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Torrid Inc. (CURV) IPO

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Plump And Perfect

Here is a fat fact. The majority of Americans are least 20 pounds overweight and half are obese. In raw terms, this equals over 220 million people, about half of which are women. Fat is now in fashion.

Where do 110 million perfectly plump women go when they need to be fashionable or simply have that urge to be sweet and sexy?

If you are near anyone of 487 Torrid stores in 48 U.S. states, Puerto Rico and Canada you can find a broad assortment of high quality fitted apparel, intimates and accessories that management describes as “unapologetically young, sexy and fashionable.”

In addition to its bricks and mortar stores, Torrid has a growing and highly profitable online business. Management claims that in fiscal year 2016, they achieved industry-leading e-commerce penetration of 34%, an increase from 20% penetration in fiscal year 2012.

Torrid appears to be the clear market leader for an underserved and growing demographic of young, plus-size women that no other national specialty retailer exclusively targets. According to Wall Street estimates, the women’s plus-size apparel market was approximately $21 billion in 2016, and has grown at more than twice the rate of the overall U.S. women’s apparel market.

The Target: A Big Future

Torrid’s target customer is a 25 to 40 year old woman who is curvy and wears sizes 10 to 30. They believe their customer values the convenience and appeal of a curated collection of merchandise that helps her be stylish at affordable price points.

According to the company research, approximately two-thirds of U.S. women are plus size (sizes 14 and up), only 17% of women’s apparel sales during 2016 in the U.S. were in plus-sizes. As a result, there are approximately 34,000 plus-size women for each plus-size apparel store, as compared to 600 women for each other specialty apparel store.

Fashionable Financials

To say that Torrid’s sales have matched the company’s name is appropriate. For the January 2015 year the company posted revenues of $293 million, showing a modest 0.5% net profit margin. For the January 2017 year, revenues were more than double coming in at $640 million although Torrid’s slight loss was nothing to boast about.

So Here Is The Deal

On July 7, a top list of no less than six Wall Street underwriters lead by BofA Merrill Lynch filed a registration statement for a $100 million Initial Public Offering for Torrid. We mention this because both the size and reputation of the underwriters here stands out.

When looking at Torrid, keep in mind the company is planning its public offering to accommodate selling shareholders. This includes Sycamore Partners Management, a private equity fund that holds more than 5% of the outstanding shares. Other members of management are also part of the group of selling shareholders. If the offering is successful, none of the proceeds will go to the company.

In another era the sophisticated investor would take a dim view of this arrangement. However, in the era of private equity investing, this has become a more common an acceptable arrangement.

Investors have come to understand that in exchange for a private company to attract investors, often management compensation is kept very low and often paid in stock. An IPO is the way for management’s operating success to be fully compensated. So in end, the absence of any funding for use by the company can be interpreted as a positive sign. Either way you look at it, Torrid is living up to its name.