a.k.a. Brands Holding Corp. Reports Fourth Quarter and Full Year 2023 Financial Results

Rhea-AI Summary

a.k.a. Brands Holding Corp. (NYSE: AKA) reported a 12% growth in U.S. net sales compared to Q4 2022 and strengthened its balance sheet by paying down $50.7 million in debt in FY23. The company scaled its omnichannel strategy with additional stores, marketplace, and wholesale opportunities in 2024. Despite a decrease in net sales for the full year 2023, adjusted EBITDA improved, showcasing a positive outlook for fiscal 2024.

Positive

• 12% growth in U.S. net sales compared to Q4 2022
• Strengthened balance sheet through $50.7 million debt paydown in FY23
• Scaling omnichannel strategy with additional stores, marketplace, and wholesale opportunities in 2024
• Adjusted EBITDA improvement for fiscal 2024

Negative

• Decrease in net sales for full year 2023

Insights

Financial Analyst

The reported financial results reveal a nuanced picture of a.k.a. Brands Holding Corp.'s performance. While the U.S. net sales growth of approximately 12% is a positive signal, the overall net sales decrease of 0.1% in Q4 and 10.7% for the full year suggests a challenging market environment. The substantial debt paydown of $50.7 million is a strong move towards financial stability and could be viewed positively by investors, indicating a more conservative capital structure and potentially lower financial risk going forward.

The scaling of the omnichannel strategy represents a strategic investment in future growth, aiming to capture a larger share of the market through physical stores and online marketplaces. However, the costs associated with this expansion, including capital expenditures of approximately $10 million to $12 million, will need to be carefully managed to ensure they do not overly burden the balance sheet. The company's outlook for FY24, with net sales projected between $540 million and $555 million and adjusted EBITDA between $16 million and $18 million, suggests cautious optimism but also reflects the ongoing macroeconomic pressures, especially in the Australian and New Zealand markets.

Retail Industry Analyst

From a retail industry perspective, a.k.a. Brands' focus on omnichannel retailing is in line with broader industry trends where integrating online and offline experiences is critical for customer engagement. The planned opening of three to four Princess Polly stores in the second half of 2024, as well as the expansion into marketplaces such as Nordstrom's website, are strategic steps to enhance brand visibility and accessibility. Nevertheless, these initiatives come with inherent risks, including the cost of physical store operations and the potential for inventory management challenges.

The reduction in year-end inventory by 28% compared to the previous year indicates a proactive approach to inventory optimization, which is crucial for maintaining healthy cash flows and avoiding markdowns. The company's performance in the U.S. market, with double-digit net sales growth, contrasts with the softness in Australia and New Zealand, highlighting the importance of geographic diversification in mitigating regional economic downturns.

Market Research Analyst

Examining the consumer behavior trends, the decline in the number of orders and average order value during Q4 suggests that a.k.a. Brands may be facing headwinds in consumer spending, likely due to broader economic factors. The targeted discounting strategy in Culture Kings Australia, while necessary to stimulate demand, has contributed to a lower gross margin. This strategy, coupled with a higher merchandise return rate, could indicate shifting consumer preferences or a misalignment with market expectations.

The company's marketing expenses, which increased to 11.6% of net sales compared to 10.3% in the previous year, reflect an intensified effort to attract customers amid a competitive landscape. It will be crucial for a.k.a. Brands to monitor the effectiveness of these marketing investments to ensure they translate into sustainable sales growth without eroding profitability.

U.S. Net Sales Grew ~12% Compared to the Fourth Quarter of 2022

Strengthened Balance Sheet Through $50.7 Million Debt Paydown in FY23

Scaling Omnichannel Strategy through Additional Stores, Marketplace and Wholesale Opportunities in 2024

SAN FRANCISCO--(BUSINESS WIRE)-- a.k.a. Brands Holding Corp. (NYSE: AKA), a brand accelerator of next generation fashion brands, today announced financial results for the fourth quarter and full year ended December 31, 2023.

Fourth Quarter Financial Highlights

• Net sales decreased 0.1% to $148.9 million, compared to $149.1 million in the fourth quarter of 2022; and was flat on a constant currency basis¹.
• In the U.S., net sales increased 11.6% compared to the fourth quarter of 2022.
• Net loss was $(13.9) million, or $(1.31) per share, and (9.3%) of net sales in the fourth quarter of 2023, compared to net loss of $(173.9) million, or $(16.26) per share, and (116.6%) of net sales in the fourth quarter of 2022.
• Adjusted EBITDA² was $1.3 million, or 0.9% of net sales, compared to $6.1 million, or 4.1% of net sales in the fourth quarter of 2022.

