First Quarter Results Exceed Expectations
and Company Raises Full Year Outlook
Inventory Down 7% Year-Over-Year and Down
11% Since the End of Fiscal 2022
a.k.a. Brands Holding Corp. (NYSE: AKA), a brand
accelerator of next generation fashion brands, today announced
financial results for the first quarter ended March 31, 2023.
Results for the First Quarter
- Net sales decreased 18.8% to $120.5 million, compared to
$148.3 million in the first quarter of 2022; down 16% in Constant
Currency1.
- Net loss was $(9.6) million or $(0.07) per share, and
(7.9%) of net sales in the first quarter of 2023, compared to net
income of $1.5 million or $0.01 per share, and 1.0% of net sales in
the first quarter of 2022.
- Adjusted EBITDA2 was $2.2 million, or 1.8% of net sales,
compared to $10.7 million, or 7.2% of net sales in the first
quarter of 2022.
“I’m proud of our solid first quarter performance, which
exceeded our expectations on both sales and adjusted EBITDA, driven
by the strong execution across our brands and our continued focus
on managing the business prudently,” said Ciaran Long, interim
chief executive officer and chief financial officer of a.k.a.
Brands. “Thanks to the hard work of our teams, we advanced our
strategic initiatives, while simultaneously improving operating
efficiencies across the business. We are setting the stage for
improved operating performance as the year progresses. I’m
particularly pleased with the incremental pay down of our debt in
the quarter and our diligent approach to managing inventory. Our
inventory balance is down 11% from the end of fiscal 2022 and down
7% from the first quarter last year.”
“As we look ahead, we believe that key to building durable
next-generation brands is to be everywhere our customers are. While
direct to consumer remains our priority, we are excited by the
initial results of our omnichannel initiatives across our brands.
Princess Polly had a successful wholesale pilot launch with PacSun
in March, and Princess Polly will open its first brick and mortar
location in the third quarter. We are also very pleased with the
launch of Petal & Pup on Target’s marketplace. We remain laser
focused on our growth initiatives, as well as strengthening our
balance sheet. We are confident in our ability to deliver both
growth and profit over the long-term, and plan to continue to pay
down our debt as the year progresses,” concluded Long.
Recent Business
Highlights
- Princess Polly will open its first store in Century City, Los
Angeles in the third quarter and is expanding its wholesale
relationship with PacSun based on the initial success.
- Culture Kings continues to gain awareness and traction in the
U.S. bolstered by the flagship store in Las Vegas outperforming
expectations.
- mnml remains a top 10 brand at Culture Kings and is leveraging
Culture Kings as a distribution partner to grow brand
recognition.
- Petal & Pup’s omnichannel test on Target’s marketplace is
exceeding expectations.
First Quarter Financial
Details
- Net sales decreased 18.8% to $120.5 million, compared to
$148.3 million in the first quarter of 2022. The decrease was
driven by a decline in the number of orders and average order value
during the quarter, which was primarily due to macroeconomic
conditions, including a higher promotional environment and changes
in foreign currency rates. On a Constant Currency1 basis, net sales
decreased 16%.
- Gross margin was 56.9%, compared to 56.8% in the first
quarter of 2022.
- Selling expenses were $34.4 million, compared to $40.4
million in the first quarter of 2022. Selling expenses were 28.6%
of net sales compared to 27.2% of net sales in the first quarter of
2022. The increase was primarily due to the increased costs for
distribution and store facilities, as well as lower average order
value. This was partially offset by improved operational
efficiencies in fulfillment and outbound shipping.
- Marketing expenses were $14.8 million, compared to $15.7
million in the first quarter of 2022. Marketing expenses were 12.3%
of net sales compared to 10.6% of net sales in the first quarter of
2022. The increase was primarily driven by lower sales volume
compared to the prior year.
- General and administrative (“G&A”) expenses were
$25.9 million, compared to $24.8 million in the first quarter of
2022. G&A expenses were 21.5% of net sales compared to 16.7% of
net sales in the first quarter of 2022. The increase in G&A
expenses during the quarter was primarily due an increase in
salaries and benefits and equity-based compensation.
