a.k.a. Brands Q1 2025 Earnings Call Transcript

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May 13, 2025
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Operator

Please note that this call is being recorded.

Operator

I will now turn the conference over to our host, Emily Schwartz, Investor Relations. Thank you. You may begin.

Emily Schwartz
Emily Schwartz
Head - Investor Relations & Communications at a.k.a. Brands Holding

Good afternoon. Thank you for joining AK Brands to discuss our first twenty twenty five results released this afternoon, which can be found on our website at ir.akabrands.com. With me on the call today is Keiran Long, Chief Executive Officer and Kevin Grant, 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.

Emily Schwartz
Emily Schwartz
Head - Investor Relations & Communications at a.k.a. Brands Holding

Forward looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed. For 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 EBITDA 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 Curon.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Good afternoon, everyone, and thank you for joining us today to discuss our first quarter twenty twenty five results. I'm pleased to report that we delivered a strong start to the year with outstanding first quarter performance that reflects our team's strong execution across our brands and business. This marks our fourth consecutive quarter of growth, underscoring the effectiveness of our strategic initiatives and operational discipline. Before reviewing the quarter, I want to acknowledge and thank our talented teams whose commitment to our brands and customers continue to drive our success. Their consistent performance has been instrumental in delivering these solid first quarter results and navigating the current environment.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Now let me share some highlights from the first quarter. We grew net sales approximately 12% on a constant currency basis to $129,000,000 with continued strength in The U. S, which grew 14%. As mentioned, this marks our fourth consecutive quarter of growth overall and the seventh consecutive quarter of growth in The U. S.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

In the Australia and New Zealand region, we registered first quarter revenue growth of more than 6%. The success stems from a combination of the extensive strategic work our teams have been actioning in the region, particularly in the Culture Kings brand, leveraging our highly effective test and repeat model and an improved macro environment. We strengthened our customer connections and delivered nearly 8% growth in our active customer base over the trailing twelve months, underscoring that demand for our brands is strong. Our omnichannel expansion plans are on track and exceeding expectations. Princess Polly opened its seventh store in SoHo in the first quarter, which was our strongest opening to date, and early reads from Princess Polly and Petal and Pup's debuts chain wide at Nordstrom are encouraging.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

And rounding out the quarter, benefiting from the strong top line growth, healthy gross margin performance and continued operating discipline, we exceeded our profitability expectations and delivered $2,700,000 of adjusted EBITDA. On the heels of the solid first quarter, I want to address the current macro environment and the uncertainty surrounding trade and tariffs. As we approach the evolving trade policies, we continue to lean into our goals of building brands for the long term, delivering high quality fashion to our customers and balancing growth and profitability. We're confident that our proactive approach, flexible business model and speed of execution will allow us to navigate through this period and position us to emerge stronger on the other side. Let me walk you through our three pronged approach to tariffs.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

First, we leverage our relationships and scale with our key partners in China to agree on discounts that allowed us to share the burden of the first run of tariffs. Second, over the past six months, we've been intensely working on diversifying our supply chain. We anticipate our U. S. Business will have minimal exposure to China in the fourth quarter, with production already shifting to countries such as Vietnam and Turkey.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

We are making this change in combination with our existing vendors who have operations outside of China and new partners that have a global footprint. We have teammates who are working on-site in the new locations to ensure the quality of our products meet both our high standards and those of our customers. And lastly, where necessary, we have the ability to take strategic price increases, carefully designed to limit impact on customer demand, uphold our commitment to accessible fashion and protect our margins. Kevin will walk you through our outlook momentarily, but we continue to see solid demand trends in the first six weeks of the second quarter, in line with our outlook for the year. The actions we're taking to diversify our supply chain are primarily focused on our U.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

S. Operations. We will leverage our non U. S. Business to maintain our long term vendor relationships that are based in China.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Longer term, this will allow us to leverage different regions as tariffs rebalance. We believe the actions we're taking will enhance our agility, resilience and long term competitiveness. We faced challenges before, and we're well prepared to adapt as the landscape evolves. And as we've seen in the past, we come out stronger than before. While this work is well underway, we are committed to growing our brands for the near and long term.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