Fiscal 2023 Financial Highlights

• Net sales decreased 10.7% to $546.3 million, compared to $611.7 million in 2022; and decreased 8.7% on a constant currency basis¹.
• Net loss was $(98.9) million, or $(9.24) per share, and (18.1%) of net sales in 2023, compared to net loss of $(176.7) million, or $(16.47) per share, and (28.9%) of net sales in 2022.
• Adjusted EBITDA² was $13.8 million, or 2.5% of net sales, compared to $31.9 million, or 5.2% of net sales in 2022.

“2023 was a transformational year for a.k.a. Brands, and I want to thank our teams for their continued dedication to building next-generation fashion brands for the next generation of consumers,” said Ciaran Long, Interim Chief Executive Officer and Chief Financial Officer. “I’m pleased that we delivered net sales growth in the U.S. in the fourth quarter of 2023, which marks the second consecutive quarter of growth in our largest market. I’m proud of the teams’ strong execution across regions, which enabled us to reduce our year-end inventory by 28% compared to last year. Additionally, we continued to manage the business prudently and strengthened our balance sheet - we paid off more than $50 million of debt this year, effectively reducing our debt by 35% in fiscal 2023.”

“As we look ahead, we will continue to deepen our relationships with customers by delivering fashion newness, launching new categories and leveraging innovative technologies. Additionally, based on the success of our omnichannel tests in 2023, we are expanding our omnichannel initiatives in 2024 with the opening of three to four Princess Polly stores and new marketplace and wholesale opportunities to attract new customers and expand our total addressable market. And lastly, we remain committed to streamlining our operations to deliver long-term profitable growth,” concluded Long.

Recent Brand Highlights

• Princess Polly will expand its omnichannel strategy and open three to four stores in the second half of 2024, including signed leases for stores in Boston and San Diego.
• Culture Kings U.S. registered double-digit net sales growth in 2023 and continues to disrupt the streetwear market with its one-of-a-kind store experience and marketing activations.
• Petal & Pup continues to expand its marketplace presence and launched on Nordstrom’s website in the first quarter of 2024, adding to the brands successful marketplace tests on Macy’s and Target’s websites.
• mnml continues to be a highly-sought after streetwear brand and remains a top-selling brand at the Culture Kings store in the U.S.

Fourth Quarter Financial Details

• Net sales decreased 0.1% to $148.9 million, compared to $149.1 million in the fourth quarter of 2022. The decrease was driven by a decline in the number of orders and average order value during the quarter, primarily driven by adverse macroeconomic conditions in Australia and New Zealand. On a constant currency¹ basis, net sales were flat.
• Gross margin was 51.3% in the fourth quarter of 2023, compared to 52.8% in the same period last year. The decline was primarily driven by targeted discounting in Culture Kings Australia and a higher merchandise return rate, partially offset by lower freight expenses.
• Selling expenses were $42.3 million, compared to $39.0 million in the fourth quarter of 2022. Selling expenses were 28.4% of net sales, compared to 26.2% of net sales in the fourth quarter of 2022. The increase was primarily due to softness in Australia and New Zealand.
• Marketing expenses were $17.3 million, compared to $15.4 million in the fourth quarter of 2022. Marketing expenses were 11.6% of net sales, compared to 10.3% of net sales in the fourth quarter of 2022.
• General and administrative (“G&A”) expenses were $22.3 million, compared to $26.1 million in the fourth quarter of 2022. G&A expenses were 15.0% of net sales, compared to 17.5% of net sales in the fourth quarter of 2022. The decline in G&A expenses as a percentage of net sales was primarily due to a decrease in wages and benefits and a decrease in insurance costs.
• Adjusted EBITDA² was $1.3 million, or 0.9% of net sales, compared to $6.1 million, or 4.1% of net sales in the fourth quarter of 2022.

Full year 2023 financial details are included in the Company’s Form 10-K for the year ended December 31, 2023.

