a.k.a. Brands Holding Corp. (NYSE: AKA), a brand
accelerator of direct-to-consumer (DTC) fashion brands for the next
generation, today announced financial results for the first quarter
ended March 31, 2022.
Results for the First
Quarter
- Net sales increased 115.6% to $148.3 million, compared
to $68.8 million in the first quarter of 2021 or 23.6%1 pro-forma
adjusting for the acquisition of Culture Kings, which contributed
$48.9 million to net sales during the quarter.
- Net income was $1.5 million or $0.01 per share in the
first quarter of 2022, compared to net income attributable to
a.k.a. Brands Holding Corp. of $1.5 million or $0.02 per share in
the first quarter of 2021.
- Net income, as adjusted1 was $2.0 million, or $0.02 per
share in the first quarter of 2022, compared to net income
attributable to a.k.a. Brands Holding Corp. of $1.5 million or
$0.02 per share in the first quarter of 2021.
- Adjusted EBITDA1 was $10.7 million, or 7.2% of net
sales, compared to $8.3 million, or 12.1% of net sales in the first
quarter of 2021.
“I am very proud of our first quarter performance, which
exceeded our expectations. Net sales grew 116%, or 24%1 on a
pro-forma basis, reflecting the power and agility of our next-gen
business model as well as the strength of our diverse portfolio of
brands,” said Jill Ramsey, chief executive officer, a.k.a. Brands.
“The U.S., which grew 54%1, made up the majority of our volume and
was by far the fastest growing region. Our brands continued to
execute next-gen merchandising and marketing strategies to drive
greater awareness, which contributed to an outstanding 46% increase
in active customers to over 3.8 million on a pro-forma basis. I am
proud of our team and the strong results we delivered in the first
quarter as we navigated through the continued impact of the global
macro headwinds. Looking ahead, I am confident that we are
well-positioned to deliver on our unique combination of strong
growth and profitability for the quarters and years to come.”
Recent Business
Highlights
- Princess Polly strong momentum continued, reflecting consistent
on-trend product offering and strong marketing execution through
influencer, social media and emerging marketing platforms
- Culture Kings returned to hosting in-store events; advanced
growth strategies in the U.S. and on track to open flagship store
in Las Vegas by year end
- Petal and Pup was once again a.k.a.’s fastest growing brand in
the U.S. during the quarter, further bolstering confidence in the
a.k.a. scaling playbook
- mnml delivered solid growth driven by strong sales in denim and
bottoms and completed successful fulfillment center transition in
April; on track to launch on Culture Kings in the second
quarter
First Quarter Financial
Details
- Net sales increased 115.6% to $148.3 million, compared
to $68.8 million in the first quarter of 2021 or 23.6%1 pro-forma
adjusting for the acquisition of Culture Kings, which contributed
$48.9 million to net sales during the quarter. The increase was
driven by a 100% increase in the number of orders processed and 6%
growth in the average order value during the quarter. The increase
in the number of orders was primarily driven by the inclusion of
Culture Kings and mnml, as well as the growth of Princess Polly in
the U.S.
- Gross margin was 56.8% in the first quarter of 2022,
versus 59.0% in the same period last year. The 220 basis point
decline in gross margin rate was primarily due to higher air
freight expense and the inclusion of Culture Kings, which carries a
lower gross margin rate as compared to the Company’s other brands
due to a lower mix of exclusive product.
- Selling expenses were $40.4 million, compared to $18.3
million in the first quarter of 2021. Selling expenses were 27.2%
of net sales compared to 26.5% of net sales in the first quarter of
2021.
- Marketing expenses were $15.7 million, compared to $6.2
million in the first quarter of 2021. The increase in marketing
dollars was driven primarily by the inclusion of Culture Kings.
Marketing expenses were 10.6% of net sales compared to 9.0% of net
sales in the first quarter of 2021, with the increase due to the
inclusion of Culture Kings and an increase in Princess Polly’s
customer acquisition cost as both brands tested new marketing
opportunities.
- General and administrative (“G&A”) expenses were
$24.8 million, compared to $13.4 million in the first quarter of
2021. G&A expenses were 16.7% of net sales compared to 19.5% of
net sales in the first quarter of 2021. The increase in G&A
expenses during the quarter was primarily due to an increase in
salaries and related benefits and equity-based compensation expense
related to increases in headcount across functions to support
business growth, the inclusion of Culture Kings and mnml and
additional professional service fees.
