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Greetings. Welcome to a.k.a. Brands Holding’s First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this call is being recorded. I’ll now turn the conference over to our host, Emily Schwartz, Investor Relations. Thank you. You may begin.

Good afternoon. Thank you for joining a.k.a. Brands to discuss our first quarter 2025 results release 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 a 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 will turn the call over to Ciaran.

Good afternoon, everyone, and thank you for joining us today to discuss our first quarter 2025 results. 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. This marks our fourth consecutive quarter of growth, underscoring the effectiveness of our strategic initiatives and operational discipline. 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. Their consistent performance has been instrumental in delivering these solid first quarter results and navigating the current environment. Now let me share some highlights from the first quarter. We grew net sales approximately 12% on a constant currency basis to $129 million with continued strength in the U.S., which grew 14%. As mentioned, this marks our fourth consecutive quarter of growth overall and the seventh consecutive quarter of growth in the US. In the Australia and New

Thanks, Ciaran. 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. 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. This was driven by continued strength in our U.S. business which increased 14.2% year-over-year. 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 the teams have done over the last 18 months and an improved macro environment in the region. Total orders for the first quarter were 1.66 million, increasing 9.2% as compared to the first quarter last year. Our brands continue to resonate as we acquire new customers and retain our existing customers. 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. Our first quarter average order value was $78, increasing 1.3% compared to the first quarter last year. Turning now to our profitability metrics, 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. 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. Selling expenses were $38.2 million compared to $34.2 million in the first quarter of 2024. The increase was due to the opening of new stores as we record pre-opening rent costs and selling expenses. As a reminder, we’re slated to open six additional stores this year. As a percentage of net sales, selling expenses were 29.7% compared to 29.3% a year ago. Marketing expenses in the quarter were $15.2 million compared to $14.9 million in the first quarter of 2024. 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. 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. As a percentage of net sales, G&A expenses increased to 20% from 19.4% in the first quarter of last year. 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. 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. 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. Net debt at the end of the quarter was $93.2 million compared to $81.6 million a year ago. The increase was related to additional inventory to meet demand as well as to invest in new Princess Polly stores in the U.S. We will continue to invest in new Princess Polly stores with three stores opening in late Q2, one in Q3 and two in Q4. We’re especially pleased that we brought our leverage down to 3.7 compared to 6.4 in the first quarter of last year. 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. 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. As of the end of Q1, we have $1.1 million remaining in our share repurchase authorization. Turning now to our guidance. As Ciaran mentioned, we continue to see solid demand trends in the first six weeks of the second quarter. We’re confident that our demand for our brands is strong and we’re continuing to deliver on trend fashion that our customers love, while broadening our reach and acquiring new customers through omni channel initiatives. We believe the current tariff environment will have a brief and transitory impact on our business, 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 million to $610 million, representing growth in the 4% to 6% range. 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 million to $27.5 million. Our outlook contemplates no changes to the tariff rates in place as of today May 13. 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. Importantly, the tariffs will have an outsized impact in the second and third quarters as we work through our three pronged action plan. As Ciaran noted, we anticipate limited exposure to China in the fourth quarter. For modeling purposes, we anticipate fiscal 2025 stock-based compensation of approximately $8 million to $10 million, depreciation and amortization expense of roughly $19 million to $21 million, interest and other expense of approximately $15 million to $17 million, an effective tax rate of negative 40%, CapEx between $12 million to $14 million, and weighted average diluted share count of approximately 10.8 million. 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. We expect gross margin in the range of 57.2% to 57.4% and adjusted EBITDA to be between $7 million to $8 million. For modeling purposes for the second quarter, we anticipate stock-based compensation of approximately $1.5 million to $2.5 million, depreciation and amortization $4.5 million to $5.5 million, interest and other expense of $4.5 million to $5.5million, an effective tax rate of negative 40%, CapEx between $3 million to $5 million, and weighted average diluted shares of 10.7 million in the second quarter. In closing, we’re really proud of our first quarter performance and the strong start to the year. 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. We’re operating with discipline as we approach the remainder of the year and we’re laser focused on controlling what we can control. 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.

