216,121
Property and equipment, net	Property and equipment, net	115,745		127,565		Property and equipment, net	102,605		113,613
Operating lease right-of-use assets	Operating lease right-of-use assets	181,701		209,637		Operating lease right-of-use assets	160,353		177,179
Deposits and other noncurrent assets	Deposits and other noncurrent assets	10,234		7,100		Deposits and other noncurrent assets	12,956		8,650
Deferred tax assets	Deferred tax assets	4,873		4,873		Deferred tax assets	3,301		3,301
Intangible asset	Intangible asset	8,400		8,400		Intangible asset	8,400		8,400
Total assets	Total assets	$	564,324	$	578,501	Total assets	$	492,384	$	527,264
Liabilities and stockholders' deficit	Liabilities and stockholders' deficit					Liabilities and stockholders' deficit
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	109,336	$	77,448	Accounts payable	$	62,339	$	76,207
Accrued and other current liabilities	Accrued and other current liabilities	102,085		138,708		Accrued and other current liabilities	106,721		108,847
Operating lease liabilities	Operating lease liabilities	46,211		45,716		Operating lease liabilities	40,651		45,008
Borrowings under credit facility	Borrowings under credit facility	2,150		—		Borrowings under credit facility	—		8,380
Current portion of term loan	Current portion of term loan	16,144		20,519		Current portion of term loan	16,144		16,144
Due to related parties	Due to related parties	15,486		14,622		Due to related parties	10,522		12,741
Income taxes payable		3,093		—

Total current liabilities	Total current liabilities	294,505		297,013		Total current liabilities	236,377		267,327
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	176,721		207,049		Noncurrent operating lease liabilities	153,733		172,103
Term loan	Term loan	308,733		320,841		Term loan	296,625		304,697
Deferred compensation	Deferred compensation	4,172		6,873		Deferred compensation	4,854		4,246
Other noncurrent liabilities	Other noncurrent liabilities	9,277		5,044		Other noncurrent liabilities	8,452		9,115
Total liabilities	Total liabilities	793,408		836,820		Total liabilities	700,041		757,488
Commitments and contingencies (Note 15)	Commitments and contingencies (Note 15)					Commitments and contingencies (Note 15)
Stockholders' deficit	Stockholders' deficit					Stockholders' deficit
Common shares: $0.01 par value; 1,000,000,000 shares authorized; 103,641,356 shares issued and outstanding at October 29, 2022; 107,857,625 shares issued and outstanding at January 29, 2022		1,036		1,078
Common shares: $0.01 par value; 1,000,000,000 shares authorized; 104,044,344 shares issued and outstanding at July 29, 2023; 103,774,813 shares issued and outstanding at January 28, 2023						Common shares: $0.01 par value; 1,000,000,000 shares authorized; 104,044,344 shares issued and outstanding at July 29, 2023; 103,774,813 shares issued and outstanding at January 28, 2023	1,041		1,038
Additional paid-in capital	Additional paid-in capital	125,646		118,286		Additional paid-in capital	132,275		128,205
Accumulated deficit	Accumulated deficit	(355,362)		(377,759)		Accumulated deficit	(340,769)		(359,206)
Accumulated other comprehensive (loss) income		(404)		76
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(204)		(261)
Total stockholders' deficit	Total stockholders' deficit	(229,084)		(258,319)		Total stockholders' deficit	(207,657)		(230,224)
Total liabilities and stockholders' deficit	Total liabilities and stockholders' deficit	$	564,324	$	578,501	Total liabilities and stockholders' deficit	$	492,384	$	527,264

The accompanying notes are an integral part of these condensed consolidated financial statements.

TORRID HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME ~~(LOSS)~~

(UNAUDITED)

(In thousands, except per share data)


											Three Months Ended				Six Months Ended
		Three Months Ended October 29, 2022		Three Months Ended October 30, 2021		Nine Months Ended October 29, 2022		Nine Months Ended October 30, 2021			July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
Net sales	Net sales	$	290,034	$	306,241	$	959,319	$	964,858	Net sales	$	289,144	$	353,522	$	582,998	$	686,715
Cost of goods sold	Cost of goods sold	198,263		181,094		623,556		545,059		Cost of goods sold	186,467		222,030		369,679		425,293
Gross profit	Gross profit	91,771		125,147		335,763		419,799		Gross profit	102,677		131,492		213,319		261,422
Selling, general and administrative expenses	Selling, general and administrative expenses	59,180		66,399		192,539		355,353		Selling, general and administrative expenses	69,591		78,574		140,819		150,789
Marketing expenses	Marketing expenses	12,638		15,023		44,114		35,276		Marketing expenses	12,898		13,502		26,249		31,476
Income from operations	Income from operations	19,953		43,725		99,110		29,170		Income from operations	20,188		39,416		46,251		79,157
Interest expense	Interest expense	8,390		6,104		21,351		23,390		Interest expense	9,606		6,697		19,074		12,961
Interest income, net of other expense (income)		147		(12)		223		(72)
Interest income, net of other (income) expense										Interest income, net of other (income) expense	(89)		48		(29)		76
Income before provision for income taxes	Income before provision for income taxes	11,416		37,633		77,536		5,852		Income before provision for income taxes	10,671		32,671		27,206		66,120
Provision for income taxes	Provision for income taxes	4,139		96,535		23,483		13,042		Provision for income taxes	4,042		9,961		8,769		19,344
Net income (loss)		$	7,277	$	(58,902)	$	54,053	$	(7,190)
Comprehensive income (loss):
Net income (loss)		$	7,277	$	(58,902)	$	54,053	$	(7,190)
Other comprehensive (loss) income:
Net income										Net income	$	6,629	$	22,710	$	18,437	$	46,776
Comprehensive income:										Comprehensive income:
Net income										Net income	$	6,629	$	22,710	$	18,437	$	46,776
Other comprehensive income (loss):										Other comprehensive income (loss):
Foreign currency translation adjustment	Foreign currency translation adjustment	(465)		45		(480)		235		Foreign currency translation adjustment	227		25		57		(15)
Total other comprehensive (loss) income		(465)		45		(480)		235
Comprehensive income (loss)		$	6,812	$	(58,857)	$	53,573	$	(6,955)
Net earnings (loss) per share:
Total other comprehensive income (loss)										Total other comprehensive income (loss)	227		25		57		(15)
Comprehensive income										Comprehensive income	$	6,856	$	22,735	$	18,494	$	46,761
Net earnings per share:										Net earnings per share:
Basic	Basic	$	0.07	$	(0.54)	$	0.52	$	(0.07)	Basic	$	0.06	$	0.22	$	0.18	$	0.45
Diluted	Diluted	$	0.07	$	(0.54)	$	0.52	$	(0.07)	Diluted	$	0.06	$	0.22	$	0.18	$	0.44
Weighted average number of shares:	Weighted average number of shares:									Weighted average number of shares:
Basic	Basic	103,623		110,078		104,560		110,031		Basic	103,930		103,836		103,865		105,031
Diluted	Diluted	103,805		110,078		104,695		110,031		Diluted	104,172		103,953		104,093		105,126

The accompanying notes are an integral part of these condensed consolidated financial statements.

TORRID HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(UNAUDITED)

(In thousands)


														Six Months Ended July 29, 2023
														Common Shares			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss (Income)		Total Stockholders' Deficit
														Shares	Amount
Balance at January 28, 2023													Balance at January 28, 2023	103,775	$	1,038	$	128,205	$	(359,206)	$	(261)	$	(230,224)
Net income													Net income	—	—		—		11,808		—		11,808
Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units													Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units	53	1		(124)		—		—		(123)
Share-based compensation													Share-based compensation	—	—		2,377		—		—		2,377
Other comprehensive loss													Other comprehensive loss	—	—		—		—		(170)		(170)
Balance at April 29, 2023													Balance at April 29, 2023	103,828	1,039		130,458		(347,398)		(431)		(216,332)
Net income													Net income	—	—		—		6,629		—		6,629
Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units													Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units	121	1		(64)		—		—		(63)
Issuance of common shares related to employee stock purchase plan													Issuance of common shares related to employee stock purchase plan	95	1		219		—		—		220
Share-based compensation													Share-based compensation	—	—		1,662		—		—		1,662
Other comprehensive income													Other comprehensive income	—	—		—		—		227		227
Balance at July 29, 2023													Balance at July 29, 2023	104,044	$	1,041	$	132,275	$	(340,769)	$	(204)	$	(207,657)

		Nine Months Ended October 29, 2022												Six Months Ended July 30, 2022
		Common Shares			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Deficit			Common Shares			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Deficit
		Shares	Amount											Shares	Amount
Balance at January 29, 2022	Balance at January 29, 2022	107,858	$	1,078	$	118,286	$	(377,759)	$	76	$	(258,319)	Balance at January 29, 2022	107,858	$	1,078	$	118,286	$	(377,759)	$	76	$	(258,319)
Net income	Net income	—	—		—		24,066		—		24,066		Net income	—	—		—		24,066		—		24,066
Issuance of common shares and withholding tax payments related to vesting of restricted stock awards		39	—		(178)		—		—		(178)
Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units													Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units	39	—		(178)		—		—		(178)
Share-based compensation	Share-based compensation	—	—		2,480		—		—		2,480		Share-based compensation	—	—		2,480		—		—		2,480
Repurchase and retirement of common stock	Repurchase and retirement of common stock	(2,919)	(29)		—		(22,836)		—		(22,865)		Repurchase and retirement of common stock	(2,919)	(29)		—		(22,836)		—		(22,865)
Other comprehensive loss	Other comprehensive loss	—	—		—		—		(40)		(40)		Other comprehensive loss	—	—		—		—		(40)		(40)
Balance at April 30, 2022	Balance at April 30, 2022	104,978	1,049		120,588		(376,529)		36		(254,856)		Balance at April 30, 2022	104,978	1,049		120,588		(376,529)		36		(254,856)
Net income	Net income	—	—		—		22,710		—		22,710		Net income	—	—		—		22,710		—		22,710
Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units	Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units	74	1		(227)		—		—		(226)		Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units	74	1		(227)		—		—		(226)
Issuance of common shares related to employee stock purchase plan	Issuance of common shares related to employee stock purchase plan	95	1		350		—		—		351		Issuance of common shares related to employee stock purchase plan	95	1		350		—		—		351
Share-based compensation	Share-based compensation	—	—		2,175		—		—		2,175		Share-based compensation	—	—		2,175		—		—		2,175
Repurchase and retirement of common stock	Repurchase and retirement of common stock	(1,546)	(15)		—		(8,820)		—		(8,835)		Repurchase and retirement of common stock	(1,546)	(15)		—		(8,820)		—		(8,835)
Other comprehensive income	Other comprehensive income	—	—		—		—		25		25		Other comprehensive income	—	—		—		—		25		25
Balance at July 30, 2022	Balance at July 30, 2022	103,601	1,036		122,886		(362,639)		61		(238,656)		Balance at July 30, 2022	103,601	$	1,036	$	122,886	$	(362,639)	$	61	$	(238,656)
Net income		—	—		—		7,277		—		7,277
Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units		40	—		(153)		—		—		(153)
Share-based compensation		—	—		2,913		—		—		2,913
Other comprehensive loss		—	—		—		—		(465)		(465)
Balance at October 29, 2022		103,641	$	1,036	$	125,646	$	(355,362)	$	(404)	$	(229,084)

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~TORRID HOLDINGS INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT~~

~~(UNAUDITED)~~

~~(In thousands)~~

Nine Months Ended October 30, 2021
Common Shares Additional
Paid-In Capital Accumulated
Deficit Accumulated
Other
Comprehensive
(Loss) Income Total
Stockholders'
Deficit
Shares Amount
Balance at January 30, 2021 110,000 $ 1,100 $ 10,326 $ (74,591) $ (8) $ (63,173)
Net income — — — 12,925 — 12,925
Capital contribution from Torrid Holding LLC for incentive units — — 39,779 — — 39,779
Other comprehensive income — — — — 211 211
Balance at May 1, 2021 110,000 1,100 50,105 (61,666) 203 (10,258)
Net income — — — 38,787 — 38,787
Capital distribution to Torrid Holding LLC — — (50,105) (249,895) — (300,000)
Capital contribution from Torrid Holding LLC for incentive units — — 111,387 — — 111,387
Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units 56 1 (1,111) — — (1,110)
Share-based compensation — — 3,622 — — 3,622
Other comprehensive loss — — — — (21) (21)
Balance at July 31, 2021 110,056 1,101 113,898 (272,774) 182 (157,593)
Net loss — — — (58,902) — (58,902)
Issuance of common shares and withholding tax payments related to vesting of restricted stock awards 35 — (575) — — (575)
Share-based compensation — — 2,450 — — 2,450
Other comprehensive income — — — — 45 45
Balance at October 30, 2021 110,091 $ 1,101 $ 115,773 $ (331,676) $ 227 $ (214,575)

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

TORRID HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


		Nine Months Ended October 29, 2022		Nine Months Ended October 30, 2021			Six Months Ended July 29, 2023		Six Months Ended July 30, 2022
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income (loss)		$	54,053	$	(7,190)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income						Net income	$	18,437	$	46,776
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Write down of inventory	Write down of inventory	1,750		510		Write down of inventory	1,523		1,363
Operating right-of-use assets amortization	Operating right-of-use assets amortization	31,209		31,010		Operating right-of-use assets amortization	20,119		20,672
Depreciation and other amortization	Depreciation and other amortization	28,120		26,790		Depreciation and other amortization	19,077		18,891
Write off of unamortized original issue discount and deferred financing costs for Amended Term Loan Credit Agreement		—		5,231
Share-based compensation	Share-based compensation	7,568		157,238		Share-based compensation	4,396		4,655
Deferred taxes		—		1,534
Other	Other	(603)		106		Other	(1,437)		82
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Inventory	Inventory	(31,341)		(53,347)		Inventory	20,738		(11,585)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(8,778)		(2,448)		Prepaid expenses and other current assets	(3,908)		(2,863)
Prepaid income taxes	Prepaid income taxes	5,192		(26,813)		Prepaid income taxes	(2,001)		4,661
Deposits and other noncurrent assets	Deposits and other noncurrent assets	(3,255)		(3,152)		Deposits and other noncurrent assets	(4,386)		(1,539)
Accounts payable	Accounts payable	31,447		11,046		Accounts payable	(13,291)		883
Accrued and other current liabilities	Accrued and other current liabilities	(35,824)		29,986		Accrued and other current liabilities	(389)		(27,116)
Operating lease liabilities	Operating lease liabilities	(31,230)		(36,945)		Operating lease liabilities	(25,278)		(20,628)
Other noncurrent liabilities	Other noncurrent liabilities	4,345		189		Other noncurrent liabilities	(294)		4,156
Deferred compensation	Deferred compensation	(2,701)		490		Deferred compensation	608		(1,031)
Due to related parties	Due to related parties	864		354		Due to related parties	(2,219)		5,646
Income taxes payable	Income taxes payable	3,093		(9,336)		Income taxes payable	—		1,270
Net cash provided by operating activities	Net cash provided by operating activities	53,909		125,253		Net cash provided by operating activities	31,695		44,293
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Purchases of property and equipment	Purchases of property and equipment	(17,087)		(11,342)		Purchases of property and equipment	(9,593)		(11,444)
Net cash used in investing activities	Net cash used in investing activities	(17,087)		(11,342)		Net cash used in investing activities	(9,593)		(11,444)
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Capital distribution to Torrid Holding LLC		—		(300,000)
Proceeds from revolving credit facility	Proceeds from revolving credit facility	632,125		—		Proceeds from revolving credit facility	346,280		423,900
Principal payments on revolving credit facility	Principal payments on revolving credit facility	(629,975)		—		Principal payments on revolving credit facility	(354,660)		(417,950)
Deferred financing costs for revolving credit facility		—		(688)
Repurchase of common stock	Repurchase of common stock	(31,700)		—		Repurchase of common stock	—		(31,700)
Principal payments on New Term Loan Credit Agreement and repayment of Amended Term Loan Credit Agreement and related costs		(17,500)		(212,775)
Proceeds from New Term Loan Credit Agreement, net of original issue discount and deferred financing costs		—		340,509
Principal payments on term loan						Principal payments on term loan	(8,750)		(13,125)
Proceeds from issuances under share-based compensation plans	Proceeds from issuances under share-based compensation plans	613		225		Proceeds from issuances under share-based compensation plans	200		463
Withholding tax payments related to vesting of restricted stock units and awards	Withholding tax payments related to vesting of restricted stock units and awards	(558)		(1,685)		Withholding tax payments related to vesting of restricted stock units and awards	(188)		(414)
Net cash used in financing activities	Net cash used in financing activities	(46,995)		(174,414)		Net cash used in financing activities	(17,118)		(38,826)
Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash	Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash	(237)		(601)		Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash	(9)		(7)
Decrease in cash, cash equivalents and restricted cash		(10,410)		(61,104)
Increase (decrease) in cash, cash equivalents and restricted cash						Increase (decrease) in cash, cash equivalents and restricted cash	4,975		(5,984)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	29,287		123,215		Cash, cash equivalents and restricted cash at beginning of period	13,935		29,287
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	18,877	$	62,111	Cash, cash equivalents and restricted cash at end of period	$	18,910	$	23,303
SUPPLEMENTAL INFORMATION	SUPPLEMENTAL INFORMATION					SUPPLEMENTAL INFORMATION
Cash paid during the period for interest related to the revolving credit facility and term loans		$	14,158	$	16,303
Cash paid during the period for interest related to the revolving credit facility and term loan						Cash paid during the period for interest related to the revolving credit facility and term loan	$	15,469	$	13,637
Cash paid during the period for income taxes	Cash paid during the period for income taxes	$	15,219	$	47,133	Cash paid during the period for income taxes	$	10,759	$	13,413
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES	SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES					SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchases included in accounts payable and accrued liabilities	Property and equipment purchases included in accounts payable and accrued liabilities	$	3,355	$	4,496	Property and equipment purchases included in accounts payable and accrued liabilities	$	1,722	$	3,578

