Torrid Holdings Inc. Q1 FY2023 Earnings Call

Greetings, and welcome to Torrid Holdings Inc. First Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host Chinwe Abaelu, Chief Accounting Officer of Torrid Holdings. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining Torrid's call today to discuss our financial results for the first quarter of fiscal 2023, which we released this afternoon and can be found on our website at investors.torrid.com. With me today on the call are Lisa Harper, Chief Executive Officer of Torrid; Mark Mizicko, Chief Commercial Officer; and Paula Dempsey, Interim Chief Financial Officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're familiar with. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements may include, but are not limited to, statements containing the words expect, believe, plan, anticipate, will, may, should, estimate, and other words in terms of similar meaning. All forward-looking statements are based on current expectations and assumptions as of today, June 7, 2023. These statements are subject to risks and uncertainties that could cause actual results to differ materially. For further discussion of risks related to our business, see our filings with the SEC. This call will contain non-GAAP financial measures, such as adjusted EBITDA. Reconciliations to these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and available on our website. With that, I will turn the call over to Lisa.

Thanks, Chinwe. Good afternoon, everyone, and thank you for joining us for a discussion of our first quarter performance. Joining me on the call today is Mark Mizicko, Chief Commercial Officer. Mark will provide an overview of the recent developments and our key focus areas in merchandising and marketing. Also, on the call with me is Paula Dempsey, our Interim CFO. Paula has extensive experience in the retail sector, where she has held senior leadership roles and publicly held companies in finance and financial planning and analysis and I'm excited to work closely with her. She will provide an overview of our first quarter financial results, as well as our guidance for the remainder of fiscal 2023. During the quarter, we managed our business prudently and delivered adjusted EBITDA results in line with our expectations, despite the headwinds created by the economic landscape and weather. While traffic was volatile and challenging both in-store and online, we experienced good momentum in terms of conversion and average unit retail. These positive indicators demonstrate the effectiveness of our strategy to enhance customer engagement and loyalty. Our commitment to operational efficiency and prudent cost management enabled us to generate solid operating profits despite lower traffic trends. During the quarter, we made the strategic decision to pull back on certain promotions given the inconsistent traffic pattern. Our focus in the first quarter continued to be aligning our inventory levels, and we were pleased with the progress we made. We ended the quarter with inventory levels down 2% compared to the same period last year. Excluding approximately $10 million of early inventory receipts, our inventory was down 8% compared to Q1 of fiscal 2022. We are committed to maintaining optimal inventory levels, diligently monitoring them and adopting a dynamic approach to adapt to the ever-changing environment. During this challenging period of trying to best predict customer behavior, we have remained steadfast in our commitment to make the right investments for the long-term. We continue to invest in strategies that will drive growth and enhance our market position. This includes strengthening our product offerings, catering to evolving customer preferences, optimizing our customer file, and expanding our store footprint. As part of our efforts to improve and enhance our product offering, we announced the return of Mark Mizicko as a member of the Torrid leadership team. In his role as Chief Commercial Officer, Mark leads merchandising, merchandise planning and allocation, marketing, and e-commerce. I'm confident in his leadership and vision for the brand. Our focus is to optimize our assortment to meet the needs of our customers and align our marketing with our offerings to create compelling and consistent messaging to our clients. We have prioritized customer engagement and loyalty. We're in the process of evolving our promotional activity including our Torrid cash events and our loyalty program. We intend to revitalize our promotional cadence by leveraging data-driven insights, ensuring that our offers resonate with our customers on a deeper level. Our loyalty program will also undergo a significant transformation focusing on enhancing customer engagement, fostering a sense of community, and rewarding our most dedicated patrons. Through these initiatives, we are confident that we will strengthen our market position and build stronger long-lasting relationships with our valued customers. And finally, we remain committed to our brick-and-mortar stores and are on track to open 30 to 40 stores for the year. Our stores play a crucial role in building brand recognition and increasing our customer file. Customers initiate their relationship with Torrid by visiting the store to see, touch, and try on products for a perfect fit, as well as to receive personalized recommendations from our sales associates. This provides a tangible experience that can foster customer trust and strengthen her bond with the brand. We know that once our customers find us, she extends her shopping with us through our online capabilities, resulting in a strong omnichannel experience. In the first quarter, online sales continued to account for more than half of our total net sales. The ability to cater to our customers' preferences for both physical and digital shopping experiences creates a seamless and convenient journey, ultimately strengthening the brand, customer relationship, and driving business growth through customer file expansion. Our top priority is to maintain an unwavering dedication to our customers by providing unmatched offerings and services. We understand the importance of meeting and exceeding their expectations, especially when their budgets may be constrained. By delivering exceptional experiences, we can not only retain our existing customers but also attract new ones further solidifying our brand. As the leadership team, we recognize the significance of improving and streamlining our processes. It is our goal to ensure that our company remains agile, efficient, and adaptable to the evolving market conditions. To that end, we will continue to evaluate our cost structure to identify areas where we can optimize our spending while maintaining our competitive edge. The objective is to align our expenses with our strategic priorities and revenue potential. In conclusion, while the first quarter presented us with some challenges, we remained optimistic about our future. Our focus on driving store growth and loyalty remains unwavering and we will continue to adapt to the ever-evolving retail landscape. We are confident that our strategies will enable us to navigate through the current environment and position us for success in the long run. Before I turn the call over to Mark, I'd like to express my sincere gratitude to our dedicated employees, who have demonstrated remarkable resilience and commitment. Their hard work and dedication are the driving force behind our achievements and I am immensely proud to lead such a talented team.

