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What changed in Torrid Holdings Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Torrid Holdings Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+352 added−408 removedSource: 10-K (2023-03-28) vs 10-K (2022-03-30)

Top changes in Torrid Holdings Inc.'s 2023 10-K

352 paragraphs added · 408 removed · 282 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

57 edited+12 added−19 removed35 unchanged
Biggest changeThe General Data Protection Regulation (“GDPR”), effective May 2018, created new compliance obligations applicable to even non-EU businesses without an establishment in the EU or in the European Economic Area (“EEA”) that offer their goods or services to individuals located in the EU/EEA or observe the behavior of individuals located in the EU/EEA.
Biggest changeThe General Data Protection Regulation (EU 2016/679) ("EU GDPR"), effective May 2018, and the EU GDPR as 6 it forms part of the laws of England and Wales, Scotland and Northern Ireland by virtue of section 3 of the European Union Withdrawal Act 2018 ("UK GDPR" and together with the EU GDPR, the "GDPR"), have compliance obligations applicable to businesses without an establishment in the EU, the European Economic Area ("EEA") or the UK, but that either (i) offer their goods or services to individuals located in the EU, EEA or UK, or (ii) monitor the behavior of individuals located in the EU, EEA or UK.
We are agnostic to the channel where our customers choose to shop, as we are highly profitable across both e-Commerce and store channels. We deliver a consistent brand message by coordinating our strategies across channels, which we believe influences our customers’ buying decisions. This customer-centric strategy enhances customer acquisition, retention and customer lifetime value.
We are agnostic to the channel where our customers choose to shop, as we are highly profitable across both e-Commerce and store channels. We deliver a consistent brand message by coordinating our strategies across channels, which we believe influences our customers’ buying decisions. This customer- 2 centric strategy enhances customer acquisition, retention and customer lifetime value.
Our e-Commerce and store channels complement and drive traffic to one another, creating more loyal omni-channel customers. 2 e-Commerce Our e-Commerce channel is central to our unified commerce platform. Our online platform provides customers with a highly engaging shopping experience featuring access to our full product assortment, an aesthetically rich and easily navigable website and seamless ordering and fulfillment.
Our e-Commerce and store channels complement and drive traffic to one another, creating more loyal omni-channel customers. e-Commerce Our e-Commerce channel is central to our unified commerce platform. Our online platform provides customers with a highly engaging shopping experience featuring access to our full product assortment, an aesthetically rich and easily navigable website and seamless ordering and fulfillment.
We use a variety of marketing and advertising mediums to increase brand awareness, acquire new customers, and drive repeat purchases across our channels. These programs include our online marketing, such as paid search and social media, 4 product listing ads and retargeting, combined with direct mail, store marketing and public relations initiatives.
We use a variety of marketing and advertising mediums to increase brand awareness, acquire new customers, and drive repeat purchases across our channels. These programs include our online marketing, such as paid search and social media, product listing ads and retargeting, combined with direct mail, store marketing and public relations initiatives.
Further, we may face new competitors and increased competition from existing competitors as we expand into new markets and increase our presence in existing markets. Our competition in the women’s plus-size apparel industry includes: • Plus-Size Focused Specialty Retailers. We compete with other specialty retailers that, like Torrid, focus on plus-size customers.
Further, we may face new competitors and increased competition from existing competitors as we expand into new markets and increase our presence in existing markets. 5 Our competition in the women’s plus-size apparel industry includes: • Plus-Size Focused Specialty Retailers. We compete with other specialty retailers that, like Torrid, focus on plus-size customers.
We use our customer database to strategically optimize the value of our marketing investments across our customer base and channels. This enables us to efficiently acquire new customers, effectively market to repeat customers and reactivate lapsed customers. Our investments in digital and physical marketing drive customer acquisition and engagement across all of our channels.
We use our customer database to strategically optimize the value of our marketing investments across our customer base and channels. This enables us to efficiently acquire new customers, effectively market to repeat customers and reactivate lapsed customers. 4 Our investments in digital and physical marketing drive customer acquisition and engagement across all of our channels.
Our core competency is our differentiated, market-leading fit that we achieve through the following strategies: 1 • Maniacal focus on fit across our entire organization; • Differentiated technical fit created through building and continuously refining a database of fit specifications derived from testing, measuring and cataloging garments on our fit models; • Proprietary fabrics specifically engineered to enhance the fit; • Fit all of our products on fit models and our staff, not mannequins; and • We test new fabrics, new silhouettes and new product lines on our community of loyal customers before launch.
Our core competency is our differentiated, market-leading fit that we achieve through the following strategies: • Maniacal focus on fit across our entire organization; • Differentiated technical fit created through building and continuously refining a database of fit specifications derived from testing, measuring and cataloging garments on our fit models; • Proprietary fabrics specifically engineered to enhance the fit; • Fit all of our products on fit models and our staff, not mannequins; and • We often test new fabrics, new silhouettes and new product lines on our community of loyal customers before launch.
Our offering is built on the foundation of Basics that represent year-round styles and colors that are constantly replenished and are not subject to a typical markdown cadence. Our Core offering includes products that are on-trend interpretations of our basic merchandise that we update with new fabrics, prints, embellishments or features.
Our offering is built on the foundation of basic merchandise that represents year-round styles and colors that are constantly replenished and are not subject to a typical markdown cadence ("Basics"). Our core offering includes products that are on-trend interpretations of our Basics merchandise that we update with new fabrics, prints, embellishments or features ("Core").
In turn, our loyal customers provide us with a rich set of data that allows us to improve our product and experience, thus creating a virtuous cycle that reinforces our leading position in plus-size apparel and intimates. • We provide a fit she knew she wanted but never had access to; • We accomplish this by fitting every single article of clothing we produce on a real woman, tailoring for her special needs, not simply “grading up” non-plus-size apparel; • We utilize a proprietary sizing process that is constantly updated through data and our continuous customer feedback loop, until we fit to perfection; and • We deliver unparalleled technical fit combined with unapologetic attitude and style.
In turn, our loyal customers provide us with a rich set of data that allows us to improve our product and experience, thus creating a virtuous cycle that reinforces our leading position in plus-size apparel and intimates. • We provide a fit she knew she wanted but never had access to; • We accomplish this by fitting every single article of clothing we produce on a real woman, tailoring for her special needs, not simply "grading up" non-plus-size apparel; • We utilize a proprietary sizing process that is constantly updated through data and our continuous customer feedback loop, until we fit to perfection; and • We deliver unparalleled technical fit combined with unapologetic attitude and style.
We coordinate the introduction of our collections across our e-Commerce platform and stores, allowing a customer to experience a consistent brand message wherever and whenever she chooses to shop. We have a large and growing following on our social media channels, including Facebook, Instagram, Pinterest and Twitter.
We coordinate the introduction of our collections across our e-Commerce platform and stores, allowing a customer to experience a consistent brand message wherever and whenever she chooses to shop. We have a large and growing following on our social media channels, including Facebook, Instagram, Pinterest, Twitter, YouTube and TikTok.
Stores are replenished at least once per week from these facilities by third-party delivery services. This frequency provides our stores a steady flow of new inventory that helps maintain product freshness and in-stock availability. Information Systems We utilize a full range of third-party management information systems to support our store, e-Commerce, merchandising, customer data, financial and real estate business teams.
Stores are replenished at least once per week from this facility by third-party delivery services. This frequency provides our stores a steady flow of new inventory that helps maintain product freshness and in-stock availability. Information Systems We utilize a full range of third-party management information systems to support our store, e-Commerce, merchandising, customer data, financial and real estate business teams.
Trademarks that are important in identifying and distinguishing our products and services include, but are not limited to Torrid ® and Torrid Curve ® . Our rights to some of these trademarks may be limited to select markets. We also own domain names, including our website, www.torrid.com.
Trademarks that are important in identifying and distinguishing our products and services include, but are not limited to, Torrid ®, Torrid Curve ®, CURV® and Lovesick® . Our rights to some of these trademarks may be limited to select markets. We also own domain names, including our website, www.torrid.com.
Product Design and Development We are relentlessly focused on creating youthful, unapologetically sexy products specifically for the woman in our size range. We design, develop and merchandise almost all of our products in-house, under the Torrid ® and Torrid Curve ® brand names.
Product Design and Development We are relentlessly focused on creating youthful, unapologetically sexy products specifically for the woman in our size range. We design, develop and merchandise almost all of our products in-house, under the Torrid ®, Torrid Curve ®, CURV® and Lovesick® brand names.
During 2020 we also accelerated our omni-channel offerings such as ship from store and curbside pickup, which when combined with BOPIS will continue to drive both customer acquisition and retention. Our distribution center manages the transportation, receipt, storage, sorting, packing and distribution of merchandise for our e-Commerce platform and store channels.
During 2020 we also accelerated our omni-channel offerings such as ship from store and curbside pickup, which when combined with BOPIS continues to drive both customer acquisition and retention. Our distribution center manages the transportation, receipt, storage, sorting, packing and distribution of merchandise for our e-Commerce platform and store channels.
Our products are exclusive to us, with few exceptions, and provide a consistent quality and fit that we believe she cannot find elsewhere. Our product development is led by a team of more than sixty highly skilled designers, artists and product engineers.
Our products are exclusive to us, with few exceptions, and provide a consistent quality and fit that we believe she cannot find elsewhere. Our product development is led by a team of more than seventy highly skilled designers, 1 artists and product engineers.
As a result, a majority of our e-Commerce orders and a material portion of all orders are placed directly from her phone. We are upgrading the functionality and features of our mobile app to deliver enhanced personalization such as allowing her to find her recommended size while suggesting complementary items to expedite purchase decisions and increase frequency and order size.
As a result, a majority of our e-Commerce orders and a material portion of all orders are placed directly from her phone. The functionality and features of our mobile app enable us to deliver enhanced personalization such as allowing her to find her recommended size while suggesting complementary items to expedite purchase decisions and increase frequency and order size.
We are beginning to leverage this customer database to drive data analysis and insights that we use in managing our business. For example, to grow the penetration of intimates sales, we are able to offer a promotion targeted at customers who have bought our apparel but not our intimates, which encourages shopping across categories.
We leverage this customer database to drive data analysis and insights that we use in managing our business. For example, to grow the penetration of intimates sales, we are able to offer a promotion targeted at customers who have bought our apparel but not our intimates, which will encourage shopping across categories.
Customers Our typical customer is an employed, youthful woman between the ages of 25 and 40 years old with above-average annual household income, and wears sizes 10 to 30 (average of size 18). The majority of our customers are under 40 years old and the ethnic composition of our customer base parallels that of the U.S. population.
Customers Our typical customer is an employed, youthful woman between the ages of 25 and 40 years old with above-average annual household income, and wears sizes 10 to 30 (average of size 18). Approximately half of our customers are under 40 years old and the ethnic composition of our customer base largely parallels that of the U.S. population.
Our loyalty and Torrid Credit Card programs provide us with a strong ability to attribute sales and behavioral data to individual customers, which informs our decision making process. Unified Commerce Platform Through our unified commerce platform, which includes our e-Commerce and retail stores, we deliver a seamless brand experience to our customers wherever and whenever she chooses to shop.
Torrid Rewards and our Torrid Credit Card program provide us with a strong ability to attribute sales and behavioral data to individual customers, which informs our decision making process. Unified Commerce Platform Through our unified commerce platform, which includes our e-Commerce and retail stores, we deliver a seamless brand experience to our customers wherever and whenever she chooses to shop.
Regulation and Legislation We are subject to labor and employment, tax, environmental, privacy and anti-bribery laws. We are also subject to regulations, trade laws and customs, truth-in-advertising, consumer protection and zoning and occupancy laws and ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise and the operation of stores and warehouse facilities.
For instance, we are subject to labor and employment, tax, environmental, privacy and anti-bribery laws. We are also subject to regulations, trade laws and customs, truth-in-advertising, consumer protection and zoning and occupancy laws and ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise and the operation of stores and warehouse facilities.
See “Risk Factors—Risks Related to Government Regulation and Litigation—Failure to comply with federal and state laws and regulations and industry standards relating to privacy, data protection, advertising and consumer protection, or the expansion of current or the enactment of new laws, regulations or industry standards relating to privacy, data protection, advertising and consumer protection, could adversely affect our business, financial condition, and results of operations.” Available Information We make available on our website (www.torrid.com) under “Investors” our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish them to the SEC.
See "Risk Factors—Risks Related to Government Regulation and Litigation—Failure to comply with federal and state laws and regulations and industry standards relating to privacy, data protection, advertising and consumer protection, or the expansion of current or the enactment of new laws, regulations or industry standards relating to privacy, data protection, advertising and consumer protection, could adversely affect our business, financial condition, and results of operations." Available Information We make available on our website (investors.torrid.com) under "Financials" our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish them to the SEC.
Our credit card program encourages customer loyalty, serves as a valuable source for data and allows us to further invest in marketing efforts without exposure to incremental credit risk as our bank partner substantially manages all administrative processes, including underwriting, and bears the credit balance risk.
Our credit card program encourages customer loyalty, serves as a valuable source for data and allows us to further invest in marketing efforts while limiting exposure to incremental credit risk as our bank partner substantially manages all administrative processes, including underwriting, and bears a portion of the credit balance risk.
Of these employees, 490 are employed in our headquarters in City of Industry, California and 7,610 are employed in our stores and distribution centers. Our number of employees, particularly part-time employees, fluctuates depending upon seasonal needs. Our employees are not represented by a labor union and are not party to a collective bargaining agreement.
Of these employees, 720 are employed in our headquarters in City of Industry, California and 7,275 are employed in our stores and distribution centers. Our 3 number of employees, particularly part-time employees, fluctuates depending upon seasonal needs. Our employees are not represented by a labor union and are not party to a collective bargaining agreement.
Nearly 50% of our employees identify as minorities. In 2020, we established our Diversity & Inclusion Committee, which seeks to create a more equitable and inclusive workplace through open dialogue, training, recruiting, and retaining diverse talent. The goal of creating a welcoming and supportive environment spans our full organization from our headquarters and distribution centers to our stores.
In 2020, we established our Diversity & Inclusion Committee, which seeks to create a more equitable and inclusive workplace through open dialogue, training, recruiting, and retaining diverse talent. The goal of creating a welcoming and supportive environment spans our full organization from our headquarters and distribution centers to our stores.
