a.k.a. Brands Holding Corp. Reports First Quarter 2022

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.

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