a.k.a. Brands Holding Corp. Reports Fourth Quarter and Full Year 2022 Financial Results (2024)

Full Year 2022 Net Sales Grew 9% to $612 Million Dollars

Company Announces Omnichannel Initiatives for 2023

Ended the Quarter with an Improved Inventory Position; Up 9% Year over Year, Down 8% Sequentially

SAN FRANCISCO, March 09, 2023--(BUSINESS WIRE)--a.k.a. Brands Holding Corp. (NYSE: AKA), a brand accelerator of next generation fashion brands, today announced financial results for the fourth quarter and full year ended December 31, 2022.

Results for the Fourth Quarter

Net sales decreased 18.3% to $149.1 million, compared to $182.4 million in the fourth quarter of 2021; a decrease of 13% in Constant Currency¹.
Net loss was $(173.9) million or $(1.35) per share in the fourth quarter of 2022, compared to net income of $0.0 million or $0.00 per share in the fourth quarter of 2021, and (28.9%) of net sales. Included in this loss was a non-cash impairment charge of $173.8 million.
Net loss, as adjusted² was $(3.4) million, or $(0.03) per share in the fourth quarter of 2022, compared to net income, as adjusted of $4.3 million or $0.03 per share in the fourth quarter of 2021.
Adjusted EBITDA² was $6.1 million, or 4.1% of net sales, compared to $16.1 million, or 8.8% of net sales in the fourth quarter of 2021.

Results for Fiscal 2022

Net sales increased 8.8% to $611.7 million, compared to $562.2 million in 2021 or decreased 0.3% pro forma² adjusting for the acquisition of Culture Kings.
Net loss was $(176.7) million or $(1.37) per share in 2022, compared to net loss attributable to a.k.a. Brands Holding Corp. of $(6.0) million or $(0.06) per share in 2021, and (116.6%) of net sales.
Net loss, as adjusted² was $(5.7) million, or $(0.04) per share in 2022, compared to net income, as adjusted² of $14.2 million or $0.15 per share in 2021.
Adjusted EBITDA² was $31.9 million, or 5.2% of net sales, compared to $62.4 million, or 11.1% of net sales in 2021.

"I want to recognize our brands and teams for their unwavering dedication in 2022 in the face of external pressures and a dynamic environment," said Jill Ramsey. "As we went through the quarter, we saw lower marketing effectiveness given the highly promotional environment, and we made the strategic decision to reduce our spend compared to last year in an effort to balance growth and profit. Additionally, as we aggressively tightened our inventory in the second half of the year, there were fewer new styles in our women’s brands during the peak holiday selling period. These decisions, combined with the macroeconomic pressures, impacted our performance in the quarter but enabled us to protect the integrity and durability of our brands and business model for the long term."

"As we look ahead, we remain laser focused on strengthening the foundation of our brands and business. The omnichannel initiatives we announced today, including the opening of our first Princess Polly store in Southern California in the back half of the year and testing wholesale, set the stage for continued growth and profitability. We remain firmly committed to building great next-generation brands for the long-term, and I am confident that we have tremendous runway ahead of us," concluded Ramsey.

The Company also announced today that Jill Ramsey, chief executive officer, will be taking time to work through unforeseen medical issues. Jill will remain as active in the business as her health allows and will remain on the Board. During this time, Ciaran Long, chief financial officer, will serve as acting chief executive officer on an interim basis.

Recent Business Highlights

Culture Kings store in Las Vegas has exceeded expectations in revenue and brand building activities since opening in November and pleased with the positive impact on U.S. online sales.
Princess Polly continues to refine their TikTok strategy, which is now a top performing channel in terms of ROI, and saw a nearly 40% increase in followers in fiscal 2022.
Petal & Pup continues to improve their marketing efficiency with the introduction of five new channels in the back half of the year, including CTV and TikTok.
See Also
a.k.a. Brands Holding Corp. Reports First Quarter 2022 Financial Results
mnml is now a top ten performing brand on Culture Kings’ website and in the Las Vegas store.
Subsequent to quarter end the company sold Rebdolls back to its founder in an effort to focus on brands with greater scale that can fully benefit from the a.k.a. business model.

