Torrid Holdings Inc., which specializes in women’s apparel in sizes 10 through 30, was downgraded to market perform from outperform in a Friday note published by Cowen.
Cowen cut its price target to $7 from $11.
Analysts expressed concern about potential markdowns, a challenge that other retailers are facing, and the company’s new focus.
See: Target expands promotions for students and teachers amid back-to-school inflation squeeze
“[W]e worry that the long-term algorithm has been altered with management’s shift in strategy away from Torrid Curve, its proprietary intimates apparel line,” analysts led by Oliver Chen wrote.
Cowen notes that Torrid
CURV,
has higher exposure to lower-income consumers as well. Lower-income consumers are feeling a tighter squeeze from U.S. inflation, which has reached a 41-year high of 9.1%.
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Torrid’s new Chief Executive Lisa Harper has said that the average Torrid customer has a household income of $85,000, and described this customer as part of a “very healthy group” at the Jefferies Consumer Conference in June.
On the company’s most recent earnings call, also in June, Harper outlined the shift away from Curve.
“While we continue to believe in the ultimate growth potential, we have seen growth in this business normalize and no longer expect to reach $500 million in sales by 2023,” she said, according to FactSet.
“We are re-evaluating our approach to the business, still believing that it will deliver substantial growth over the next three to five years.”
The company will continue with plans to open 10 standalone Curve stores and grow the brand in other ways. However, the company is placing more emphasis on things like promotions and marketing to drive sales and margin growth, greater efficiency in the organization and other areas.
In addition to any shifts internally, Torrid is also faced with increased competition across a wide spectrum of retailers who are embracing a cultural move towards size inclusivity and greater acceptance of a range of body types.
And: Torrid IPO: 5 things to know about the plus-size retailer as it hits public markets
“As body diversity becomes ingrained in fashion, more straight size retailers are embracing brands catering to above-average sizes,” retail analytics and market intelligence company Edited wrote in a report report published July 12.
“Alongside more plus products stocked, there’s been an increase in the number of styles available in sizes US 20 and above, with a 133% uptick in options reaching a size 26 vs. 2019.”
Victoria’s Secret & Co.
VSCO,
after separating from Bath & Body Works Inc.
BBWI,
has made inclusivity central to its brand.
Gap Inc.’s
GPS,
Old Navy brand tried to introduce a wider size range onto its sales floor, although that hasn’t gone as well as the company had hoped.
And Savage x Fenty, new billionaire Rihanna’s lingerie brand, has always emphasized inclusion and diversity, with other brands like Thirdlove and Yitty, a new brand by Grammy winner Lizzo, doing the same. Lizzo’s program “Watch Out for the Big Grrls,” which highlights the issue, has been nominated for six Emmy awards.
“Since 2019, there has been consistent revenue growth in plus-size apparel in the U.S. across all generations, demographics, and household incomes,” wrote the NPD Group in a May report.
“Sales revenue for women’s plus-size apparel grew by 18% in 2021, compared to 2019, which is over three-times faster than consumer spending on the remaining women’s market.”
Edited notes that there’s still “a long way to go,” particularly in the luxury area.
And activists say that how some would define plus-size is off.
Cowen says Torrid has a number of key advantages, including “differentiated” product, but there are other factors, both across the economy and the retail landscape, that the company will have to contend with.
“[T]he Torrid brand is undergoing repositioning with the new management team, which may take time to materialize and yield positive financial results,” the note said.
Torrid stock has plunged more than 57% for the year to date.
