Q1 2024 Digital Brands Group Inc Earnings Call
Greetings welcome to the digital branch Group Q1, 2024 conference call at this time, all participants are in a listen only mode.
Operator: Greetings. Welcome to the Digital Brands Group Q1 2024 conference 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. Please note this conference is being recorded. I will now turn the conference over to your host, John McNamara. You may begin.
Speaker Change: 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. Please note. This conference is being recorded I will now turn the conference over to your host John Mcnamara you may begin.
John Mcnamara: Thank you, Holly. Good morning, everyone, and welcome again to the Digital Brands Group 2024 First Quarter Earnings Conference Call and Webcast. With us on the call this morning from Digital Brands is Hill Davis, Chief Executive Officer. Till we'll begin the call with an overview of the quarter, and then we will open up the lines for questions. Please keep in mind this earnings 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.
John Hilburn Davis: Thank you Holly good morning, everyone.
John Hilburn Davis: And welcome again to the digital brands Group 2024 first quarter earnings conference call and webcast.
Speaker Change: With us on the call. This morning from digital brands, So Davis Chief Executive Officer.
Speaker Change: Joe will begin the call with an overview of the quarter and then we will open up the lines for questions.
Speaker Change: Please keep in mind. This earnings call may contain forward looking statements as defined in section 27, a of the Securities Act of 1933 as amended.
Speaker Change: Including statements regarding among other things the company's business strategy and growth strategy.
Speaker Change: Expressions, which identify forward looking statements speak only as of the date the statement is made.
John Mcnamara: Expressions which identify forward-looking statements speak only as of the date the statement is made. These statements are based largely on the company's expectations and are subject to a number of risks and uncertainties. Some of these 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 contemplated by or underlying the forward looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking statement will prove to be accurate.
Speaker Change: 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.
Speaker Change: Future developments and actual results could differ materially from those set forth in the cockpit set forth and contemplated by or underlying the forward looking statements.
Speaker Change: In light of these risks and uncertainties there can be no assurance that the forward looking statements will prove to be accurate.
John Mcnamara: With that, I'll turn the call over to Hill Davis. Go ahead, Hill. Hi, John.
Speaker Change: With that I'll turn the call over to Hill Davis go ahead Hill.
John Hilburn Davis: Despite a timing shift in our wholesale shipments, which shifted revenue from the first quarter to the second quarter, we experienced significant operating expense leverage. We expect this operating leverage to continue throughout the year. In fact, this operating leverage coupled with higher revenues resulted in higher flow-through to our operating and net income. Regarding the shift in wholesale, we had our fabrics, a majority of our fabrics, get stuck in a shipment container at the LA port due to an X-ray check.
John Hilburn Davis: Hi, Thank you John good morning, despite a timing shift in our wholesale shipments, which shifted revenue from the first quarter. The second quarter, we experienced a significant operating expense leverage we expect this operating leverage to continue throughout the year. In fact, this operating leverage coupled with higher revenues result in higher flow through.
John Hilburn Davis: Hi, thank you, John. Good morning.
John Hilburn Davis: Our operating and net income regarding the shift in wholesale we had our fabrics a majority of our fabrics get stuck in a shipment container at the L. A port due to an X Ray Jack where you were in the other products. So we lost two weeks, there which means January shift in.
John Hilburn Davis: We're in other products, so we lost two weeks there, which meant January shipped in the middle of February, the middle of February shipped in the middle of March, and the majority of March shipped in the April period, which is what impacted revenue, which is pretty significant if you kind of take the current revenue and divide by two. And I think that's really something people need to pay attention to, because we will pick that up. And we should ship the majority of June at the end, as we have; the wholesalers have unknitted this based on sell-through rates in their stores.
John Hilburn Davis: Middle of February Middle of February yet in Middle of March and majority of March ships.
John Hilburn Davis: Okay.
John Hilburn Davis: Okay.
Speaker Change: Hi, Jonathan.
Speaker Change: Well.
Jonathan: To the April period, which is what impacted revenue, which is pretty significant if you kind of take the current revenue and divide by two and I think that's really something people need to pay attention to because we will pick that up.
Jonathan: And we should ship the majority of June at an ASP of the wholesalers of unclaimed death based on sell through rates in their stores and we do not expect that to happen again. It was just a one off where you ask Scott some flag the container where you're in there was nothing we could do we just have to wait until it went through its XY process, which we lost two weeks on and then every.
John Hilburn Davis: And we do not expect that to happen again; it was just a one-off where US Customs flagged the container we were in. There was nothing we could do; we just had to wait until it went through its X-ray process, which we lost two weeks on, and then everything was behind by then.
Jonathan: <unk> was behind by then.
John Hilburn Davis: By the way, as we move into the second quarter, not only will we benefit from that shift of March into April, but we'll also benefit from our store, which opened in mid-April. We are experiencing healthy week-to-week revenue increases since we first opened the store, and we're excited to see where that goes as it continues to grow. And as we said before, we're just sending product down there that we already have, so we're not making product for the store, which is basically at no cost on that side.
Jonathan: By the way from our four.
Speaker Change: As we move into the second quarter and not only we benefit from that shift of March into April authorship, a benefit from our store, which opened in mid April we are experiencing healthy week to week revenue increases since we first opened the store and we're excited to see where that goes as it continues to grow and as we said before we're just.