Additionally, our compliance with our privacy policy and our general consumer data privacy and security practices are also subject to review by the Federal Trade Commission, which may bring enforcement actions to challenge allegedly unfair and deceptive trade practices, including the violation of privacy policies and representations or material omissions therein.
For example, our compliance with our privacy policies and our general consumer data privacy and security practices may be subject to review by the Federal Trade Commission ("FTC"), which may bring enforcement actions to challenge allegedly unfair and deceptive trade practices, including the violation of privacy policies and representations or material omissions therein.
We have significant visibility into our customers’ transaction behavior, including purchases made across our channels. We use our customer database to acquire, develop and retain customers. We can identify customers who purchase products regardless of whether they shop on our e-Commerce platform or in-store.
Our extensive database contains valuable customer information that helps us better market to our customers. We have significant visibility into our customers' transaction behavior, including purchases made across our channels. We use our customer database to acquire, develop and retain customers. We can identify customers who purchase products regardless of whether they shop on our e-Commerce platform or in-store.
Members of the top two tiers of our loyalty program, Torrid VIP and Loyalist, are our most loyal customers who purchase from us more often and spend significantly more than the average customer, accounting for an outsized share of net sales. Additionally, we provide our customers with access to our Torrid Credit Card Program.
Members of the top two tiers of our loyalty program, Torrid VIP and Loyalist, are our most loyal customers who purchase from us more often and spend significantly more than the average customer, accounting for an outsized share of net sales.
We believe we have established effective two-way lines of communication throughout our organization, including using new technologies to communicate with stores in real time and routinely synthesize store insights and customer feedback from the field to influence decision making. As of January 29, 2022, we employed 2,063 full-time and 6,037 part-time employees.
We believe we have established effective two-way lines of communication throughout our organization, including using technologies to communicate with stores in real time and routinely synthesize store insights and customer feedback from the field to influence decision making. As of January 28, 2023, we employed 2,061 full-time and 5,934 part-time employees.
Item 1. Business Overview Torrid Holdings Inc. (“Torrid,” “we,” “us,” “our,” the “Company”) is a direct-to-consumer brand of apparel, intimates and accessories in North America, targeting the 25- to 40-year old woman who is curvy and wears sizes 10 to 30.
Item 1. Business Overview Torrid Holdings Inc. ("Torrid," "we," "us," "our," the "Company") is a direct-to-consumer brand of apparel, intimates and accessories in North America, targeting the 25- to 40-year old woman who wears sizes 10 to 30.
Our talent strategy is to attract, engage and retain the best and most qualified talent to create a diverse and inclusive workforce. We offer competitive compensation packages that are based on market-specific data for comparable roles and geographic locations.
Our talent strategy is to attract, engage and retain the best and most qualified talent to create a diverse and inclusive workforce. We offer competitive compensation packages that are based on market-specific data for comparable roles and geographic locations. We believe in rewarding high performance and seek to design plans and programs to support this culture.
No single supplier accounted for more than 12% of merchandise purchased in fiscal year 2021. Approximately 97% of our product receipts in fiscal year 2021 were sourced internationally, primarily from Asia. We plan to continue diversifying our vendor bases by both vendor and geography.
No single supplier accounted for more than 15% of merchandise purchased in fiscal year 2022. Approximately 98% of our product receipts in fiscal year 2022 were sourced internationally, primarily from Asia. We plan to continue diversifying our vendor bases by both vendor and geography. We continue to reduce our exposure to factories located within China.
We develop and administer company-wide policies to ensure the safety of each team member and compliance with Occupational Safety and Health Administration standards. In 2020, the COVID-19 pandemic brought unprecedented challenges to our business, our communities, and our teams. As we managed through these challenges, we prioritized the health, safety and overall well-being of our teams and customers.
In 2020, the COVID-19 pandemic brought unprecedented challenges to our business, our communities, and our teams. As we managed through these challenges, we prioritized the health, safety and overall well-being of our teams and customers.
For more information, see “Risk Factors—Risks Related to Our Business—Changes in laws, including employment laws and laws related to our merchandise, could make conducting our business more expensive or otherwise change the way we do business.” Data Privacy and Security We collect, process, store, use, and share data, some of which contains personal information.
For more information, see "Risk Factors—Risks Related to Government Regulation and Litigation—Changes in laws, including employment laws and laws related to our merchandise, could make conducting our business more expensive or otherwise change the way we do business." Data Privacy and Security We collect, process, store and use confidential, proprietary and personal information, including information about our customers, our employees and other third parties.
We believe our reduced seasonality is also attributable to the behavior of our customer, who is generally purchasing products for herself, not as gifts. 5 Competition We face competition across a variety of players within the broader apparel industry. Our competitors range from smaller, growing e-Commerce brands to considerably larger players with substantially greater financial, marketing and other resources.
Competition We face competition across a variety of players within the broader apparel industry. Our competitors range from smaller, growing e-Commerce brands to considerably larger players with substantially greater financial, marketing and other resources.
The funds utilized in these efforts are raised from customer donations, including whole-dollar sale round-ups, and a portion of proceeds from certain product collaborations like our Breast Cancer Awareness Collection. In fiscal year 2021, the Torrid Foundation raised over $2.6 million in support of partner organizations dedicated to educating and empowering women.
The mission of the Torrid Foundation is to support various nonprofit organizations dedicated to helping women and changing lives for our customers and their diverse communities. The funds utilized in these efforts are raised from customer donations, including whole-dollar sale round-ups, and a portion of proceeds from certain product collaborations like our Breast Cancer Awareness Collection.
For example, the European Union (“EU”), has adopted strict data privacy and security regulations.
For example, the European Union ("EU") and United Kingdom ("UK"), have adopted strict data privacy and security regulations.
In fiscal year 2021, no single quarter contributed more than 26% of Torrid net sales. We believe this is partly attributable to our broad merchandise offering that encourages purchasing across seasons.
In fiscal year 2022, no single quarter contributed more than 27% of Torrid net sales. We believe this is partly attributable to our broad merchandise offering that encourages purchasing across seasons. We believe our reduced seasonality is also attributable to the behavior of our customer, who is generally purchasing products for herself, not as gifts.
Additionally, the West Jefferson facility is already equipped with omni-channel capabilities that have enabled our buy-online-pickup-in-store ("BOPIS") rollout while continuing to drive efficient online returns and position us to execute on our unified commerce strategy.
This 750,000 square foot facility is highly automated and is capable of handling our existing and future needs. Additionally, the West Jefferson facility is equipped with omni-channel capabilities that enables buy-online-pickup-in-store ("BOPIS") while continuing to drive efficient online returns and allowing us to execute on our unified commerce strategy.
We believe in rewarding high performance and seek to design plans and programs to support this culture. 3 To further support the advancement of our employees, we invest in a wide range of training and development opportunities at all levels across the organization, including through both online and instructor-led internal programs, as well as third-party programs.
To further support the advancement of our employees, we invest in a wide range of training and development opportunities at all levels across the organization, including through both online and instructor-led internal programs, as well as third-party programs. We regularly collect feedback from our employees to better understand and improve our learning and development offerings to meet their needs.
In December 2021, we went live with our new mobile app which incorporates a new design and new features such as advanced filter and search functionality, additional payment options and personalized notifications. Stores Our stores are highly valuable strategic assets that remain core to our strategy and continue to play an important role in our customer acquisition strategy.
In December 2021, we went live with our new mobile app which incorporates a new design and new features such as advanced filter and search functionality, additional payment options and personalized notifications.
Torrid Credit Card holders are automatically enrolled in the Torrid Rewards program through which customers receive points, discounts and other perks. As a result, Torrid Credit Card holders are among our most loyal and valuable customers.
Additionally, we provide our customers with access to our Torrid Credit Card Program through which customers receive points, discounts and other perks. Torrid Credit Card holders are among our most loyal and valuable customers.
As a result, they are less dependent on broader traffic trends and perform consistently across all formats. Our average store size is approximately 3,000 square feet. People and Culture We have created a company culture focused on attracting, training and developing talent. Our work environment is open and collaborative with a flat organizational structure that facilitates efficient decision making.
Our stores are designed to deliver an immersive fit discovery experience and serve as desirable customer destinations. As a result, they are less dependent on broader traffic trends and perform consistently across all formats. Our average store size is approximately 3,100 square feet. People and Culture We have created a company culture focused on attracting, training and developing talent.
Our stores are located primarily in premium malls, shopping plazas, lifestyle centers and outlet locations, and the quality of our real estate locations is high as substantially all of our stores are located in A and B malls or off-mall locations. Our stores are designed to deliver an immersive fit discovery experience and serve as desirable customer destinations.
As of January 28, 2023, we operated 639 stores in the U.S., Puerto Rico and Canada. Our stores are located primarily in premium malls, shopping plazas, lifestyle centers and outlet locations, and the quality of our real estate locations is high as substantially all of our stores are located in A and B malls or off-mall locations.
Approximately 93% of our employees identify as female, and many are also customers who believe in our mission to empower curvy women to love the way they look and feel. Additionally, we embrace the diversity of our employees and believe that diverse and inclusive teams at all levels across the organization strengthen our ability to serve our customers.
Additionally, we embrace the diversity of our employees and believe that diverse and inclusive teams at all levels across the organization strengthen our ability to serve our customers. Nearly 50% of our employees identify as minorities.
We maintain compliance guidelines for our vendors that dictate various standards including product quality, manufacturing practices, labor compliance and legal compliance. Through third parties, we periodically monitor our factories and suppliers to ensure compliance with these guidelines. Distribution and Fulfillment Our unified commerce business model is serviced by our distribution facility located in West Jefferson, Ohio.
Through third parties, we periodically monitor our factories and suppliers to ensure compliance with these guidelines. Distribution and Fulfillment Our unified commerce business model is serviced by our distribution facility located in West Jefferson, Ohio. We acquired the operations of the fully-functional, state-of-the-art distribution center in West Jefferson, Ohio in 2018.
In addition, the scope of data privacy regulations worldwide continues to evolve. New, increasingly restrictive regulations are coming into force all around the world.
As a result, it is possible the GDPR may apply to us. The scope of our data privacy obligations worldwide continues to evolve as new, increasingly restrictive legislation and regulations are coming into force all around the world.
At each of our retail stores, our headquarters and our West Jefferson, Ohio, distribution center, we continue to follow applicable local, state, and national government regulations, laws, and recommended guidance.
At each of our retail stores, our headquarters and our West Jefferson, Ohio, distribution center, we continue to follow applicable local, state, and national government regulations, laws, and recommended guidance. An important part of our culture is our focus on giving back to the community, which we do primarily through our Torrid Foundation that we established in 2017.
Additionally, our stores offer customers the opportunity to connect with a like-minded community, through exclusive in-store events and interactions with our store associates, who act as brand ambassadors and are often customers themselves. As of January 29, 2022, we operated 624 stores in the U.S. states, Puerto Rico and Canada.
Our stores include large, comfortable fitting rooms with features, such as cooling fans, that are specifically suited for our customers' needs. Additionally, our stores offer customers the opportunity to connect with a like-minded community, through exclusive in-store events and interactions with our store associates, who act as brand ambassadors and are often customers themselves.
We regularly collect feedback from our employees to better understand and improve our learning and development offerings to meet their needs. To ensure we provide a rich and rewarding experience for our employees, we monitor culture and engagement to build on the competencies that are important for our future success.
To ensure we provide a rich and rewarding experience for our employees, we monitor culture and engagement to build on the competencies that are important for our future success. We routinely engage independent third parties to conduct cultural training sessions and engagement events.
We use our data to drive decision making across the organization. This customer data is based on information provided by customers who have opted-in to be part of our loyalty program. Our extensive database contains valuable customer information that helps us better market to our customers.
For example, we have the ability to track page views, search history, clicks, linger time and purchase route for visitors to our e-Commerce platform. We use our data to drive decision making across the organization. This customer data is largely based on information provided by customers who have opted-in to be part of our loyalty program.
Consequently, our business is subject to a number of U.S. and international laws, regulations, and industry standards governing data privacy and security, 6 including with respect to the collection, storage, use, transmission, sharing, and protection of personal information and other consumer data. Such laws and regulations may be inconsistent among countries or conflict with other rules.
Consequently, our business is subject to increasingly complex and rigorous, and sometimes conflicting laws, regulatory standards, industry standards, external and internal privacy and security policies, contracts and other obligations governing data privacy and security in the U.S. and other jurisdictions where we do business, including with respect to the collection, storage, use, transmission, sharing and protection of personal information and other consumer data.
We have been able to mitigate the effects of tariffs on Chinese products and we plan to significantly reduce our exposure to vendors located within China. Though we are working towards decreasing our share of product manufactured in China, our manufacturing partners may source their own raw materials from third parties in other countries, including China.
Though we are working towards decreasing our share of product manufactured in China, our manufacturing partners may source their own raw materials from third parties in other countries, including China. We maintain compliance guidelines for our vendors that dictate various standards including product quality, manufacturing practices, labor compliance and legal compliance.
Data Analytics We have a significant volume of customer and transaction data, collected from a variety of sources, including e-Commerce and in-store interactions, our loyalty program, social media and customer surveys. For example, we have the ability to track page views, search history, clicks, linger time and purchase route for visitors to our e-Commerce platform.
In fiscal year 2022, the Torrid Foundation raised over $2.2 million in support of partner organizations dedicated to educating and empowering women. Data Analytics We have a significant volume of customer and transaction data, collected from a variety of sources, including e-Commerce and in-store interactions, our loyalty program, social media and customer surveys.
The information contained in or connected to our website is not deemed to be part of this prospectus. Further, we have patent applications pending for our innovative and most popular line of bras, the 360° Back Smoothing Bra, and for our Power Mesh Panels for Tummy-Flattening Pants.
Further, we have patent applications pending for our innovative and most popular line of bras, the 360° Back Smoothing Bra, and for our Power Mesh Panels for Tummy-Flattening Pants and Tummy-Covering Garments. Regulation and Legislation We are required to comply with numerous laws and regulations at the state, federal and international levels.
We routinely engage independent third parties to conduct cultural training sessions and engagement events. These include diversity and inclusion training sessions, fun employee engagement events, and virtual and on-demand learning sessions focused on emotional and social health. Employee safety remains our top priority.
These include diversity and inclusion training sessions, fun employee engagement events, and virtual and on-demand learning sessions focused on emotional and social health. Employee safety remains a priority. We develop and administer company-wide policies to ensure the safety of each team member and compliance with Occupational Safety and Health Administration standards.
