What happened
Shares of women's clothing retailer Torrid Holdings (NYSE: CURV) fell dramatically at the open on Dec. 9, declining a painful 23.5% at one point in the first hour of trading. The big news, which came out after the close on Dec. 8, was the company's third-quarter earnings release. On the surface the results weren't that bad, but the update contained one really big red flag that gets investors into a glass-half-empty mood.
So what
Torrid's third-quarter 2021 sales came in at $306.2 million, up 13% from the previous year and 19% compared to the same quarter of 2019, before the coronavirus pandemic. Although Wall Street analysts had been looking for something in the $311 million range, the company is clearly still growing. Notably, same-store sales rose 14% year over year, which is a very strong number, and the company opened 11 new stores in the quarter. On the bottom line, Torrid reported adjusted earnings of $0.25 per share in the third quarter, up from $0.17 in 2020 and above the $0.22 per share analysts had been projecting. Normally, an earnings beat like that would be seen as a big positive.
Image source: Getty Images.
The reason why investors were so downbeat on the stock today was probably tied to management's comments about the business environment. In the introduction section of the company's earnings release CEO Liz Muñoz noted the "challenging operating environment." In the section discussing future performance, the company made two mentions of "global supply chain challenges," as well as raw material cost increases and rising labor costs. The company also pulled in the top end of its sales guidance for the year and announced that it would be opening two fewer stores in 2021 than it had previously planned. These aren't terrible things, per se, but coupled with the multiple warnings about the operating environment, it's understandable that investors were in a dour mood.
Now what
From a big-picture perspective, Torrid's third quarter really wasn't all that bad. And, given the current business backdrop, the fourth-quarter guidance is reasonable. The problem is likely that investors are super sensitive to the headline-grabbing "supply chain" issue. Long-term investors, however, will probably take a moment to think past the current headwinds when they examine this niche retailer and its growth potential in the future.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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