Q4 2023 a.k.a. Brands Holding Corp Earnings Call
Operator: Greetings and welcome to the AKA Brands fourth quarter and fiscal 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Greetings and welcome to AK brands fourth quarter and fiscal 2023 earnings conference call at.
At this time all participants are in a listen only mode a.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Operator: As a reminder, this conference is being recorded. At this time, I would now like to turn the conference over to your host, Emily Schwartz. Good afternoon.
As a reminder, this conference is being recorded.
At this time I would now like to turn the conference over to your host Emily Schwartz.
Good afternoon. Thank you for joining AK brands fourth quarter and fiscal 2023 conference call to discuss the results released this afternoon, which can be found on our website at IR Dot AK, Josh brand's dotcom.
Emily Schwartz: Thank you for joining AKA Brands' fourth quarter and fiscal 2023 conference call to discuss the results released this afternoon, which can be found on our website at ir.aka-brands.com. With me on the call is Ciaran Long, Interim Chief Executive Officer and 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 that refer to expectations, projections, and other characterizations of future events, including guidance and underlying assumptions. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed. For a further discussion of risks related to our business, please see our filings with the SEC. Please note that we assume no obligation to update any such forward-looking statements. This call will contain non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, adjusted gross margin, and pre-cash. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the release, furnished to the SEC, and are available on our website. With that, I'll turn the call over to Ciaran.
With me on the call as Kieran long interim Chief Executive Officer, and 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 or other characterizations of future events, including guidance and underlying assumptions.
We're 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 FCC.
Please note we assume no obligation to update any such forward looking statements.
This call will contain non-GAAP financial measures such as adjusted EBITDA adjusted EBITA margin adjusted gross margin and free cash flow.
Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in our release furnished to the FCC and available on our website with that I'll turn the call over to Carl.
Ciaran Joseph Long: Thanks, Emily. Good afternoon, everyone, and thanks for joining us on our call. 2023 was a transformational year for AKA, and I want to thank our teams for their continued dedication to building next-generation fashion brands for the next generation of consumers. As a group, we stepped up to every challenge, created new opportunities, expanded our customer touch points, and significantly strengthened our balance. Before I go through the results, I want to share a few highlights from the year.
Thanks, Emily good afternoon, everyone and thanks for joining our call 2023 was a transformational year for AK and I want to thank our teams for their continued dedication to building next generation fashion brands for the next generation of consumers.
As a group we stepped up to every challenge created new opportunities expand our customer touch points and significantly strengthened our balance sheet.
Before I go through the results I want to share a few highlights from the year.
Ciaran Joseph Long: We delivered U.S. net sales growth of 1%, 12% growth in the fourth quarter. Additionally, we generated $33 million of operating cash flow. We reduced our year-end inventory by 28% compared to last year. We paid down approximately $50 million of debt, reducing our debt levels by 35%. We opened a Princess Polly store in Los Angeles, propelling the brand into physical retail for the first time. Culture King's demand continued to accelerate in the U.S. and registered double-digit net sales growth for the year. And lastly, we tested and expanded a number of omni-channel initiatives across our channels, including wholesale engagements with Paxson, Victoria's Secret, and Liverpool and Marketplace partnerships with Target and Macy's, which exceeded our expectations. Turning now to the fourth quarter.
We delivered U S. Net sales growth of 1% interest is up 12% growth in the fourth quarter.
We generated 33 million of operating cash flow.
We reduced our year end inventory by 28% compared to last year.
We paid down approximately 50 million of debt, reducing our debt levels by 35%.
We opened a Princess party store in Los Angeles, propelling the brand into physical retail for the first time.
Culture King's demand continued to accelerate in the U S and registered double digit net sales growth for the year.
And lastly, we tested unexpired that a number of omnichannel initiatives across our brands.
Including whole fan engagements with Pac Sun Victorias secret and Liverpool.
And marketplace partnerships with targeted Macy's, which exceeded our expectations.
Turning now to the fourth quarter we.
Ciaran Joseph Long: We delivered 149 million net sales, which was flat to last. As I mentioned, we were very pleased that the U.S. business grew 12% in the fourth quarter, which is a testament to the strength of our office. As a reminder, our U.S. region is now our largest market and where we see the greatest potential moving forward. Despite the strength in the U.S., our total net sales came in slightly below expectations due to the ongoing headwinds in the Australia and New Zealand regions, and we delivered 1.3 million of adjusted EBIT, which was in line with our expectations. I'm really pleased that we ended the fourth quarter feeling confident with our current inventory composition and levels, which decreased 28% as compared to 2020. And lastly, we paid off an additional $13 million of debt in the fourth quarter, further strengthening our balance.
We delivered 149 million of net sales, which was flat to last year.
As I mentioned, we were very pleased with the U S business grew 12% in the fourth quarter, which is a testament to the strength of our offering.
As a reminder, our U S region is nowhere largest market and where we see the greatest potential moving forward.
Despite the strength in the U S. Our total net sales came in slightly below expectations due to the ongoing headwinds in the Australia and New Zealand region.
And we delivered $1 3 million of adjusted EBITDA, which was in line with our expectations.
I'm really pleased that we ended the fourth quarter, feeling confident with our current inventory composition and levels, which decreased 28% as compared to 2022.
