Greetings and welcome to the a.k.a. Brands Holding Corp’s Fourth Quarter and Fiscal 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Emily. Thank you and over to you.

Good afternoon. Thank you for joining a.k.a. Brands’ fourth quarter and full year 2021 conference call to discuss the results we released this afternoon, which can be found on our website at ir.akabrands.com. With me on the call are Jill Ramsey, Chief Executive Officer, and Ciaran Long, Chief Financial Officer. Before we get started I would like to remind you of the Company’s Safe Harbor language. Management may make forward-looking statements which refer to expectations, projections or other characterizations of future events including guidance and underlying assumptions. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially than those expressed. For a further discussion of the risks related to our business, please see our filings with the SEC. Please note we assume no obligation to update any such forward-looking statements. This call will contain Non-GAAP financial measures, such as adjusted EBITDA and adjusted EBITDA margin. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release, furnished to the SEC and available on our website. The call also contains certain numbers represented on a pro forma basis which includes the performance of Culture Kings as discussed in all periods and comparable periods described. Now, I’ll turn the call over to Jill.

Thanks Emily. Good afternoon everyone and thanks for joining our call today. 2021 was a monumental year for a.k.a. Brands, capped off by fourth quarter results that exceeded our expectations. I am incredibly proud of our team's accomplishments this year. For the full year, we grew net sales 160% to $562 million, or 59% pro forma. Our largest market, the U.S., led our growth at an outstanding 101% pro forma. We also delivered incredible profitability and grew adjusted EBITDA by 106% at a double-digit EBITDA margin of 11%. Our brands continued to gain global awareness, active customers grew 61% to more than 3.7 million, and our social media following grew to over 8.7 million followers. We further enhanced our portfolio by acquiring two world-class brands, which diversified us into men's and street wear. And we completed our IPO in September. Our strong performance demonstrates the power of our platform, as we continue to grow our brands through next-generation merchandising and marketing. I want to thank our teams for these impressive achievements and their agility in navigating complex supply chain and COVID-19 challenges. I am confident that we have a long runway of continued growth in 2022 and beyond. In the fourth quarter, we delivered strong growth and profitability. Total net sales grew 158% to $182 million or 43% pro forma and we delivered adjusted EBITDA of $16 million. We grew across all brands and all regions with particular strengths in the U.S. where we grew 74% pro forma. Sales growth in Australia accelerated from the third quarter to the fourth quarter. However, the region has turned negative in Q1 of 2022 as we have seen the Omicron variant disrupt this market. Ciaran will comment further on Australia when he takes you through our financial details and outlook. But before I turn it over to him, I'd like to share some highlights from our brands. We continue to see robust momentum at Princess Polly, the first brand we acquired and the largest in our portfolio. The brand gained share and grew in popularity in the U.S. where they were a key driver of our overall growth this quarter. We saw strength in dresses and party wear as customers returned to going out and attending holiday parties. And we were well positioned to capitalize on this demand due to our flexible buying model and agile teams. In the fourth quarter, Princess Polly launched their first extended size collection called Curve. Inspired by feedback and demand from customers and a clear market opportunity, Curve offers the same high-quality, on-trend fashion, as the rest of Princess Polly, in up to size 20. They've released over 240 Curve styles since the launch in December and the demand for the collection is already significant. This is an underserved segment in the industry, particularly for on-trend fashion, and we're excited to see new customers come to the brand through the collection. We believe this to be a meaningful growth opportunity in 2022 and beyond as we continue to expand and refine the assortment. Responsible fashion is core to the Princess Polly brand and an important value of their Gen Z and Millennial customers. As discussed on our last call, Princess Polly introduced their Earth Club collection in the back half of 2021. Made from recyclable and sustainable materials, the collection was an important growth driver in the fourth quarter and exceeded expectations. Notably, Princess Polly achieved their goal of converting 20% of their assortment to sustainable fabrics by the end of 2021, and they plan to convert 40% of the assortment by the end of this year. This is an impressive achievement, and we're excited to leverage Princess Polly's knowledge and best practices in sustainability across our brands. Masters at next-gen marketing, Princess Polly engages customers with great content which they amplify through a network of micro-influencers. In the fourth quarter, they grew their social media following and leaned in deeper on TikTok, which is now their fastest-growing marketing channel. They also launched a successful college ambassador program in November, complementing their highly efficient micro-influencer strategy. College is a strategic and important audience for Princess Polly since 75% of their customers are high school and college