The accompanying notes are an integral part of these condensed consolidated financial statements.

TORRID HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation and Description of the Business

Corporate Structure

Torrid Holdings Inc. is a Delaware corporation formed on October 29, 2019 and capitalized on February 20, 2020. Sycamore Partners Management, L.P. ("Sycamore") owns a majority of the voting power of Torrid Holdings Inc.'s outstanding common stock. ~~Prior to the IPO (as defined below), Torrid Holdings Inc. was a wholly owned subsidiary of Torrid Holding LLC, which is majority-owned by investment funds managed by Sycamore.~~ Torrid Parent Inc. is a Delaware corporation formed on June 4, 2019 and is a wholly owned subsidiary of Torrid Holdings Inc. Torrid Intermediate LLC, formerly known as Torrid Inc., is a Delaware limited liability company formed on June 18, 2019 and a wholly owned subsidiary of Torrid Parent Inc. Torrid LLC is a wholly owned subsidiary of Torrid Intermediate LLC. Substantially all of Torrid Holdings Inc.'s financial position, operations and cash flows are generated through its wholly owned indirect subsidiary, Torrid LLC.

Throughout these financial statements, the terms "Torrid," "we," "us," "our," the "Company" and similar references refer to Torrid Holdings Inc. and its consolidated subsidiaries.

~~Reorganization~~

On July 1, 2021, Torrid Holding LLC, our then parent, completed a reorganization pursuant to which (i) Torrid Holding LLC contributed, assigned, transferred and delivered its issued and outstanding equity interest in Torrid Parent Inc. to Torrid, and (ii) Torrid assumed the obligations of Torrid Holding LLC under the related party promissory notes due to Torrid Parent Inc. (together, the "Reorganization"). The Reorganization was accounted for as a combination of entities under common control in accordance with subsections of Accounting Standards Codification ("ASC") 805-50, ~~Business Combinations~~ ("ASC 805-50"). Consequently, the equity interests of Torrid Parent Inc. contributed by Torrid Holding LLC to Torrid were recorded at historical carrying amounts and our financial position, results of operations and cash flows prior to the Reorganization have been adjusted to reflect the retrospective combination of the entities for all periods presented as if the combination had been in effect since the inception of common control.

~~Stock Split~~

On June 22, 2021, Torrid's stockholder approved an amendment to Torrid's certificate of incorporation to (i) effect a 110,000-for-1 stock split of all shares of the issued and outstanding common stock, which was effected on June 22, 2021 and (ii) authorize 5.0 million shares of preferred stock. All share and per-share data in the financial statements and notes to the financial statements has been retroactively adjusted to reflect the stock split for all periods presented. The par value of the common stock was not adjusted as a result of the stock split.

~~Initial Public Offering~~

Our registration statement on Form S-1 related to our initial public offering ("IPO") was declared effective on June 30, 2021, and our common stock began trading on the New York Stock Exchange on July 1, 2021. On July 6, 2021, subsequent to the Reorganization, we completed the IPO and certain of our shareholders sold 12,650,000 shares of common stock at a public offering price of $21.00 per share, including 1,650,000 shares of common stock after full exercise of the underwriters' option, for net proceeds of $248.4 million, after deducting underwriting discounts of $17.3 million. The offering costs of approximately $6.0 million were borne by us. We did not receive any proceeds from the sale of our shares of common stock by the selling stockholders.

Fiscal Year

Our fiscal year ends on the Saturday nearest to January 31 and each fiscal year is generally comprised of four 13-week quarters (although in years with 53 weeks, the fourth quarter is comprised of 14 weeks). Fiscal ~~years~~year 2023 is a 53-week year and fiscal year 2022 ~~and 2021 are~~was a 52-week ~~years.~~year. Fiscal years are identified according to the calendar year in which they begin. For example, references to "fiscal year ~~2022"~~2023" or similar references refer to the fiscal year ending ~~January 28, 2023.~~February 3, 2024. References to the ~~third~~second quarter of fiscal years ~~2022~~2023 and ~~2021~~2022 and to the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022~~2023 and ~~October~~July 30, ~~2021,~~2022, respectively, refer to the 13- and ~~39-week~~26-week periods then ended.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial information. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. Operating results for the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022~~2023 and ~~October~~July 30, ~~2021~~2022 are not necessarily indicative of the results that may be expected for any future interim periods, the fiscal year ending ~~January 28, 2023,~~February 3, 2024, or for any future fiscal year.

The condensed consolidated balance sheet information at January ~~29, 2022~~28, 2023 has been derived from the audited consolidated financial statements at that date, but does not include all of the disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements and related footnotes should be read in conjunction with our audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended January ~~29, 2022.~~28, 2023. The unaudited condensed consolidated financial statements include Torrid and those of our wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Description of Business

We are a direct-to-consumer brand of apparel, intimates and accessories ~~targeting the 25- to 40-year-old woman~~in North America aimed at fashionable women who ~~wears~~are curvy and wear sizes 10 to 30. We generate revenues primarily through our e-Commerce platform www.torrid.com and our stores in the United States of America, Puerto Rico and Canada.

~~COVID-19~~

Our business operations, including net sales, were substantially affected by COVID-19 in fiscal year 2020. While our business operations improved during fiscal year 2021, there is uncertainty regarding the extent of future impacts of COVID-19 on our business, including the duration and impact on overall customer demand. 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.

Segment Reporting

We have determined that we have one reportable segment, which includes the operation of our e-Commerce platform and stores. The single segment was identified based on how the Chief Operating Decision Maker, who we have determined to be our Chief Executive Officer, manages and evaluates performance and allocates resources. Revenues and long-lived assets related to our operations in Canada and Puerto Rico during the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022~~2023 and ~~October~~July 30, ~~2021,~~2022, and as of the end of the same periods, were not material, and therefore are not reported separately from domestic revenues and long-lived assets.

Store Pre-Opening Costs

Costs incurred in connection with the opening of new stores, store remodels or relocations are expensed as incurred in selling, general and administrative expenses in our condensed consolidated statements of operations and comprehensive ~~income (loss).~~income. We incurred ~~$0.2~~$0.3 million and ~~$0.7~~$0.6 million of pre-opening costs during the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022,~~2023, respectively. ~~The amounts~~We incurred $0.3 million and $0.5 million of pre-opening costs during the three- and ~~nine-month~~six-month periods ended ~~October~~July 30, ~~2021 were $0.5 million.~~2022, respectively.

Change in Accounting Principle

In the fourth quarter of fiscal year 2022, we made a voluntary change in our accounting policy regarding the classification of royalties, profit-sharing and marketing and promotional funds ("PLCC Funds") we receive pursuant to the Credit Card Agreement (as defined below). Historically, we recorded PLCC Funds as a reduction to selling, general and administrative expenses in the consolidated statements of operations and comprehensive income. Under the new policy, we record PLCC Funds in net sales in the consolidated statements of operations and comprehensive 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. This reclassification has been retrospectively applied to all prior periods presented.

The recognition of PLCC Funds in net sales is preferable because it enhances the comparability of our financial statements with those of many of our industry peers and provides 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.

The impact of this change in accounting principle is reflected in the tables below (in thousands):


	Three Months Ended July 30, 2022
	As Previously Reported		Change in Accounting Principle		As Adjusted
Net sales	$	340,876	$	12,646	$	353,522
Cost of goods sold	222,030		—		222,030
Gross profit	118,846		12,646		131,492
Selling, general and administrative expenses	65,928		12,646		78,574
Marketing expenses	13,502		—		13,502
Income from operations	$	39,416	$	—	$	39,416


	Six Months Ended July 30, 2022
	As Previously Reported		Change in Accounting Principle		As Adjusted
Net sales	$	669,285	$	17,430	$	686,715
Cost of goods sold	425,293		—		425,293
Gross profit	243,992		17,430		261,422
Selling, general and administrative expenses	133,359		17,430		150,789
Marketing expenses	31,476		—		31,476
Income from operations	$	79,157	$	—	$	79,157

Note 2. Accounting Standards

Recently Adopted Accounting Standards during the ~~Nine-Month~~Six-Month Period Ended ~~October~~July 29, ~~2022~~2023

We did not adopt any new accounting standards during the ~~nine-month~~six-month period ended ~~October~~July 29, ~~2022~~2023.

Accounting Pronouncements Not Yet Adopted

We have considered all recent accounting pronouncements and have concluded that there are no recent accounting pronouncements not yet adopted that ~~are applicable to us,~~would have a material impact on our consolidated financial statements, based on current information.

Note 3. Inventory

Our inventory is comprised solely of finished goods and is valued at the lower of moving average cost or net realizable value. We make certain assumptions regarding net realizable value in order to assess whether our inventory is recorded properly at the lower of cost or net realizable value. These assumptions are based on historical average selling price experience, current selling price information and estimated future selling price information. Physical inventory counts are conducted at least once during the year to determine actual inventory on hand and shrinkage. We accrue our estimated inventory shrinkage in our stores for the period between the last physical count and current balance sheet date.

Note 4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):


		October 29, 2022		January 29, 2022			July 29, 2023		January 28, 2023
Prepaid and other information technology expenses	Prepaid and other information technology expenses	8,903		5,692		Prepaid and other information technology expenses	10,949		9,048
PLCC Funds receivable						PLCC Funds receivable	2,991		2,721
Prepaid advertising	Prepaid advertising	894		700		Prepaid advertising	1,191		1,068
Prepaid casualty insurance	Prepaid casualty insurance	3,895		3,050		Prepaid casualty insurance	1,992		2,557
Other	Other	9,772		5,244		Other	6,835		4,656
Prepaid expenses and other current assets	Prepaid expenses and other current assets	$	23,464	$	14,686	Prepaid expenses and other current assets	$	23,958	$	20,050

Note 5. Property and Equipment

Property and equipment are summarized as follows (in thousands):


		October 29, 2022		January 29, 2022			July 29, 2023		January 28, 2023
Property and equipment, at cost	Property and equipment, at cost					Property and equipment, at cost
Leasehold improvements	Leasehold improvements	$	172,724	$	168,084	Leasehold improvements	$	179,333	$	176,222
Furniture, fixtures and equipment	Furniture, fixtures and equipment	111,842		108,261		Furniture, fixtures and equipment	116,760		115,618
Software and licenses	Software and licenses	14,097		15,356		Software and licenses	14,349		14,140
Construction-in-progress	Construction-in-progress	4,185		4,743		Construction-in-progress	2,591		2,956
		302,848		296,444			313,033		308,936
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(187,103)		(168,879)		Less: Accumulated depreciation and amortization	(210,428)		(195,323)
Property and equipment, net	Property and equipment, net	$	115,745	$	127,565	Property and equipment, net	$	102,605	$	113,613

We recorded depreciation expense related to our property and equipment in the amounts of ~~$8.9~~$9.1 million and ~~$27.0~~$18.3 million during the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022,~~2023, respectively. We recorded depreciation expense related to our property and equipment in the amounts of ~~$8.5~~$8.8 million and ~~$25.6~~$18.1 million during the three- and ~~nine-month~~six-month periods ended ~~October~~July 30, ~~2021,~~2022, respectively.

We group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022~~2023 and ~~October~~July 30, ~~2021,~~2022, we did not recognize any impairment charges.

Note 6. Implementation Costs Incurred in Cloud Computing Arrangements that are Service Contracts

Our cloud computing arrangements that are service contracts primarily consist of arrangements with third party vendors for our internal use of their software applications that they host. We defer implementation costs incurred in relation to such arrangements, including costs for software application coding, configuration, integration and customization, while associated process reengineering, training, maintenance and data conversion costs are expensed. Subsequent implementation costs are

deferred only to the extent that they constitute major enhancements. The short-term portion of deferred implementation costs are included in prepaid expenses and other current assets in the condensed consolidated balance sheets, while the long-term portion of deferred costs are included in deposits and other noncurrent assets. Amortized implementation costs incurred in cloud computing arrangements that are service contracts are recognized in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive ~~income (loss).~~

income.

Deferred implementation costs incurred in cloud computing arrangements that are service contracts are summarized as follows (in thousands):


		October 29, 2022		January 29, 2022			July 29, 2023		January 28, 2023
Internal use of third party hosted software, gross	Internal use of third party hosted software, gross	$	16,464	$	11,877	Internal use of third party hosted software, gross	$	22,568	$	16,612
Less: Accumulated amortization	Less: Accumulated amortization	(5,916)		(3,892)		Less: Accumulated amortization	(8,497)		(6,772)
Internal use of third party hosted software, net	Internal use of third party hosted software, net	$	10,548	$	7,985	Internal use of third party hosted software, net	$	14,071	$	9,840

During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022,~~2023, we amortized approximately ~~$0.9~~$0.7 million and ~~$2.0~~$1.7 million, respectively, of implementation costs incurred in cloud computing arrangements that are service contracts. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 30, ~~2021,~~2022, we amortized approximately ~~$0.4~~$0.5 million and $1.1 million, respectively, of implementation costs incurred in cloud computing arrangements that are service contracts.