- Adjusted EBITDA2 was $2.2 million, or 1.8% of net sales,
compared to $10.7 million, or 7.2% of net sales in the first
quarter of 2022.
Balance Sheet and Cash
Flow
- Cash and cash equivalents at the end of the first
quarter totaled $30.2 million, compared to $46.3 million at the end
of fiscal year 2022.
- Inventory at the end of the first quarter totaled $112.5
million, compared to $126.5 million at the end of fiscal year
2022.
- Debt at the end of the first quarter totaled $132.4
million, compared to $143.6 million at the end of fiscal year
2022.
- Cash flow used in operations for the three months ended
March 31, 2023 was $3.0 million, compared to $14.9 million for the
three months ended March 31, 2022.
Outlook
For the second quarter of 2023, the Company expects:
- Net sales between $137 million and $140 million
- Adjusted EBITDA3 between $5.5 million and $6.0 million
- Weighted average diluted share count of 130 million
For the full year 2023, the Company is raising its outlook
and now expects:
- Net sales between $575 million and $605 million
- Adjusted EBITDA3 between $36 million and $38 million
- Weighted average diluted share count of 130 million
The above outlook is based on several assumptions, including but
not limited to, foreign exchange rates remaining at the current
levels and a continued promotional environment. 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, 2023, 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
13737879. 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 Adjusted EBITDA, Adjusted EBITDA margin, net income (loss),
as adjusted, net income (loss) per share, as adjusted 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 and Petal &
Pup.
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 include statements related to our financial and
operational results for the second quarter and long-term
expectations, as well as our brands’ omnichannel expansion
initiatives.
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 effects of economic downturns and unstable
market conditions; our ability to regain compliance with the NYSE
minimum share price requirement within the applicable cure period;
our ability in the future to comply with the NYSE listing standards
and maintain the listing of our common stock on the NYSE; risks
related to doing business in China; 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 ability to manage our
inventory effectively; 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;
interruptions in or increased costs of shipping and distribution,
which could affect our ability to deliver our products to the
market; our use of social media platforms and influencer
sponsorship initiatives, which could adversely affect our
reputation or subject us to fines or other penalties; fluctuating
operating results; 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 tax liabilities that may
increase the costs to our consumers; our ability to attract and
retain highly qualified personnel, including key members of our
leadership team; fluctuations in wage rates and the price,
availability and quality of raw materials and finished goods, which
could increase costs; foreign currency fluctuations; and other
risks and uncertainties set forth in the sections entitled “Risk
Factors,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Forward-Looking
Statements” in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2022, quarterly reports on Form 10-Q and
any other periodic reports that the Company may file with the
Securities and Exchange Commission (the “SEC”) on March 9, 2023.
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 March
31,
2023
2022
Net sales
$
120,485
$
148,319
Cost of sales
51,985
64,123
Gross profit
68,500
84,196
Operating expenses:
Selling
34,406
40,364
Marketing
14,777
15,705
General and administrative
25,868
24,778
Total operating expenses
75,051
80,847
Income (loss) from operations
(6,551
)
3,349
Other expense, net:
Interest expense
(2,851
)
(1,259
)
Other income (expense)
(1,034
)
88
Total other expense, net
(3,885
)
(1,171
)
Income (loss) before income taxes
(10,436
)
2,178
Benefit from (provision for) income
tax
883
(653
)
Net income (loss)
$
(9,553
)
$
1,525
Net income (loss) per share:
Basic
$
(0.07
)
$
0.01