students. The program is off to a great start, and the hashtag #PollyOnCampus surpassed 2 million views on TikTok in November alone. This is driving awareness and engagement at colleges and universities across the U.S. and will be instrumental in Princess Polly’s continued growth. Turning to Culture Kings, which we acquired in March of last year, the U.S. led Culture Kings growth in the fourth quarter as we ramped up our brand building efforts. Followed by New Zealand, where Culture Kings continues to outperform expectations following the successful launch of the Auckland store in August, which has fueled both in-store sales and a corresponding halo effect of online sales. Culture Kings excels in print-on-demand graphic tees and hoodies, which enables them to instantly jump on the latest streetwear and culture trends. To accelerate this growth, we bought a print facility in the U.S. in the fourth quarter. The print facility gives Culture Kings a meaningful advantage as it significantly increases their capacity to produce graphic apparel in record time. For example, through a licensing deal with Netflix and Squid Games, Culture Kings was able to design and launch Squid Games branded merchandise within hours, generating viral hype and newness. We now have robust graphic print capabilities in both the U.S. and Australia to capitalize on the growing demand across two hemispheres. Print-on-Demand is the fastest-growing part of the Culture Kings business and an important part of their growth strategy. Notably, Culture Kings is our only brand with stores, seven in Australia and one in New Zealand. These highly experiential stores are unlike any others with a nightclub vibe, live DJs, in-store basketball, interactive games, and celebrity events that serve as powerful marketing vehicles. And we're thrilled to share that we signed the lease for the first U.S. flagship store in Las Vegas, which will open at the end of this year. The Culture Kings store in Vegas will leverage the best features from their other stores while also offering new, one-of-a-kind elements. In-store events and content will create buzz and viral hype on social media to build awareness and traffic both in-store and online. The store's product offering will be a unique curation of leading third-party brands combined with their own highly sought-after world-exclusive streetwear brands. We already see strong demand for Culture Kings in-house brands in the U.S. and they are a key component of our U.S. expansion strategy. We are confident that the flagship store at Caesars Las Vegas will be the perfect location to introduce this brand to the U.S. given the heavy tourist traffic of 18 to 35 year olds and robust traffic that has already rebounded from pandemic lows. This first flagship store is key to our U.S. growth and I'm excited to share more details as we get closer to the opening. Petal & Pup was our second brand acquisition and has experienced incredible growth and acceleration since joining the platform in 2019. Now led by a new brand President and leadership team, they've adopted best practices like test and repeat merchandising, and micro-influencer marketing, which led to significant growth in 2021 and in the fourth quarter. In the back half of the year, they leaned deeper into test and repeat buying, which fueled sales growth and a meaningful increase in full-price sell-through. In 2021, they nearly tripled their micro-influencer collaborations and diversified their advertising spend across paid performance and social media channels. This led to a significant increase in brand awareness and new customer acquisition in the fourth quarter. Importantly, they increased their repeat purchase rate by over 40% versus last year and saw customers who they acquired in the second and third quarters come back to shop over the holidays. Last year, Petal & Pup more than doubled in size in the U.S., which is their largest market, while also continuing to grow in Australia. Petal & Pup is now following the same successful growth curve as Princess Polly and notably Petal & Pup was our fastest-growing brand in the a.k.a. portfolio in 2021. Our most recent acquisition, Mnml, is a popular men's streetwear brand with great potential for global growth and synergies with Culture Kings. We closed on the transaction in October and I've been incredibly pleased with their growth, the talent of this team, and the synergies with our other brands. They have hit the ground running, benefiting from the a.k.a. platform immediately. Ahead of the peak season and holiday, we worked with Mnml to deepen inventory positions and improve lead times to customers, both of which contributed to robust growth in the quarter. Equally exciting is how Mnml has already provided immediate value in both merchandising and marketing to our other brands. The team at Mnml are expert merchants who closely monitor trends to stay ahead of the fashion curve. For example, they were early to spot men's flare denim, which has been very successful. Denim is Mnml’s core category, and they are well positioned to capitalize on the current denim cycle as consumer preferences shift to new denim styles. We continue to see meaningful synergies between Mnml and Culture Kings, and Mnml will be launching on the Culture Kings website in Australia in the second quarter with a broader rollout to follow. We believe Mnml has great potential and significant headroom in the U.S. and globally. Finally, Rebdolls accelerated significantly from the third quarter to the fourth, delivering robust growth fueled by great holiday and winter merchandising and the fantastic inspirational content they excel at. I will now turn it over to Ciaran to go deeper into the financials.

