AKA Brands Holding Corp (AKA) 2025 Q3 法說會逐字稿

Greetings and welcome to AKA Brands Holding Corporation third quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host today, Emily Schwartz, Investor Relations.

Thank you. You may begin.

Good afternoon. Thank you for joining AKA Brands to discuss our third quarter 2025 results released this afternoon, which can be found on our website at ir.aka-brands.com. With me on the call today is Ciaran Long, Chief Executive Officer; and Kevin Grant, Chief Financial Officer.

Before we get started, I'd like to remind you of the company's safe harbor language. Management may make forward-looking statements which refer to expectations, projections, and other characterizations of future events, including guidance and underlying assumptions. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed. For further discussion of risks related to our business, please see our filings with the SEC.

Please note, we assume no obligation to update any such forward-looking statements. 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.

Good afternoon, everyone, and thank you for joining us to discuss our third quarter results. We made meaningful progress on our strategic priorities this quarter. We opened Princess Polly's 11th store at The Westchester mall, expanded our wholesale partnerships, and successfully refinanced our debt, further strengthening our financial position.

Our Australia region continues to grow, and importantly, we continue to advance the optimization of our supply chain. I'm also pleased to report that we delivered $7 million of adjusted EBITDA for the quarter.

As I mentioned on our second quarter call in August, we've been swiftly diversifying our supply chain structure to build long-term flexibility and resilience. As we accelerated scaling this transition through the back half of the third quarter, we experienced some transitory and temporary supplier delays that impacted in-stock levels and the overall level of fashion newness, critical components of our operating model.

The short-term pains were the primary drivers of our softer than anticipated sales in the quarter. Since the end of the third quarter, our in-stock levels have gradually improved, which has allowed us to get back to growth, with fourth quarter growth to date, net sales tracking positive low single-digits. Importantly, we now feel confident in our inventory levels and our updated supply chain as we head into the holiday season.

The transformation of our sourcing ecosystem allows us to maintain the high product quality standards that we and our customers expect, while also working with manufacturing partners across multiple regions that are fully equipped to support and enhance our test and repeat merchandizing approach.

We're confident that we now have the operations and available capacity with our new and existing suppliers in multiple geographies, allowing us to meet our production needs. We remain confident that the swift and comprehensive transformation of our sourcing structure has created a more robust and resilient supply chain, setting the stage for sustained growth ahead.

For the third quarter, we delivered net sales of $147 million, representing a 2% decline year over year, but an increase of 4.4% on the 2-year stock. As I mentioned, the sourcing transition created some temporary disruptions to our in-stock levels in the US, which impacted our ability to meet the strong customer demand we were seeing.

Despite the temporary headwinds in the quarter, I'm pleased that we delivered $7 million of adjusted EBITDA. I remain very pleased with our year-to-date performance, reflecting the continued relevance of our brands and the strength of our business model.

Year to date, net sales are up 5%. Gross margin has expanded 100 basis points, adjusted EBITDA reached more than 17 million, and we generated 21 million more in cash flow compared to the same nine-month period last year.

Looking at the 4th quarter and beyond, we remain committed to building our brands for the long term, delivering high-quality fashion to our customers, and balancing both growth and profitability.

We remain laser focused on our strategic road drivers for the remainder of the year. First, we will attract and retain customers on our direct consumer channels through trend driven, exclusive merchandizing and distinctive marketing strategies.

Secondly, we will expand brand awareness through physical retail growth and select wholesale partnerships. And third, we remain committed to streamlining operations and strengthening our financial foundation to support long-term profitable growth.

Turning now to our brand highlights. Starting with Princess Polly, our largest brand, which represents roughly half of the portfolio. Princess Polly is a leading digital first fashion brand, known for trend-driven, accessible styles, and deeply connects with the next generation of consumers. The brand has built a loyal global following online and continues to expand its reach through own stores and select wholesale partnerships.

In the third quarter, Princess Polly delivered meaningful progress as the team rapidly advanced the brand's supply chain transformation while continuing to execute on its key merchandizing, marketing, and omnichannel initiatives. We continue to see strong demand for Princess Polly in both the US and Australia.

Despite the temporary inventory headwinds I discussed, traffic to Princess Polly's sites in the third quarter was up mid-single-digits, driven by strong execution during the back to school and homecoming season. Customers responded well to new styles, including casual and elevated basics, with denim delivering double-digit growth in the quarter, led by oversized cargos, barrel fits, and low life styles.

Princess Polly also continued to strengthen its digital marketing engine with a strong focus on social commerce at TikTok. Through an expanded presence on TikTok Live and TikTok Shop, the brand generated more than 80 million impressions, and over 1 million live views during the quarter.