And lastly, we paid off an additional trucking millions of day in the fourth quarter further strengthening our balance sheet.
Ciaran Joseph Long: For the full year, we delivered $546 million in net sales, and despite the challenging macro environment in Australia, we delivered $13 million of adjusted EBITDA for the year. As we look ahead to 2024, we have three key strategic priorities driving our strategic framework. First, we will continue to deliver innovative next-generation retail strategies to attract and retain customers. This includes the evolution of our test and repeat merchandising approach.
For the full year, we delivered 546 million in net sales and despite the challenging macro environment in Australia, we delivered 14 million of adjusted EBITDA for the year.
As we look at 2024, we have three key strategic priorities driving our strategic framework first we will continue to deliver innovative next generation retail strategies to attract and retain customers.
This includes the evolution of our test and repeat merchandising approach.
Ciaran Joseph Long: Delivering newness to customers weekly, expanding our product categories, particularly our women's brands, and leveraging technology and differentiated marketing strategies to deepen our direct relationships with our customers. Second, as we look to the future of fashion retail, we're confident that winning brands will be wherever their customers are, whether that's online, in experiential stores, or through marketplace and wholesale channels. We are committed to showing up for our customers wherever they seek inspiration and transparency. Based on the success of our omnichannel tests last year, we're excited to scale our omnichannel initiatives in 2024, which I'll take you through shortly. And third, we will continue to streamline our operations to deliver financial benefits across the country.
Bring newness to customers weekly expanding our product categories, particularly at our women's brands and leveraging technology and differentiated marketing strategies to deepen our direct relationships with our customers.
Second as we look to the future of fashion retail, we're confident that winning brands will be wherever their customers, whether that's online in experiential stores or through marketplace and wholesale channels.
We are committed to showing up for our customers wherever they seek inspiration and transact.
Based on the success of our omni channel tests last year, we're excited to scale, our omni channel initiatives in 'twenty, 'twenty, four which I'll take you through shortly.
And third we will continue to streamline our operation to deliver financial benefits across the company.
Ciaran Joseph Long: We are focused on rapidly converting Culture Kings Australia to a test and repeat merchandising approach, which will improve the assortment and inventory levels, providing gross margin expansion in the back half of the year, and we're committed to finding additional operational efficiencies to drive rate improvements across the board. Now, let me share some recent highlights from our brands, as well as growth drivers for the company. Starting off with Princess Polly, our largest brand that targets Gen Z and Millennium women with on-trend quality fashion. Princess Polly has gained tremendous popularity in the U.S. over the last few years, primarily as a direct-to-consumer online product. As I mentioned, as we continue to build durable brands for the future, we're committed to staying in front of our customers, no matter the challenge. Based on direct customer feedback and a shifting retail landscape, we're thrilled that Princess Polly opened its first store in Century City, L.A., in September 2020.
We are focused on rapidly converging culture, King's Australia to test and repeat merchandising approach, which will improve the assortment and inventory levels, providing gross margin expansion in the back half of the year and.
And we're committed to finding additional operating efficiencies to drive rate improvements across the P&L.
Now, let me share some recent highlights from our brands as well as growth drivers for the year.
Starting off with Princess Polly our largest brand the targets Gen Z and millennial women with on trend quality fashion.
Princess Polly has gained tremendous popularity in the U S. Over the last few years, primarily as a direct to consumer online brands.
As I mentioned as we continue to pay those German brands for the future we're committed to staying in front of our customers no matter the channel.
Based on direct customer feedback in a shifting retail landscape. We're through that for instance, partly opened its first store in century City L. A in September 'twenty two 'twenty three.
Ciaran Joseph Long: This marked the first time that customers were able to truly interact with Princess Polly in real life, and the feedback was resoundingly positive. The store, at the Westfield Century City Mall, allows the authentic relationships and community that Princess Polly has built over the last decade to come to life in person, further strengthening brand affinity and life. The store is also used as a marketing engine for content creation and in-store events, including a successful influencer friends gimme event in the fourth quarter and more to come. Based on the success of the first store, Princess Polly will expand its store footprint by three to four stores in 2024. And I'm excited to announce that we've officially signed leases on a store on Newbury Street in Boston and another store in the Fashion Valley Mall in San Diego, which are both slated to open in the third quarter of the year.
This marks the first time that customers were able to truly interact with Princess Polly and real life and the feedback is resoundingly positive.
The store in Westfield century City mall.
Allows the authentic relationships and community that Princess Polly has built over the last decade to come to life in person further strengthening brand affinity and loyalty.
The store is also used as a marketing engine for content creation and in store events.
Including a successful influence or friends give me event in the fourth quarter and more to come this year.
Based on the success of the first store Princess Polly will expand its store footprint by three to four stores in 2024, and I am excited to announce that we've officially signed leases on a store on Newbury Street in Boston and another store in the fashion Valley Mall in San Diego.
Which are both slated to open in the third quarter of the year.
Ciaran Joseph Long: I look forward to sharing more details on store openings and further store expansion plans in the coming quarter. Equally as important as Princess Polly's store expansion strategy is their continued focus on innovating, staying ahead of trends, and driving next-generation retail strategy value. Through the use of data analytics and customer feedback, Princess Polly is launching several new categories in 2024, with Sleepwear and Loungewear already launched in January and performing ahead of expectation. This month, we also launched an active work collection, and we have plans for additional new categories as the year unfolds.