Thank you. [Operator Instructions] And your first question comes from Dana Telsey with Telsey Advisory Group. Please state your question.

Hi, good afternoon, everyone, and good to hear that Australia returned to growth. As you think about the guidance provided the revenues and the adjusted EBITDA, can you give us the puts and takes on margins as we go through and how much is a headwind from tariffs, 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.

Thanks, Dana. Yes, it is great to see Australia back to growth at the 6%. And look, the U.S growth of 14% as well is great. Maybe if I take the tariff question and I suppose 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. I would say kind of with that, going back six months ago, last November, we started intensively working at looking at how do we diversify outside of China. And for us, very focused on finding vendors that can work in our test and repeat model and also at the quality that we expect and the quality that our customers expect. We’ve kind of spent that last period finding those really happy now with the new vendors that we’re bringing on, 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. 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. And 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 kind of share the initial tariff rounds that came out in that kind of Jan fair period. And also we have, I would say, very selectively taken some pricing actions in the last number of weeks across the brands. But I would say, very focused on us looking at where do we have opportunity against our competitive set. We are very fortunate with pretty much all of the product exclusive to us. We do feel we have pricing opportunity. We hadn’t taken pricing action since 2021. So I would say, very selectively and taking it across the brands. I think that sets us up well to kind of achieve that guidance that we’ve put out there for Q4 and for the rest of the year.

Got it.

Yes. Just to add on to that from a gross margin perspective, Dana, very happy with the Q1 performance, up 100 basis points year-over-year and that really does reflect the strategy that we have to move Culture Kings to test and repeat. Really a solid inventory position across all of our brands, as well as a great product offering really helped drive the full price selling performance in Q1. With the three pronged approach to tariffs that Ciaran just walked through, that of course is incorporated into the guidance for gross margin. And we feel very confident, we expect the impact to really be most pronounced in Q2 and Q3. It’s a transitory impact. And then we’ll kind of return to more normalized margins in Q4. We do see Q3 as the most impacted quarter due to the timing of inventory purchases. And then also just to touch on your AOV question, 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.

And your next question comes from Ryan Meyers with Lake Street Capital Markets. Please state your question.

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. You guys will have no exposure by the end of the year then.

Yes. Maybe to touch on that, Ryan, I would say, it’s predominantly outright. And look, we are very fortunate that with just over 30% of our business from the Australia, New

Okay, got it. And then sounded like you saw some positive improvements out of Australia and New

Yes. Thanks, Ryan. Yes. Look, I think it’s great to see Australia back to growth at the 6% and I think as we get more and more kind of progress on moving Culture Kings onto that test repeat model and getting all that product fully there, I think feel really confident that we will see certainly positive growth in Australia for the full year. But I think they are up against a particularly tough promotional lap in Q2 this year. So we’d probably see – expect to see them a little bit negative in Q2, but then back to growth in Q3 and beyond. And then from a U.S. perspective, just really, really happy with the continued growth and performance in the U.S. up 14%. We’re seeing it across the brands. We’re seeing it in direct to consumer, also great progress in the wholesale partnerships that we have, particularly Nordstrom and how the Princess Polly stores are performing. I think as we kind of went through Q2, we are certainly saw that kind of strong performance from Q1 continue. We did moderate some shipments from our vendors in April period. We’ve also been much more selective on promotions as we’ve just managed through that tariff uncertainty. So that will have some impact in Q2. But look, feel good about the guidance that we have out there and really good about just continued kind of increasing time and bigger and bigger opportunities for the brands.

Awesome. Thanks for taking my questions.

Thank you. [Operator Instructions] Your next question comes from Ashley Owens with KeyBanc Capital Markets. Please state your question.

Hi, good afternoon. Thanks for taking the questions. So quickly, I think the U.S. business as well is technically lapsing some more difficult compares as we move through the balance of the year. We’d just 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. And then additionally, I just wanted to touch on selling expenses here too. You mentioned these were up due to the additional store openings in 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. Thanks.