Looking ahead, Princess Polly is continuing to innovate on the platform, launching new campaigns with top creators, and preparing for a TikTok shop takeover that will secure premium placement during Thanksgiving. The brand also broadened its college presence through US campus roadshow, sorority shopping events, and an enhanced college ambassador program, supported by a new influencer and PR platform designed to deepen engagement with Gen Z consumers.

In addition to its strength in the direct consumer channel, Princess Polly continues to expand its total addressable market through new source and wholesale partnerships. The brand opened its 11th store in the third quarter at the Westchester Mall and recently opened its 12th store at Roosevelt Field Mall on Long Island, New York.

We're also excited to open Princess Polly's first store in Australia located in Bondi Beach later this quarter. The store fleet continues to outperform expectations across revenue, profitability, and new customer acquisition.

Looking ahead, we plan to open 8 to 10 additional Princess Polly's doors in 2026. Princess Polly is also growing its wholesale presence at Nordstrom, supported by brand signage and dedicated in-source space, further enhancing brand awareness. In the UK, Princess Polly's presence on asos.com also continues to perform strongly, setting the stage for the brand's own UK expansion in the coming years.

Turning out to Petal and Pup, the brand continues to resonate with customers through its feminine, trend-driven aesthetic, and strong digital presence. Its ability to translate emerging fashion trends into accessible, versatile styles is driving consistent engagement and growth across its direct to consumer and wholesale channels.

Petal and Pup delivered solid performance in its direct consumer channels, supported by continued demand for events and occasion dressing. The launch of its fourth modern romance collection exceeded last year's results, reflecting the brand's ability to capitalize on seasonal trends and connect with its customers through fresh styles and storytelling.

Petal and Pups focused on elevated fabrics, trending colors, and fit continues to differentiate the brand and reinforce its position among customers. The brand also continued to strengthen and expand its wholesale and international presence. In partnership with Nordstrom, Petal and Pup executed a fall promotion that drove a more than triple digit percentage year-over-year increase in demand, supported by strong sell through of fall styles.

Petal and Pup also recently launched on Nykaa Fashion in India, quickly becoming a topflight brand on the platform. The brand also entered retail platform NEWME, where it will be featured in the upcoming holiday editorial lookbook.

In the fourth quarter, Petal and Pup will launch in 10 David Jones stores in Australia, and on board with Armoire's rental platform.

Turning our streetwear brands, Culture Kings and mnml. The continued improvement in the streetwear business reflects the strategic actions taken over the past two years, including strengthening the leadership team, implementing a test and repeat merchandizing model, and enhancing operational execution across both regions. I'm pleased that the business delivered solid progress in the third quarter with continued improvement in gross margin and profitability.

Culture Kings continues to differentiate itself from the streetwear market through its portfolio of leading in-house brands, including Loiter, mnml, Carré, and Saint Morta, which remain among our top sellers and continue to grow in net sales and gross profit dollars year over year.

In addition to the strength of its in-house brands, Culture Kings continues to benefit from its unique position in the broader streetwear market, underpinned by an exclusive product portfolio and exciting collaborations with leading brands. In the fourth quarter, Culture Kings is launching an outwear-based collection with leading American heritage brand, Alpha Industries, and will also launch a co-branded exclusive collection with Von Dutch to be sold only at Culture Kings.

Building on this product strength, Culture Kings continues to live through its unique ability to fuse fashion, entertainment, and culture. The brand's marketing strategy is anchored in creating hype through immersive events and high impact collaborations that drive both engagement and conversion.

Recent activations including the Culture Kings and Timberland events, and participation at ComplexCon featuring exclusive Loiter x Yu-Gi-Oh collaboration drove strong customer engagement and meaningful sales results, further reinforcing the brand's position as a leader in streetwear culture.

Looking ahead, upcoming launches and experience such as the Formula One Las Vegas Grand Prix collaboration with McLaren, and the One Piece x 73Studio collection will continue to build momentum and generate strong engagement across channels. I'm confident that our streetwear business is still in the early stages of its global expansion with significant runway ahead.

In addition to the strategic initiatives of each brand, I'm excited about the innovation and adoption of AI across the platform. Thanks to our portfolio model and flexible asset-like technology stack, we can test and deploy different AI solutions within each brand to identify the tools that deliver the most meaningful impact. For example, Princess Polly will launch an instant checkout on chat GPT in the coming weeks, one of the first brands to do so in partnership with Shopify.