Speaker Change: Sending product down there that we already have so we're not making product for the store, which is just basically no cost on that side. We also plan to benefit from additional e-commerce strategic decisions in the second half of the year on top of that so in Q2 youre going to have the benefit of the store as well as the shift of March into April and then you're also going.
John Hilburn Davis: We also plan to benefit from additional e-commerce strategic decisions in the second half of the year on top of that. So, in Q2, you're going to have the benefit of the store, as well as the shift of March into April. And then, as you move through the second half of the year, our fall bookings are strong, coupled with some strategic e-commerce decisions we've made.
Speaker Change: Two as you move through the second half of the year, our fall bookings are strong coupled with.
Speaker Change: Some strategic e-commerce decisions, we've made the last to discuss our first quarter results that revenues were $3 6 million compared to $4 4 million a year ago again, as we mentioned net revenues were negatively impacted by the wholesale shipments for March slipping into April and then we expect to benefit from that in this in the second quarter of this year the <unk>.
John Hilburn Davis: So, let's discuss the first quarter results. Net revenues were $3.6 million, compared to $4.4 million a year ago. Again, as we mentioned, net revenues were negatively impacted by wholesale shipments from March slipping into April. And then we expect to benefit from that in the second quarter of this year.
John Hilburn Davis: The gross margin profit increased 48.1% compared to 45.5% a year ago. We expect that gross margin number to be higher, as there are significant fixed costs, such as powder makers, sewer, and a fulfillment center. The pickpack ship costs are all built in gross profit, or cost of goods sold. So, as the revenues are higher, so are the gross profit margins. G&A expenses decreased $1 million compared to $4.5 million a year ago
Speaker Change: Margin profit increased 48, 1% compared to 45, 5% a year ago, we expect that gross margin number to be higher as there are significant fixed cost such as pattern makers. So our fulfillment center. The pick pack ship costs are all built in in gross profit or cost of goods sold so as the revenues are higher so are the <unk>.
Speaker Change: Profit margins.
Speaker Change: G&A expenses decreased $1 million compared to $4 5 million a year ago.
John Hilburn Davis: This was 27.2% compared to 100.5% a year ago, and we expect to continue to benefit from these synergies since the Sundry acquisition. Sales and marketing expenses were $700,000 compared to $1 million a year ago, 19.8% versus 22% a year ago, and part of that, too, was the fact that March e-commerce orders also then slipped into April as well. So really, only two months of e-commerce in the Q1 number. The net operating loss was $225,000 compared to $3.7 million a year ago.
This was 727, 2% compared to a 105% a year ago and we expect to continue to benefit from these synergies since the sundry acquisition Delta.
Speaker Change: Sales and marketing expenses were 700000 compared to $1 million, a year ago, 19, 8% versus 22% a year ago and part of that too was the fact that the March E. Commerce orders also then slipped into April as well, so really only two months of e-commerce in the Q1 numbers.
Speaker Change: Net operating loss was 225000 compared to $3 7 million a year ago. What's interesting is if you look at what revenue slipped into the April period, we would have actually reported positive net operating income.
John Hilburn Davis: What's interesting is that if you look at what revenue slipped into the April period, we would have actually reported positive net operating income based on those results. The net loss was $684,000 or a loss of $0.46 per diluted share compared to a loss of $6.1 million or a loss of $27.8 per diluted share a year ago, which is a significant improvement.
Speaker Change: Based on those results.
Speaker Change: Net loss was 684000 or a loss of <unk> 46 per diluted share compared to a loss of $6 1 million or a loss of $27 $8 per diluted share a year ago, which is a significant improvement in concluding as we stated the company would achieve significant operating leverage as we lapped the first.
John Hilburn Davis: In conclusion, as we stated, the company would achieve significant operating leverage as we lapped the first year of our Sundry acquisition. We expect this operating leverage to continue throughout the year on higher revenues, which will increase the flow through to the net and operating income. Additionally, given our results and given what we expect to achieve in Q2, Q3, and Q4, the board will continue to pursue strategic alternatives given the continued dislocation between Digital Brands Group, public markets, and the intrinsic value of the company's underlying assets and operating performance.
Speaker Change: Year of our sundry acquisition, we expect this operating leverage to continue throughout the year on higher revenues, which will increase the flow through to the net and operating income. Additionally, given our results and given what we expect to achieve in Q2 Q3 and Q4. The board will continue to achieve strategic alternatives given the continued dislocation between.
Speaker Change: Digital brands group public markets and the intrinsic value of the Companys underlying assets and operating performance. We have several options that we can pursue all of us should increase shareholder value meaningfully and we know based on inbound demand that are not what our NASDAQ shell is worth which is significant.
John Hilburn Davis: We have several options that we can pursue, all of which should increase shareholder value meaningfully, and we know based on inbound demand what our NASDAQ shell is worth, which is significant. So, we will continue to pursue this, especially, as I said, as we know what Q2 is shaping up to be and what Q3 wholesale orders are, the strategic alternatives to stores, et cetera. So, thanks, everyone, for their time. We look forward to continued momentum. And this concludes our first quarter 2024 earnings call, so let's open it up to Q&A. Sure. At this time, we will be conducting a question and answer session if you would like to ask a question.