I look forward to sharing more details on the store openings and further store expansion plans in the coming quarters.
Equally as important is Princess Polly store expansion strategy is our continued focus on innovating staying ahead of trends and driving next generation retail strategies online.
Through the use of data analytics and customer feedback Princess partly is launching several new categories in 'twenty 'twenty four with sleepwear and loungewear already launched in January and performing ahead of expectations.
This month, we also launched an activewear collection and we have plans for additional new categories as the year unfolds.
Ciaran Joseph Long: We're confident that a broader assortment of fashion styles will resonate with our existing customers and attract new customers to the product. Princess Polly is constantly innovating to enhance our direct connection with customers and reach new customers on every platform. TikTok remains the preferred platform for Princess Polly customers with over 54 million TikTok views, reaching over 40 million people worldwide.
We're confident that our broader assortment of fashion styles will resonate with their existing customers and attract new customers to the brand.
Princess Polly constantly innovating to enhance or direct connection with customers and reach new customers on every platform.
Kicked off remains the preferred platform for Princess Polly customers with over 54 million ticked off views, reaching over 40 million people worldwide.
Ciaran Joseph Long: In 2024, Princess Polly will harness the power of TikTok to both tell their brand story and drive sales. They're fine-tuning the strategy, including expanding their TikTok content team and investing in more paid opportunities, as well as scaling their TikTok influence. Moving to our other women's brand, Petal & Pop, which targets a slightly older customer base than Princess Polly and offers more elevated event-based styles.
In 2020 for Princess Polly will harness the power of tick talk to both tell their brand story and drive sales.
They're fine tuning the strategy, including expanding their kicked off content team and investing in more paid opportunities as well as scaling their tick tock Influencer program.
Moving to our other women's Brian Petaline pulp, which targets a slightly older customer base than Princess Polly and offers more elevated event based stylus.
Ciaran Joseph Long: Similar to the other brands in our portfolio, Petalimpop has achieved great success in the U.S. as a direct-to-consumer brand. While the brand continues to grow its direct consumer business, beginning in 2023, it also began testing omni-channel opportunities to increase its total addressable market. I'm really excited to announce that Petalum Pub is expanding its distribution and is now live on Nordstrom's website, adding to the brand's successful marketplace presence at Golden Macy's in Target, which launched in the second half of last year.
Similar to the other brands in our portfolio patent and pop as it achieved great success in the U S. As a direct to consumer brands, while our brand continues to grow its direct consumer business. Beginning in 2023. It also began testing omnichannel opportunities to increase its total addressable market.
I'm really excited to announce that Petaline pulp is expanding its distribution and there's no life of nordstrom's website, adding to the brand's successful marketplace presence at both Macy's and targets.
Which launched in the second half of last year.
Ciaran Joseph Long: As a reminder, over 90% of customers that shop through marketplaces are new to the Pedal & Putt brand, which demonstrates the power of expanding our distribution to new channels and getting in front of incremental costs. In the back half of 2023, Petalumpup also tested wholesale arrangements with Victoria's Secret and one of Mexico's largest retailers, Liverpool. I'm pleased to report that, based on the positive results of the initial tests, both retailers have reordered product for the first half of 2020. Turning now to our Street Workgrounds. Culture Kings continues to take off in the U.S. and registered strong double-digit growth in both the fourth quarter and full fiscal year in the region. Coach is creating more than just a fashion. It's fostering a lifestyle that's culturally relevant, on trend, and where people go to be part of a community.
As a reminder, over 90% of customers that shop through marketplaces have been new to the pedal and popped brand, which demonstrates the power of expanding our distribution to new channels and getting in front of incremental customers.
In the back half of 2023 patents plus also tested wholesale arrangements with Victoria's secret one of Mexico's largest retailers Liverpool.
I'm pleased to report that based on positive results of the initial tests, both retailers of reorder product in the first half of 'twenty 'twenty four.
Turning now to our street wear brands Kochi King's continues to take off in the U S and registered strong double digit growth in both the fourth quarter and full fiscal year in the region.
Coach at Kings is creating more than just a fashion brand. It's fostering a lifestyle that's culturally relevant on trend and where people go to be part of a community.
Ciaran Joseph Long: They're disrupting the streetwear market, and I remain very bullish on the brand's expansion in the U.S. and globally. The one-of-a-kind flagship store in Las Vegas continues to activate its retail attainment ethos every day, and they take it to the next level during chemo. The brand came to life in Las Vegas for Super Bowl weekend with in-store events featuring Las Vegas Raiders star Devontae Adams, Global Streaming Icons, Kai Sinat, and RDC World, and an in-store event and appearance by celebrity jacket designer Jeff Hamlin.
They're just dropped the industry, where market and I remain very bullish on the brands expansion in the U S and globally.
The one of a kind flagship store in Las Vegas continues to activate its retail tainment ethos everyday and they take it to the next level during key moments.
So Brian came to life in Las Vegas for Super Bowl weekend with in store events, featuring Las Vegas Raiders Star Devonta Adams.
Global streaming icons Casey not an RBC world and an in store event, an appearance by celebrity Jackie designer Geoff Hamilton.