Thank you, Jill and good afternoon everyone. We are pleased to have delivered sales and adjusted EBITDA above our expectations despite the ongoing COVID and supply chain challenges. We attributed our strong performance to the agility of our teams as well as the flexibility of our business model. For the fourth quarter, net sales grew 158% to $182 million, compared to $71 million last year. On a constant currency basis, net sales rose 159%. Adjusting for the inclusion of Culture Kings in the prior year, our pro forma net sales increased 43%. Culture Kings net sales grew by 33% compared to the fourth quarter last year. Pro forma average order value increased 4% to $84 compared to the prior year fourth quarter in part due to strategic price increases, illustrating the pricing power of our brands. The total number of orders increased 38% to 2.2 million compared to the prior year on a pro forma basis. For the year, active customers grew 85% or 61% on a pro forma basis to 3.7 million compared to last year. The strong growth across these key performance metrics reflects the continued momentum in our brands, as well as the success of our business model. Now I will provide a few highlights from our three regions, including on a pro forma basis, again, assuming Culture Kings was in last year's results. Fourth quarter net sales in the U.S. increased to $80 million up 89% from the fourth quarter last year, and increased 74% on a pro forma basis. Our largest brand, Princess Polly, continues to be the primary driver of our growth in the U.S. as we continue to build brand awareness. As Jill mentioned, we are seeing the benefits of our platform reflected in the continued growth of Princess Polly, and we remain very pleased with the performance across all five of our brands. Australian net sales grew 246% to $76 million from $22 million in the prior year and increased 12% on a pro forma basis. While trends accelerated early in the fourth quarter, we saw sales slow as the quarter progressed with the surge in the Omicron variant. Turning to the rest of the world, net sales of $26 million increased 92% from the fourth quarter in the prior year on a pro forma basis. The growth was primarily driven by the expansion of Culture Kings to New Zealand, further supporting the resonance of the brand outside of Australia in addition to the traction we are seeing in Princess Polly in Europe and the U.K. in particular. Moving to profitability, our gross profit for the fourth quarter increased 133% to $100 million. Our gross margin rate was 54.6% as compared to 60.3% in the same period last year and was better than expected. The 580 basis point decline in gross margin rate was largely the result of an approximately $4 million or 200 basis point non-cash purchase accounting associated with the Culture Kings and Mnml acquisitions. Excluding these charges, our gross margin was consistent with last quarter despite the cost increases. The inclusion of Culture Kings impacted gross margin by 360 basis points due to the lower margin third-party product assortment. Higher air freight costs impacted the gross margin by nearly 300 basis points, which was offset by targeted price increases. I will speak more about the higher air freight costs when I share our outlook shortly. Selling expenses in the quarter were $46 million, compared to $19 million for the prior year. As a percentage of sales, selling expenses leveraged by 130 basis points to 24.9% compared to 26.2% in the fourth quarter of 2020. Marketing expenses increased to $22 million from $6 million. As a percentage of sales, marketing expense was 11.8%, a 330 basis point increase compared to the fourth quarter of 2020. We increased performance marketing and saw higher advertising rates during the quarter. Subsequent to the end of the quarter, we have seen these rates ease and will continue to balance our investment in performance and brand marketing. Our G&A expense of $27 million increased from $10 million in the prior year. As a percentage of sales, G&A was 14.9% of sales compared to 14.5% in the same period last year. The increase in G&A expense as a percent of sales was primarily due to an increase in salaries and related benefits, as well as equity-based compensation expense related to increases in headcount across functions to support business growth, additional professional service fees, and transaction costs. In addition to GAAP measures, adjusted EBITDA is an important profitability measure that we use to manage our business internally. For the fourth quarter, adjusted EBITDA was $16 million versus $10 million in the prior year. As a percentage of sales, our adjusted EBITDA margin was 8.8% compared to 14.6% in the prior year's fourth quarter, which exceeded our expectations. Our net income attributable to a.k.a. for the quarter was $23,000, or $0.00 per share, compared to $5 million or $0.07 per share in the prior year. On an adjusted basis, our net income attributable to a.k.a. for the quarter was $4 million or $0.03 per share, compared to net income of $5 million or $0.07 per share in the prior year. Our weighted average shares outstanding were approximately 128.9 million in the fourth quarter of 2021. Turning to the balance sheet, we ended the quarter with $39 million in cash and cash equivalents and $109 million in debt. As part of the proceeds raised from our IPO, we reduced our debt levels by approximately $70 million from $168 million of debt borrowed during the first half of 2021. At the end of the quarter, we had total liquidity of $89 million, including $50 million available on our credit facility. Inventory at the end of the quarter was $116 million compared to $33 million at the end of the fourth quarter