Omnichannel Capabilities And Cost Reallocation Will Unlock Retail Value

Key Takeaways

• Expansion of sub-brands and launch of value-focused products are driving market growth, higher margins, and enhanced brand relevance among diverse and price-sensitive consumers.
  
• Accelerated digital transformation, store closures, and increased marketing investments are strengthening customer engagement and improving profitability through operational efficiency.
  
• Weak store and sales performance, heightened promotional dependence, increased marketing costs, and external margin pressures threaten profitability and growth if digital and new customer strategies underdeliver.

Catalysts

Provides apparel, intimates, and accessories for curvy women in North America.

• Ongoing growth of sub-brands, including targeted launches like LoveSick aimed at younger and more diverse demographics, is expected to significantly expand the company's addressable market and drive higher product margins due to higher full-price sell-through and reduced promotion reliance. This is poised to improve both revenue growth and EBITDA margin expansion into 2026 and beyond.
  
• Strategic shift to a more digitally-driven operating model, with digital transactions approaching 70% of demand and continued investments in omnichannel capabilities, supports stronger customer engagement and conversion while reducing exposure to underperforming physical stores-enhancing both top-line growth and long-term margin profile.
  
• Cost efficiencies from the closure of up to 180 underproductive brick-and-mortar locations and aggressive resource reallocation (toward digital and marketing efforts) are expected to deliver 150 to 250 basis points of adjusted EBITDA margin expansion and generate substantial free cash flow for debt reduction and share repurchases, improving net income and EPS.
  
• Increased investment in brand-building, digital marketing, and influencer partnerships is positioned to accelerate customer file growth, boost brand awareness, and reactivate lapsed and new customers-capitalizing on consumer trends favoring inclusivity, body positivity, and expanded fashion options, supporting sustained revenue growth.
  
• Launch of an opening price point (OPP) assortment for 2026, comprising around 25% of apparel sales, broadens product accessibility and value for price-sensitive shoppers, allowing Torrid to defend and grow market share against both ultra-fast fashion competitors and the rising demand for value, ultimately supporting revenue stability and volume-driven earnings growth.

Torrid Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Torrid Holdings's revenue will decrease by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.3% today to 2.4% in 3 years time.
• Analysts expect earnings to reach $23.7 million (and earnings per share of $0.23) by about September 2028, up from $3.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.8x on those 2028 earnings, down from 56.6x today. This future PE is lower than the current PE for the US Specialty Retail industry at 18.7x.
• Analysts expect the number of shares outstanding to decline by 5.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Torrid Holdings Future Earnings Per Share Growth

Risks

• Sustained comparable sales declines (down 6.9% year-over-year) and ongoing "choppiness" in consumer demand signal potential for enduring revenue and earnings headwinds, especially as macro pressures constrain discretionary spending within Torrid's core customer base.
  
• Structural dependence on promotional activity to drive conversion and respond to increased value orientation among customers threatens gross margins and long-term pricing power, risking continued net margin compression as promotions become entrenched and undermine brand premiumization efforts.
  
• The acceleration of store closures (up to 180 underperforming locations in FY25) exposes the company to possible risks in physical-to-digital customer migration and customer attrition, especially as 40% of demand was still through physical stores recently, potentially limiting revenue growth and contributing to customer file stagnation if digital retention initiatives underperform.
  
• Heavy reliance on incremental marketing spend-including a notable increase above original budget-to drive top-of-funnel customer acquisition and awareness may inflate SG&A over the medium term, with uncertain payback and potential earnings dilution if new customer growth or sub-brand expansion does not offset lost store sales and higher marketing costs.
  
• Margin headwinds from external factors such as rising tariffs ($15M in fiscal 2025), supply chain cost pressures, and continued increases in input costs could further erode profitability, especially as Torrid's ability to take additional price increases is constrained by already high price sensitivity and customer pushback, threatening both short-term earnings and longer-term net margin recovery.

Valuation

• The analysts have a consensus price target of $2.95 for Torrid Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.0, and the most bearish reporting a price target of just $1.75.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $985.6 million, earnings will come to $23.7 million, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $1.9, the analyst price target of $2.95 is 35.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.