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Why Torrid Holdings Stock Tumbled This Week

By Jeremy Bowman – Dec 10, 2021 at 10:58AM

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Shares of the plus-size women's clothier fell on a disappointing earnings report.

What happened

Shares of Torrid Holdings (CURV 9.00%) took a dive this week after the plus-size women's apparel brand posted disappointing top-line results in its third-quarter earnings report and offered weaker-than-expected guidance.

As a result, the stock was down 28% for the week as of Friday afternoon trading, according to data from S&P Global Market Intelligence.

A woman smiling in a park with her arm raised as soap bubbles float around her.

Image source: Getty Images.

So what

Despite its solid growth in Q3, the market hammered the stock for missing sales estimates. Comparable sales increased 14% with revenue up 13% to $306.2 million, which was below expectations at $312.2 million.

Even as sales growth disappointed, profitability was up robustly with gross margin increasing from 35.4% a year ago and 38.3% two years ago to 40.9%. On the bottom line, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were up 79% to $55.2 million, giving it an EBITDA margin of 18%. Adjusted earnings per share increased from $0.17 to $0.25 ahead of estimates at $0.23.

CEO Liz Munoz said:

Our results reflect continued execution against our key strategic initiatives, and we are energized by the momentum in our unified commerce model. We continue to evolve our product offering, enhance our digital marketing strategies and provide an exceptional customer experience that drives excitement and engagement as we remain committed to serving this largely underserved community.

Torrid's guidance was also a bit weaker than expected and called for slimming profit margins. In Q4, the company sees $325 million to $335 million compared to estimates at $339 million, and called for adjusted EBITDA of $35 million to $40 million due in part to constraints from supply-chain disruptions. That also led to a slight cut in the top end of its full-year revenue guidance from $1.31 billion to $1.3 billion.

Now what

Torrid shares fell 28% on Thursday after the report came out, but the sell-off seems overdone, especially as the headwinds the company is facing seem to be at the macro level and short term in nature. The stock is trading at a price-to-earnings ratio of just around 12 now, which seems like a great price for a steadily growing retailer penetrating an underserved niche in the apparel sector .

If the company can put up more quarters like the one it just reported, the stock could easily double or do even better from here.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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