Q1 2025 a.k.a. Brands Holding Corp Earnings Call
Speaker Change: Greetings, welcome to A.K.A. Brands Holding First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen only mode. The question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during this conference, please press star 0 on your telephone keypad. Please note that this call is being recorded.
Speaker Change: I will now turn the conference over to our host, Emily Schwartz, Investor Relations. Thank you, you may begin.
Speaker Change: Good afternoon. Thank you for joining AK Brands to discuss our first quarter 2025 results released this afternoon, which can be found on our website at ir.ak.brands.com. With me on the call today, Ciaran Long, Chief Executive Officer, and Kevin Grant, Chief
Speaker Change: Before we get started, I'd like to remind you of the company's Safe Harbor Language. Management may make for-looking statements which refer to expectations, projections, and other characterizations of future events, including guidance and underlying assumption.
Speaker Change: Four-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed.
Speaker Change: For further discussion of risks related to our business, please see our filings with the SEC.
Speaker Change: Please note, we assume no obligation to update any such for-looking statements.
Speaker Change: This call will also contain non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margin. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the release, furnished to the SEC, and available on our website. With that, I'll turn the call over to Ciaran.
Ciaran Long: Good afternoon everyone and thank you for joining us today to discuss our first quarter 2025 results.
Ciaran Long: I'm pleased to report that we delivered a strong start to the year, with outstanding first quarter performance that reflects our team's strong execution across our brands and business.
Ciaran Long: This marks our fourth consecutive quarter of growth, underscoring the effectiveness of our strategic initiatives and operational discipline.
Ciaran Long: Before reviewing the quarter, I want to acknowledge and thank our talented teams whose commitment to our brands and customers continue to drive our success.
Ciaran Long: Their consistent performance has been instrumental in delivering the solid first quarter results and navigating the current environment.
Now let me share some highlights from the first quarter.
Ciaran Long: We grew net sales approximately 12% on a constant currency basis to $129 million with continued strength in the U.S. which grew 14%.
Ciaran Long: As mentioned, this marks our fourth consecutive quarter of growth overall and the seventh consecutive quarter of growth in the U.S.
Ciaran Long: In the Australian New Zealand region, we registered first quarter revenue growth of more than 6%.
Ciaran Long: The success stems from a combination of the extensive strategic work our teams have been actioning in the region, particularly in the Culture Kings brand, leveraging our highly effective test and repeat model, and an improved macro environment.
underscoring that demand for our brands is strong.
Our omni-channel expansion plans are on track and exceeding expectations.
Ciaran Long: Princess Polly opened its seventh store in Soho in the first quarter, which was their strongest opening to date, and early reads from Princess Polly and Petal and Pup's debuts chain wide at Nordstrom are encouraging.
Ciaran Long: And rounding out the quarter, benefiting from the strong top-line growth, healthy gross margin performance, and continued operating discipline, we exceeded our profitability expectations and delivered $2.7 million of adjusted EBITDA.
Thank you.
Ciaran Long: On the heels of a solid first quarter, I want to address the current macro environment and the uncertainty surrounding trade in tariffs.
Ciaran Long: As we approach the evolving trade policies, we continue to lean into our goals of building brands for the long term, delivering high quality fashion to our customers, and balancing growth and profitability.
Ciaran Long: We're confident that our proactive approach, flexible business model, and speed of execution will allow us to navigate through this period and position us to emerge stronger on the other side.
Let me walk you through our three-pronged approach to TARFs.
Ciaran Long: First, we leverage our relationships and scale with our key partners in China to agree on discounts that allow us to share the burden of the first-home towers.
Ciaran Long: Second, over the past six months we've been intensely working on diversifying our supply chain.
Ciaran Long: We anticipate our U.S. business will have minimal exposure to China in the fourth quarter, with production already shifting to countries such as Vietnam and Turkey.
Ciaran Long: We are making this change in combination with our existing vendors who have operations outside of China and new partners that have a global footprint.
Ciaran Long: We have teammates who are working onsite in the new locations to ensure the quality of our products.
meet both our high standards and those of our customers.