Thanks, Lisa. It's great to be back and I'm excited by all of the opportunities that we have as a brand. I'll start by highlighting a few of the initiatives our teams are working on, and then we'll briefly discuss some of the product highlights for the quarter. Our merchandising and planning teams are focused on driving gross margin expansion, through better balancing our assortment to customer demand, improving product sell-through, and improving the efficiency with which we price and promote our product by channel and location. We have begun to see a small amount of traction in our margin trends online and have more recently begun specific promotional pricing in stores. We expect that we will begin realizing additional margin expansion in the back half through better assortment balance and our targeting of higher online sell-throughs aided in part by a change to our store fulfillment strategy. In marketing, we believe that there are significant opportunities for us to better engage our existing and potential customer base through optimization of our marketing investment, reinvention of our promotional calendar and cadence, and expansion of customer lifetime value through personalized customer journeys, and improved loyalty programs, and through fostering a community through store events and social media. We have begun making changes to our marketing investment and have seen some improvements in short-term ROI. In the third quarter, we expect to be up and running with a new data platform with our digital agency that will allow us to even further optimize our marketing investment. Loyalty, both as a program and in terms of customer lifetime value is a big opportunity for us. We are currently testing changes to our promotions and customer discounts. We'll begin engaging customers through in-store events this summer and are in the early stages of developing customer journeys that will lead to increased engagement and higher lifetime value. Turning to a few first-quarter highlights. While the overall results were not what we were hoping for, we nonetheless saw many bright spots in the business and have many opportunities to build upon these successes for the balance of this year and for next year. In apparel, we successfully launched four new fabrics. All four were well received by the customer and we see potential for expansion across all of these fabrications. By apparel category, non-denim bottoms and jackets were very good performers for the quarter. These categories were both driven by our Studio collection of Workwear. In general, our more put-together looks were better received than our casual offerings, though there were bright spots in casual dressing as well. In casual dressing, we see future upside in offering more edgy looks and increasing our investment in graphic and licensed tees. For tops in general, in many cases, we swung too far from the successes of prior years in fabrics such as gauze and sali, and from color and print into neutrals. Correcting these investments will be a significant opportunity for us as we move forward. In the Curve business, we saw a strong quarter from swim, swim apparel, and cover-ups, which was driven by new categories in beachwear as well as strength in novelty prints. We have the opportunity next year to reflow our swim deliveries to evolve our assortment into fashion early in the season and to further optimize our swim pricing. In active, we saw strong performance in our outdoor active assortment that was driven by stretch woven, ripstop, and Super Soft Performance Jersey across all silhouettes. We'll continue our expansion into outdoor throughout this year and into next. In summary, while we have strengths in the businesses that we will build on, overall, we can do better at aligning our inventory investments with customer demand at both an item and attribute level. Balancing our assortment across fabrics, colors, and fit will allow us to build the business on the back of past success. Again, I am very pleased to be back at Torrid and I strongly believe in the potential of the brand and in our ability to deliver our customers the assortment, the experience, and the community that she expects and deserves. And with that, I will now turn the call over to Paula.

