Q4 2023 Digital Brands Group Inc Earnings Call

Speaker Change: [music].

Yeah.

Operator: Greetings and welcome to Digital Brands Grp Inc.'s fourth quarter and full year 2023 earnings call. At this time, all purchase events are in a listen-only mode.

Speaker Change: Greetings and welcome to digital brands Group, Inc, fourth quarter and full year 2023 earnings call.

Speaker Change: At this time all participants are in a listen only mode.

Operator: 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce John McNamara, Director of Investor Relations. Thank you. You may begin.

Speaker Change: A question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce John Mcnamara Investor Relations. Thank you you may begin.

John Mcnamara: Thank you. Good afternoon, everyone, and welcome to the Digital Brands Group fourth quarter and fiscal year 2023 earnings conference call-in webinar. With us on the line for management is Chief Executive Officer Hill Davis. He'll begin the call with an overview of the quarter and the full year, and then we will open up the line for questions. As usual, we would remind you that this call may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding, among other things, the company's business strategy and growth strategy.

Thank you good afternoon, everyone and welcome to the digital brands group's fourth quarter and fiscal year 2023 earnings conference call and webcast.

John Hilburn Davis: With us on the line from management is Chief Executive Officer of Hill Davis Hill.

John Hilburn Davis: Ill begin the call with an overview of the quarter and the full year and then we will open up the line for questions.

John Hilburn Davis: As usual, we would remind you that this call may contain forward looking statements as defined in section 27, a of the Securities Act of 1933 as amended.

John Hilburn Davis: Including statements regarding among other things the company's business strategy and growth strategy.

John Mcnamara: Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on the company's expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond the company's control. Future developments and actual results could differ materially from those set forth in these forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will prove to be accurate. With that, I'll turn the call over to Hill Davis. Go ahead, Hill.

John Hilburn Davis: Expressions, which identify forward looking statements speak only as of the date the statement is made.

John Hilburn Davis: These forward looking statements are based largely on the companys expectations and are subject to a number of risks and uncertainties some of which cannot be predicted or quantified and are beyond the company's control.

Developments and actual results could differ materially from those set forth in these forward looking statements in light of these risks and uncertainties. There can be no assurance that the forward looking information.

John Hilburn Davis: Will prove to be accurate.

John Hilburn Davis: With that I'll turn it over turn the call over to Hill Davis go ahead Hill.

John Hilburn Davis: Good afternoon, everyone, and thank you, John. The fourth quarter was the end of Sundry's bottom, which our first quarter results will reflect as well as our Q2 Wholesale Bottom. Despite lower revenue contribution from Sundry in the fourth quarter, we almost achieved breakeven net income due to our cost savings excluding non-cash. Based on first quarter wholesale shipments and second quarter wholesale bookings, we're excited to see revenue growth meaningfully reaccele

John Hilburn Davis: Yeah. Good afternoon, everyone and thank you John.

The fourth quarter was Gander sundries bottom, which our first quarter results were you flagged as well as our Q2 wholesale bookings despite lower revenue contribution from sandy in the fourth quarter, we almost achieved breakeven net income due to our cost savings excluding noncash expenses.

John Hilburn Davis: Based on first quarter wholesale shipments in second quarter wholesale bookings, we're excited to see revenue growth meaningfully reaccelerate. This increase in the revenue trend will be coupled with a significantly lower operating expense structure, which you can already start to see in Q4, and you saw in Q3, which will accelerate in Q1 and going forward.

John Hilburn Davis: This increase in revenue will be coupled with a significantly lower operating expense structure, which you can already start to see in Q4 and which you saw in Q3, which will accelerate in Q1 and going forward. So with that, let's discuss the fiscal year and fourth quarter results. Net revenues increased 6.8% to $14.9 million compared to $14 million a year ago. This excludes revenue from Harper & Jones as it was spun out in the second quarter. Please note that these results also apply to Harper & Jones for the third quarter, 2022 and 2023.

So with that let's discuss the fiscal year and fourth quarter results.

John Hilburn Davis: Net revenues increased six 8% to $14 9 million compared to $14 million a year ago. This excludes revenue from Harper and challenges. It was spun out in the second quarter. Please note that these results exclude the rap.

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John Hilburn Davis: You referenced also proper Jones for the third quarter 'twenty, two and 'twenty. Three importantly, this represents the lowest point of sundries wholesale revenues in the second half of 2023 versus the first and second.

John Hilburn Davis: Importantly, this represents the lowest point of Sunday's wholesale revenues in the second half of 2023 versus the first and second quarter wholesale bookings for 2024. And also, please note that this includes some non-cash charges we had to take, which I'll discuss more in the fourth quarter numbers. Gross margin increased 10.2% to 6.5 million compared to 5.9 million. Gross profit margins increased to 43.9 from 42.5 a year ago. And this also includes significant non-cash charges that we took as part of the audit process, which will not occur going forward.

John Hilburn Davis: Quarter wholesale bookings for 2024.

