Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net sales exceeded the high end of guidance, driven by a 6% growth in the U.S. market.
- Gross margin reached 66.2%, demonstrating strong profitability.
- Adjusted EBITDA of $874,000 surpassed expectations, highlighting effective cost management and operational efficiency.
- Significant debt reduction by 22% compared to the previous year, improving the company's financial health.
- Successful launch of new products and collections, such as Princess Polly's activewear, which received positive customer feedback.
Negative Points
- Net sales were down 3% compared to the previous year, indicating some challenges in maintaining growth.
- The Australia and New Zealand market showed weaker performance with a 19.1% decline in sales.
- Gross margin slightly decreased from the previous year's 56.9% to 56.2%, reflecting some pressure on profitability.
- Inventory levels were reduced by 19%, which while improving cash flow, might limit the ability to meet sudden increases in demand.
- Marketing effectiveness was reduced in some areas, particularly in the Australia and New Zealand markets.
Q & A Highlights
Q: Who will talk a little bit about Culture King's arm? Obviously that Las Vegas store is an amazing store and it's probably not replicable, but are there opportunities to have more incremental Culture King stores in the US?
A: Yes, there's certainly opportunity for more Culture King stores in the US, though they may not be to the level of the Las Vegas store. We are focused on opening three stores for Princess Polly in Q3 and looking for store opportunities for Culture Kings. We see tremendous runway for the brand, especially since 50% of the products sold are first-party brands that resonate well with customers.
Q: How should we be thinking about the second half as the business somewhat normalizes in terms per test model and some of the other changes, how should we be thinking about like more normal or what should be a more normalized a change in the interest rate going forward?
A: The US business is in chase mode when it comes to inventory, and we expect some tail-offs as we continue growth there. We will take further actions in Australia, and overall inventory will come down sequentially quarter over quarter. We have made significant progress in inventory management.
Q: You talked about some better funds in municipal, but I was wondering if you could give a little bit of color on the intra-quarter cadence and exit trajectory heading into 2Q.
A: We saw momentum build nicely coming into Q2, particularly in the US and Europe. The spring and summer seasons are strong periods for our brands. We continue to see over 30% of customers in the Princess Polly store in LA as new to the brand, and this store has a halo effect on our online sales within that region.
Q: On the prior call, it was called out that you had expected Australia to show a mid 20% decline versus the 19% decline that was reported. What drove the upside there?
A: We pushed hard to get Culture Kings on the test and repeat model, which is showing early signs of success with new products resonating with customers. This gives us confidence in seeing gross margin expansion in the back half of the year as we continue to implement this model in Australia.
Q: What's baked into the guide across the three geographies for 2024?
A: We expect the trends seen in Q1 to continue through the year. Over 66% of our business is now in the US, our largest market, where we're furthest along in developing different channels. We're opening three stores for Princess Polly in late Q3, which will contribute to Q4 revenues.
Q: How are you thinking about balancing the debt paydown versus stock repurchases versus investing organically behind the business?
A: Our focus is on going after growth opportunities first, as our brands are resonating well with customers. We will continue to pay down debt and strengthen our balance sheet, aiming not to be a highly leveraged business going forward.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