Speaker Change: So we will continue to pursue this especially like I said as we know what Q2 is shaping up to be and what Q3 wholesale orders are the strategic alternatives in store et cetera. So thanks, everyone for their time, we look forward to continued momentum and this concludes our first quarter 2024 earnings call. So let's open it up to Q&A. Please.
Speaker Change: <unk>.
Speaker Change: Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Operator: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Operator: 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 keys. Once again, that is Star 1 to ask a question. One moment, please, while we poll for questions. As a reminder, if you would like to ask a question, please press star 1. Once again, if there are any questions, please press star 1. Your first question for today is from Mike Travolos, a private investor.
Speaker Change: Information 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 keys. Once again that is star one to ask a question one moment. Please while we poll for questions.
As a reminder, if you would like to ask a question. Please press.
Speaker Change: Star one.
Speaker Change: Okay.
Speaker Change: Once again, if there are any questions. Please press star one.
Speaker Change: Your first question for today is from Mike travelers.
Speaker Change: A private investor.
Unknown Executive: Hi there. General broad question, but what is the company's, I could say, competitive advantage or, they're going to be talking about how we approach the retail market. I mean, obviously, retailing is big and fragmented, but what's our angle here that we're playing with, you know, opening this one store and pivoting from, you know, e-commerce, so on and so forth.
Speaker Change: Hi, there.
Mike travelers: General broad question, but.
Mike travelers: What is the company's.
Speaker Change: It's a competitive advantage or approach.
Speaker Change: Our approach to the retail market I mean, obviously retailing is big and fragmented, but what's our our angle here that we're playing.
Opening this one store in pivoting from.
Speaker Change: e-commerce, so on and so forth.
Speaker Change: Yes regarding that I don't I wouldn't look as a one stores pivoting from ecommerce I think it's one of those things where what we're seeing is you need to have wholesale you need as E. Commerce and then a stores work you also need to have stores are one thing about apparel, unlike like a book or a glass or something along those lines.
John Hilburn Davis: Yeah, regarding that, I don't, I wouldn't look at one store as pivoting from e-commerce. I think it's one of those things where what we're seeing is you need to have wholesale, you need to have e-commerce, and then, if stores work, you also need to have stores. One thing about apparel, unlike a book or a glass or something along those lines, is that it is physical. Touch, see, feel, fit matters.
Speaker Change: Is that it is physical type C feel fit matters. So I would just kind of keep that in mind I think it's more of you need to be in all the channels. If the channels worked with E. Commerce. The days of just rolling out unlimited AD spend is over and so youre watching ROE as more closely and you're running a rollout based campaign instead of just up into the right.
John Hilburn Davis: So I would just kind of keep that in mind. I think it's more of you need to be on all the channels if the channels work. With e-commerce, the days of just, you know, rolling out unlimited ad spend are over. And so you're watching ROAS more closely, and you're running a ROAS-based campaign instead of just going up and to the right, feeding the meter campaign. And then wholesale continues to be strong for us.
Speaker Change: The Demeter campaign, and then wholesale continues to be strong for us and then as far as the store, you'll we add a lot of like we said product from sundry along that was just sitting there. So it's in an outlet location.
John Hilburn Davis: And then as far as the store, you know, we had a lot of, like we said, product from Sundry alone that was just sitting there. So it's in an outlet location, we'll continue to monitor that and see what makes sense. And if it does make sense to open a full, what they call a full retail store, and then if so, we'll pursue it. So we're just learning there. And then we took over, at least, so it's a short lease. So it's only three years. So there's not a lot of obligation or liability there.
Speaker Change: We will continue to monitor that and see what makes sense and if it does make sense to open a full what they call a full retail store.
Speaker Change: And then if so we will pursue it so we're just learning there.
Speaker Change: And then we took over at least so it's a short lease. So it's only three years. So there's not a lot of obligation or liability. There. So in terms of what differentiates us I would say the big things are.
John Hilburn Davis: So in terms of what differentiates us, I would say the big things are, you know, it's just going to be design and price point with Sundry. The Q1 of this year was their last really good quarter before the brand kind of rolled over, and we're lapping incredibly easy comparisons in Q2, Q3, and Q4.
Speaker Change: It's just going to be design and price point with sundry.
Speaker Change: Q1 of this of last year was our last really good quarter before the brand kind of rolled over.
Speaker Change: And we are lapping an incredibly easy comparisons in Q2, Q3, and Q4 and so we expect to see that improved nicely and what we did there as we sharpen the price point and brought in a new design team. They side, we continue to just grow that slow and steady 20% a year and thats basically driven on where the best price point.
John Hilburn Davis: And so we expect to see that improve nicely. And what we did there is we sharpened the price point and brought in a new design team. Stateside, we continue to just grow that slow and steady 20% a year.
John Hilburn Davis: And that's basically driven on, you know, we're the best price point in the women's contemporary market. And so that brand just gets more and more awareness and continues to build. And then let's still do e-commerce only. And Bailey's is predominantly licensing now. So it's really sharpening the price point to where you're the best product at the best price, and then good design. We brought in a new designer for both brands in the fall of last year.
Speaker Change: The women's contemporary market and so that brand just gets more and more awareness and continues to build and then we're still does ecommerce only and.
Speaker Change: Baileys is predominantly licensing now so it's really sharpening the price points are where you are the best product at the best price and then good design.
Speaker Change: We brought in a new designer for both brands basically fall of last year. So we're starting to see her product hit the <unk>.