- Adjusted EBITDA1 was $10.7 million, or 7.2% of net
sales, compared to $8.3 million, or 12.1% of net sales in the first
quarter of 2021.
Balance Sheet and Cash
Flow
- Cash and cash equivalents at the end of the first
quarter totaled $41.2 million compared to $38.8 million at the end
of fiscal year 2021.
- Inventory at the end of the first quarter totaled $120.6
million compared to $115.8 million at the end of fiscal year
2021.
- Debt at the end of the first quarter totaled $132.5
million, compared to $108.8 million at the end of fiscal year 2021.
The Company drew $25.0 million on its revolving credit facility in
the first quarter.
- Cash flow from operations for the three months ended
March 31, 2022 was $(14.9) million, compared to $19.0 million for
the three months ended March 31, 2021.
Outlook
For the full year fiscal 2022, the Company expects:
- Net sales between $785 million and $805 million
- Adjusted EBITDA2 of between $90 million and $100 million
- Weighted average diluted share count of 128.8 million
- Capital expenditures of approximately $18 million to $20
million
For the second quarter of 2022, the Company expects:
- Net sales between $173 million and $177 million
- Adjusted EBITDA of between $16 million and $17 million
- Weighted average diluted share count of 128.7 million
The above outlook is based on several assumptions, including but
not limited to, continued global supply chain challenges, air
freight prices remaining elevated in 2022, and the FX rate
moderating in the back half of the year. See “Forward-Looking
Statements” for additional information.
Conference Call
A conference call to discuss the Company’s first quarter results
is scheduled for May 10, 2022, at 4:30 p.m. ET. Those who wish to
participate in the call may do so by dialing (877) 858-5495 or
(201) 689-8853 for international callers. The conference call will
also be webcast live at https://ir.aka-brands.com in the Events and
Presentations section. A recording will be available shortly after
the conclusion of the call. To access the replay, please dial (877)
660-6853 or (201) 612-7415 for international callers, conference ID
13729559. An archive of the webcast will be available on a.k.a.
Brands’ investor relations website.
Use of Non-GAAP Financial Measures and Other Operating
Metrics
In addition to results determined in accordance with accounting
principles generally accepted in the United States of America
(GAAP), management utilizes certain non-GAAP performance measures
such as net income, as adjusted, net income per share, as adjusted,
adjusted EBITDA, adjusted EBITDA margin and pro forma net sales for
purposes of evaluating ongoing operations and for internal planning
and forecasting purposes. We believe that these non-GAAP operating
measures, when reviewed collectively with our GAAP financial
information, provide useful supplemental information to investors
in assessing our operating performance. See additional information
at the end of this release regarding non-GAAP financial
measures.
About a.k.a. Brands
a.k.a. Brands is a brand accelerator of direct-to-consumer
fashion brands for the next generation. Each brand in the a.k.a.
portfolio is customer-led, curates quality exclusive merchandise,
creates authentic and inspiring social content and targets a
distinct Gen Z and millennial audience. a.k.a. Brands leverages its
next-generation retail platform to help each brand accelerate its
growth, scale in new markets and enhance its profitability. Current
brands in the a.k.a. Brands portfolio include Princess Polly,
Culture Kings, mnml, Petal & Pup and Rebdolls.
Forward-Looking Statements
Certain statements made in this release are “forward-looking
statements” within the meaning of the “safe harbor” provisions of
the United States Private Securities Litigation Reform Act of 1995.
When used in this press release, the words “estimates,”
“projected,” “expects,” “anticipates,” “forecasts,” “plans,”
“intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,”
“propose” and variations of these words or similar expressions (or
the negative versions of such words or expressions) are intended to
identify forward-looking statements.
These forward-looking statements are not guarantees of future
performance, conditions or results, and involve a number of known
and unknown risks, uncertainties, assumptions and other important
factors, many of which are outside the Company’s control, that
could cause actual results or outcomes to differ materially from
those discussed in the forward-looking statements.