Thank you, Mark, and good afternoon, everyone. I'm pleased to be here today as the Interim CFO of Torrid. I have spent my career working with publicly and privately held companies, holding roles in various finance capacities. I look forward to working with Lisa and the leadership team. Torrid is an incredible brand that aims to be inclusive and fashionable while donating millions of dollars through our Torrid Foundation with the support of our customers and employees. We will begin with a detailed discussion of our financial results followed by an update of our outlook for the second quarter and for the rest of the year. Let's start by discussing our top-line performance. During the first quarter, net sales declined 11.8% to $294 million, compared to $333 million last year, and comparable sales in the quarter decreased 14%. Similar to other retailers, we experienced a traffic slowdown starting midway through the quarter, the same period that we saw the results for the Torrid Cash event for the first quarter. However, as Lisa mentioned earlier, we were pleased with our positive average selling price compared to last year. Moving to profitability, gross profit margin was 37.7% compared to 39.0% in the first quarter of last year. The decrease of 134 basis points was mainly due to inflationary impacts on product costs, an increase in store occupancy, and merchandising payroll, partly mitigated by the enhanced pricing strategies and other favorable factors. SG&A expenses in the quarter were $71 million compared to $72 million for the first quarter in the prior year. As a percentage of sales, SG&A was 24.3% compared to 21.7% in the prior year. The increase as a percentage of net sales was primarily driven by store payroll due to wage pressures in our markets. Marketing expenses in the quarter were $13 million compared to $18 million in the first quarter of last year. As a percentage of net sales, marketing decreased by 85 basis points to 4.5% compared to 5.4% in the first quarter of last year. The reduction in marketing costs was primarily driven by lower spending on upper-funnel activities such as TV advertising. Turning to our bottom-line performance, our net income for the quarter was $12 million or $0.11 per share versus net income of $24 million or $0.23 per share for the same period last year. In addition to GAAP measures, we believe that our adjusted EBITDA is an important measure that we use to evaluate and manage our business. Adjusted EBITDA came in above the midpoint of our guidance at $38 million or 13.0% of net sales compared to $52 million or 15.5% of net sales in the first quarter of 2022. In terms of our balance sheet, we maintained a strong financial position during the first quarter. Our cash and cash equivalents stood at $18 million at the end of the quarter. Total liquidity at the end of the first quarter, including available credit, was $149 million. Total debt at the end of the quarter was $329 million compared to $357 million in the first quarter of 2022. Our net debt to adjusted EBITDA was 2.2 times at quarter end. Inventory at the end of the quarter was $175 million compared to $179 million for the same period last year. Excluding early inventory receipts of around $10 million at the end of Q1, inventory declined approximately 8% compared to Q1 of 2022. Based on our projected sales for the remainder of the fiscal year, we're comfortable with our current inventory levels and will continue to exercise caution considering the prevailing demand conditions. In the event of an improvement in demand, we will draw on our inventory receipt reserve. In Q1, we opened five Torrid stores while simultaneously closing six stores, ending the quarter with 638 stores. Our projected store openings for the year are estimated to be within the range of 30 to 40 stores. Turning to the outlook, given the uncertainty in the macro environment, we expect the second quarter to follow similar demand trends that we have seen in the first quarter. For the second quarter, we project net sales to be between $280 million and $295 million, and adjusted EBITDA to be between $32 million and $38 million. For the full year, we estimate our sales to be between $1.095 billion and $1.145 billion and adjusted EBITDA to be between $115 million to $130 million. This outlook assumes our gross margin will improve throughout the year compared to fiscal 2022. Capital expenditures are projected to be between $35 million and $40 million for fiscal 2023, reflecting 30 to 40 new store openings and other investments. The revised annual outlook takes into account a more challenging macroeconomic environment than our prior expectations. Looking ahead, we remain optimistic about the future of our business. We have a robust pipeline of innovative merchandise, and we will continue to invest and enhance the customer experience across all channels. We're committed to expanding our store footprint strategically both domestically and internationally and we see significant growth potential. Despite the presence of short-term obstacles, the long-term view of our business remains positive and we continue to leverage our strategic initiatives to respond to evolving consumer demand and optimize operational efficiencies to drive sustainable growth. We are confident in our ability to create long-term value for our shareholders. And with that, I will now turn it over to the operator for questions.