John Hilburn Davis: So we're starting to see her product hit the store floors and sell through, so that'll benefit. And then I think that's really the big driver, just being smart about it, just not chasing growth, focusing on cashflow as much as you are top-line growth. And again, you know, top-line growth in Q1 was significantly impacted by basically the majority of March shipping in April. And then you've got it, so you get that benefit plus the store plus some other things. Does that answer the question? I know it's a little long-winded, but I just wanted to kind of get in front of you.
Speaker Change: Hit the store floors and sell through so that'll benefit and then I think that's really the big driver is just being smart about it just not chasing growth focusing on cash flow as much as you are top line growth and again topline growth in Q1 was significantly impacted by basically majority of Mark shipping in April and then you've got.
Speaker Change: So you'll get that benefit plus the store plus some other things does that answer the question I was a little long winded, yes, I just wanted to kind of government right.
John Hilburn Davis: No, I was kind of new to the story, so I did want to hear something extensive. Second question: you had come out with a press release in the past, somewhat recently, about no equity raises in 2024, but you had some equity activity, I don't know if you call it a raise, so what's the situation?
Speaker Change: No. It does kind of new to the story, so I did want to hear something extensive.
Speaker Change: Second question.
Speaker Change: You had come out with a press release in the past somewhat reason about.
Speaker Change: No equity raises in 2024, but you had some equity activity I don't know if you call. It a raise so what's the situation.
John Hilburn Davis: Yeah so that was driven mostly by the NASDAQ sending us a delisting notice because our at the end of the year you know we have to the auditors go through and now that accounting is predominantly all theoretical based and not actual based as an example you have to take all these non-cash charges as an example that was we had to take a $368,000 non-cash income tax charge because for GAAP accounting we could potentially sell any of our brands at any point at the future unknown it could be a millennial from now it could be a decade from now to be a year from now no one knows but this is what they say and so you they say based on that you need to take a tax consequence for that which is kind of silly because the one thing I can guarantee is they don't know when and the number is going to be wrong that they assigned to it right and so so we had a lot of net non-cash charges which dipped us below as you'll see we're above it now but what they the NASDAQ looks at two things one is at the quarter that's number one and then number two is what they perceive is their you know your ongoing amount of burn and if you can maintain it so we have our hearing coming up and basically based on our conversations with the NASDAQ we knew we're going to be in compliance when we reported q1 but everyone felt that based on their comments and how they're reviewing all these things that we needed to show that you know with our burn and this additional capital it would take us out of that risk because I know we just, it's one of those things where they said it's a 50-50 weight, 50% is if you're in compliance and the second is if they deem, So completely subjective, if they deem that your burn will be able to be lower or will continue to maintain that shareholder equity. So that's, that's what's driving. So it wasn't driven by being staying listed on the NASDAQ.
Speaker Change: Yeah, So that was driven mostly by the NASDAQ sending us a delisting notice because or at the end of the year. We have the auditors go through and now that accounting is predominantly all theoretical based and not actual base. As an example, you have to take all these noncash charges as an example that was.
Speaker Change: We had to take a $368000 noncash income tax charge because for GAAP accounting, we can potentially sell any of our brands at any point in the future unknown. It can be a millennial from now it could be a decade from now to be a year from now no. One knows but this is what they say and say they say based on that you need.
To take a tax consequence for that which is kind of silly because the one thing I can guarantee is they don't know when the number is going to be wrong. They base assigned to it right.
Speaker Change: So.
Speaker Change: So we had a lot of net.
Speaker Change: Noncash charges, which stepped us below as youll see were above it now, but what they the NASDAQ looks at two things one is at the quarter.
Speaker Change: That's number one and then number two is what they perceive as there were ongoing.
Speaker Change: Out of burn and if you can maintain it so we have our hearing coming up and basically based on our conversations with the NASDAQ we knew we're going to be in compliance when we reported Q1, but everyone felt that based on their comments and how they are reviewing all of these things that we needed to show that with our burn in.
Speaker Change: This additional capital it would take us out of that risk because.
Speaker Change: We just it's one of those things where they said, it's a 50 50 weight, 50%, if you're incompliant and the second is if they deem the.
Speaker Change: Completely subjective if they deem that your burn will be able to be lower or will can continue to maintain that shareholder equity.
Speaker Change: That's what's driving that.
Speaker Change: It wasn't.
Speaker Change: By being stainless it on the NASDAQ.
Unknown Executive: So you just played it safe and... Just raise additional capital, and if you don't need it, then you don't need it them.
Speaker Change: Oh.
Speaker Change: So you just play it safe in.
Speaker Change: It does raise additional capital and if you don't need. It then you don't need it.
Speaker Change: That's right, yes, Sir that's unfortunately, that's right exactly and we went through the same thing last year because of this same issue.
John Hilburn Davis: That's right. Yes, sir.
John Hilburn Davis: Unfortunately, that's right. Exactly. And we went through the same thing last year because of this same issue. Now, what's really important, too, is to keep in mind as you move into the rest of this year. If you look at our interest expense line, you'll see that it's pretty meaningful. That majority, not a majority, some of it rolls off at the end of Q2 because that debt's paid back. And then the majority of it will roll off in Q3 because that debt's paid back.
Speaker Change: Now, what's really important to us to keep in mind as you move into the rest of this year. If you look at our interest expense line, you'll see that it's pretty meaningful on that that.