Across the group we've also recently implemented a number of tools across image editing, product descriptions, marketing campaign enhancements, and customer experience workflows that will drive efficiency, unlock creativity, and enable smarter, faster decision making throughout the organization. What's most powerful is how we share insights and best practices across brands, allowing us to scale learnings quickly, maximize synergies, and accelerate our progress as a group. We're still in the early stages of using AI, but the results are incredibly promising.

In summary, I'm really pleased with the team's hard work executing on all strategic fronts, expanding our retail footprint and wholesale partnerships, strengthening our balance sheet through our refinancing and advancing our sourcing transformation. I am confident we are well positioned for the road ahead. With that, I'll turn it over to Kevin to dive deeper into the financials.

Thanks, Ciaran. As mentioned, we continue to be pleased with the demand for our brands and the strength of our business model. For the third quarter, net sales declined 1.9% to $147.1 million, and 2.7% on a constant currency basis compared to the same period last year.

Net sales in our US business declined 3.6% to $97 million due largely to supply chain disruptions that led to out of stocks in our bestsellers, which Ciaran mentioned earlier. We were pleased to see the strong sales growth in Australia continue with sales increasing 5.1% to 46 million.

Total orders for the third quarter were 1.9 million, an increase of 2.2% compared to a year ago. Our trailing 12-month active customer count rose to 4.07 million at the end of the third quarter, a 50 basis point increase compared to a year ago. And our third quarter average order value was $78 3.7% lower than the third quarter of last year, primarily driven by out of stocks and bestsellers.

Turning to our profitability metrics, gross margin increased 110 basis points to 59.1% ahead of our expectations compared to 58% in the same period last year. Our stronger than expected gross margin was driven by a higher mix of in-store sales, less promotional activity given our constrained inventory position, an improvement in the Culture King's business, and a benefit from duty drawback.

We anticipate gross margin in the range of 56.6% to 57% for the fourth quarter, which contemplates the trend in the business that we're seeing today and our improved inventory position. Selling expenses were $43.2 million compared to $41.9 million in the third quarter of 2024. As a percentage of net sales, selling expenses were 29.4% compared to 27.9% a year ago. The year-over-year increase was primarily due to an increase in store selling expenses related to our retail expansion as well as deleverage on our fixed costs given the sales volume.

Marketing expenses were $18.5 million compared to $19.3 million in the third quarter of 2024. As a percentage of net sales, marketing expenses were 12.6% compared to 12.9% in the third quarter of 2024, which was in line with our expectations.

General and administrative expenses were $26.7 million compared to $27.8 million in the third quarter of 2024. As a percentage of net sales, G&A expenses decreased to 18.1% from 18.6% in the third quarter of last year. I'm pleased that despite the transitory headwinds in the quarter, we generated $7 million in adjusted EBITDA.

Turning now to the balance sheet, we ended the quarter with $23.4 million in cash and cash equivalents compared to $23.1 million at the end of the third quarter of 2024. Debt at the end of the quarter was $111.3 million compared to $111.9 million a year ago.

We continue to make progress reducing our leverage with our net leverage ratio declining to 3.8 times from 4.8 times in the third quarter of last year. We also continue to strengthen our financial foundation and recently announced that we refinanced our credit facility, extending the maturity by two years. The new agreement provides for an $85 million term loan and approximately $35 million in revolving credit capacity and extends the maturity of both the term loan and the revolving credit facility to 2028. I'm really proud that we were able to refinance our debt with favorable terms given the macro environment factors at play.

As Ciaran noted, we've been swiftly transforming our supply chain to diversify our sourcing structure and build long-term flexibility. As we scaled the transition in the third quarter, we experienced some temporary inventory constraints, including unexpected disruptions to in-stock levels, particularly among new styles and bestselling styles.

We ended the quarter with $96.7 million in inventory, down 8.8% compared to a year ago. We have already seen inventory improve as we move through the fourth quarter, and we feel confident in our inventory as we head into the holiday season.

In the third quarter, we repurchased roughly 159,000 shares of common stock from a former employee through a one-time transaction that was not included as part of the share repurchase program. As of the end of Q3, we have $1 million remaining in our share repurchase authorization.

Moving on to guidance. With the rapid acceleration of our supply chain transition, we experience disruptions in stock levels in the third quarter and early into the fourth quarter. To avoid continued disruption, we increase production coming out of China ahead of the holiday season, all of which is contemplated in our guidance.

Taking into account the third quarter and current trends in the business for the full year, we now expect net sales to be between $598 million to $602 million, representing growth in the 4% to 5% range. We now expect adjusted EBITDA to be between $23 million to $23.5 million.