As a reminder, building on the success of last year, we laid out three key priorities for 2025 grounded in expanding our total addressable market. First, we will attract and retain customers on our direct to consumer channels through on trend, exclusive merchandising and differentiated marketing strategies. In the first quarter, our merchandising team successfully optimized our inventory mix to align with current trends and evolving customer preferences, and our innovative marketing approach deeply resonated with our customers, leading to solid growth in our direct to consumer channels. Second, we will expand our brand awareness through physical retail Investments in our omnichannel expansion continue as planned. And as mentioned, in the first quarter, Princess Polly held its grand opening for its New York store and both Princess Polly and Petal and Pop expanded to all Nordstrom's.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

And lastly, we remain committed to streamlining our operations and strengthening our financial foundation. I'm very proud of our ability to adapt to the rapidly changing macro environment while protecting the core of our business. We ended the first quarter with a healthy inventory position and improved operating cash compared to the same period last year. Now let me share some highlights from our brands from the first quarter as well as upcoming strategic growth drivers. Starting with Princess Polly, the largest brand in our portfolio, which accounts for approximately half of the portfolio's revenue, Princess Polly is a leading fashion brand known for its trend forward styles and strong connection with its next generation customers.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

With a growing digital business and expanding retail footprint, the brand continues to deliver strong performance, demonstrating its constant pulse on its customers' preferences. In the first quarter, Princess Polly's fashion forward approach capitalized on emerging trends in classic prints such as polka dots, gingham and modern animal prints. Dresses continue to be a leading category with emphasis on key moments, including prom and graduation, with the collections driving double digit revenue growth compared to last year. Princess Polly also continues to expand its lifestyle category offerings, including new arrivals such as activewear and sleepwear as well as swim, which has seen a significant growth year to date. And heading into the back to school season, basics such as tees and denim will further round out the lifestyle assortment strategy.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Princess Polly's marketing success is rooted in a deep understanding of where its customers spend their showing up wherever they stroll, stream or shop. In the first quarter, this customer first approach led to early success in TikTok Shop, where the brand is blending content and commerce in fresh, innovative ways. At the March, Princess Polly launched the five day campaign highlighting its new arrivals, featuring TikTok banners, a live shopping event on TikTok and in store activations at a Los Angeles store. The campaign exceeded revenue targets, and notably, more than 75% of TikTok shop orders during the quarter came from new customers. The first quarter also marked a significant period of high impact marketing activations with the likes of an exclusive edit with influencer Ashton Earle, in store events and the highly anticipated SoHorse store opening, which drew lines on Broadway and featured Times Square billboards and a large scale influencer event.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

In addition to its strong online presence, Princess Polly is expanding its physical footprint with plans to open seven new stores in 2025, bringing the total to 13 by the year end. All existing locations are outperforming revenue expectations, creating a halo effect on surrounding online markets and serving as a powerful customer acquisition channel. With each new opening, the team continues to optimize operations, enhancing inventory flow, reconfiguring store layouts to increase capacity and broadening the assortment of new style and accessories. New stores in Florida, Ohio and California are slated to open in the second quarter, with three additional locations in New York and Pennsylvania planned for the second half of the year. In addition to its own store rollout, Princess Polly is also leveraging wholesale partnerships to expand brand awareness.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

As mentioned, Princess Polly debuted in all Nordstrom stores in the first quarter, and early results are exceeding expectations in both the stores and on Nordstrom.com, particularly in formal dresses. Princess Polly is also seeing an uptick in organic search from customers that have previously purchased on Nordstrom.com, confirming the thesis that putting our products on multiple channels helps expand awareness and drive customer acquisition. Petal and Pop also delivered solid performance in the quarter. The brand continues to resonate with its core 25 to 40 year old female customer through a curated assortment of feminine fashion, everyday essentials and occasion ready styles at accessible price points. In the quarter, during Australia's summer months, customers responded well to tropical florals and vibrant prints, while offerings in The U.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

S. Were tailored to capture modern feminine spring trends, including waffles and lace details. Petal and Pop's approach of launching collections in Australia before bringing successful styles to The U. S. Remains valuable, providing insight into emerging trends and improving merchandising decisions.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