We provide a sophisticated presentation of products that has an emphasis on outfits, which presents creative styling ideas to our customer and encourages incremental spend. Our stores include large, comfortable fitting rooms with features, such as cooling fans, that are specifically suited for our customers’ needs.
We believe our stores enhance brand awareness, drive traffic to our e-Commerce platform and encourage customers to shop across multiple channels of our unified commerce platform. We provide a sophisticated presentation of products that has an emphasis on outfits, which presents creative styling ideas to our customer and encourages incremental spend.
The SEC maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. Our Board of Directors Committee Charters (Audit, Compensation and Nominating and Corporate Governance Committees), Corporate Governance Guidelines and Code of Business Conduct are also available on our website under “Investors, Governance Documents.” 8
The charters for committees of our board of directors (Audit, Compensation and Nominating and Corporate Governance Committees), our Corporate Governance Guidelines and our Code of Business Conduct are also available on our website under "Investors, Governance Documents." 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.
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In response to COVID-19 we: • added work from home flexibility; • adjusted attendance policies to encourage those who are sick to stay home; • increased cleaning protocols across all locations; • initiated regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures; • established new physical distancing procedures for employees who need to be onsite; • provided additional personal protective equipment and cleaning supplies; • implemented protocols to address actual and suspected COVID-19 cases and potential exposure; • prohibited all domestic and international non-essential travel for all employees; and • encouraged masks to be worn in all locations where allowed by local law.
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Stores Our stores are highly valuable strategic assets that remain core to our strategy and continue to play one of the most important roles in our customer acquisition strategy. A majority of our new customer relationships begin in our stores.
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An important part of our culture is our focus on giving back to the community, which we do primarily through our Torrid Foundation that we established in 2017. The mission of the Torrid Foundation is to support various nonprofit organizations dedicated to helping women and changing lives for our customers and their diverse communities.
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Our work environment is open and collaborative with a flat organizational structure that facilitates efficient decision making. Approximately 93% of our employees identify as female, and many are also customers who believe in our mission to empower curvy women to love the way they look and feel.
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We acquired the operations of the fully-functional, state-of-the-art distribution center in West Jefferson, Ohio in 2018. This 750,000 square foot facility is highly automated and we believe is capable of handling our existing and future needs.
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For example, California enacted the California Consumer Privacy Act of 2018 (the "CCPA") which came into effect on January 1, 2020 and limits how we may collect and use personal information.
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As a result, it is possible the GDPR may apply to us.
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In addition, on November 3, 2020, California voters approved significant modifications of the CCPA, as the California Privacy Rights Act (the "CPRA"), which further expanded consumers' rights with respect to certain personal information sharing and created a new state agency to oversee implementation and enforcement efforts. Many of the CPRA's amendments became effective on January 1, 2023.
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Companies that fail to comply with their GDPR obligations, which may include us if it is determined that the GDPR applies to us, can face material consequences including large financial penalties (including fines of up to 4% of global annual revenue of the group of undertakings for the preceding financial year or €20 million (whichever is higher) for the most serious violations), investigations, civil actions including claims for damages and cease-and-desist claims and reputational damages.
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Given that enforcement of the CPRA amendments begins on July 1, 2023, it remains unclear how this law will be enforced and interpreted. Four additional states (Virginia, Colorado, Utah and Connecticut) have enacted data privacy and security laws that have, or will in the near future, come into effect.
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In addition, rulings from the Court of Justice of the European Union (“CJEU”) may have a great impact on how companies subject to the GDPR, which may but does not necessarily include us, process EU personal data. For instance, on July 16, 2020, the CJEU invalidated the EU-U.S.
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Each of these laws create additional obligations on businesses and could subject us to additional compliance costs as well as potential fines, individual claims and commercial liabilities. We may publish privacy policies, marketing materials, and other statements, such as compliance with certain certifications or self-regulatory principles, regarding data privacy and security.
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Privacy Shield Framework (the “Privacy Shield”) under which personal data could be transferred from the EEA to U.S. entities who had self-certified under the Privacy Shield scheme.
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If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators or other adverse consequences.
Removed
While the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism and potential alternative to the Privacy Shield), it made clear that reliance on such clauses alone may not necessarily be sufficient in all circumstances.
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Compliance with existing, proposed and recently enacted laws and regulations can be costly and time consuming, and any failure to comply with these regulatory standards could subject us to legal and reputational risks.
Removed
For example, in the United States, the California Consumer Privacy Act, or CCPA, went into effect on January 1, 2020 and became enforceable by the California Attorney General on July 1, 2020, along with related regulations that came into force on August 14, 2020.
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Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, imposition of fines by governmental authorities and damage to our reputation and credibility and could have a negative impact on revenues and profits.
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In short, the CCPA: (1) provides California consumers with new rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is collected, used, and shared; (2) will affect several marketing activities due to the CCPA’s broad definitions of personal information and sale, and (3) provides for private actions and permits for class action which could result in businesses being subject to substantial statutory fines in cases involving thousands of impacted consumers where the business is found to have failed to implement and maintain reasonable and appropriate security procedures.
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The information contained in, or that can be accessed through, our website is not part of, or incorporated by reference in, this Annual Report on Form 10-K. The SEC maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
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Given that CCPA enforcement began on July 1, 2020, it remains unclear what, if any, modifications will be made to this legislation or how it will be interpreted.
Added
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.
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However, it is clear that the effects of the CCPA are significant and that they will require us to modify our data, security, and marketing practices and policies, and to incur substantial costs and expenses in an effort to comply with the CCPA and other applicable data protection laws.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeYou should read this summary together with the more detailed description of each risk factor contained below: • the effect of the COVID-19 pandemic on our operations and financial performance; • our inability or failure to identify or respond to new trends; • our inability to maintain and enhance our brand and attract sufficient numbers of customers to our stores or sell sufficient quantities of our products; • increased competition from other brands or retailers and our ability to obtain favorable store locations. • our dependency or reliance on third parties for different services, such as customer driving, product sourcing, manufacture and transportation; • our failure to successfully adapt to consumer shopping preferences and develop and maintain a relevant and reliable omni-channel experience for our customers; • our failure to find employees that reflect our brand image and embody our culture; • our failure to effectively utilize information systems and implement new technologies or misuse or unauthorized use of these systems and technologies; • price volatility and lack of availability of raw materials to manufacture our products and impact on transportation and labor costs; • our sourcing a significant amount of our products from China; • the interruption of the flow of merchandise from international manufacturers, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports; • potential liability arising from payment-related risks, litigation or regulatory proceedings; • changes in laws and regulations, including, among others, privacy, data protection, advertising, customer protection, environmental and tax regulations; • government or consumer concerns about product safety that could result in regulatory actions, recalls or changes to laws; • our inability to protect our trademarks or other intellectual property rights; • our substantial indebtedness and lease obligations; • our dependency on key members of our executive management team; and • war, terrorism and other catastrophes.
Biggest changeYou should read this summary together with the more detailed description of each risk factor contained below: • the effect of changes in consumer spending and general macroeconomic conditions on our operations and financial performance; • our inability or failure to identify or respond to new trends; • our inability to maintain and enhance our brand and attract sufficient numbers of customers to our stores or sell sufficient quantities of our products; • increased competition from other brands or retailers and our ability to obtain favorable store locations; • our dependency or reliance on third parties for different services, such as customer driving, product sourcing, manufacturing and transportation; • our failure to successfully adapt to consumer shopping preferences and develop and maintain a relevant and reliable omni-channel experience for our customers; • our failure to find employees that reflect our brand image and embody our culture; • our failure to effectively utilize information systems and implement new technologies or misuse or unauthorized use of these systems and technologies; • price volatility and lack of availability of raw materials to manufacture our products and impact on transportation and labor costs; • our sourcing a significant amount of our products from China; • the interruption of the flow of merchandise from international manufacturers, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports; • potential liability arising from payment-related risks, litigation or regulatory proceedings; • changes in laws and regulations, including, among others, privacy, data protection, advertising, consumer protection, environmental and tax regulations; • government or consumer concerns about product safety that could result in regulatory actions, recalls or changes to laws; • our inability to protect our trademarks or other intellectual property rights; • our substantial indebtedness and lease obligations; • our dependency on key members of our executive management team; • the effect of infectious disease outbreaks, including the COVID-19 pandemic, on our operations and financial performance; and • war, terrorism and other catastrophes. 8 Risks Related to Our Business Our business is sensitive to consumer spending and general economic conditions, and an economic slowdown or inflationary pressures could adversely affect our financial performance.
Our computer systems and the third-party systems we rely on are also subject to damage or interruption from a number of causes, including power outages; computer and telecommunications failures; computer viruses, malware, phishing or distributed denial-of-service attacks; security breaches; cyber-attacks; catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes; acts of war or terrorism and design or usage errors by our associates or contractors.
Our computer systems and the third-party systems we rely on are also subject to damage or interruption from a number of causes, including power outages; computer and telecommunications failures; computer viruses, malware, phishing or distributed denial-of-service attacks; security breaches; cyber-attacks; catastrophic events such as fires, floods, earthquakes, tornadoes and hurricanes; acts of war or terrorism and design or usage errors by our associates or contractors.
From time to time, our systems require modifications and updates, including by adding new hardware, software and applications; maintaining, updating or replacing legacy programs; and integrating new service providers, and adding enhanced or new functionality.
From time to time, our systems require modifications and updates, including by adding new hardware, software and applications; maintaining, updating or replacing legacy programs; integrating new service providers; and adding enhanced or new functionality.
The New Term Loan Credit Agreement and the agreement governing the Existing ABL Facility, as amended, contain, and the agreements evidencing or governing any other future indebtedness, may contain, financial restrictions on us and our restricted subsidiaries, including restrictions on our or our restricted subsidiaries’ ability to, among other things: • place liens on our or our restricted subsidiaries’ assets; • make investments other than permitted investments; • incur additional indebtedness; • prepay or redeem certain indebtedness; • merge, consolidate or dissolve; • sell assets; • engage in transactions with affiliates; • change the nature of our business; • change our or our subsidiaries’ fiscal year or organizational documents; and 24 • make restricted payments (including certain equity issuances).
The New Term Loan Credit Agreement and the agreement governing the Existing ABL Facility, as amended, contain, and the agreements evidencing or governing any other future indebtedness, may contain, financial restrictions on us and our restricted subsidiaries, including restrictions on our or our restricted subsidiaries' ability to, among other things: • place liens on our or our restricted subsidiaries’ assets; • make investments other than permitted investments; • incur additional indebtedness; • prepay or redeem certain indebtedness; • merge, consolidate or dissolve; • sell assets; • engage in transactions with affiliates; • change the nature of our business; • change our or our subsidiaries' fiscal year or organizational documents; and • make restricted payments (including certain equity issuances).
Our net sales volume and traffic generally may be adversely affected by, among other things, a decrease in popularity of the shopping centers in which our stores are located, the closing of anchor stores important to our business, a decline in the popularity of other stores in the shopping centers in which our stores are located, changing economic conditions and/or demographic patterns (including any increases in purchases of merchandise online as opposed to in-store), or a 12 deterioration in the financial condition of shopping center operators or developers which could, for example, limit their ability to finance tenant improvements for us and other retailers.
Our net sales volume and traffic generally may be adversely affected by, among other things, a decrease in popularity of the shopping centers in which our stores are located, the closing of anchor stores important to our business, a decline in the popularity of other stores in the shopping centers in which our stores are located, changing economic conditions and/or demographic patterns (including any increases in purchases of merchandise online as opposed to in-store), or a deterioration in the financial condition of shopping center operators or developers which could, for example, limit their ability to finance tenant improvements for us and other retailers.
Any failure, or perceived failure, by us to comply with our posted privacy policies or with any federal or state privacy or consumer protection-related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, proceedings or actions against us by governmental entities, customers, suppliers or others or other liabilities or may require us to change our operations and/or cease using certain data sets.
Any failure, or perceived failure, by us to comply with our posted privacy policies or with any federal or state privacy or consumer protection-related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, proceedings or actions against us by governmental entities, customers, suppliers or others or other liabilities or may require us to change our operations and/or cease using certain data sets.
Any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual property rights, could subject us to significant liabilities, require us to seek licenses on unfavorable terms, if available at all, prevent us from manufacturing or selling certain products, limit our ability to market or 23 sell to our customers using certain methods or technologies and/or require us to redesign or re-label our products or rename our brand, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual property rights, could subject us to significant liabilities, require us to seek licenses on unfavorable terms, if available at all, prevent us from manufacturing or selling certain products, limit our ability to market or sell to our customers using certain methods or technologies and/or require us to redesign or re-label our products or rename our brand, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.
If we are unable to conclude that we have effective internal control over financial reporting or other material weaknesses or control deficiencies occur in the future, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements and investors may lose confidence in our financial reporting, which could have a material adverse effect on the trading price of our stock.
If we are unable to conclude that we have effective internal control over financial reporting or material weaknesses or control deficiencies occur in the future, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements and investors may lose confidence in our financial reporting, which could have a material adverse effect on the trading price of our stock.
To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our certificate of incorporation will provide that, unless we consent in writing to the selection of an alternate forum, the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
To prevent having to litigate claims in multiple jurisdictions and the 25 threat of inconsistent or contrary rulings by different courts, among other considerations, our certificate of incorporation will provide that, unless we consent in writing to the selection of an alternate forum, the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
The regulation of the use of these cookies and other current online tracking and advertising practices or a loss in our ability to make effective use of services that employ such technologies could increase our costs of operations and limit our ability to acquire 19 new customers on cost-effective terms and, consequently, materially and adversely affect our business, financial condition, and results of operations.
The regulation of the use of these cookies and other current online tracking and advertising practices or a loss in our ability to make effective use of services that employ such technologies could increase our costs of operations and limit our ability to acquire new customers on cost-effective terms and, consequently, materially and adversely affect our business, financial condition, and results of operations.
If these regulations were to change or were violated by our management, employees, vendors, buying agents or trading companies, the costs of certain goods could increase, or we could experience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our merchandise and hurt our business and results of operations.
If these regulations were to change or were 19 violated by our management, employees, vendors, buying agents or trading companies, the costs of certain goods could increase, or we could experience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our merchandise and hurt our business and results of operations.
You should carefully consider the risks described below, together with the financial and other information contained in this Annual Report on Form 10-K, including our financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations", before you decide to purchase, hold or sell shares of our common stock.