of 2020. If we adjust for Culture Kings and Mnml’s inventory in the prior year, our inventory levels would have increased 58% from the fourth quarter of last year. For the fourth quarter, we pulled forward inventory to ensure we can meet customer demands. While this had an impact on COGS due to higher air freight costs, our priority was to deliver an exceptional customer experience. Turning now to our outlook. We remain very pleased with the strong demand for brands in the U.S. market, as evidenced by our strong sales growth. Before I share details of our guidance, I want to provide some perspective on the macro factors that are affecting our business. Starting with the Omicron variant in Australia, where the country is out of strict lockdown, the consumer reaction to this latest outbreak was far more pronounced than we saw during the initial phases of the COVID pandemic due to the spike in the number of cases. For context, prior to Omicron, cases were extremely low in Australia at less than 30 per day, and they had not seen the surge as we've experienced in the U.S. and the rest of the world. Its recent surge in Australia resulted in a significant decrease in consumer demand, leading to negative sales beginning in the second half of January and continuing through February. We are hopeful that as the country reopens for tourism and moves past this phase of the pandemic that consumer demand will return. Looking at the supply chain, we recently started experiencing order cancellations which is impacting Culture Kings. We know that factories are returning to full capacity, but we anticipate that this will extend into the second half of 2022. We also anticipate that airfreight costs will remain elevated throughout the year. Given the uncertainty in Australia, which was approximately 40% of our pro forma revenue in 2021, the fact that we are coming up against unprecedented stimulus and supply chain challenges, we are projecting sales of $785 million to $805 million for 2022. This reflects an approximately 150 basis points impact from changes in foreign exchange rates. We expect to see lower sales growth in the first half of the year with a return to higher growth rates in the second half of the year. Looking at gross margin, given the continued increase in air freight costs, we expect this to pressure gross margins for the year with a bigger impact on the first half. In the second half, we will be comparing to elevated air freight costs. In terms of SG&A, we continue to invest in talent and infrastructure. As discussed in the past, we typically increase investments in new brands within the first year of acquisition to support the continuation of strong growth. For 2022, we made the decision to put forward new hires into the first quarter ahead of our strongest seasons, spring and summer, particularly to prepare for the recovery in Australia. As a result of these factors, we expect adjusted EBITDA for the year to be $90 million to $100 million. This reflects an approximately $3 million foreign exchange rate headwind. We expect EPS to be between $0.28 and $0.33 per share. This includes interest expense of approximately $4.5 million, stock-based compensation expense of $10.3 million, depreciation and amortization of $23.7 million, a tax rate of 30% and weighted average shares outstanding of approximately 128.7 million. Capital expenditures are expected to be between $18 million to $20 million for the full year. This reflects the opening of a new Culture Kings store in Las Vegas, in addition to investments in infrastructure and technology. As I said earlier, demand for our brands remains very strong in the U.S. However, as noted, Australia turned negative in the mid-single digits in January and February, and we anticipate that it will extend into the beginning of the second quarter before we start to see a full recovery. Note that on a constant currency basis, Australia is trending low single digits negative compared to last year. Looking at the first quarter, it's important to note that we had a very strong first quarter in 2021 with a 97% pro forma growth rate. So we're up against an extremely challenging comp. As a result, we're projecting sales of $140 million to $145 million for the first quarter of 2022. This reflects an approximately 350 basis points headwind from FX in addition to the impact of COVID and supply chain challenges. We expect adjusted EBITDA to be between $9.5 million and $10.5 million, again reflecting $1.5 million from FX headwinds, higher air freight costs, and SG&A de-leveraged due to recent investments in the growth of our business, particularly around talent. We expect EPS to be between zero and $0.01 per share, assuming interest expense of approximately $1.1 million, stock-based compensation of $1.3 million, depreciation and amortization of $6.5 million, a tax rate of 30%, and weighted average shares outstanding of approximately 128.6 million. While we continue to manage our business through the current macro challenges, we remain very confident in the long-term outlook. We continue to see strong growth in new customer acquisition, great retention rates, and strong full-price sales. We have a long runway ahead of us and will continue to advance our growth strategies while navigating the current environment. 2021 was a phenomenal year and we're very optimistic about our future. As we look beyond 2022, we remain confident in our ability to deliver on our long-term growth targets, which include net sales growth of approximately 20% annually excluding acquisitions, the addition of one to two acquisitions per year, and long-term adjusted EBITDA margins in the mid-teens. With that, I will turn the call back over to Jill.

