Q4 2024 a.k.a. Brands Holding Corp Earnings Call
Speaker Change: Greetings and welcome to AK Brands Holding Cooperation, Fourth Quarter and Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone wants to require operate assistance, please press star zero on your telephone keypad. As a reminder, this call is being recorded. It's now my pleasure to introduce Emily Schwartz. Thank you. You may begin.
Emily Schwartz: Good afternoon. Thank you for joining AK Brands to discuss our fourth quarter and fiscal 2024 results. Release this afternoon, which can be found on our website at ir.aka-brand.com. With me on the call today, I'm Ciaran Long, Chief Executive Officer and Kevin Grant, Chief Financial Officer.
Emily Schwartz: Good afternoon everyone, and thanks for joining us. This marks my first call as the permanent CEO and I'm thrilled to build on the foundation we've established over the past few years and the K.A. Brands through this next chapter of gold.
Emily Schwartz: I would also like to introduce Kevin Grant, or Chief Financial Officer, who is appointed to the role in the first week of January .
Emily Schwartz: Kevin joined the A.K.A. from Walmart, where he spent seven years in senior finance positions and prior to that he spent 11 years and earns the young. I'm excited to have him on the call today.
Speaker Change: 2024 was an exciting and pivotal year for A.K.A. Brands, marking a fundamental shift in
Speaker Change: I'm particularly proud that we delivered results ahead of our expectations, which is a testament to our team's ability to execute at the highest levels.
Speaker Change: Before I go through the results, I'd like to highlight some key achievements from the past year.
Speaker Change: In the U.S., which is our largest market, we deliver an impressive 17% net sales growth, on destroying the strength of our plans and the long runway of opportunity ahead in the region.
Speaker Change: We successfully attracted new customers what strengthened our bond with existing ones, resulting in an impressive 9% growth in our trailing 12-month active customer base surpassing 4 million customers.
Speaker Change: We expanded our Romney Channel initiative to draw a profitable growth and enhance brand awareness.
Speaker Change: We open five Princess Polly stores through California, Arizona and Boston and our women's brands further their wholesale tests with leading retailers such as Nordstrom.
Speaker Change: As we look at 2025, we are steadfast in our focus on growing our brands and enhancing our overall profitability. Our momentum continues with the quarter to date net sales growth consistent with our Q1 outlook of 46%.
Speaker Change: Building on the success of last year, we remain focused on three key priorities.
Speaker Change: First, we will attract to retain customers through our direct consumer channels.
Speaker Change: Or brands are early on in their journey, and we believe we have significant opportunity to grow awareness of our brands. This includes the evolution of our tests to repeat merchandising model and delivering on our promise of curating new, on-trend exclusive fashion to customers weekly.
Speaker Change: We'll also leverage differentiated and innovative strategies across multiple marketing platforms to deepen our direct connection with customers.
Speaker Change: With our first store in New York City, slated to open next week. We're also expanding our hotel presence. Princess Polly and Patel & Pock will launch across Nordstrom's entire store this month.
Speaker Change: In combination with our comprehensive set of customer data, we will leverage AI driven solutions to personalize customer journeys for dig shopping behaviors, optimize marketing, streamline inventory planning, and operational workflows.
Speaker Change: Anchored on our Dana-driven, Tesla-repeat merchandising models, Princess Pollock consistently drops new collections and styles to say ahead of the trends and capitalizing big moments, such as upcoming festival, prom and graduation collections, and then an exclusive edit with Ashton Earle, which launched earlier this week.
Speaker Change: In 2025, as part of our strategy to attract or retain customers, Princess Polly will lead with its influencer strategy on social media, while also defying to over 13 different
Speaker Change: including WeChat, Netflix, and other phone billboards to build upon the momentum and brand affinity.
Speaker Change: Though Princess Polly remains primarily digital-first fashion brands, the brand is expanding its footprint to remain at the forefront of the next generation of retail.
Speaker Change: The stores drive revenue and profitability. However, their strategic value lies in expanding brand awareness, acquiring the customers and creating deeper, more meaningful connections where there are existing customers to enhance touch points and physical experiences.
Speaker Change: We are excited to announce that we will be opening our latest physical expression of the Princess Polly brand in Seoul, New York City next week. The opening will be supported by an engaging series of launch celebrations featuring in-store grand opening events and [inaudible]
Speaker Change: which would bring the total number of sores to 13 by your end.