Speaker Change: A majority a lot not a majority some of it rolls off at the end of Q2, because that debt is paid back and then the majority of it will roll off in Q3, because that that debt is paid back. So when you get into Q4, and then next year that interest expense line is probably a 20% of what it is now.
John Hilburn Davis: So when you get into Q4 and then next year, that interest expense line is probably 20% of what it is now. So really, when you look at that, that's going to be pretty significant. And then secondly, next year, we also... $2,000 a quarter in stateside depreciation and amortization, no longer running through the books. So we have to amortize the goodwill of all our acquisitions. So at the end of Q4 this year, it's $800,000 a year. So $200,000, we'll come back to the books starting in Q1 next year. So what's interesting is when you look at that just alone, Q1 next year, you're going to pick up probably $1,000,000.
Speaker Change: So when we really when you look at that that's going to be pretty significant and then secondly next year. We also.
Speaker Change: $1000, a quarter and the state side, depreciation and amortization no longer.
Speaker Change: Running through the bumps that we have to amortize the goodwill of <unk> of all our acquisitions, though at the end of Q4. This year, it's $800000 a year. So 200000 will come back to the book starting in Q1 next year. So what's interesting is when you look at that just alone Q1 next year youre going to pick up probably.
Speaker Change: $600000 just in Non-catholic are interest expense, which is ameren desire amortized as well as the.
Speaker Change: This stateside goodwill as well so that will also be a benefit that impact Q1 or Q2, but it does benefit.
Speaker Change: As we move forward starting in Q4 on the interest expense line in Q1, both interest expense and goodwill.
Speaker Change: So if you if you put all that stuff together, you anticipate being cash flow positive.
Operator: So if you put all that stuff together, you anticipate being at least cash flow positive pretty soon. Not to ask you for guidance, but you know, that's what you're anticipating. Hello. One moment, please.
Speaker Change: Pretty soon.
Speaker Change: Not to ask you for guidance, but that's what you are anticipating.
Speaker Change: Hello.
One moment, please while we reconnect the speaker line.
Operator: One moment, please, while we reconnect the speaker line. Ladies and gentlemen, please remain on the line while we reconnect the speakers.
Speaker Change: Ladies.
Speaker Change: And gentlemen, please remain on the line, while we reconnect the speaker line.
Holly: Hi, Holly on back online your line is okay.
Operator: Hi Holly, I'm back on. Your line is live. Your line is live.
Speaker Change: Sorry, I don't know where I cut off on the on my last response.
John Hilburn Davis: Sorry, I don't know where I cut off on my last response. You'd have finished talking about the amortization and interest. Yeah, so you'll pick up, you know, probably $400,000 in Q4, and then you'll pick up over $600,000 in Q1, pretty much every quarter going forward, Q1, Q2, and Q3 of next year as well. So it's pretty meaningful as you really think about the earnings shape of the company going forward. So given the GNA leverage, so that'll be a benefit as well to everything that's going forward.
Holly: You would have finished talking about the amortization and interest expense.
Speaker Change: Yes, so you'll pick up.
Speaker Change: Probably.
Speaker Change: 400000 in Q4, and then it will pick up over 600000 in Q1 pretty much every quarter going forward Q1, Q2, and Q3 of next year as well.
Speaker Change: So it's pretty meaningful as you as you really think about the earnings shape of the company going forward.
Speaker Change: Given the G&A leverage so that'll be that'll be a benefit as well to everything that's going forward.
Speaker Change: So without giving formal guidance that you anticipate being casual positive then very soon.
John Hilburn Davis: So without giving formal guidance, you anticipate being casual positive then very soon.
Speaker Change: Yes, internal cash flow positive that's right exactly and then from a pure.
John Hilburn Davis: Yeah, internal cash flow positive. That's right.
Speaker Change: GAAP perspective, yes, we would we would think we'd start approaching that as well just from a pure GAAP accounting perspective, Q4, you never know because the.
Speaker Change: The problem is that all of these auditors are getting.
Speaker Change: Reviewed by the PC Ob as example, like they were coming back when we were doing our annual and they were asking yeah. We had they were asking US 4000 invoices to prove that a zipper caused <unk> and you're like that's not even 1% of the product cost, which is not what they consider a significant event.
Speaker Change: So hopefully we're done with all the our auditors being under <unk> review.
Speaker Change: Is it also just adds a ton of cost also way.
Speaker Change: Being public cost of $600000 in the first quarter alone.
Speaker Change: It's pretty expensive.
Speaker Change: Yes.
Speaker Change: Ron Thanks for that.
Ron: Yes, that's exactly right.
John Hilburn Davis: Exactly. And then from a pure gap perspective, yeah, we would think we'd start approaching that as well, just from a pure gap accounting perspective. Q4: you never know, because the problem is, all these auditors are reviewed by the PCOB. As an example, like, they were coming back when we were doing our annual, and they were asking, you know, we had, they were asking us to pull 1000 invoices to prove that a zipper cost five cents.
Ron: That's exactly right.
John Hilburn Davis: And you're like, that's not even 1% of the product cost, which is not what they consider a significant event. So hopefully, we're done with all our auditors being under PCOB review, because it also just adds a ton of cost. Also, we are being public costs of $600,000 in the first quarter alone are pretty expensive.
