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Torrid Reclassifies Funds Once Considered Expense Reductions As Sales
Apparel brand increased sales more than one-percent in 2022 with new accounting treatment.
April 6, 2023
Torrid Holdings Inc. (CURV), a maker of women’s plus-size apparel and intimates, now counts funds received from its private label credit card program as sales. Previously, Torrid accounted for “royalties, profit-sharing and marketing and promotional funds” (PLCC Funds) as reductions to selling, general and administrative (SG&A) expense.

Presumably, the previous treatment of PLCC funds as expense reductions was due to Torrid’s agreement with the credit card issuer, which owns the credit card accounts and is liable for any losses due to nonpayment. Torrid is only eligible to receive PLCC funds based on card usage.

In applying the reclassification retrospectively, Torrid lifted top line performance as follows:

—In the year ended January 31, 2023, the change increased sales $18.4 million, or 1.4%
—In the year ended January 31, 2022, the change increased sales $10.6 million, or 1%

Our analysis indicates the change allowed Torrid to report year-over-year (YOY) sales growth of 31.8% rather than $31.3%.

Torrid suggested in its latest annual report the change is a favor to investors:

“The recognition of PLCC Funds in net sales is preferable because it will enhance the comparability of our financial statements with those of many of our industry peers and provide greater transparency into performance metrics relevant to our industry by showing the gross impact of the funds received as net sales instead of as a reduction to selling, general and administrative expenses.”
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