Ciaran Long: Lastly, where necessary, we have the ability to take strategic price increases, carefully designed to limit impact on customer demand, uphold our commitment to accessible fashion, and protect our margins.
Ciaran Long: Kevin will walk you through our outlook momentarily but we continue to see solid demand trends in the first six weeks of the second quarter in line with our outlook for the year.
Ciaran Long: The actions we're taking to diversify our supply chain are primarily focused on our U.S. operations.
Ciaran Long: We will leverage our non-U.S. business to maintain our long-term vendor relationships that are based in China.
Ciaran Long: Longer term, this will allow us to leverage different regions as tariffs rebalance.
Ciaran Long: We believe the actions we're taking will enhance our agility, resilience, and long-term competitiveness.
Ciaran Long: We've faced challenges before, and we're well prepared to adapt as the landscape evolves. And as we've seen in the past, we come out stronger than before.
Ciaran Long: While this work is well underway, we are committed to growing our branch for the near and long term. As a reminder, building on the success of last year, we laid out three key priorities for 2025, grounded in expanding our total addressable market.
Ciaran Long: First, we will attract and retain customers on our direct consumer channels through on-trend, exclusive merchandising, and differentiated marketing strategies.
Ciaran Long: In the first quarter, our merchandising team successfully optimized our inventory mix to align with current trends and evolving customer preferences, and our innovative marketing approach deeply resonated with our customers, leading to solid growth in our direct-to-consumer channels.
Ciaran Long: Second, we will expand our brand awareness through physical retail and growing wholesale partnerships.
Ciaran Long: Investments in our Army Channel expansion continue as planned, and as mentioned, in the first quarter, Princess Polly held its grand opening for its New York store, and both Princess Polly and Petal and Pup expanded to all Nordstroms.
Ciaran Long: And lastly, we remain committed to streamlining our operations and strengthening our financial foundation.
Ciaran Long: I'm very proud of our ability to adapt to the rapidly changing macro environment while protecting the core of our business.
Ciaran Long: We ended the first quarter with a healthy inventory position and improved operating cash compared to the same period last year.
Ciaran Long: Now, let me share some highlights from our brands from the first quarter, as well as upcoming strategic goal drivers.
Ciaran Long: Starting with Princess Polly, the largest brand in our portfolio, which accounts for approximately half of the portfolio's revenue, Princess Polly is a leading fashion brand known for its trend-forward styles and strong connection with its next-generation customers.
Ciaran Long: With a growing digital business and expanding retail footprint, the brand continues to deliver strong performance, demonstrating its constant pulse on its customers' preferences.
Ciaran Long: In the first quarter, Princess Polly's fashion-forward approach capitalized on emerging trends in classic prints such as polka dots, gingham, and modern animal prints.
Ciaran Long: Dresses continue to be a leading category with emphasis on key moments including prom and graduation with the collections driving double-digit revenue growth compared to last year.
Ciaran Long: Princess Polly also continues to expand its lifestyle category offerings, including new arrivals such as activewear and sleepwear, as well as swim, which has seen a significant growth year to date.
Ciaran Long: And heading into the back-to-school season, basics such as tees and denim will further round out the lifestyle assortment strategy.
Ciaran Long: Princess Polly's marketing success is rooted in a deep understanding of where its customers spend their time.
showing up wherever they scroll, stream, or shop.
Ciaran Long: In the first quarter, this customer-first approach led to early success in TikTok Shop, where the brand is blending content and commerce in fresh, innovative ways.
Ciaran Long: At the end of March, Princess Polly launched a five-day campaign highlighting its new arrivals.
Ciaran Long: featuring TikTok banners, a live shopping event on TikTok, and in-store activations at a Los Angeles store.
Ciaran Long: The campaign exceeded revenue targets and notably more than 75% of TikTok shop orders during the quarter came from new customers.
and Ciaran Long.
Ciaran Long: The first quarter also marked a significant period of high-impact marketing activations with the likes of an exclusive edit with influencer Ashton Earle, in-store events, and the highly anticipated Soho store opening, which drew lines down Broadway and featured Times Square billboards and a large-scale influencer event.
Ciaran Long: In addition to its strong online presence, Princess Polly is expanding its physical footprint with plans to open 7 new stores in 2025, bringing the total to 13 by the year end.