Balance Sheet and Cash Flow

• Cash and cash equivalents at the end of the fourth quarter totaled $21.9 million, compared to $46.3 million at the end of the fourth quarter of 2022.
• Inventory at the end of the fourth quarter totaled $91.0 million, compared to $126.5 million at the end of the fourth quarter of 2022. Inventory decreased $8.9 million, or 9%, from the end of the third quarter of 2023.
• Debt at the end of the fourth quarter totaled $93.4 million, compared to $143.6 million at the end of the fourth quarter of 2022.
• Cash flow from operations for the year ended December 31, 2023 was $33.4 million, compared to cash used in operations of $0.3 million for the year ended December 31, 2022.

Outlook

For the full year fiscal 2024, the Company expects:

• Net sales between $540 million and $555 million
• Adjusted EBITDA³ between $16 million and $18 million
• Weighted average diluted share count of 10.7 million
• Capital expenditures of approximately $10 million to $12 million

For the first quarter of 2024, the Company expects:

• Net sales between $108 million and $112 million
• Adjusted EBITDA³ between $0.3 million and $0.7 million
• Weighted average diluted share count of 10.5 million

The above outlook is based on several assumptions, including but not limited to, foreign exchange rates remaining at the current levels, the opening of three to four Princess Polly stores and continued macroeconomic pressures, specifically in Australia and New Zealand. See “Forward-Looking Statements” for additional information.

Conference Call

A conference call to discuss the Company’s fourth quarter and full year 2023 results is scheduled for March 7, 2024, at 4:15 p.m. ET. Those who wish to participate in the call may do so by dialing (877) 858-5495 (or (201) 689-8853 for international callers). The conference call will also be webcast live at https://ir.aka-brands.com in the Events and Presentations section. A recording will be available shortly after the conclusion of the call. To access the replay, please dial (877) 660-6853 or (201) 612-7415 for international callers, conference ID 13744095. An archive of the webcast will be available on a.k.a. Brands’ investor relations website.

Use of Non-GAAP Financial Measures and Other Operating Metrics

In addition to results determined in accordance with accounting principles generally accepted in the United States of America (GAAP), management utilizes certain non-GAAP financial measures such as Adjusted EBITDA, Adjusted EBITDA margin, net income (loss), as adjusted, net income (loss) per share, as adjusted and pro forma net sales for purposes of evaluating ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP financial measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance. The non-GAAP financial measures should not be considered in isolation or as a substitute for the GAAP financial measures. The non-GAAP financial measures used by the Company may be different from similarly-titled non-GAAP financial measures used by other companies. See additional information at the end of this release regarding non-GAAP financial measures.

About a.k.a. Brands

a.k.a. Brands is a brand accelerator of next generation fashion brands. Each brand in the a.k.a. portfolio targets a distinct Gen Z and millennial audience, creates authentic and inspiring social content and offers quality exclusive merchandise. a.k.a. Brands leverages its next-generation retail platform to help each brand accelerate its growth, scale in new markets and enhance its profitability. Current brands in the a.k.a. Brands portfolio include Princess Polly, Culture Kings, mnml and Petal & Pup.

Forward-Looking Statements

Certain statements made in this release are “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements.

These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company’s control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements.

Important factors, among others, that may affect actual results or outcomes include the effects of economic downturns and unstable market conditions; our ability in the future to continue to comply with the New York Stock Exchange’s (NYSE) listing standards and maintain the listing of our common stock on the NYSE; risks related to doing business in China; our ability to anticipate rapidly-changing consumer preferences in the apparel, footwear and accessories industries; our ability to execute our strategic initiatives, including transitioning Culture Kings to a data-driven, short lead time merchandising cycle; our ability to acquire new customers, retain existing customers or maintain average order value levels; the effectiveness of our marketing and our level of customer traffic; merchandise return rates; our ability to manage our inventory effectively; our success in identifying brands to acquire, integrate and manage on our platform; our ability to expand into new markets; the global nature of our business, including international economic, geopolitical instability (including the ongoing Russia-Ukraine and Israel-Palestine wars), legal, compliance and supply chain risks; interruptions in or increased costs of shipping and distribution, which could affect our ability to deliver our products to the market; our use of social media platforms and influencer sponsorship initiatives, which could adversely affect our reputation or subject us to fines or other penalties; fluctuating operating results; the inherent challenges in measuring certain of our key operating metrics, and the risk that real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business; the potential for tax liabilities that may increase the costs to our consumers; our ability to attract and retain highly qualified personnel, including key members of our leadership team; fluctuations in wage rates and the price, availability and quality of raw materials and finished goods, which could increase costs; foreign currency fluctuations; and other risks and uncertainties set forth in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Forward-Looking Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (SEC) on March 7, 2024. a.k.a. Brands does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