In addition to its strength in occasion wear, Petal and Pop is also expanding its assortment to capitalize on the growing demand for basics and luxe everyday pieces, including fine knits, denim and soft workwear details. Pedal and Pop's innovative marketing and storytelling initiatives are transforming how customers are engaging with the brand, creating social narratives around tropical gateways, romantic occasions and everyday elegance. This focus on authentic connections has driven social traffic up 6% year over year with Pinterest inspirational boards and TikTok content such as styling videos and user generated content bringing the brand to life. Building on the momentum, Petal and Pop is launching a TikTok shop in the second quarter, creating a seamless path from inspiration to purchase. I'm really excited that Petal and Pop expanded omnichannel presence continues to be a driving force for the brand.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

As noted, Petal and Pop rolled out to all Nordstrom stores in March, and we're seeing incredibly strong results out of the gate in terms of sell through as well as views on nordstrom.com. Pedal and Pop's high quality styles at accessible price points tap into a white space opportunity at Nordstrom and really resonate with customers. Pedal and Pop is bringing the brand to life this spring through stand alone expanded branding throughout all Nordstrom stores from mid May through June, designed to build awareness and engage new customers. They will also have four immersive pop up shops in select Nordstroms, which will feature a branded coffee bar alongside activations with influencers and customers. In addition to this exciting expansion at Nordstrom, Pedal and Pop launched new wholesale partnerships with Dillard's and Stitch Fix in the first quarter.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Turning to our streetwear brands, Culture Kings and Minimal. I'm thrilled to report that the AustraliaNew Zealand region is back to growth, driven in large part by improvements in the Culture Kings business over the last eighteen months. As noted on our last call, in the first quarter, we strengthened the global Culture Kings leadership team with strategic hires, and the teams have already hit the ground running, optimizing the current business as well as driving strategic growth opportunities for the future. Culture King's unique differentiator in the streetwear space is its fashion forward in house design brands, including Leuter, Minimal, Carre and Saint Morta, which consistently rank as best sellers in both The U. S.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

And Australia. As a reminder, Crunchy Kings began shifting its merchandising strategy to the test and repeat approach for its in house brands last year, and we're already seeing really strong results. In Australia, revenue for in house brands grew over 40% in the first quarter, a testament to the power of the test and repeat model. Leading the growth in both regions is in house brands Leucher, which continued to accelerate through its fashion forward on trend collections, including the highly anticipated MOBA launch. In addition to its in house brands, roughly half of Culture Kings assortment comprises of legacy and emerging third party brands to complete the Streetwear outfit.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Culture Kings continues to see meaningful growth in its collaborations with leading brands such as New Era and ASICS in The U. S. And Ed Hardy in Australia. Culture King's signature retail fame and concept comes to life through high energy marketing activations, including live music, celebrity and athlete hosted events, making each visit to a Culture King store a unique experience. In the first quarter, the brand hosted events in stores across both regions with partners including F1, the UFC and the NFL, driving store traffic, viral moments across social media and positive customer experiences.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

In The U. S, Culture Kings recently partnered with WWE during WrestleMania forty one in Las Vegas, which included an exclusive capsule collection and a large scale in store event with over 1,000 attendees lined up outside Culture Kings. The activation includes celebrity WWE wrestlers, a cage installation and exclusive merchandise, leading to one of the biggest sales day at the Culture Kings Las Vegas store since its grand opening, showcasing the power of the immersive brand events and cultural relevance. As mentioned last quarter, we're viewing locations for our next Culture King store in The U. S, and I'm confident that there is significant runway for the brand, both in The U.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

S. And globally. In closing, I'm proud of our strong first quarter performance and our execution against our growth initiatives. I'm also very impressed by the team's speed and agility in navigating the current environment. As mentioned, we believe the impact of the tariffs to our business is transitory.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

And while distracting, it does give us the opportunity to showcase our resilience. Our brands and teams have successfully navigated multiple macro environment challenges before, and I'm confident that we will emerge in a position of strength and we'll be well positioned from both a brand and operational standpoint to capture additional market share through this transition. Now, I'll hand it over to Kevin to walk you through