Note 7. Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following (in thousands):


		October 29, 2022		January 29, 2022			July 29, 2023		January 28, 2023
Accrued inventory-in-transit						Accrued inventory-in-transit	$	26,932	$	20,878
Accrued payroll and related expenses	Accrued payroll and related expenses	$	15,203	$	31,194	Accrued payroll and related expenses	15,098		20,232
Accrued inventory-in-transit		15,279		37,156
Accrued loyalty program	Accrued loyalty program	13,206		13,481		Accrued loyalty program	12,914		13,389
Gift cards						Gift cards	9,630		12,300
Accrued sales return allowance	Accrued sales return allowance	6,108		4,347		Accrued sales return allowance	6,042		6,562
Gift cards		8,394		11,695
Accrued freight						Accrued freight	6,570		5,840
Accrued marketing						Accrued marketing	4,008		4,103
Accrued sales and use tax						Accrued sales and use tax	3,186		3,666
Accrued self-insurance liabilities						Accrued self-insurance liabilities	3,294		2,853
Deferred revenue	Deferred revenue	1,317		2,879		Deferred revenue	1,310		1,471
Accrued sales and use tax		4,436		4,136
Accrued freight		6,442		6,048
Accrued purchases of property and equipment						Accrued purchases of property and equipment	1,163		2,825
Accrued lease costs						Accrued lease costs	3,012		3,593
Term loan interest payable	Term loan interest payable	7,620		1,762		Term loan interest payable	2,997		188
Accrued marketing		4,978		5,419
Accrued self-insurance liabilities		2,733		2,891
Other	Other	16,369		17,700		Other	10,565		10,947
Accrued and other current liabilities	Accrued and other current liabilities	$	102,085	$	138,708	Accrued and other current liabilities	$	106,721	$	108,847

Note 8. Leases

Our lease costs reflected in the tables below include minimum base rents, common area maintenance charges and heating, ventilation and air conditioning charges. We recognize such lease costs in the applicable expense category in either cost of goods sold, or selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive ~~income (loss).~~income.

Our lease costs during the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022~~2023 and ~~October~~July 30, ~~2021~~2022 consist of the following (in thousands):

Three Months Ended Nine Months Ended
October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021
Operating (fixed) lease cost $ 13,413 $ 12,341 $ 38,874 $ 37,348
Short-term lease cost 55 20 150 50
Variable lease cost 4,557 5,104 13,411 15,400
Total lease cost $ 18,025 $ 17,465 $ 52,435 $ 52,798

In response to the COVID-19 pandemic, the Financial Accounting Standards Board issued interpretive guidance in April 2020, which provides entities the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease terms. We elected this option; accordingly, we did not remeasure the lease liabilities or record a change to the right-of-use ("ROU") assets for any concessions we received for our retail store leases. Rather, deferred

~~lease payments were recorded to operating lease liabilities until paid and lease concessions were recorded in the period they were negotiated or when the lower lease expense was paid.~~

As of the end of fiscal year 2021, we had received substantially all of the lease concessions negotiated in response to the COVID-19 pandemic and as a result, deferred fixed lease payments during the three- and nine-months ended October 29, 2022 were not material. We did not record any reduction to lease costs during the three- and nine-months ended October 29, 2022. During the three- and nine-month periods ended October 30, 2021 we recorded reductions to lease costs of $0.2 million and $1.2 million, respectively, as a result of negotiated lease concessions.


	Three Months Ended				Six Months Ended
	July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
Operating (fixed) lease cost	$	12,694	$	12,675	$	26,345	$	25,461
Short-term lease cost	37		42		66		95
Variable lease cost	5,334		5,510		10,476		8,854
Total lease cost	$	18,065	$	18,227	$	36,887	$	34,410

Other supplementary information related to our leases is reflected in the table below (in thousands, except lease term and discount rate data):


		Nine Months Ended							Six Months Ended
		October 29, 2022			October 30, 2021				July 29, 2023			July 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:							Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	Operating cash flows for operating leases	$	43,287		$	43,663		Operating cash flows for operating leases	$	30,025		$	28,742
Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	$	12,458		$	9,056		Right-of-use assets obtained in exchange for new operating lease liabilities	$	8,042		$	7,157
Decrease in right-of-use assets resulting from operating lease modifications or remeasurements	Decrease in right-of-use assets resulting from operating lease modifications or remeasurements	$	8,243		$	3,106		Decrease in right-of-use assets resulting from operating lease modifications or remeasurements	$	4,819		$	3,975
Weighted average remaining lease term - operating leases	Weighted average remaining lease term - operating leases	6 years			6 years			Weighted average remaining lease term - operating leases	5 years			6 years
Weighted average discount rate - operating leases	Weighted average discount rate - operating leases	6		%	6		%	Weighted average discount rate - operating leases	6		%	6		%

Note 9. Revenue Recognition

We recognize revenue when our performance obligations under the terms of a contract or an implied arrangement with a customer are satisfied, which is when the merchandise is transferred to the customer and the customer obtains control of it. The amount of revenue we recognize reflects the total consideration we expect to receive for the merchandise, which is the transaction price.

Our revenue, disaggregated by product category, consists of the following (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021			July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
Apparel	Apparel	$	255,404	$	277,276	$	857,884	$	889,369	Apparel	$	254,569	$	310,827	$	513,482	$	602,480
Non-apparel	Non-apparel	34,630		28,965		101,435		75,489		Non-apparel	26,309		30,049		53,157		66,805
Other										Other	8,266		12,646		16,359		17,430
Total net sales	Total net sales	$	290,034	$	306,241	$	959,319	$	964,858	Total net sales	$	289,144	$	353,522	$	582,998	$	686,715

Amounts within Apparel include revenues earned from the sale of tops, bottoms, dresses, intimates, sleep wear, swim wear and outerwear. Amounts within Non-apparel include revenues earned from the sale of accessories, footwear and beauty. Amounts within Other represent PLCC Funds received.

We recognize a contract liability when we receive consideration from a customer before our performance obligations under the terms of a contract or an implied arrangement with the customer are satisfied. During the ~~nine-month~~six-month period ended ~~October~~July 29, ~~2022,~~2023, we recognized revenue of approximately ~~$10.8~~$8.6 million and $4.6 million related to our accrued loyalty program and ~~$7.1~~gift cards, respectively, that existed at the beginning of fiscal year 2023. During the six-month period ended July 30, 2022,

we recognized revenue of approximately $9.3 million and $5.1 million related to our accrued loyalty program and gift cards, respectively, that existed at the beginning of fiscal year 2022. During the nine-month period ended October 30, 2021, we recognized revenue of approximately $10.1 million and $4.7 million related to our accrued loyalty program and gift cards, respectively, that existed at the beginning of fiscal year 2021.

Note 10. Loyalty Program

We operate our loyalty program, Torrid Rewards, in all our stores and on www.torrid.com. Under this program, customers accumulate points based on purchase activity and qualifying non-purchase activity. Upon reaching a certain point level, customers can earn awards that may only be redeemed for merchandise. Unredeemed points typically expire after 13 months without additional purchase and qualifying non-purchase activity and unredeemed awards typically expire 45 days after issuance. We use historical redemption rates to estimate the value of future award redemptions and we recognize the estimated value of these future awards as a reduction of revenue in the condensed consolidated statements of operations and comprehensive income ~~(loss)~~ in the period the points are earned by the customer. As of the end of the ~~third~~second quarter of fiscal year

~~2022~~ 2023 and as of the end of fiscal year ~~2021,~~2022, we had ~~$13.2~~$12.9 million and ~~$13.5~~$13.4 million, respectively, in deferred revenue related to our loyalty program included in accrued and other current liabilities in the condensed consolidated balance sheets. During the ~~three- and nine periods~~three-month period ended ~~October~~July 29, ~~2022,~~2023, we recorded ~~$0.4~~$0.2 million as a reduction of net sales, and ~~$0.3~~during the six-month period ended July 29, 2023, we recorded $0.5 million ~~respectively,~~ as a benefit to net sales. During the ~~three-~~three-month period ended July 30, 2022, the amount recorded as a reduction of net sales was not material, and ~~nine-month periods~~during the six-month period ended ~~October~~July 30, ~~2021,~~2022, we recorded ~~$0.8~~$0.1 million ~~and $2.1 million, respectively,~~ as a reduction of net sales. Actual results may differ from our estimates, resulting in changes to net sales.

Note 11. Related Party Transactions

Services Agreements with Hot Topic

Hot Topic Inc. ("Hot Topic") is an entity indirectly controlled by affiliates of Sycamore. From June 2, 2017 until its termination on March 21, 2019, we had a services agreement ("Third Party Services Agreement") with Hot Topic, pursuant to which Hot Topic provided us (or caused applicable third parties to provide) certain services, including information technology, distribution and logistics management, real estate leasing and construction management and other services as may have been specified. On March 21, 2019, we entered into an amended and restated services agreement ("Amended and Restated Services Agreement") with Hot Topic under which Hot Topic ~~provides~~provided us (or ~~causes~~caused applicable third parties to provide) substantially similar services to those provided under the Third Party Services Agreement. The term of the Amended and Restated Services Agreement iswas three years, unless we or Hot Topic ~~extend~~extended the agreement, or we ~~terminate~~terminated the agreement (or certain services under the agreement). ~~We may terminate~~In connection with the ~~various services upon written notice. Rates and costs related~~Reverse Services Agreement (as defined below), we entered into an amendment to ~~the services provided under~~ the Amended and Restated Services Agreement ~~may change~~("Amendment to Amended and Restated Services Agreement") with ~~approval from both parties. Each month, we are committed to pay~~ Hot Topic ~~for these~~on August 1, 2019, pursuant to which sections pertaining to Hot Topic's provision of information technology services ~~and reimburse Hot Topic for certain costs it incurs in the course of providing these services.~~to Torrid were removed. We record payments made to Hot Topic under these service agreements in the applicable expense category in either cost of goods sold, or selling, general and administrative expenses.

During the three- and six-month periods ended July 29, 2023, Hot Topic charged us $0.5 million and $1.1 million, respectively, for various services under the applicable services agreements, all of which were recorded as a component of selling, general and administrative expenses. During the three- and six-month periods ended July 30, 2022, Hot Topic charged us $0.6 million and $1.2 million, respectively, for various services under the applicable services agreements, all of which were recorded as a component of selling, general and administrative expenses. As of the end of the second quarter of fiscal year 2023, we owed $0.3 million to Hot Topic for these services and as of the end of fiscal year 2022, we owed $0.2 million to Hot Topic for these services.

On August 1, 2019, ~~in connection with the IT Asset Purchase Agreement (as defined below),~~ we entered into a services agreement ("Reverse Services Agreement") with Hot Topic, under which Torrid provided Hot Topic with certain information technology services. The term of the Reverse Services Agreement was three years, unless we or Hot Topic extended the agreement, or Hot Topic terminated the agreement. Torrid provided Hot Topic with the specified information technology services at no cost for the first three years of the Reverse Services Agreement, however Hot Topic bore certain capital and operating expenses that it incurred. Costs incurred in connection with providing the specified information technology services to Hot Topic were expensed as incurred in our condensed consolidated statements of operations and comprehensive ~~income (loss).~~income. During the three- and ~~nine-month~~six-month periods ended ~~October 29,~~July 30, 2022, we incurred costs of ~~$0.5~~$0.7 million and ~~$2.1~~$1.6 million, respectively, in connection with providing these information technology services to Hot Topic. During the three- and nine-month periods ended October 30, 2021, we incurred costs of $0.8 million and $2.5 million, respectively, in connection with providing these information technology services to Hot Topic. In connection with the Reverse Services Agreement, we entered into an amendment to the Amended and Restated Services Agreement ("Amendment to Amended and Restated Services Agreement") with Hot Topic on August 1, 2019, pursuant to which sections pertaining to Hot Topic's provision of information technology services to Torrid were removed. On July 31, 2022, we entered into a first amendment to the Reverse Services Agreement (“Amended Reverse Services Agreement”) with Hot Topic, under which Torrid provided Hot Topic with certain information technology services for a fixed fee. The term of the Amended Reverse Services Agreement was five months while both parties negotiated a longer-term amendment to the Reverse Services Agreement with modified terms and conditions. On September 30, 2022, we entered into a second amendment to the Reverse Services Agreement (“Second Amended Reverse Services Agreement”) with Hot Topic, under which Torrid provides Hot Topic with certain information technology services for a fixed fee. The term of the Second Amended Reverse Services Agreement iswas two months while both parties ~~negotiate~~negotiated a longer-term amendment to the Reverse Services Agreement with modified terms and conditions. Effective December 1, 2022, we entered into a third amendment to the Reverse

Services Agreement (“Third Amended Reverse Services Agreement”) with Hot Topic, under which Torrid provides Hot Topic with certain information technology services for a fixed fee. The term of the Third Amended Reverse Services Agreement ends on May 4, 2024, unless we and Hot Topic mutually agree to extend the agreement, or we or Hot Topic terminate the agreement (or certain services under the agreement), upon written notice.

During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, 2022, Hot Topic charged us $0.6 million and $1.8 million, respectively, for various services under the applicable services agreements, all of which were recorded as a component of selling, general and administrative expenses. During the three-month period ended October 29, 2022,2023, we charged Hot Topic ~~$0.5 million, for various services under the Reverse Services Agreement, as amended. During the three- and nine-month periods ended October 30, 2021, Hot Topic charged us $1.9~~$0.5 million and ~~$5.8~~$0.9 million, respectively, for various services under the applicable services agreements, of which $1.3 million and $3.8 million were recorded as components of cost of goods sold, respectively, and the remaining $0.6 million and $2.0 million, respectively, were recorded as selling, general and administrative expenses.these services. As of the end of the ~~third~~second quarter of fiscal year ~~2022, we did not owe any amount to Hot Topic for these services~~2023, and as of the end of fiscal year ~~2021, we owed $0.7 million to~~2022, Hot Topic owed us $0.3 million and $0.1 million, respectively, for these services.

Hot Topic incurs certain direct expenses on our behalf, such as payments to our non-merchandise vendors and each month, we pay Hot Topic for these pass-through expenses. As of the end of the ~~third~~second quarter of fiscal year ~~2022, we had prepaid~~

~~Hot Topic $0.1 million for these expenses. As~~2023 and as of the end of fiscal year ~~2021,~~2022, the net amount we owed Hot Topic for these expenses was ~~$1.7~~$0.6 million and $1.1 million, respectively, which is included in due to related parties in our condensed consolidated balance sheets.

~~IT Asset Purchase Agreement with Hot Topic~~

On June 14, 2019, we entered into an asset purchase agreement ("IT Asset Purchase Agreement") with Hot Topic pursuant to which we purchased certain information technology assets from Hot Topic for $29.5 million on August 1, 2019. Funds obtained from the Term Loan Credit Agreement (as defined in "Note 12—Debt Financing Arrangements") were used to make the purchase. We accounted for the purchase in accordance with subsections of ASC 805-50, related to transactions between entities under common control. Consequently, we recorded the information technology assets we purchased from Hot Topic at their historical carrying amounts totaling $3.5 million and recognized the difference between the historical carrying amounts and the purchase price in equity. In addition, certain information technology-related obligations and personnel, along with associated assets of $1.4 million and liabilities of $0.1 million, were transferred from Hot Topic to Torrid. In connection with the IT Asset Purchase Agreement, we and Hot Topic agreed to enter into the Reverse Services Agreement and Amendment to Amended and Restated Services Agreement upon the closing date of the IT Asset Purchase Agreement, which was August 1, 2019.

