Earnings Call Transcript - AKA Q4 2024

Operator, Operator

Greetings, and welcome to a.k.a. Brands Holding Corp. Fourth Quarter and Fiscal 2024 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 call is being recorded. It's now my pleasure to introduce Emily Schwartz. Thank you. You may begin.

Emily Schwartz, Moderator

Good afternoon. Thank you for joining a.k.a. Brands to discuss our fourth quarter and fiscal 2024 results. The release was issued this afternoon and can be found on our website at ir.aka. With me on the call today are Ciaran Long, Chief Executive Officer, and Kevin Grint, Chief Financial Officer. Before we get started, I'd like to remind you of the company's Safe Harbor language. Management may make forward-looking statements, which refer to expectations, projections, and 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 from those expressed. For a further discussion of 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 also contain non-GAAP financial measures such as adjusted EBITDA and adjusted gross margin. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the release furnished to the SEC and available on our website. With that, I'll turn the call over to Ciaran.

Ciaran Long, CEO

Good afternoon, everyone, and thanks for joining us. This marks my first call as the permanent CEO. I'm thrilled to build on the foundation we've established over the past few years at a.k.a. Brands through this next chapter of growth. I'm particularly proud that we delivered results ahead of our expectations, which is a testament to our team's ability to execute at the highest levels. Thank you to our team for their hard work and dedication in building next-generation fashion brands as well as their consistent innovation and enthusiasm towards serving our customers. In 2024, we achieved a significant milestone by stabilizing the business and returning to growth. We delivered $575 million in net sales, representing a 5.2% increase over the prior year. In the U.S., which is our largest market, we delivered an impressive 17% net sales growth, underscoring the strength of our brands and the long runway of opportunity ahead in the region. We successfully attracted new customers and strengthened our bond with existing ones, resulting in an impressive 9% growth in our trailing twelve-month active customer base, surpassing four million customers. We enhanced our assortment with fresh, high-quality merchandise, resulting in stronger full-price sales and a 200 basis point improvement in gross margin to 57%. Lastly, given the strength and flexibility of our business model, we delivered $23.3 million of adjusted EBITDA, which represented significant year-over-year growth of 69%. As we look at 2025, we are steadfast in our focus on growing our brands and enhancing our overall profitability. Momentum continues, with the quarter-to-date net sales growth consistent with our Q1 outlook of 4% to 6%. We're confident in our full-year sales outlook of $600 million to $610 million, representing growth of 5% at the midpoint, and adjusted EBITDA of $27.5 million to $29.5 million for the year. Building on the success of last year, we remain focused on three key priorities: First, we will attract and retain customers through our direct-to-consumer channels. Our brands are already on their journey, and we believe we have significant opportunity to grow awareness of our brands. This includes the evolution of our test-repeat merchandising model and delivering on our promise of curating new, on-trend exclusive fashion to customers weekly. We'll also leverage differentiated and innovative strategies across multiple marketing platforms to deepen our direct connection with customers. Second, we will expand our reach and total addressable market through physical retail and growing our wholesale partnerships. As you saw in our press release this afternoon, we will open seven new Princess Polly stores in 2025, with our first store in New York City slated to open next week. We're also expanding our wholesale presence. Third, we remain committed to streamlining our operations and strengthening our financial foundation. We will continue to harness the power of our flexible technology ecosystem, which allows us to explore new AI capabilities to deliver great customer experiences and drive operational excellence with minimal capital investments and resources. In combination with our comprehensive set of customer data, we will leverage AI-driven solutions to personalize customer journeys, predict shopping behaviors, optimize marketing, streamline inventory planning, and operational workflows. Now let me share some recent highlights from our brands as well as growth drivers for 2025. Starting with Princess Polly, our largest brand that's well known for its trend-driven designs and authentic connection with its customers. Princess Polly has climbed to popularity in the U.S. over the past several years as an online-only brand. I'm pleased that the brand continues to resonate with its customers through innovative merchandising and marketing strategies. Importantly, while it's still early days, we've observed an incremental lift in our online business in the surrounding radius when a store opens, confirming our thesis that we're expanding our market share with each new location.

Emily Schwartz, Moderator

We are excited to announce that we will be opening our latest physical exploration of the Princess Polly brand in SoHo, New York City, next week. The opening will be supported by an engaging series of launch celebrations, featuring in-store grand opening events and citywide activations. We encourage those of you in New York to come out and experience the brand firsthand. Moving on to store momentum, I'm excited to announce Princess Polly will open seven new stores across the U.S. in 2025, which would bring the total number of stores to thirteen by year-end.

Ciaran Long, CEO

In addition to New York City, Princess Polly will unveil stores in top shopping destinations across the country, including New York, Florida, California, Ohio, and Pennsylvania. From a timing perspective, four stores will open in the first half of the year, with the remaining stores slated to open in the back half. Building upon its omnichannel model, Princess Polly is also expanding its reach through strategic partnerships with leading retailers. Following a highly successful pilot across twenty Nordstrom locations in the fourth quarter, Princess Polly will launch new styles across all Nordstrom stores nationwide in the first quarter, further validating that broader consumer exposure consistently drives strong demand for our brands. Petal and Pup, our other women's brand, appeals to females in their 20s and 30s with its stylish, feminine designs that make fashion accessible and empowering for life's biggest moments. Building on its digital foundations, Petal and Pup is strategically expanding into new channels, driving brand awareness while achieving strong performance across all partnership launches. In addition to its omnichannel expansion, Petal and Pup continues driving customer engagement through multichannel marketing strategies, leveraging influencer partnerships, social media campaigns, in-person events, and out-of-home advertising, including high-impact billboards. I'm more confident than ever that Petal and Pup is well-positioned to capitalize on significant untapped market potential. Shifting to our streetwear brands, we've made great progress over the last eighteen months optimizing Culture Kings' operations across both regions, and the results are very encouraging. We've added strategic hires at the beginning of 2025, including a new president of Australia and the global head of in-house brands, who brings valuable experience to both our U.S. and Australian operations, positioning Culture Kings for long-term growth and innovation. Culture Kings stands apart in the streetwear landscape, leading with its in-house design apparel, positioning the brand for sustained long-term growth. Before I pass it to Kevin, I'd like to reiterate my thanks to our incredible team for delivering a great year. Our portfolio consists of young brands still early in their growth trajectories with substantial global potential ahead. I'm confident that we have the right strategic initiatives in place and complete alignment across our teams to drive another year of strong performance in 2025. With that, I'll turn it over to Kevin to walk you through the financials.