Ciaran Joseph Long: The unique and next-generation Interactivities brought in thousands of customers, and the store recorded its two largest revenue days on record, surpassing the grand opening and Formula One weekend. Culture Kings also continues to accelerate brand awareness across the US through high-profile brand marketing activations and collaborations with top tier partners, and is an official sponsor of Rolling Load in Los Angeles next week, where we'll have stage naming rights, a full court basketball experience, and a new immersive element with on-site screen printing and exclusive merchandising collaboration. Coachings is also an official partner of USC 300, the upcoming Mixed Martial Arts event in Las Vegas next week, which will include an exclusive product range and interactive activities surrounding the main event.
The unique and next generation interactively Ations brought in thousands of customers and the store recorded its two largest revenue days on record, surpassing the grand opening and Formula one weekends.
<unk> also continues to accelerate and brand awareness across the U S through HIFU profile brand marketing Activations and collaborations with top tier partners.
He is an official sponsor of rolling loud in Los Angeles next week, where it will have stage naming rights a full court basketball experience and the new immersive element with onsite screen printing and exclusive merchandise and collaboration.
Coach gains is also an official partner of USD 300, the upcoming mixed martial arts events in Las Vegas next month.
Which will include an exclusive product range and in store activation surrounding the main event.
Ciaran Joseph Long: As an apparel-led streetwear brand, Culture Kings is uniquely differentiated from many other footwear-led streetwear brands, setting Culture Kings up for continued growth over the long term. We remain very excited by the performance of the first batch of parlor brands, which continue to be top sellers both online and in Las Vegas. While the first-party brands are a key priority, Coach Kings also continues to add new brands to its assortment, both emerging brands and large international players enhancing the brand's credibility in the street race. Minimal, or another streetwear brand, remains a top-performing brand at the Culture King store in Las Vegas and is also accelerating its growth on its own platform as well. We're excited for a new exclusive capsule collection for Minimal, with NBA star Threeshawn Mann, launching this spring, and the brand continues to be spotted on hundreds of celebrities and in professional activities.
That's an apparel led street wear brand country Kings is uniquely differentiated from many other footwear late street wear brands.
Setting <unk> up for continued growth over the long term.
We remain very excited by the performance of the first party or part of brands, which continued to be top sellers, both online and in the Las Vegas store.
Well the first party brands are key priority coaching teams also continues to add new brands to with assortment board emerging brands and large international players enhancing the brand's credibility in the street were space.
Minimal or other street wear brand remains top performing Brian at the culture King store in Las Vegas, and is also accelerating its growth on its own platform as well.
We're excited for our new exclusive capsule collection for minimal with NBA Star three Sean Man launching this spring and the brand continues to be spotted the nine hundreds of celebrities and professional athletes.
Ciaran Joseph Long: As part of the broader omni-channel expansion plans, Culture Kings and Minimal are also expanding their distribution channels for their exclusive products through regional streetwear stores, starting with a more grassroots approach to reaching customers in an authentic way. Now, I'll give you more detail on the P&L before taking your questions. As I mentioned, for the fourth quarter, net sales were $149 million, which was flat compared to the fourth quarter last year. In the US, we delivered strong sales growth of 12% compared to the fourth quarter of last year, which is a nice sequential improvement from 2% growth in the third quarter. Sales in the Australian and New Zealand region, although improved sequentially from the third quarter, remain challenged and below our expectations, declining 12% as compared to the fourth quarter of last year.
As part of the broader omni channel expansion plans coach Kings and minimal are also expanding their distribution channels for their exclusive products through Regent Street wear stores, starting with a more grassroots approach to reaching customers in an authentic way.
No I'll give you more detail on the P&L before taking your questions.
As I mentioned for the fourth quarter net sales were $149 million, which was flat compared to the fourth quarter last year.
In the U S. We delivered strong sales growth of 12% compared to the fourth quarter last year, which is a nice sequential improvement from 2% growth in the third quarter.
Sales in the Australia, New Zealand region, although improved sequentially from the third quarter remained challenged and below our expectations declining 12% as compared to the fourth quarter of last year.
Ciaran Joseph Long: I'm pleased that net sales in the rest of the world increased 9%, demonstrating the strength of our brands internationally, which is a long-term growth opportunity. Total orders for the fourth quarter were $2 million, an increase of 2% compared to the fourth quarter last year. In the U.S., we were pleased to see order growth of 23 percent, driven by higher traffic and a Romney channel, which was slightly offset by lower demand in the Australian and New Zealand region, where orders were down. We served 3.7 million active customers in the fourth quarter.
I'm pleased that net sales in the rest of world increased 9%, representing the strength of our brands internationally, which is a long term growth opportunity for us.
Total orders for the fourth quarter with $2 million, an increase of 2% compared to the fourth quarter last year.
In the U S. We were pleased to see order growth of 23% driven by higher traffic and our Omnichannel tests.
Which was slightly offset by lower demand in the Australia, and New Zealand region, where orders were down 9%.
We served $3 7 million active customers in the fourth quarter on a sequential basis active customers grew nearly 3%.
Ciaran Joseph Long: On a sequential basis, active customers grew nearly 3%, despite a contraction of 12% in the Australian-New Zealand region. Importantly, we grew our active customer count in the US by five. As a reminder, our active customer count is calculated on a trading 12-month period. A four-quarter average order value of $76 represents a decrease of 1% compared to the four-quarter last year on a reported basis and was down 2% in constant currency.