Thanks, Ciaran. Looking at 2022 and beyond, we have a significant runway to fuel continued growth. At a macro level, we are well positioned to gain share as Gen Z and Millennials' spending power grows and fashion shopping moves more to mobile and social. We have a proven playbook of next-generation marketing and merchandising strategies and have accelerated brand growth when we lean into these best practices. Our investment strategy of acquiring high-potential brands and scaling them in the U.S. is working, as shown by 101% pro forma growth in the U.S. last year. We have repeated our success scaling multiple brands, demonstrating the strength of our platform. We also have substantial growth opportunities internationally, where we already see strong organic demand for our brands, and we are in the early innings of global expansion. Finally, we see acquisitions as an opportunity to invest in seeds of growth for the future. We are searching the globe for the best direct-to-consumer fashion brands and have a robust and active pipeline. Our brands are still in the early stages of growth, and we see significant opportunity to gain share in the U.S. We will continue to acquire customers by leveraging our next-generation marketing approach, which all starts with content. Our brands release a constant stream of inspirational photos and videos on social media. They are agile, frequently adjusting content to resonate and perform better on new platforms before scaling spend. As our target customer migrates further from Facebook to Instagram to YouTube to TikTok, so do our brands. They balance spend and resources on paid performance marketing and social media influencers, which results in a highly efficient approach to marketing. We've had great success evidenced by our 61% increase in active customers in 2021 at 10% marketing spend, and will continue to grow awareness in 2022 and the long term. This year we will scale Princess Polly's college ambassador program, which will complement their successful micro-influencer strategy. At Culture Kings, we are building a network of relevant influencer athletes, artists, and identity partners in streetwear, who inspire our target demographic to grow U.S. brand awareness and acquire new customers. We also embrace the latest next-generation strategies for our in-house marketing channels, which deepen customer loyalty and engagement. As Gen Z and Millennials average over four hours a day on their phones, they rely less on email and more on text messaging. So our brands are evolving their focus from traditional email marketing to text and mobile app marketing. We've already seen great success. Princess Polly increased their text message subscriber base and saw a meaningful lift in revenue coming from text marketing in the fourth quarter and will continue to lean in further to text messaging across our brands. Culture Kings and Petal & Pup are also laser-focused on improving their mobile apps and leaning into app-only offers, which drive heightened engagement and sales. We are in the early innings with loyalty programs, which we know can further strengthen our customer engagement. Princess Polly has had 1 million members sign up since we launched a loyalty program in October of 2020. These customers spend 50% more on average than non-loyalty members. We're excited to roll out loyalty programs to our other brands to keep customers engaged and spending more. We know the reason our customers keep coming back to our brands is our high-quality merchandise, constant newness, and high mix of exclusive fashion. Our test-and-repeat buying strategy gets trends to customers faster, uses data and analytics to buy smarter, and leads to higher full-price sell-through. This approach is a key differentiator from both our digital peers and traditional retailers. Today we buy the majority of our inventory through test-and-repeat and we are expanding this even further across our brands. Our high mix of exclusive fashion keeps customers returning, creates a competitive moat, and provides pricing power at attractive gross margins. Today, over half of our assortment consists of proprietary designs and in-house brands or exclusive styles available only on our sites, and we are committed to growing this next. As we continue to evolve, we will also expand our product categories in collaborations. For example, Princess Polly is leaning deeper into festival wear, and Petal & Pup is expanding further into casual wear and basics to drive greater share of their customers' closets. These brands shine in spring and summer and excel at going out clothes and special occasions. We are well positioned as we head into a spring and summer that is anticipated to be unlike any other for special occasions, events, festivals, and weddings. We are also really excited about Culture Kings’ print-on-demand graphic tees business which gives newness to customers within days. We plan to extend this capability across our brands. While growing our brands in the U.S. is our near-term priority, we will continue to scale our international presence. We ship to over 200 countries worldwide and impressively see high organic demand for Princess Polly in the U.K. and Canada and for Culture Kings in Japan and Korea without having localized the marketing to those regions. Princess Polly grew 150% in the U.K. last year, and we are now beginning to lean in deeper by establishing a U.K. expansion team and opening an office in the U.K. in the first quarter. We'll continue to test and learn our way into new high-potential markets and plan to expand awareness and grow our brands globally over the next several years. Importantly, a critical piece of our model is our acquisition strategy. We have an attractive pipeline of high-growth brands, and we are committed to augmenting our 20% long-term growth targets with one to two acquisitions a year. We are disciplined and opportunistic, and look for high-growth profitable brands with great teams and loyal customers. We've had proven success acquiring Australian brands and bringing them to the U.S. and we'll continue to search the globe for the world's best brands. We plan to expand our portfolio by adding new customer segments and new categories such as activewear or swim. We're excited about the brands in our current pipeline and look forward to sharing more details throughout the year. Before we open it up for questions, I want to reiterate my gratitude to our teams for delivering a great fourth quarter and year. The foundational work that we have established will support our long-term growth targets while maintaining and expanding EBITDA margins. While we are facing transitory challenges with the Omicron variant in Australia, and continued supply chain headwinds that Ciaran discussed, I am confident in our business model and strategies to accelerate the profitable growth of our brands in 2022 and beyond. Now, we'll open it up for questions.