Sponsor Advisory Services Agreement

On May 1, 2015, we entered into an advisory services agreement with Sycamore, pursuant to which Sycamore agreed to provide strategic planning and other related services to us. We are obligated to reimburse Sycamore for its expenses incurred in connection with providing such advisory services to us. As of the end of the ~~third~~second quarter of fiscal year ~~2022~~2023 and as of the end of fiscal year ~~2021,~~2022, there were no amounts due, and during the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022~~2023 and ~~October~~July 30, ~~2021,~~2022, no amounts were paid under this agreement.

From time to time, we reimburse Sycamore for certain management expenses it pays on our behalf. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, 2023, the amount paid to Sycamore for these expenses was not material. During the three- and six-month periods ended July 30, 2022, we did not make any reimbursements to Sycamore. ~~During the three- and nine-month periods ended and October 30, 2021, the reimbursements we made to Sycamore for such expenses were not material.~~ As of the end of the ~~third~~second quarter of fiscal year ~~2022,~~2023 and as of the end of fiscal year ~~2021, the~~2022, there was no amount ~~due was not material.~~due.

Other Related Party Transactions

MGF Sourcing US, LLC, an entity indirectly controlled by affiliates of Sycamore, is one of our suppliers. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022,~~2023, cost of goods sold included ~~$16.8~~$15.6 million and ~~$52.9~~$30.9 million, respectively, related to the sale of merchandise purchased from this supplier. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 30, ~~2021,~~2022, cost of goods sold included ~~$13.6~~$19.1 million and ~~$41.3~~$36.1 million, respectively, related to the sale of merchandise purchased from this supplier. As of the end of the ~~third~~second quarter of fiscal year ~~2022~~2023 and as of the end of fiscal year ~~2021,~~2022, the net amounts we owed MGF for these purchases were ~~$15.5~~$9.8 million and ~~$12.1~~$11.6 million, respectively. This liability is included in due to related parties in our condensed consolidated balance sheets.

HU Merchandising, LLC, a subsidiary of Hot Topic, is one of our suppliers. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022,~~2023, cost of goods sold included ~~$0.1~~$0.2 million ~~and $0.3 million, respectively,~~in both periods, related to the sale of merchandise purchased from this supplier. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 30, ~~2021,~~2022, cost of goods sold included ~~$0.3~~$0.2 million and ~~$0.6~~$0.3 million, respectively, related to the sale of merchandise purchased from this supplier. As of the end of the ~~third~~second quarter of fiscal year ~~2022,~~2023, the amount due to HU Merchandising, LLC was ~~not material~~ $0.1 million and as of the end of fiscal year ~~2021, the~~2022, there was no amount ~~due to HU Merchandising, LLC was $0.1 million.~~due. This liability is included in due to related parties in our condensed consolidated balance sheets.

Staples, Inc., an entity indirectly controlled by affiliates of Sycamore, is one of our suppliers. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022~~2023 and ~~October~~July 30, ~~2021,~~2022, purchases from this supplier were not material~~not material.~~. As of the end of the ~~third~~second quarter of fiscal year ~~2022~~2023, there was no amount due and as of the end of fiscal year ~~2021,~~2022, the ~~amounts~~amount due to Staples, Inc. ~~were~~was not material.

In April 2020, we received a letter of support from Sycamore for up to $20.0 million of additional equity funding, which, if necessary and sufficient, would be provided to further prevent noncompliance with the financial covenants in the Amended Term Loan Credit Agreement (as defined in "Note 12—Debt Financing Arrangements") through May 2021. In September 2020, we received an updated letter of support from Sycamore extending the equity funding commitment of up to $20.0 million, if necessary and sufficient, through January 2022. The letter of support was terminated as of May 6, 2021.

1615

In March 2021, Hot Topic entered into a consulting services agreement with our then Chief Financial Officer, George Wehlitz, Jr., pursuant to which Hot Topic agreed to pay Mr. Wehlitz a consulting fee of $10,000 per month. The agreement was effective from January 3, 2021 and terminated on May 31, 2021.

Note 12. Debt Financing Arrangements

Our debt financing arrangements consist of the following (in thousands):


		October 29, 2022		January 29, 2022			July 29, 2023		January 28, 2023
Existing ABL Facility, as amended	Existing ABL Facility, as amended	$	2,150	$	—	Existing ABL Facility, as amended	$	—	$	8,380
Term loan	Term loan					Term loan
New Term Loan Credit Agreement	New Term Loan Credit Agreement	332,500		350,000		New Term Loan Credit Agreement	319,375		328,125
Less: current portion of unamortized original issue discount and debt financing costs	Less: current portion of unamortized original issue discount and debt financing costs	(1,356)		(1,356)		Less: current portion of unamortized original issue discount and debt financing costs	(1,356)		(1,356)
Less: noncurrent portion of unamortized original issue discount and debt financing costs	Less: noncurrent portion of unamortized original issue discount and debt financing costs	(6,267)		(7,284)		Less: noncurrent portion of unamortized original issue discount and debt financing costs	(5,250)		(5,928)
Total term loan outstanding, net of unamortized original issue discount and debt financing costs	Total term loan outstanding, net of unamortized original issue discount and debt financing costs	324,877		341,360		Total term loan outstanding, net of unamortized original issue discount and debt financing costs	312,769		320,841
Less: current portion of term loan, net of unamortized original issue discount and debt financing costs	Less: current portion of term loan, net of unamortized original issue discount and debt financing costs	(16,144)		(20,519)		Less: current portion of term loan, net of unamortized original issue discount and debt financing costs	(16,144)		(16,144)
Total term loan, net of current portion and unamortized original issue discount and debt financing costs	Total term loan, net of current portion and unamortized original issue discount and debt financing costs	$	308,733	$	320,841	Total term loan, net of current portion and unamortized original issue discount and debt financing costs	$	296,625	$	304,697

Fixed mandatory principal repayments due on the outstanding term loan are as follows as of the end of the ~~third~~second quarter of fiscal year ~~2022~~2023 (in thousands):


2022		4,375
2023	2023	17,500		2023	8,750
2024	2024	17,500		2024	17,500
2025	2025	17,500		2025	17,500
2026	2026	17,500		2026	17,500
2027	2027	17,500		2027	17,500
2028	2028	240,625		2028	240,625
		$	332,500		$	319,375

New Term Loan Credit Agreement

On June 14, 2021, we entered into a term loan credit agreement ("New Term Loan Credit Agreement") among Bank of America, N.A., as agent, and the lenders party thereto. On May 24, 2023, we entered into an amendment to the New Term Loan Credit Agreement (the "1st Amendment to the New Term Loan Credit Agreement"). The 1st Amendment to the New Term Loan Credit Agreement replaced the London Interbank Offered Rate ("LIBOR") interest rate benchmark with the Secured Overnight Financing Rate ("SOFR") benchmark. All other material terms of the New Term Loan Credit Agreement remained substantially the same after giving effect to the 1st Amendment to the New Term Loan Credit Agreement. In March 2020 and January 2021, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Updates ("ASU") 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") and 2021-01, Reference Rate Reform (Topic 848): Scope ("ASU 2021-01"), respectively. ASU 2020-04 and ASU 2021-01 include practical expedients which provide entities the option to account for qualifying amendments as if the modification was not substantial in accordance with Accounting Standards Codification ("ASC") 470, Debt. We elected this option, accordingly, the 1st Amendment to the New Term Loan Credit Agreement did not have a material impact on our condensed consolidated financial statements.

The New Term Loan Credit Agreement provides for term loans in an initial aggregate amount of $350.0 million, which is recorded net of an original issue discount ("OID") of $3.5 million and has a maturity date of June 14, 2028. In connection with the New Term Loan Credit Agreement, we paid financing costs of approximately $6.0 million.

The elected interest rate on ~~October~~July 29, ~~2022~~2023 was approximately 9%11%.

As of the end of the ~~third~~second quarter of fiscal year ~~2022,~~2023, we were compliant with our debt covenants under the New Term Loan Credit Agreement.

As of ~~October~~July 29, 2023, the fair value of the New Term Loan Credit Agreement was approximately $273.1 million. As of the end of fiscal year 2022, the fair value of the New Term Loan Credit Agreement was approximately ~~$305.9~~$267.4 million. The fair value of the New Term Loan Credit Agreement is determined using current applicable rates for similar instruments as of the balance sheet date, a Level 2 measurement (as defined in "Note 19—Fair Value Measurements").

As of the end of the ~~third~~second quarter of fiscal year ~~2022,~~2023, total borrowings, net of OID and financing costs, of ~~$324.9~~$312.8 million remain outstanding under the New Term Loan Credit Agreement. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022,~~2023, we recognized ~~$7.5~~$8.9 million and ~~$18.8~~$17.4 million, respectively, of interest expense related to the New Term Loan Credit Agreement. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 30, 2022, we recognized $5.8 million and $11.3 million, respectively, of interest expense related to the New Term Loan Credit Agreement. During the three- and six-month periods ended July 29, ~~2022,~~2023, we recognized $0.3 million and ~~$0.9~~$0.6 million,

respectively, of OID and financing costs related to the New Term Loan Credit Agreement. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 30, ~~2021, we recognized $5.5 million and $8.4 million, respectively, of interest expense related to the New Term Loan Credit Agreement. During the three- and nine-month periods ended October 30, 2021,~~2022, we recognized $0.3 million and ~~$0.5~~ $0.6 million, respectively, of OID and financing costs related to the New Term Loan Credit Agreement. The OID and financing costs are amortized over the New Term Loan Credit Agreement's seven-year term and are reflected as a direct deduction of the face amount of the term loan in our condensed consolidated balance sheets. We recognize interest payments, together with amortization of the OID and financing costs, in interest expense in our condensed consolidated statements of operations and comprehensive ~~income (loss).~~

~~Term Loan Credit Agreement~~

On June 14, 2019, we entered into a term loan credit agreement ("Term Loan Credit Agreement") with Cortland Capital Market Services LLC, as agent, KKR Credit Advisors (US) LLC, as structuring advisor, and the lenders party thereto (the "Lenders"). On September 17, 2020, we entered into an amended term loan credit agreement ("Amended Term Loan Credit Agreement") with the Lenders, pursuant to which the definition of total debt used in the calculation of the maximum ratio of our total debt to EBITDA (as defined in the Amended Term Loan Credit Agreement) was amended. All other material terms of the Term Loan Credit Agreement remained substantially the same. In September 2020, in conjunction with the Amended Term Loan Credit Agreement, we prepaid $35.0 million of the outstanding Amended Term Loan Credit Agreement Principal (as defined below), associated accrued interest of $0.2 million and an amendment fee of $0.5 million. On June 14, 2021, we utilized the proceeds from the New Term Loan Credit Agreement to pay the remaining outstanding Amended Term Loan Credit Agreement Principal (as defined below) of $207.5 million, associated accrued interest of $1.2 million and a prepayment penalty of $2.1 million.

The Amended Term Loan Credit Agreement provided for term loans in an initial aggregate amount of $260.0 million ("Amended Term Loan Credit Agreement Principal"), which was recorded net of an original issue discount of $2.9 million and had a maturity date of December 14, 2024. In connection with the Term Loan Credit Agreement, we paid financing costs of approximately $4.6 million.

During the nine-month period ended October 30, 2021, prior to the repayment of the Amended Term Loan Credit Agreement, we recognized $11.0 million of interest expense related to the Amended Term Loan Credit Agreement. During the nine-month period ended October 30, 2021, prior to the repayment of the Amended Term Loan Credit Agreement, we recognized $0.4 million of OID and financing costs related to the Amended Term Loan Credit Agreement. The OID and financing costs were amortized over the Amended Term Loan Credit Agreement's contractual term and were reflected as a direct deduction of the face amount of the term loan in our condensed consolidated balance sheets. On June 14, 2021, upon repayment of the outstanding borrowings under the Amended Term Loan Credit Agreement, we wrote off $5.2 million of unamortized OID and financing costs and incurred a $2.1 million prepayment penalty. We recognize interest payments, OID and financing costs and the prepayment penalty in interest expense in our condensed consolidated statements of operations and comprehensive income (loss).income.

Senior Secured Asset-Based Revolving Credit Facility

In May 2015, we entered into a credit agreement for a senior secured asset-based revolving credit facility ("Original ABL Facility") of $50.0 million (subject to a borrowing base), with Bank of America, N.A. On October 23, 2017, we entered into an amended and restated credit agreement ("Existing ABL Facility"), which amended our Original ABL Facility. The Existing ABL Facility increased the aggregate commitments available under the Original ABL Facility from $50.0 million to $100.0 million (subject to a borrowing base); and increased our right to request additional commitments from up to $30.0 million to up to $30.0 million plus the aggregate principal amount of any permanent principal reductions we may take (subject to customary conditions precedent). On June 14, 2019, ~~in conjunction with the Term Loan Credit Agreement,~~ we entered into an amendment to the Existing ABL Facility (the "1st Amendment"). The 1st Amendment decreased the aggregate commitments available under the Existing ABL Facility from $100.0 million to $70.0 million (subject to a borrowing base), permitted indebtedness incurred pursuant to the Term Loan Credit Agreement and made certain other modifications. On September 4, 2019, we entered into another amendment to the Existing ABL Facility (the "2nd Amendment"). The 2nd Amendment permitted parent company financial statements to be used to satisfy reporting requirements and made certain other modifications. On June 14, 2021, in conjunction with the New Term Loan Credit Agreement, we entered into a third amendment to the Existing ABL Facility (the "3rd Amendment"), which amended our Existing ABL Facility, as amended. The 3rd Amendment increased the aggregate commitments available under the Existing ABL facility, as amended, from $70.0 million to $150.0 million (subject to a borrowing base) and extended the date upon which the principal amount outstanding of the loans would be due and payable in full from October 23, 2022 to June 14, 2026. On April 21, 2023, we entered into a fourth amendment to the Existing ABL Facility (the "4th Amendment"). The 4th Amendment replaced the LIBOR interest rate benchmark with the SOFR benchmark. All other material terms of the Existing ABL Facility, as amended, ~~remain~~remained substantially the same asafter giving effect to the ~~previous agreements it replaced.~~

4th Amendment. We elected to apply the practical expedients included in ASU 2020-04 and 2021-01, accordingly, the 4th Amendment did not have a material impact on our condensed consolidated financial statements.

As of the end of the ~~third~~second quarter of fiscal year ~~2022,~~2023, the applicable interest rate for borrowings under the Existing ABL Facility, as amended, was approximately 7%9% per annum.

As of the end of the ~~third~~second quarter of fiscal year ~~2022,~~2023, we were compliant with our debt covenants under the Existing ABL Facility, as amended.

As of the end of the ~~third~~second quarter of fiscal year ~~2022,~~2023, the maximum restricted payment utilizing the Existing ABL Facility, as amended, that our subsidiaries could make from its net assets was ~~$127.5~~$117.0 million.

We consider the carrying amounts of the Existing ABL Facility, as amended, to approximate fair value because of the variable interest rate of this facility, a Level 2 measurement (as defined in "Note 19—Fair Value Measurements").