Omnichannel Initiatives

As a.k.a. Brands builds durable, next-generation brands for the long term, the Company will be testing wholesale and brick and mortar initiatives in 2023. As part of these initiatives, the Company announced:

Princess Polly has signed a wholesale agreement with PacSun to carry up to 50 styles online and in 15 stores beginning this month, with a broader rollout to follow.
Princess Polly will pilot a store in California in the back half of the year.
Petal & Pup is testing wholesale and omnichannel initiatives and recently launched on Target Marketplace.
The Company is in active discussions with other wholesale partners within the U.S. and internationally for all of the brands in its portfolio.

Fourth Quarter Financial Details

Net sales decreased 18.3% to $149.1 million, compared to $182.4 million in the fourth quarter of 2021. The decrease was driven by a 14% decrease in the number of orders processed and 8% decrease in the average order value during the quarter. The decrease in the number of orders and average order value were primarily driven by lower marketing spend and a lower mix of full priced items sold.
Gross margin was 52.8% in the fourth quarter of 2022, versus 54.6% in the same period last year. The 180 basis point decline in gross margin rate was largely the result of a lower mix of full priced items sold partially offset by a $3.7 million non-cash purchase accounting charge in the prior year associated with the Culture Kings and mnml acquisitions.
Selling expenses were $39.0 million, compared to $45.5 million in the fourth quarter of 2021. Selling expenses were 26.2% of net sales, compared to 24.9% of net sales in the fourth quarter of 2021. The increase was primarily due to fixed cost deleverage partially offset by improvements on outbound shipping and labor productivity.
Marketing expenses were $15.4 million, compared to $21.5 million in the fourth quarter of 2021. Marketing expenses were 10.3% of net sales, compared to 11.8% of net sales in the fourth quarter of 2021. The lower marketing expense as a percentage of sales was due to a strategic decision to pull back on marketing spend given the marketing investment inefficiency in a highly promotional environment.
General and administrative ("G&A") expenses were $26.1 million, compared to $27.3 million in the fourth quarter of 2021. G&A expenses were 17.5% of net sales, compared to 14.9% of net sales in the fourth quarter of 2021. The increase in G&A expenses as a percent of net sales was primarily due to lower sales in the fourth quarter of 2022.
Adjusted EBITDA² was $6.1 million, or 4.1% of net sales, compared to $16.1 million, or 8.8% of net sales in the fourth quarter of 2021.

Full year 2022 financial details are included in the Company’s Form 10-K for the twelve months ended December 31, 2022.

Balance Sheet and Cash Flow

Cash and cash equivalents at the end of the fourth quarter totaled $46.3 million compared to $38.8 million at the end of the fourth quarter of 2021.
Inventory at the end of the fourth quarter totaled $126.5 million, compared to $115.8 million at the end of the fourth quarter of 2021. Inventory decreased $10.4 million, or 8%, from the end of the third quarter of 2022.
Debt at the end of the fourth quarter totaled $143.6 million, compared to $108.8 million at the end of the fourth quarter of 2021. The Company drew $25.0 million on its revolving credit facility in the first quarter of 2022 and drew $15.0 million on its revolving credit facility in October 2022.
Cash flow from operations for the twelve months ended December 31, 2022 was $(0.3) million, compared to $24.0 million for the twelve months ended December 31, 2021.

Outlook

For the full year fiscal 2023, the Company expects:

Net sales between $570 million and $600 million
Adjusted EBITDA³ between $35 million and $37 million
Weighted average diluted share count of 130 million
Capital expenditures of approximately $8 million to $10 million

For the first quarter of 2023, the Company expects:

Net sales between $113 million and $116 million
Adjusted EBITDA³ between $1.5 million and $1.8 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 a continued promotional environment. See "Forward-Looking Statements" for additional information.

Conference Call

A conference call to discuss the Company’s fourth quarter and full year 2022 results is scheduled for March 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 13735655. 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 (loss), as adjusted, net income (loss) 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.

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.

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 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 geopolitical, economic and market conditions, including heightened inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, the impact of the COVID-19 pandemic, challenges in the supply chain and any disruptions in European economies as a result of the conflict in Ukraine on our operations, customer demand and our supplier's ability to meet our needs; 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 filed with the Securities and Exchange Commission on March 9, 2023. 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.

a.k.a. BRANDS HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(unaudited)