Important factors, among others, that may affect actual results
or outcomes include the continuation of the COVID-19 pandemic and
the potential related disruptions to our operations, customer
demand, and our suppliers’ ability to meet our needs; our ability
to anticipate rapidly-changing consumer preferences in the apparel,
footwear and accessories industries; our ability to acquire new
customers, retain existing customers, or maintain average order
value levels; the effectiveness of our marketing and our level of
customer traffic; merchandise return rates; our success in
identifying brands to acquire, integrate and manage on our
platform; our ability to expand into new markets; the global nature
of our business; our use of social media platforms and influencer
sponsorship initiatives, which could adversely affect our
reputation or subject us to fines or other penalties; the inherent
challenges in measuring certain of our key operating metrics, and
the risk that real or perceived inaccuracies in such metrics may
harm our reputation and negatively affect our business; the
potential for requirements to collect additional sales taxes or to
be subject to other tax liabilities that may increase the costs to
our consumers; economic downturns and market conditions beyond our
control; currency fluctuations; our ability to attract and retain
highly qualified personnel; fluctuations in wage rates and the
price, availability and quality of raw materials and finished
goods, which could increase costs; interruptions in or increased
costs of shipping and distribution, which could affect our ability
to deliver our products to the market; and other risks and
uncertainties set forth in the sections entitled “Risk Factors” and
“Forward-Looking Statements” in the Company’s Annual Report on Form
10-K, dated March 1, 2022, filed with the Securities and Exchange
Commission. a.k.a. Brands does not undertake any obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by law.
1 See additional information at the end of this release
regarding non-GAAP financial measures. 2 The Company has not
provided a quantitative reconciliation of its Adjusted EBITDA
outlook to a GAAP net income outlook because it is unable, without
making unreasonable efforts, to project certain reconciling items.
These items include, but are not limited to, future stock-based
compensation expense, income taxes, interest expense and
transaction costs. These items are inherently variable and
uncertain and depend on various factors, some of which are outside
of the Company’s control or ability to predict. See additional
information at the end of this release regarding non-GAAP financial
measures.
a.k.a. BRANDS HOLDING
CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(in thousands, except share
and per share data)
(unaudited)
Three Months Ended March
31,
2022
2021
Net sales
$
148,319
$
68,779
Cost of sales
64,123
28,191
Gross profit
84,196
40,588
Operating expenses:
Selling
40,364
18,254
Marketing
15,705
6,224
General and administrative
24,778
13,430
Total operating expenses
80,847
37,908
Income from operations
3,349
2,680
Other expense, net:
Interest expense
(1,259
)
(104
)
Other expense
88
(19
)
Total other expense, net
(1,171
)
(123
)
Income before income taxes
2,178
2,557
Provision for income tax
(653
)
(767
)
Net income
1,525
1,790
Net loss attributable to noncontrolling
interests
—
(318
)
Net income attributable to a.k.a. Brands
Holding Corp.
$
1,525
$
1,472
Net income per share
Basic
$
0.01
$
0.02
Diluted
$
0.01
$
0.02
Weighted average shares outstanding
Basic
128,647,836
69,931,635
Diluted
128,653,421
69,931,635
a.k.a. BRANDS HOLDING
CORP.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands)
(unaudited)
March 31, 2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents
$
41,166
$
38,832
Restricted cash
2,506
2,186
Accounts receivable
3,510
2,663
Inventory, net
120,598
115,783
Prepaid income taxes
6,525
4,059
Prepaid expenses and other current
assets
22,705
20,809
Total current assets
197,010
184,332
Property and equipment, net
17,336
14,657
Operating lease right-of-use assets
42,490
26,415
Intangible assets, net
95,986
98,287
Goodwill
373,799
363,305
Other assets
1,006
850
Total assets
$
727,627
$
687,846
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
17,295
$
25,088
Accrued liabilities
46,711
53,375
Sales returns reserve
5,176
6,887
Deferred revenue
8,676
11,344
Operating lease liabilities, current
6,544
5,721
Current portion of long-term debt
5,600
5,600
Total current liabilities
90,002
108,015
Long-term debt
126,901
103,182