For the full year of 2025, we anticipate gross margin to be between 57.6% and 57.7%. For modeling purposes, we anticipate fiscal 2025 stock-based compensation of approximately $8 million to $9 million, depreciation and amortization expense of roughly $19 million to $20 million, interest and other expense of approximately $20 million to $21 million, an effective tax rate of 10%, CapEx between $16 million to $18 million which includes the addition of Princess Polly's new store in Australia, and weighted average diluted share count of approximately 10.8 million.

In closing, I want to thank the amazing team we have here at AKA for their unwavering focus on executing our unique model, which is at the heart of what makes our brand successful. We remain pleased with our year-to-date performance with net sales growth of 5%, gross margin expansion of 100 basis points. We've delivered more than $17 million of adjusted EBITDA, and we've generated $21 million more in cash flow compared to the same nine-month period last year.

We are confident that we are building exceptional brands through our multi-channel approach which positions us well to deliver consistent long-term growth and profitability.

With that, we will open the call for questions.

Thank you. At this time, we will conduct a question-and-answer session. (Operator Instructions)

Ryan Meyers, Lake Street Capital.

Hey guys, thanks for taking my questions. First off for me, I just want to make sure I understand the updated guidance, the what's called $7 million or so that you guys came in below the expectations in the third quarter compared to the revised full year guidance. So it sounds like there's maybe a couple million or so that led into the fourth quarter, but where the business is at right now, that kind of headwind with the inventory that's now gone, that's where there's kind of that delta there.

Yeah, hey, thanks for the question, Ryan. Yeah. First of all, we're really pleased with that our inventory has gotten back to a good spot here in Q4 and we're seeing those positive comps come back in the quarter.

You know what the guidance is for the -- for Q4 is low single-digits overall, and that's 10% on a two-year stack. So we're feeling really good going into the holiday as you mentioned, we did get caught up a bit in the beginning of the quarter with our inventory situation, but we're in a much better spot headed into the holiday, into the end of the year.

Okay, got it. That makes sense. And then just looking at the lower order value, can you just walk us through that, and kind of how the inventory shortage ended up impacting that? Was that just you guys weren't able to sell through higher price, more in-demand inventory, just kind of any color on that would be helpful.

Yeah, for sure. I think that on the bright side there we really still saw great demand for our product. We saw strong traffic. We saw growth in active customers. We saw positive growth in orders as well, and that's, the AOV decline really for us is related to the out of stocks, the lack of newness, and the lack of the product bestsellers. And as I've mentioned in Q4, we've certainly seen the inventory improved and we've seen AOVs correct as well. So we saw that as temporary and really just related to the inventory position overall.

Okay. Got it. That makes sense. Thanks for taking my questions.

Thank you.

Ashley Owens, KeyBanc Capital Markets.

Hi. Great, thank you. So I wanted to start by asking about the store strategy and how it translates to margins. You're up to 12 now, almost doubling that into next year. So how should we be thinking about some of the gross margin gains in the medium term, just given the lower promo activity in person. And if you think some of these improvements you've seen are structural in nature as you continue to scale that brick and mortar storefront. Thanks.

Yeah. Look, I think we're certainly really happy with the continued execution on the strategy, and that being, put our product in front of our customers wherever they are. I think (inaudible) performance from Princess Polly in stores, ahead of sales plan, ahead of profitability, really great from a payback period. And as kind of we talked about in the script, certainly see a higher gross margin there which is helping uplift from a Q3 perspective.

And I think we're going to continue on that strategy of leaning into stores for Princess Polly and Culture Kings next year. I think Petal and Pup will be more focused on continuing expanding its wholesale presence, but certainly see that we've a lot of opportunity across the brands to continue on kind of increasing sales and profitability.

Okay, great. And then just quickly as well, we'll be curious as to how marketing ROI trended through the quarter. Were you able to maintain efficiency even with limited newness, or did you pull back at all to avoid inefficient spend? And then as we look to 4Q, is this something you expect to ramp again now that inventory levels are more normalized? Thank you.

Yeah. I think as Kevin mentioned, we certainly saw the demand was there during the quarter and the customer was there. And I think, in particular areas, where we had better inventory debt, whether that's kind of stores, wholesale, or how Australia saw really strong sales performance, I think as we saw kind of -- as we got really I would say a bit surprised by the out of stocks in late August into September, we did pull back on some marketing spend from a dollar perspective, just we knew that the efficiency wouldn't be there with the level of all the stocks that we had.

