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Why Torrid Holdings Stock Tanked 20% at the Open Today

By Reuben Gregg Brewer – Jan 10, 2022 at 11:18AM

Key Points

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Shares of the clothing retailer dropped after it provided an update on its fourth-quarter performance. Here's why investors were so upset.

What happened

Shares of clothing retailer Torrid Holdings (CURV) fell dramatically as trading got underway on Jan. 10, dropping a steep 20% at the opening bell. The stock was still down by around 13% an hour or so into the day. The big news was a press release that had come out before Wall Street opened for business.

So what

Torrid is presenting at a conference, so it decided to provide an update to the broader market about what it might say. This is common practice, especially if the discussion could include market-moving news. That was clearly the case here, given the steep share price decline. CEO Liz Munoz tried to put the best possible spin on it, however, explaining that Torrid "had a strong start" to its fourth quarter. But Munoz then shifted gears to say that the omicron variant of the coronavirus "negatively impacted performance largely due to labor challenges at both our distribution center and a portion of our stores." That suggests that the fourth quarter probably won't be as good as investors had hoped.

Two people with bags looking in a store window.

Image source: Getty Images.

In fairness, the CEO pointed out that Torrid, which focuses on sizes from 10 to 30, isn't as reliant as some other retailers on holiday season sales. Still, the company did note that a January sales event was weaker than expected, which suggests there could be a lingering impact here in 2022. Because of the hit from omicron, meanwhile, Munoz revised the company's sales and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance lower for the fourth quarter and all of 2021. The change was material, with the guidance range for fourth-quarter sales dropping to $300 million to $305 million from $325 million to $335 million. Fourth-quarter adjusted EBITDA guidance fell to $23 million to $25 million from previous guidance of $35 million to $40 million.

Now what

Torrid is a specialty retailer, given the size range it services, so investors probably shouldn't read too deeply into the impact from omicron. And for the full year, the impact won't be huge, with sales guidance dropping to a range of $1.265 billion to $1.270 billion from a range of $1.29 billion to $1.30 billion. Adjusted EBITDA is now projected to be between $240 million and $242 million, from previous guidance of $252 million to $257 million. Most of this change is clearly related to the fourth quarter, which could simply be a temporary setback, assuming the pandemic spread starts to reverse course again as it has in the past. Still, investors don't like bad news, and this was clearly bad news. So it still makes sense that the stock dropped.

Reuben Gregg Brewer 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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