John Hilburn Davis: Also please note that this includes some non cash charges, we had to take which I'll discuss more in the fourth quarter.

Numbers gross margin increased 10.2% to $6 5 million compared to $5 9 million gross profit margins increased to $43 nine from $42 five a year ago and this also includes a significant noncash charges that we took as part of the audit process, which will not incur going forward.

John Hilburn Davis: G&A expenses, including non-cash items, decreased 12.7% to $14.3 million compared to $16.4 million a year ago. G&A expenses, excluding non-cash item expenses, decreased 35.7% to $8.8 million compared to $13.7 million a year ago. Thus, G&A expenses included $5.5 million in non-cash expenses associated with D&A and stock option expenses, a lot associated with the Sundry Act.

John Hilburn Davis: G&A expenses, including noncash items decreased 12, 7% to $14 3 million compared to $16 4 million a year ago G&A.

John Hilburn Davis: G&A expenses, excluding noncash item expenses decreased 35, 7% to $8 8 million compared to $13 7 million a year ago.

John Hilburn Davis: G&A expenses included $5 5 million in noncash expenses associated with DNA and stock option expenses, a lot of associated with the sundry acquisition.

John Hilburn Davis: Sales and marketing expenses decreased 18.5% to $4 million compared to $5 million a year ago. The sales and marketing expense ratio was 27.1% compared to 35.4% a year ago. The net loss per share attributable to common shareholders was $10.2 million or $20.46 per share compared to a loss of $38 million or $1,233.10 per share. Please note that the share count was only 422,000 shares on average during the fourth quarter of the

John Hilburn Davis: Sales and marketing expenses decreased 18, 5% to $4 million compared to 5 million a year ago sales and marketing expense ratio was 27, 1% compared to 35, 4% a year ago net.

John Hilburn Davis: Net loss per share attributable to common shareholders was $10 2 million or $20 46 per share compared to a loss of $38 million or $1233.10 per share. Please note that the share count was only 422000 shares.

John Hilburn Davis: On average during the fourth quarter and the year. So these numbers are significantly impacted by the low share count.

John Hilburn Davis: So these numbers are significantly impacted by the low share count. The net loss excluding non-cash charges and add-backs was $8 million compared to a loss of $28.8 million. Let me repeat that, excluding non-cash charges and add-backs, our loss was $8 million compared to a loss of $28.8 million a year ago. Nat Loft, Per diluted share excluding non-cash expenses and add-backs was $18.81 per share compared to $934.38 per share a year ago. For the fourth quarter, the results are as follows.

John Hilburn Davis: Net loss, excluding noncash charges and add backs was 8 million compared to a loss of $28 8 million of go.

Let me repeat that the noncash charges in add backs, our loss was $8 million compared to a loss of $28 8 million a year ago.

John Hilburn Davis: Net loss.

John Hilburn Davis: Per diluted share excluding noncash expenses in add backs was 18.81 per share compared to $934.38 per share a year ago.

John Hilburn Davis: For the fourth quarter. The results are as follows net revenues were $2 8 million compared to $3 4 million a year ago.

John Hilburn Davis: Net revenues were $2.8 million compared to $3.4 million a year ago. This included the low point of Sundry's wholesale revenue based on our taking them over and changing the design team. And we've since seen a significant increase in first and second quarter wholesale bookings and shipments.

John Hilburn Davis: This includes the low point of sundries wholesale revenue based on.

John Hilburn Davis: Are taking them over and changing the design team and we've since seen a significant increase in first and second quarter wholesale bookings and shipments.

John Hilburn Davis: This also includes a non-cash contra revenue adjustment of $0.7 million from the Sundry acquisition; excluding these, net revenues would have been $3.5 million versus $3.4 million a year ago, despite the fact that Sundry struggled in the second half of this past year. Gross profit decreased; gross profit was $0.5 million compared to $0.6 million a year ago. This includes non-cash expenses of $0.3 million due to some write-downs that the auditors wanted us to take, mostly associated with the sundry acquisition.

John Hilburn Davis: Also includes the noncash contra revenue adjustment of zero point $7 million.

John Hilburn Davis: The sundry acquisition, excluding these net revenues would've been $3 5 million versus $3 4 million a year ago. Despite the fact that sundry struggled in the second half of this past year.

John Hilburn Davis: Gross profit decreased zero point.

John Hilburn Davis: Profit was 0.5 million compared to 0.6 million a year ago. This includes noncash expenses of 0.3 million due to some write downs at the auditors wanted us to take mostly associated with the sundry acquisition gross profit margins decreased to 18, 3% from 19, a year ago, which again includes the noncash.

John Hilburn Davis: Gross profit margins decreased to 18.3% from 19.5% a year ago, which again includes the non-cash expenses and the net revenues and costs gets sold. G&A expenses including non-cash items decreased 30.6% to $2.2 million compared to $3.2 million a year ago. I think this gives you an idea of our leverage on our G&A line and also what will happen as revenues accelerate given this lower G&A cost. Sales and marketing expense decreased 13.4% to $0.8 million compared to $1 million a year ago.