Ciaran Long: All existing locations are outperforming revenue expectations, creating a halo effect on surrounding online markets, and serving as a powerful customer acquisition channel.
Ciaran Long: With each new opening, the team continues to optimize operations, enhancing inventory flow, reconfiguring store layouts to increase capacity, and broadening the assortment of new style and accessories.
Thank you. Thank you.
Ciaran Long: New stores in Florida, Ohio and California are slated to open in the second quarter with three additional locations in New York and Pennsylvania planned for the second half of the year.
Ciaran Long: In addition to its own store rollout, Princess Polly is also leveraging wholesale partnerships to expand brand awareness.
Ciaran Long: As mentioned, Princess Polly debuted in all Nordstrom stores in the first quarter, and early results are exceeding expectations in both the stores and on Nordstrom.com, particularly in formal dresses.
Ciaran Long: Princess Polly is also seeing an uptick in organic search from customers that have previously purchased on Nordstrom.com, confirming the thesis that putting our products on multiple channels helps expand awareness and drive customer acquisition.
Thank you.
Petal and Pop also delivered solid performance in the quarter.
Ciaran Long: The brand continues to resonate with its core 25-40 year old female customer through a curated assortment of feminine fashion, everyday essentials, and occasion-ready styles at accessible price points.
Ciaran Long: In the quarter, during Australia's summer months, customers responded well to tropical florals and vibrant prints, while offerings in the U.S. were tailored to capture modern feminine spring trends, including waffles and lace details.
Ciaran Long: Petal and Pop's approach of launching collections in Australia before bringing successful styles to the U.S. remains valuable.
providing insight into emerging trends and improving merchandising decisions.
Ciaran Long: In addition to its strength in occasional wear, Petal and Pop is also expanding its assortment to capitalize on the growing demand for basics and luxe everyday pieces, including fine knits, denim, and soft workwear details.
Speaker Change: Petalump's innovative marketing and storytelling initiatives are transforming how customers are engaging with the brand.
Speaker Change: creating social narratives around tropical gateways, romantic occasions, and everyday elegance.
Speaker Change: This focus on authentic connections has driven social traffic up 6% year-over-year with Pinterest inspirational boards and TikTok content such as styling videos and user-generated content bringing the brand to life.
Speaker Change: Building on the momentum, Pet Lump Up is launching a TikTok shop in the second quarter, creating a seamless path from inspiration to purchase.
Speaker Change: I'm really excited that Petalumpup's expanded omnichannel presence continues to be a driving force for the brand.
Speaker Change: As noted, Petal and Pop rolled out to all Nordstrom stores in March and we're seeing incredibly strong results out of the gate in terms of sell-through.
as well as views on Norton.com.
Speaker Change: Petalumpup's high-quality styles at accessible price points tap into a white space opportunity at Nordstrom and really resonate with customers.
Speaker Change: Petal and Pop is bringing the brand to life this spring through standalone expanded branding throughout all Nordstrom stores from mid-May through June.
designed to build awareness and engage new customers.
Speaker Change: They will also have four immersive pop-up shops in select Nordstroms, which will feature a branded coffee bar alongside activations with influencers and customers.
Speaker Change: In addition to this exciting expansion at Nordstrom, Petaluma Pub launched new wholesale partnerships with Dillard's and Stitch Fix in the first quarter.
Turning to our streetwear brands, Coachikings and Minimal.
Speaker Change: I'm thrilled to report that the Australian New Zealand region is back to growth, driven in large part by improvements in the culture king's business over the last 18 months.
Speaker Change: As noted on our last call, in the first quarter we strengthened the Global Culture Kings leadership team with strategic hires and the teams have already hit the ground running, optimizing the current business as well as driving strategic growth opportunities for the future.
Speaker Change: Culture King's unique differentiator in the streetwear space is its fashion-forward in-house design brand, including Leuter, Minimal, Kari, and St. Morta.
Speaker Change: which consistently rank as best sellers in both the U.S. and Australia.
Speaker Change: As a reminder, Culture Kings began shifting its merchandising strategy to the test-and-repeat approach for its in-house brands last year.
and we're already seeing really strong results.