a.k.a. BRANDS HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share data) (unaudited)
	Three Months Ended December 31,								Year Ended December 31,
		2023				2022				2023				2022
Net sales	$	148,912			$	149,126			$	546,258			$	611,738
Cost of sales		72,456				70,379				245,978				274,491
Gross profit		76,456				78,747				300,280				337,247
Operating expenses:
Selling		42,309				39,002				149,307				166,070
Marketing		17,265				15,429				68,907				66,730
General and administrative		22,270				26,086				96,951				102,700
Goodwill impairment		—				173,786				68,524				173,786
Total operating expenses		81,844				254,303				383,689				509,286
Loss from operations		(5,388	)			(175,556	)			(83,409	)			(172,039	)
Other expense, net:
Interest expense		(2,676	)			(2,556	)			(11,165	)			(7,043	)
Other expense		(65	)			503				(2,391	)			(1,532	)
Total other expense, net		(2,741	)			(2,053	)			(13,556	)			(8,575	)
Loss before income taxes		(8,129	)			(177,609	)			(96,965	)			(180,614	)
(Provision for) benefit from income tax		(5,754	)			3,713				(1,921	)			3,917
Net loss	$	(13,883	)		$	(173,896	)		$	(98,886	)		$	(176,697	)
Net loss per share, basic and diluted*	$	(1.31	)		$	(16.26	)		$	(9.24	)		$	(16.47	)
Weighted average shares outstanding, basic and diluted*		10,619,178				10,694,559				10,707,024				10,726,392

* Adjusted for the one-for-12 reverse stock split effected on September 29, 2023 (the “Reverse Stock Split”).

a.k.a. BRANDS HOLDING CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)
	December 31, 2023				December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	21,859			$	46,319
Restricted cash		2,170				2,054
Accounts receivable		4,796				3,231
Inventory, net		91,024				126,533
Prepaid income taxes		—				6,089
Prepaid expenses and other current assets		15,846				13,378
Total current assets		135,695				197,604
Property and equipment, net		27,154				28,958
Operating lease right-of-use assets		37,465				37,317
Intangible assets, net		64,322				76,105
Goodwill		94,898				167,731
Deferred tax assets		1,569				1,070
Other assets		618				853
Total assets	$	361,721			$	509,638
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	28,279			$	20,903
Accrued liabilities		25,223				39,806
Sales returns reserve		9,610				3,968
Deferred revenue		11,782				11,421
Income taxes payable		257				—
Operating lease liabilities, current		7,510				6,643
Current portion of long-term debt		3,300				5,600
Total current liabilities		85,961				88,341
Long-term debt		90,094				138,049
Operating lease liabilities		35,344				34,404
Other long-term liabilities		1,704				1,483
Deferred income taxes		—				284
Total liabilities		213,103				262,561
Stockholders’ equity:
Preferred stock		—				—
Common stock		128				129
Additional paid-in capital		466,172				460,660
Accumulated other comprehensive loss		(50,269	)			(45,185	)
Accumulated deficit		(267,413	)			(168,527	)
Total stockholders’ equity		148,618				247,077
Total liabilities and stockholders’ equity	$	361,721			$	509,638