Kevin Grint, CFO

Thanks, Ciaran. Let me start by saying that I'm thrilled to take on the role of CFO at a.k.a. Brands. As Ciaran noted, for the fourth quarter, net sales increased 6.8% to $159 million, driven by strength in our U.S. business, in which net sales increased 21.6%. Our trailing twelve-month active customer count rose to 4.07 million by the end of the fourth quarter, a robust 9.4% increase compared to a year ago. Our fourth-quarter average order value was $78, increasing 2.6% compared to the fourth quarter last year. Turning now to our profitability metrics, gross margin was in line with our expectations and expanded 460 basis points in the fourth quarter to 55.9%, compared to 51.3% in the same period last year. We're pleased that we delivered adjusted EBITDA of $6.2 million compared to $1.3 million in the same period last year, ahead of expectations. Adjusted EBITDA margin for the fourth quarter of 2024 increased 300 basis points to 3.9% compared to 0.9% in the same period last year. Looking at 2025, we feel good about the quality and composition of our inventory, and we are confident that we are well-positioned as we head into our brands' key spring and summer seasons. For the full year of 2025, we expect net sales of $600 million to $610 million, representing growth in the range of 4% to 6%. We anticipate adjusted EBITDA to be between $27.5 million and $29.5 million, representing growth in the range of 18% to 27% from last year.

Ryan Meyers, Analyst

Hey, guys. Thanks for taking my questions. First question for me. You know, it sounds like you were saying that the United States growth in the 2025 guide should be double digits, but I'm just curious if you can comment on maybe what you're seeing outside of the U.S. that gives you confidence in a rebound there.

Ciaran Long, CEO

Yeah. Thanks, Ryan. Look, I think overall, you know, it's great to see the progress we're making. The U.S. growth of 22% in Q4, it's great to see that kind of continue. And also just the improving comps we've seen in the Australia region. I think we are seeing good performance there. I think as we continue to bring more and more of Culture Kings' own brands onto our test-and-repeat model, we know that model is strong.

Ryan Meyers, Analyst

Okay. Got it. And then just thinking about the potential impact of tariffs here in the United States, you know, any comment on your ability to be able to take price and not have that come at the expense of volume or even maybe customer growth.

Ciaran Long, CEO

Yeah. Thanks, Ryan. Look, I think our guidance does contemplate all that we've seen in tariffs at this point, and we're happy to see that our EBITDA is going up even with the impacts of tariffs. We feel good about the guidance and believe we can offset the impact of tariffs.

Ashley Owens, Analyst

Hi. Good afternoon, and thanks for taking the questions. I wanted to start on the gross margin guide. I'm just curious, you know, in the past, you've discussed how strong margins have really been underscored by the test-and-repeat model. Could you just give us some perspective as to some of the puts and takes for that last gross margin guide this year?

Kevin Grint, CFO

Yeah. Thanks, Ashley, for the question. As Ciaran mentioned earlier, we're really forecasting in our outlook gross margin will be roughly flat to FY 2024. There certainly are some puts and takes to that. Our guidance embeds the impact of known tariffs, as well as the actions we're taking to mitigate those tariffs.

Ashley Owens, Analyst

Okay. Great. And then I guess just second on that and just talking about the wholesale channel for you guys. Doing more in terms of expansion this year, but also adding in some of the Polly stores as well.

Ciaran Long, CEO

Sure. Thanks, Ashley. Look, I think we're really happy with the progress we're making across all of the brands. We feel a huge opportunity there. I think, long term, we're always going to be predominantly online. But we feel just a big opportunity across our brands in all of the channels.

Eric Beder, Analyst

Good afternoon. Let's talk a little bit about Culture Kings. You mentioned in your remarks potentially about adding a store in the U.S. What would kind of be the performance or the markings you would see before you decide that would be something that you'd want to tell us through?

Ciaran Long, CEO

Sure, Eric. Look, we think we are continuing to see great progress with Culture Kings in the U.S. Just the online perspective and continue to use marketing activations in the store to bring that brand to life online. So I think all of that gives us confidence on the long-term opportunity for Culture Kings in the U.S.

Randy Konik, Analyst

Hey. Thanks a lot. Just walk us through your thoughts on just the environment right now. It seems like you guys are getting more visibility in the business.

Ciaran Long, CEO

Yeah. Sure. Sure, Randy. And look, I'm delighted with the work the team has done to bring us through the journey and bring a lot more stability to what we have. I think we feel good in the progress that we are making there.

Randy Konik, Analyst

Great. And I look forward to seeing you in a couple of weeks at the Princess Polly store.

Ciaran Long, CEO

Yeah. We invite you all to come there. It's a superstore, and we're delighted to open it up in New York next week.

Operator, Operator

Thank you. There are no further questions at this time. That also does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.