Diluted
$
(0.07
)
$
0.01
Weighted average shares outstanding:
Basic
129,040,617
128,647,836
Diluted
129,040,617
128,653,421
a.k.a. BRANDS HOLDING
CORP.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands)
(unaudited)
March 31,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents
$
30,224
$
46,319
Restricted cash
2,020
2,054
Accounts receivable
3,309
3,231
Inventory, net
112,496
126,533
Prepaid income taxes
7,088
6,089
Prepaid expenses and other current
assets
13,592
13,378
Total current assets
168,729
197,604
Property and equipment, net
27,638
28,958
Operating lease right-of-use assets
39,179
37,317
Intangible assets, net
72,864
76,105
Goodwill
165,335
167,731
Deferred tax assets
917
1,070
Other assets
804
853
Total assets
$
475,466
$
509,638
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
16,544
$
20,903
Accrued liabilities
30,657
39,806
Sales returns reserve
4,944
3,968
Deferred revenue
10,863
11,421
Operating lease liabilities, current
6,466
6,643
Current portion of long-term debt
6,300
5,600
Total current liabilities
75,774
88,341
Long-term debt
126,062
138,049
Operating lease liabilities
36,545
34,404
Other long-term liabilities
1,497
1,483
Deferred income taxes
96
284
Total liabilities
239,974
262,561
Stockholders’ equity:
Preferred stock
—
—
Common stock
129
129
Additional paid-in capital
462,553
460,660
Accumulated other comprehensive loss
(49,110
)
(45,185
)
Accumulated deficit
(178,080
)
(168,527
)
Total stockholders’ equity
235,492
247,077
Total liabilities and stockholders’
equity
$
475,466
$
509,638
a.k.a. BRANDS HOLDING
CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March
31,
2023
2022
Cash flows from operating
activities:
Net income (loss)
$
(9,553
)
$
1,525
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation expense
2,452
1,163
Amortization expense
2,988
4,054
Amortization of inventory fair value
adjustment
—
707
Amortization of debt issuance costs
158
164
Lease incentives
334
—
Loss on disposal of reporting unit
951
—
Non-cash operating lease expense
1,753
2,340
Equity-based compensation
1,936
1,368
Deferred income taxes, net
(9
)
(271
)
Changes in operating assets and
liabilities, net of effects of acquisitions:
Accounts receivable
(107
)
(808
)
Inventory
11,536
(3,132
)
Prepaid expenses and other current
assets
(602
)
(1,759
)
Accounts payable
(4,010
)
(6,956
)
Income taxes payable
(1,120
)
(2,127
)
Accrued liabilities
(8,463
)
(4,937
)
Returns reserve
1,026
(1,788
)
Deferred revenue
(314
)
(2,805
)
Lease liabilities
(1,916
)
(1,641
)
Net cash used in operating activities
(2,960
)
(14,903
)
Cash flows from investing
activities:
Acquisition of businesses, net of cash
acquired
—
(2,095
)
Purchase of intangible assets
(26
)
—
Purchases of property and equipment
(1,854
)
(2,608
)
Net cash used in investing activities
(1,880
)
(4,703
)
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
Repayment of line of credit
(10,000
)
—
Proceeds from issuance of debt, net of
issuance costs
—
(121
)
Repayment of debt
(1,400
)
(1,400
)
Taxes paid related to net share settlement
of equity awards
(43
)
—
Net cash provided by (used in) financing
activities
(11,443
)
22,337
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
154
(77
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
(16,129
)
2,654
Cash, cash equivalents and restricted cash
at beginning of period
48,373
41,018
Cash, cash equivalents and restricted cash
at end of period
$
32,244
$
43,672
Reconciliation of cash, cash
equivalents and restricted cash:
Cash and cash equivalents
$
30,224
$
41,166
Restricted cash
2,020
2,506
Total cash, cash equivalents and
restricted cash
$
32,244
$
43,672
a.k.a. BRANDS HOLDING
CORP.
KEY FINANCIAL AND OPERATING
METRICS AND NON-GAAP MEASURES
(unaudited)
Three Months Ended March
31,
(dollars in thousands)
2023
2022
Gross margin
57
%
57
%
Net income (loss)
$
(9,553
)
$
1,525
Net income (loss) margin
(8
)%
1
%
Adjusted EBITDA2
$
2,186
$
10,652
Adjusted EBITDA margin2
2
%
7
%
Key Operational Metrics and Regional
Sales
Three Months Ended March
31,
(metrics in millions, except AOV; sales
in thousands)
2023
2022
% Change
Key Operational
Metrics
Active customers4
3.6
3.8
(5.3
)%
Average order value
$
80
$
83
(3.6
)%
Number of orders
1.5
1.8
(16.7
)%
Sales by
Region
U.S.
