Net Sales Grew 6% Compared to the Second
Quarter of Fiscal 2021; 11%1 in Constant Currency
U.S. Net Sales Grew 16% Compared to the
Second Quarter of Fiscal 2021
Active Customers2 Increased 34% on a LTM
Basis Compared to the Same Period Last Year
a.k.a. Brands Holding Corp. (NYSE: AKA), a brand
accelerator of next generation fashion brands, today announced
financial results for the second quarter ended June 30, 2022.
Results for the Second Quarter
- Net sales increased 6.2% to $158.5 million, compared to
$149.2 million in the second quarter of 2021.
- Net loss was $(4.2) million or $(0.03) per share in the
second quarter of 2022, compared to net income attributable to
a.k.a. Brands Holding Corp. of $2.4 million or $0.03 per share in
the second quarter of 2021.
- Adjusted EBITDA1 was $5.9 million, or 3.7% of net sales,
compared to $19.4 million, or 13.0% of net sales in the second
quarter of 2021.
“I want to recognize and appreciate our teams for their hard
work delivering double-digit sales growth1 this quarter on top of
impressive growth last year and their continued agility navigating
a complex macro environment. We remain incredibly focused on
enhancing profitability by maintaining discipline around inventory
and carefully controlling expenses. Looking ahead, our
differentiated brands, flexible model and talented teams give me
great confidence in our long-term profitable growth potential,”
said Jill Ramsey, a.k.a. Brands CEO.
Recent Business
Highlights
- Princess Polly continues to differentiate competitively with
growth in their sustainable Earth Club collection and is well
positioned to optimize marketing effectiveness in the back-half of
2022.
- Culture Kings is back to generating traffic and hype with
in-store events and remains on track to open their Las Vegas
flagship by year end. Newly hired U.S. president brings deep
expertise.
- Petal & Pup continues as our fastest growing brand,
leveraging Princess Polly’s successful playbook.
- mnml is now sold in stores and online at Culture Kings with
strong early response and their successful graphic tee collection
leverages Culture Kings’ print-on-demand capabilities.
Second Quarter Financial
Details
- Net sales increased 6.2% to $158.5 million, compared to
$149.2 million in the second quarter of 2021. The increase was
driven by a 12% increase in the number of orders processed,
partially offset by a 4% decrease in the average order value during
the quarter. The increase in the number of orders was primarily
driven by the growth of Princess Polly in the U.S. and the
inclusion of mnml. The decrease in average order value was
primarily due to higher promotional activity and higher return
rates.
- Gross margin was 55.2% in the second quarter of 2022,
versus 54.6% in the same period last year. The 60 basis point
increase in gross margin rate was primarily due to a detrimental
$6.3 million impact in the three months ended June 30, 2021 from
the fair value increase in inventory acquired in the Culture Kings
acquisition, partially offset by higher air freight expense, higher
promotional activity and higher return rates.
- Selling expenses were $45.3 million, compared to $40.0
million in the second quarter of 2021. Selling expenses were 28.6%
of net sales compared to 26.8% of net sales in the second quarter
of 2021. The increase in selling expenses as a percent of net sales
was primarily due to a $1.3 million charge related to a change in
the third-party fulfillment provider for Culture Kings and
mnml.
- Marketing expenses were $19.1 million, compared to $14.9
million in the second quarter of 2021. The increase in marketing
dollars was driven primarily by the inclusion of mnml and increased
marketing investment. Marketing expenses were 12.0% of net sales
compared to 10.0% of net sales in the second quarter of 2021, with
the increase due to reduced effectiveness of our marketing channels
at driving traffic to our websites, as well as the inclusion of
mnml, which had a higher rate of advertising spend.
- General and administrative (“G&A”) expenses were
$25.7 million, compared to $19.2 million in the second quarter of
2021. G&A expenses were 16.2% of net sales compared to 12.9% of
net sales in the second 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 mnml and additional insurance
costs.
- Adjusted EBITDA1 was $5.9 million, or 3.7% of net sales,
compared to $19.4 million, or 13.0% of net sales in the second
quarter of 2021.
Balance Sheet and Cash
Flow
- Cash and cash equivalents at the end of the second
quarter totaled $29.1 million compared to $38.8 million at the end
of fiscal year 2021.
- Inventory at the end of the second quarter totaled
$143.9 million compared to $115.8 million at the end of fiscal year
2021.
- Debt at the end of the second quarter totaled $131.2
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 of 2022.
- Cash flow from operations for the six months ended June
30, 2022 was $(23.6) million, compared to $7.5 million for the six
months ended June 30, 2021.