a.k.a. BRANDS HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
	Year Ended December 31,
		2023				2022
Cash flows from operating activities:
Net loss	$	(98,886	)		$	(176,697	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation expense		7,605				6,156
Amortization expense		11,536				14,192
Amortization of inventory fair value adjustment		—				707
Amortization of debt issuance costs		624				647
Lease incentives		1,596				1,722
Loss on disposal of businesses		1,533				—
Non-cash operating lease expense		7,766				9,779
Equity-based compensation		7,640				6,730
Deferred income taxes, net		(745	)			(4,064	)
Goodwill impairment		68,524				173,786
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(1,283	)			(602	)
Inventory		32,149				(16,257	)
Prepaid expenses and other current assets		(2,789	)			6,134
Accounts payable		7,512				(1,888	)
Income taxes payable		6,214				(2,442	)
Accrued liabilities		(13,982	)			(7,419	)
Returns reserve		5,566				(2,678	)
Deferred revenue		522				267
Lease liabilities		(7,676	)			(8,392	)
Net cash provided by (used in) operating activities		33,426				(319	)
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired		—				(5,321	)
Purchases of intangible assets		(61	)			(247	)
Purchases of property and equipment		(5,970	)			(19,746	)
Net cash used in investing activities		(6,031	)			(25,314	)
Cash flows from financing activities:
Payments of costs related to initial public offering		—				(1,142	)
Proceeds from line of credit, net of issuance costs		11,500				40,000
Repayment of line of credit		(51,500	)			—
Proceeds from issuance of debt, net of issuance costs		—				(121	)
Repayment of debt		(10,700	)			(5,600	)
Taxes paid related to net share settlement of equity awards		(191	)			(104	)
Proceeds from issuances under equity-based compensation plans		162				227
Repurchase of shares		(2,100	)			—
Net cash (used in) provided by financing activities		(52,829	)			33,260
Effect of exchange rate changes on cash, cash equivalents and restricted cash		1,090				(272	)
Net change in cash, cash equivalents and restricted cash		(24,344	)			7,355
Cash, cash equivalents and restricted cash at beginning of period		48,373				41,018
Cash, cash equivalents and restricted cash at end of period	$	24,029			$	48,373
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	21,859			$	46,319
Restricted cash		2,170				2,054
Total cash, cash equivalents and restricted cash	$	24,029			$	48,373

a.k.a. BRANDS HOLDING CORP. KEY OPERATING AND FINANCIAL METRICS (unaudited)
	Three Months Ended December 31,								Year Ended December 31,
(dollars in thousands)		2023				2022				2023				2022
Gross margin		51	%			53	%			55	%			55	%
Net loss	$	(13,883	)		$	(173,896	)		$	(98,886	)		$	(176,697	)
Net loss margin		(9	)%			(117	)%			(18	)%			(29	)%
Adjusted EBITDA2	$	1,339			$	6,093			$	13,790			$	31,872
Adjusted EBITDA2 margin		1	%			4	%			3	%			5	%

Key Operational Metrics and Regional Sales

	Three Months Ended December 31,										Year Ended December 31,
(metrics in millions, except AOV; sales in thousands)		2023				2022		% Change				2023				2022		% Change
Key Operational Metrics
Active customers4		3.7				3.8		(2.6	)%			3.7				3.8		(2.6	)%
Average order value	$	76			$	77		(1.3	)%		$	80			$	82		(2.4	)%
Number of orders		1.97				1.93		2.1	%			6.85				7.42		(7.7	)%
Sales by Region
U.S.	$	79,057			$	70,860		11.6	%		$	315,496			$	312,977		0.8	%
Australia/New Zealand		63,272				72,235		(12.4	)%			202,777				268,873		(24.6	)%
Rest of world		6,583				6,031		9.2	%			27,985				29,888		(6.4	)%
Total	$	148,912			$	149,126		(0.1	)%		$	546,258			$	611,738		(10.7	)%
Year-over-year growth on a constant currency basis1		—	%									(8.7	) %
Sales by Region - Two-Year Stack	Three Months Ended December 31,										Year Ended December 31,
		2023				2021		% Change				2023				2021		% Change
U.S.	$	79,057			$	79,558		(0.6	)%		$	315,496			$	270,028		16.8	%
Australia/New Zealand		63,272				95,487		(33.7	)%			202,777				265,365		(23.6	)%
Rest of world		6,583				7,378		(10.8	)%			27,985				26,798		4.4	%
Total	$	148,912			$	182,423		(18.4	)%		$	546,258			$	562,191		(2.8	)%

Active Customers

We view the number of active customers as a key indicator of our growth, our value proposition and consumer awareness of our brand, and their desire to purchase our products. In any particular period, we determine our number of active customers by counting the total number of unique customer accounts who have made at least one purchase in the preceding 12-month period, measured from the last date of such period.

Average Order Value

We define average order value (“AOV”) as net sales in a given period divided by the total orders placed in that period. AOV may fluctuate as we expand into new categories or geographies or as our assortment changes.

a.k.a. BRANDS HOLDING CORP.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data)
(unaudited)

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures that management uses to assess our operating performance. Because Adjusted EBITDA and Adjusted EBITDA margin facilitate internal comparisons of our historical operating performance on a more consistent basis, we use these measures for business planning purposes.