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question is from Mark Altschwager with Baird. Please proceed with your question.

Good afternoon. Thank you for taking my question. So it sounds like a pretty big change in trend, top-line trend from when we last spoken in late March maybe just help us unpack what you think is macro consumer versus weather versus perhaps some company-specific product or execution opportunities? And then relatedly, I think the guide for the year implies stable to maybe slightly worse trends in the back half versus the first half when looking at a multiyear basis. I think you had previously seen some room to drive an improving trend through the years that some of the initiatives unfolded. So maybe just walk us through your framework with that new guide? Thank you.

Certainly. In the first quarter, we had a positive February, but experienced a significant shift in traffic trends in mid-March that continued into April and early May. The good news is that by the end of May and into June, we are noticing improvements in both traffic and customer behavior. To summarize, we're moving forward with a forecast that reflects the trends we saw in the first quarter. Considering the volatility in traffic trends over the past few months, it seemed wise to base our predictions on the first quarter's experience. The beginning of the first quarter showed promising signs, but the middle brought challenges. Now, we are beginning to see a positive shift again, indicating a bit of a roller coaster in customer behavior. Currently, our trends are aligning more closely with our historical data, which allows us to have greater confidence in our short-term business forecast. We decided to use our first-quarter experience as a foundation for our outlook for the remainder of the year. It was the most challenging quarter in terms of year-over-year comparisons, but we expect these comparisons to improve as the year progresses. We believe our inventory is well positioned to enhance margins while still delivering results, and we will keep you informed. Our choice was to provide guidance for the second quarter while also considering the full year, as we felt it was more prudent to factor in the macro trends we've observed in our annual forecast.

That's very helpful. Thank you. And I mean, it sounds like gross margins should improve as we move through the year here, which is given the change in the sales trajectory and the sales expectation, any comment on how we should think about markdowns over the quarter or two here? Are there any excess spring goods that need to be cleared?

I'll let Mark answer that.

No, we're on top of the inventory levels as you heard, they're down, they'll be down even further at the end of this quarter. We are proactively managing the seasonal product and feel great about the way the inventory is positioned for the balance of the year.

Okay. Thank you. Maybe one last one from me and I'll pass it on. I guess just despite the change in the sales expectation, your adjusted EBITDA margin guidance or I guess the implied EBITDA margin guidance didn't move too much. I mean it sounds like lower marketing, lower variable marketing might be a bigger driver there, but maybe help us understand where you are driving the savings to offset and how much of this might be more structural? Thank you.

Hi, Mark. This is Paula Dempsey. So yes, you're absolutely right about some of the optimizations that are taking place right now. So as you think through the rest of the year and you look at all of our expenses, we should start seeing leverage starting the second quarter through the full year. So we are currently doing several projects at the moment to mitigate some of those expenses. Such as things that we're currently doing, we have partnered with some of our vendors currently renegotiating certain contracts all over the organization. Also as Mark even mentioned earlier, we are taking a much more efficient approach to our inventory management. So we should start seeing also improvements there. So overall, we're just optimizing our expenses for the remainder of the year. So we should see our EBITDA margin to be quite favorable.

That's great. Thank you and best of luck.

Thanks.

Thank you. Our next question is from Alice Xiao with Bank of America. Please proceed with your question.

Hi. Thanks for taking my question. On the gross margin, puts and takes again, can you help us walk through the magnitude of benefit from the freight and cost inflation normalization we can expect this year in the second half? And then longer term, how big of a benefit do you think is possible from some of the new sourcing strategies, vendor bases, new countries of origins and also the assortment balancing and improved online sell-through that you talked about in your prepared remarks, like, how big longer term of a benefit do you think those pieces can be? Thanks.