John Hilburn Davis: That's exactly right. So we do think that'll happen. It'll happen as we move to the second half of the year and then continue going forward. Okay, very good. Thank you.
Speaker Change: So we do think that'll happen it will happen as we move to the second half of the year and then continue going forward.
John Hilburn Davis: and Ron to thank for that.
Unknown Executive: Okay, very good. Thank you for the color on that. Yes, sir.
Speaker Change: Okay very good.
Speaker Change: Thank you for the color on that.
Speaker Change: Yes, Sir.
Okay.
Speaker Change: Your next question is from Chris for any a private investor.
Operator: Your next question is from Chris Branny, a private investor.
Speaker Change: Good morning.
Speaker Change: Hi, one second let me turn off the.
Chris Branny: Hi, one second. Let me turn off the speaker. I have the speaker on the computer in the other room. Pause it. Okay.
Speaker Change: I have the speaker on the computer and the other room.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Okay.
Speaker Change: Yes.
Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Chris Branny: So I have a Ph. D. in statistics from Moscow State University, and ah, I'm really excited because I've been analyzing the revenue. And I think you could have a like, 1,000 to 5,000% increase in revenue in the next two years or so, based on all the data I'm looking at. Are there any plans? to develop a statistical probability model based on probability theory to actively analyze
Speaker Change: So I have a ph D in statistics.
Speaker Change: For Moscow State University.
Speaker Change: And.
Speaker Change: I'm really excited because of an annualize in the revenue.
Speaker Change: And I think.
Speaker Change: You could have a like.
Speaker Change: 1000% to 5000% increase.
Speaker Change: And revenue.
Speaker Change: And the next two years or so base.
Speaker Change: Based on all the data I'm looking at.
Are there any plans to develop a statistical probability model based on probability theory.
Speaker Change: To actively analyze revenue.
Speaker Change: We don't necessarily look at it that way because our wholesale you've got different revenue drivers and on the wholesale side you just don't know.
John Hilburn Davis: We don't necessarily look at it that way because, you know, we're wholesale; you've got different revenue drivers. And, you know, on the wholesale side, you just don't know. You don't know, you're showing a couple months ahead, but the wholesalers, you know, buy based on what's happening in the market right now. So it's more emotional than it is anything else.
Speaker Change: You're showing a couple of months ahead, but the wholesalers.
Speaker Change: Based on what's happening in the market right now so it's more emotional than it is anything else. So it's pretty difficult to predict that and then as far as E. Commerce is just steady state and just kind of especially now that it's realized based in our stores you just got a you'll have to figure out where they.
John Hilburn Davis: So it's pretty difficult to predict that. And then, as far as e-commerce is concerned, it's just a steady state. And just kind of, especially now that it's ROAS-based and the stores, you just gotta, you will have to figure out where they are and how they perform. So I think it's probably a little bit harder because my guess is your variability factors will be a lot higher. So all your inputs will have a very high variability factor and, or, you know, standard wide standard deviations, which would make it harder.
Speaker Change: How they perform so I think it's probably a little bit harder because my guess is youre variability factors will be a lot higher so all your inputs will have a very high variable factor.
Speaker Change: And RBS ran a wide.
Speaker Change: Wide standard deviations, which would make it harder, but I do think.
John Hilburn Davis: But I do think that, you know, we are coming off the lowest revenue in the second half of last year. We're lapping that, obviously, as we have lapped that, we're getting the interest expense back. And then as you move into next year, you get all the stateside goodwill back, and then you just continue to build a business.
Speaker Change: We are coming off the lowest revenue in the second half of last year, we're lapping that obviously as we lap that we're getting the interest expense back.
And then as you move into next year, you get all the.
Speaker Change: Stateside.
Speaker Change: Goodwill back and then you just continue to build the business and then I think to our people.
John Hilburn Davis: And then I think too, what people often underestimate is when you build small brands and you start building the customer base up, those, as those customers start to repeat, what ends up happening is you start to build a space that gets stair-step function higher. But once you start to get to certain levels, that stair-step function starts to become more of a higher slope and less of a stair-step, so it's not a hockey stick per se.
Speaker Change: Often underestimated when you build small brands and you start building the customer base of those as those customers start to repeat what ends up happening is you start to build this base that gets stair step function higher but once you guys start to get to a certain levels that stair step function starts to become more of a higher slope and less of a stair step in when it's not a hockey stick the stairs.
John Hilburn Davis: The stair-step function. Okay. Now you're speaking my language. Yeah, so I think that and we're still in that stair-step function space because most of our brands are small But what ends up happening is we're starting to see that stair-step function Get get a higher slope and I think that's the big difference here is You're going to start to can see that and you see it all the time with brands like a I started a brand called J Hilburn that went through the same thing You know it's just slow and steady and all sudden you get into certain markets and You're a brand and then it goes up to the right because there's a virality coefficient that Happens when you get a certain amount of repeat customers in your customer base So every quarter that goes by though you get closer and closer to that moment of virality Basically based on just the number of customers in your base
Speaker Change: Function. Okay now you sneak in my language.
Speaker Change: Yes, so I think that and we're still on a stair step function space caused most of our brands are small.
Speaker Change: But what ends up happening is we're starting to see that scares that function to get get a higher slope and I think that's the big difference here is youre going to start you can see that and you see it all the time with brands like I'm.