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

the financials in more detail. Thanks, Kiran. We're incredibly pleased with our first quarter results as both sales and adjusted EBITDA came in ahead of our expectations driven by strong customer response to our product offerings as well as our team's ability to execute at the highest levels. For the first quarter, net sales increased 10.1% to $129,000,000 and 12.3% on a constant currency basis compared to the same period last year. This was driven by continued strength in our U.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

S. Business, which increased 14.2% year over year. As Kiran mentioned, we're really pleased that Australia is back to growth and delivered 6.2% growth in the first quarter, a result of the hard work the teams have done over the last eighteen months and an improved macro environment in the region. Total orders for the first quarter were $1,660,000 increasing 9.2% as compared to the first quarter last year. Our brands continue to resonate as we acquire new customers and retain our existing customers.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

I'm pleased that our trailing twelve month active customer count rose to 4,130,000 by the end of the first quarter, which is a 7.8% increase compared to a year ago. Our first quarter average order value was $78 increasing 1.3% compared to the first quarter last year. Turning now to our profitability metrics. Gross margin expanded 100 basis points in the first quarter to 57.2% compared to 56.2 in the same period last year, which was in line with our expectations. The increase in gross margin was driven by a higher penetration of full price selling and an improved inventory position, partially offset by the impact of our growing wholesale business.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

Selling expenses were $38,200,000 compared to $34,200,000 in the first quarter of twenty twenty four. The increase was due to the opening of new stores as we record pre opening rent costs and selling expenses. As a reminder, we're slated to open six additional stores this year. As a percentage of net sales, selling expenses were 29.7% compared to 29.3% a year ago. Marketing expenses in the quarter were $15,200,000 compared to $14,900,000 in the first quarter of twenty twenty four.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

As a percentage of net sales, marketing expenses were 11.8% compared to 12.7% in the first quarter of twenty twenty four, in line with our expectations. General and administrative expenses were $25,700,000 compared to twenty two point seven million dollars in the first quarter of twenty twenty four due to an increase in wages and incentive compensation. As a percentage of net sales, G and A expenses increased to 20% from 19.4% in the first quarter of last year. As noted, we're proud that our strong top line results flow through the P and L and yielded a better than expected $2,700,000 adjusted EBITDA metric, which compares to $900,000 in the same period last year. Adjusted EBITDA margin for the first quarter of twenty twenty five increased 140 basis points to 2.1% compared to 0.7% in the same period last year, showcasing the power of our model when we scale on the top line.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

Turning now to the balance sheet. We ended the quarter with $26,700,000 in cash and cash equivalents compared to $24,200,000 at the end of the first quarter of twenty twenty four. Net debt at the end of the quarter was $93,200,000 compared to $81,600,000 a year ago. The increase was related to additional inventory to meet demand as well as to invest in new Princess Polly stores in The U. S.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

We will continue to invest in new Princess Polly stores with three stores opening in late Q2, '1 in Q3 and two in Q4. We're especially pleased that we brought our leverage down to 3.7 compared to 6.4 in the first quarter of last year. On inventory, our test and repeat merchandising model allows us to optimize our inventory to meet current trends and we're proud that we ended the quarter with $94,400,000 in inventory, which is an increase of 3% compared to a year ago and well below our 10% net sales growth. A quick update on our stock buyback program. In the first quarter, we purchased nearly 16,000 shares for a total cost of approximately $250,000 As of the end of Q1, we have $1,100,000 remaining in our share repurchase authorization.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

Turning now to our guidance. As Kiran mentioned, we continue to see solid demand trends in the first six weeks of the second quarter. We're confident that our demand for our brands is strong and we're continuing to deliver on trend fashion that our customers love, while broadening our reach and acquiring new customers through omni channel initiatives. We believe the current tariff environment will have a brief and transitory impact on our business, primarily as we shift production out of China in the second and third quarter. For the full year, we're reaffirming our top line outlook for net sales to be between 600,000,000 to $610,000,000 representing growth in the 4% to 6% range.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