	Three Months Ended December 31,						Twelve Months Ended December 31,
		2022			2021			2022			2021
Net sales	$	149,126		$	182,423		$	611,738		$	562,191
Cost of sales		70,379			82,891			274,491			254,527
Gross profit		78,747			99,532			337,247			307,664
Operating expenses:
Selling		39,002			45,486			166,070			144,345
Marketing		15,429			21,525			66,730			58,120
General and administrative		26,086			27,266			102,700			88,816
Goodwill impairment		173,786			—			173,786			—
Total operating expenses		254,303			94,277			509,286			291,281
Income (loss) from operations		(175,556	)		5,255			(172,039	)		16,383
Other expense, net:
Interest expense		(2,556	)		(1,164	)		(7,043	)		(9,485	)
Loss on extinguishment of debt		—			—			—			(10,924	)
Other expense		503			(591	)		(1,532	)		(1,213	)
Total other expense, net		(2,053	)		(1,755	)		(8,575	)		(21,622	)
Income (loss) before income taxes		(177,609	)		3,500			(180,614	)		(5,239	)
Benefit from (provision for) income tax		3,713			(3,477	)		3,917			(852	)
Net income (loss)		(173,896	)		23			(176,697	)		(6,091	)
Net loss attributable to noncontrolling interests		—			—			—			123
Net income (loss) attributable to a.k.a. Brands Holding Corp.	$	(173,896	)	$	23		$	(176,697	)	$	(5,968	)
Net income (loss) per share
Basic	$	(1.35	)	$	0.00		$	(1.37	)	$	(0.06	)
Diluted	$	(1.35	)	$	0.00		$	(1.37	)	$	(0.06	)
Weighted average shares outstanding
Basic		128,873,269			128,334,709			128,716,710			93,231,377
Diluted		128,873,269			128,334,709			128,716,710			93,231,377

a.k.a. BRANDS HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

	December 31, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	46,319		$	38,832
Restricted cash		2,054			2,186
Accounts receivable		3,231			2,663
Inventory, net		126,533			115,783
Prepaid income taxes		6,089			4,059
Prepaid expenses and other current assets		13,378			20,809
Total current assets		197,604			184,332
Property and equipment, net		28,958			14,657
Operating lease right-of-use assets		37,317			26,415
Intangible assets, net		76,105			98,287
Goodwill		167,731			363,305
Deferred tax assets		1,070			—
Other assets		853			850
Total assets	$	509,638		$	687,846
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	20,903		$	25,088
Accrued liabilities		39,806			53,375
Sales returns reserve		3,968			6,887
Deferred revenue		11,421			11,344
Operating lease liabilities, current		6,643			5,721
Current portion of long-term debt		5,600			5,600
Total current liabilities		88,341			108,015
Long-term debt		138,049			103,182
Operating lease liabilities		34,404			21,370
Other long-term liabilities		1,483			1,333
Deferred income taxes		284			2,920
Total liabilities		262,561			236,820
Stockholders’ equity:
Preferred stock		—			—
Common stock		129			129
Additional paid-in capital		460,660			453,807
Accumulated other comprehensive loss		(45,185	)		(11,080	)
Retained earnings (accumulated deficit)		(168,527	)		8,170
Total stockholders’ equity		247,077			451,026
Total liabilities and stockholders’ equity	$	509,638		$	687,846

a.k.a. BRANDS HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Twelve Months Ended December 31,
		2022			2021
Cash flows from operating activities:
Net loss	$	(176,697	)	$	(6,091	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense		6,156			2,694
Amortization expense		14,192			14,016
Amortization of inventory fair value adjustment		707			15,908
Amortization of debt issuance costs		647			596
Non-cash interest expense		—			11
Loss on extinguishment of debt		—			10,924
Lease incentives		1,722			361
Non-cash operating lease expense		9,779			6,246
Equity-based compensation		6,730			8,043
Deferred income taxes, net		(4,064	)		(11,951	)
Goodwill impairment		173,786			—
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(602	)		(858	)
Inventory		(16,257	)		(32,131	)
Prepaid expenses and other current assets		6,134			(11,543	)
Accounts payable		(1,888	)		6,038
Income taxes payable		(2,442	)		(9,329	)
Accrued liabilities		(7,419	)		26,678
Returns reserve		(2,678	)		3,091
Deferred revenue		267			7,197
Lease liabilities		(8,392	)		(5,932	)
Net cash provided by operating activities		(319	)		23,968
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired		(5,321	)		(249,302	)
Purchase of noncontrolling interest		—			(20,198	)
Purchases of intangible assets		(247	)		(841	)
Purchases of property and equipment		(19,746	)		(7,734	)
Net cash used in investing activities		(25,314	)		(278,075	)
Cash flows from financing activities:
Proceeds from initial public offering, net of issuance costs		—			96,863
Payments of costs related to initial public offering		(1,142	)		—
Proceeds from line of credit, net of issuance costs		40,000			34,150
Repayment of line of credit		—			(42,204	)
Proceeds from issuance of debt, net of issuance costs		(121	)		254,134
Repayment of debt		(5,600	)		(155,762	)
Taxes paid related to net share settlement of equity awards		(104	)		—
Proceeds from issuances under equity-based compensation plans		227			—
Proceeds from issuance of units		—			82,669
Net cash provided by financing activities		33,260			269,850
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(272	)		(1,824	)
Net increase in cash, cash equivalents and restricted cash		7,355			13,919
Cash, cash equivalents and restricted cash at beginning of period		41,018			27,099
Cash, cash equivalents and restricted cash at end of period	$	48,373		$	41,018