Speaker Change: Princess Polly also recently launched over 70 stars on ethos.com and the UK.
establishing the groundwork for future global expansion.
Speaker Change: Building on its digital foundations, federal and pop results to strategically expanding into new channels, Dryden Brand Awareness while achieving strong performance across all partnership launches.
Speaker Change: As we announced in January , Pedal and Pop had a very successful test across Nordstrom's website and half of their store fleed in 2024 and will now be featured in all Nordstrom stores later this month.
Speaker Change: In addition to its omnichannel expansion, Pedal and Pop continues driving customer engagement through multi-channel marketing strategies, leveraging influence upon partnerships, social media campaigns, in-person events, and out-of-home advertising, including high-impact billboards.
Speaker Change: The brand is equally focused on strategically expanding its exortment, highlighting key trends
Speaker Change: Pedal and Bob, ultimately used to strengthen its exclusive style portfolio, capturing additional share of wallet with its second wedding guest, Modern Real Man's collection, which exceeded performance expectations and deeply resonated with customers during the collection's debut last spring.
Speaker Change: or more content than ever than Petron and Popus' well-positioned to capitalize on significant on-taps market potential.
Speaker Change: Shifting to our streetwear brands, we make great progress over the last 18 months optimizing coaching operations across sport regions and the results are very encouraging.
Speaker Change: We've added strategic cars in the beginning of 2025, including a new presence of Australia and the global head of in-house friends.
Speaker Change: who brings valuable experience to bother U.S. and Australian operations, positioning quadricings for long-term growth and innovation.
Speaker Change: Country King stands apart in the streetware landscape by leading with its in-house designed the trial, positioning the brand for sustained long-term growth. [inaudible]
Speaker Change: Culture King's in-house brands, including sold-after labels like minimal, loiter, curry, and st. morta, consistently ranked among top sellers, both online and at the Las Vegas flagship store.
Speaker Change: To complete the three-wire outfit and enhance its market credibility, Koja King's complements these in-house brands with exclusive footwear, headwear and accessories from premium third-party brands, including industry tightens like New Era, Mitchell and Nest and New Balance.
Speaker Change: Patrick King's in-house brand, Loyder, is leading this merchandising transition and showcasing the effectiveness of the model. In the fourth quarter, Loyder put up another quarter of triple digit revenue growth with gross profit dollars going even faster year over year.
Speaker Change: The immersive store and retail attainment atmosphere are core to the culture king's marketing strategy of creating unforgettable moments around product launches, in-person experiences and tenfold moments that resonate deeply with its customer base.
Kevin Grant: Before I pass with the Kevin, I'd like to reiterate my thanks to our incredible team for delivering a great year.
Kevin Grant: I'm confident that we have the right strategic initiatives in place and complete alignment across our teams to drive and know the year of strong performance in 2025.
Kevin Grant: With that, I'll turn it over to Kevin to walk you through the financials.
Kevin Grant: As Ciaran noted, prior to assuming the role of CFO , I was the company's controller and had been deeply involved in the company's financials since before our initial public offering.
Kevin Grant: Now let me dive deeper into our fourth quarter results and give you a review on 2025.
Kevin Grant: As Ciaran noted, for the fourth quarter, net sales increased 6.8% to 159 million, and 6.7% on a constant currency basis compared to the same period last year.
Kevin Grant: This was driven by strength in our U.S. business in which net sales increased 21.6% compared to the fourth quarter of last year.
Turning now to our profitability metrics.
Kevin Grant: Gross Margin was in line with our expectations and expanded 460 basis points in the fourth quarter to 55.9% compared to 51.3% in the same period last year.
Kevin Grant: The increasing gross margin was driven by a higher penetration of mueness and full-price selling and we also received the benefit of lapping markdown actions that we took in Australia in the fourth quarter of 2023.
Kevin Grant: Selling expenses were $44.6 million, compared to $42.3 million in the fourth quarter of 2023.
Kevin Grant: Marketing expenses in the quarter were 22.3 million compared to 17.3 million in the fourth quarter of 2023.
Kevin Grant: General and Administrative Expenses were 24.9 million compared to 22.3 million in the fourth quarter of 2023 due to an increase in incentive compensation and non-riching legal matters.
Kevin Grant: As a percentage of net sales, GNA expenses increased to 15.7% from 15% in the fourth quarter of last year.
