a.k.a. Brands Holding Corp. (AKA) Earnings Call Transcript & Summary

Good afternoon. My name is Eric Beder. I'm a Head of retailing analyst at Small Cap Consumer Research. It is our pleasure to introduce a.k.a. Brands, ticker symbol AKA. With us, we have CEO, Ciaran Long. Ciaran was joined a.k.a. Brands in April 2021 and was appointed interim CEO in March 2023. And today, you are now effectively, a full-time CEO. Congratulations. Before joining a.k.a., Ciaran was with Walmart between 2014 and 2021. His final position was CEO at Samsclub.com and VP Finance for Membership Marketing and Supply Chain at Sam's Club. In case, you did not see the press release today, they announced Q4 numbers, beat the street on both top line and on EBITDA primarily driven by the U.S. operations, and we'll talk about that.

So Ciaran, why don't you describe the a.k.a. businesses and brands that you work with right now?

Sure. Thanks, Eric, and thanks for having us today. Looking forward to talking to you. So at a.k.a., we're a portfolio of brands. We've got 4 brands today, 2 women's brands and 2 that focus on the men's streetwear space. Our largest brand, and it's about 50% of our business is a brand called Princess Polly. It focuses very much on on-trend fashion at accessible price points and doing it in a sustainable way, and very much selling to that team and college age consumer. The second brand on the women's side is a brand called Petal & Pup, slightly different demographic, more in that kind of 15- to 40-year-old consumer and dressing the women for any of the special occasions that she has in her life. And on the men's side, we have Culture Kings is our largest brand there, very much an experiential retail experience focus on the streetwear side, consumer in that kind of, again, teen, college age and beyond and does a lot from an experiential retail perspective. So kind of working across kind of music, sports, fashion and bringing that to life in their stores and online. And then the fourth brand is a brand called mnml and much more focused on that kind of very much kind of, I would say, runway inspired but accessible price point and again, in that streetwear space.

Great. Thanks. So of these brands, you've purchased all 4 of them. 3 of them originally had operations in Australia. Kind of talk to us why -- how you thought about that when you acquired them? And is there some kind of advantage or something in the Australian thought process that works here in the U.S.?

Yes. We -- yes, 3 of our brands start in Australia. And what we saw there was just, I suppose, organic demand that the brands were having from the U.S. They were established businesses in Australia. Each of the brands have been around 10-plus years. And we saw that demand from a very organic perspective in the U.S. They weren't spending marketing here. They didn't have operations here. They didn't have fulfillment centers here. So we saw it as an opportunity to bring the brands here and scale them in the U.S. a market that's 17x larger than the Australian market. Obviously, with kind of -- there is some advantage just being kind of in a different hemisphere. We do see trends that are strong there in Australia. We can bring them to the U.S. and obviously just scale them much quicker here.

Great. One of the core pieces of your company is the test and repeat model. I know I believe it started with Princess Polly, and now you've had it in all the brands, what is the model? How does it give you an advantage when you go out to market?

Yes. So core to our business, if you think of kind of what I said about Princess Polly, right, bringing on-trend fashion to that consumer, your ability to be on trend is very much when you can make decisions on a short lead time where you can see what's happening out there in the market, and then you can react to that. So for Princess Polly, they'll introduce maybe 100 styles each week. And with that, they might go 200 units deep on any particular style. As they see consumers react strongly to an individual style or an individual product, they'll buy back into that quickly, and then continue to repeat that as they see kind of success there and move it more to an evergreen product that they're continuing to bring in. So for them, that test and repeat and obviously, clear out because you do have some products that don't win, just allows them to very much be on trend. And when you're on trend and with that model, your marketing is much more efficient. You don't get into situations where you're very much over inventoried and have to take big markdowns. And that's just very much on trend, much more efficient marketing, less markdowns. And overall, much better EBITDA than you would see in other places.

Great. Okay. So these brands all have most of their origins, especially on the U.S. side were online only. And if you look at 2 or 3 years ago, you're almost entirely online only in the U.S. Since then, you've added stores for Princess Polly, and you've expanded with online marketplaces at Nordstrom for both Princess Polly and Petal & Pup and as we saw today in your press release, you've expanded now to all doors with Nordstrom for Petal & Pup and you also have, Princess Polly there. What is kind of the thought process in expanding beyond just the online channel? And how do you look upon that as the growth drivers going forward?

Yes. Thanks, Eric. As I said, the brands have been around for 10 years and have had huge success from an online perspective and built very strong and very profitable business from an online perspective. I thought what we saw though is that, look, there's huge opportunity in just the physical retail that's there today. And with these brands being so young in the U.S., we very much leaned into the strategy of let's put our product where our customers are. And let's be -- if it's brand elevating and it has the right economics, we should be happy to do that. We started first. I would say with opening our first store -- we opened our first store for Princess Polly in September 2023 in Century City and L.A. saw a lot of success there and opened 4 more stores for Princess Polly in kind of late Q3, early Q4. And as you mentioned, we -- slightly different model in Petal & Pup, and we said, look, let's put it online at other marketplaces. So we went into Target, Macy's, Nordstrom, so a lot of success when we put it on Nordstrom in February last year. With that success, Nordstrom asked us to do a test in store in October, we went into 40 doors with Petal & Pup. And based on that success we've seen over the last couple of months, we will be in all doors for Nordstrom for spring/summer this year with Petal & Pup. And so for us, we're going to continue to lean into that strategy of retain and hold on to the existing customers that we have from an online perspective, but also put our product where our customers are whether that stores or in different places online.