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	46,319		$	38,832
Restricted cash		2,054			2,186
Total cash, cash equivalents and restricted cash	$	48,373		$	41,018

a.k.a. BRANDS HOLDING CORP.
KEY OPERATING AND FINANCIAL METRICS
(unaudited)

Three Months Ended December 31,

Twelve Months Ended December 31,

2022

...

As someone deeply immersed in the world of finance, particularly in the field of corporate financial analysis and reporting, I find myself well-versed in deciphering intricate financial statements and annual reports. Having extensively studied and interpreted financial data from diverse industries, I bring a wealth of experience in distilling complex financial information into meaningful insights.

Now, delving into the provided article on a.k.a. Brands Holding Corp.'s financial results for the fourth quarter and full year ended December 31, 2022, let's break down the key concepts and analyze the crucial aspects:

Company Overview:
- a.k.a. Brands Holding Corp. is a brand accelerator focusing on next-generation fashion brands.
- The company announced financial results for Q4 and full-year 2022.
Financial Highlights for Q4 2022:
- Net sales decreased by 18.3% to $149.1 million compared to $182.4 million in Q4 2021.
- Net loss was $(173.9) million, including a non-cash impairment charge of $173.8 million.
- Adjusted net loss was $(3.4) million, and adjusted EBITDA was $6.1 million, or 4.1% of net sales.
Full-Year 2022 Financial Results:
- Net sales for the full year increased by 8.8% to $611.7 million.
- Net loss for the year was $(176.7) million, including a non-cash impairment charge.
- Adjusted net loss was $(5.7) million, and adjusted EBITDA was $31.9 million, or 5.2% of net sales.
CEO Statement and Business Strategy:
- Jill Ramsey, the CEO, acknowledged challenges faced in 2022 and emphasized the strategic decisions made for long-term brand and business integrity.
- Omnichannel initiatives for 2023, including the opening of the first Princess Polly store in Southern California and testing wholesale.
Recent Business Highlights:
- Positive performance of Culture Kings store in Las Vegas.
- Princess Polly's successful TikTok strategy and a 40% increase in followers.
- Petal & Pup's marketing efficiency improvements with new channels.
- Sale of Rebdolls to focus on brands with greater scale.
Omnichannel Initiatives for 2023:
- Testing wholesale and brick-and-mortar initiatives.
- Princess Polly's wholesale agreement with PacSun and plans to pilot a store in California.
- Petal & Pup testing wholesale and omnichannel initiatives, including Target Marketplace.
Financial Details for Q4 2022:
- Net sales decline explained by lower marketing spend, reduced new styles, and a lower mix of full-priced items.
- Gross margin declined to 52.8%, driven by a lower mix of full-priced items.
- Reduction in selling, marketing, and G&A expenses as a percentage of net sales.
Balance Sheet and Cash Flow:
- Cash and cash equivalents increased to $46.3 million.
- Inventory improved year over year.
- Debt increased, and cash flow from operations for 2022 was $(0.3) million.
Outlook for Fiscal 2023:
- Net sales expected between $570 million and $600 million.
- Adjusted EBITDA projected between $35 million and $37 million.
Conference Call and Use of Non-GAAP Measures:
- A conference call is scheduled for March 9, 2023, to discuss the financial results.
- The company utilizes non-GAAP financial measures for performance evaluation.

In summary, a.k.a. Brands Holding Corp. faced challenges in Q4 2022, attributed to lower sales and marketing effectiveness. However, the strategic decisions made are aimed at ensuring long-term growth and profitability. The omnichannel initiatives for 2023 reflect a focus on adapting to changing market dynamics and expanding the company's footprint.