Expenses.

John Hilburn Davis: And the net revenues and cost of goods sold excluding these charges gross profit margin would've been 43, 5%.

G&A expenses, including noncash items decreased 36% to $2 2 million compared to $3 2 million a year ago. I think that gives you an idea of our leverage on our G&A line and also what will happen is revenues accelerate given this lower G&A cost sales and marketing expense decreased <unk>.

<unk>, 4% to 0.8 million compared to 1 million a year ago net.

John Hilburn Davis: The net loss per diluted share attributed to common shareholders is $3.7 million or $8.76 per share, which includes non-cash expenses. That's compared to a loss of $15.8 million or $511.54 per share. Excluding those non-cash charges of $3.1 million in the fourth quarter, all due to the audit, compared to a net loss of $0.6 million, or $600,000 excluding non-cash charges, and that's compared to $19.2 million a year ago, and that's on substantially low revenue associated with the Sundry Turnaround. Net loss per diluted share, which was 424,000 shares.

John Hilburn Davis: Net loss per diluted share attributable to common shareholders of $3 7 million or $8 76 per share, which includes noncash expenses, that's compared to a loss of $15 8 million or $511.54 per share excluding those noncash charges of $3 1 million in the fourth.

John Hilburn Davis: Fourth quarter, all due to the audit.

Cause compared is our net loss was 0.6 million or $600000, excluding noncash charges and that's compared to $19 $2 million a year ago and that's on substantially low revenue associated with the sundry turnaround and net loss per diluted share, which was 424000 shares. So please keep that in.

John Hilburn Davis: So please keep that in mind. It was $1.48 versus $621.22 a year ago. So as you can see, our revenues were negatively impacted by the contra revenue adjustments cost gets sold as well. And then when you back out all the audit non-cash charges that we took as part of the audit, we lost $600,000 on a low revenue for us due to this unreturned. In conclusion, we are excited to announce our first quarter earnings in May, which we believe show the strength of the business between wholesale shipments and bookings.

John Hilburn Davis: Mine was $1 48 versus $621.22 a year ago. So as you can see our revenues were negatively impacted.

John Hilburn Davis: By the the Contra revenue adjustments cost goods sold as well and then when you back out all the audit noncash charges that we took and it's part of the audit we lost $600000 on a low revenue for us due to the sundry turnaround.

John Hilburn Davis: And concluded in <unk>.

John Hilburn Davis: We are excited to announce our first quarter earnings in May, which we believe show the strength of the business between wholesale shipments and bookings were also out of the preliminary results from our outlet store opening in Allen, Texas. This weekend as we have stated 2024 is the year, we expect it to experiencing inflection point in our business.

John Hilburn Davis: We'll also have the preliminary results from our outlet store opening in Allen, Texas, this weekend. As we have stated, 2024 is the year we expect to experience an inflection point in our business. Thanks, everyone, for their time.

Speaker Change: Everyone for their time I do have one calling question that I would like to.

John Hilburn Davis: I do have one call-in question that I would like to talk about. We've got a question on why the S3 filing on Friday. The first reason is that it is good corporate governance. The second is that this was the last day of our 60-day look-back period, so we were able to catch the highest price of our stock ending that day. I think that's really important. We waited until the very last day to do it.

Speaker Change: Talk about that we got a question on why the S. Three filing on Friday, the first phase into that it is good corporate governance.

Speaker Change: Is this was the last day of our 60 day look back period, which we were able to catch the highest price of the of our stock ending that day I think that's really important we waited till the very last day to do it and it gives us option value in case anything were to happen and we needed cash versus filing an S. One so it's good corporate guidance we took it.

John Hilburn Davis: This gives us option value in case anything were to happen and we needed cash versus filing an S1. It's good corporate guidance. We took advantage of the high price during the 60-day look-back period. As investors, this is what you'd want us to do. The other option, I guess, is if we needed cash in two, three, four, six, or nine months, we could file an S1, but we thought this was a much better use of being able to take advantage of good corporate governance and a high look-back period. With that, I'll open it up to Q&A, please.

Speaker Change: Vantage of the high price on the 60 day look back period and as investors just as what you'd want us to do the other option I guess is if we needed cash in two or three or four six or nine months, we could fall and that's one but we thought this was a much better use of being able to take advantage of good corporate governance and a high look back period price with that I'll open it.

Speaker Change: Up to the Q&A. Please.

Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment while we pull for questions. There are no questions in the queue at this time. I'd like to hand it back to Mr. Davis for his closing remarks.

Speaker Change: Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press Star two if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key one moment, while we poll for questions.

Speaker Change: There are no questions in the queue at this time I'd like to hand, it back to Mr. Davis for closing remarks.

John Hilburn Davis: That's it. I appreciate everyone's time, and we'll talk very soon. Everyone have a good day.

John Hilburn Davis: That's it I appreciate everyone's time, and we'll talk very soon everyone have a good day.

Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

John Hilburn Davis: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.