Speaker Change: Sorry brain called J Albern that went through the same thing, it's just slow and steady and also when you get into certain markets and your brand and then it goes up to the right because theres a virality coefficient that happens when you get a certain amount of repeat customers in your customer base.
Speaker Change: Every quarter that goes by you get closer and closer to that.
A virality basically based on just the number of customers in your base.
Speaker Change: Wow.
Chris Branny: Awesome. I honestly am going to increase my personal price target in the next two to three years to probably a 10,000% revenue increase.
Speaker Change: Awesome.
Speaker Change: Honestly.
Speaker Change: I'm going to increase my personal price target.
Speaker Change: And the next two to three years too.
Speaker Change: Probably a 10000% revenue increase.
Yes, I can't comment on that but I definitely think we.
John Hilburn Davis: Yeah, I can't comment on that. But I definitely think we have the ability to grow revenue. And I think a lot of it is just awareness. I mean, when you look at some of these bigger brands that are out, even ones that aren't performing like all birds, or you've got Warby Parker that's starting to perform, a lot of it is just, they had a lot of money. They raised hundreds of millions of dollars in the private market, built a ton of brand awareness, and they built a customer base that is basically repeat, and that's really what it is.
Speaker Change: We have the ability to grow revenue and I think a lot of it is just awareness too I mean, when you look at some of these bigger brands that are out there.
Speaker Change: Even ones that arent performing like all birds are you got watery Parker, that's starting to perform a lot of it is just to add a lot of money they raised Andrew.
Speaker Change: Hundreds of millions of dollars in the private market built a ton of brand awareness. They built the customer basis that is basically repeats and that's that's really what it is all youre doing all they did was take the normal timeline to growth and shrunk it by raising a lot of capital.
John Hilburn Davis: All they did was take the normal timeline for growth and shrunk it by raising a lot of capital. We're obviously not raising that amount of capital, so our timeline isn't as short as theirs, but it's the same path and process.
Speaker Change: Actually not raising that amount of capital. So our timeline is in as short as theirs, but it's the same passion process.
Speaker Change: Wow.
Chris Branny: I'm definitely a fan of Allbirds. I've ordered from them, and I really like their shoes. I think they're very forward thinking and very unique, functional, and cool.
Speaker Change: I'm definitely a fan of all birds I've ordered from them and I really like their shoes I think they're there.
Speaker Change: They're very forward thinking.
Speaker Change: And.
Speaker Change: Very unique functional and cool.
Speaker Change: Yes, they've done a nice job and they've raised a lot of money. They have stores that the stores have worked for them. Some have some haven't and I think that goes back to the original where.
John Hilburn Davis: Yeah, they've done a nice job. And they've raised a lot of money. They have stores that have worked for them, some haven't.
Speaker Change: It's <unk>.
Speaker Change: <unk> Parker stores were working about Albert stores, but you never know and we look at stores at other brands all the time and we know that this formula works you have stores you have e-commerce, and you have wholesale and Thats and you kind of want a healthy mix there and if you have all three of those oars in the water then you end up building a good.
John Hilburn Davis: And I think that goes back to the original, where, you know, Warby Parker stores are working better than Allbirds stores, but you never know. And, you know, we look at stores and other brands all the time. And we know that this formula works; you have stores, you have e-commerce, and you have wholesale. And that's a, and you kind of want a healthy mix there. And if you have all three of those ores in the water, then you end up building a good business because you're in all the channels. So that's how we kind of take it out of
Because you're in all the channels. So that's how we kind of take rate.
Chris Branny: Now, what would you say to all the ridiculous haters who say oh, you're a digital company and you're opening up physical stores. This will never work, what garbage blah blah blah.
Speaker Change: Now what would you say to all the ridiculous haters, who say.
Speaker Change: Oh, you're a digital copy and you're opening up physical stores. This this will never work what garbage blah blah blah.
Speaker Change: Well I mean, we'll be Parker I think everyone would argue as a digital company as well and they have over 170 stores all versus also a digital company. They have something like 65 stores Marine layer digital company Theyre private I think they have over 40 stores, but also a digital company has over 2000 <unk>.
John Hilburn Davis: Well, I mean, Warby Parker, I think everyone would argue is a digital company as well, and they have over 170 stores. Allbirds is also a digital company. They have something like 65 stores. Marine Layer, a digital company, they're private. I think they have over 40 stores. Buck Mason, also a digital company, has over 27 stores. I can keep naming them, right?
Speaker Change: <unk> stores I can keep naming them right. There is it just because your digital first and Thats. How you were born or what Youre doing doesn't mean, you ignore and drive revenue. So it's pretty low brow thanking our low IQ thinking and I think what you would you have to realize too is the guy.
John Hilburn Davis: Just because you're digital first and that's how you were born or what you were doing doesn't mean you ignore where you can drive revenue. So it's pretty low-brow thinking or low-IQ thinking. And I think what you have to realize, too, is that when I launched J. Hilburn, I was at Citadel Investment Group, covering restaurant retail. I've covered Amazon and Jeff Bezos forever, and he always said that they struggled in apparel. That was the number one category they struggled in.
Speaker Change: Jay Hilbert I was at Citadel investment group I was covering restaurants, III, Todd covered Amazon and Jeff Bezos Forever.
