a.k.a. Brands NYSE: AKA reported third-quarter sales growth of 9.7% as gains in the U.S. and U.K. helped offset continued declines in Australia and New Zealand. The fashion retailer also expanded its gross margin despite higher freight costs, which management expects to remain a drag on fourth-quarter profitability.
Net sales rose to $161.3 million from $147.1 million a year earlier, while adjusted EBITDA increased 16.6% to $8.2 million. CEO Ciaran Long said the results marked the company’s third consecutive quarter of double-digit adjusted EBITDA growth.
For the full year, the company tightened its sales outlook to $626 million to $632 million and projected adjusted EBITDA of $29 million to $30 million. CFO Kevin Grant said the sales guidance was consistent with a mid-single-digit growth trend in the quarter to date.
U.S. and international growth offset regional weakness
U.S. sales increased 14% to $112.6 million, the company’s first quarter of double-digit U.S. growth since it changed its sourcing network last year, Long said. Rest-of-world sales rose 78.9% to $7.6 million, driven by Princess Polly’s U.K. business.
Sales in Australia and New Zealand fell 6.7% to $41.2 million, improving from a 12% decline in the second quarter. Grant said consumers in the region remained under pressure and that the company was comparing results against sales of less productive merchandise as it completed a shift in Culture Kings’ merchandising strategy.
Total orders rose 12.8% to 2.12 million, while trailing 12-month active customers, excluding wholesale, increased 8.8% to 4.43 million. Average order value declined to $76 from $78 a year earlier.
Long said customers appeared cautious about adding extra items to their baskets, but attributed the decline in average order value primarily to channel mix, including growth on TikTok Shop, where orders tend to have fewer items.
Freight costs pressure outlook
Gross margin expanded approximately 100 basis points to 60.1%, aided by a shift toward full-price selling, particularly at Culture Kings. The improvement came despite a roughly 140-basis-point year-over-year headwind from inbound freight costs, which Grant said had an approximately $2.3 million impact on adjusted EBITDA.
The company expects fourth-quarter sales of $172 million to $178 million and adjusted EBITDA of $7 million to $8 million. Increasing air freight rates and surcharges are expected to weigh on fourth-quarter gross margin by an additional 80 basis points compared with the company’s prior outlook, Grant said. The midpoint of its guidance assumes a 57% gross margin.
During the question-and-answer session, Grant said elevated freight costs would have a $6 million impact on adjusted EBITDA for the second half of the year. He added that a return to historical freight rates next year would provide upside.
Third-quarter selling expenses rose to $52.3 million from $43.2 million a year earlier. That included $5.3 million in one-time charges associated with relocating a distribution center to Ohio, which were excluded from adjusted EBITDA. The company expects the facility to support faster delivery and lower shipping costs starting in 2027.
Princess Polly leads expansion plans
Long said Princess Polly’s U.K. sales were roughly four times their year-earlier level in the third quarter and rose 27% from the second quarter, following the launch of a local website, app and distribution center in March. The brand plans to launch a dedicated German site in the fourth quarter.
Princess Polly opened stores in Orlando and Houston during the quarter, bringing its U.S. fleet to 15. Two more openings are planned for the fourth quarter, and the brand has signed leases for at least six U.S. locations in 2027.
The brand’s U.S. TikTok Shop sales nearly tripled year over year and grew more than 40% from the second quarter, Long said. Princess Polly also launched on TikTok Shop in the U.K. in July.
Elsewhere in the portfolio, Petal & Pup opened 100 boutique accounts representing more than 140 stores over two quarters and is preparing additional wholesale launches, Long said. Culture Kings plans to open a 5,000-square-foot store in San Juan, Puerto Rico, in late December.
Debt and investment priorities
The company ended the quarter with $15.6 million in cash and $101.9 million in total debt, down from $111.3 million a year earlier. Inventory declined 1.3% to $95.4 million despite the increase in sales.
Long said the company intends to continue paying down debt while investing in growth, including stores. He also pointed to an internally developed artificial intelligence tool being tested by smaller brands to help with buying, allocation and pricing decisions. Improved inventory turns could release capital for both debt repayment and expansion, he said.
For the holiday season, Long said the company expects an environment as promotional as last year’s. He added that its short lead times and test-and-repeat merchandising model should allow it to respond to changes in demand.
About a.k.a. Brands (NYSE:AKA)
a.k.a. Brands Holding Corp. is a global fashion platform that owns and operates a portfolio of digitally native apparel and lifestyle brands. The company focuses on reaching younger consumers through e-commerce, social media, influencer marketing and brand-focused online shopping experiences.
Its brand portfolio has included Princess Polly, an online women's fashion retailer; Petal & Pup, which offers women's apparel and occasion wear; and other specialty fashion businesses such as mnml, Culture Kings and Rebdolls.
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