Thank you. The first question comes from the line of Oliver Chen with Cowen. Please go ahead.

So much thanks, Jill and Ciaran for the details. Australia has been a dynamic market and you gave a lot of great details there. But what are your thoughts regarding inventory planning and factors that are in or out of your control as you continue to monitor the trends there? Second, as we think about marketing and marketing as a percentage of sales, would love insights as to how that's incorporated in your guidance and any key trends with customer acquisition costs. It sounds like they're in a more stable place, but they could be volatile. And the last question, Ciaran, on price increases in average order value. How should we think about your perspective on price increases across the portfolio and how that may interplay with any of these? Thanks a lot.

Hey, Oliver, thanks for your questions. I'll start with inventory planning as it relates to Australia and our overall position as we look ahead to the rest of the year. We are in a good position overall. I would say as we look ahead to Q2 and Q3 where our brands are really outstanding in the spring and summer seasons, we particularly shine in those months and are in a good inventory position as we head into festivals, events, and special occasions. So feeling really good from that standpoint. I will call out, though, while we hadn't in 2021, we were not really seeing any significant impacts from the supply chain delays or cancellations. However, in the beginning of this year, we have seen some cancellations and delays in our third-party brands, particularly at Culture Kings. So we have factored that in and we've been able to compensate for that by really leaning into our world-exclusive proprietary brands and our print-on-demand business, which is the fastest-growing part of Culture Kings. So, it is offsetting some of that. From a marketing standpoint, it's just a good reminder of our overall marketing strategy; we do have a very efficient approach to marketing having grown active customers last year by 61% on just 10% marketing as a rate of net sales. That's due to the fact that we leverage social media influencers heavily, and balanced that out with some paid performance spend. We did see a little bit of uptick in marketing spend in the fourth quarter, and I'll let Ciaran comment a little bit more on that, as well as touch on your last question on price increases.

Thanks, Jill. Thanks, Oliver. Yes, Oliver, I think as it relates to marketing spend, you'll see it went up to about 11.8% in Q4. I think what we saw is certainly elevated rates and CPMs on the performance side, particularly in November and December. And we have seen those moderate and come back to what we've experienced in the past in that January, February period. I think going forward, as Jill said, we expect that 10% overall to be a good blended rate. I think from a seasonal perspective, we would expect that to be a little bit lower in Q2, and Q3, which are kind of the better seasons and the more on-point seasons for us, and a little bit more elevated in Q1 and Q4 going forward. And then as it relates to price increases, I think we did a really great job at Princess Polly and Petal & Pup last year at taking price increases. All of those price increases offset the pressure that we saw from inbound freight, which continued to rise in Q4. I think going forward as we think about this year, we see the opportunity at Culture Kings, where 50% of their products are exclusive. So we know we've got more opportunity there first, and that'll be a focus for us. We expect to see improvements there and kind of their pricing changes in the back half of this year. That will help bring up AOV and gross margins in the back half.

Thanks for the details. Best regards.

Thank you. The next question comes from the line of Erinn Murphy with Piper Sandler. Please go ahead.

Great. Thank you. Good afternoon. I just wanted to follow up a little bit more on Australia. When you talked about the Omicron variant pressing the trends thus far in the first quarter, but aren't we, comparing to some pretty significant lockdowns from last year? So just trying to understand kind of the sustained weakness that you're expecting into the second quarter, particularly now that they've opened their borders for tourism. Then, maybe zooming out, as you see now, how do you think about the recovery in Australia or the shape of the recovery in Australia versus what you've seen over the last 12-plus months here in the United States? And then I have one follow-up. Thank you.