Great. Let's talk about some of the brands a little bit more in depth. So let's talk with Princess Polly, it's your largest brand. 16- to 25-year-old market, that's a very large market. It's also a very crowded market. How do you kind of differentiate the product and pieces there? And kind of what is your customer -- customer know you for at Princess Polly?

Yes, I think with Princess Polly, they very much know us for a great product that's on trend, high-quality perspective, but also very accessible from a price point. Polly also leans into experiences, right? So for them, just being very authentic from a marketing perspective. They've really built their business on influencer marketing. Unlike other brands, there's no mega or huge influencers of Princess Polly, much smaller set of influencers kind of -- they might have kind of about 4,000 influencers at any one time and constantly refreshing that group, making sure they're very kind of on point and authentically talking to that customer set. And now as we're starting to open stores for Princess Polly, I think it's been amazing seeing their customers walk up to the store in little groups and pointing to each other. Look, there's the store, let's get in there, let's try stuff on and just that kind of in real life experience is just really resonating for that customer. So I think Polly is very early on, on their U.S. journey, I think, a huge opportunity for them to continue on that growth trajectory thereon.

So let's talk a little about the stores. As you said, you mentioned your first store in Century City in September of '23, you opened now 6 full stores, including Boston. Boston, Phoenix, San Diego, L.A., San Francisco. And you have a big New York City flagship opening up in the first half of this year. What kind of returns are you seeing from those stores? How are they different from the online piece here? And when you look at it, what is the potential going forward for the stores?

Yes. Look, we're really excited by what we're seeing in stores. And as you mentioned, we opened our first one in September '23 in Century City. That store is about 3,500 square foot. The new stores that we've opened for them are quite a bit bigger, more in that kind of 4,000 to 5,000 square foot range. And I think that's one that we see kind of, I think, going forward. What we are seeing in the larger stores is we're seeing better conversion, right? So for us, being able to bring in more product, more breadth of assortment that they can see online is just allowing the customer to shop more of their assortment and kind of we're seeing better conversion there. For us, we're kind of modeling the stores to have a payback of 18 months or less, and we're certainly kind of -- we are on that trajectory. These are stores that we're looking for a revenue perspective but also to generate good returns and EBITDA for us. We're also seeing that about 30% of the customers coming into the store are new to Princess Polly, so again, helping us in that brand awareness and building that brand kind of from a long-term perspective. So to date, all very successful. We're very happy with how the stores are performing.

And you mentioned that you're getting customers who don't even know the brand. Are you also seeing kind of this halo effect that we've seen from other online players who have added stores that increases both the online orders and the store orders at the same location?

Yes. We're certainly seeing that uplift. Particularly, I would say kind of with Century City now being open for 15 months, we are seeing a nice uplift in the region around that and can measure that because we have so much data ourselves from an online perspective can measure that very cleanly. And so we're seeing a nice uplift there. I think the other stores, it's early days, but we're expecting to see that performance. And I think it just gives us a lot of confidence on the opportunity we have to continue to scale Princess Polly, but also our other brands in the U.S.

And I guess last question here on Princess Polly, you -- with Nordstrom, you're now physically in -- Princess Polly is physically in their doors. How does that fit in, in terms of stores? How do they complement each other? Or how do they add or subtract from each other?

Yes. So Princess Polly, I would say, is also on the journey with Nordstrom on kind of what should we do from a physical retail perspective. We put them in 20 Nordstroms in October, performing really well. And I think we feel that putting -- like I said, putting our product in front of customers wherever they are, once it's in a brand-enhancing way and has the right long-term economics for us is the way to go. We certainly feel that, that customer -- the Princess Polly customer is also in Nordstrom. The product we've put in there is seeing a lot of success. So I think we're going to continue to lean into that relationship. And we feel that kind of across our direct-to-consumer business, our stores and a very small number of high-quality wholesale partners, there's a real opportunity there.

Great. Let's move on to Petal & Pup. So Petal & Pup is a 25- to 45-year-old woman, originally focused heavily on dresses, but it's become even more of kind of a lifestyle brand. How has that customer accepted kind of the expansion beyond just kind of the core dress business?

Yes. I think Petal & Pup very much started as a dress business. It's a huge part of their assortment, and that's what they were first known for, particularly as we brought them into the U.S. I think what's interesting as you build that test and repeat model and build some strength there. It does allow you to move into other categories and try product in other categories. When you do it on that test and repeat model, it builds slowly, right? You're bringing in product each week, seeing the winners and kind of building winner and winner and winner and cohorts on top of each other. We are seeing really good reaction there from customers on the direct-to-consumer side, but also when we put that product in Nordstrom and in Nordstrom stores, it is selling and selling really well.

Let's talk about that. So you announced this morning that you're going to expand Petal & Pup into all Nordstrom stores for next year. It is rapidly as to your point, becoming more of a lifestyle brand. Does down the road, this looked like a brand like with Princess Polly that you can add stores to as part of the mix. Let's talk about the Nordstrom expansion, let's talk about can you think -- where do you think we can go potentially with stores?