You should carefully consider the risks described below, together with the financial and other information contained in this Annual Report on Form 10-K, including our financial statements and the related notes and under "Management's Discussion and Analysis of Financial Condition and Results of Operations," before you decide to purchase, hold or sell shares of our common stock.
To the extent that such changes have a negative impact on us or our business, these changes may materially and adversely impact our business, financial condition and results of operations. Government or consumer concerns about product safety could result in regulatory actions, recalls or changes to laws, which could harm our reputation, increase costs or reduce sales.
To the extent that such changes have a negative impact on us or our business, these changes may materially and adversely impact our business, financial condition and results of operations. 20 Government or consumer concerns about product safety could result in regulatory actions, recalls or changes to laws, which could harm our reputation, increase costs or reduce sales.
Trade restrictions, including new or increased tariffs or quotas, 17 border taxes, embargoes, safeguards and customs restrictions against apparel items, as well as labor strikes and work stoppages or boycotts, could increase the cost or reduce or delay the supply of apparel available to us and adversely affect our business, financial condition or results of operations.
Trade restrictions, including new or increased tariffs or quotas, border taxes, embargoes, safeguards and customs restrictions against apparel items, as well as labor strikes and work stoppages or boycotts, could increase the cost or reduce or delay the supply of apparel available to us and adversely affect our business, financial condition or results of operations.
The COVID-19 outbreak, including the spread of COVID-19 variants, has caused a disruption in our supply chain and has adversely impacted economic conditions in North America, Europe, China and elsewhere. These and other disruptions, as well as poor economic conditions generally, may lead to a decline in the sales and operating results of our omni-channel sales.
The COVID-19 outbreak, including the spread of COVID-19 variants, caused a disruption in our supply chain and has adversely impacted economic conditions in North America, Europe, China and elsewhere. These and other disruptions, as well as poor economic conditions generally, may lead to a decline in the sales and operating results of our omni-channel business.
See “—Failure to comply with federal and state laws and regulations and industry standards relating to privacy, data protection, advertising and consumer protection, or the expansion of current or the enactment of new laws, regulations or industry standards relating to privacy, data protection, advertising and consumer protection, could adversely affect our business, financial condition, and results of operations.” Changes in tax laws or regulations or in our operations may impact our effective tax rate and may adversely affect our business, financial condition and results of operations.
See "—Failure to comply with federal and state laws and regulations and industry standards relating to privacy, data protection, advertising and consumer protection, or the expansion of current or the enactment of new laws, regulations or industry standards relating to privacy, data protection, advertising and consumer protection, could adversely affect our business, financial condition, and results of operations." Changes in tax laws or regulations or in our operations may impact our effective tax rate and may adversely affect our business, financial condition and results of operations.
Moving or expanding store locations and operating stores in new markets present competitive, merchandising and regulatory challenges we do not have experience in or know how to face. Our planned growth will also require additional infrastructure for the development, maintenance and monitoring of those stores.
Moving or expanding store locations and operating stores in new markets may present competitive, merchandising and regulatory challenges we do not have experience in or know how to face. Our planned growth will also require additional infrastructure for the development, maintenance and monitoring of those stores.
These increased demands may cause us to operate our business less efficiently, which in turn could cause deterioration in the performance of our existing stores. Executing our growth plans and achieving our objectives is dependent upon our ability to successfully execute against such plans and objectives.
These increased demands may cause us to operate our business less efficiently, which in turn could cause deterioration in the performance of our existing stores. 11 Executing our growth plans and achieving our objectives is dependent upon our ability to successfully execute against such plans and objectives.
In addition, Canada’s Anti-Spam Legislation (“CASL”), prohibits email marketing without the recipient’s consent, with limited exceptions. Failure to comply with PIPEDA, CASL or provincial privacy or data protection laws could result in significant fines and penalties or possible damage awards.
In addition, Canada’s Anti-Spam Legislation ("CASL") prohibits email marketing without the recipient’s consent, with limited exceptions. Failure to comply with PIPEDA, CASL or provincial privacy or data protection laws could result in significant fines and penalties or possible damage awards.
Upon the occurrence of an event of default or cross-default under any of the present or future agreements governing our indebtedness, the lenders could elect to declare all amounts outstanding to be due and payable and exercise other remedies as set forth in the agreements.
Upon the occurrence of an event of default or cross-default under any of the present or future agreements governing our indebtedness, 22 the lenders could elect to declare all amounts outstanding to be due and payable and exercise other remedies as set forth in the agreements.
While we have not historically experienced significant sales seasonality, we may require temporary personnel to adequately staff our stores, with heightened dependence during busy periods such as the holiday season and when multiple new stores are opening.
While we have not historically experienced significant sales seasonality, we may require temporary personnel to adequately staff our stores, with heightened dependence during busy periods such as the holiday season and when multiple new 12 stores are opening.
Our amended and restated certificate of incorporation provides that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (1) derivative action or proceeding brought on behalf of our Company, (2) action asserting a claim of breach of a fiduciary duty owed by any director or officer of our Company to the Company or the Company’s stockholders, (3) action asserting a claim against the Company or any director or officer of the Company arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”) or our amended and restated certificate of incorporation or our amended and restated bylaws, or (4) action asserting a claim against us or any director or officer of the Company governed by the internal affairs doctrine.
Our amended and restated certificate of incorporation provides that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (1) derivative action or proceeding brought on behalf of our Company, (2) action asserting a claim of breach of a fiduciary duty owed by any director or officer of our Company to the Company or the Company’s stockholders, (3) action asserting a claim against the Company or any director or officer of the Company arising pursuant to any provision of the Delaware General Corporation Law (the "DGCL") or our amended and restated certificate of incorporation or our amended and restated bylaws, or (4) action asserting a claim against us or any director or officer of the Company governed by the internal affairs doctrine.
Such incidents have been attempted or 15 have occurred in the past, and may occur in the future. Hardware, software or applications we utilize may contain defects in design or manufacture or other problems that could unexpectedly compromise information security.
Such incidents have been attempted or have occurred in the past, and may occur in the future. Hardware, software or applications we utilize may contain defects in design or manufacture or other problems that could unexpectedly compromise information security.
Deterioration in economic conditions or increasing unemployment levels may reduce the level of consumer spending and inhibit consumers’ use of credit, 10 which may adversely affect our net sales and profits.
Deterioration in economic conditions or increasing unemployment levels may reduce the level of consumer spending and inhibit consumers’ use of credit, which may adversely affect our net sales and profits.
For example, it could: • increase our vulnerability to adverse changes in general economic, industry and competitive conditions; • require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness and leases, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • restrict us from exploiting business opportunities; • make it more difficult to satisfy our financial obligations, including payments on our indebtedness; • place us at a disadvantage compared to our competitors that have less debt and lease obligations; and • limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.
For example, it could: • increase our vulnerability to adverse changes in general economic, industry and competitive conditions; • require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness and leases, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • restrict us from pursuing business opportunities; • make it more difficult to satisfy our financial obligations, including payments on our indebtedness; • place us at a disadvantage compared to our competitors that have less debt and fewer lease obligations; and • limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.
The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including: • quarterly variations in our operating results compared to market expectations; • changes in preferences of our customers; 25 • announcements of new products, significant price reductions or other strategic actions by us or our competitors; • public reactions to our press releases, public announcements and/or filings with the SEC; • speculation in the press or investment community; • size of the public float; • stock price performance and valuations of our competitors; • fluctuations in stock market prices and volumes; • default on our indebtedness or foreclosure of our properties; • actions by competitors or other shopping center tenants; • changes in senior management or key personnel; • actions by our stockholders; • changes in financial estimates by securities analysts or our failure to meet any such estimates; • negative earnings or other announcements by us or other retail apparel companies; • downgrades in our credit ratings or the credit ratings of our competitors; • issuances (or sales by our stockholders) of capital stock; • general market conditions; • global economic, legal and regulatory factors unrelated to our performance; and • the realization of any of the risks described in this section, or other risks that may materialize in the future.
The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including: • quarterly variations in our operating results compared to market expectations; • changes in preferences of our customers; • announcements of new products, significant price reductions or other strategic actions by us or our competitors; • public reactions to our press releases, public announcements and/or filings with the SEC; • speculation in the press or investment community; • size of our public float; • stock price performance and valuations of our competitors; • fluctuations in stock market prices and volumes; • default on our indebtedness; • actions by competitors or other shopping center tenants; 23 • changes in senior management or key personnel; • actions by our stockholders; • changes in financial estimates by securities analysts or our failure to meet any such estimates; • negative earnings or other announcements by us or other retail apparel companies; • downgrades in our credit ratings or the credit ratings of our competitors; • issuances (or sales by our stockholders) of capital stock; • general market conditions; • global economic, legal and regulatory factors unrelated to our performance; and • the realization of any of the risks described in this section, or other risks that may materialize in the future.
In addition to future minimum lease payments, some of our store leases provide for additional rental payments based on a percentage of net sales, or “percentage rent,” if sales at the respective stores exceed specified levels, as well as the payment of common area maintenance charges, real property insurance and real estate taxes.
In addition to future minimum lease payments, some of our store leases provide for additional rental payments based on a percentage of net sales, or "percentage rent," if sales at the respective stores exceed specified levels, as well as the payment of common area maintenance charges, real property insurance and real estate taxes.
In addition, any interruption in the operation of our websites, particularly our e-Commerce site, could cause us to suffer reputational harm or to lose sales if customers are unable to access our site or purchase merchandise from us during such interruption. The efficient operation and successful growth of our business depends upon our information systems.
In addition, any interruption in the operation of our website, particularly our e-Commerce site, could cause us to suffer reputational harm or to lose sales if customers are unable to access our site or purchase merchandise from us during such interruption. The efficient operation and successful growth of our business depends upon our information systems.
Therefore we are vulnerable to changes in consumer preference and demand between the time we design and order our merchandise and the season in which this merchandise will be sold. Inventory levels for certain merchandise styles may exceed planned levels, leading to higher markdowns to sell through excess inventory and, therefore, lower than planned margins.
Therefore, we are vulnerable to changes in consumer preferences and demand between the time we design and order our merchandise and the season in which this merchandise will be sold. Inventory levels for certain merchandise styles may exceed planned levels, leading to higher markdowns to sell through excess inventory and, therefore, lower than planned margins.
In Canada, where we operate, the Personal Information Protection and Electronic Documents Act (“PIPEDA”), and various provincial laws require that companies give detailed privacy notices to consumers; obtain consent to use personal information, with limited exceptions; allow individuals to access and correct their personal information; and report certain data breaches.
In Canada, where we operate, the Personal Information Protection and Electronic Documents Act ("PIPEDA") and various provincial laws require that companies give detailed privacy notices to consumers; obtain consent to use personal information, with limited exceptions; allow individuals to access and correct their personal information; and report certain data breaches.
See also “—We source a significant amount of our product receipts from China, which exposes us to risks inherent in doing business there” and “—Changes in tax laws or regulations or in our operations may impact our effective tax rate and may adversely affect our business, financial condition and results of operations.” We source a significant amount of our product receipts from China, which exposes us to risks inherent in doing business there.
See also "—We source a significant amount of our product receipts from China, which exposes us to risks inherent in doing business there" and "—Changes in tax laws or regulations or in our operations may impact our effective tax rate and may adversely affect our business, financial condition and results of operations." We source a significant amount of our product receipts from China, which exposes us to risks inherent in doing business there.
Any claims could result in litigation against us and could also result in regulatory proceedings being brought against us by various federal and state agencies that regulate our business, including the United States Equal Employment Opportunity Commission, the Federal Trade Commission or the Consumer Product Safety Commission.
Any claims could result in litigation against us and could also result in regulatory proceedings being brought against us by various federal and state agencies that regulate our business, including the United States Equal Employment Opportunity Commission, the FTC or the Consumer Product Safety Commission.
Under the rules of the NYSE, a company of which more than 50% of the outstanding voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain stock exchange corporate governance requirements, including: • the requirement that a majority of our board of directors consists of independent directors; • the requirement that nominating and corporate governance matters be decided solely by independent directors; and • the requirement that employee and officer compensation matters be decided solely by independent directors.
Under the rules of the NYSE, a company of which more than 50% of the outstanding voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain stock exchange corporate governance requirements, including: • the requirement that a majority of our board of directors consists of independent directors; • the requirement that nominating and corporate governance matters be decided solely by independent directors; and • the requirement that employee and officer compensation matters be decided solely by independent directors.
Among other things, these provisions: 26 • would allow us to authorize the issuance of undesignated preferred stock in connection with a stockholder rights plan or otherwise, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock; • prohibit stockholder action by written consent from and after the date on which Sycamore, Sycamore Partners Torrid, L.L.C. and each of their respective affiliates (the “Sycamore Investors”) cease to beneficially own at least 50% of the total voting power of all then outstanding shares of our common stock (the “Trigger Event”) unless such action is recommended by all directors then in office; • provide that our board of directors is expressly authorized to make, alter, or repeal our bylaws and that from and after the Trigger Event our stockholders may only amend our bylaws with the approval of 75% or more of all of the outstanding shares of our capital stock entitled to vote; and • establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
Among other things, these provisions: • would allow us to authorize the issuance of undesignated preferred stock in connection with a stockholder rights plan or otherwise, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend or other rights or preferences superior to the rights of the holders of common stock; • prohibit stockholder action by written consent from and after the date on which Sycamore, Sycamore Partners Torrid, L.L.C. and each of their respective affiliates (the "Sycamore Investors") cease to beneficially own at least 50% of the total voting power of all then outstanding shares of our common stock (the "Trigger Event") unless such action is recommended by all directors then in office; • provide that our board of directors is expressly authorized to make, alter, or repeal our bylaws and that from and after the Trigger Event our stockholders may only amend our bylaws with the approval of 75% or more of all of the outstanding shares of our capital stock entitled to vote; and 24 • establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
See also “—The interruption of the flow of merchandise from 22 international manufacturers could disrupt our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports” and “—We source a significant amount of our product receipts from China, which exposes us to risks inherent in doing business there.” Presidential and congressional elections in the United States could also result in significant changes in, and uncertainty with respect to, tax legislation, regulation and government policy directly affecting us and our business.
See also "—The interruption of the flow of merchandise from international manufacturers could disrupt our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports" and "—We source a significant amount of our product receipts from China, which exposes us to risks inherent in doing business there." Presidential and congressional elections in the United States could also result in significant changes in, and uncertainty with respect to, tax legislation, regulation and government policy directly affecting us and our business.
