Digital Brands Group Q4 2023 Earnings Call Transcript

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April 15, 2024

There are 3 speakers on the call.

Operator

Greetings, and welcome to Digital Brands Group Inc. 4th Quarter and Full Year 2023 Earnings 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.

Operator

It is now my pleasure to introduce John McNamara, Investor Relations. Thank you. You may begin.

Speaker 1

Thank you. Good afternoon, everyone, and welcome to the Digital Brands Group 4th quarter fiscal year 2023 earnings conference call and webcast. With us on the line from management is Chief Executive Officer, Hill Davis. Hill will begin the call with an overview of the quarter and the full year, and then we will open up the line for questions. As usual, we would remind you that 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 the 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 in these 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. With that, I'll turn the call over to Hill Davis.

Speaker 1

Go ahead, Hill.

Speaker 2

Yes. Good afternoon, everyone, and thank you, John. The Q4 was the end of Sundry's bottom, which our Q1 results will reflect as well as our Q2 wholesale bookings. Despite lower revenue contribution from Sundry in the 4th quarter, we almost achieved breakeven net income due to our cost savings excluding non cash expenses. Based on 1st quarter wholesale shipments and 2nd quarter wholesale bookings, we are excited to see revenue growth meaningfully reaccelerate.

Speaker 2

This increase in the revenue trend will be coupled with a significantly lower operating expense structure, which you can already Net revenues increased 6.8 percent to $14,900,000 compared to $14,000,000 a year ago. This excludes revenue from Harper and Jones as it was spun out in the Q2. Please note that these results exclude the also for Opera and Jones for the Q3 of 2022 and 2023. Importantly, this represents the lowest point of sundries wholesale revenues in the second half of twenty 23 versus the 1st and second quarter wholesale bookings for 2024. And also please note that this includes some non cash charges we had to take, which I'll discuss more in the 4th quarter numbers.

Speaker 2

Gross margin increased 10 point 2 percent to $6,500,000 compared to $5,900,000 Gross profit margins increased to $43,900,000 from $42,500,000 a year ago and this also includes significant non cash charges that we took as part of the audit process, which will not incur going forward. G and A expenses, including non cash items, decreased 12.7 percent to $14,300,000 compared to $16,400,000 a year ago. G and A expenses excluding non cash item expenses decreased 35.7 percent to $8,800,000 compared to $13,700,000 a year ago. G and A expenses included $5,500,000 in non cash expenses associated with D and A and stock option expenses, a lot associated with the Sundry acquisition. Sales and marketing expenses decreased 18.5 percent to $4,000,000 compared to $5,000,000 a year ago.

Speaker 2

Sales and marketing expense ratio was 27.1 percent compared to 35.4 percent a year ago. Net loss per share attributable to common shareholders was 10,200,000 dollars or $20.46 per share compared to a loss of $38,000,000 or $1,233.10 per share. Please note that the share count was only 422,000 shares on average during the Q4 the year. So these numbers are significantly impacted by the low share count. Net loss excluding non cash charges and add backs was $8,000,000 compared to a loss of $28,800,000 ago.

Speaker 2

Let me repeat that. The non cash charges and add backs, our loss was $8,000,000 compared to a loss of $28,800,000 a year ago. Net loss per diluted share excluding non cash expenses and add backs was $18.81 per share compared to $934.38 per share a year ago. For the Q4, the results are as follows. Net revenues were $2,800,000 compared to $3,400,000 a year ago.

Speaker 2

This includes the low point of Sundry's wholesale revenue based on our taking them over and changing the design team. And we've since seen a significant increase in first and second quarter wholesale bookings and shipments. This also includes a non cash contra revenue adjustment of $700,000 from the sundry acquisition. Excluding these, net revenues would have been $3,500,000 versus $3,400,000 a year ago, despite the fact that sundry struggled in the second half of this past year. Gross profit decreased gross profit was $500,000 compared to $600,000 a year ago.

Speaker 2

This includes non cash expenses of $300,000 due to some write downs that the auditors wanted us to take, mostly associated with the Sundry acquisition. Gross profit margins decreased to 18.3% from 'nineteen a year ago, which again includes the non cash expenses and the net revenues and cost of goods sold. Excluding these charges, gross profit margin would have been 43.5 percent. G and A expenses, including non cash items, decreased 30 point 6% to $2,200,000 compared to $3,200,000 a year ago. I think this gives you an idea of our leverage on our G and A line and also what will happen as revenues accelerate given this lower G and A cost.

Speaker 2

Sales and marketing expense decreased 13.4 percent to $800,000 compared to $1,000,000 a year ago. Net loss per diluted share attributable to common shareholders was 3 point $7,000,000 or $8.76 per share, which includes non cash expenses that compared to a loss of $15,800,000 or $511.54 per share. Excluding those non cash charges of $3,100,000 in the 4th quarter, all due to the audit was compared is our net loss was $600,000 or $600,000 excluding non cash charges and that's compared to $19,200,000 a year ago and that's on substantially low revenue associated with the sundry turnaround. Net loss per diluted share, which was 424,000 shares, so please keep that in mind, was $1.48 versus $621.22 a year ago. So as you can see, our revenues were negatively impacted by the contra revenue adjustments, cost of goods sold as well.

Speaker 2

And then when you back out all the audit non cash charges that we took is part of the audit, we lost $600,000 on a low revenue for us due to the sundry turnaround. In concluding, we are excited to announce our Q1 earnings in May, which we believe show the strength of the business between wholesale shipments and bookings. We'll also have the preliminary results from our outlet store opening in Allen, Texas this weekend. As we have stated, 2024 is the year we expected to experience the inflection point in our business. Thanks everyone for their time.

Speaker 2

I do have one call in question that I would like to talk about. We got a question on why the S-three filing on Friday. The first reason in that, it is good corporate governance. The second is, this was the last day of our 60 day look back period, which we were able to catch the highest price of the of our stock ending that day. I think that's really important.

Speaker 2

We waited to the very last day to do it. And this gives us option value in case anything were to happen and we needed cash versus filing the next one. So it's good corporate guidance. We took advantage of the high price on the 60 day look back period. And as investors, this is what you'd want us to do.

Speaker 2

The other option, I guess, is if we needed cash in 2 or 3 or 4, 6 or 9 months, we could file and that's 1. But we thought this was a much better use of being able to take advantage of good corporate governance and a high look back period price. With that, I'll open it up to the Q and A please.

Operator

Thank you. Are no questions in the queue at this time. I'd like to hand it back to Mr. Davis for closing remarks.

Speaker 2

That's it. I appreciate everyone's time and

Operator

You may disconnect your lines at this time and have a wonderful day.

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Key Takeaways

  • Digital Brands Group reported a 6.8% increase in FY23 net revenues to $14.9 million despite lower Sundry contributions, highlighting resilience in its core business.
  • General & Administrative expenses (excl. non-cash) fell by 35.7% and Sales & Marketing spend dropped 18.5%, positioning the company for improved operating leverage as revenues grow.
  • Excluding non-cash charges and add-backs, the annual net loss narrowed to $8 million from $28.8 million a year ago, underscoring significant progress on profitability.
  • Q4 net revenues declined to $2.8 million from $3.4 million year-over-year and the company reported a $3.7 million net loss, driven by the Sundry turnaround and one-time contra-revenue and audit adjustments.
  • Management expects a “meaningful reacceleration” in revenue growth in Q1/Q2 and anticipates 2024 as an inflection point supported by lower operating expenses.
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Earnings Conference Call
Digital Brands Group Q4 2023
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