Kevin Grant: We're pleased that we delivered adjusted EBITDA of 6.2 million compared to 1.3 million in the same period last year ahead of expectations.
Kevin Grant: Adjusted EBITDA margin for the fourth quarter of 2024 increased 300 basis points to 3.9% compared to 0.9% in the same period last year.
Turing now to the ballot sheet.
Kevin Grant: We ended the quarter with 24.2 million in cash and cash equivalent compared to 21.9 million at the end of the fourth quarter of 2023.
and we ended the year with 111.7 million of debt.
Kevin Grant: We generated $7 million in operating cash in the fourth quarter compared to $15 million in operating cash in the same period last year.
Kevin Grant: A quick update on our stock buyback program. We continue to believe that our stock is under valued. And in the fourth quarter, we purchased 11,000 shares for a total cost of 243,000.
Kevin Grant: Looking ahead, as Ciaran mentioned, we're encouraged by the momentum we're seeing and confident that our strategic initiatives will deliver solid top line growth and profitability over the near and long term.
Representing Growth in the range of 4 to 6%.
Kevin Grant: Driven by double-digit growth in the U.S., region, and improving trends in the Australian New Zealand region, which contemplates an approximate $10 million FX headwind.
Kevin Grant: Can slight leverage in DNA expense, excluding stock compensation, depreciation and amortization and non-routine items due to modest head count investments to support our channel expansion efforts.
Kevin Grant: For modeling purposes, we are planning fiscal 2025 stock based compensation of approximately 8 to 10 million.
Kevin Grant: For the first quarter of 2025, we expect net sales to be between 121 million and 124 million, which contemplates an effect headwind of approximately 1.5 million.
Kevin Grant: Adjusted EBITDA is expected to be in a range of 1.5 million and 2 million, driven by sales growth and gross margin expansion as we lap-detarded inventory actions at the Culture Kings brand in the first half of last year.
Kevin Grant: We are well positioned to build on this momentum as we move into 2025, and I look forward to an exciting year ahead.
Now, we'll open it up for your questions.
Speaker Change: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad and confirmation toll indicate that you're in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it is maybe necessary to pick up a handset before pressing the star keys. One moment while you pull for questions. If you're in the question queue, please press star 2 to remove yourself from the queue. You may press star 2 to remove yourself from the queue.
Speaker Change: And our first question comes from Ryan Mayers with Lake Street Capital. Please proceed with your question.
Speaker Change: Yeah, thanks, Ryan. Okay, I think overall, you know, it's great to see the progress we're making, you know, the US growth of 22% in Q4, it's great to see that kind of continue, and also just the improving comms we've seen in the Australia region. And I think, you know, we've seen improving comms across the brands, and I think as we continue to bring more and more of cultural gains, own brands onto our testing repeat model, that look, we know
One of that model is so strong, we are seeing good performance there.
Speaker Change: And look, we have added, you know, more talent to the Culture Kings team, and we have a new president of Culture Kings in Australia, just in Heyberg, who has, you know, deep background in the region, you know, in that...
Speaker Change: and to take price. And for us, we think about that, you know...
because we're pretty much...
Ciaran Long: and they feel with the strength of our brands, we can do that. It's certainly not what we want to go first. We're actively working with our vendors, looking at moving sourcing to different locations, but we feel good about the guidance and feel good that we can all set the impact of Taurus.
Okay, got it. Thanks for taking my question.
Speaker Change: Thank you, and our next question comes from Ashley Owens with Keybank Capital Markets. Please proceed with your question.
Ashley Owens: Hi, good afternoon and thanks for taking the questions. I wanted to start on the Girl Smaraging Guide. I'm just curious, you know, in the past.
Ashley Owens: You've discussed how strong margins have really been underscored by the test and repeat model and we really saw that play out within the second half of the year. Did you just give us some perspective as to some of the puts and takes for that last growth margin guide this year and maybe the magnitude of impact from increasing wholesale penetration, tariffs and maybe just also some color on the shooting of the year would be helpful.
Ashley Owens: Yeah, thanks Ashley for the question. You know, as Ciaran mentioned,
Earlier, we're really forecasting in our outlook.
Ashley Owens: From a shaping perspective, we certainly will see, towards the first half of the year, we're lapping some promotional actions taken in Australia and FY24, we'll see some improvement there. As we go through the year, we'll see a shape that looks very similar to FY24 as we continue through Q4, Q4 is our more promotional period and we'll see, you know, gross margins is lower than Q2 and Q3.