Our stores benefit from the ability of a shopping center’s other tenants, particularly anchor stores, such as department stores, to generate consumer traffic in the vicinity of our stores and maintain the overall popularity of the shopping center as a shopping destination.
Our stores in shopping centers benefit from the ability of other tenants, particularly anchor stores, such as department stores, to generate consumer traffic in the vicinity of our stores and maintain the overall popularity of the shopping center as a shopping destination.
Our customers also engage with us online through our social media channels, including Facebook, Instagram, Pinterest and Twitter, by providing feedback and public commentary about all aspects of our business.
Our customers also engage with us online through our social media channels, including Facebook, Instagram, Pinterest, TikTok, YouTube and Twitter, by providing feedback and public commentary about all aspects of our business.
Any such claims, proceedings or actions could hurt our reputation, brand and business, force us to incur significant expenses in defense of such proceedings or actions, distract our management, increase our costs of doing business, result in a loss of customers, suppliers or vendors and result in the imposition of monetary penalties.
Any such claims, proceedings or actions may also hurt our reputation, brand and business, force us to incur significant expenses in defense of such proceedings or actions, distract our management, increase our costs of doing business, result in a loss of customers, suppliers or vendors and result in the imposition of monetary penalties.
We currently rely upon independent third-party transportation providers for substantially all of our product shipments, including shipments to our distribution centers, to and from all of our stores and to our customers.
We currently rely upon independent third-party transportation providers for substantially all of our product shipments, including shipments to our distribution center, to and from all of our stores and to our customers.
In addition, Section 22 of the Securities Act of 1933, as amended ("Securities Act") creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
General Risk Factors We depend on key members of our executive management team and may not be able to retain or replace these individuals or recruit additional personnel, which could harm our business. We depend on the leadership and experience of key members of our executive management team.
We depend on key members of our executive management team and may not be able to retain or replace these individuals or recruit additional personnel, which could harm our business. We depend on the leadership and experience of key members of our executive management team.
See also “—The interruption of the flow of merchandise from international manufacturers could disrupt our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports” and “—Changes in tax laws or regulations or in our operations may impact our effective tax rate and may adversely affect our business, financial condition and results of operations.” If the distribution facilities servicing our business were to encounter difficulties or if they were to shut down for any reason, we could face shortages of inventory in our stores, delayed shipments to our e-Commerce customers and harm to our reputation.
See also "—The interruption of the flow of merchandise from international manufacturers could disrupt our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports" and "—Changes in tax laws or regulations or in our operations may impact our effective tax rate and may adversely affect our business, financial condition and results of operations." If our distribution facility were to encounter difficulties or if it were to shut down for any reason, we could face shortages of inventory in our stores, delayed shipments to our e-Commerce customers and harm to our reputation.
We source the majority of our merchandise from manufacturers located outside of the U.S., including a significant amount from Asia. China and the United States have each previously imposed tariffs on exports from the other in an escalating trade war.
We source the majority of our merchandise from manufacturers located outside of the U.S., including a significant amount from Asia. China and the United States have each previously imposed tariffs on exports from the other in a trade war, and an escalation of the trade war remains a possibility.
In fiscal year 2021, we sourced 52% of our products from manufacturing partners in China. Additionally, our manufacturing partners outside of China may source their own raw materials from third parties in other countries, including China. With the rapid development of the Chinese economy, the cost of labor has increased and may continue to increase in the future.
In fiscal year 2022, we sourced approximately 56% of our products from manufacturing partners in China. Additionally, our manufacturing partners outside of China may source their own raw materials from third parties in other countries, including China. With the rapid development of the Chinese economy, the cost of labor has increased and may continue to increase in the future.
("Sycamore") controlled the voting power of a majority of our common stock. As a result, we are a “controlled company” within the meaning of the applicable stock exchange corporate governance standards.
("Sycamore") controlled the voting power of a majority of our common stock. As a result, we are a "controlled company" within the meaning of the applicable stock exchange corporate governance standards.
To the extent the COVID-19 pandemic adversely affects our business, financial condition, results of operations, cash flows and prospects, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.
To the extent the COVID-19 pandemic, or any other future pandemic, adversely affects our business, financial condition, results of operations, cash flows and prospects, it may also have the effect of heightening many of the other risks described in this "Risk Factors" section, such as those relating to our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.
Other events that could also cause disruptions to our supply chain include: • the imposition of additional trade law provisions or regulations; • the imposition of additional duties, tariffs and other charges on imports and exports, including as a result of the escalating trade war between China and the United States; • quotas imposed by bilateral textile agreements; • foreign currency fluctuations; • natural disasters; • public health issues and epidemic diseases, their effects (including any disruptions they may cause) or the perception of their effects, such as the ongoing novel coronavirus outbreak originating in China; • theft; • restrictions on the transfer of funds; • the financial instability or bankruptcy of manufacturers; and • significant labor disputes, such as dock strikes.
Other events that could also cause disruptions to our supply chain include: • the imposition of additional trade law provisions or regulations; • the imposition of additional duties, tariffs and other charges on imports and exports, including as a result of the trade war between China and the United States; • quotas imposed by bilateral textile agreements; • foreign currency fluctuations; 15 • natural disasters; • public health issues and epidemic diseases, their effects (including any disruptions they may cause) or the perception of their effects, such as the COVID-19 pandemic; • theft; • restrictions on the transfer of funds; • the financial instability or bankruptcy of manufacturers; and • significant labor disputes, such as dock strikes.
Any of these outcomes could have a material adverse effect on our business and harm our reputation. 18 In addition to our distribution facilities, our corporate offices are also vulnerable to damage from natural disasters, fire, public health issues and other unexpected events which could cause us to experience significant disruption in our business, resulting in lost sales and productivity, and causing us to incur significant costs to repair, any of which could have a material adverse effect on our business.
In addition to our distribution facility, our corporate offices are also vulnerable to damage from natural disasters, fire, public health issues and other unexpected events which could cause us to experience significant disruption in our business, resulting in lost sales and productivity, and causing us to incur significant costs to repair, any of which could have a material adverse effect on our business.
The spread of COVID-19 has disrupted, and continues to significantly disrupt, local, regional, and global economies and businesses in the countries in which we operate, as well as adversely affected workforces, customers, consumer sentiment, economies and financial markets, and has impacted our financial results.
The spread of COVID-19 disrupted, and may continue to disrupt, local, regional and global economies and businesses in the countries in which we operate, as well as adversely affected workforces, customers, consumer sentiment, economies and financial markets, and impacted our financial results.
These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.
The various laws and regulations applicable to public companies also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.
If any of these third parties fails to perform their obligations to us or declines to provide services to us in the future, we may suffer a disruption to our business. Furthermore, we may be unable to provide these services or implement substitute arrangements on a timely basis on terms favorable to us.
If any of these third parties fails to perform its obligations to us or declines to provide services to us in the future, we may suffer a disruption to our business or increased costs. Furthermore, we may be unable to provide these services or implement substitute arrangements on a timely and cost-effective basis on terms favorable to us.
Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data.
Additionally, the FTC and many state attorneys general are interpreting existing federal and state consumer protection laws to impose expanded standards for the online collection, use, dissemination and security of data.
If we are unable to design, implement and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley, we may not be able to report our financial results in a timely and reliable manner, which could have a material adverse effect on our business and stock price. We previously identified material weaknesses in our internal control over financial reporting.
If we are unable to design, implement and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), we may not be able to report our financial results in a timely and reliable manner, which could have a material adverse effect on our business and stock price.
See “Note 12—Debt Financing Arrangements.” Risks Related to Ownership of Our Common Stock We are a “controlled company” and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. In addition, Sycamore’s interests may conflict with our interests and the interests of other stockholders. As of January 29, 2022, Sycamore Partners Management, L.P.
See "Note 12—Debt Financing Arrangements." Risks Related to Ownership of Our Common Stock We are a "controlled company" and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. In addition, Sycamore’s interests may conflict with our interests and the interests of other stockholders. As of January 28, 2023, Sycamore Partners Management, L.P.
In addition, we believe that our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel. There is a high level of competition for experienced, successful personnel in the retail industry.
In addition, we believe that our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel. There is a high level of competition for experienced, successful personnel in the retail industry. Our inability to meet our staffing requirements in the future could impair our growth and harm our business.
Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares.
Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares. In the future, we may also issue securities if we need to raise capital.
For a description of our debt service obligations, including mandatory repayments, under the New Term Loan Credit Agreement, see “Note 12—Debt Financing Arrangements.” Our level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. We also have, and will continue to have, significant lease obligations.
For a description of our debt service obligations, including mandatory repayments, under the New Term Loan Credit Agreement, see "Note 12— 21 Debt Financing Arrangements." Our level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness.
Specifically, the CCPA mandates that covered companies provide new disclosures to California consumers and afford such consumers new data privacy rights that include, among other things, the right to request a copy from a covered company of the personal information collected about them, the right to request deletion of such personal information, and the right to request to opt-out of certain sales of such personal information.
Among other operational requirements for covered companies, the CCPA mandates that covered companies provide new disclosures to California consumers and afford such consumers data privacy rights that include, among other things, the right to request a copy from a covered company of the personal information collected about them, the right to request correction or deletion of such personal information, and the right to request to opt-out of certain sales, or disclosures for the purposes of cross-context behavioral advertising, of such personal information.
If we encounter difficulties associated with our distribution facilities, including operational difficulties in connection with fully transitioning to our facility in West Jefferson, Ohio, or in our relationship with the third party operating our facilities or our facilities were to shut down for any reason, including as a result of fire or other natural disaster, public health issues (including COVID-19) or work stoppage, we could face shortages of inventory, resulting in “out of stock” conditions in our stores, incur significantly higher costs and longer lead times associated with distributing our products to both our stores and e-Commerce customers and experience dissatisfaction from our customers.
If we encounter difficulties associated with our distribution facility or our facility were to shut down for any reason, including as a result of fire or other natural disaster, public health issues (including COVID-19) or work stoppage, we could face shortages of inventory, resulting in "out of stock" conditions in our stores, incur significantly higher costs and longer lead times associated with distributing our products to both our stores and e-Commerce customers and experience dissatisfaction from our customers.
As of January 29, 2022, the estimated annual future occupancy payments for lease terms that include periods covered by options to extend some of our leases was $301.0 million. Our indebtedness and lease obligations could have other important consequences to you and significant effects on our business.
We also have, and will continue to have, significant lease obligations. As of January 28, 2023, the estimated annual future occupancy payments for lease terms that include periods covered by options to extend some of our leases was $257.4 million. Our indebtedness and lease obligations could have other important consequences to you and significant effects on our business.
Our business depends in part on a strong brand image, and if we are not able to maintain and enhance our brand, particularly among our target segment and in new markets where we have limited brand recognition, we may be unable to attract sufficient numbers of customers to our stores or sell sufficient quantities of our products.
The failure of our product offerings to appeal to our customers could have a material adverse effect on our business, results of operations and financial condition. 9 Our business depends in part on a strong brand image, and if we are not able to maintain and enhance our brand, particularly among our target segment and in new markets where we have limited brand recognition, we may be unable to attract sufficient numbers of customers to our stores or sell sufficient quantities of our products.
The efficient flow of our merchandise requires that our distribution facilities be operated effectively and have adequate capacity to support our current level of operations and any anticipated increased levels that may follow from the growth of our business.
The success of our stores depends on their timely receipt of merchandise. The efficient flow of our merchandise requires that our distribution facility be 16 operated effectively and have adequate capacity to support our current level of operations and any anticipated increased levels that may follow from the growth of our business.
Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.
Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation. War, terrorism and other catastrophes could negatively impact our customers, places where we do business and our expenses.
Weakened economic conditions and a slowdown in the economy could also adversely affect shopping center traffic and new shopping center development, which could materially adversely affect us, even though we are a destination for our customers.
Weakened economic conditions and a slowdown in the economy could also adversely affect shopping center traffic and new shopping center development, which could materially adversely affect us.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline.
If securities or industry analysts publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline. The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business.
We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.
We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business. 17 Federal and state governmental authorities continue to evaluate the privacy implications inherent in the use of third-party "cookie" and other methods of online tracking for behavioral advertising and other purposes.
Our inability to do so may cause our occupancy costs to be higher in future years or may force us to close stores in desirable locations. 13 A majority of our leases have early termination clauses, which permit the lease to be terminated by us if certain sales levels are not met in specific periods or if the center does not meet specified occupancy standards.
A majority of our leases have early termination clauses, which permit the lease to be terminated by us if certain sales levels are not met in specific periods or if the center does not meet specified occupancy standards.
Litigation and other claims and regulatory proceedings against us could result in unexpected expenses, legal liability and injunctions against us or restrictions placed upon us, which could disrupt our operations, preclude us from selling products, or otherwise have a material adverse effect on our operations, financial results and our reputation. 21 In addition, we may be subject to liability if we infringe the trademarks or other intellectual property rights of third parties.
Litigation and other claims and regulatory proceedings against us could result in unexpected expenses, legal liability and injunctions against us or restrictions placed upon us, which could disrupt our operations, preclude us from selling products, or otherwise have a material adverse effect on our operations, financial results and our reputation.
In the future, we may also issue our securities if we need to raise capital in connection with a capital raise or acquisitions. The amount of shares of our common stock issued in connection with a capital raise or acquisition could constitute a material portion of our then-outstanding shares of our common stock.
The amount of shares of our common stock issued in connection with a capital raise or acquisition could constitute a material portion of our then-outstanding shares of our common stock.
Each of these results would reduce our future sales and profit margins, which in turn could materially and adversely affect our business and results of operations.
A decline in the sales and operating results of our products could in turn materially and adversely affect our ability to pursue our growth strategy. Each of these results would reduce our future sales and profit margins, which in turn could materially and adversely affect our business and results of operations.
In addition, various federal and state legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection, consumer protection, and advertising.
In addition, various federal and state legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection, consumer protection, and advertising. For example, on January 1, 2023, the CPRA amendments to the CCPA came into force.
Our New Term Loan Credit Agreement has a maturity date of June 14, 2028. As of January 29, 2022, we had $341.4 million of outstanding indebtedness, net of unamortized OID and financing costs, consisting of loans under the New Term Loan Credit Agreement.
Our New Term Loan Credit Agreement has a maturity date of June 14, 2028. As of January 28, 2023, we had $329.2 million of outstanding indebtedness, net of unamortized original issue discount ("OID") and financing costs, consisting of loans under the New Term Loan Credit Agreement and borrowings under the Existing ABL, as amended.