Hi, Alice. This is Paula. Regarding the gross margin in the first quarter, I would say that 85% of the decline you've observed is primarily due to inflationary pressures, including our inbound freight costs. So, the majority of this decline is attributed to inflation at this point.

And then for upside, as we move forward, there is room in every line of our business to improve. So we anticipate cost of goods improvement. As we mentioned, we anticipate broadly leveraging SG&A for the balance of the year. All of that being done with appropriate investments to support the current business and growth in the business. So I think that we have started and are moving quickly down a path of rationalizing all expense lines including cost of goods and other goods not related to retail and we're seeing quick progress there to be able to leverage this business. And I think we have a very meaningful EBITDA margin. And I think that as I've said in other calls, we think that there's more room with that. We want to make sure that we're protecting the opportunity to continue to grow the top line and engage our customers. But at the same time, we have room to expand our performance on the EBITDA margin line.

Got it. And then secondly, can you just elaborate on the loyalty program transformation? I mean, how much investment that might require? And then are the in-store events you're planning this summer going to be incremental to last year? And also does that require additional investment? Thank you.

Yeah. So we're in the early stages and testing some things for loyalty and what we're really interested in, is stickiness in traffic at both the store level and online. So we'll be testing some things as far as getting additional customer visits. Part of the opportunity in loyalty is also for us to reassess and decouple some of our promotional events that in the past have been loyalty participation required. For example, Torrid Cash has been a very, very important part of our business. And there's been some softness in Torrid Cash promotions. So we're doing some reinventing there that is promotional and then also on the loyalty front, making it not a requirement. So touching on the store event activations, these are incremental to what we've done last year. And the expenses of that are fully baked into the EBITDA margins that you see in the marketing for the back half.

We believe that we are seeing positive developments in customer engagement through the activation of new customers in stores as well as the reactivation of existing customers. We are confident that these store activation events are highly effective in engaging customers and attracting new ones. This approach is part of a broader marketing strategy that takes a more comprehensive view, rather than relying solely on digital methods. While historically, the company has concentrated on top-of-funnel digital strategies, we are shifting to a more integrated strategy that fully incorporates our stores.

And to touch on what Lisa just talked about, a majority in the early part of the first quarter of our digital marketing spend was being aimed at new customers. We've reinvested more into the middle funnel and we're seeing some positive traction in terms of traffic, in terms of digital-driven sales and counter to what we had thought would be the risk. We're actually not losing; we're gaining in the amount of new customers even as we're not specifically seeking them out in our audience matrix. So all of that looks promising and we're continuing to experiment. I think there's a lot more room to optimize particularly as I mentioned earlier, as we get a little bit more data insights from the new data platform.

That's super helpful. Best of luck.

Thank you.

Thank you. Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Hi. Good afternoon, everyone. Can you pass out a little bit more of the traffic trends between online and stores and what you saw, if there's any difference regionally also? And then just unpacking the gross margin a little bit, the inflationary impact of product costs, how are you planning for that through the balance of the year? And with the pricing strategies that are being refined. So the third and fourth quarters, what should we be looking at in comparison to last year and does it differ online versus store?

Thank you. Traffic was down in both channels kind of in lockstep from the middle of March until the middle of May. And we're starting to see traffic normalized at baseline levels in both channels. So it was consistent regionally and by channel the shift in the customer traffic trends. Do you want to do the gross margin?

Yeah. As for gross margin, Dana, so we are expecting the second half not to be as pressured with inflationary challenges. The reason truly is, we are in the process of depleting all the inventory that was acquired with even higher freights last year. And so we're anticipating really recognizing that benefit in the later half of the year. So that's really what we're going to see the inflationary pressure kind of starting to go away.

Got it. Regarding the pricing strategies for the second half, will the level of promotions remain the same, or will there be any adjustments? Is there anything different on the product side that you're planning to introduce to boost demand? Also, Lisa, have you noticed whether there has been a greater change in sales trends for basics or fashion items? Thank you.