We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business. We expect Adjusted EBITDA margin to increase over the long-term as we continue to scale our business and achieve greater leverage in our operating expenses.

We calculate Adjusted EBITDA as net income (loss) adjusted to exclude: interest and other expense; provision for (benefit from) income taxes; depreciation and amortization expense; equity-based compensation expense; costs to establish or relocate distribution centers; transaction costs; costs related to severance from headcount reductions; goodwill and intangible asset impairment; sales tax penalties; insured losses, net of any recoveries; and one-time or non-recurring items. We calculate Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales. Adjusted EBITDA and Adjusted EBITDA margin are considered non-GAAP financial measures under the SEC’s rules because they exclude certain amounts included in net income (loss) and net income (loss) margin, the most directly comparable financial measures calculated in accordance with GAAP.

A reconciliation of non-GAAP Adjusted EBITDA to net loss for the three months and year ended December 31, 2023 and 2022 is as follows:

	Three Months Ended December 31,								Year Ended December 31,
		2023				2022				2023				2022
Net loss	$	(13,883	)		$	(173,896	)		$	(98,886	)		$	(176,697	)
Add (deduct):
Total other expense, net		2,741				2,053				13,556				8,575
Provision for (benefit from) income tax		5,754				(3,713	)			1,921				(3,917	)
Depreciation and amortization expense		4,446				4,975				19,141				20,348
Equity-based compensation expense		2,162				2,282				7,640				6,730
Inventory step-up amortization expense		—				—				—				707
Transaction costs		—				—				—				140
Goodwill impairment		—				173,786				68,524				173,786
Non-routine items5		119				606				1,894				2,200
Adjusted EBITDA	$	1,339			$	6,093			$	13,790			$	31,872
Net loss margin		(9.3	)%			(116.6	)%			(18.1	)%			(28.9	)%
Adjusted EBITDA margin		0.9	%			4.1	%			2.5	%			5.2	%

Net Income (Loss), As Adjusted and Net Income (Loss) Per Share, As Adjusted

Net income (loss), as adjusted and net income (loss) per share, as adjusted are considered non-GAAP financial measures under the SEC’s rules because they exclude certain amounts included in net income (loss) and net income (loss) per share calculated in accordance with GAAP, the most directly comparable financial measures calculated in accordance with GAAP. Management believes that net income (loss), as adjusted, and net income (loss) per share, as adjusted, are meaningful measures to provide investors because they better enable comparison of the performance with that of the comparable period. In addition, net income (loss), as adjusted and net income (loss) per share, as adjusted, afford investors a view of what management considers to be a.k.a.’s core earnings performance, thereby providing investors the ability to make a more informed assessment of such core earnings performance with that of the prior year.

We have calculated net loss, as adjusted and net loss per share, as adjusted, for the year ended December 31, 2023, by adjusting net loss and net loss per share for the following:

1. Loss on disposal of the Rebdolls reporting unit; and
2. Impairment recognized on the goodwill recorded from the acquisitions of the Culture Kings and Petal & Pup reporting units, which is a result of the continued worsening global economic trends, elevated interest rates and unfavorable demand in Australia.

A reconciliation of non-GAAP net loss, as adjusted to net loss, as well as the resulting calculation of net loss per share, as adjusted, for the year ended December 31, 2023, are as follows:

	Year Ended December 31, 2023
Net loss	$	(98,886	)
Adjustments:
Loss on disposal of the Rebdolls reporting unit		951
Goodwill impairment		68,524
Tax effects of adjustments		—
Net loss, as adjusted	$	(29,411	)
Net loss per share, as adjusted	$	(2.75	)
Weighted-average shares, diluted		10,707,024

We have calculated net loss, as adjusted and net loss per share, as adjusted for the three months and year ended December 31, 2022, by adjusting net loss and net loss per share for the following:

1. Inventory step-up amortization expense resulting from the acquisition of mnml;
2. Impairment recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units, which is a result of the worsening economic trends, including continued inflation and rising interest rates, as well as unfavorable demand due to a gradual customer shift from primarily online shopping to a mix of online and physical store shopping; and
3. The tax benefit related to the finalization of Australia tax basis allocation pertaining to the inventory and intangibles included in the purchase of the Culture Kings non-controlling interest, as well as an intra-entity transfer of intellectual property rights.