We typically occupy our stores under operating leases with initial terms of up to ten years. In the future, we may not be able to negotiate favorable lease terms.
We typically occupy our stores under operating leases with initial terms of up to ten years. In the future, we may not be able to negotiate favorable lease terms. Our inability to do so may cause our occupancy costs to be higher in future years or may force us to close stores in desirable locations.
In connection with our sourcing activities, we rely on vendors to help us source products. If any of these third parties fails to perform their obligations to us or declines to provide services to us in the future, we may suffer a disruption to our business or increased costs.
We rely on third parties to provide us with certain key services for our business. If any of these third parties fails to perform its obligations to us or declines to provide services to us in the future, we may suffer a disruption to our business.
The California Attorney General can enforce the CCPA, including seeking an injunction and civil penalties for violations. The CCPA also provides a private right of action for certain data breaches that is expected to increase data breach litigation. Additionally, a new privacy law, the California Privacy Rights Act (“CPRA”), was approved by California voters in the November 3, 2020 election.
The California Attorney General and a standalone California data privacy agency can enforce the CCPA, including seeking an injunction and civil penalties for violations. The CCPA also provides a private right of action for certain data breaches that is expected to increase data breach litigation.
Our stores are primarily located in shopping centers, and some of these shopping centers have been experiencing declines in customer traffic, including as a result of the COVID-19 pandemic. While we believe we are a destination for our customers, our sales at these stores are impacted by the volume of customer traffic in those shopping centers and the surrounding area.
While we believe we are a destination for our customers, our sales at these stores are impacted by the volume of customer traffic in those 10 shopping centers and the surrounding area.
Each of these privacy, security, and data protection laws and regulations, and any other such changes or new laws or regulations, could impose significant limitations, require changes to our business, or restrict our use or storage of personal information, which may increase our compliance expenses and make our business more costly or less efficient to conduct.
Despite our compliance efforts, we may become subject to claims that we have violated the PCI Data Security Standard, based on past, present, and future business practices, which could have an adverse impact on our business and reputation. 18 Each of these privacy, security, and data protection laws and regulations, and any other such changes or new laws or regulations, could impose significant limitations, require changes to our business, or restrict our use or storage of personal information, which may increase our compliance expenses and make our business more costly or less efficient to conduct.
In addition, the continuation of the global outbreak of COVID-19 may adversely affect the economies and financial markets of many countries and could result in a sustained reduction in the demand for our products. A decline in the sales and operating results of our products could in turn materially and adversely affect our ability to pursue our growth strategy.
In addition, the continuation of the global outbreak of COVID-19, or any other future pandemic, may adversely affect the economies and financial markets of many countries and could result in a sustained reduction in the demand for our products.
Our business is sensitive to consumer spending and general economic conditions, and an economic slowdown could adversely affect our financial performance. Consumer purchases of discretionary items, including our products, generally decline during recessionary periods and other periods where disposable income is adversely affected.
Consumer purchases of discretionary items, including our products, generally decline during recessionary periods and other periods where disposable income is adversely affected. Our performance is subject to factors that affect domestic and worldwide economic conditions, particularly those that affect our target demographic.
Damage to our reputation or loss of consumer confidence for any of these reasons could have a material adverse effect on our business, financial condition and results of operations, as well as require additional resources to rebuild our reputation. 11 We could face increased competition from other brands or retailers that could adversely affect our ability to generate higher net sales and margins, as well as our ability to obtain favorable store locations.
Damage to our reputation or loss of consumer confidence for any of these reasons could have a material adverse effect on our business, financial condition and results of operations, as well as require additional resources to rebuild our reputation.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeState Number of Stores AK 2 MD 12 PR 2 AL 7 ME 2 RI 2 AR 7 MI 21 SC 6 AZ 14 MN 13 SD 2 CA 56 MO 12 TN 15 CO 12 MS 5 TX 55 CT 7 MT 2 UT 7 DE 2 NC 17 VA 14 FL 35 ND 3 VT 1 GA 19 NE 3 WA 16 HI 3 NH 6 WI 15 IA 8 NJ 17 WV 5 ID 3 NM 5 WY 1 IL 24 NV 7 Number of Stores IN 18 NY 20 Canada KS 3 OH 28 CAN-AB 4 KY 9 OK 7 CAN-BC 2 LA 9 OR 8 CAN-MB 1 MA 10 PA 23 CAN-ON 17
Biggest changeState Number of Stores AK 2 ME 2 SC 6 AL 7 MI 22 SD 2 AR 6 MN 14 TN 15 AZ 15 MO 12 TX 57 CA 59 MS 5 UT 7 CO 12 MT 2 VA 15 CT 8 NC 17 VT 1 DE 2 ND 3 WA 16 FL 36 NE 3 WI 15 GA 19 NH 6 WV 5 HI 3 NJ 18 WY 1 IA 8 NM 5 ID 3 NV 7 Number of Stores IL 23 NY 19 Canada IN 17 OH 28 CAN-AB 4 KS 3 OK 7 CAN-BC 2 KY 9 OR 8 CAN-MB 1 LA 10 PA 25 CAN-NB 1 MA 10 PR 2 CAN-ON 18 MD 12 RI 2 CAN-WN 2
Our stores are located primarily in premium malls, strip centers, lifestyle centers or outlet locations. They perform consistently across all formats because, we believe, our stores serve as a shopping destination for our customers and are therefore less dependent on broader traffic trends. The average size of our stores is approximately 3,000 square feet.
Our stores are located primarily in premium malls, strip centers, lifestyle centers or outlet locations. They perform consistently across all formats because, we believe, our stores serve as a shopping destination for our customers and are therefore less dependent on broader traffic trends. The average size of our stores is approximately 3,100 square feet.
All of our stores are leased from third parties 29 and expect new leases to have initial terms of six years based on current discussions. A majority of our store leases, including all new leases signed since fiscal year 2013 include performance-based early termination provisions or “kickout” clauses.
All of our stores are leased from third parties and we expect new leases to have initial terms of six years based on current discussions. A majority of our store leases, including all new leases signed since fiscal year 2013 include performance-based early termination provisions or "kickout" clauses.
These clauses provide us the contractual flexibility to exit a store or renegotiate rent in the event a store’s performance deteriorates. Approximately 75% of current leases will have a termination or kickout within 3 years of the end of fiscal year 2021, providing us with significant flexibility.
These clauses provide us the contractual flexibility to exit a store or renegotiate rent in the event a store’s performance deteriorates. Approximately 70% of current leases will have a termination or kickout within 3 years of the end of fiscal year 2022, providing us with significant flexibility.
The leases also generally require us to pay real estate taxes, insurance and certain common area costs. We renegotiate with landlords to obtain more favorable terms as opportunities arise. The table below sets forth the number of Torrid stores by U.S. state or Canadian province that we operated as of January 29, 2022. U.S. State Number of Stores U.S.
The leases also generally require us to pay real estate taxes, insurance and certain common area costs. We renegotiate with landlords to obtain more favorable terms as opportunities arise. 27 The table below sets forth the number of Torrid stores by U.S. state or territory or Canadian province that we operated as of January 28, 2023. U.S.
Item 2. Properties We are headquartered in City of Industry, California. Our principal executive offices are leased under a lease agreement expiring in 2024, with options to renew thereafter. We do not own any real property. As of January 29, 2022, we operated 624 stores in 50 U.S. states, Puerto Rico and Canada.
Item 2. Properties We are headquartered in City of Industry, California. Our principal executive offices are leased under a lease agreement expiring in 2024, with options to renew thereafter. We do not own any real property. As of January 28, 2023, we operated 639 stores in 50 U.S. states, Puerto Rico and Canada.
The average remaining lease term was 4.0 years as of January 29, 2022, before the assumed benefit of kickout clauses. Assuming termination of each lease at the earlier of its first available kickout date or full term, the average remaining lease term was 1.9 years as of January 29, 2022.
The average remaining lease term was 3.4 years as of January 28, 2023, before the assumed benefit of kickout clauses. Assuming termination of each lease at the earlier of its first available kickout date or full term, the average remaining lease term was 2.0 years as of January 28, 2023.
Substantially all of our store leases also include early termination provisions based on co-tenancy requirements for the shopping center. Given the positive performance trajectory of our stores, we have historically exercised these kick-out or co-tenancy termination provisions on a limited basis. In fiscal year 2019, 46 leases were on variable rent structures which represented 8% of total leases.
Substantially all of our store leases also include early termination provisions based on co-tenancy requirements for the shopping center. Given the positive performance trajectory of our stores, we have historically exercised these kick-out or co-tenancy termination provisions on a limited basis.
In fiscal year 2020, we transitioned 87 leases to variable rent structures. As of January 29, 2022, 22% of our total leases were on variable rent structures, providing additional flexibility to our store fleet going forward. A number of our leases have built-in options to extend our tenancy for periods of up to five years.
As of January 28, 2023, 56% of our total leases were on variable rent structures, providing additional flexibility to our store fleet going forward. A number of our leases have built-in options to extend our tenancy for periods of up to five years.
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State Number of Stores U.S. State Number of Stores U.S.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe 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 4. Mine Safety Disclosures Not applicable. 30 Part II
Biggest changeWe 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 4. Mine Safety Disclosures Not applicable. 28 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRepurchases 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.
Biggest changeShare Repurchases On December 6, 2021, our board of directors authorized a 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.
The graph assumes $100 was invested at the market close on July 1, 2021, which was the first day our common stock began trading and its relative performance is tracked through January 29, 2022. Data for the S&P 500 Index, and the S&P Retail Select Industry Index assume reinvestment of dividends, if any.
The graph assumes $100 was invested at the market close on July 1, 2021, which was the first day our common stock began trading and its relative performance is tracked through January 27, 2023. Data for the S&P 500 Index and the S&P Retail Select Industry Index assume reinvestment of dividends, if any.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The principal market on which our stock is traded is the New York Stock Exchange under the symbol "CURV" and began trading on July 1, 2021. Prior to that date there was no public trading market for our common stock. Our website is www.torrid.com.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the New York Stock Exchange under the symbol "CURV" and began trading on July 1, 2021. Prior to that date there was no public trading market for our common stock. Our website is www.torrid.com.
The number of holders of record of our stock as of March 28, 2022 was 36. Stock Performance Graph This performance graph shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing of Torrid Holdings, Inc. under the Securities Act or the Exchange Act.
The number of holders of record of our common stock as of March 22, 2023 was 35. Stock Performance Graph This performance graph shall not be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing of Torrid Holdings Inc. under the Securities Act or the Exchange Act.
Additionally, our operating subsidiaries are currently restricted from paying cash dividends by the agreements governing their indebtedness, and we expect these restrictions to continue in the future. We are not obligated to pay dividends on our common stock.
Additionally, our operating 29 subsidiaries are currently restricted from paying cash dividends by the agreements governing their indebtedness, and we expect these restrictions to continue in the future. We are not obligated to pay dividends on our common stock. Recent Sales of Unregistered Securities and Use of Proceeds None.
(in dollars) July 01, 2021 January 29, 2022 Torrid Holdings Inc. $ 100.00 $ 36.52 S&P 500 $ 100.00 $ 102.59 S&P 500 Retail Select Industry $ 100.00 $ 80.83 31 Dividends We have never declared nor paid any cash dividends on our common stock.
(in dollars) July 1, 2021 January 28, 2023 Torrid Holdings Inc. $ 100.00 $ 15.36 S&P 500 $ 100.00 $ 94.23 S&P 500 Retail Select Industry $ 100.00 $ 71.18 Dividends We have never declared nor paid any cash dividends on our common stock.
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 January 29, 2022, we had approximately $76.6 million remaining under the repurchase program.
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.
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Use of Proceeds 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.
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During the three months ended January 28, 2023, we did not repurchase any shares of our common stock. As of January 28, 2023, we had approximately $44.9 million remaining under the repurchase program. Item 6. [Reserved] 30
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On July 6, 2021, 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.
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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. Recent Sales of Unregistered Securities None.
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Share Repurchases On December 6, 2021, our board of directors authorized a new share repurchase program under which we may purchase up to $100.0 million of our outstanding common stock.
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The following is a summary of our repurchases of common shares during the three months ended January 29, 2022.
Removed
Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs October 31 - November 30 — $ — — $ — December 1 - December 31 1,209,529 $ 10.90 1,209,529 $ 86,821,613 January 1 - January 29 1,105,737 $ 9.20 1,105,737 $ 76,647,957 2,315,266 $ 10.09 2,315,266 $ 76,647,957 Item 6. [Reserved] Not applicable. 32

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOur provision for income taxes 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. 36 Results of Operations Fiscal Year 2021 Compared to Fiscal Year 2020 The following table summarizes our consolidated results of operations for the periods indicated (dollars in thousands): Fiscal Year Ended January 30, 2021 % of Net Sales January 29, 2022 % of Net Sales Net sales $ 973,514 100.0 % $ 1,278,794 100.0 % Cost of goods sold 643,215 66.1 % 759,826 59.4 % Gross profit 330,299 33.9 % 518,968 40.6 % Selling, general and administrative expenses 222,098 22.8 % 420,932 33.0 % Marketing expenses 51,382 5.3 % 52,654 4.1 % Income from operations 56,819 5.8 % 45,382 3.5 % Interest expense 21,338 2.2 % 29,497 2.3 % Interest income, net of other (income) expense (42) 0.0 % 56 0.0 % Income before provision for income taxes 35,523 3.6 % 15,829 1.2 % Provision for income taxes 10,991 1.1 % 45,773 3.5 % Net income (loss) $ 24,532 2.5 % $ (29,944) (2.3) % The following table provides a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented (dollars in thousands): Fiscal Year Ended January 30, 2021 January 29, 2022 Net income (loss) $ 24,532 $ (29,944) Interest expense 21,338 29,497 Interest income, net of other (income) expense (42) 56 Provision for income taxes 10,991 45,773 Depreciation and amortization (A) 33,072 35,204 Share-based compensation (B) 7,791 159,754 Non-cash deductions and charges (C) 1,984 615 Other expenses (D) 1,131 4,898 Adjusted EBITDA $ 100,797 $ 245,853 (A) Depreciation and amortization excludes amortization of debt issuance costs and original issue discount that are reflected in interest expense.