So I'll touch first on the pricing. So I think we've made a big improvement in pricing. On the website, we are more targeted by item; there are some brand new products that are being well received out of the gate that in the past we would typically have discounted immediately and we're holding off on discounts and finding that customers are still responding to the product that they want. So we'll continue to try to optimize and gain more margin expansion online. A lot of that margin expansion online will come through better sell-throughs, not necessarily through the pricing, but as we start to see better sell-throughs, particularly as we get later in the back half, then we'll be adapting our pricing strategy accordingly, so we don't anticipate having to discount as much online. In the store channel, we're in probably the earlier innings in terms of getting more targeted in our promotions. So for example, in swim, we were able to do some targeted swim discounts by store group based on how well they were turning through the goods. So we'll have a lot more room to do that in seasonal goods as well as just in things that are doing really well in turning through versus things that are a little softer and need a little bit more discounts. So our goal in both channels is to get better at allocating discounts to what needs the discount versus just a more general overall discount.

In the first quarter, we observed that customers were actively shopping, but they were very specific in their purchases. We mentioned in our prepared remarks that we decided to decrease promotions because we were unable to find the expected responsiveness to them. We adjusted our approach to promotions based on customer behavior, focusing on managing pricing more strategically online and considering specific categories by store group. As we introduced new basics, customers responded positively, particularly to new ribs, tops, dresses, and jackets. However, their interest leaned more towards fashion at the moment, although we've noticed an uptick in basic items as the weather has changed recently. During the first quarter, customers were largely driven by specific needs and showed a stronger preference for fashion.

Thank you.

Thank you. Our next question is from Brooke Roach with Goldman Sachs. Please proceed with your question.

Good afternoon and apologies for the technical difficulties earlier. Lisa, I was hoping that you could dive a little deeper into the assortment mix between some of the sophisticated neutral styles and the edgier looks that Torrid has been known for in the past. Can you elaborate on the magnitude of the changes of the assortment that you've identified and the timeline of driving that? And then subsequently on inventory, can you provide a little bit more color on how we should expect the inventory cadence to move as we go through the year on a year-on-year growth basis? Thank you.

Sure. I'll start that, but then I'm going to turn it over to Mark. I would say that over time, many core processes in terms of assortment and attribution, channel planning have been muddled, I would say is the right word. And so that there were broader swings and investments than you would normally expect. It's really a process-oriented solution and Mark is on top of the aspect of exactly buying by department by channel. So I'm going to turn it over to him to give more color on that and also kind of the inventory trends for the year.

Yeah. Tagging on what Lisa said, Brooke. I think in terms of magnitude of shifts between core product and edginess, that's really not what we see driving big changes. That's an important part of putting in front of the customer the look that she's responding to from a fashion perspective, but even more of our opportunity comes from just building on what the customer responds to. So for example, there were some core fabrications in the previous year that we probably walked away from in a much bigger way than we should have. They were selling through, they were performing at a high margin, they were well received by the customer, and we just kind of moved on to something new. And whereas in hindsight, what we're building on going forward is how do we continue to build on successes rather than walking away from a success in hope of finding a bigger success. I think I hope that makes sense. So that is a bigger part of what we're doing in the process and that changes to that process are from the very beginning and the beginning of when we're first talking about concepts, to when we're line planning all the way through our hindsight on our buys. So there's a lot of focus on how to make the four parts of our assortment work harder, which we know will benefit us in terms of choice productivity as well as improving our initial markup. So that work I would say in terms of the magnitude is much bigger than the swings from ore into edgy looks. Regarding inventory, I guess we said it before. We're happy with where the inventory is. We'll be down even a little bit more in inventory in this quarter than we were at the end of the first quarter. And we like where our receipts are for the back half of the year and we like where our inventory levels will be for the back half of the year. We anticipate better sell-throughs at regular price, which is behind a lot of the margin rate upside that we're anticipating. So very pleased with where our position is for the rest of the year.

Thank you. I'll pass it on.

Thank you. Our next question is from Jonna Kim with TD Cowen. Please proceed with your question.