Operating lease liabilities
37,361
21,370
Other long-term liabilities
1,409
1,333
Deferred income taxes, net
3,630
2,920
Total liabilities
259,303
236,820
Stockholders’ equity:
Preferred stock
—
—
Common stock
129
129
Additional paid-in capital
455,175
453,807
Accumulated other comprehensive income
(loss)
3,325
(11,080
)
Retained earnings
9,695
8,170
Total stockholders’ equity
468,324
451,026
Total liabilities and stockholders’
equity
$
727,627
$
687,846
a.k.a. BRANDS HOLDING
CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March
31,
2022
2021
Cash flows from operating
activities:
Net income
$
1,525
$
1,790
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense
1,163
196
Amortization expense
4,054
2,390
Amortization of inventory fair value
adjustment
707
—
Amortization of debt issuance costs
164
—
Non-cash operating lease expense
2,340
298
Equity-based compensation
1,368
523
Deferred income taxes, net
(271
)
(1,944
)
Changes in operating assets and
liabilities, net of effects of acquisitions:
Accounts receivable
(808
)
(1,312
)
Inventory
(3,132
)
7,984
Prepaid expenses and other current
assets
(1,759
)
721
Accounts payable
(6,956
)
(2,840
)
Income taxes payable
(2,127
)
(457
)
Accrued liabilities
(4,937
)
9,504
Returns reserve
(1,788
)
58
Deferred revenue
(2,805
)
2,372
Lease liabilities
(1,641
)
(309
)
Net cash provided by (used in) operating
activities
(14,903
)
18,974
Cash flows from investing
activities:
Acquisition of businesses, net of cash
acquired
—
(225,725
)
Cash paid from holdbacks associated with
acquisitions
(2,095
)
—
Purchases of property and equipment
(2,608
)
(297
)
Net cash used in investing activities
(4,703
)
(226,022
)
Cash flows from financing
activities:
Payments of costs related to initial
public offering
(1,142
)
—
Proceeds from line of credit, net of
issuance costs
25,000
(996
)
Repayment of line of credit
—
(6,408
)
Proceeds from issuance of debt, net of
issuance costs
(121
)
144,478
Repayment of debt
(1,400
)
—
Proceeds from issuance of units
—
82,669
Net cash provided by financing
activities
22,337
219,743
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(77
)
(326
)
Net increase in cash, cash equivalents and
restricted cash
2,654
12,369
Cash, cash equivalents and restricted cash
at beginning of period
41,018
27,099
Cash, cash equivalents and restricted cash
at end of period
$
43,672
$
39,468
Reconciliation of cash, cash
equivalents and restricted cash:
Cash and cash equivalents
$
41,166
$
37,390
Restricted cash
2,506
2,078
Total cash, cash equivalents and
restricted cash
$
43,672
$
39,468
a.k.a. BRANDS HOLDING
CORP.
KEY OPERATING AND FINANCIAL
METRICS
(unaudited)
Three Months Ended March
31,
2022
2021
Gross margin
57
%
59
%
Net income (in thousands)
$
1,525
$
1,790
Net income margin
1
%
3
%
Adjusted EBITDA1 (in thousands)
$
10,652
$
8,326
Adjusted EBITDA1 margin
7
%
12
%
Key Operational Metrics and Regional Sales
Three Months Ended March
31,
(metrics in millions, except AOV; sales
in thousands)
2022
2021
Key Operational
Metrics
Active customers2
3.8
1.6
Active customers across a.k.a.
Brands2,3
3.8
2.6
Average order value
$
83
$
78
Average order value across a.k.a.
Brands3
$
83
$
88
Number of orders
1.8
0.9
Number of orders across a.k.a. Brands3
1.8
1.4
Sales by Region
(actual)
U.S.
$
77,668
$
42,830
Australia
51,895
19,015
Rest of world
18,756
6,934
Total
$
148,319
$
68,779
Year-over-year growth
115.6
%
Year-over-year growth on a constant
currency basis4
121.0
%
1 See additional information at the end of this release
regarding non-GAAP financial measures. 2 Trailing twelve months. 3
Metrics “across a.k.a. Brands” assume we owned Culture Kings for
all periods presented. 4 In order to provide a framework for
assessing the performance of our underlying business, excluding the
effects of foreign currency rate fluctuations, we compare the
percent change in the results from one period to another period
using a constant currency methodology wherein current and
comparative prior period results for our operations reporting in
currencies other than U.S. dollars are converted into U.S. dollars
at constant exchange rates (i.e., the rates in effect on December
31, 2021, which was the last day of our prior fiscal year) rather
than the actual exchange rates in effect during the respective
periods.
a.k.a. BRANDS HOLDING CORP. RECONCILIATION
OF NON-GAAP FINANCIAL MEASURES (in thousands, except per share
data) (unaudited)
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and adjusted EBITDA margin are key performance
measures that management uses to assess our operating performance.