Speaker Change: In Australia, revenue for in-house brands grew over 40% in the first quarter, a testament to the power of the test-and-repeat model.
Leading the growth in both regions is in-house brands, Leuther.
which continue to accelerate through its fashion-forward on-trend collections.
including the highly anticipated MOVA launch.
Speaker Change: In addition to its in-house brands, roughly half of Culture King's assortment comprises of legacy and emerging third-party brands to complete the streetwear outfit.
Speaker Change: Culture Kings continues to see meaningful growth in its collaborations with leading brands such as New Era and Asics in the US and Ed Hardy in Australia.
Speaker Change: Culture King's signature retail attainment concept comes to life through high energy marketing activations including live music, celebrity and aptly posted events making each visit to a Culture King store a unique experience.
Speaker Change: In the first quarter, the brand hosted events in stores across both regions with partners including F1, the UFC, and the NFL, driving store traffic, viral moments across social media, and positive customer experiences.
Speaker Change: In the U.S., Culture Kings recently partnered with WWE during WrestleMania 41 in Las Vegas.
Speaker Change: which included an exclusive capsule collection and a large-scale in-store event with over a thousand attendees lined up outside Culture Kings.
Speaker Change: The activation included celebrity WWE wrestlers, a cage installation, and exclusive merchandise, leading to one of the biggest sales day at the Culture King's Las Vegas store since its grand opening, showcasing the power of the immersive brand events and cultural relevance.
Speaker Change: As mentioned last quarter, we're viewing locations for our next Culture King store in the U.S., and I'm confident that there is significant runway for the brand, both in the U.S. and globally.
Speaker Change: In closing, I'm proud of our strong first quarter performance and our execution against our growth initiatives.
Speaker Change: I'm also very impressed by the team's speed and agility in navigating the current environment.
Speaker Change: As mentioned, we believe the impact of the tariffs to our business is transitory and while distracting, it does give us the opportunity to showcase our resilience.
Speaker Change: Our brands and teams have successfully navigated multiple macro-environment challenges before, and I'm confident that we will emerge in a position of strength and will be well positioned from both a brand and operational standpoint to capture additional market share through this transition.
Kevin Grant: Now, I'll hand it over to Kevin to walk you through the financials in more detail.
Thanks, Ciaran.
Speaker Change: We're incredibly pleased with our first quarter results as both sales and adjusted EBITDA came in ahead of our expectations driven by strong customer response to our product offerings as well as our team's ability to execute at the highest levels.
Speaker Change: For the first quarter, net sales increased 10.1% to $129 million and 12.3% on a constant currency basis compared to the same period last year.
Speaker Change: This was driven by continued strength in our U.S. business, which increased 14.2% year-over-year.
Speaker Change: As Ciaran mentioned, we're really pleased that Australia is back to growth and delivered 6.2% growth in the first quarter, a result of the hard work that teams have done over the last 18 months and an improved macro environment in the region.
Speaker Change: Total orders for the first quarter were $1.66 million, increasing 9.2% as compared to the first quarter last year.
Speaker Change: Our brands continue to resonate as we acquire new customers and retain our existing customers.
Speaker Change: I'm pleased that our trailing 12-month active customer count rose to 4.13 million by the end of the first quarter, which is a 7.8% increase compared to a year ago.
Speaker Change: Our first quarter average order value was $78, increasing 1.3% compared to the first quarter last year.
Turning now to our profitability metrics.
Speaker Change: Gross margin expanded 100 basis points in the first quarter to 57.2% compared to 56.2% in the same period last year, which was in line with our expectations.
Speaker Change: The increase in gross margin was driven by a higher penetration of full-price selling and an improved inventory position, partially offset by the impact of our growing wholesale business.
Thank you.
Speaker Change: Selling expenses were $38.2 million compared to $34.2 million in the first quarter of 2024.
Speaker Change: The increase was due to the opening of new stores, as we record pre-opening rent costs and selling expenses.
Speaker Change: As a reminder, we're slated to open six additional stores this year.
Speaker Change: As a percentage of net sales, selling expenses are 29.7% compared to 29.3% a year ago.
