A.K.A. Brands Earnings Call: Mixed Sentiments and Strategic Moves

A.K.A. Brands Holding Corp. ((AKA)) has held its Q3 earnings call. Read on for the main highlights of the call.

The recent earnings call for A.K.A. Brands Holding Corp. revealed a mixed sentiment, highlighting both positive achievements and notable challenges. The company reported strong performance in Australia, retail expansion, and an improved gross margin. However, these positives were tempered by supply chain disruptions that led to a decline in U.S. sales and lower average order values. Despite these challenges, the company demonstrated resilience through adjusted EBITDA growth and successful debt refinancing.

Strong Performance in Australia

Sales in the Australia region increased by 5.1% to $46 million, marking the third consecutive quarter of positive comps. This growth was particularly noteworthy as it remained unaffected by the supply chain changes that impacted other regions.

Princess Polly’s Retail Expansion

Princess Polly, one of the company’s key brands, has been expanding its retail footprint. The brand opened its 11th store at The Westchester Mall and its 12th store in Long Island, New York. Looking ahead, Princess Polly plans to open its first store in Australia and expects to add 8 to 10 additional stores by 2026.

Improvement in Gross Margin

The company reported an increase in gross margin by 110 basis points to 59.1%. This improvement was driven by a higher mix of in-store sales and a reduction in promotional activities, which positively impacted profitability.

Adjusted EBITDA Growth

A.K.A. Brands achieved an adjusted EBITDA of $7 million for the quarter, contributing to a year-to-date total of more than $17 million. This growth in EBITDA highlights the company’s ability to manage costs effectively and improve operational efficiency.

Successful Debt Refinancing

The company successfully refinanced its credit facility, extending the maturity by two years under favorable terms. This move provides the company with greater financial flexibility and stability moving forward.

Supply Chain Disruptions

Supply chain restructuring led to temporary inventory constraints and out-of-stock levels, particularly affecting sales and average order value in the U.S. This disruption was a significant factor in the decline of net sales.

Decline in Net Sales

Net sales for the third quarter declined by 1.9% to $147.1 million year-over-year. The U.S. market was notably impacted, with sales declining by 3.6% due to ongoing supply chain issues.

Lower Average Order Value

The average order value decreased by 3.7% to $78, primarily due to out-of-stock situations in best-selling items. This decline reflects the challenges the company faces in maintaining inventory levels.

Forward-Looking Guidance

Looking ahead, A.K.A. Brands Holding Corp. provided updated guidance for the fiscal year 2025, projecting net sales between $598 million to $602 million, reflecting a growth of 4% to 5%. Adjusted EBITDA is expected to be between $23 million to $23.5 million. The company also anticipates a gross margin in the range of 57.6% to 57.7% for the full year. Despite the challenges faced in the third quarter, the company remains optimistic about its inventory levels and strategic growth plans as it approaches the holiday season.

In conclusion, A.K.A. Brands Holding Corp.’s earnings call highlighted a mix of positive developments and challenges. The company’s strong performance in Australia and retail expansion efforts are promising, while supply chain disruptions and declining sales in the U.S. present hurdles to overcome. Nevertheless, the company’s successful debt refinancing and adjusted EBITDA growth demonstrate resilience and strategic foresight as it navigates these challenges.