Despite a contraction of 12%, India, Australia, and New Zealand region.
Importantly, we grew our active customer count in the U S by 5%.
As a reminder, our active customer count is calculated on a trailing 12 month basis.
Our fourth quarter average order value of $76 represents a decrease of 1% compared to the fourth quarter last year on a reported basis and was down 2% in constant currency.
Ciaran Joseph Long: Importantly, our return rate remains one of the lowest among our peers and was 17% for the fourth quarter, which was a 260 basis point improvement for the third quarter of this year. Moving now to profitability. Growth margin in the fourth quarter was 51.3% compared to 52.8% in the same period last year, and excluding the impact of actions we took in Culture Kings Australia, a gross margin would have expanded 90 basis points to 53.7% due to the strength in full price selling across our other brands. We continue to take action at Culture Kings in Australia, and while I'm pleased with the progress, there's more work ahead. Importantly, under new leadership, the team is rapidly converting to a test and repeat merchandising strategy, similar to our successful and profitable women's brand, which will be fully implemented in the back half of the... Selling expenses increased 8% to $42 million, compared to $39 million in the fourth quarter of 2022.
Importantly, our return rate remains one of the lowest among our peers and was 17% for the fourth quarter, which was a 260 basis point improvement for the third quarter of this year.
Moving now to profitability.
Gross margin in the fourth quarter was 51, 3% compared to 52, 8% in the same period last year.
Excluding the impact from actions, we took in culture King's Australia, our gross margin would have expanded 90 basis points to 53, 7% due to the strength in full price selling across our other brands.
We continue to take action that culture Kings in Australia, and while I'm pleased with the progress there's more work ahead of us.
Fortunately under new leadership, the team has rapidly converting to attest and repeat merchandising strategy similar to our successful and profitable women's brands, which would be fully implemented in the back half of the year.
Selling expenses increased 8% to $42 million compared to 39 million in the fourth quarter of 2022.
Ciaran Joseph Long: Selling expenses were 28% of net sales, up 220 basis points compared to the fourth quarter of last year, primarily due to the sales shortfall in Australia and New Zealand. Marketing expenses in the quarter were $17.3 million compared to $15.4 million in the fourth quarter of 2022. On a rate basis, marketing expenses were 11.6% of net sales compared to 10.3% of net sales in the fourth quarter of 2022, which was in line with our expectations. We are working hard to improve our marketing effectiveness over the coming quarters, and as we further our omni-channel expansion efforts, we anticipate achieving improved levels of effectiveness. General and administrative expenses declined 15% to $22.3 million, compared to $26.1 million in the fourth quarter of 2022. On a rate basis, G&A expenses were 15% of net sales compared to 17.5% of net sales in the fourth quarter of last year.
Selling expenses were 28% of net sales up 220 basis points compared to the fourth quarter of last year, primarily due to the sales shortfall in the Australia, New Zealand region.
Marketing expenses in the quarter was $17 3 million compared to $15 4 million in the fourth quarter of 2022.
On a rate basis marketing expenses were 11, 6% of net sales.
Third to 10, 3% of net sales in the fourth quarter of 2022, which was in line with our expectations.
We are working hard to improve our marketing effectiveness over the coming quarters, and we've and as we further our omnichannel expansion efforts, we anticipate achieving improved levels of effectiveness.
General and administrative expenses declined 15% to $22 3 million compared to $26 1 million in the fourth quarter of 2022.
On a rate basis, G&A expenses were 15% of net sales compared to 17, 5% of net sales in the fourth quarter of last year.
Ciaran Joseph Long: This was due to lower performance bonuses and a decrease in insurance. We delivered a just-to-leave-a-dog $1.3 million compared to $6.1 million in the same period last year, which was within our guidance. Adjusted EBITDA margin for the fourth quarter of 2023 was 0.9% compared to 4.1% in the same period last year. Turning now to The Bible.
This was due to lower performance bonuses and a decrease in insurance costs.
We delivered adjusted EBITDA of $1 3 million compared to $6 1 million in the same period last year, which was within our guidance range.
Adjusted EBITDA margin for the fourth quarter of 2023 was <unk>, 9% compared to four 1% in the same period last year.
Turning now to the balance sheet.
Ciaran Joseph Long: We continued to make substantial progress strengthening our balance sheet, and we ended 2023 with significantly lower debt and an improved image position and composition, which, as you remember, was a key priority for us at the start of last year. We ended the quarter with $22 million in cash and cash equivalents, and I'm very proud to highlight that we reduced our debt by 35% or $50 million over the last quarter. And we end at 2023 with 93 million in debt and total liquidity of approximately 70. Turning a note to him.
We continued to make substantial progress strengthening our balance sheet, and we ended 2023, which significantly lowers of death.
And an improved inventory position and composition.
Which as you remember was a key priority for us at the start of last year.
We ended the quarter with 22 million in cash and cash equivalents and I'm very proud to highlight that we reduced our debt by 35% or $50 million over the last year and.
And we ended 2023 with 19 3 million of debt and total liquidity of approximately $70 million.
Turning now to inventory.