Speaker Change: Marketing expenses in the quarter were $15.2 million compared to $14.9 million in the first quarter of 2024.
Speaker Change: As a percentage of net sales, marketing expenses were 11.8% compared to 12.7% in the first quarter of 2024, in line with our expectations.
Speaker Change: General and administrative expenses were $25.7 million compared to $22.7 million in the first quarter of 2024 due to an increase in wages and incentive compensation.
Speaker Change: As a percentage of net sales, G&A expenses increased to 20% from 19.4% in the first quarter of last year.
Speaker Change: As noted, we're proud that our strong, top-line results flowed through the P&L and yielded a better-than-expected $2.7 million adjusted EBITDA metric, which compares to $0.9 million in the same period last year.
Speaker Change: Adjusted EBITDA margin for the first quarter of 2025 increased 140 basis points to 2.1% compared to 0.7% in the same period last year, showcasing the power of our model when we scale on the top line.
Turning now to the balance sheet.
Speaker Change: We ended the quarter with $26.7 million in cash and cash equivalents compared to $24.2 million at the end of the first quarter of 2024.
Speaker Change: Net debt at the end of the quarter was $93.2 million compared to $81.6 million a year ago.
Speaker Change: The increase was related to additional inventory to meet demand, as well as to invest in new Princess Polly stores in the U.S.
Speaker Change: We will continue to invest in new Princess Polly stores with three stores opening in Lake Q2, one in Q3, and two in Q4.
Speaker Change: We're especially pleased that we brought our leverage down to 3.7 compared to 6.4 in the first quarter of last year.
Speaker Change: On inventory, our test and repeat merchandising model allows us to optimize our inventory to meet current trends, and we're proud that we ended the quarter with $94.4 million in inventory, which is an increase of 3% compared to a year ago, and well below our 10% net sales growth.
Speaker Change: A quick update on our stock buyback program. In the first quarter, we purchased nearly 16,000 shares for a total cost of approximately $250,000.
Speaker Change: As at the end of Q1, we have $1.1 million remaining in our share repurchase authorization.
Turning now to our guidance.
Speaker Change: As Ciaran mentioned, we continue to see solid demand trends in the first six weeks of the second quarter.
Speaker Change: We're confident that our demand for our brands is strong, and we're continuing to deliver on an on-trend fashion that our customers love, while broadening our reach and acquiring new customers through omni-channel initiatives.
Speaker Change: We believe the current tariff environment will have a brief and transitory impact on our business.
Speaker Change: primarily as we shift production out of China in the second and third quarter. For the full year, we're reaffirming our top line outlook for net sales to be between 600 to 610 million, representing growth in the four to six percent range.
Speaker Change: Given the current uncertainty surrounding trade negotiations and the impact of the heightened tariffs over the last month, we're adjusting the range of our adjusted EBITDA outlook to be between 24 to 27 and a half million.
Speaker Change: Our Outlook contemplates no changes to the tariff rates in place as of today, May 13th.
Speaker Change: For the full year of 2025, we anticipate gross margin to be between 56.4% and 56.7%, with the other expense rates relatively in line with our prior outlook.
Speaker Change: Importantly, the tariffs will have an outsized impact in the second and third quarters as we work through our three-pronged action plan.
Speaker Change: As Ciaran noted, we anticipate limited exposure to China in the fourth quarter.
Speaker Change: For modeling purposes, we anticipate fiscal 2025 stock-based compensation of approximately $8 to $10 million, depreciation and amortization expense of roughly $19 to $21 million, interest and other expense of approximately $15 to $17 million,
Speaker Change: an effective tax rate of negative 40 percent, CapEx between $12 to $14 million, and weighted average diluted share count of approximately $10.8 million.
Speaker Change: For the second quarter, as noted, we continue to see strong demand for our brands. We expect net sales to be between $154 million and $158 million, which includes the impact of lower promotional activity in the second quarter as we navigate the current macro environment.
Speaker Change: We expect gross margin in the range of 57.2% to 57.4% and adjusted EBITDA to be between $7 to $8 million.