Given the current uncertainty surrounding trade negotiations and the impact of the heightened tariffs over the last month, we're adjusting the range of our adjusted EBITDA outlook to be between $24,000,000 to 27,500,000.0 Our outlook contemplates no changes to the tariff rates in place as of today, May 13. For the full year of 2025, we anticipate gross margin to be between 56.456.7%, with the other expense rates relatively in line with our prior outlook. Importantly, the tariffs will have an outsized impact in the second and third quarters as we work through our three pronged action plan. As Kiran noted, we anticipate limited exposure to China in the fourth quarter. For modeling purposes, we anticipate fiscal twenty twenty five stock based compensation of approximately 8,000,000 to 10,000,000 depreciation and amortization expense of roughly 19,000,000 to $21,000,000 interest and other expense of approximately 15,000,000 to $17,000,000 an effective tax rate of negative 40%, CapEx between 12,000,000 to $14,000,000 and weighted average diluted share count of approximately $10,800,000 For the second quarter, as noted, we continue to see strong demand for our brands.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

We expect net sales to be between 154,000,000 and $158,000,000 which includes the impact of lower promotional activity in the second quarter as we navigate the current macro environment. We expect gross margin in the range of 57.2% to 57.4% and adjusted EBITDA to be between 7,000,000 to $8,000,000 For modeling purposes for the second quarter, we anticipate stock based compensation of approximately 1,500,000.0 to $2,500,000 depreciation and amortization 4,500,000.0 to $5,500,000 interest and other expense of $4,500,000 to $5,500,000 and effective tax rate of negative 40%, CapEx be between 3,000,000 to $5,000,000 and weighted average diluted shares of $10,700,000 in the second quarter. In closing, we're really proud of our first quarter performance and the strong start to the year. While the recent tariff changes and uncertainty pose a near term challenge, we're confident that we have a comprehensive plan in place and are taking swift action to not only mitigate the current tariff levels, but to emerge with a stronger, healthier foundation. We're operating with discipline as we approach the remainder of the year and we're laser focused on controlling what we can control.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

We remain committed to building durable and resilient fashion brands for the near and long term and delivering value for all of our stakeholders. With that, we'll open it up for questions.

Operator

Thank you. And at this time, we will conduct our question and answer session. And your first question comes from Dana Telsey with Telsey Advisory Group. Please state your question.

Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

Hi. Good afternoon, everyone, and good to hear that Australia returned to growth. As you think about the guidance provided the revenues and the adjusted EBITDA can you give us the puts and takes on margins as we go through? And how much is the headwind from tariffs? How you're mitigating the tariffs?

Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

And what's different in this two point zero tariff environment from one point zero? And also thoughts on price increases? And then just the other topic on average order value active customers what are you seeing there in terms of customer behavior? And how is the cadence of the quarter? Thanks,

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Dana. Yes, it is great to see Australia back to growth at the 6%. And look, The U. S. Growth of 14% as well is great.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

And maybe if I take the tariff question, and I suppose talk first about really how we have approached this tariff environment now, is looking to really end up, as we come through this, with a very diversified, robust supply chain that sets us up for the next stage of growth. I would say kind of with that, going back six months ago, last November, we started intensively working at looking at how do we diversify outside of China. And for us, very focused on finding vendors that can work in our test and repeat model and also at the quality that we expect and the quality that our customers expect. We've kind of spent that last period finding those, really happy now with the new vendors that we're bringing on, working through the process with them and scaling now with those vendors, some in Vietnam, some in Turkey, some new to us and some of our existing suppliers. We feel that we will be predominantly out of China by Q4 of this year and with that, just a much more robust supply chain and kind of set us up for the next stage of growth.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

The other actions we've taken as it relates to this tariff environment was working with existing vendors that are in China, getting discounts from them to where we could kind of share the initial tariff rounds that came out in that kind of Jan fair period. And also, we have, I would say, very selectively taken some pricing actions in the last number of weeks across the brands, but I would say very focused on us looking at where do we have opportunity against our competitive set. We are very fortunate with pretty much all of the product exclusive to us. We do feel we had pricing opportunity. We hadn't taken pricing actions since 2021.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

So I would say very selectively and taking it across the brands. I think that sets us up well to kind of achieve that guidance that we've put out there for Q4 and for the rest of the year.

Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

Got it.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

And just to add on to that from a gross margin perspective, Dana, very happy with the Q1 performance, up 100 basis points year over year. And that really does reflect the strategy that we have to move Culture Kings to a test and repeat, really a solid inventory position across all of our brands as well as a great product offering really helped drive the full price selling performance in Q1. With the three pronged approach to tariffs that Kieran just walked through, that of course is incorporated into the guidance for gross margin and we feel very confident. We expect the impact to really be most pronounced in Q2 and Q3. It's a transitory impact.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

And then we'll kind of return to more normalized margins in Q4. We do see Q3 as the most impacted quarter due to the timing of inventory purchases. And then also just to touch on your AOV question. Again, think this quarter we saw AOV as relatively flat and most of the sales growth really driven by order growth. And that's how we've been modeling really the balance of the year as well.

Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

Thank you.

Operator

And your next question comes from Ryan Myers with Lake Street Capital Markets. Please state your question.

Ryan Meyers
Senior Research Analyst at Lake Street Capital Markets, LLC

Hey guys, I just wanted to make sure I clarified this, on the last question that you had answered, Kiran. So it sounds like you guys will be completely out of China by the fourth quarter. I guess that's better than I would assume. So you guys will have no exposure by the end of the year

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Yes. Maybe to touch on that, Brian. I would say it's predominantly out, right? And look, we are very fortunate that with just over 30% of our business from the Australia, New Zealand are outside of The U. S, right?

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

We will continue to service those regions from our existing China suppliers, so continuing to hold on to those relationships. So for us, again, kind of going back to just building a much more robust supply chain. So I think we will have multiple regions. And as we see kind of the tariff environment settle down, we'll have the option to work across regions, but making sure we have vendors who can fit into that test and repeat model at the quality we want. And obviously, we work then at kind of lowest price with fully loaded lowest price as we think about the different regions.

Ryan Meyers
Senior Research Analyst at Lake Street Capital Markets, LLC

Okay. Got it. And then it sounded like you saw some positive improvements out of Australia and New Zealand. I'm just curious as we think about the business as a whole, given what you saw in the first quarter, what you're seeing here in the second quarter, what sort of demand trends are you thinking in as we roll into the second half of the year? And what's kind of incorporated in the guidance?

Ryan Meyers
Senior Research Analyst at Lake Street Capital Markets, LLC

Obviously, still, I would assume, continued double digit growth in The U. S. But is there any areas of upside if we see positive traction in those two regions and maybe a return to growth in the rest of the world? Any commentary there would be helpful.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Yes. Thanks, Ryan. Yes, look, I think it's great to see Australia back to growth at the 6%. And I think as we get more and more kind of progress on moving Culture Kings onto that test repeat model and getting all their products fully there, I think, feel really confident that we will see certainly positive growth in Australia for the full year. But I think they are up against a particularly tough promotional lap in Q2 this year.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

So we'll probably see expect to see them a little bit negative in Q2 but then back to growth in Q3 and beyond. And then from a U. S. Perspective, just really, really happy with the continued growth and performance in The U. S, up 14%.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

We're seeing it across the brands. We're seeing it in direct to consumer. Also great progress in the wholesale partnerships that we have, particularly in Nordstrom and how the Prince's Poly stores are performing. I think as we kind of went through Q2, we are certainly saw that kind of strong performance from Q1 continue. We did moderate some shipments from our vendors in April period.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

We've also been much more selective on promotions as we've just managed through that tariff uncertainty. So that will have some impact in Q2. But look, feel good about the guidance that we have out there for and really good about just continued kind of increasing TAM and bigger and bigger opportunities for the brands.

Ryan Meyers
Senior Research Analyst at Lake Street Capital Markets, LLC

Awesome. Thanks for taking my questions.

Operator

Thank you. Your next question comes from Ashley Owens with KeyBanc Capital Markets. Please state your question.

Ashley Owens
Ashley Owens
Vice President & Senior Equity Research Analyst at KeyBanc Capital Markets

Hi, good afternoon. Thanks for taking the questions. So quickly, I think The U. S. Business as well as technically lapsing some more difficult compares as we move through the balance of the year.