Availability under the Existing ABL Facility, as amended, as of the end of the ~~third~~second quarter of fiscal year ~~2022~~2023 was ~~$140.5~~$130.3 million, which reflects ~~borrowings of $2.2 million.~~no borrowings. Availability under the Existing ABL Facility, as amended, at the end of fiscal year ~~2021~~2022 was ~~$123.9~~$134.2 million, which reflects ~~no borrowings.~~borrowings of $8.4 million. Standby letters of credit issued and outstanding were ~~$7.3~~$7.4 million as of the end of the ~~third~~second quarter of fiscal year ~~2022~~2023 and ~~$5.3~~$7.4 million as of the end of fiscal year ~~2021.~~2022. During the third quarter of fiscal year 2017, we incurred $0.5 million of financing costs for the Existing ABL Facility, which were reduced

in fiscal year 2019 by $0.1 million written off to account for the impact of our entry into the 1st Amendment. During the second quarter of fiscal year 2021, we incurred an additional $0.7 million of financing costs in connection with our entry into the 3rd Amendment. These financing costs, together with the unamortized financing costs of $0.1 million associated with the Original ABL Facility, are amortized over the five-year term of the Existing ABL Facility, as amended, and are reflected in prepaid expenses and other current assets and deposits and other noncurrent assets in our condensed consolidated balance sheets. During the three-month ~~period~~periods ended ~~October~~July 29, ~~2022, amortization of financing costs for the Existing ABL Facility, as amended, was not material,~~2023 and ~~during the nine-month period ended October 29,~~July 30, 2022, ~~amortization of financing costs for the Existing ABL Facility, as amended, was $0.1 million. During the three-month period ended October 30, 2021,~~ amortization of financing costs for the Existing ABL Facility, as amended, was not material. During the ~~nine-month period~~six-month periods ended ~~October~~July 29, 2023 and July 30, ~~2021,~~2022, amortization of financing costs for the Existing ABL Facility, as amended, was $0.1 ~~million.~~million and $0.1 million, respectively. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, 2023, interest payments were $0.4 million and $0.9 million, respectively. During the three- and six-month periods ended July 30, 2022, interest payments were $0.5 million and ~~$1.3 million, respectively. During the three- and nine-month periods ended October 30, 2021, interest payments were $0.2 million and $0.4~~$0.8 million, respectively. We recognize amortization of financing costs and interest payments for the revolving credit ~~facilities~~facility in interest expense in our condensed consolidated statements of operations and comprehensive ~~income (loss).~~income.

Note 13. Income Taxes

Effective Tax Rate

During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, 2023, the provision for income taxes were $4.0 million and $8.8 million, respectively. During the three- and six-month periods ended July 30, 2022, the provision for income taxes were ~~$4.1~~$10.0 million and ~~$23.5 million, respectively. During the three- and nine-month periods ended October 30, 2021, the provision for income taxes were $96.5 million and $13.0~~$19.3 million, respectively. The effective tax rates for the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022,~~2023 were ~~36.3%~~37.9% and ~~30.3%~~32.2%, respectively. The effective tax rates for the three- and ~~nine-month~~six-month periods ended ~~October~~July 30, ~~2021,~~2022 were ~~256.5%~~30.5% and ~~222.9%~~29.3%, respectively. The ~~unconventional~~increase in the effective tax ~~rates during~~rate for the three- and ~~nine-month periods~~six months ended ~~October~~July 29, 2023 as compared to the three- and six months ended July 30, ~~2021, were~~2022 was primarily due to ~~the~~an increase in the amount of non-deductible ~~items associated with share-based~~ compensation for covered employees and state income taxes relative to income before provision for income taxes for the three- and ~~nine-month periods~~six months ended October 30, 2021. The increase in the amount of non-deductible items associated with share-based compensation during the three- and nine-month periods ended October 30, 2021, were driven by the $111.4 million remeasurement adjustment related to the increase in the value of the incentive units as indicated by the Torrid Holding LLC equity value as of June 30, 2021, following the pricing of our IPO.July 29, 2023.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law, and has resulted in significant changes to the U.S. federal corporate tax law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. Additionally, several state and foreign jurisdictions have enacted additional legislation to comply with federal changes. On December 27, 2020, the Consolidated Appropriations Act ("CAA") was enacted in further response to the COVID-19 pandemic. The CAA, among other things, revised certain tax measures enacted under the CARES Act, such as the deductibility of payroll tax credits, charitable contributions for corporate taxpayers, certain meals and entertainment expenses paid or incurred in calendar years 2021 and 2020, and employment retention credit claims. On March 11, 2021, the American Rescue

~~Plan Act ("ARPA") was signed into law with additional funding for COVID-19 pandemic relief. The ARPA includes the expansion of employment retention credit claims and other pandemic funding provisions.~~ On August 16, 2022, the Inflation Reduction Act of 2022 ~~("IR~~(the "IR Act") was enacted to reduce inflation and promote clean energy in the United States. Among other things, the IR Act introduced a 15% alternative minimum tax based on the adjusted financial statement income of corporations or their predecessors with a three-year taxable year average annual adjusted financial statement income in excess of $1 billion and imposes a 1% excise tax on the fair market value of stock repurchases made by covered corporations after December 31, 2022. In addition, the current administration has announced a proposal to increase such excise tax to 4%. The IR Act also includes provisions intended to mitigate climate change by, among others, providing tax credit incentives for reductions in greenhouse gas emissions. We have considered the applicable ~~CARES Act, CAA, ARPA and~~ IR Act tax law changes in our tax provision for the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022,~~2023, and continue to evaluate the impact of these tax law changes on future periods.

Uncertain Tax Positions

The amount of income taxes we pay is subject to ongoing audits by taxing authorities. Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts and circumstances existing at the time. We believe that we have adequately provided for reasonably foreseeable outcomes related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate. As of the end of the ~~third~~second quarter of fiscal year 2023, the total liability for income tax associated with unrecognized tax benefits, including interest and penalties, was $3.8 million ($3.3 million, net of federal benefit). As of the end of fiscal year 2022, the total liability for income tax associated with unrecognized tax benefits, including interest and penalties, was ~~$4.0~~$3.8 million ($3.5 million, net of federal benefit). As of the end of fiscal year 2021, the total liability for income tax associated with unrecognized tax benefits, including interest and penalties, was $4.0 million ($3.53.3 million, net of federal benefit). Our effective tax rate will be affected by any portion of this liability we may recognize.

We believe that it is reasonably possible that ~~$0.3~~$1.7 million ($~~0.3~~1.6 million net of federal benefit) of our liability for unrecognized tax benefits, of which the associated interest and penalties are not material, may be recognized in the next 12 months due to the expiration of statutes of limitations.

~~IT Asset Purchase Agreement with Hot Topic~~

In connection with the IT Asset Purchase Agreement, we generated a tax amortizable basis of the $29.5 million purchase price, amortizable over three years commencing in fiscal year 2019. We recorded the $26.0 million variance between the $3.5 million net book value and $29.5 million tax amortizable basis of the information technology assets in equity, net of $6.7 million deferred tax.

Note 14. Share-Based Compensation

Our share-based compensation expense, by award type, consists of the following (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021			July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
Restricted stock units	Restricted stock units	$	644	$	513	$	1,398	$	3,510	Restricted stock units	$	491	$	253	$	1,131	$	754
Restricted stock awards	Restricted stock awards	1,610		1,658		4,900		2,211		Restricted stock awards	755		1,613		1,700		3,290
Performance stock units	Performance stock units	192		—		302		—		Performance stock units	106		110		387		110
Stock options	Stock options	351		216		714		288		Stock options	280		169		715		363
Restricted cash units										Restricted cash units	246		—		357		—
Employee stock purchase plan	Employee stock purchase plan	116		63		254		63		Employee stock purchase plan	30		30		106		138
Remeasurement adjustments for incentive units		—		—		—		151,166
Share-based compensation before income taxes	Share-based compensation before income taxes	2,913		2,450		7,568		157,238		Share-based compensation before income taxes	1,908		2,175		4,396		4,655
Income tax benefit		(153)		(2)		(120)		(788)
Share-based compensation expense after income taxes		$	2,761	$	2,448	$	7,448	$	156,450
Income tax (benefit) detriment										Income tax (benefit) detriment	(114)		192		(422)		33
Net share-based compensation expense										Net share-based compensation expense	$	1,794	$	2,367	$	3,974	$	4,688

~~On June 22, 2021, in connection with our IPO, the board of directors~~RSUs

Restricted stock unit ("~~Board"~~RSU") adopted the Torrid Holdings Inc. 2021 Long-Term Incentive Plan (the "2021 LTIP"), for employees, consultants and directors. The 2021 LTIP provides for the grant of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs")activity, including ~~performance-based restricted~~Performance stock units ("PSUs"), ~~stock awards, dividend equivalents, other stock-based awards, cash awards and substitute awards intended to align~~consists of the ~~interests of service providers, with those of our shareholders~~. following (in thousands, except per share amounts):


	Shares	Weighted average grant date fair value per share
Nonvested, January 28, 2023	1,386	$	6.55
Granted	1,125	$	2.93
Vested	(163)	$	10.34
Forfeited	(437)	$	5.74
Nonvested, July 29, 2023	1,911	$	4.28

As of the end of the ~~third~~second quarter of fiscal year ~~2022, 10,687,500 shares were authorized for issuance under~~2023, unrecognized compensation expense related to unvested RSUs, including PSUs, was $6.8 million, which is expected to be recognized over a weighted average period of approximately 2.8 years.

Restricted Stock Awards

Restricted stock award activity consists of the ~~2021 LTIP.~~following (in thousands, except per share amounts):


	Shares	Weighted average grant date fair value per share
Nonvested, January 28, 2023	211	$	27.00
Granted	—
Vested	(72)	$	27.00
Forfeited	(104)	$	27.00
Nonvested, July 29, 2023	35	$	27.00

As of the end of the second quarter of fiscal year 2023, unrecognized compensation expense related to unvested restricted stock awards was $0.4 million, which is expected to be recognized over a weighted average period of approximately 0.4 years.

2019

~~On June 22, 2021, in connection with our IPO, the Board adopted the Torrid Holdings Inc. 2021 Employee~~ Stock ~~Purchase Plan (the "ESPP"), intended to qualify under Section 423~~Options

Stock option activity consists of the ~~U.S. Internal Revenue Code of 1986, as amended, in order to provide all of our eligible employees with a further incentive towards ensuring our success~~following (in thousands, except per share and accomplishing our corporate goals. The ESPP allows eligible employees to contribute up to 15% of their base earnings towards purchases of common stock, subject to an annual maximum. The purchase price is 85%contractual life amounts):


	Shares	Weighted average exercise price per share		Weighted average remaining contractual life (years)	Aggregate intrinsic value
Outstanding, January 28, 2023	1,444	$	7.38	9.4	$	115
Granted	1,370	$	3.26
Exercised	—
Forfeited	(477)	$	5.70
Outstanding, July 29, 2023	2,337	$	5.30	9.2	$	—
Exercisable, July 29, 2023	191	$	11.88	8.2	$	—

As of the ~~lower of (i) the fair market value of the stock on the date of enrollment and (ii) the fair market value of the stock on the last day of the related purchase period.~~

~~Incentive Units~~

Prior to the IPO, Torrid Holding LLC issued 13,660,000 Class A, Class B, Class C, Class D, Class E, Class F, Class G, Class H and Class J Torrid incentive units, in the aggregate, net of forfeitures, to certain members of our management.

We recognized the impact of share-based compensation associated with incentive units issued by Torrid Holding LLC in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss). The share-based compensation expense and related capital contribution are reflected in our condensed consolidated financial statements as these awards were deemed to be for our benefit. The intent of the incentive units was to provide profit-sharing opportunities to management rather than equity ownership in our then parent, Torrid Holding LLC. The incentive units did not have any voting or distribution rights and contained a repurchase feature, whereby upon termination, Torrid Holding LLC had the right to purchase from former employees any or all of the vested incentive units at fair value. In addition, although the fair value of the incentive units was determined through an option pricing methodology that utilized the possible equity values of Torrid Holding LLC, the settlement amounts and method of settlement of the incentive units were at the discretion of the Board. Based on these aforementioned features and characteristics, we determined that the incentive units were in-substance liabilities accounted for as liability instruments in accordance with ASC 710, ~~Compensation. The incentive units were remeasured based on the fair value of the awards at the~~ end of each reporting period. We recorded the expense associated with changes in the fair value of these incentive units as a capital contribution from our former parent, Torrid Holding LLC, as our former parent is the legal obligor for the incentive units.

The incentive units were valued utilizing a contingent claims analysis ("CCA") methodology based on a Black-Scholes option pricing model ("OPM"). Under the OPM, each class of incentive units was modeled as a call option with a unique claim on the assets of Torrid Holding LLC. The characteristics of each class of incentive units determined the uniqueness of the claim on the assets of Torrid Holding LLC. The OPM used to value the incentive units incorporated various assumptions, including the time to liquidity event, equity volatility and risk-free interest rate of return. Equity volatility was based on the historical volatilities of comparable publicly traded companies for the time horizon equal to the time to the anticipated liquidity event; and the risk-free interest rate was for a term corresponding to the time to liquidity event. The assumptions underlying the valuation of the incentive units represented our best estimates, which involved inherent uncertainties and the application of our judgement. The most recent remeasurement of the fair value of the incentive units utilizing the CCA methodology was performed as of May 1, 2021.

~~During~~ the second quarter of fiscal year ~~2021, we recorded a share-based~~2023, unrecognized compensation expense ~~remeasurement adjustment of $111.4 million~~ related to ~~the increase in the value~~unvested stock options was $5.2 million, which is expected to be recognized over a weighted average period of ~~the incentive~~approximately 3.3 years.

RCUs

Restricted cash units as indicated by the Torrid Holding LLC equity value as of June 30, 2021, following the pricing of our IPO. The vested portion of the incentive units was exchanged for 13,353,122 shares of our common stock of an equivalent fair value as the vested incentive units and the unvested portion was cancelled. As such, the fair value of these incentive units is no longer recognized in our condensed consolidated statement of operations and comprehensive income (loss).

~~During the nine-month period ended October 30, 2021, we recognized share-based compensation expense of $151.2 million, primarily due to an increase in the Torrid Holding LLC equity value.~~

~~RSUs~~

~~RSUs~~("RCUs") are awarded to certain employees, non-employee directors and consultants and ~~entitle~~

represent the ~~grantee~~right to receive ~~shares of common stock~~a cash payment at the end of a vesting period, subject to the employee's continued employment or service as a director or consultant. In general, ~~RSUs~~RCUs vest in equal installments each year over 4 years.

~~Pursuant~~ RCUs are cash-settled with the value of each vested RCU equal to the ~~agreements we entered into with certain members~~lower of the closing price per share of our ~~management, upon completion of the IPO, such employees received one-time grants of RSUs ("IPO Awards") in an aggregate amount equal to $5.7 million. 50% of the IPO Awards were fully vested~~common stock on the date of grant, and the remaining 50% vest in equal installments on the first, second and third anniversaries of the date of our IPO. These members of our management must remain employed by us through each vesting date or a specified per share price cap. We determined that RCUs are in-substance liabilities accounted for as liability instruments in ~~order~~accordance with ASC 718, Compensation—Stock Compensation,due to ~~vest in the applicable portions of their IPO Awards. Consequently, we recognized $2.8 million of share-based~~

this cash settlement feature
.

~~compensation expense related to these IPO Awards upon the consummation of our IPO with the remainder recognized over the three-year vesting period.~~

~~PSUs~~ RCUs are ~~awarded to certain employees, non-employee directors and consultants and entitle the grantee to receive shares of common stock~~remeasured based on the achievement of various company performance targets and market conditions. In general, PSUs vest in equal installments over a three year period subject to the achievement of the performance targets or market conditions.