Ciaran Joseph Long: I want to thank our teams for their continued work right-facing our inventory in 2020. Total inventory was well managed, with inventory dollars down 28% compared to last year. On a sequential basis, inventory was down 9% from the end of the third quarter of 2020.
I want to thank our teams for their continued work right sizing our inventory in 2023.
Total inventory was well managed with inventory dollars down 28% compared to last year.
On a sequential basis inventory was down 9% from the end of the third quarter of 2023.
Ciaran Joseph Long: As I mentioned, the macro environment in Australia remains challenging, and we continue to work aggressively to align CultureKings Australia inventory in the region in preparation for the full transition to the test and repeat model in the back half of 2024. I'm pleased that inventory levels of Princess Polly, Petal and Pop, and Minimal are in good shape across all regions in terms of composition, newness, and quality. We generated $33 million of cash flow from operations in 2023, compared to cash use of $300,000 in 2020. In the fourth quarter, we generated $15 million of free cash flow, which compared to cash generation of $5 million in the fourth quarter of 2022.
As I mentioned, the macro environment in Australia remains challenging and we continue to work aggressively to align culture King's Australia inventory in the region in preparation for the full transition to the test and repeat model in the back half of 2024.
I am pleased that inventory levels of Princess Polly peddling pulp and minimal are in good shape across all regions in terms of composition newness and quantity.
We generated $33 million of cash flow from operations in 2023 compared to cash use of 300000 in 2022.
In the fourth quarter, we generated $15 million of free cash flow, which compared to cash generation.
5 million in the fourth quarter of 2022.
Ciaran Joseph Long: I'm very pleased that our positive EBITDA, coupled with prudent working capital management, enables us to have a stable, positive operating cash flow profile. A quick update on our stock repurchase program. In the fourth quarter, we repurchased 175,161 shares for a total cost of approximately $1.3 million.
I'm very pleased that our positive EBITDA, coupled with prudent working capital management enables us to have a stable positive operating cash flow profile.
A quick update on our stock repurchase program.
In the fourth quarter, we repurchased 175161 shares for a total cost of approximately $1 3 million.
Ciaran Joseph Long: As of the end of the year, we have $2.9 million remaining in our share repurchase order. Now, turning to our outlook for 2024 and beyond. As you've heard today, we remain laser focused on our strategic priorities to deliver a strong 2025 while setting the stage for an even stronger 2025. First, we will continue to deliver innovative retail strategies to reach our next generation customers. Secondly, we will expand our omni-channel initiatives to reach new customers across multiple platforms and channels.
As of the end of the year, we had $2 9 million remaining in our share repurchase authorization.
Now turning to our outlook for 2024 and beyond.
As you've heard today, we remain laser focused on our strategic priorities to deliver a strong 2024.
While setting the stage for an even stronger 2025.
First we will continue to deliver innovative retail strategies to reach our next generation customers.
Secondly, we will expand our omnichannel initiatives to reach new customers across multiple platforms and channels.
Ciaran Joseph Long: And third, we will continue to streamline our operations to strengthen our finances. While we anticipate that the macro environment in the Australia region will remain dynamic and pressured in 2024, we're committed to building high quality and profitable fashion brands for the long term. For the full year, we expect to deliver between $540 million and $555 million in net. For the other lines in the P&L, we expect gross margins between 55.5% and 56%. We expect gross margins will increase in the back half of the year as we take the actions we took to move through inventory at Country Kings in 2022. We anticipate selling expenses to be approximately 26% of net sales and marketing expenses to be approximately $12.5 billion. Marketing expenses will be slightly higher in the first quarter and higher throughout the year as we expand our omni-channel initiatives.
And third we will continue to streamline our operations to strengthen our financials.
What do we anticipate that the macro environment in the Australia region will remain dynamic and pressured in 2024, we're committed to building high quality and profitable fashion brands for the long term.
For the full year, we expect to deliver between 540 million to 555 million in net sales.
But the other lines in the P&L, we expect gross margins between 55, five and 56%.
We expect gross margins will increase in the back half of the year as we lap the actions we took to move through inventory at contract gains in 2023.
We anticipate selling expenses to be approximately 26% of net sales.
And marketing expenses of approximately 12, 5%.
Marketing expenses will be slightly higher in the first quarter and lever throughout the year as we expand our omnichannel initiatives.
Ciaran Joseph Long: We expect GNA expenses between $100 million and $110 million for the full year 2024. For the year, we expect adjusted EBITDA of between $16 and $18 million, weighted average diluted share count of $10.7 million, capital expenditures of $10 to $12 million, and an effective tax rate of 10%. For the first quarter, we expect net sales between $108 and $112 million and adjusted EBITDA of between $300,000 and $700,000. When I think about the long term, I'm confident that we have a significant opportunity to deliver both growth and profit as Gen Z and millennials continue to gain spending power. Our brands are young, and at the beginning of their life cycle, we have a tremendous global runway ahead of us. Our flexible business model is working, and we remain steadfast in our mission to be the next generation of retail for the next generation of consumers. We are just getting started tapping into the U.S. And we'll look to expand our international strategies in 2025 to accelerate growth even faster. I'm confident that we have highly talented teams who are motivated every day to serve our customers and grow these brands together. I'm looking forward to an exciting year.
We expect G&A expense between 100 million at $110 million for the full year 2024.