Ashley Owens: We will see over time an impact of the growing wholesale initiatives upon our growth margin. In this year, it's not going to be a tremendous impact, but we feel confident with our outlook and what we're heading for FY25.
Speaker Change: Okay, great. And then I guess just second on that and just talking about the wholesale channel for you guys. I'm doing more in terms of expansion this year, but also adding in some of the polystores as well. Could you just provide updated thoughts on the overall mix of the business and any thoughts as to how big of a contributor wholesale could be or get to over the next couple of years? I think more so in 2026 and beyond just based on what you just said, but any color there.
Speaker Change: Yeah, sure. Thanks, Ashley. Look, I think we're really happy with the progress we're making across all of the brands and meaning into that strategy of putting our product wherever our customers are, once it's brand-enhancing and has the right economics.
Speaker Change: You know, I think for us, you know, doing that test in Nordstrom with Princess Polly and Patron Pop in, you know, in Q4.
and the Goldbergs.
Speaker Change: and I spoke the opportunity that we're seeing across political stores and online for all of the plans and you know...
Okay, I'll pass it along. Thank you Thank you.
Speaker Change: Thank you. And as a reminder, if you'd like to ask questions, please press star one on your telephone and keep that star one.
Speaker Change: And our next question comes from Eric Beder with SCC Research. Please proceed with your question.
Speaker Change: Let's talk a little bit about culture kings. It seems like you're making significant progress there. You mentioned in your remarks potentially about adding a store in the US. What would kind of be?
Baam!
And I think as we've moved [inaudible]
More and more of their...
Speaker Change: We are looking for for store locations for kosher kings and you know we're working through what aspects of the Vegas store we will bring in.
You're up to six, coming to thirteen [inaudible]
Speaker Change: After the infrastructure is in, how the potential leverage is going forward. Thank you.
Speaker Change: Yeah, thanks, Eric. Look, we're really pleased with what we see so far on the Princess Polly stores. And, you know, as we think about that, it's our own building that brand. You know, we see 30% of the customers coming into the store are new to the brand.
Speaker Change: We want to see very clearly know that the stores are having a halo effect within the region of the store, and we're kind of measuring that on about 10 more radius.
Speaker Change: You know, I would say look, the stores are new to Princess Polly and working through that, they have added some talents last year and that is, you know, do your great job of rolling up the new stores, operating them. And, you know, I feel, look, we have...
Speaker Change: You know, we will add some, we will continue to add some talent this year and in our, to go after the store opportunities, but pretty modest and all contemplated in our guidance.
Great good luck for 25.
Thanks.
Speaker Change: And our next question comes from Randy Konik with Jeffries. Please proceed with your question.
Randy Connick: Hey, thanks a lot. Sorry, I got on a little late here. Cron, just walk us through your thoughts on
Speaker Change: Let me just walk us through that where we've come from over the last few quarters and then how you think about kind of the trends in the, in the, you know, your, your Indian Ocean Cratic trends in your business relative to the environment will be super helpful as you think about the, the balance of 2025. Thanks.
Speaker Change: Coming from moving the monster, that test repeat model, but also the talent that we've blown in and the opportunity that they can go after there.
Kevin Grant: as Kevin talked about margins of EBITDA margins, you know, up significant to year over year. And I think, you know, really showing I think, you know, the power of this model and the strength and opportunity we have across these brands.
Speaker Change: You know, the fires, weather, tick-tock, distraction as well. I think we are seeing improvements in the comms as we have gone through the quarter.
and I think particularly at Paulie, you know, that...
Speaker Change: and Patel, that spring summer product has really kicked in. We feel really good about the inventory and the newness that we're bringing in.
Tommingo
Speaker Change: You know, I think as we think about the different channels, you know, or on-line businesses uniquely positioned with our Tesla repeat model to bring in newness every week. That's...
Great Product.
Speaker Change: You know, I think we would continue to lean into those three areas and, you know, I feel like.
We can make sure you-
Speaker Change: Great, now I look forward to seeing you a couple weeks at the print system. Thank you.
Speaker Change: Yeah, we invite you all to come there. It's a super store, and we're delighted to open it up in New York and next week.
Speaker Change: Thank you. There are no further questions at this time. That also does conclude today's teleconference. Thank you for your participation. Make this connector lines at this time.