~~RSU activity, including IPO Awards and PSUs, under the 2021 LTIP consists of the following (in thousands except~~closing price per share ~~amounts):~~

Shares Weighted average grant date fair value per share
Nonvested, January 29, 2022 278 $ 26.75
Granted 1,265 $ 5.24
Vested (65) $ 25.76
Forfeited (108) $ 21.08
Nonvested, October 29, 2022 1,370 $ 7.35

As of our common stock at the end of the third quarter of fiscal year 2022, unrecognized compensation expense related to unvested RSUs, including PSUs, was $8.9 million, which is expected to be recognized over a weighted average period of approximately 2.7 years.

each reporting period. The weighted average grant date fair value of PSUs granted during the nine months ended October 29, 2022 was $4.15 per share and was estimated at the grant date using a Monte Carlo simulation following a Geometric Brownian Motionliability associated with the ~~following weighted average assumptions:~~


~~Dividend yield~~	—		%
~~Expected volatility(1)~~	~~70.7~~		%
~~Risk-free interest rate(2)~~	~~3.17~~		%
~~Expected term(3)~~	~~3.00 years~~
~~Grant date fair value per share~~	$	~~4.15~~

~~(1) The expected volatility~~RCUs is ~~estimated based on~~included in accrued and other current liabilities in the ~~historical volatility of a select peer group of similar publicly traded companies for a term that is consistent with the expected term of the PSUs.~~

~~(2) The risk-free interest rates are based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected term of the PSUs.~~

~~(3) The expected term of the PSUs represents the time period from the grant date and the full vesting date.~~

~~Restricted Stock Awards~~

Restricted stock awards are awarded to certain employees, non-employee directors and consultants, subject to the employee's continued employment or service as a director or consultant. Restricted stock awards vest over periods ranging from 2 to 4 years, subject to the employee's continued employment or service as an employee, non-employee director or consultant, as applicable, on each vesting date.

condensed consolidated balance sheet.

~~Restricted stock award activity under the 2021 LTIP consists of the following (in thousands except per share amounts):~~

Shares Weighted average grant date fair value per share
Nonvested, January 29, 2022 532 $ 27.00
Granted —
Vested (180) $ 27.00
Forfeited —
Nonvested, October 29, 2022 352 $ 27.00

As of the end of the third quarter of fiscal year 2022, unrecognized compensation expense related to unvested restricted stock awards was $8.8 million, which is expected to be recognized over a weighted average period of approximately 1.6 years .

~~Stock Options~~

~~Stock options generally vest in equal installments each year over 4 years and generally expire 10 years from the grant date.~~

~~Stock option activity under the 2021 LTIP consists of the following (in thousands except per share and contractual life amounts):~~

Shares Weighted average exercise price per share Weighted average remaining contractual life (years) Aggregate intrinsic value
Outstanding, January 29, 2022 337 $ 21.03 9.4 $ —
Granted 1,244 $ 5.94
Exercised —
Forfeited (156) $ 15.83
Outstanding, October 29, 2022 1,425 $ 8.42 9.5 $ 64
Exercisable, October 29, 2022 59 $ 21.12 8.2 $ —

The weighted average grant date fair value of stock option awards granted during the nine months ended October 29, 2022, was $3.45 per option and was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:


~~Dividend yield~~	—		%
~~Expected volatility(1)~~	~~58.8~~		%
~~Risk-free interest rate(2)~~	~~2.98~~		%
~~Expected term(3)~~	~~6.25 years~~
~~Grant date fair value per share~~	$	~~3.45~~

(1) The expected volatility is estimated based on the historical volatility of a select peer group of similar publicly traded companies for a term that is consistent with the expected term of the stock options.

~~(2) The risk-free interest rates are based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected term of the stock options.~~

~~(3) The expected term of the stock options represents the estimated period of time until exercise and is calculated using the simplified method.~~

As of the end of the third quarter of fiscal year 2022, unrecognized compensation expense related to unvested stock options was $5.6 million, which is expected to be recognized over a weighted average period of approximately 3.6 years.

Note 15. Commitments and Contingencies

Litigation

In November 2022, a class action complaint was filed against us in the U.S. District Court for the Central District of California, captioned Sandra Waswick v. Torrid Holdings Inc., et al. An amended complaint was filed in May 2023. The amended complaint alleges that certain statements in our registration statement on Form S-1 related to our IPO and in subsequent SEC filings and earnings calls were allegedly false and misleading. We believe that these allegations are without merit and intend to vigorously defend ourselves against these claims. We are currently unable to determine the probability of the outcome of this matter or the range of reasonably possible loss, if any.

From time to time, we are involved in other matters of litigation that arise in the ordinary course of business. Though significant litigation or awards against us could seriously harm our business and financial results, we do not at this time expect any of our pending matters of litigation to have a material adverse effect on our overall financial condition.

Indemnities, Commitments and Guarantees

During the ordinary course of business, we have made certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These indemnities include those given to various lessors in connection with facility leases for certain claims arising from such facility or lease and indemnities to our board of directors and officers to the maximum extent permitted. Commitments include those given to various merchandise vendors and suppliers. From time to time, we have issued guarantees in the form of standby letters of credit as security for workers' compensation claims (our letters of credit are discussed in more detail in "Note 12—Debt Financing Arrangements"). The durations of these indemnities, commitments and guarantees vary. Some of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments we could be obligated to make. We have not recorded any liability for these indemnities, commitments and guarantees in the accompanying condensed consolidated financial statements as no demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our condensed consolidated financial statements.

Note 16. Stockholders' Deficit

~~Torrid was formed on October 29, 2019 and capitalized on February 20, 2020.~~ Torrid is authorized to issue 1.0 billion shares of common stock at $0.01 par value, and 5.0 million shares of preferred stock at $0.01 par value. Torrid had ~~103,641,356~~104,044,344 shares of common stock and no shares of preferred stock issued and outstanding as of ~~October~~July 29, ~~2022. Historical periods prior to the formation of Torrid have been revised to reflect our current capital structure.~~

Note 17. Share Repurchases

On December 6, 2021, the Board authorized a ~~new~~ share repurchase program under which we may purchase up to $100.0 million of our outstanding common stock. Repurchases may be made from time to time, depending upon a variety of factors, including share price, corporate and regulatory requirements, and other market and business conditions, as determined by us. We may purchase shares of our common stock in the open market at current market prices at the time of purchase, in privately negotiated transactions, or by other means. The authorization does not, however, obligate us to acquire any particular amount of shares, and the share repurchase program may be suspended or terminated at any time at our discretion. As of ~~October~~July 29, ~~2022,~~2023, we had approximately $44.9 million remaining under the share repurchase program.

Share repurchase activity consists of the following (in thousands, except share and per share amounts):

~~Three Months Ended~~

~~Nine Months Ended~~

~~October 29, 2022~~

~~October 30, 2021~~

~~October 29, 2022~~

~~October 30, 2021~~

~~Number of shares repurchased~~

—

~~4,464,367~~

—

~~Total cost~~

—

~~31,700~~

—

~~Average per share cost including commissions~~

~~7.10~~


	Three Months Ended				Six Months Ended
	July 29, 2023		July 30, 2022		July 29, 2023		July 30, 2022
Number of shares repurchased	—		1,545,811		—		4,464,367
Total cost	$	—	$	8,835	$	—	$	31,700
Average per share cost including commissions			$	5.72			$	7.10

We have elected to retire shares repurchased to date. Shares retired become part of the pool of authorized but unissued shares. We have elected to record the purchase price of the retired shares in excess of par value, including transaction costs, directly as an increase in accumulated deficit.

Note 18. Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is applicable only in periods of net income and is computed by dividing net income by the weighted average number of common shares outstanding for the period, inclusive of potentially dilutive common share equivalents outstanding for the period. Periods of net loss require the diluted computation to be the same as the basic computation. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022,~~2023, there were approximately ~~0.1~~0.2 million potentially dilutive common share equivalents outstanding that were included in the computation of diluted earnings per share. During the three-month period ended ~~October~~July 29, ~~2022,~~2023, there were approximately ~~1.0~~1.3 million restricted stock awards and RSUs, including PSUs, and approximately ~~1.2~~2.5 million stock options outstanding, which were excluded from the computation of diluted earnings per share as those awards would have been anti-dilutive or were PSUs with performance conditions that had not yet been achieved. During the ~~nine-month~~six-month period ended ~~October~~July 29, ~~2022,~~2023, there were approximately ~~0.7~~1.3 million restricted stock awards and RSUs, including PSUs, and approximately ~~0.8~~2.3 million stock options outstanding, which were excluded from the computation of diluted earnings per share as those awards would have been anti-dilutive or were PSUs with performance conditions that had not yet been achieved. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 30, ~~2021,~~2022, there were noapproximately 0.1 million potentially dilutive common share equivalents ~~outstanding.~~outstanding that were included in the computation of diluted earnings per share. During the ~~three- and nine-month periods~~three-month period ended ~~October~~July 30, ~~2021,~~2022, there were approximately 0.9 million restricted stock awards and RSUs, including PSUs, and approximately ~~0.3~~0.7 million stock options outstanding, ~~respectively,~~ which were excluded from the computation of diluted earnings per share as those awards would have been ~~anti-dilutive.~~anti-dilutive or were PSUs with performance conditions that had not yet been achieved. During the six-month period ended July 30, 2022, there were approximately 0.7 million restricted stock awards and RSUs, including PSUs, and approximately 0.6 million stock options outstanding, which were excluded from the computation of diluted earnings per share as those awards would have been anti-dilutive or were PSUs with performance conditions that had not yet been achieved.

Note 19. Fair Value Measurements

We carry certain of our assets and liabilities at fair value in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value require us to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets or liabilities in markets that are not active; or other inputs other than quoted prices that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities, including interest rates and yield curves, and market corroborated inputs.

Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These are valued based on our estimates and assumptions that market participants would use in pricing the asset or liability.

Financial assets and liabilities measured at fair value on a recurring basis as of the end of the ~~third~~second quarter of fiscal year ~~2022~~2023 consisted of the following (in thousands):


		October 29, 2022		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			July 29, 2023		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Money market funds (cash equivalent)	Money market funds (cash equivalent)	$	37	$	37	$	—	$	—	Money market funds (cash equivalent)	$	2,558	$	2,558	$	—	$	—
Total assets	Total assets	$	37	$	37	$	—	$	—	Total assets	$	2,558	$	2,558	$	—	$	—
Liabilities:	Liabilities:									Liabilities:
Deferred compensation plan liability (noncurrent)	Deferred compensation plan liability (noncurrent)	$	4,172	$	—	$	4,172	$	—	Deferred compensation plan liability (noncurrent)	$	4,854	$	—	$	4,854	$	—
Total liabilities	Total liabilities	$	4,172	$	—	$	4,172	$	—	Total liabilities	$	4,854	$	—	$	4,854	$	—

Financial assets and liabilities measured at fair value on a recurring basis as of the end of fiscal year ~~2021~~2022 consisted of the following (in thousands):


		January 29, 2022		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3			January 28, 2023		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3
Assets:	Assets:									Assets:
Money market funds (cash equivalent)	Money market funds (cash equivalent)	$	11,411	$	11,411	$	—	$	—	Money market funds (cash equivalent)	$	29	$	29	$	—	$	—
Total assets	Total assets	$	11,411	$	11,411	$	—	$	—	Total assets	$	29	$	29	$	—	$	—
Liabilities:	Liabilities:									Liabilities:
Deferred compensation plan liability (noncurrent)	Deferred compensation plan liability (noncurrent)	$	6,873	$	—	$	6,873	$	—	Deferred compensation plan liability (noncurrent)	$	4,246	$	—	$	4,246	$	—
Total liabilities	Total liabilities	$	6,873	$	—	$	6,873	$	—	Total liabilities	$	4,246	$	—	$	4,246	$	—

The fair value of our money market funds is based on quoted prices in active markets. The deferred compensation plan liability represents the amount that would be earned by participants if the funds were invested in securities traded in active markets. The fair value of the deferred compensation plan liability is determined based on quoted prices of similar assets that are traded in observable markets, or represents the cash withheld by participants prior to any investment activity.

~~Note 20. Private Label Credit Card~~

We have an agreement with a third party, which is amended from time to time, to provide customers with private label credit cards ("Credit Card Agreement"). Each private label credit card bears the logo of the Torrid brand and can only be used at our store locations and on www.torrid.com. A third-party financing company is the sole owner of the accounts issued under the private label credit card program and absorbs the losses associated with non-payment by the private label card holders and a portion of any fraudulent usage of the accounts. Pursuant to the Credit Card Agreement, we receive marketing and promotional funds from the third-party financing company based on usage of the private label credit cards. These marketing and promotional funds are recorded as a reduction in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss). During the three- and nine-month periods ended October 29, 2022, these funds amounted to $10.2 million and $27.6 million, respectively, related to these private label credit cards. During the three- and nine-month periods ended October 30, 2021, these funds amounted to $4.7 million and $14.0 million, respectively.

Note ~~21.~~20. Deferred Compensation Plan

On August 1, 2015, we established the Torrid LLC Management Deferred Compensation Plan ("Deferred Compensation Plan") for the purpose of providing highly compensated employees a program to meet their financial planning needs. The Deferred Compensation Plan provides participants with the opportunity to defer up to 80% of their base salary and up to 100% of their annual earned bonus, all of which, together with the associated investment returns, are 100% vested from the outset. The Deferred Compensation Plan is designed to be exempt from most provisions of the Employee Retirement Security Act of 1974, as amended. All deferrals and associated earnings are our general unsecured obligations. We may at our discretion contribute certain amounts to eligible employees' accounts. To the extent participants are ineligible to receive contributions from participation in our 401(k) Plan (as defined in "Note ~~22—~~21—Employee Benefit Plan"), we may contribute 50% of the first

4% of participants' eligible contributions into their Deferred Compensation Plan accounts. As of the end of the ~~third~~second quarter of fiscal year ~~2022~~2023 and as of the end of fiscal year ~~2021,~~2022, we did not have any assets of the Deferred Compensation Plan and the associated liabilities were ~~$5.8~~$5.2 million and ~~$7.2~~$5.6 million, respectively, included in our condensed consolidated balance sheets. As of the end of the ~~third~~second quarter of fiscal year ~~2022, $1.6~~2023, $0.3 million of the ~~$5.8~~$5.2 million Deferred Compensation Plan liabilities were included in accrued and other current liabilities in our condensed consolidated balance sheets. As of the end of fiscal year ~~2021, $0.4~~2022, $1.4 million of the ~~$7.2~~$5.6 million Deferred Compensation Plan Liabilities were included in accrued and other current liabilities in our condensed consolidated balance sheets.

Note ~~22.~~21. Employee Benefit Plan

On August 1, 2015, we adopted the Torrid 401(k) Plan ("401(k) Plan"). All employees who have been employed by us for at least 200 hours and are at least 21 years of age are eligible to participate. Employees may contribute up to 80% of their eligible compensation to the 401(k) Plan, subject to a statutorily prescribed annual limit. We may at our discretion contribute certain amounts to eligible employees' accounts. We may contribute 50% of the first 4% of participants' eligible contributions into their 401(k) Plan accounts. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 29, ~~2022,~~2023, we contributed $0.2 million and ~~$0.6~~$0.4 million, respectively, to eligible employees' 401(k) Plan accounts. During the three- and ~~nine-month~~six-month periods ended ~~October~~July 30, ~~2021,~~2022, we contributed $0.2 million and ~~$0.5~~$0.4 million, respectively, to eligible employees' 401(k) Plan accounts.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 ~~targeting the 25- to 40-year- old woman~~aimed at fashionable women who ~~wears~~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.