Hey Erinn. Yes, I'll give some more color on what we're seeing with the Omicron variant's impact. Candidly, it's been really different by market. We've seen the U.S. customer at a really different place in the pandemic; the Omicron surge really was a third wave for the U.S. audience and really didn't impact demand; in fact, demand has been very robust and growth has been strong in the U.S., which is our majority market. That has helped offset but not completely, fully offset the impact we have seen in Australia, which has tipped to negative in the first part of this year. The lockdowns that you're referencing really were in Q3, when our growth decelerated to 7%. The lockdowns were really at the beginning of Q3. We came out of that and accelerated into Q4, up 12%. And if you look back on Australia, for the full year, Australia was up 26%. So still seeing a lot of great growth in this market overall, even higher than that in the back and front half of 2021. So overall, we really are optimistic and anticipate that as we come out of this, that the market will rebound to growth. But we're not yet seeing the full recovery we would like. We've seen some good green shoots in the back half of February, but still not fully recovered there. Having the two markets has really enabled us to shift focus and lean into the U.S. market where we are seeing really great growth. We've been able to reallocate marketing and some of our resources and focus to continue showing that U.S. growth.

And Erinn, I would just add. From our modeling perspective, we see that the headwinds in Australia will be at least six to seven percentage points in Q1 and probably four to five in Q2, excluding the FX impact, which will be additional on top of that.

Okay, great. Thank you for that clarification. And then my second question is probably for Ciaran, is just on inventory. Could you just share what inventory would have looked like just apples-to-apples excluding the inorganic growth through acquisition last year? Thank you so much.

Sure. Yes, it would have been about 58% pro forma growth over last year. That kind of comparison shows 59% overall sales growth, with organic growth at 43% in Q4. I would say at the end of Q4, we did continue to bring in more inventory and kind of try to get ahead of supply chain issues that we were seeing just to make sure we're in a good position for Q1. I think as we think about inventory through this year, there will be some increase in inventory, just as we bring up the Culture Kings fulfillment center in the U.S. in the first half of this year. Then we would see the levels moderating in the back half of the year.

Great, thank you so much.

Thank you. The next question comes from the line of Randy Konik with Jeffries. Please go ahead.

Hi, good evening, everybody. Just a couple of quick questions. First, just focusing on Culture Kings, it obviously seems like there's a lot of room to grow massively in the United States. So maybe just give us some perspective on what the team on that business is really focused on with U.S. to grow, the awareness levels, work on the infrastructure, it sounds like a distribution center is being put in place, etcetera. So maybe just give us like some of the top three things that are being worked on, to really explode that business across the United States? Thanks, guys.

Yes, hi, Randy. First, we're just super excited about the potential of this brand in the U.S. We are already seeing great growth and momentum; the business nearly doubled in the U.S. this year on pretty significant scale already. What we're really excited about is the demand for the world-exclusive proprietary Culture Kings brands; they far over-index in the U.S. and we're really leading our assortment strategy with those. We're seeing a lot of traction and growth; our fastest-growing part of the business is that print-on-demand business that I referenced. So very excited about the early indications of growth. The business expansion plans into the U.S. are on track. As you mentioned, we are looking to open that distribution center in the second quarter and are on track with those plans. We're really excited about this Vegas store and its launch. That will be a really important part of driving our overall marketing awareness with a significant launch plan that will drive a lot of hype and buzz. The team is also building out an early network of influencers, partnering with athletes and musicians and artists and key partners in the U.S. to really drive awareness of this brand. We're very excited about the growth we're already seeing. Obviously, today, Culture Kings is still largely in Australia. So we did see some of the Omicron impact early in the quarter. But that doesn't change our confidence or enthusiasm as we look ahead to the growth potential in the U.S.

Very helpful. And then just mentioned on the active customer growth of over 60% in the quarter, is there any type of maybe not specific granularity to provide by brand, but just any kind of perspective you can give around the different brands and how they contributed to that or looked versus that overall customer growth metric for the quarter?

I'll comment a little bit and then Ciaran, if you want to jump in as well. First, just to clarify that 61% increase in active customers is on the trailing 12 months. That accounts for the full year 2021 not just for the quarter. The growth on that is, by the way, just as a note, that's on 10% net marketing sales. So just really impressive, active customer growth on an efficient rate is largely a testament to the influencer program that we lean into. The growth is really coming from the U.S. and is heavily led by Princess Polly, who just has continued runway and headroom to keep scaling in the U.S. We've been growing our awareness dramatically there and we have seen we are hitting some virality and even getting some efficiency on our marketing spend as that brand has really gained great awareness. We're leaning into the next phase of that with the college ambassador program and just really excited to continue expanding that.

Yes, the only thing I'd add, Randy, is that the impressive aspect is just the 18% growth quarter-over-quarter, and like Jill talked about, really coming from the same mix across the brands and across geographies.

Thank you. Ladies and gentlemen, I request you to limit your question to one per participant. Thank you. The next question comes from the line of Lorraine Hutchinson with Bank of America. Please go ahead.

Hello, can you hear me all right?

Yes, hey, Lorraine.