Speaker Change: For modeling purposes for the second quarter, we anticipate stock-based compensation of approximately $1.5 to $2.5 million.
Speaker Change: depreciation and amortization four and a half to five and a half million interest and other expense of four and a half to five and a half million an effective tax rate of negative 40% CAPEX be between 3 to 5 million and weighted average diluted shares of 10.7 million in the second quarter
Speaker Change: In closing, we're really proud of our first quarter performance and a strong start to the year.
Speaker Change: While the recent tariff changes and uncertainty pose a near-term challenge, we're confident that we have a comprehensive plan in place and are taking swift action to not only mitigate the current tariff levels, but to emerge with a stronger, healthier foundation.
Speaker Change: We're operating with discipline as we approach the remainder of the year, and we're laser-focused on controlling what we can control.
Speaker Change: We remain committed to building durable and resilient fashion brands for the near and long term and delivering value for all of our stakeholders.
With that, we'll open it up for questions.
Speaker Change: Thank you. And at this time, we will conduct our 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 that your line is in the question queue.
Speaker Change: 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 to ask a question, press star 1 on your telephone keypad. We'll pause for a moment while we pull for questions.
Speaker Change: And your first question comes from Dana Telsey with Telsey Advisory Group. Please state your question.
Dana Telsey: Hi, good afternoon everyone and good to hear that Australia returned to growth.
Speaker Change: As you think about the guidance provided, the revenues and the adjusted EBITDA, can you give us the puts and takes on margins?
Terrace
Speaker Change: how you're mitigating the tariffs and what's different in this 2.0 tariff environment from 1.0, and also thoughts on price increases. And then just the other topic, on average order value, active customers, what are you seeing there in terms of customer behavior, and how is the cadence of the quarter? Thank you.
Speaker Change: Thanks, Danis. Yeah, it is great to see Australia back to growth at the 6%, and look, the US growth of 14% as well. It's great. Maybe if I take the tariff question, and I suppose
Speaker Change: talk first about really how we have approached this tariff environment now, is looking to really end up, as we come through this, with a very diversified, robust supply chain that sets us up for the next stage of growth.
Speaker Change: and for us, very focused on finding vendors that can work in our test and repeat models and also at the quality that we expect and the quality that our customers expect.
Speaker Change: You know, we've kind of spent that last period finding those and really happy now with the new vendors that we're bringing on.
Speaker Change: working through the process with them and scaling now with those vendors, some in Vietnam, some in Turkey, some new to us and some of our existing suppliers.
Speaker Change: You know, we feel that we will be predominantly out of China by Q4 of this year and with that just a much more robust supply chain and kind of set us up for the next stage of growth.
Speaker Change: The other actions we've taken as it relates to the tariff environment was working with existing vendors that are in China, getting discounts from them where we could share the initial tariff loans that came out in that Jan-Feb period.
Speaker Change: Also, we have, I would say, very selectively taken some pricing actions in the last number of weeks.
Speaker Change: and you know across the brands, but I would say very focused almost looking at you know, where do we have opportunity against our competitive sets?
Speaker Change: We are very fortunate with pretty much all of the product exclusive to us. We do feel we had pricing opportunity. We hadn't taken pricing action since 2021. So, I would say very selectively and taking it.
Speaker Change: across the brands. I think that sets us up well to achieve that guidance that we've put out there for Q4 and for the rest of the year.
Speaker Change: And just to add on to that from a gross margin perspective...
I'm very happy with the Q1 performance.
up 100 basis points.
Speaker Change: year-over-year, and that really does reflect, you know, the strategy that we have to move Culture Kings to a test and repeat.
Speaker Change: Really a solid inventory position across all of our brands as well as a great product offer and really helped drive the full price
selling performance in Q1.
Speaker Change: And then also just to touch on your AOV question, you know, again, I think this quarter, we saw AOV as relatively flat and most of the sales growth really driven by order growth and that's how we've been modeling really the balance of the year as well.
Thank you.
Ryan Myers: And your next question comes from Ryan Myers with Lake Street Capital Markets. Please state your question.