And as we've gone now through kind of the October period, gotten back into stock, back to overall positive coms as we talked about, we are starting to ramp our marketing spend again and feel good on our ability with our, in-stock levels back to where we want them to be, feel good that we can execute against a strong holiday opportunity.

Okay, great. That's super helpful. Thanks, and good luck.

Thank you.

Eric Beder, SCC Research.

Good afternoon. Let's talk a little bit about the inventory levels. So what should we be thinking as this kind of normalizes into Q4, about how inventory should be moving going forward?

Yeah. Thanks, Eric. Yeah, as you mentioned, inventory finished the quarter -- finished Q3 down 9%, and we really saw the inventory levels improve into October and through Q4.

We feel really well set up for the holiday and things are back to where they should be. By the end of the year, we see inventory about flat year over year, and that's relative to sort of mid-single-digit growth. And that's managing it right where we want it, slightly below our sales growth.

Okay. And how should we be thinking about the Australian and I guess now it's become an opportunity in that you're opening a Princess Polly store there, margins even before that, I don't know about the margins, revenue even before that has started to go up. So this kind of work last year, cleaning up in terms of inventory and getting the margins better there. How should we be thinking about that as a potential upside driver going forward? Thank you.

Yeah. Look, it's great to see three quarters in a row now of positive comps in Australia, and I think (inaudible) and seeing that across all of the brands and I think particularly as we've talked about the last couple of quarters, great progress from the Culture Kings team and the leadership there as they've moved the Culture Kings' first party brands onto a test and repeat model and certainly seeing outsized growth from that.

And I think as you said, really excited to open our first Princess Polly store in Australia, in Bondi. I think looking for I would say that overall Australian market to continue to be a growth driver, but I think, in that kind of mid-single-digits is where we would expect it to be going forward. But certainly, am looking forward to the consistency of that and the kind of increased brand awareness and profit that that will generate from us.

Okay, and last question from me. Where do you expect now when the supply chain is finished in terms of the upgrades and pieces here? What should be the level of China exposure, and how much more diversified will you be than you have been before? Thank you.

Yeah. Look, I'm really happy with the progress the teams have made over the last 12 months as we've looked to diversify the supply chain. We started this time last year looking for ways that we could diversify out of China. I think the teams have made phenomenal progress, we're now at a place where we have, for key historic vendors that we've used for the last number of years and have diversified outside of China and are in multiple regions. We've also brought on new partners that are also in multiple regions.

So I think, look where we are today, we feel really good that we're kind of going forward and certainly from a long-term perspective we have the ability to move volume across regions as we see different changes in the macro environment or the tariff environment. And that all of the groups that we're now working with can meet our quality, pricing, and delivery timelines that we need. So I feel really good about the progress we've made over the last 12 months.

Okay, great. Good luck for the holiday season.

(Operator Instructions)

Dana Telsey, Telsey Advisory. Dana, your line is live.

Oh, hi, good afternoon, everyone. As you think about some of the metrics down, basically AOV, I think it was down just under 4%. Given what's changing now with the sourcing structure, how do you see some of those metrics evolving, whether it's orders, active customers? What are you seeing and how do you see it differing by region? Thank you.

Yeah. Look, I think it's great to see continued positive growth in active customers, and we've been consistently doing that now for quite a while, continued growth in orders. I think AOV did come down a little bit in Q3, and we can very much see that that's impacted by just those -- the short-term period that we were out of stocks with all the supply chain changes that we were making. But we also see that it's back to kind of positive growth in AOV in Q4. So I think that's stable that we expect it to be going forward.

I think, look, as we sit here, we do see that there's just tremendous opportunity to continue on that strategy. And I feel like as we continue to roll out stores, roll out wholesale opportunities we probably will continue to see growth in all the metrics, which I think will just really kind of drive the overall growth of the business. So looking forward to executing on Q4 and 2026.

Got it. And just when you commented that the fourth quarter to date sales, I think you mentioned up low single-digits, how does it differ by region?

Yeah, I think as we've gone through that period, right, we've seen pretty consistent growth in Australia. They are not impacted by any of the changes we've made from the sourcing perspective, so the growth there has been really consistent over the last three quarters and into Q4.

I would say as we've gotten back into stock, as we went through October in the US region, we did see comps improving. And that's come just really from that better in-stock. The customer has been there all the time. We've seen the traffic; we've seen the demand. And so feeling good now with the inventory levels we have, the quality of the inventory. And looking forward to executing against a really strong holiday.

Thank you.

Thank you. We have reached the end of the question-and-answer session. And at this time, this does conclude today's teleconference. You may disconnect your lines this time. Thank you for your participation. And have a great day.