Outlook
For the full year fiscal 2022, the Company expects:
- Net sales between $625 million and $635 million
- Adjusted EBITDA3 of between $38 million and $40 million
- Capital expenditures of approximately $18 million to $20
million
For the third quarter of 2022, the Company expects:
- Net sales between $150 million and $153 million
- Adjusted EBITDA3 of between $9.0 million and $9.2 million
- Interest expense of approximately $2.2 million
- Weighted average diluted share count of 129 million
The above outlook is based on several assumptions, including but
not limited to, continued foreign exchange rate pressure, the
promotional environment and an elevated return rate. See
“Forward-Looking Statements” for additional information.
Conference Call
A conference call to discuss the Company’s second quarter
results is scheduled for August 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 13731162. 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 next generation fashion
brands. Each brand in the a.k.a. portfolio targets a distinct Gen Z
and millennial audience, creates authentic and inspiring social
content and offers quality exclusive merchandise. 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.
a.k.a. BRANDS HOLDING
CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(in thousands, except share
and per share data)
(unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2022
2021
2022
2021
Net sales
$
158,471
$
149,227
$
306,790
$
218,006
Cost of sales
71,024
67,793
135,147
95,984
Gross profit
87,447
81,434
171,643
122,022
Operating expenses:
Selling
45,254
40,023
85,618
58,277
Marketing
19,064
14,908
34,769
21,132
General and administrative
25,703
19,220
50,481
32,650
Total operating expenses
90,021
74,151
170,868
112,059
Income (loss) from operations
(2,574
)
7,283
775
9,963
Other expense, net:
Interest expense
(1,393
)
(4,113
)
(2,652
)
(4,217
)
Other expense
(1,200
)
(42
)
(1,112
)
(61
)
Total other expense, net
(2,593
)
(4,155
)
(3,764
)
(4,278
)
Income (loss) before income taxes
(5,167
)
3,128
(2,989
)
5,685
Benefit from (provision for) income
tax
955
(939
)
302
(1,706
)
Net income (loss)
(4,212
)
2,189
(2,687
)
3,979
Net loss (income) attributable to
noncontrolling interests
—
242
—
(76
)
Net income (loss) attributable to a.k.a.
Brands Holding Corp.
$
(4,212
)
$
2,431
$
(2,687
)
$
3,903
Net income (loss) per share:
Basic
$
(0.03
)
$
0.03
$
(0.02
)
$
0.05
Diluted
$
(0.03
)
$
0.03
$
(0.02
)
$
0.05
Weighted average shares outstanding:
Basic
128,657,271
85,702,097
128,652,580
77,860,431
Diluted
128,657,271
85,702,097
128,652,580
77,860,431
a.k.a. BRANDS HOLDING
CORP.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands)
(unaudited)
June 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents
$
29,109
$
38,832
Restricted cash
1,666
2,186
Accounts receivable
3,030
2,663
Inventory, net
143,853
115,783
Prepaid income taxes
11,050
4,059
Prepaid expenses and other current
assets
20,092
20,809
Total current assets
208,800
184,332
Property and equipment, net
18,450
14,657
Operating lease right-of-use assets
38,991
26,415
Intangible assets, net
85,548
98,287
Goodwill
346,337
363,305
Other assets
945
850
Total assets
$
699,071
$
687,846
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
28,457
$
25,088
Accrued liabilities
55,728
53,375
Sales returns reserve
5,166
6,887
Deferred revenue
7,643
11,344
Operating lease liabilities, current
6,338
5,721
Current portion of long-term debt
5,600
5,600
Total current liabilities
108,932
108,015
Long-term debt
125,618
103,182
Operating lease liabilities
34,415
21,370
Other long-term liabilities
1,338
1,333
Deferred income taxes, net
2,225
2,920
Total liabilities
272,528
236,820
Stockholders’ equity:
Preferred stock
—
—
Common stock
129
129
Additional paid-in capital
456,637
453,807
Accumulated other comprehensive loss
(35,706
)
(11,080
)
Retained earnings
5,483
8,170
Total stockholders’ equity
426,543
451,026
Total liabilities and stockholders’
equity
$
699,071
$
687,846
a.k.a. BRANDS HOLDING
CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June
30,
2022
2021
Cash flows from operating
activities:
Net income (loss)
$
(2,687
)
$
3,979
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating activities:
Depreciation expense
2,728
870
Amortization expense
8,079
6,231
Amortization of inventory fair value
adjustment
707
6,266
Amortization of debt issuance costs
326
247
Non-cash interest expense
—
693
Non-cash operating lease expense
3,109
3,064
Equity-based compensation
2,862
1,132
Deferred income taxes, net
(1,078
)
(2,109
)
Changes in operating assets and
liabilities, net of effects of acquisitions:
Accounts receivable
(424
)
(1,602
)
Inventory
(33,183
)
(11,490
)
Prepaid expenses and other current
assets
(67
)
(5,755
)
Accounts payable
5,304
1,354
Income taxes payable
(7,213
)
(8,587
)
Accrued liabilities
4,896
13,278
Returns reserve
(1,569
)
2
Deferred revenue
(3,434
)
2,857
Lease liabilities
(1,943
)
(2,950
)
Net cash (used in) provided by operating
activities
(23,587
)
7,480
Cash flows from investing
activities:
Acquisition of businesses, net of cash
acquired
—
(225,744
)
Cash paid from holdbacks associated with
acquisitions
(2,095
)
—
Purchase of intangible assets
(64
)
—
Purchases of property and equipment
(5,803
)
(3,361
)
Net cash used in investing activities
(7,962
)
(229,105
)
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
12,045
Repayment of line of credit
—
(6,364
)
Proceeds from issuance of debt, net of
issuance costs
(121
)
144,103
Repayment of debt
(2,800
)
(938
)
Taxes paid related to net share settlement
of equity awards
(32
)
—
Proceeds from issuance of units
—
82,669
Net cash provided by financing
activities
20,905
231,515
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
401
(413
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
(10,243
)
9,477
Cash, cash equivalents and restricted cash
at beginning of period
41,018
27,099
Cash, cash equivalents and restricted cash
at end of period
$
30,775
$
36,576
Reconciliation of cash, cash
equivalents and restricted cash:
Cash and cash equivalents
$
29,109
$
34,341
Restricted cash
1,666
2,235
Total cash, cash equivalents and
restricted cash
$
30,775
$
36,576
a.k.a. BRANDS HOLDING
CORP.
KEY FINANCIAL AND OPERATING
METRICS
(unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2022
2021
2022
2021
Gross margin
55
%
55
%
56
%
56
%
Net income (loss) (in thousands)
$
(4,212
)
$
2,189
$
(2,687
)
$
3,979
Net income (loss) margin
(3
)%
1
%
(1
)%
2
%
Adjusted EBITDA (in thousands)3
$
5,891
$
19,429
$
16,543
$
27,755
Adjusted EBITDA margin3
4
%
13
%
5
%
13
%
Key Operational Metrics and
Regional Sales
Three Months Ended June
30,
Six Months Ended June
30,
(metrics in millions, except AOV; sales
in thousands)
2022
2021
2022
2021
Key Operational
Metrics
Active customers4
3.9
2.9
3.9
2.9
Active customers across a.k.a.
Brands4,5
3.9
2.9
3.9
2.9
Average order value
$
85
$
89
$
84
$
86
Average order value across a.k.a.
Brands5
$
85
$
89
$
84
$
89
Number of orders
1.9
1.7
3.7
2.5
Number of orders across a.k.a. Brands5
1.9
1.7
3.7
3.0
Sales by Region
(actual)
U.S.
$
82,277
$
71,205
$
159,945
$
114,035
Australia
56,540
59,317
108,434
78,332
Rest of world
19,654
18,705
38,411
25,639
Total
$
158,471
$
149,227
$
306,790
$
218,006
Year-over-year growth
6.2
%
40.7
%
Year-over-year growth on a constant
currency basis6
11.4
%
45.2
%
Active Customers
We view the number of active customers as a key indicator of our
growth, the value proposition and consumer awareness of our brand,
and their desire to purchase our products. In any particular
period, we determine our number of active customers by counting the
total number of unique customer accounts who have made at least one
purchase in the preceding 12-month period, measured from the last
date of such period.
Average Order Value
We define average order value (“AOV”) as net sales in a given
period divided by the total orders placed in that period. AOV may
fluctuate as we expand into new categories or geographies or as our
assortment changes.