A reconciliation of non-GAAP net loss, as adjusted, to net loss, as well as the resulting calculation of net loss per share, as adjusted for the three months and year ended December 31, 2022, are as follows:

	Three Months Ended December 31, 2022				Year Ended December 31, 2022
Net loss	$	(173,896	)		$	(176,697	)
Adjustments:
Inventory step-up amortization expense		—				707
Goodwill impairment		173,786				173,786
Tax benefit - Culture Kings change in tax basis of inventory and intangibles; intra-entity transfer of intellectual property rights		(3,263	)			(3,263	)
Tax effects of adjustments		—				(212	)
Net loss, as adjusted	$	(3,373	)		$	(5,679	)
Net loss per share, as adjusted*	$	(0.31	)		$	(0.53	)
Weighted-average shares, diluted*		10,739,439				10,726,392

*Adjusted for the one-for-12 Reverse Stock Split.

Pro Forma Net Sales

Pro forma net sales is considered a non-GAAP financial measure under the SEC’s rules. We believe that pro forma net sales is useful information for investors as it provides a better understanding of sales performance, and relative changes therein, on a comparable basis. We calculate pro forma net sales as net sales including the historical net sales relating to the pre-acquisition periods of Culture Kings, assuming that the Company acquired Culture Kings at the beginning of the period presented. Pro forma net sales is not necessarily indicative of what the actual results would have been if the acquisition had in fact occurred on the date or for the periods indicated nor does it purport to project net sales for any future periods or as of any date. A reconciliation of non-GAAP pro forma net sales to net sales, which is the most directly comparable financial measure calculated in accordance with GAAP, in each case disaggregated by geography, for the year ended December 31, 2023 and 2021 is as follows:

	Year Ended December 31, 2023			Year Ended December 31, 2021									Growth Rate
	Actual			Actual			Culture Kings			Pro Forma			Actual			Pro Forma
U.S.	$	315,496		$	270,028		$	7,669		$	277,697		16.8	%		13.6	%
Australia/New Zealand		202,777			265,365			43,314			308,679		(23.6	)%		(34.3	)%
Rest of world		27,985			26,798			280			27,078		4.4	%		3.3	%
Total	$	546,258		$	562,191		$	51,263		$	613,454		(2.8	)%		(11.0	)%

¹ In order to provide a framework for assessing the performance of our underlying business, excluding the effects of foreign currency rate fluctuations, we compare the percent change in the results from one period to another period using a constant currency methodology wherein current and comparative prior period results for our operations reporting in currencies other than U.S. dollars are converted into U.S. dollars at constant exchange rates (i.e., the rates in effect on December 31, 2022, which was the last day of our prior fiscal year) rather than the actual exchange rates in effect during the respective periods.
² See additional information at the end of this release regarding non-GAAP financial measures.
³ The Company has not provided a quantitative reconciliation of its Adjusted EBITDA outlook to a GAAP net income (loss) outlook because it is unable, without making unreasonable efforts, to project certain reconciling items. These items include, but are not limited to, future equity-based compensation expense, income taxes, interest expense and transaction costs. These items are inherently variable and uncertain and depend on various factors, some of which are outside of the Company’s control or ability to predict. See additional information at the end of this release regarding non-GAAP financial measures.
⁴ Trailing twelve months.
⁵ Non-routine items include costs to establish or relocate distribution centers; severance from headcount reductions; sales tax penalties; insured losses, net of recoveries; and non-routine legal matters.

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Source: a.k.a. Brands

FAQ

What was the percentage increase in U.S. net sales compared to Q4 2022 for a.k.a. Brands Holding Corp. (NYSE: AKA)?

U.S. net sales grew by approximately 12% compared to the fourth quarter of 2022.

How did a.k.a. Brands strengthen its balance sheet in FY23?

a.k.a. Brands strengthened its balance sheet by paying down $50.7 million in debt in FY23.

What strategy did a.k.a. Brands scale in 2024?

a.k.a. Brands scaled its omnichannel strategy through additional stores, marketplace, and wholesale opportunities in 2024.

What financial improvement was seen for fiscal 2024 for a.k.a. Brands?

Adjusted EBITDA showed improvement for fiscal 2024, indicating a positive outlook.