And he always said that they struggled in apparel that was the number one category. They struggled in and if you look at the data today, where they do well in apparel is basics. They don't do well with branded E Commerce and the reason I always said is that apparel is touch see Phil fit so Jeff Bezos is probably one of the smartest people I've ever seen run a business.
Chris Branny: And if you look at the data today, where they do well in apparel are basics. They don't do well with branded e-commerce. And the reason he always said is that apparel is touch, see, feel, and fit. So Jeff Bezos, who's probably one of the smartest people you've ever seen run a business, That is the methodology. I have a theory that in the future, as time goes on, clothes will generally start to become unbranded.
Speaker Change: That cant that tells you a lot methodology.
Speaker Change: I have a theory that in the future.
Speaker Change: As time goes on close will generally start to become brand list people will just say.
Chris Branny: People will just say, you know, I want just the cheapest, coolest denim possible, and I don't care what brand it is. You know, as things start to go more online and online and more digital in the future, I think that's going to be a trend. And, I gotta tell you, I regret not buying Amazon stock in the 1990s. I think I had some music.
Speaker Change: You know I want just the cheapest coolest denim possible and I don't care what brand it is.
Speaker Change: You know as things start to go more online and online.
Speaker Change: And more digital in the future I think that's going to be a trend and.
Speaker Change: I would tell you I regret not buying Amazon stock in the nineties.
Speaker Change: Hum.
Chris Branny: I think I had some music landstock.
I think I had some music land stock.
Speaker Change: Uh huh.
Speaker Change: Yeah.
Wow.
John Hilburn Davis: But I think that's, I think that's the key, right? I mean, even look at J.Crew. They were a catalog company, they started opening stores, and their revenues just went through the roof, right? Because then you go in, you know, you're this size, you like this product, as long as you continue to keep that fit and maintain that product quality, then they go online and buy. So I think what people miss is that in apparel, you acquire in the physical, and you retain in the digital. It's that simple.
Speaker Change: And I think that's I think that's the key right I mean, even look at J crew. They were catalog. They started opening stores. There revenues just went through the roof right. Because then you go in.
Speaker Change: This size you'd like this product launch we continue to keep that fit and make to that product quality. Then they go online and buy so I think what people Miss is that in apparel you acquiring the physical any retained in the digital it's that simple. So the whole point is you need a good customer acquisition trap and.
John Hilburn Davis: So the whole point is, you need a good customer acquisition funnel. And I think that's where wholesale comes in. And I think that's where stores come in, and then your digital becomes the retention engine, right? And that's your profitability engine, too, because you're not spending as much to acquire customers. So I think that's where people miss it.
Speaker Change: I think thats, where wholesale comes in and I think thats where stores come in and then your digital becomes the retention engine right and Thats your profitability engine, two because youre not spending as much to acquire a customer so I think that's for.
John Hilburn Davis: And again, I go back to, I think everyone would argue, Jeff Bezos, a pretty smart guy who built a pretty big business. He went back and read all his K's, his Q's, and his earnings report, and his earnings call. And he will tell you they couldn't crack retail or apparel. So they can't crack apparel, and he's spending more money and more time on it than anyone in this room. And if you added all our IQs together, he's probably smarter than all that, too.
Speaker Change: People Miss it again I go back to I think everyone argue Jeff Bezos pretty smart Guy built a pretty big business key go back and read all his cases queues and is earnings report in his earnings call and he will tell you they couldn't crack retail our apparel.
It can't crack apparel, and he's spending more money and more time against that than anyone in this room.
Speaker Change: And if you added all are accused together, he's probably smarter than all of that to that tells you a lot right. So I think that's why you have to have all three so you can't look at it as just because your digital first doesn't mean your digital only.
John Hilburn Davis: That tells you a lot, right? So I think that's why you have to have all three. So you can't look at it as just because you're digital first doesn't mean you're digital only. You can't be digital only. You can't be wholesale only, and you can't be store only. You have to have all the ores in the water at once.
Speaker Change: You can't be digital only you can't be wholesale only and you can't be store only you have to have all of the oars in the water at once and that's just the reality of it and the mixes will shift as the consumer shifts right I mean during Covid. There were no stores to go into so digital was massive as people have come out of Covid, they want to shop, and so you need.
John Hilburn Davis: And that's just the reality of it. And the mixes will shift as the consumer shifts, right? I mean, during COVID, there were no stores to go into. So digital was massive. As people have come out of COVID, they want to shop.
John Hilburn Davis: And so you need to follow the customer. You don't follow a business principle and say, "Nope, we're only digital." And the customer's wrong. They want to shop in stores, but we're not going to do that because we're smarter than them. That's not a good recipe for success. But the problem is that people online are oftentimes, sadly, one, one, one, one standard deviation thinkers. So they only think through that one piece and not like, Oh, what would you like if you do pull x? What happens when, you know, y, z, and downstream, and how does that impact you and what you need to do?
Speaker Change: To follow the customer you don't follow a business principle and say no. We're only digital and the customers wrong. They don't they want to shop in stores, but we're not going to do that because we're smarter than them that's not a good recipe for success.
Speaker Change: Yeah.
Speaker Change: But the problem is that people online or oftentimes sadly one one.
Speaker Change: One one standard deviation thinkers. So they only think that one piece and not like Oh, what would like if you do pull ask what happens then.
Speaker Change: Y Z and a downstream and how does that impact and what you need to do.
Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.