October 29, 2022 October 30, 2021
Number of stores (as of end of period) 629 619


	July 29, 2023	July 30, 2022
Number of stores (as of end of period)	639	627


		Three Months Ended						Nine Months Ended							Three Months Ended						Six Months Ended
		(in thousands, except percentages)													(in thousands, except percentages)
		October 29, 2022			October 30, 2021			October 29, 2022			October 30, 2021				July 29, 2023			July 30, 2022			July 29, 2023			July 30, 2022
Comparable sales	Comparable sales	(8)		%	14		%	(3)		%	42		%	Comparable sales	(18)		%	1		%	(16)		%	—		%
Net income (loss)		$	7,277		$	(58,902)		$	54,053		$	(7,190)
Net income														Net income	$	6,629		$	22,710		$	18,437		$	46,776
Adjusted EBITDA(A)	Adjusted EBITDA(A)	$	32,110		$	55,178		$	135,977		$	217,406		Adjusted EBITDA(A)	$	32,151		$	52,088		$	70,412		$	103,867

(A)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. ~~The computation of comparable sales includes results from stores that were temporarily closed due to COVID-19.~~ 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"),

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and share-based compensation, ~~non-cash~~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 ~~2021.~~2022.

Overall Economic Trends. Our results of operations during any given period are often ~~impacted~~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. ~~Additionally, the COVID-19 pandemic may continue to have a materially adverse impact on the macroeconomic environment in the United States as well as our results of operations.~~

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, ~~in particular among women ages 25 to 40,~~ 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~~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 ~~impact~~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, and have delivered significant growth as a result. In order to realize such growth, we~~technology. 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 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 income. Under the new policy, we record PLCC Funds in net sales in the consolidated statements of operations and comprehensive 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. ~~Our historical revenue growth has been accompanied by increased selling, general and administrative expenses. For instance, we continue to make payroll investments to support our growth.~~

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.~~Agreement, as amended.

Provision for ~~(Benefit from)~~ Income Taxes. Our provision for ~~(benefit from)~~ income taxes ~~primarily~~ 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~~July 29, ~~2022~~2023 Compared to Three-Months Ended ~~October~~July 30, ~~2021~~2022

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


		Three Months Ended									Three Months Ended
		October 29, 2022		% of Net Sales		October 30, 2021		% of Net Sales			July 29, 2023		% of Net Sales		July 30, 2022		% of Net Sales
Net sales(A)	Net sales(A)	$	290,034	100.0	%	$	306,241	100.0	%	Net sales(A)	$	289,144	100.0	%	$	353,522	100.0	%
Cost of goods sold	Cost of goods sold	198,263		68.4	%	181,094		59.1	%	Cost of goods sold	186,467		64.5	%	222,030		62.8	%
Gross profit	Gross profit	91,771		31.6	%	125,147		40.9	%	Gross profit	102,677		35.5	%	131,492		37.2	%
Selling, general and administrative expenses(A)	Selling, general and administrative expenses(A)	59,180		20.4	%	66,399		21.7	%	Selling, general and administrative expenses(A)	69,591		24.2	%	78,574		22.3	%
Marketing expenses	Marketing expenses	12,638		4.3	%	15,023		4.9	%	Marketing expenses	12,898		4.5	%	13,502		3.8	%
Income from operations	Income from operations	19,953		6.9	%	43,725		14.3	%	Income from operations	20,188		7.0	%	39,416		11.1	%
Interest expense	Interest expense	8,390		2.9	%	6,104		2.0	%	Interest expense	9,606		3.3	%	6,697		1.9	%
Interest income, net of other expense (income)		147		0.1	%	(12)		0.0	%
Interest income, net of other (income) expense										Interest income, net of other (income) expense	(89)		0.0	%	48		0.0	%
Income before provision for income taxes	Income before provision for income taxes	11,416		3.9	%	37,633		12.3	%	Income before provision for income taxes	10,671		3.7	%	32,671		9.2	%
Provision for income taxes	Provision for income taxes	4,139		1.4	%	96,535		31.5	%	Provision for income taxes	4,042		1.4	%	9,961		2.8	%
Net income (loss)		$	7,277	2.5	%	$	(58,902)	(19.2)	%
Net income										Net income	$	6,629	2.3	%	$	22,710	6.4	%

(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 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 ~~(dollars in~~(in thousands):

Three Months Ended
October 29, 2022 October 30, 2021
Net income (loss) $ 7,277 $ (58,902)
Interest expense 8,390 6,104
Interest income, net of other expense (income) 147 (12)
Provision for income taxes 4,139 96,535
Depreciation and amortization(A)
8,849 8,482
Share-based compensation(B)
2,913 2,450
Non-cash deductions and charges(C)
375 306
Other expenses(D)
20 215
Adjusted EBITDA $ 32,110 $ 55,178

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

~~(B)Prior to the consummation of our IPO on July 6, 2021, share-based compensation was determined based on the remeasurement of our liability-classified incentive units.~~

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

~~(D)~~Other expenses include IPO-related transaction fees 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 $16.2 million, or 5.3%, to $290.0 million for the three months ended October 29, 2022, from $306.2 million for the three months ended October 30, 2021. This decrease was primarily driven by decreases in sales transactions and average sales transaction value relative to the three months ended October 30, 2021, as a result of increased promotional activity. The total number of stores we operate increased by 10 stores, or 1.6%, to 629 stores as of October 29, 2022, from 619 stores as of October 30, 2021.

~~Gross Profit~~

Gross profit for the three months ended October 29, 2022 decreased $33.4 million, or 26.7%, to $91.8 million, from $125.1 million for the three months ended October 30, 2021. This decrease was primarily due to a decrease in sales transactions; and increases in discounts and promotions related to inventory clearance activity, and product and transportation costs, primarily as a result of inflation. Gross profit as a percentage of net sales decreased 9.2% to 31.6% for the three months ended October 29, 2022 from 40.9% for the three months ended October 30, 2021. This decrease was primarily driven by a decrease in sales transactions; and increases in discounts and promotions related to inventory clearance activity, and product and transportation costs as a result of inflation.

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses for the three months ended October 29, 2022 decreased $7.2 million, or 10.9%, to $59.2 million, from $66.4 million for the three months ended October 30, 2021. The decrease was primarily due to a $4.4 million decrease in performance bonuses and a $5.5 million increase in marketing and promotional funds received from the third-party financing company for our private label credit cards, partially offset by increases in store and e-Commerce payroll costs of $2.7 million primarily due to inflationary pressures. Selling, general and administrative expenses as a percentage of net sales decreased by 1.3% to 20.4% for the three months ended October 29, 2022 from 21.7% for the three months ended October 30, 2021. This decrease was driven by decreased performance bonuses and an increase in marketing and promotional funds received from the third-party financing company for our private label credit cards, partially offset by increases in store and e-Commerce payroll costs primarily due to inflationary pressures.

~~Marketing Expenses~~

Marketing expenses for the three months ended October 29, 2022 decreased $2.4 million, or 15.9%, to $12.6 million, from $15.0 million for the three months ended October 30, 2021. This decrease was primarily due to decreased digital, store and brand marketing. Marketing expenses as a percentage of net sales decreased by 0.6% to 4.3% during the three months ended October 29, 2022 from 4.9% during the three months ended October 30, 2021. This decrease was primarily driven by decreased digital, store and brand marketing.

~~Interest Expense~~

Interest expense was $8.4 million for the three months ended October 29, 2022, compared to $6.1 million for the three months ended October 30, 2021. The increase was primarily due to an increase in the variable interest rate associated with the New Term Loan Credit Agreement during the three months ended October 29, 2022 compared to the three months ended October 30, 2021.

~~Provision for Income Taxes~~

The provision for income taxes was $4.1 million for the three months ended October 29, 2022, compared to a provision for income taxes of $96.5 million for the three months ended October 30, 2021. Our effective tax rate was 36.3% for the three months ended October 29, 2022 and 256.5% for the three months ended October 30, 2021. The unconventional effective tax rate for the three months ended October 30, 2021 was primarily due to the increase in the amount of non-deductible items associated with share-based compensation, relative to income before provision for income taxes for the three months ended October 30, 2021. The increase in the amount of non-deductible items associated with share-based compensation during the three months ended October 30, 2021 was driven by a $111.4 million remeasurement adjustment related to the increase in the

~~value of the incentive units as indicated by the Torrid Holding LLC equity value as of June 30, 2021, following the pricing of our IPO.~~

~~Nine Months Ended October 29, 2022 Compared to Nine Months Ended October 30, 2021~~

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

Nine Months Ended
October 29, 2022 % of Net
Sales October 30, 2021 % of Net
Sales
Net sales $ 959,319 100.0 % $ 964,858 100.0 %
Cost of goods sold 623,556 65.0 % $ 545,059 56.5 %
Gross profit 335,763 35.0 % 419,799 43.5 %
Selling, general and administrative expenses 192,539 20.1 % 355,353 36.9 %
Marketing expenses 44,114 4.6 % 35,276 3.6 %
Income from operations 99,110 10.3 % 29,170 3.0 %
Interest expense 21,351 2.2 % 23,390 2.4 %
Interest income, net of other expense (income) 223 0.0 % (72) 0.0 %
Income before provision for income taxes 77,536 8.1 % 5,852 0.6 %
Provision for income taxes 23,483 2.5 % 13,042 1.3 %
Net income (loss) $ 54,053 5.6 % $ (7,190) (0.7) %

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


		Nine Months Ended					Three Months Ended
		October 29, 2022		October 30, 2021			July 29, 2023		July 30, 2022
Net income (loss)		$	54,053	$	(7,190)
Net income						Net income	$	6,629	$	22,710
Interest expense	Interest expense	21,351		23,390		Interest expense	9,606		6,697
Interest income, net of other expense (income)		223		(72)
Interest income, net of other (income) expense						Interest income, net of other (income) expense	(89)		48
Provision for income taxes	Provision for income taxes	23,483		13,042		Provision for income taxes	4,042		9,961
Depreciation and amortization(A)	Depreciation and amortization(A)	26,981		25,626		Depreciation and amortization(A)	9,081		8,871
Share-based compensation(B)	Share-based compensation(B)	7,568		157,238		Share-based compensation(B)	1,908		2,175
Non-cash deductions and charges(C)	Non-cash deductions and charges(C)	2,310		376		Non-cash deductions and charges(C)	(101)		1,626
Other expenses(D)	Other expenses(D)	8		4,996		Other expenses(D)	1,075		—
Adjusted EBITDA	Adjusted EBITDA	$	135,977	$	217,406	Adjusted EBITDA	$	32,151	$	52,088

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

(B)~~Prior to~~During the ~~consummation of our IPO on~~three months ended July ~~6, 2021,~~29, 2023, share-based compensation ~~was determined based on the remeasurement of our liability-classified incentive units.~~includes $0.2 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 ~~IPO-related transaction 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.~~litigation fees.

Net Sales

Net sales decreased ~~$5.5~~$64.4 million, or ~~0.6%~~18.2%, to ~~$959.3~~$289.1 million for the ~~nine~~three months ended ~~October~~July 29, ~~2022,~~2023, from ~~$964.9~~$353.5 million for the ~~nine~~three months ended ~~October~~July 30, ~~2021.~~2022. This decrease was primarily driven by ~~decreases~~a decrease in sales transactions and ~~average sales transaction value relative to the nine months ended October 30, 2021, as~~ a ~~result of increased promotional activity.~~decrease in PLCC Funds, partially offset by improved pricing strategies. The total number of stores we operate increased by 1012 stores, or ~~1.6%~~1.9%, to ~~629~~639 stores as of ~~October~~July 29, ~~2022,~~2023, from ~~619~~627 stores as of ~~October~~July 30, ~~2021.~~2022.

Gross Profit

Gross profit for the ~~nine~~three months ended ~~October~~July 29, ~~2022~~2023 decreased ~~$84.0~~$28.8 million, or ~~20.0%~~21.9%, to ~~$335.8~~$102.7 million, from ~~$419.8~~$131.5 million for the ~~nine~~three months ended ~~October~~July 30, ~~2021.~~2022. This decrease was primarily due to a decrease in sales ~~transactions;~~transactions and ~~increases~~a decrease in ~~discounts~~PLCC Funds, partially offset by decreases in distribution costs and ~~promotions related to inventory clearance activity, and product and transportation~~e-Commerce shipping costs ~~primarily~~ as a result of ~~inflation.~~fewer packages shipped. Gross profit as a percentage of net sales decreased ~~8.5%~~1.7% to ~~35.0%~~35.5% for the ~~nine~~three months ended ~~October~~July 29, ~~2022,~~2023 from ~~43.5%~~37.2% for the ~~nine~~three months ended ~~October~~July 30, ~~2021.~~2022. This decrease was primarily driven by ~~increases~~a decrease in ~~discounts and promotions related to inventory clearance activity, product~~PLCC Funds, deleverage of store occupancy costs ~~and e-Commerce shipping costs. The increases in product and e-Commerce shipping costs were primarily~~ as a result of ~~inflation.~~lower net sales and increases in store depreciation expense and merchandising payroll costs, partially offset by improved pricing strategies.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the ~~nine~~three months ended ~~October~~July 29, ~~2022,~~2023 decreased ~~$162.8~~$9.0 million, or ~~45.8%~~11.4%, to ~~$192.5~~$69.6 million, from ~~$355.4~~$78.6 million for the ~~nine~~three months ended ~~October~~July 30, ~~2021.~~2022. The decrease was primarily due to a ~~$149.7~~$3.7 million decrease in ~~share-based compensation expense,~~store payroll costs, a ~~$17.8~~$2.9 million decrease in performance bonuses, a $1.4 million decrease in losses on property and equipment disposals and a ~~$13.6~~$1.0 million ~~increase~~decrease in marketing and promotional funds received from the third-party financing company for our private label credit cards, partially offset by increases in store and e-Commerce payroll costs of $13.7 million, primarily due to inflationary pressures, and other store operating costs of $3.3 million. The decrease in share-based compensation expense during the nine months ended October 29, 2022 was due to an increase in the Torrid Holding LLC equity value during the nine months ended October 30, 2021.costs. Selling, general and administrative expenses as a percentage of net sales ~~decreased by 16.8%~~increased 1.9% to ~~20.1%~~24.2% for the ~~nine~~three months ended ~~October~~July 29, ~~2022,~~2023 from ~~36.9%~~22.3% for the ~~nine~~three months ended ~~October~~July 30, ~~2021.~~2022. This ~~decrease~~increase was primarily driven by ~~decreased share-based compensation expense~~increased headquarters general and ~~performance bonuses~~administrative expenses and ~~an increase in marketing and promotional funds received from the third-party financing company for our private label credit cards, partially offset by increases in~~deleverage of store ~~and e-Commerce~~ payroll costs ~~primarily due to inflationary pressures,~~ and other store operating ~~costs.~~costs as a result of lower net sales, partially offset by decreased performance bonuses and losses on property and equipment disposals.

Marketing Expenses

Marketing expenses for the ~~nine~~three months ended ~~October~~July 29, ~~2022, increased $8.8~~2023 decreased $0.6 million, or ~~25.1%~~4.5%, to ~~$44.1~~$12.9 million, from ~~$35.3~~$13.5 million for the ~~nine~~three months ended ~~October~~July 30, ~~2021.~~2022. This ~~increase~~decrease was primarily due to ~~increased~~decreased television ~~digital, store~~marketing and ~~brand~~regional marketing events, partially offset by ~~decreased direct mail program spend.~~an increase in digital marketing. Marketing expenses as a percentage of net sales increased ~~by 1.0%~~0.7% to ~~4.6%~~4.5% during the ~~nine~~three months ended ~~October~~July 29, ~~2022,~~2023 from ~~3.6%~~3.8% during the ~~nine~~three months ended ~~October~~July 30, ~~2021.~~2022. This increase was primarily driven by ~~increased television and digital marketing.~~deleverage of our marketing expenses as a result of lower net sales.