For the year, we expect adjusted EBITDA of between 16 and $18 million weighted average diluted share count of $10 7 million capital expenditures of $10 million to $12 million and an effective tax rate of 10%.
For the first quarter, we expect net sales between 100 made and $112 million and adjusted EBITDA of between 300000 and 700000.
When I think about the long term I'm confident that we have significant opportunity to deliver both growth and profit is gen Z and millennials continue to gain spending power.
Our brands are young and at the beginning of their lifecycle, we have tremendous global runway ahead of them are.
Our flexible business model is working and we remain steadfast in our mission to be the next generation of retail for the next generation of consumers.
We are just getting started tapping into the U S.
And we look to expand our international strategies in 2025 to accelerate growth even faster.
I'm confident that we have highly talented teams who are motivated every day to serve our customers and grow these brands together.
I'm looking forward to an exciting year.
Operator: Now, we'll open it up for your questions. Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and the confirmation tone will indicate your question; your line is in question. You may press star 2 if you would like to remove your question from the call. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button.
Now, we'll open it up for your questions.
Thank you.
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Operator: One moment, please, everybody. And our first question comes from the line of Youssef Squali with True Securities. Great. Thank you very much. Hi, Ciaran.
One moment, please while we poll for questions.
And our first question comes from along the Youssef Squali with <unk> Securities. Please proceed.
Great. Thanks, very much hi, Karen Thank you for taking the question so.
Ciaran Joseph Long: Thank you for taking the question. So starting with the weakness in Australia and New Zealand, can you maybe help us parse out what's macro and what's maybe specific execution issues of the company and what you're doing there? And also related to that, what's baked into the guide for flat revenues for 2024 between US growth and New Zealand and Australia and the rest of the world? And then I'll follow you. Thank you, Youssef
Starting with the weakness in Australia, New Zealand can you maybe help us parse out what's macro and let's maybe specific execution issues at the company and what Youre doing there and also related to that what's baked into the guide for flat revenues for 2024 between U S growth.
New Zealand and.
Australia and rest of World and then a follow up.
Yes.
Thanks Yusuf.
Ciaran Joseph Long: Yeah, as you know, as we think about the Australian market, you know, I think overall it was great to see the US market grow 12% in Q4. I think, you know, Australia down 12%, obviously getting better than what we saw in Q3, but still very much a pressured market there. You know, as we look across our brands, we were down, and from a similar perspective across them, I would say more pronounced at Culture Kings, where we're not fully on that test and repeat model that we have fully implemented at the other brands, and it's really helping that growth and driving a lot of that growth that we saw in the US. And, you know, Waze and the team who came over from Princess Polly are working hard to implement that test and repeat model.
Yes.
As we think about the Australia market.
Overall look it was great to see the U S market grew 12% in Q4, I think Australia down, 12%, obviously, you're getting better than what we saw in Q3, but still very much a pressured market there.
As we look.
Crossover brands, we were down and from a similar perspective across them I would say more pronounced that culture kings were not fully on that test and repeat model that we have.
Fully implemented at the other brands and is really helping that growth and driving a lot of that growth that you saw in the U S and.
Waves and the team who came over from Princess Polly are working hard to implement that test and repeat model. We expect to see the first product come in from that you know kind of mid Q2 and with that we would expect to see improvements in comps and improvements in gross margin as we go through the back half.
Ciaran Joseph Long: We expect to see the first product come in from that, you know, mid Q2. And with that, we'd expect to see improvements in comps and improvements in gross margin as we go through the back half for Australia. As we think about the overall year next year, Youssef, from an Australian perspective, we are modeling to be in that kind of negative mid-teens for the year.
For Australia.
As we think about the overall year next year uses.
From an Australia perspective.
We are modeling to be in that kind of negative mid teens for the year.
Ciaran Joseph Long: I think we're kind of expecting to be in the negative mid-20s in Q1 and improving as we go through the year. And look, that's kind of somewhat based on what we see and knowing that the benefits of test and repeat will take some time to flow through in the market. Okay, thank you. That's helpful. And then on the..., on debt management, help us think through the path to debt repayment, how much of it is coming due when, and how much money do you need to actually continue to run the business. What's the minimum amount you need to run a business?
I think we kind of expecting it to be negative mid twenty's in Q1, and improving as we go through the year.
Look thats kind of somewhat based on what we see and knowing that the benefits of test and repeat what it will take some time to flow in there in the market.
Okay. Thank you that's helpful and then on the.
On the top management.
Help us think through the path to the debt repayment how much of it is coming due when.
How much money do you.
To actually continue to run the business whats the minimum amount you need to run the business.
Ciaran Joseph Long: Sure. Yeah, look, I think we're really happy that we paid down $50 million of debt last year, down 35%, and that came from just the strong cash flows, the operating cash flows we had of $33 million. And obviously, a big driver of that was the E-Lidol we delivered, but also just bringing down our inventory dollars by $35 million last year. It's really helpful. I think as we think about our debt, it becomes due in September, kind of Q3 2026, right? So it's still a ways out.
Sure Yeah look I think we're really happy that we paid down $50 million of debt last year down, 35% and really that coming from just the strong cash flows. The operating cash flows we had of $33 million and obviously, a big driver of that.
We delivered but also just bring down our inventory dollars by $35 million last year and really helpful. I think as we think about our debt.