Ashley Owens
Ashley Owens
Vice President & Senior Equity Research Analyst at KeyBanc Capital Markets

Would just love to gauge your thoughts as to how sustainable that growth is. We are lapsing some of the initiatives from last year that did contribute to that strong 19% to 20% growth, give or take. And then additionally, I just wanted to touch on selling expenses here too. You mentioned these were up due to the additional store openings in the press release, and I know there's additional stores slotted for the remainder of the year. So just wanting to double check if this is something we should still expect to see some modest leverage in this year.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Yes.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Thanks, Ashley. I'll take the first part and maybe, Kevin, on the selling expenses. So yes, look, I think as we kind of go through the year, we certainly feel confident about that overall guidance that we gave out there. Ashley, I think particularly as it relates to The U. S, obviously, really good performance in Q1, that 14%.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

And look, I think as we look at the, I suppose, the underlying metrics with customer growth up strongly as well or order growth continuing And as we continue to introduce more and more new customers to the brand, whether through the wholesale relationships that we now have with Princess Polly and Petal and Pop and Nordstrom, And you also saw that Dillard's and Stitch Fix are going to start doing some wholesale in with Petal and Pup. And also just look, I suppose, the confidence that we are seeing as we open more stores for Princess Polly, continuing to introduce new customers to the brand, continuing to get more share of wallet, I think we feel good. The brands are actively working on some of the categories we started in probably this time last year, whether it's active and sleep for Princess Polly or some of the work that Petal is doing in basics and everyday looks. I think feel good about the opportunity that we have, and the teams are actively getting after us.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

Yes. And to touch on the selling expense question. We made good progress in Q1 on our supply chain optimization and we saw some lower costs related to outbound freight and fulfillment costs. Excluding onetime costs, we actually did leverage selling expenses in the quarter. And with even with the impact of pre opening costs for stores incorporated into the second quarter into the back half, we still feel good about the initial guidance that we provided on selling.

Kevin Grant
Kevin Grant
CFO at a.k.a. Brands Holding

And I think that's kind of around mid-twenty 6%. And so we reiterate that guidance for the year and for the quarter.

Ashley Owens
Ashley Owens
Vice President & Senior Equity Research Analyst at KeyBanc Capital Markets

Okay, great. Maybe just one follow-up. So with the new partners you're moving to as you diversify away from China, we've heard from others that just given the demand is high in those regions for sourcing due to some of the volatility, it's maybe not as favorable of a cost profile, especially with them being newer entrants into those markets. So I would be curious from your standpoint, since you are moving into them, just any color on the margin profiles there versus what we were seeing in China and if you've observed any differences?

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Sure. Thanks, Ashley. Yes, I think, look, we've been, I suppose, actively working to find the right partners for us over the last six months now, and the team, I feel, has done a really good job of that. For us, the key attributes of that are can they work in our test and repeat model, right? So small MOQs and then scaling up to larger, do they have the right quality profile that we want, that our customers want?

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

And then obviously, from a price point perspective. I think for us, making sure they can work in that test and repeat model and quality are certainly kind of the most important things. And as it relates to price, we see some slight differences. And I think as we work through it, though, there's a lot of confidence with our team and with the partners that we are working with that we can get to the equivalency of where we are today. And certainly, we'll end up with a much more robust supply chain and a lot of optionality depending on where various tariff ends up for different jurisdictions.

Ashley Owens
Ashley Owens
Vice President & Senior Equity Research Analyst at KeyBanc Capital Markets

Okay, great. Thanks and best of luck.

Operator

Your next question comes from Eric Beder with SCC Research. Please state your question.

Eric Beder
CEO & Senior Research Analyst at Small Cap Consumer Research, LLC

Good afternoon. Congratulations. Want to talk a little bit about the future with some of these spaces here. So we're going to end the year with like 13 stores approximately, if I remember correctly. What should we be thinking about as a potential longer term for the amount of stores?

