Digital Brands Group, Inc. (DBGI) Q2 2022 Earnings Call Transcript

Greetings and welcome to Digital Brands Group, Inc. Second Quarter 2022 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, Mr. Hil Davis, Chief Executive Officer. Please go ahead, sir.

Thank you for joining us this morning for the Digital Brands Group second quarter 2022 earnings conference call. I want to remind everyone that this call may include forward-looking statements regarding our business strategy and growth, which are based on our expectations and subject to risks and uncertainties. Actual results may differ from those anticipated. We will have a Q&A session at the end of our prepared remarks, and this event is being recorded. For the quarter, we achieved impressive top-line results with a 273% year-over-year growth, and our gross margins strengthened to 58.1%, reflecting a 450% increase compared to last year. We also saw a sequential improvement in our gross margin by 15.2%. Our revenue growth and gross margin expansion have allowed us to achieve operating leverage on our fixed costs. It is important to mention that our second quarter only included two months of wholesale shipping due to reduced demand during that period. As we examine the second half of the year, we are entering our peak wholesale season, with shipments starting on July 30 and continuing through November 30. We are optimistic about wholesale bookings and expect revenue acceleration while maintaining strong gross margins. Our forecast for combined EBITDA for the September to December 2022 period is expected to be flat to a loss of $500,000, indicating a clear path to profitability. To support our growth, we have hired a Head of Wholesale for our Distilled brand, which has not been sold through the wholesale channel before. She previously increased another denim brand's wholesale revenues significantly. We anticipate seeing revenue from this channel starting in Q1 2023, with minimal costs associated with launching and expanding it. This will positively impact our cash flow. In terms of acquisitions, we recently filed a proxy for the upcoming shareholder meeting on October 3, which includes voting on shares issued for the Sundry acquisition, expected to add over $20 million in revenue and enhance our EBITDA. This vote will also address a reverse stock split necessary for NASDAQ compliance. We are seeing strong growth in both direct-to-consumer and wholesale channels. Our business model requires us to purchase inventory upfront, leading to a working capital cycle that necessitates occasional borrowing. Looking ahead, we plan to establish a factoring arrangement that could improve our working capital cycle and reduce borrowing costs, which will be advantageous for our investors and reflected in our financials. Regarding our second quarter results, net sales reached $3.7 million, a significant increase from $1 million last year, thanks to improved gross margins and the absence of inventory write-downs. Our general and administrative expenses decreased substantially, and we will benefit from shared resources with our brands moving forward, resulting in further cost savings. In conclusion, we believe we are on a promising path toward profitability, especially with the anticipated positive impact from the Sundry acquisition. As we expand revenue streams and tackle our working capital challenges, we look forward to maintaining momentum into the second half of the year. Thank you for your time, and I now open the floor to questions.

Sounds like there are no questions. So I appreciate everyone's time for this call. Hopefully you can see we continue to grow the business on the top line, the gross margin line, and we are on a path to be profitable, which is very exciting, as we continue to scale this company. We look forward to both the Sundry acquisition and future acquisitions going forward. And thanks everyone for the time and have a great day. Thank you. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.