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; costs to establish or relocate distribution centers;
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 and six months ended June 30, 2022 and
2021 is as follows:
Three Months Ended June
30,
Six Months Ended June
30,
2022
2021
2022
2021
Net income (loss)
$
(4,212
)
$
2,189
$
(2,687
)
$
3,979
Add:
Other expense, net
2,593
4,155
3,764
4,278
Provision for (benefit from) income
tax
(955
)
939
(302
)
1,706
Depreciation and amortization expense
5,590
4,535
10,807
7,101
Inventory step-up amortization expense
—
6,266
707
6,266
Equity-based compensation expense
1,494
609
2,862
1,132
Distribution center relocation costs
1,291
—
1,291
—
Transaction costs
90
736
101
3,293
Adjusted EBITDA
$
5,891
$
19,429
$
16,543
$
27,755
Net income (loss) margin
(3
)%
1
%
(1
)%
2
%
Adjusted EBITDA margin
4
%
13
%
5
%
13
%
Net Loss, As Adjusted and Net Loss Per Share, As
Adjusted
Net loss, as adjusted and net loss per share, as adjusted are
considered non-GAAP financial measures under the SEC’s rules
because they exclude certain amounts included in net loss and net
loss per share calculated in accordance with GAAP, the most
directly comparable financial measures calculated in accordance
with GAAP. Management believes that net loss, as adjusted and net
loss 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 loss, as
adjusted and net loss 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 loss, as adjusted and net loss per share,
as adjusted for the six months ended June 30, 2022 by adjusting net
loss and net loss per share for the inventory step-up amortization
expense resulting from the acquisition of mnml.
There were no adjustments to net income (loss) or net income
(loss) per share for any other periods or comparable periods
otherwise shown in this document. A reconciliation of non-GAAP net
loss, as adjusted to net loss, as well as the resulting calculation
of net loss per share, as adjusted for the six months ended June
30, 2022 are as follows:
Six Months
Ended June
30, 2022
Net loss
$
(2,687
)
Adjustments:
Inventory step-up amortization expense
707
Tax effects of adjustments
(212
)
Net loss, as adjusted
$
(2,192
)
Net loss per share, as adjusted
$
(0.02
)
Weighted-average shares, diluted
128,652,580
Pro Forma Net Sales
Pro forma net sales is considered a non-GAAP financial measure
under the SEC’s rules. We believe that pro forma net sales is
useful information for investors as it provides a better
understanding of sales performance, and relative changes therein,
on a comparable basis. We calculate pro forma net sales as net
sales including the historical net sales relating to the
pre-acquisition periods of Culture Kings, assuming that the Company
acquired Culture Kings at the beginning of the period presented.
Pro forma net sales is not necessarily indicative of what the
actual results would have been if the acquisition had in fact
occurred on the date or for the periods indicated nor does it
purport to project net sales for any future periods or as of any
date. 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 each quarter in 2021 and
2020, is as follows:
Net Sales in 2021
Three Months Ended
Actual
Culture Kings
Pro Forma
March 31
$
68,779
$
51,263
$
120,042
June 30
149,227
—
149,227
September 30
161,762
—
161,762
December 31
182,423
—
182,423
$
562,191
$
51,263
$
613,454
Net Sales in
2021
Net Sales in 2020
Growth Rate
Three Months Ended
Pro Forma
Actual
Culture Kings
Pro Forma
Actual
Pro Forma
March 31
$
120,042
$
35,006
$
25,586
$
60,592
96.5%
98.1%
June 30
149,227
46,793
38,179
84,972
218.9%
75.6%
September 30
161,762
63,336
48,713
112,049
155.4%
44.4%
December 31
182,423
70,781
56,654
127,435
157.7%
43.1%
$
613,454
$
215,916
$
169,132
$
385,048
A reconciliation of non-GAAP pro forma net sales to net sales,
disaggregated by geography, which is the most directly comparable
financial measure calculated in accordance with GAAP, for the three
months ended June 30, 2021 and 2020, is as follows:
Three Months
Ended June
30, 2021
Three Months Ended June 30,
2020
Growth Rate
Actual
Actual
Culture Kings
Pro Forma
Actual
Pro Forma
U.S.
$
71,189
$
26,721
$
3,180
$
29,901
166.4%
138.1%
Australia
59,288
13,421
28,628
42,049
341.8%
41.0%
Rest of world
18,750
6,651
6,371
13,022
181.9%
44.0%
Total
$
149,227
$
46,793
$
38,179
$
84,972
1 See additional information at the end of this release
regarding non-GAAP financial measures. 2 See additional information
in this release regarding key operating and financial metrics. 3
See additional information at the end of this release regarding
non-GAAP financial measures. 4 Trailing twelve months. 5 Metrics
“across a.k.a. Brands” assume we owned Culture Kings for all
periods presented. 6 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220810005734/en/
Investor Contact investors@aka-brands.com
Media Contact media@aka-brands.com
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