Oh, hi, this is Alice here on behalf of Lorraine. Thank you so much for taking our question. We wanted to ask about the average order value. In the last call, you mentioned expecting a low single-digit increase in fiscal 2022. Will it be mostly driven by mix, price increases, maybe assortment shifts or geography? Can you just elaborate on the puts and takes there and also any seasonality by quarter that we can expect? Since we don't have too much history? Thank you.

Sure. Yes, I think the average order value changes. It's the same kind of level that we expect that low single digits. I think they will come in the second half. As we look to put in place some price increases, particularly on the Culture Kings brand. I think from the seasonality that we saw last year, the changes won't be as pronounced in Q3 and Q4 as we may change at Princess Polly and Petal & Pup at that time of year.

Thank you for all the color.

Thank you. The next question comes from the line of Ike Boruchow with Wells Fargo. Please go ahead.

Hi, everyone, this is Justin on behalf of Ike. It sounds like you're on track for fueling organic growth with openings and distribution centers. We're successfully so far, so with regards to deal-making as the macro or business environment, has there been any impact on your near-term appetite for future acquisitions or is it still business as usual?

I would say still business as usual. There are a lot of really good targets and opportunities that we're talking to that are out there that for us fit that mold of great brands, great team, but also have the financial model that's pretty close to our own. I think from a valuation perspective, we have seen valuations and multiples moderate recently, and I think as we think about that, we will just continue to be very disciplined and opportunistic, and certainly look to be buying at a discount from our public multiple.

Yes, hey, Justin, I'll jump in too and just add that we have a really robust pipeline that we're really excited about. As a refresh on our strategy, we are shopping the world globally for great brands, looking for high-potential brands with great growth, profitability, and strong teams that can scale and have had a lot of success acquiring proven brands in smaller markets and then scaling them in the U.S., which gives us confidence to continue shopping globally, and we are really excited about the brands and people in our pipeline.

Cool, thank you.

Thank you. The next question comes from the line of Dana Telsey with Telsey Advisory Group. Please go ahead.

Hi, good afternoon, everyone. As you mentioned about two things, you mentioned about the higher air freight costs, which impacted the gross margin by 300 basis points in Q4. How are you planning for 2022? Is there a cadence to it? And then on the targeted pricing actions, how does it differ by brand? What was the effect this year in 2021 of pricing actions you took? And how much higher does it go in 2022? Thank you.

Sure. Hey, Dana. For us, the airfreight 300 basis points in Q4 impacted a couple of 100 basis points across the year last year. I think we are from a planning perspective. We haven't brought in improvements in the rates across the year. So I think we're just cautious with everything that we see going on there at the moment. As we think about gross margins, we think about them for the first half of this year pretty much being in line with what we experienced in Q4 of this year. In the second half, there are some improvements that we expect will get us to an overall rate that is pretty close to what we saw last year, and those improvements will come from price increases and some other opportunities that we have.

And maybe I'll just jump in for a minute on the price increases and our pricing strategy by brand. We have a really high mix of course of exclusives with over half our merchandise that's exclusive proprietary brands and exclusive merchandise, which ultimately gives us quite a bit of pricing power. At Princess Polly and Petal & Pup, we have rolled out price increases this past year and have been very scientific in measuring those and measuring the impact, and we're able to really walk that up thoughtfully and offset some of the inflationary pressure on the expense side from freight. I will say we have considerable agility in the teams, and certainly are going to be monitoring the expense side and the freight pressure. If we need to put in place some additional price increases, we will. We certainly still have room; as Ciaran mentioned earlier, we still have some room at Culture Kings. We're not as far along on our own price increases on our proprietary products. Ultimately, we are committed to the gross margins that we've guided to in the back half. The teams are agile and do whatever it takes to offset any inflationary pressure.

Thank you.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Jill Ramsey for closing remarks.

Yes, thank you. I just want to end with a comment that ultimately, right now, of course, we have seen a little bit of transitory impact from Australia's impact from Omicron. This we do see this as very unique; Australia really was impacted very differently by the Omicron surge than the U.S. It really was the first time they were living with the COVID pandemic live. They were only getting about 25 cases a day earlier in the pandemic, and really saw that surge to 100,000 cases a day in January, which, if you put that in perspective, that's like five times the caseload per capita in Australia versus the U.S. We're confident in the recovery there that this is a temporary impact. More importantly, we're seeing incredible growth and momentum in our U.S. business, which is where all of our growth and headroom is really positioned for this year and the long haul. So really excited about the long-term potential and the growth this year and long haul, and just appreciate all your questions. And thank you all for joining the call today, and we'll see you next quarter.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.