Digital Brands Group Q2 2023 Earnings Report

Digital Brands Group EPS Results

• Actual EPS: -$250.00
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Digital Brands Group Revenue Results

• Actual Revenue: $4.49 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Digital Brands Group Announcement Details

• Quarter: Q2 2023
• Date: 8/17/2023
• Time: N/A
• Conference Call Date: Thursday, August 17, 2023
• Conference Call Time: 10:30AM ET

Digital Brands Group (NASDAQ:DBGI) engages in the provision of apparel products under various brands on direct-to-consumer and wholesale basis. It operates through DSTLD, Bailey, H&J, Stateside, and Sundry segments. The company designs, manufactures, and sells women's apparel, such as tops, sweaters, dresses, jumpsuits, bottoms, sets, jackets, rompers, suiting, sportswear, shirts, jackets, pants, shorts, polos, T-shirts, skirts, athleisure bottoms, denims, and other accessory products, as well as suiting for men. It sells its products under the Bailey 44, Harper & Jones, Stateside, Sunnyside, DSTLD, Sundry, and ACE Studios brand names. The company sells directly to the consumer through its websites, as well as through its wholesale channel in specialty stores, select department stores, and own showrooms. Digital Brands Group, Inc. was formerly known as Denim.LA, Inc. Digital Brands Group, Inc. was incorporated in 2012 and is headquartered in Austin, Texas.

Digital Brands Group Q2 2023 Earnings Call Transcript

[Operator]

Greetings, and welcome to Digital Brand Group Second Quarter 2023 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, John McNamara.

[Operator]

Thank you. You may begin.

[Speaker 1]

Thank you. Good morning, everybody, and welcome again to the Digital Brands Group 2nd Quarter 2023 Earnings Conference Call and Webcast. With us on the call this morning is Hill Davis, Chief Executive Officer of Digital Brands. Phil will begin the call with a brief overview of the quarter, and then we'll open up the line for questions. This call may contain Forward looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding, among other things, the company's business strategy and growth strategy.

[Speaker 1]

Expressions which identify forward looking statements Speak only as of the date statement is made. These forward looking statements are based largely on the company's expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond the company's control. Future developments and actual results could differ materially from those set forth and contemplated by or underlying forward looking statements. In light of these risks and uncertainties, there can be no assurance that the forward looking information will prove to be accurate. The company will be hosting a Q and A session at the conclusion, as I mentioned.

[Speaker 1]

And with that, I will turn the call over to Hill Davis. Go ahead, Hill.

[Speaker 2]

Yes. Thanks, John, and good morning, everyone. As we stated during our Q4 fiscal year 2022 conference call, which was in mid April, we would experience meaningful revenue growth Significant operating leverage with the acquisition of sundry, which was completed December 30th last year. As you can see from our 2nd quarter results, We did experience significant revenue growth and we also experienced operating leverage on every line item. In fact, Based on our current wholesale bookings and our current e commerce trends, our 3rd quarter and 4th quarter revenues will be meaningfully higher than this quarter.

[Speaker 2]

Again, we have visibility into our wholesale bookings. These are orders that We're already shipping and at our place. And based on that, our revenues for the 3rd Q4 will be meaningfully higher than this quarter. Additionally, we will continue to show a higher level of cost savings in our 3rd and 4th quarters as well versus this quarter, driven by Combination of layoffs and redundancies that no longer have severance attached to them or just natural Leak as people left after we acquired Tundry. So we are only in the first inning of this structural shift in our business.

[Speaker 2]

As I stated earlier, we already know what wholesale bookings are for our 3rd and 4th quarters and we're already selling spring now and getting very strong feedback. In addition to that, we have the additional cost synergies we will experience And then you layer on our e commerce trends, and it is very exciting to see how this is playing out. And none of the above that I just mentioned includes the benefits from our 2 new revenue channels that we will launch this fall, which are 1, our proprietary affiliate program and 2, our multi brand retail store. In fact, we've had to place a limit on the number of reps in the affiliate program and are now already building a waiting list. Keep in mind, I was able to double the revenue for J.