Ryan Myers: Hey guys, I just wanted to make sure I clarified this on the last question that you had answered, Ciaran. So it sounds like you guys will be completely out of China by the fourth quarter. I guess that's faster than I would have assumed. So you guys will have no exposure by the end of the year then?
Ciaran Long: Yeah, maybe to touch on that, Brian, I would say predominantly out, right, and look, we are very fortunate that with, you know,
Ciaran Long: Just over 30% of our business from the Australian and New Zealand are outside of the US, right? We will continue to serve this.
Ciaran Long: those regions from our existing China suppliers, so continuing to hold on to those relationships.
and Ciaran Long.
Dana Telsey: Okay, got it. And then, you know, it sounded like you saw some positive improvements out of Australia and New Zealand. So, you know, I'm just curious, as we think about the business as a whole, given what you saw in the first quarter, what you're seeing here in the second quarter, you know, what sort of demand trends are you thinking in as we roll into the second half of the year and what's kind of incorporated in the guidance? Obviously still, I would assume, continued double-digit growth in the U.S., but, you know, is there any areas of upside if we see positive traction in those two regions and maybe a return to growth in the rest of the world? Any commentary there would be helpful.
Speaker Change: Yeah, thanks, Ryan. Yeah, look, I think it's great to see Australia back to growth at the six percent and I think as we get more and more kind of progress on moving Culture Kings on to that test repeat model and getting all their product fully there, I think we're really confident that we will see certainly positive growth in Australia for the full year.
Speaker Change: but I think they are up against a particularly tough promotional lap in Q2 this year, so we'll probably expect to see them a little bit negative in Q2, but then back to growth in Q3 and beyond.
Speaker Change: And then from a U.S. perspective, you know, just really, really happy with the continued growth and performance in the U.S., up 14%.
Speaker Change: And, you know, we're seeing it across the brands, we're seeing it, you know, in direct to consumer. Also, great progress in the wholesale partnerships that we have, particularly Nordstrom and how the Princess Polly stores are performing.
Speaker Change: I think as we kind of went through Q2, we certainly saw that kind of strong performance
Speaker Change: that will have some impact in Q2, but feel good about the guidance we have out there and really good about just continued increasing timing and bigger and bigger opportunities for the brands.
Awesome. Thanks for taking my questions.
Speaker Change: Thank you. And just a reminder to the audience, to ask a question, press star 1. To remove your question, press star 2.
Speaker Change: Your next question comes from Ashley Owens with KeyBank Capital Markets. Please state your question.
Hi, good afternoon. Thanks for taking the questions.
quickly
Speaker Change: I'd love to gauge your thoughts as to how sustainable that growth is. We are lapsing some of the initiatives from last year that did contribute to that strong 19 to 20% growth, give or take.
Speaker Change: And then additionally, I just wanted to touch on selling expenses here, too. You mentioned these were up due to the additional store openings and the press release, and I know there's additional stores slotted for the remainder of the year, so just wanting to double-check if this is something we should still expect to see some modest leverage in this year.
Speaker Change: Thanks Ashley, I'll take the first part and maybe Kevin on the selling expenses.
Speaker Change: So yeah, look, I think as we kind of go through the year, we certainly feel confident about that overall guidance that we have out there. Ashley, I think...
you know, particularly as it relates to the U.S.
over to you.
Princess Polly Ann Petalink, Upland Nordstrom
Speaker Change: You also saw that Dillard's and Stitch Fix are going to start doing some wholesale with Petal and Pop.
Speaker Change: And also just look at the confidence that we are seeing as we open more stores for Princess Polly, you know, continuing to introduce new customers to the brand.
Speaker Change: to get more share of Wallet. I think we feel good. The brands are actively working on some of the categories we started in.
Speaker Change: you know, probably this time last year, whether it's Active and Sleep for Princess Polly or, you know, some of the work that Petal is doing in Basics and Everyday Luxe, I think, you know, feel good about the opportunity that we have and the teams are actively getting after us.
Speaker Change: And to touch on the selling expense question, we made good progress in Q1.
Speaker Change: lower costs related to outbound freight and fulfillment costs, excluding one-time costs. We actually did leverage selling expenses in the quarter, even with the impact of pre-opening costs.