Biggest changeThe following table provides a reconciliation of net income to Adjusted EBITDA for the periods presented (dollars in thousands): Fiscal Year Ended January 29, 2022 January 30, 2021 Net (loss) income $ (29,944) $ 24,532 Interest expense 29,497 21,338 Interest income, net of other expense (income) 56 (42) Provision for income taxes 45,773 10,991 Depreciation and amortization (A) 35,204 33,072 Share-based compensation (B) 159,754 7,791 Noncash deductions and charges (C) 615 1,984 Other expenses (D) 4,898 1,131 Adjusted EBITDA $ 245,853 $ 100,797 (A) Depreciation and amortization excludes amortization of debt issuance costs and original issue discount that are reflected in interest expense.
Marketing expenses as a percentage of net sales decreased by 1.2% to 4.1% in fiscal year 2021 from 5.3% in fiscal year 2020. This decrease was driven by leverage of our marketing expenses as a result of higher net sales volume. Interest Expense Interest expense was $29.5 million for fiscal year 2021, compared to $21.3 million for fiscal year 2020.
Marketing expenses as a percentage of net sales decreased by 1.1% to 4.1% in fiscal year 2021 from 5.2% in fiscal year 2020. This decrease was driven by leverage of our marketing expenses as a result of higher net sales volume. Interest Expense Interest expense was $29.5 million for fiscal year 2021, compared to $21.3 million for fiscal year 2020.
The decrease in cash provided by operating activities was primarily as a result of increases in inventory purchases and prepaid income taxes and decreases in net income (loss) and operating lease liabilities and a lower increase in accounts payable compared to fiscal year 2020.
The decrease in cash provided by operating activities was primarily as a result of increases in inventory purchases and prepaid income taxes and decreases in net income (loss), operating lease liabilities and income taxes payable and a lower increase in accounts payable compared to fiscal year 2020.
The increase in cash used in investing activities was primarily as a result of an increase in capital expenditures related to the opening of new stores and store relocations and investments in our West Jefferson, Ohio distribution center during fiscal year 2021, compared to fiscal year 2020.
The increase in cash used in investing activities was primarily as a result of an increase in capital expenditures related to the opening of new stores, store relocations and investments in our West Jefferson, Ohio distribution center during fiscal year 2021, compared to fiscal year 2020.
We recognize amortization of financing costs and interest payments for the revolving credit facilities in interest expense in our consolidated statements of operations and comprehensive income (loss). Share Repurchases On December 6, 2021, our board of directors authorized a new share repurchase program under which we may purchase up to $100.0 million of our outstanding common stock.
We recognize amortization of financing costs and interest payments for the revolving credit facilities in interest expense in our consolidated statements of operations and comprehensive income (loss). Share Repurchases On December 6, 2021, our board of directors authorized a share repurchase program under which we may purchase up to $100.0 million of our outstanding common stock.
Our historical experience has not varied significantly from amounts historically recorded and we believe our assumptions are reasonable. While customer redemption patterns result in estimated gift card breakage, changes in our customers’ behavior could impact the amount that ultimately is unused and could affect the amount recognized as a component of net sales.
Our historical gift card redemption experience has not varied significantly from amounts historically recorded as breakage and we believe our assumptions are reasonable. While customer redemption patterns result in estimated gift card breakage, changes in 45 our customers’ behavior could impact the amount that ultimately is unused and could affect the amount recognized as a component of net sales.
For e-Commerce sales shipped to a customer from our distribution center, or from a retail store location (ship from store), we satisfy our performance obligation and recognize revenue upon shipment, which is the point in time we believe the customer obtains control of the merchandise after payment has been tendered.
For e-Commerce sales shipped to a customer from our distribution center, or from a retail store location (ship from store), we satisfy our performance obligation and recognize revenue upon shipment, which is the point in time the customer obtains control of the merchandise after payment has been tendered.
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.
These changes may adversely affect our results of operations. 32 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.
During the third quarter of fiscal year 2017, we incurred $0.5 46 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 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.
The preparation of financial statements in conformity with GAAP requires management to make estimates and certain assumptions about future 47 events that affect the classification and amounts reported in our consolidated financial statements and accompanying notes, including revenue and expenses, assets and liabilities, and the disclosure of contingent assets and liabilities.
The preparation of financial statements in conformity with GAAP requires management to make estimates and certain assumptions about future events that affect the classification and amounts reported in our consolidated financial statements and accompanying notes, including revenue and expenses, assets and liabilities, and the disclosure of contingent assets and liabilities.
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.
The incentive units did not have any voting 47 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.
If we elect the LIBOR rate, interest is due and payable on the last day of each interest period, unless an interest period exceeds three months, then the respective dates that fall every three months after the beginning of the interest period shall also 42 be interest payment dates.
If we elect the LIBOR rate, interest is due and payable on the last day of each interest period, unless an interest period exceeds three months, then the respective dates that fall every three months after the beginning of the interest period shall also be interest payment dates.
We satisfy our performance obligation and recognize revenue allocated to these 48 loyalty program points and the resulting awards at the point in time when the awards are redeemed for merchandise, when we determine that they will not be redeemed, or when the awards and points expire.
We satisfy our performance obligation and recognize revenue allocated to these loyalty program points and the resulting awards at the point in time when the awards are redeemed for merchandise, when we determine that they will not be redeemed, or when the awards and points expire.
The IBR is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The IBR is the rate of interest that we would have to pay to borrow 46 on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The lenders under this facility are not under any obligation to provide any such additional commitments, and any increase in commitments is subject to customary conditions precedent.
The lenders under this facility 42 are not under any obligation to provide any such additional commitments, and any increase in commitments is subject to customary conditions precedent.
In addition to paying interest on the outstanding Principal under the New Term Loan Credit Agreement, we are required to make fixed mandatory repayments of the Principal on the last business day of each fiscal quarter until maturity commencing with the second full fiscal quarter following the closing date (“Repayment”).
In addition to paying interest on the outstanding Principal under the New Term Loan Credit Agreement, we are required to make fixed mandatory repayments of the Principal on the last business day of each fiscal quarter until maturity commencing with the second full fiscal quarter following the closing date ("Repayment").
As share-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, the amount of expense has been reduced for actual forfeitures as they occur. Stock options are valued utilizing a Black-Scholes OPM.
As share-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, the amount of expense has been reduced for actual forfeitures as they occur. Stock options are valued utilizing a Black-Scholes options pricing model ("OPM").
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.
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 long-term 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.
We view net sales per active 33 customer as a key indicator of our customers’ purchasing patterns, including their initial and repeat purchase behavior and intend to closely monitor this metric going forward. Comparable Sales.
We view net sales per active customer as a key indicator of our customers' purchasing patterns, including their initial and repeat purchase behavior and intend to closely monitor this metric going forward. 31 Comparable Sales.
Under the New Term Loan Credit Agreement, we are also required to make variable mandatory prepayments of the Principal, under certain conditions as described below, approximately 102 days after the end of each fiscal year (each, a “Prepayment”).
Under the New Term Loan Credit Agreement, we are also required to make variable mandatory prepayments of the Principal, under certain conditions as described below, approximately 102 days after the end of each fiscal year (each, a "Prepayment").
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.
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 our board of directors.
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.
The assumptions underlying the valuation of the incentive units represented our best estimates, which involved inherent uncertainties and the application of our judgment. The most recent remeasurement of the fair value of the incentive units utilizing the CCA methodology was performed as of May 1, 2021.
Management believes the estimates and judgments most critical to the preparation of our consolidated financial statements and to the understanding of our reported financial results include those made in connection with revenue recognition, including accounting for gift card breakage, estimated merchandise returns and loyalty program expenses; estimating the value of inventory; determining operating lease liabilities; and estimating share-based compensation expense.
Management believes the estimates and judgments most critical to the preparation of our consolidated financial statements and to the understanding of our reported financial results include those made in connection with revenue recognition, including accounting for estimated merchandise returns and loyalty program expenses; estimating the value of inventory; determining operating lease liabilities; and estimating share-based compensation expense.
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, (iii) direct mail marketing costs and (iv) payroll and benefits expenses associated with our marketing team. Interest Expense.
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.
However, the periods covered by the options to extend the leases of our retail stores, vehicles and equipment are not recognized as part of the associated ROU assets and lease liabilities, as we are not reasonably certain to exercise the options.
However, the periods covered by the options to extend the leases of our retail stores, vehicles and equipment are not recognized as part of the associated right of use ("ROU") assets and lease liabilities, as we are not reasonably certain to exercise the options.
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 Annual Report on Form 10-K, 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 who is curvy and wears sizes 10 to 30.
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 Annual Report on Form 10-K, 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 who wears sizes 10 to 30.
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 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.
Options to terminate our leases have not been included in any lease terms as we are not reasonably certain to exercise those options. See “Note 9—Leases” contained in the consolidated financial statements and notes, included elsewhere in this Annual Report on Form 10-K for additional disclosure related to operating lease obligations.
Options to terminate our leases have not been included in any lease terms as we are not reasonably certain to exercise those options. See "Note 9—Leases" contained in the consolidated financial statements and notes, included elsewhere in this Annual Report on Form 10-K for additional disclosure related to operating lease obligations.
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 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 decrease in net cash provided by operating activities was partially offset by a $152.0 million increase in share-based compensation expense added back to net cash provided by operating activities as a non-cash adjustment.
The decrease in net cash provided by operating activities was partially offset by a $152.0 million increase in share-based compensation expense added back to net cash provided by operating activities as a noncash adjustment.
Share-Based Compensation Prior to our 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. These incentive units were intended to constitute profits interests.
Prior to our 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. These incentive units were intended to constitute profits interests.
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 was the legal obligor for the incentive units. The incentive units were valued utilizing a CCA methodology based on a Black-Scholes OPM.
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 was the legal obligor for the incentive units. The incentive units were valued utilizing a contingent claims analysis ("CCA") methodology based on a Black-Scholes OPM.
We discount the fixed lease payments that make up the lease liabilities using an incremental borrowing rate (“IBR”), as the rates implicit in our leases are not readily determinable.
We discount the fixed lease payments that make up the lease liabilities using an incremental borrowing rate ("IBR"), as the rates implicit in our leases are not readily determinable.
(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.
(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) Noncash deductions and charges includes losses on property and equipment disposals and the net impact of noncash rent 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.
(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) Noncash deductions and charges includes losses on property and equipment disposals and the net impact of noncash rent expense.
Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
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.
Material Events and Uncertainties 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 Annual Report on Form 10-K in the section titled “Risk Factors.” 34 Customer Acquisition Retention.
Material Events and Uncertainties 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 Annual Report on Form 10-K in the section titled "Risk Factors." Customer Acquisition and Retention.
We have not included any income tax audit settlement payments due in less than one year in the contractual obligations table above as we do not have any open income tax audits as of January 29, 2022 or any material gross unrecognized tax benefits for which the statutes of limitations are expected to expire in fiscal year 2022.
We have not included any income tax audit settlement payments due in less than one year in the contractual obligations table above as we do not have any open income tax audits as of January 28, 2023 or any material gross unrecognized tax benefits for which the statutes of limitations are expected to expire in fiscal year 2023.
We also use Adjusted EBITDA and Adjusted EBITDA margin as two 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.
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.
The decrease in net cash provided by operating activities was also partially offset by an increase in accrued and other current liabilities related to increases in accrued inventory in-transit and accrued payroll and related expenses, an increase in income taxes payable and an increase in due to related parties.
The decrease in net cash provided by operating activities was also partially offset by an increase in accrued and other current liabilities related to increases in accrued inventory in-transit and accrued payroll and related expenses and an increase in due to related parties.
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.
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.
Contractual Obligations We enter into long term contractual obligations and commitments in the normal course of business, primarily debt obligations, purchase obligations and non-cancelable operating leases. As of January 29, 2022, our contractual cash obligations over the next several periods are set forth below (dollars in thousands).
Contractual Obligations We enter into long-term contractual obligations and commitments in the normal course of business, primarily debt obligations, purchase obligations and non-cancelable operating leases. As of January 28, 2023, our contractual cash obligations over the next several periods are set forth below (dollars in thousands).
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”).
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").
Substantially all of the assets of Torrid LLC, Torrid LLC’s existing subsidiaries and Torrid Intermediate LLC secured all such obligations and the guarantees of those obligations, subject to certain exceptions.
Substantially all of the assets of Torrid LLC, Torrid LLC’s existing subsidiaries and Torrid Intermediate LLC will secure all such obligations and the guarantees of those obligations, subject to certain exceptions.
Following the pricing of our IPO, the vested portion of the incentive units was exchanged for 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 consolidated statement of operations.
Following the pricing of our IPO, the vested portion of the incentive units was exchanged for 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 consolidated statements of operations and comprehensive income (loss).
(2) Assumes an interest rate of approximately 6% per annum, consistent with the interest rate at January 29, 2022. (3) Amounts listed above do not include cash obligations related to relocation expenses in connection with the involuntary separation of certain employees due to the uncertainty regarding the amount of such expenses.
(2) Assumes an interest rate of approximately 10% per annum, consistent with the interest rate at January 28, 2023. (3) Amounts listed above do not include cash obligations related to relocation expenses in connection with the involuntary separation of certain employees due to the uncertainty regarding the amount of such expenses.
On October 23, 2017, we entered into an amended and restated credit agreement (“Existing ABL Facility”), which amended our Original ABL Facility.
On October 23, 2017, we entered into an amended and restated credit agreement ("Existing ABL Facility"), which amended our Original ABL Facility.
We elected this option; accordingly, we do not remeasure the lease liabilities or record a change to the ROU assets for any concessions we receive for our retail store leases.
We elected this option; accordingly, we did not remeasure the lease liabilities or record a change to the ROU assets for any concessions we received for our retail store leases.
We believe Adjusted EBITDA and Adjusted EBITDA margin facilitate 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 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.
Selling, general and administrative expenses as a percentage of net sales increased 10.2% to 33.0% in fiscal year 2021 from 22.8% in fiscal year 2020.
Selling, general and administrative expenses as a percentage of net sales increased 10.2% to 33.8% in fiscal year 2021 from 23.6% in fiscal year 2020.
The New Term Loan Credit Agreement provides for term loans in an initial aggregate amount of $350.0 million (“Principal”), 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 New Term Loan Credit Agreement provides for term loans in an initial aggregate amount of $350.0 million ("Principal"), which is recorded net of 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.
As of January 29, 2022, we were compliant with our debt covenants under the Existing ABL Facility, as amended. The Existing ABL Facility, as amended, specifically restricts dividends and distributions, aside from amounts to cover ordinary operating expenses and taxes, between our subsidiaries and to us.