Thank you for taking my question. Just a quick one from me. Could you provide any detail you have on customer behavior via income, different income groups? And also your, you mentioned you're pulling back on marketing as you think about driving demand still in this environment, what are your key priorities in the marketing funds while ensuring you drive higher return on investment? Thank you so much.

I understand the part about reducing marketing. For the second half of the year, we've made a slight adjustment to our marketing budget, but as a percentage, it remains consistent with our previous spending. I don't expect any challenges in traffic or conversions due to these marketing changes. The larger focus in marketing is on how we're directing our investments to generate incremental visits and ensuring a more immediate return on investment. Instead of aiming for a return from new customers that might take a year or longer to materialize, we are now seeking returns that can be realized in the next quarter or two. This approach aims to enhance our flow-through EBITDA more quickly than we initially anticipated at the beginning of the year. Could you please repeat the first part of your question?

I have it. I'll answer it. You asked about performance by income group. It was down across all income groups in the first quarter. We haven't seen that before, and we don't expect it to continue as we move forward. However, for the first quarter, it was more consistent than it has been across income.

Got it. Thank you so much.

Thank you. Our next question is from Alex Stratton with Morgan Stanley. Please proceed with your question.

Great. Thanks a lot for taking the question. Two from me, just on the Torrid Cash event, I know you were considering some changes to the structure of that. So I'm just wondering, have any of those been implemented or how are you thinking about that differently in this upcoming quarter? And then for Mark, I know you're newer returning here. So maybe which initiatives do you think you can act on or you're most excited about in the near term that you can kind of immediately action? And then maybe on the longer-term ones, what are the barriers there in terms of the changes that you've outlined on the call so far? Thanks a lot.

Sure. Thank you, Alex. So I guess for Torrid Cash, in the first quarter, we tried some things that we hadn't tried before, in terms of what we distributed and who we distributed Torrid Cash to and we also had a second Torrid Cash event. I'd say that we weren't really pleased with adding a second Torrid Cash for the quarter. It didn't work out the way we'd hoped. For this quarter, what we're planning to do is, we moved the event from where it was going to be in June into July where the product is going to be a little bit more transitional. So there is more reason for customers to buy. We've also shortened the number of days. We're trying to provide more of a sense of urgency around the event and trying some different things to rehabilitate it so to speak, as far as I'm trying to create a little bit more scarcity of the Torrid Cash. So those are a few of the highlights that we're making. In terms of some of the short-term initiatives that I'm excited about, I mean, we talked a little bit about changes in our approach to marketing. We talked a little bit about pricing and promotion. We haven't really touched on shipping from the store. We've reimagined the way that we use shipping from the store as a way to drive additional sales or demand EBITDA. And starting from the end of March, we turned this capability back on. We had somewhat mitigated it for a number of months. What we're seeing is, it's driving incremental sales, it's driving incremental margin, and there appears to be a really nice flow-through in the way that we manage it compared to the way that we managed it in the past and what we're including to be eligible for shipping from the store and what we're not including. And so, we're seeing an additional mid-single digits of inventory that's available on the online channel and she's buying it. So that's exciting and we anticipate as we move through the year that that's going to allow us to clear a lot more units at regular price and fewer at clearance. There is a margin rate upside that we have contemplated as far as what we're going to get from shipping and the store. A web sell-through being increased in conjunction with shipping from the store is very powerful and that's something that we're going to see and as we get into the middle of the back half. And then I guess from the longer term, we hope to get some impact this year, but more of the impact will be next year and that is around our cost of goods strategies. Getting to a place where by being a little bit more strategic about our assortment and standing for core in a bigger way, we will be able to negotiate some better costs. I anticipate that this is going to be a much bigger benefit in 2024 than in 2023. A lot of the balancing of the assortment that we're doing, we'll have—we're going to see some impact in the back half, but we're only going to see a few deliveries of impact, whereas we'll have a whole year of delivery impact next year. So I expect that the benefit will get bigger as we move into next year.

Thanks a lot, good luck.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to CEO, Lisa Harper for closing comments.

Thanks, operator. Thanks everyone for joining us. I appreciate your questions and your focus on the brand. We look forward to being back with you, I guess at the end of the summer with the Q2 results. Thanks, again.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you.