a.k.a. Brands Holding Corp (AKA) Q2 2024 Earnings Call Highlights: Strong US Growth and Margin ...

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  • Net Sales: $149 million, a 10% constant currency increase year-over-year.

  • US Net Sales Growth: 19.3% year-over-year, reaching $95 million.

  • Gross Margin: 57.7%, up 80 basis points from the prior year.

  • Adjusted EBITDA: $8 million, a 44% increase year-over-year.

  • Operating Cash Flow: $3.5 million generated.

  • Net Debt: Down 13% from the prior year.

  • Active Customer Growth: 11.7% increase on a trailing 12-month basis.

  • Average Order Value: $78, down 4.9% year-over-year.

  • Cash and Cash Equivalents: $25.5 million at the end of the quarter.

  • Inventory: $107 million, flat year-over-year.

  • Stock Repurchase: 11,046 shares repurchased for approximately $100,000.

  • Full Year Net Sales Outlook: $560 million to $565 million.

  • Full Year Adjusted EBITDA Outlook: $20 million to $22 million.

  • Third Quarter Net Sales Outlook: $141 million to $145 million.

  • Third Quarter Adjusted EBITDA Outlook: $6 million to $7 million.

Release Date: August 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Net sales exceeded expectations with a year-over-year growth of more than 9%, driven by strong performance in the US market.

  • The US business saw significant acceleration with net sales growth of over 19%, contributing to 64% of total net sales.

  • Gross margin improved to 57.7%, up 80 basis points from the previous year, aided by reduced airfreight costs and strong full-price selling.

  • Adjusted EBITDA increased by 44% year-over-year, reaching $8 million, surpassing the high end of guidance.

  • Active customer growth was strong, with a 12% increase over the prior year, adding 420,000 new customers in the last 12 months.

Negative Points

  • Sales in the Australia and New Zealand region contracted by 5% year-over-year, indicating challenges in these markets.

  • Average order value decreased by 4.9% compared to the previous year, partly due to softer sales in Australia and New Zealand.

  • Selling expenses increased to 27.7% of net sales, up from 26.4% a year ago, due to growing marketplace initiatives and additional stores.

  • The company anticipates a slowdown in growth for Q3, with projected net sales growth of only 1% to 2% at the midpoint.

  • The company faces potential risks related to tariffs on goods from China, where the majority of their third-party suppliers are based.

Q & A Highlights

Q: How do you foresee the optimal channel mix for a.k.a. Brands over the next three to five years? A: Ciaran Long, Interim CEO and CFO, stated that while the company will remain predominantly direct-to-consumer, there are significant opportunities in omnichannel strategies. They will continue to explore channels that elevate their brands and meet economic expectations, leveraging learnings from past tests.

Q: Are you observing a shift in fashion trends that is benefiting your business? A: Ciaran Long noted a shift towards fashion-based businesses, with proprietary and exclusive products being a key advantage. The test-and-repeat model allows them to stay on trend, resonating well with customers and driving growth across categories, particularly in dresses and new categories like loungewear.

Q: What are the expectations for Culture Kings as it transitions to a test-and-repeat model? A: Ciaran Long explained that Culture Kings is making progress with its first-party brands, which account for 50% of revenue. The focus is on margin expansion in the second half of the year, leveraging the test-and-repeat model to build a cohort of successful products.

Q: How will Princess Polly's new stores differ from the Century City location? A: The new stores will be larger, with changes in visual merchandising and more SKUs. The goal is to replicate the compelling online experience in-store, with newness each week to attract repeat customers and enhance brand awareness.

Q: How is a.k.a. Brands managing potential tariff increases on goods from China? A: Ciaran Long mentioned that the company is testing actions to diversify its supply chain and will provide updates on any changes in the next quarter, focusing on maintaining growth opportunities in the U.S. market.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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