At the end of fiscal year 2022, we were compliant with our debt covenants under the Existing ABL Facility, as amended. The Existing ABL Facility, as amended, specifically restricts dividends and distributions, aside from amounts to cover ordinary operating expenses and taxes, between our subsidiaries and to us.
Rather, deferred lease payments are recorded to operating lease liabilities until paid and lease concessions are recorded in the period they are negotiated or when the lower lease expense is paid.
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.
(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 for fiscal year 2021 increased $305.3 million, or 31.4%, to $1,278.8 million, from $973.5 million for fiscal year 2020.
(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 for fiscal year 2021 increased $313.1 million, or 31.8%, to $1,297.3 million, from $984.2 million for fiscal year 2020.
The lack of net sales seasonality provides structural cost advantages relative to peers, including reduced staffing cyclicality and seasonal distribution capacity needs. 35 Components of Our Results of Operations Net Sales.
The lack of net sales seasonality provides structural cost advantages relative to peers, including reduced staffing cyclicality and seasonal distribution capacity needs.
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 January 29, 2022, we had approximately $76.6 million remaining under the repurchase program.
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 January 28, 2023, we had approximately $44.9 million remaining under the repurchase program.
These measures are not measurements of our financial performance under GAAP and should not be considered in isolation or as alternatives to or substitutes for net income (loss), income (loss) from operations or any other performance measures determined in accordance with GAAP or as alternatives to cash flows from operating activities as a measure of our liquidity.
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 substitutes 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.
All scores, credit ratings and corresponding IBRs are highly subjective. 49 We choose not to separate nonlease components (such as common area maintenance charges and heating, ventilation and air conditioning charges), from lease components (such as fixed minimum rent payments), and instead account for each separate lease component and the nonlease components associated with that lease component as a single lease component.
We choose not to separate nonlease components (such as common area maintenance charges and heating, ventilation and air conditioning charges), from lease components (such as fixed minimum rent payments), and instead account for each separate lease component and the nonlease components associated with that lease component as a single lease component.
Treasury constant maturity interest rate whose term is consistent with the expected term of the stock options. The expected term of the stock options represents the estimated period of time until exercise and is calculated using the simplified method which deems the term to be the average of the time-to-vesting and the contractual life of the options.
The expected term of the stock options represents the estimated period of time until exercise and is calculated using the simplified method which deems the term to be the average of the time-to-vesting and the contractual life of the options.
The expected volatility is estimated based on the historical volatility of a select peer group of similar publicly traded companies for 50 a term that is consistent with the expected term of the stock options. The risk-free interest rates are based on the U.S.
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 PSUs. 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.
Among other limitations, Adjusted EBITDA does not reflect: • interest expense; • interest income, net of other (income) expense; • provision for income taxes; • depreciation and amortization; • share-based compensation; • non-cash deductions and charges; • other expenses; and • duplicative Ohio Distribution Center costs.
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; • noncash deductions and charges; and • other expenses.
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. We specifically design for stylish curvy women and 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.
Further, we recognize Adjusted EBITDA and Adjusted EBITDA margin as commonly used measures in determining business value and, as such, use them internally to report and analyze our results and we additionally use Adjusted EBITDA as a benchmark to determine certain non-equity incentive payments made to executives. Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools.
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.
On June 22, 2021, in connection with our IPO, we adopted the Torrid Holdings Inc. 2021 Long-Term Incentive Plan (the “2021 LTIP”), for employees, consultants and directors.
Share-Based Compensation On June 22, 2021, in connection with our IPO, our board of directors adopted the Torrid Holdings Inc. 2021 Long-Term Incentive Plan (the "2021 LTIP"), for employees, consultants and directors.
Adjusted EBITDA represents GAAP net income (loss) plus interest expense less interest income, net of other (income) expense, plus provision for less (benefit from) income taxes, depreciation and amortization (“EBITDA”), and share-based compensation, non-cash deductions and charges and other expenses. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of our total net sales.
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"), and share-based compensation, noncash deductions and charges and other expenses.
Net sales reflects our revenues from the sale of our merchandise, shipping and handling revenue received from e-Commerce sales and gift card breakage income, less returns, discounts and loyalty points/awards.
Net Sales. Net sales reflects our revenues from the sale of our merchandise, shipping and handling revenue received from e-Commerce sales, PLCC Funds (as defined in “Note 2–Summary of Significant Accounting Policies”) and gift card breakage income, less returns, discounts and loyalty points/awards.
If we elect the Base rate loan, interest is due and payable the last day of each calendar quarter. The elected interest rate on January 29, 2022 was approximately 6%.
If we elect the Base rate loan, interest is due and payable the last day of each calendar quarter. The elected interest rate at the end of fiscal year 2022 was approximately 10%.
If we were to request any such additional commitments and the existing lenders or new lenders were to agree to provide such commitments, the size of the Existing ABL Facility, as amended, could increase to up to $200.0 million, but our ability to borrow under this facility would still be limited by the amount of the borrowing base. 45 Borrowings under the Existing ABL Facility, as amended, bear interest at an annual rate equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 0.50% and (3) a LIBOR rate for an interest period of one month adjusted for certain costs, plus 1.00% or (b) at a LIBOR rate for the interest period relevant to such borrowing adjusted for certain costs (“Adjusted LIBOR”), in each case plus an applicable margin that ranges from 1.25% to 1.75% for LIBOR borrowings and 0.25% to 0.75% for base rate borrowings, in each case, based on average daily availability.
Borrowings under the Existing ABL Facility, as amended, bear interest at an annual rate equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 0.50% and (3) a LIBOR rate for an interest period of one month adjusted for certain costs, plus 1.00%, in each case, plus an applicable margin that ranges from 0.25% to 0.75% based on average daily availability; or (b) at a LIBOR rate for the interest period relevant to such borrowing adjusted for certain costs ("Adjusted LIBOR"), in each case plus an applicable margin that ranges from 1.25% to 1.75%, based on average daily availability.
During fiscal years 2019, 2020 and 2021, we amortized financing costs of $0.1 million in each period. During fiscal years 2019, 2020 and 2021, interest payments were $0.5 million, $0.6 million and $0.6 million, respectively.
During fiscal years 2022, 2021 and 2020, we amortized financing costs of $0.2 million, $0.1 million and $0.1 million, respectively. During fiscal years 2022, 2021 and 2020, interest payments were $1.8 million, $0.6 million and $0.6 million, respectively.
Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures of our operating performance that are 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.
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.
Fiscal Year Ended (in thousands, except net sales per active customer, number of stores and percentages) February 1, 2020 January 30, 2021 January 29, 2022 Active customers (as of end of period) (A) 3,364 3,182 3,821 Net sales per active customer (A) $ 308 $ 306 $ 335 Comparable sales (B) 13 % (7) % 31 % Number of stores (as of end of period) 607 608 624 Net income (loss) $ 41,869 $ 24,532 $ (29,944) Adjusted EBITDA (C) $ 131,999 $ 100,797 $ 245,853 Adjusted EBITDA margin (C) 13 % 10 % 19 % (A) Active customers and net sales per active customer calculated on a preceding four quarters basis.
Fiscal Year Ended (in thousands, except net sales per active customer, number of stores and percentages) January 28, 2023 January 29, 2022 January 30, 2021 Active customers (as of end of period) (A) 3,902 3,821 3,182 Net sales per active customer (A) $ 330 $ 340 $ 309 Comparable sales (B) (3) % 31 % (7) % Number of stores (as of end of period) 639 624 608 Net income (loss) $ 50,209 $ (29,944) $ 24,532 Adjusted EBITDA (C) $ 152,350 $ 245,853 $ 100,797 (A) Active customers and net sales per active customer calculated on a preceding four quarters basis.
As of January 29, 2022, total borrowings, net of OID and financing costs, of $341.4 million remain outstanding under the New Term Loan Credit Agreement. During fiscal year 2021, we recognized $14.0 million of interest expense and $0.9 million OID and financing costs related to the New Term Loan Credit Agreement.
At the end of fiscal year 2022, total borrowings, net of OID and financing costs, of $320.8 million remain outstanding under the New Term Loan Credit Agreement. During fiscal year 2022, we recognized $26.3 million of interest expense and $1.4 million OID and financing costs related to the New Term Loan Credit Agreement.
As of January 29, 2022, the applicable interest rate for borrowings under the Existing ABL Facility was approximately 4% per annum.
At the end of fiscal year 2022, the applicable interest rate for borrowings under the Existing ABL Facility, as amended, was approximately 8% per annum.
(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. (E) Represents the duplicative and start-up costs associated with our West Jefferson, Ohio distribution center leased in fiscal year 2018.
(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.
The increase in net cash used in financing activities is primarily as a result of the following activities during fiscal year 41 2021: (i) $300.0 million distribution to Torrid Holding LLC, (ii) principal payments on the Amended Term Loan Credit agreement of $210.7 million, (iii) $2.1 million prepayment penalty related to the Amended Term Loan Credit Agreement, (iv) tax payments of $2.1 million made on behalf of our employees related to the vesting of restricted stock awards and RSUs, (v) $0.7 million of deferred financing costs related to the 3rd Amendment to the Existing ABL Facility, as amended and (vi) $23.4 million for repurchases and retirement of common stock, partially offset by proceeds from the New Term Loan Credit Agreement of $340.5 million, net of OID and deferred financing costs and proceeds of $0.6 million for issuances under share-based compensation plans.
The increase in net cash used in financing activities is primarily as a result of the following activities during fiscal year 2021: (i) $300.0 million distribution to Torrid Holding LLC, (ii) principal payments on the Amended Term Loan Credit agreement of $210.7 million, (iii) $2.1 million prepayment penalty related to the Amended Term Loan Credit Agreement, (iv) tax payments of $2.1 million made on behalf of our employees related to the vesting of restricted stock awards and RSUs, (v) $0.7 million of deferred financing costs related to the 3rd Amendment to the Existing ABL Facility, as amended and (vi) $23.4 million for repurchases and retirement of common stock, partially offset by proceeds from the New Term Loan Credit Agreement of $340.5 million, net of OID and deferred financing costs and proceeds of $0.6 million for issuances under share-based compensation plans. 40 Debt Financing Arrangements For the stated periods, our debt financing arrangements consisted of the following (in thousands): January 28, 2023 January 29, 2022 Existing ABL Facility, as amended $ 8,380 $ — Term loan New Term Loan Credit Agreement 328,125 350,000 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 (5,928) (7,284) Total term loan outstanding, net of unamortized original issue discount and debt financing costs 320,841 341,360 Less: current portion of term loan, net of unamortized original issue discount and debt financing costs (16,144) (20,519) Total term loan, net of current portion and unamortized original issue discount and debt financing costs $ 304,697 $ 320,841 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.
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. 40 Cash Flow Analysis A summary of operating, investing and financing activities are shown in the following table (dollars in thousands): Year Ended February 1, 2020 January 30, 2021 January 29, 2022 Net cash provided by operating activities $ 99,090 $ 151,821 $ 121,220 Net cash used in investing activities (56,120) (11,570) (17,552) Net cash used in financing activities (23,335) (45,925) (197,809) Net Cash Provided By Operating Activities Operating activities consist primarily of net income (loss) adjusted for non-cash items, including depreciation and amortization and share-based compensation, the effect of working capital changes and taxes paid.
Cash Flow Analysis A summary of operating, investing and financing activities are shown in the following table (dollars in thousands): Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Net cash provided by operating activities $ 53,311 $ 121,220 $ 151,821 Net cash used in investing activities (23,369) (17,552) (11,570) Net cash used in financing activities (45,117) (197,809) (45,925) Net Cash Provided By Operating Activities Operating activities consist primarily of net income (loss) adjusted for noncash items, including depreciation and amortization and share-based compensation, the effect of working capital changes and taxes paid.
The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are uncertain. As a result of the COVID-19 pandemic, we temporarily closed our headquarters, distribution center and retail stores, required our employees and contractors to work remotely, and implemented travel restrictions.
The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are uncertain.
Under our loyalty program, customers accumulate points based on purchase activity and effective the second quarter of fiscal year 2019, qualifying non-purchase activity. Upon reaching a certain point level, customers can earn awards that may only be redeemed for merchandise.
Under our loyalty 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 activity and qualifying non-purchase activity. Unredeemed awards typically expire 45 days after issuance.
Net Cash Used In Financing Activities Financing activities consist primarily of borrowings and repayments related to our Existing ABL Facility, as amended, borrowings and repayments related to the Amended Term Loan Credit Agreement and New Term Loan Credit Agreement and fees and expenses paid in connection with entry into our Existing ABL Facility, as amended, and New Term Loan Credit Agreement and from the repayment and termination of the Amended Term Loan Credit Agreement.
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.
Interest expense consists primarily of interest expense and other fees associated with our Existing ABL Facility, as amended, Amended Term Loan Credit Agreement and New Term Loan Credit Agreement. On June 14, 2021, we repaid and terminated the Amended Term Loan Credit Agreement with borrowings under the New Term Loan Credit Agreement and amended our Existing ABL Facility.
Interest expense consists primarily of interest expense and other fees associated with our Existing ABL Facility, as amended and New Term Loan Credit Agreement. Provision for Income Taxes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−0 removed6 unchanged
Biggest changeAs of January 29, 2022, we had $341.4 million of outstanding variable rate loans under the New Term Loan Credit Agreement and no outstanding variable rate borrowings under the Existing ABL Facility, as amended.
Biggest changeAs of January 28, 2023, we had $320.8 million of outstanding variable rate loans under the New Term Loan Credit Agreement and $8.4 million of borrowings under the Existing ABL Facility, as amended.
An increase or decrease of 1% in the variable rates on the amount outstanding under the New Term Loan Credit Agreement will increase or decrease our annual interest expense by approximately $3.5 million. Foreign Exchange Risk The reporting currency for our consolidated financial statements is U.S. dollars.
An increase or decrease of 1% in the variable rates on the amount outstanding under the New Term Loan Credit Agreement will increase or decrease our annual interest expense by approximately $3.3 million. Foreign Exchange Risk The reporting currency for our consolidated financial statements is U.S. dollars.
However, these purchases are made in U.S. dollar-denominated purchase contracts. We do not currently hedge foreign currency fluctuations and do not intend to do so for the foreseeable future. 51
However, these purchases are made in U.S. dollar-denominated purchase contracts. We do not currently hedge foreign currency fluctuations and do not intend to do so for the foreseeable future. 48

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