$
72,626
$
77,668
(6.5
)%
Australia
35,703
51,895
(31.2
)%
Rest of world
12,156
18,756
(35.2
)%
Total
$
120,485
$
148,319
(18.8
)%
Year-over-year growth
(18.8
)%
Year-over-year growth on a constant
currency basis1
(16.1
)%
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 (loss) adjusted to
exclude: interest and other expense; provision for income taxes;
depreciation and amortization expense; equity-based compensation
expense; costs to establish or relocate distribution centers;
transaction costs; costs related to severance from headcount
reductions; goodwill and intangible asset impairment; sales tax
penalties; insured losses, net of any recoveries; and one-time or
non-recurring items, and Adjusted EBITDA margin as Adjusted EBITDA
as a percentage of net sales. Adjusted EBITDA and Adjusted EBITDA
margin are considered non-GAAP financial measures under the SEC’s
rules because they exclude certain amounts included in net income
(loss) and net income (loss) margin, the most directly comparable
financial measures calculated in accordance with GAAP.
A reconciliation of non-GAAP Adjusted EBITDA to net income
(loss) for the three months ended March 31, 2023 and 2022 is as
follows:
Three Months Ended March
31,
(dollars in thousands)
2023
2022
Net income (loss)
$
(9,553
)
$
1,525
Add (deduct):
Total other expense, net
3,885
1,171
Provision for (benefit from) income
tax
(883
)
653
Depreciation and amortization expense
5,440
5,217
Equity-based compensation expense
1,936
1,368
Inventory step-up amortization expense
—
707
Transaction costs
—
11
Severance
264
—
Sales tax penalties
483
—
Insured losses, net of recovery
614
—
Adjusted EBITDA
$
2,186
$
10,652
Net income (loss) margin
(8
) %
1
%
Adjusted EBITDA margin
2
%
7
%
Net Income (Loss), As Adjusted and Net Income (Loss) Per
Share, As Adjusted
Net income (loss), as adjusted and net income (loss) per share,
as adjusted are considered non-GAAP financial measures under the
SEC’s rules because they exclude certain amounts included in net
income (loss) and net income (loss) per share calculated in
accordance with GAAP, the most directly comparable financial
measures calculated in accordance with GAAP. Management believes
that net income (loss), as adjusted and net income (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 income (loss), as
adjusted and net income (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 three months ended March 31, 2023 by adjusting
net loss and net loss per share for the loss on disposal of the
Rebdolls reporting unit.
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 three months ended March 31, 2023 are as
follows:
Three Months Ended
March 31, 2023
Net loss
$
(9,553
)
Adjustments:
Loss on disposal of the Rebdolls reporting
unit
951
Tax effects of adjustments
—
Net loss, as adjusted
$
(8,602
)
Net loss per share, as adjusted
$
(0.07
)
Weighted-average shares, diluted
129,040,617
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.
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 calculated in accordance with Article 11 of
Regulation S-X. 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, disaggregated by geography, which is
the most directly comparable financial measure calculated in
accordance with GAAP, for the three months ended March 31, 2023 and
2021, is as follows:
Three Months
Ended
March 31,
2023
Three Months Ended March 31,
2021
Two-year Growth Rate
Actual
Actual
Culture
Kings
Pro Forma
Actual
Pro Forma
U.S.
$
72,626
$
42,830
$
7,669
$
50,499
69.6
%
43.8
%
Australia
35,703
19,015
36,132
55,147
87.8
%
(35.3
) %
Rest of world
12,156
6,934
7,462
14,396
75.3
%
(15.6
) %
Total
$
120,485
$
68,779
$
51,263
$
120,042
75.2
%
0.4
%
____________________ 1 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, 2022, which was the last day of our prior fiscal year) rather
than the actual exchange rates in effect during the respective
periods. 2 See additional information at the end of this release
regarding non-GAAP financial measures. 3 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 equity-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. 4 Trailing twelve months.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230510005944/en/
Investor Contact investors@aka-brands.com
Media Contact media@aka-brands.com
aka Brands (NYSE:AKA)
Historical Stock Chart
From May 2024 to Jun 2024
aka Brands (NYSE:AKA)
Historical Stock Chart
From Jun 2023 to Jun 2024