Speaker Change: for stores incorporated into, you know, the second quarter into the back half. We still feel good about the initial guidance that we provided on selling. And I think that's kind of around a mid 26 percent. And so we reiterate that guidance for the year and for the quarter.
Speaker Change: Okay, great. Maybe just one follow-up. So, with the new partners you're moving to as you diversify away from China, you've heard from others that, just given the demand is high in those regions for sourcing due to some of the volatility, it's maybe not as favorable of a cost profile, especially with them...
Speaker Change: being newer entrants into those markets. So we'd be curious from your standpoint, since you are moving into them, just any color on the margin profiles there versus what we were seeing in China and if you've observed any differences.
Speaker Change: Sure, thanks Ashley. Yeah, I think, look, we've been, I suppose, actively working to find the right partners for us over the last six months now.
Speaker Change: the team I feel has done a really good job of that. For us, the key attributes of that are can they work in our test and repeat model, right?
Small MOQs and then scaling up to larger
the web.
Speaker Change: You know, I think as we work through it though, there's a lot of confidence with our team and with the partners that we are working with that we can get to, you know, the equivalency of where we are today.
Speaker Change: and certainly, you know, we'll end up with a much more robust supply chain and a lot of optionality depending on where various tariff ends up for different jurisdictions.
Okay, great. Thanks and best of luck.
Speaker Change: Your next question comes from Eric Beder with SCC Research. Please state your question.
Good afternoon, congratulations.
Um…
Speaker Change: We'll talk a little bit about the future with some of these spaces here. So we're going to end the year with like
Speaker Change: 13 stores or approximately if I remember correctly um you know what should we be thinking about as a potential longer term
Speaker Change: for the amount of stores, and I guess the follow-up to that is, are you still seeing the store's ability to drive new customers, A, to the stores and B, to online?
Yeah, thanks, Eric. I'll maybe take the second part first.
Speaker Change: You know, certainly seeing that new customer growth, I think you see it in the overall business and we're certainly seeing it from our omni-channel initiatives. In the stores, what we're seeing is about 30% of the customers are new to the brand and we've seen that now for each of the new store openings that we've done. So yeah, great to see that.
Speaker Change: But we're also seeing that in the wholesale relationships that we have, particularly with Nordstroms for both Princess Polly and Petal and Pup.
Speaker Change: I think all of those giving us a lot of confidence to continue to build into these omni-channel opportunities, build on the brand awareness, put our product in front of customers wherever they are, and continue to go after the long-term TAM.
for these plans.
Speaker Change: As it relates to new stores, we're really happy with the store performance that we've seen so far. They're ahead of sales plan.
Speaker Change: are all profitable. We've modeled these on a two-year or less payback, so kind of all in line there. I think, look, we're fussy as we go look for new locations for all the brands because we've got such great brands here.
Speaker Change: We would look to, I suppose, at the moment, keep the pacing that we're at for next year and certainly as we add new leases or new opportunities, we will share them on calls.
Thank you.
Speaker Change: Let's talk about Dillard's here. So, you know, Dillard's has a customer base in some respects, especially for Petal and Pup, which you probably think would be somewhat ideal.
Is there the opportunity to have...
Speaker Change: kind of penetrate that chain as well as they've done here with Nordstrom's going forward and are there you know what is the longer-term thought process and wholesale in terms of where else you can go after this. Thank you.
Yeah, thanks, Eric.
Speaker Change: Look, I think that the Petaluma Club team has done a really great job, you know.
Speaker Change: with the brand that they have, developing great products for it and really bringing it to life in not just direct-to-consumer but also in other channels.
Speaker Change: who have seen great success at Nordstrom, I think what they are seeing there, what the retailers are seeing and are eager to get the brand. I think looking to roll out now in Dillard's is a really nice opportunity for them. I think it will be great.
and Neil Keegan.
Speaker Change: with dealers and regionally with the footprint that they have for the petal and pup brand. So, yes, looking forward to executing against this.
Okay, thank you.
Speaker Change: Thank you. And ladies and gentlemen, that was our last question today. So at this point, we conclude AKA Brands Holding first quarter 2025 earnings conference call. All parties may disconnect. Have a good day.