Because adjusted EBITDA and adjusted EBITDA margin facilitate
internal comparisons of our historical operating performance on a
more consistent basis, we use these measures for business planning
purposes.
We also believe this information will be useful for investors to
facilitate comparisons of our operating performance and better
identify trends in our business. We expect adjusted EBITDA margin
to increase over the long-term as we continue to scale our business
and achieve greater leverage in our operating expenses.
We calculate adjusted EBITDA as net income adjusted to exclude:
interest and other expense; provision for income taxes;
depreciation and amortization expense; stock-based compensation
expense; transaction costs; and one-time or non-recurring items.
Adjusted EBITDA is considered a non-GAAP financial measure under
the SEC’s rules because it excludes certain amounts included in net
income, the most directly comparable financial measure calculated
in accordance with GAAP. A reconciliation of non-GAAP adjusted
EBITDA to net income for the three months ended March 31, 2022 and
2021 is as follows:
Three Months Ended March
31,
2022
2021
Net income
$
1,525
$
1,790
Add:
Other expense, net
1,171
123
Provision for income tax
653
767
Depreciation and amortization expense
5,217
2,566
Inventory step-up amortization expense
707
—
Equity-based compensation expense
1,368
523
Transaction costs
11
2,557
Adjusted EBITDA
$
10,652
$
8,326
Net income margin
1.0
%
2.6
%
Adjusted EBITDA margin
7.2
%
12.1
%
Net Income, As Adjusted and Net Income Per Share, As
Adjusted
Net income, as adjusted and net income per share, as adjusted
are considered non-GAAP financial measures under the SEC’s rules
because they exclude certain amounts included in net income and net
income per share calculated in accordance with GAAP, the most
directly comparable financial measures calculated in accordance
with GAAP. Management believes that net income, as adjusted and net
income per share, as adjusted are meaningful measures to share with
investors because they better enable comparison of the performance
with that of the comparable period. In addition, net income, as
adjusted and net income per share, as adjusted afford investors a
view of what management considers a.k.a.’s core earnings
performance and the ability to make a more informed assessment of
such core earnings performance with that of the prior year.
We have calculated net income, as adjusted and net income per
share, as adjusted for the three months ended March 31, 2022 by
adjusting net income and net income per share for the inventory
step-up amortization expense resulting from the acquisition of
mnml.
There were no adjustments to net income or net income per share
for the three months ended March 31, 2021. A reconciliation of
non-GAAP net income, as adjusted to net income, as well as the
resulting calculation of net income per share, as adjusted for the
three months ended March 31, 2022 are as follows:
Three Months Ended March 31,
2022
Net income
$
1,525
Adjustments:
Inventory step-up amortization expense
707
Tax effects of adjustments
(212
)
Net income, as adjusted
$
2,020
Net income per share, as adjusted
$
0.02
Weighted-average shares, diluted
128,653,421
Pro Forma Net Sales
Pro forma net sales is considered a non-GAAP financial measure
under the SEC’s rules. A reconciliation of non-GAAP pro forma net
sales to net sales, which is the most directly comparable financial
measure calculated in accordance with GAAP, for the three months
ended March 31, 2022 and 2021, is as follows:
Three Months Ended March 31,
2022
Three Months Ended March 31,
2021
Growth Rate
Actual
Actual
Culture Kings
Pro Forma
Actual
Pro Forma
U.S.
$
77,668
$
42,830
$
7,669
$
50,499
81.3
%
53.8
%
Australia
51,895
19,015
36,132
55,147
172.9
%
(5.9
) %
Rest of world
18,756
6,934
7,462
14,396
170.5
%
30.3
%
Total
$
148,319
$
68,779
$
51,263
$
120,042
115.6
%
23.6
%
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