Interest Expense

Interest expense was ~~$21.4~~$9.6 million for the ~~nine~~three months ended ~~October~~July 29, ~~2022,~~2023, compared to ~~$23.4~~$6.7 million for the ~~nine~~three months ended ~~October~~July 30, ~~2021.~~2022. The ~~decrease~~increase was primarily due to the write-off of $5.2 million of unamortized deferred financing costs and OID when we repaid the Amended Term Loan Credit Agreement, and the $2.1 million prepayment penalty during the nine months ended October 30, 2021, partially offset by an increase in the variable interest rate associated with the New Term Loan Credit Agreement, ~~and an increase in borrowings on the Existing ABL Facility,~~ as amended, during the ~~nine~~three months ended ~~October~~July 29, ~~2022~~2023 compared to the ~~nine~~three months ended ~~October~~July 30, ~~2021.~~2022.

Provision for Income Taxes

The provision for income taxes was $4.0 million for the ~~nine~~three months ended ~~October~~July 29, ~~2022 was $23.5 million,~~2023, compared to a provision for income taxes of ~~$13.0~~$10.0 million for the ~~nine~~three months ended ~~October~~July 30, ~~2021.~~2022. Our effective tax rate was ~~30.3%~~37.9% for the ~~nine~~three months ended ~~October~~July 29, ~~2022,~~2023 and ~~222.9%~~30.5% for the ~~nine~~three months ended ~~October~~July 30, ~~2021.~~2022. The ~~unconventional~~increase in the effective tax rate for the ~~nine~~three months ended ~~October~~July 29, 2023 as compared to the three months ended July 30, ~~2021~~2022 was primarily due to ~~the increase~~increases in the amount of non-deductible ~~items associated with share-based~~ compensation for covered employees and state income taxes relative to income before provision for income taxes for ~~nine~~the three months ended ~~October~~July 29, 2023.

Six-Months Ended July 29, 2023 Compared to Six-Months Ended July 30, ~~2021.~~ 2022

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


	Six Months Ended
	July 29, 2023		% of Net Sales		July 30, 2022		% of Net Sales
Net sales(A)	$	582,998	100.0	%	$	686,715	100.0	%
Cost of goods sold	369,679		63.4	%	425,293		61.9	%
Gross profit	213,319		36.6	%	261,422		38.1	%
Selling, general and administrative expenses(A)	140,819		24.2	%	150,789		22.0	%
Marketing expenses	26,249		4.5	%	31,476		4.6	%
Income from operations	46,251		7.9	%	79,157		11.5	%
Interest expense	19,074		3.2	%	12,961		1.9	%
Interest income, net of other (income) expense	(29)		0.0	%	76		0.0	%
Income before provision for income taxes	27,206		4.7	%	66,120		9.6	%
Provision for income taxes	8,769		1.5	%	19,344		2.8	%
Net income	$	18,437	3.2	%	$	46,776	6.8	%

(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 ~~amount~~consolidated statements of ~~non-deductible items associated with share-based compensation during~~operations and comprehensive income. The reclassification is applied retrospectively to all prior periods presented. See "Note 1–Basis of Presentation and Description of the ~~nine months ended October 30, 2021 was driven by a $111.4 million remeasurement adjustment related to the increase in the~~Business" for further information.

3429

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


	Six Months Ended
	July 29, 2023		July 30, 2022
Net income	$	18,437	$	46,776
Interest expense	19,074		12,961
Interest income, net of other (income) expense	(29)		76
Provision for income taxes	8,769		19,344
Depreciation and amortization(A)	18,318		18,132
Share-based compensation(B)	4,396		4,655
Non-cash deductions and charges(C)	(56)		1,935
Other expenses(D)	1,503		(12)
Adjusted EBITDA	$	70,412	$	103,867

(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 July 29, 2023, share-based compensation includes $0.4 million for awards that will be settled in cash as ~~indicated~~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 $103.7 million, or 15.1%, to $583.0 million for the six months ended July 29, 2023, from $686.7 million for the six months ended July 30, 2022. This decrease was primarily driven by ~~the Torrid Holding LLC equity value~~a decrease in sales transactions, partially offset by improved pricing strategies. The total number of stores we operate increased by 12 stores, or 1.9%, to 639 stores as of ~~June~~July 29, 2023, from 627 stores as of July 30, ~~2021, following~~2022.

Gross Profit

Gross profit for the six months ended July 29, 2023 decreased $48.1 million, or 18.4%, to $213.3 million, from $261.4 million for the six months ended July 30, 2022. This decrease was primarily due to a decrease in sales transactions 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 1.5% to 36.6% for the six months ended July 29, 2023 from 38.1% for the six months ended July 30, 2022. This decrease was primarily driven by increases in store occupancy costs, merchandising payroll costs and store depreciation expense, partially offset by improved pricing strategies and a decrease in e-Commerce shipping costs as a result of ~~our IPO.~~fewer packages shipped.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended July 29, 2023 decreased $10.0 million, or 6.6%, to $140.8 million, from $150.8 million for the six months ended July 30, 2022. The decrease was primarily due to a $4.4 million decrease in performance bonuses, a $3.7 million decrease in store payroll costs, a $2.4 million decrease in other store operating costs and a $1.5 million decrease in losses on property and equipment disposals, partially offset by a $2.5 million increase in headquarters general and administrative expenses. Selling, general and administrative expenses as a percentage of net sales increased by 2.2% to 24.2% for the six months ended July 29, 2023 from 22.0% for the six months ended July 30, 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 and losses on property and equipment disposals.

Marketing Expenses

Marketing expenses for the six months ended July 29, 2023 decreased $5.2 million, or 16.6%, to $26.2 million, from $31.5 million for the six months ended July 30, 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 decreased 0.1% to 4.5% during the six months ended July 29, 2023 from 4.6% during the six months ended July 30, 2022. This

decrease was primarily driven by decreased television marketing and regional marketing events, partially offset by an increase in digital marketing.

Interest Expense

Interest expense was $19.1 million for the six months ended July 29, 2023, compared to $13.0 million for the six months ended July 30, 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 six months ended July 29, 2023 compared to the six months ended July 30, 2022.

Provision for Income Taxes

The provision for income taxes was $8.8 million for the six months ended July 29, 2023, compared to a provision for income taxes of $19.3 million for the six months ended July 30, 2022. Our effective tax rate was 32.2% for the six months ended July 29, 2023 and 29.3% for the six months ended July 30, 2022. The increase in the effective tax rate for the six months ended July 29, 2023 as compared to the six months ended July 30, 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 six months ended July 29, 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~~second quarter of fiscal year ~~2022,~~2023, was ~~$140.5~~$130.3 million, which reflects ~~borrowings of $2.2 million.~~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 ~~make discretionary repurchases of our common stock, and~~ fund our interest and principal payments on the New Term Loan Credit ~~Agreement.~~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, subsequent to the end of the second quarter of fiscal year 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 substantially incurred during fiscal year 2023.

Cash Flow Analysis

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


		Nine Months Ended					Six Months Ended
		October 29, 2022		October 30, 2021			July 29, 2023		July 30, 2022
Net cash provided by operating activities	Net cash provided by operating activities	$	53,909	$	125,253	Net cash provided by operating activities	$	31,695	$	44,293
Net cash used in investing activities	Net cash used in investing activities	(17,087)		(11,342)		Net cash used in investing activities	(9,593)		(11,444)
Net cash used in financing activities	Net cash used in financing activities	(46,995)		(174,414)		Net cash used in financing activities	(17,118)		(38,826)

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~~six months ended ~~October~~July 29, ~~2022~~2023 was ~~$53.9~~$31.7 million compared to ~~$125.3~~$44.3 million during the ~~nine~~six months ended ~~October~~July 30, ~~2021.~~2022. The decrease in cash provided by operating activities during the ~~nine~~six months ended ~~October~~July 29, 2022 was primarily as a result of a decrease in share-based compensation expense added back to cash provided by operating activities as a non-cash adjustment and a decrease in accrued and other current liabilities, partially offset by the following activities during the nine months ended October 29, 2022: (i) an increase in net income, (ii) a decrease in prepaid income taxes, (iii) a decrease in inventory purchases and (iv) increases in accounts payable and income taxes payable. The decrease in share-based compensation expense during the nine months ended October 29, 2022 was due to an increase in Torrid Holding LLC's equity value during the nine months ended October 30, 2021. The decrease in accrued and other current liabilities2023 was primarily as a result of decreases in ~~accrued payroll~~net income, accounts payable, amounts due to related parties, operating lease liabilities and ~~related~~other noncurrent liabilities and increases in prepaid income taxes and deposits and other noncurrent assets. These decreases were partially offset by a decrease in inventory purchases and a lower decrease in accrued expenses and ~~accrued inventory-in-transit.~~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~~six months ended ~~October~~July 29, ~~2022~~2023 was ~~$17.1~~$9.6 million, compared to ~~$11.3~~$11.4 million during the ~~nine~~six months ended ~~October~~July 30, ~~2021.~~2022. The ~~increase~~decrease in cash used in investing activities was primarily as a result of ~~an increase~~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 ~~and investments in~~

~~our West Jefferson, Ohio distribution center~~ during the ~~nine~~six months ended ~~October~~July 29, ~~2022,~~2023, compared to the ~~nine~~six months ended ~~October~~July 30, ~~2021.~~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~~six months ended ~~October~~July 29, ~~2022~~2023 was ~~$47.0~~$17.1 million compared to ~~$174.4~~$38.8 million during the ~~nine~~six months ended ~~October~~July 30, ~~2021.~~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 following activities during the nine months ended October 29, 2022: (i) the absence of the $300.0 million capital distribution to Torrid Holding LLC, (ii) the absence of the $212.8 million repayment of the AmendedNew Term Loan Credit Agreement, ~~and related costs and (iii) $2.2~~as amended, due to the timing of payments relative to the end of our fiscal quarter, partially offset by a $14.3 million decrease in net borrowing from the Existing ABL Facility, as amended, partially offset by repurchases and retirement of common stock of $31.7 million, principal payments of $17.5 million on the New Term Loan Credit Agreement and the absence of the $340.5 million proceeds received during the nine months ended October 30, 2021 from the New Term Loan Credit agreement.amended.

Debt Financing Arrangements

As of ~~October~~July 29, ~~2022,~~2023, we had ~~$324.9~~$312.8 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.~~Agreement, as amended. As of ~~October~~July 29, ~~2022,~~2023, we had ~~$2.2 million of~~no borrowings 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 ~~29, 2022.~~28, 2023.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risk profile as of January ~~29, 2022,~~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.

Item 4. Controls and Procedures

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~~July 29, ~~2022,~~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~~July 29, ~~2022~~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.

3633

Part II - Other Information

Item 1. Legal Proceedings

From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.

Item 1A. Risk Factors

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 ~~29, 2022.~~28, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On December 6, 2021, the Board authorized a ~~new~~ share repurchase program under which we may purchase up to $100.0 million of our outstanding common stock. Repurchases may be made from time to time, depending upon a variety of factors, including share price, corporate and regulatory requirements, and other market and business conditions, as determined by us. We may purchase shares of our common stock in the open market at current market prices at the time of purchase, in privately negotiated transactions, or by other means. The authorization does not, however, obligate us to acquire any particular amount of shares, and the share repurchase program may be suspended or terminated at any time at our discretion. During the three months ended ~~October~~July 29, ~~2022~~2023 we did not repurchase any shares of our common stock. As of ~~October~~July 29, ~~2022,~~2023, we had approximately $44.9 million remaining under the share repurchase program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

3734

Item 6. Exhibits

EXHIBIT INDEX

Exhibit
Number

Description

Incorporated by Reference

Exhibit
Number

Description

Incorporated by Reference

Form

Filing Date

Exhibit

Form

Filing Date

Exhibit

3.1

Amended and Restated Certificate of Incorporation of Torrid Holdings Inc., dated July 6, 2021.

8-K

July 6, 2021

3.1

Amended and Restated Certificate of Incorporation of Torrid Holdings Inc., dated July 6, 2021.

8-K

July 6, 2021

3.1

3.2

Amended and Restated Bylaws of Torrid Holdings Inc., dated as of July 6, 2021.

8-K

July 6, 2021

3.2

Amended and Restated Bylaws of Torrid Holdings Inc.

10-K

March 28, 2023

3.2

10.1+*

Separation Agreement by and between Kelly McGuire Diehl and Torrid Holdings Inc., dated as of November 22, 2022

10.2*

Second Amendment to the Services Agreement between Torrid LLC and Hot Topic Inc., dated September 30, 2022

10.3*

Third Amendment to the Services Agreement between Torrid LLC and Hot Topic Inc., dated December 1, 2022

31.1*

Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.1*

31.2*

Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

32.1**

Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.1**

Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*

Interactive Data Files (formatted in Inline XBRL)

101*

Interactive Data Files (formatted in Inline XBRL)

104*

Cover Page Interactive Data Files (Embedded within the Inline XBRL document and included in Exhibit 101)

104*

Cover Page Interactive Data Files (Embedded within the Inline XBRL document and included in Exhibit 101)


+			Indicates a management contract or compensatory plan or arrangement.
*			Filed herewith
**			Furnished herewith

3835

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in City of Industry, California on ~~December 8, 2022.~~September 6, 2023.


Torrid Holdings Inc.

By:			/s/ Lisa Harper
Name:			Lisa Harper
Title:			Chief Executive Officer and Director
			(Principal Executive Officer)

By:			/s/ ~~Tim Martin~~Paula Dempsey
Name:			~~Tim Martin~~Paula Dempsey
Title:			~~Chief Operating Officer and~~Interim Chief Financial Officer
			(Principal Financial ~~and Accounting~~ Officer)

3936


	Nine Months Ended October 30, 2021
	Common Shares			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Deficit
	Shares	Amount
Balance at January 30, 2021	110,000	$	1,100	$	10,326	$	(74,591)	$	(8)	$	(63,173)
Net income	—	—		—		12,925		—		12,925
Capital contribution from Torrid Holding LLC for incentive units	—	—		39,779		—		—		39,779
Other comprehensive income	—	—		—		—		211		211
Balance at May 1, 2021	110,000	1,100		50,105		(61,666)		203		(10,258)
Net income	—	—		—		38,787		—		38,787
Capital distribution to Torrid Holding LLC	—	—		(50,105)		(249,895)		—		(300,000)
Capital contribution from Torrid Holding LLC for incentive units	—	—		111,387		—		—		111,387
Issuance of common shares and withholding tax payments related to vesting of restricted stock awards and restricted stock units	56	1		(1,111)		—		—		(1,110)
Share-based compensation	—	—		3,622		—		—		3,622
Other comprehensive loss	—	—		—		—		(21)		(21)
Balance at July 31, 2021	110,056	1,101		113,898		(272,774)		182		(157,593)
Net loss	—	—		—		(58,902)		—		(58,902)
Issuance of common shares and withholding tax payments related to vesting of restricted stock awards	35	—		(575)		—		—		(575)
Share-based compensation	—	—		2,450		—		—		2,450
Other comprehensive income	—	—		—		—		45		45
Balance at October 30, 2021	110,091	$	1,101	$	115,773	$	(331,676)	$	227	$	(214,575)


	Shares	Weighted average grant date fair value per share
Nonvested, January 29, 2022	278	$	26.75
Granted	1,265	$	5.24
Vested	(65)	$	25.76
Forfeited	(108)	$	21.08
Nonvested, October 29, 2022	1,370	$	7.35