[Speaker 2]

Hilburn every year Using this affiliate program, which took revenues from $0,000,000 to $55,000,000 in 6 years. So as you can imagine, we are Extremely excited about the virality and reach of this program given that we are already on a waitlist. Additionally, we are back in the wholesale market with Bailey 44, and we've added several new reps that are showing the product for spring deliveries and are already receiving wholesale We had no benefit from wholesale last year from for Bailey 44 next week, which throws directly to the bottom line at almost 100%. And we are in discussions regarding another license As you can see, the Q2 is proof of the revenue growth and the operating leverage we are achieving post the Sundry And as a reminder, we will generate internal free cash flow on a weekly basis in October. All this will be incredibly transformative to us.

[Speaker 2]

So let's dive into the Q2 results. Net revenue increased 69.6% In the Q2 of 2023 to $4,500,000 compared to $2,600,000 a year ago. Please note that these results exclude the revenue from our disposition of Harper and Jones for both the Q2 in 2022 and in 2023. Gross margins for the Q2 of 2023 increased 40.4% To $2,200,000 compared to $1,500,000 a year ago, our gross profit margins increased significantly to 52% from 42% a year ago, and we expect to continue to see an increase in our gross margin, especially as our e commerce trends continue to accelerate. G and A expenses, including non cash items, decreased 4% to $4,100,000 compared to $4,200,000 a year ago.

[Speaker 2]

So You've got 69.6 percent in revenue growth and a decrease in your G and A expense. That shows the leverage we're getting. G and A as a percent of revenue declined to 90.7% from 160.1% a year ago. Please note that our G and A and expenses include $1,300,000 in non cash expenses tied to depreciation and amortization, Amortization of the loan discount and stock option expense. Sales and marketing expenses decreased 20.1 percent to $1,100,000 compared to $1,400,000 a year ago.

[Speaker 2]

Again, revenues increased 69.6 percent for our sales and marketing expenses decreased by $300,000 That's incredible leverage on this line item. Sales and marketing expense ratio was 50.9% compared to 89.3% a year ago. Income from operations was $9,000,000 compared to a loss of $10,600,000 a year ago. Net income attributable to common stockholders was 5,000,000 or $0.38 per diluted share compared to a loss of $9,500,000 a year ago or a loss of $26.47 per diluted share. Our Q2 2023 financial details are included In the company's Form 10 Q for the 3 months ended June 30, 2023.

[Speaker 2]

So in closing, We have stated since we went public, adding sundry to the portfolio was our tipping point in terms of 1, our ability to scale revenue faster 2, reduce overhead and leverage fixed costs and 3, generate positive EBITDA and cash flow. Our second quarter results reflect We are in the first inning of the tipping point. In fact, we will experience additional cost savings and synergies in our 3rd and 4th quarter results, as well as higher revenue base Higher revenue in our 3rd Q4 just based on our wholesale bookings alone. None of the forecast include the revenue growth, operating leverage and Cash flow that the affiliate program will add in the Q4 and every quarter after that. In addition, we'll have the multi brand retail stores and the Bailey 44 licensing income, which we are now receiving.

[Speaker 2]

Our first check is next week. In summary, you have 1, accelerating organic revenue growth 2, new revenue channels launching in the 4th quarter 3, declining operating expense due to synergies 4, licensing income and 5, internal free cash flow in the 4th quarter. I think it's fair to say that we have turned the corner and are extremely excited about our near and long term future. And with that, thanks Thanks everyone for their time. We look forward to our continued momentum, which we already know is coming.

[Speaker 2]

And this concludes our Q2 2023 earnings call. We'll open it up to Q and A, please.

[Operator]

Thank you. At this time, we'll be conducting a question and answer session. There are no questions at this time. At this point, I'd like to turn the call back over to management for any closing comments.

[Speaker 2]

Thanks everyone for joining the call. We hope that everyone can see the significant shift in our business model and the momentum we're experiencing. And as I said, we already have a wholesale bookings for Q3 and Q4 booked, and we're already selling into Q1. And we already know the operating leverage we're going to continue to get. So we're very excited about how we're going to continue to execute against our vision that we laid out at the IPO And the acquisition of the sundry in December 30 was the game changer we needed, and I think you're seeing it show up every quarter so far and we'll continue to do so.

[Speaker 2]

So with that, thanks everyone for the time and we look forward talking at our next conference call.

[Operator]

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