Yes. Thanks, Ashley. I’ll take the first part maybe Kevin, on the selling expenses. So yes, 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 particularly as it relates to the U.S. obviously really good performance in Q1 that 14%. And look I think as we look at the – I suppose the underlying metrics with that, that customer growth up strongly as well or order growth continuing. And as we continue to introduce more and more new customers to the brand, whether through the wholesale relationships that we now have with Princess Polly and Petal & Pup and Nordstrom. And you also saw that Dillard’s and Stitch Fix are going to start doing some wholesaling with Petal & Pup. And also just look the – I suppose the confidence that we are seeing as we open more stores for Princess Polly, continuing to introduce new customers to the brand, continuing to get more share of wallet. I think we feel good. The brands are actively working on some of the categories we started in probably this time last year, whether it’s active and sleep for Princess Polly or some of the work that Petal is doing in basics and everyday looks. I think feel good about the opportunity that we have and the teams are actively getting after us.

Yes. And to touch on the selling expense question, we made good progress in Q1 on our supply chain optimization and we saw some lower costs related to outbound freight and fulfillment costs. Excluding one-time costs, we actually did leverage selling expenses in the quarter and with – even with the impact of pre-opening costs for stores incorporated into 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 mid-26%. And so we reiterate that guidance for the year and for the quarter.

Okay. Great. Maybe just one follow-up. So with the new partners you’re moving to as you diverse away from – 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 maybe not as favorable of a cost profile especially with them being newer entrants into those markets. So would 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.

Sure. Thanks, Ashley. Yes, I think, look, we’ve been I suppose actively working to find the right partners for us over the last six months now and 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? So small MOQs and then scaling up to larger, do they have the right quality profile that we want, that our customers want? And then obviously from a price point perspective, I think for us making sure they can work in that test and repeat model and quality are certainly kind of the most important things. And as it relates to price, we see some slight differences. And I think as we work through it though that there’s a lot of confidence with our team and with the partners that we’re working with that we can get to the equivalency of where we are today. And certainly, 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.

Your next question comes from Eric Beder with SCC Research. Please state your question.

Good afternoon. Congratulations. I want to talk a little bit about the future with some of these spaces here. So we’re going to end the year with like 13 stores approximately, if I remember correctly. What should we be thinking about as a potential longer-term for the amount of stores? And I guess, the follow-up to that is, are you still seeing the stores ability to drive new customers A to the stores and B to online?

Yes. Thanks, Eric. I’ll maybe take the second part first. And certainly seeing that, 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 great to see that. But we’re also seeing that in the wholesale relationships that we have, particularly with Nordstrom’s for both Princess Polly and Petal & Pup. So 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 brands. As it relates to new stores, look, we’re really happy with the store performance that we’ve seen so far. They’re ahead of sales plan. They’re all profitable. We’ve modeled these on a two-year 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. But look, we would look to kind of, I suppose at the moment, keep the pacing that we’re at for next year and certainly as we kind of add new leases or new opportunities we share them on calls.

Sure. Let’s talk about Dillard’s here. So Dillard’s has a customer base in some respects, especially for Petal & Pup, which you probably think would be somewhat ideal. Is there the opportunity to have Petal & Pup kind of penetrate that chain as well as they’ve done here with Nordstrom’s going forward. And are there – what is the longer-term thought process in wholesale in terms of where else you can go after this? Thank you.

Yes. Thanks, Eric. Look, I think the Petal & Pup team have done a really great job with the brand that they have developing great products for it and really bring it to life in not just direct-to-consumer but also in other channels. They’ve seen great success at Nordstrom. I think what they are seeing there, other retailers are seeing and are eager to get the brand. And I think looking to rollout now in Dillard’s is a really nice opportunity for them. I think it’ll probably go a bit slow before it goes fast, but I think we’re fine working at that pace and leaning into the long-term opportunity there. And we certainly feel it’s there and with Dillard’s and regionally with the footprint that they have for the Petal & Pup brand. So yes, looking forward to executing against it.

Okay. Thank you.