Eric Beder
CEO & Senior Research Analyst at Small Cap Consumer Research, LLC

And I guess the follow-up to that is, are you still seeing the stores' ability to drive new customers, A, to the stores and B, to online?

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Yes. Thanks, Eric. I'll maybe take the second part first. Certainly seeing that new customer growth, I think you see it in the overall business, and we're certainly seeing it from our omnichannel initiatives. In the stores, what we're seeing is about 30% of the customers are new to the brand, and we've seen that now for each of the new store openings that we've done.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

So great to see that. But look, we're also seeing that in the wholesale relationships that we have, particularly with Nordstrom's for both Princess Polly and Petal and Pup. So I think all of those giving us a lot of confidence to continue to build into these omnichannel opportunities, build on the brand awareness, put our product in front of customers wherever they are and continue to go after the long term TAM for these brands. As it relates to new stores, look, we're really happy with the store performance that we've seen so far. They're ahead of sales plan.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

They're all profitable. We've modeled these on a two year less payback, so kind of all in line there. I think, look, we are we're fussy as we go look for new locations for all the brands because we've got such great brands here. But look, we would look to kind of, I suppose, at the moment, keep the pacing that we're at for next year. And certainly, as we kind of add new leases or new opportunities, we share them on calls.

Eric Beder
CEO & Senior Research Analyst at Small Cap Consumer Research, LLC

Sure. And let's talk about Dillard's here. Dillard's has a customer base in some respects, especially for Pedal and Pup, which we probably think would be somewhat ideal. Is there the opportunity to have Pedal and Pup kind of penetrate that chain as well as they've done here with Nordstrom's going forward? And are there what is the longer term thought process in wholesale in terms of where else you can go after this? Thank you.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

Yes. Thanks, Eric. Look, I think the Pedal and Club team has done a really great job with the brand that they have, developing great for us and really bringing it to life in not just direct to consumer but also in other channels, seeing they've seen great success at Nordstrom. I think what they are seeing there, other retailers are seeing and are eager to get the brand. And I think looking to roll out now in Dillard's is a really nice opportunity for them.

Ciaran Long
Ciaran Long
CEO at a.k.a. Brands Holding

I think it will probably go a bit slow before it goes fast, but I think we're fine working at that pace and leaning into the long term opportunity there. And we certainly feel it's there with Dillard's and regionally with footprint that they have for the Pedal and Pop brand. So yes, looking forward to executing against this.

Eric Beder
CEO & Senior Research Analyst at Small Cap Consumer Research, LLC

Okay. Thank you.

Operator

Thank you. And ladies and gentlemen, that was our question today. So at this point, we conclude AKA Brands Holdings first quarter twenty twenty five earnings conference call. All parties may disconnect. Have a good day.

Executives
    • Emily Schwartz
      Emily Schwartz
      Head - Investor Relations & Communications
    • Ciaran Long
      Ciaran Long
      CEO
    • Kevin Grant
      Kevin Grant
      CFO
Analysts
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Key Takeaways

  • AK Brands delivered a strong start to FY25 with net sales up ~12% on a constant currency basis to $129 million (U.S. up 14%) and adjusted EBITDA of $2.7 million versus $0.9 million a year ago, marking its fourth consecutive quarter of growth.
  • Omnichannel expansion is on track as Princess Polly opened its seventh SoHo store—the company’s strongest opening to date—and early results from Princess Polly and Petal & Pup debuts at Nordstrom are exceeding expectations.
  • The company’s three-pronged approach to tariffs involves negotiating discounts with China vendors, diversifying production to Vietnam and Turkey to achieve minimal China exposure by Q4, and implementing strategic price increases to protect margins.
  • Princess Polly’s innovative marketing, including a five-day TikTok Shop campaign that exceeded revenue targets with over 75% new-customer orders, and a plan to open seven more stores in 2025, is driving strong brand momentum.
  • Culture Kings’ in-house brands grew over 40% in Australia under a test-and-repeat merchandising model, and high-impact events—such as a WWE WrestleMania activation in Las Vegas—drove one of the biggest single-day sales since the store’s opening.
AI Generated. May Contain Errors.
Earnings Conference Call
a.k.a. Brands Q1 2025
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