It becomes due in September.
Q3, 2026, right. So there's still a ways out and then I think as we think about that we expect to continue to make progress on paying down their debt strengthening the balance sheet as we go through this year and next.
Ciaran Joseph Long: And I think as we think about that, we expect to continue to make progress on paying down our debt, and strengthening the balance sheet as we go through this year and next. And look, that's just going to come from the operating model that we have. We continue to generate EBITDA and expect to have strong cash flows for more EBITDA, and we have also just continued improving our working capital management as we go through this year and next. Okay, thank you. Our next question comes from the line of Ashley Owens with Q Bank Capital Markets. Okay.
And look that's just going to come from.
The operating model that we have we continue to generate EBITDA and unexpected to have strong cash flows from our EBITDA and also just continued.
Proving our working capital management as we go through this year at next.
Okay. Thank you.
Yes.
Our next question comes from the line of Ashley Owens with Keybanc capital markets. Please proceed.
Operator: Hi, thanks for taking the question. So, you know, you talked a little bit about the implementation of that test and repeat and culture kinks and kind of how the gross margin is shaping up with it returning to expansion around the same timeframe in the back half of the year. Just curious if there's anything else that's pressuring the gross margin line we should be aware of.
Hi, Thanks for taking my question. So you talked a little bit about the implementation of that test Cherokee and culture Kings and kind of how the gross margin shaping returning to expansion around the same timeframe in the back half of the year. Just curious if there's anything else that's pressuring the gross margin language scheme.
Ciaran Joseph Long: And then, maybe, in terms of how you're thinking about markdowns and promotions for the year. Thank you. Sure. Thanks, Ashley. You know, as we think about, you know, FY24, maybe we just kind of, a lot of what informs that is, I would say, the progress we made on inventory last year. So, you know, it being down 35 million, 28%, I would say across. Princess Polly, Petal, and Pup, and Minimal.
And then just maybe in terms of how youre thinking about markdowns and promotions for the year. Thank you.
Okay sure. Thanks Ashley.
As we think about.
FY 'twenty four maybe.
It's kind of a lot of what informs that is I would say the progress we've made on inventory last year. So.
It being down $35 million and 28% I would say across Princess polypropylene pulp and minimal we feel really really good about the composition and the quality of the inventory the newness of the product. We have you know if we can see that it's working well I think as well just point out the fact that we were.
Ciaran Joseph Long: We feel really, really good about the composition, the quality of the inventory, and the newness of the products we have. You know, we can see that it's working well. I think as well, I'd just point out, right, the fact that we were able to bring down the industry to that level and then, excluding the actions we took at CultureKings, to be up 90 basis points in gross margin in Q4 is just a testament to the strength of the model. So as we think about FY24, I feel that we should expect to see those improving gross margins as we go through the year, helped by the Culture Kings being on test and repeat, but also, we took a lot of pretty hard actions in Q3 and Q4 last year to move through that and progress inventory at Culture Kings, and that gives us confidence.
<unk>.
You know able to bring down inventory to that level and then to be excluding the actions. We took a culture gains to be up 90 basis points in gross margin in Q4 and is just a testament to the strength of the model. So as we think about FY 'twenty four.
I feel that we should expect to see those improving gross margins.
<unk>.
As we go through the year helped by the culture means being on testing repeat but also we were we took a lot of pretty hard actions in Q3, and Q4 last year to move through that.
Inventory at culture Kings and that gives us confidence I think there.
Ciaran Joseph Long: I think there are other actions the teams are working hard on, getting the right mix of air freight to sea. We think there are opportunities there. Also, as we open up more of the omni-channel opportunities and these wholesale opportunities, I think there's an opportunity to be less promotional on our own site, which I think, long-term, will all help gross margin and kind of get the overall business back to the level of EBITDA production that we would expect. Great, thank you.
There are other actions the teams are working hard on getting the right mix of air freight to sea and.
We think theres opportunities there and also as we kind of we opened up more of the omnichannel opportunities and these the total opportunities I think there is an opportunity to be less promotional on our own sites, which I think long term, we'll all have helped gross margin and kind of get this.
Overall business back to the level of EBITDA production that we would expect.
Alright, thank you.
Operator: As a reminder, ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone. Again, if there are any questions at this time, I'd like to turn the call back to Ciaran Long for closing remarks. Thank you. Thank you all for joining our call. You know, we're proud of the progress we're making across the business across the brands across all of the teams, and it really is driven by individual team members. And I think, you know, it sets us up for a good 2024 and really shows the power of the operating model that we have and that these brands can go from strength to strength in the future. This concludes today's conference. We may disconnect for a while at this time. Thank you for your participation. Thanks for watching, and don't forget to subscribe! This program contains strong language and adult humor.
As a reminder, those Shlomo if you wanted to ask a question. Please press star one on your telephone keypad.
There are no further questions at this time I would like to turn the call back to John Locke for closing remarks.
Thank you. Thank you all for joining our call.
We are proud of the progress, we're making across the business across the brands across all of the teams and it really is being driven.
Driven by individual team members and I think it sets us up for a good 2024.
And really shows the power of the operating model that we have.
And that these brands can go from strength to strength in the future.
This concludes today's conference.
All lines at this time, thank you for your participation.
Yeah.
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Mhm.
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