a.k.a. Brands Holding Corp. Reports Second Quarter 2023 Financial Results

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, 2023.

Results for the Second Quarter

• Net sales decreased 14.2% to $136.0 million, compared to $158.5 million in the second quarter of 2022; down 11% in Constant Currency¹.
• In the U.S., net sales decreased 2.8% compared to the second quarter of 2022 and grew 12.3% on a two-year stack.
• Net loss was $(5.0) million or $(0.04) per share, and (3.7%) of net sales in the second quarter of 2023, compared to net loss of $(4.2) million or $(0.03) per share, and (2.7%) of net sales in the second quarter of 2022.
• Adjusted EBITDA² was $5.6 million, or 4.1% of net sales, compared to $5.9 million, or 3.7% of net sales in the second quarter of 2022.

“We continue to execute against our strategic initiatives and have made significant improvements in our operating efficiencies, which enabled us to deliver on our adjusted EBITDA and cash flow expectations for the second quarter,” said Ciaran Long, Interim Chief Executive Officer and Chief Financial Officer. “I’m also pleased that we continued to strengthen our balance sheet by way of strategically reducing inventories, which were down 16% since the end of fiscal 2022, and we paid down $12.5 million of debt in the quarter. “The U.S. performance was in line with our expectations, registering $80 million of net sales in the second quarter and delivering 12% growth on a two-year basis. Despite the inline performance in the U.S., our overall net sales were dampened by continued macro pressures and consumer challenges in Australia.”

“Importantly, we are increasing our total addressable market, particularly in the U.S., by introducing our brands to new customers through direct to consumer and omnichannel initiatives. We’re excited to announce that Princess Polly is expanding its partnership with PacSun to 100 stores and will open its first store next month. Looking ahead, we remain laser focused on chasing consumer demand, driving greater operational efficiencies and strengthening the balance sheet by paying down additional debt through the remainder of the year. We remain confident in the future of our brands and our business model and are committed to driving shareholder value,” concluded Long.

Recent Business Highlights

• Princess Polly is expanding its wholesale relationship with PacSun to 100 stores and remains on-track to open its first store in Los Angeles next month.
• Culture Kings continues to disrupt the U.S. streetwear industry with the flagship store in Las Vegas outperforming expectations and recent partnerships with Rolling Loud and the UFC.
• Petal & Pup continues to exceed expectations on Target marketplace and is exploring additional omnichannel tests.
• mnml remains a top 10 brand at Culture Kings and continues to leverage Culture Kings for new customer acquisition and marketing activations.

Second Quarter Financial Details

• Net sales decreased 14.2% to $136.0 million, compared to $158.5 million in the second quarter of 2022. The decrease was driven by a decline in the number of orders and average order value during the quarter, primarily driven by adverse macroeconomic conditions in Australia. On a Constant Currency¹ basis, net sales decreased 11%.
• Gross margin was 56.9%, compared to 55.2% in the second quarter of 2022. The improvement was primarily driven by improved full price sell-through, particularly in the U.S., and lower freight expenses.
• Selling expenses were $35.9 million, compared to $45.3 million in the second quarter of 2022. Selling expenses were 26.4% of net sales compared to 28.6% of net sales in the second quarter of 2022. The decrease was primarily due to operational efficiencies in distribution, fulfillment and outbound shipping.
• Marketing expenses were $18.4 million, compared to $19.1 million in the second quarter of 2022. Marketing expenses were 13.5% of net sales compared to 12.0% of net sales in the second quarter of 2022. The increase was primarily driven by lower sales volume compared to the prior year.
• General and administrative (“G&A”) expenses were $24.2 million, compared to $25.7 million in the second quarter of 2022. G&A expenses were 17.8% of net sales compared to 16.2% of net sales in the second quarter of 2022. The increase in G&A as a percent of net sales during the quarter was primarily due lower sales volume compared to the prior year.
• Adjusted EBITDA² was $5.6 million, or 4.1% of net sales, compared to $5.9 million, or 3.7% of net sales in the second quarter of 2022.

Balance Sheet and Cash Flow

• Cash and cash equivalents at the end of the second quarter totaled $25.9 million, compared to $46.3 million at the end of fiscal year 2022.
• Inventory at the end of the second quarter totaled $106.7 million, compared to $126.5 million at the end of fiscal year 2022, or compared to $143.9 million at the end of the second quarter of 2022.
• Debt at the end of the second quarter totaled $120.0 million, compared to $143.6 million at the end of fiscal year 2022.
• Cash flow provided by operations for the six months ended June 30, 2023 was $7.3 million, compared to cash flow used in operations of $23.6 million for the six months ended June 30, 2022.

Outlook

For the third quarter of 2023, the Company expects:

• Net sales between $138 million and $143 million
• Adjusted EBITDA³ between $6 million and $8 million
• Weighted average diluted share count of 130 million

For the full year 2023, the Company is adjusting its outlook and now expects:

• Net sales between $555 million and $565 million
• Adjusted EBITDA³ between $21 million and $25 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 continued macroeconomic pressures, specifically in the Australia Region. See “Forward-Looking Statements” for additional information.

Conference Call

A conference call to discuss the Company’s second quarter results is scheduled for August 9, 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 13739113. 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 financial 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 financial measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance. The non-GAAP financial measures should not be considered in isolation or as a substitute for the GAAP financial measures. The non-GAAP financial measures used by the Company may be different from similarly-titled non-GAAP financial measures used by other companies. 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”). 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.