a.k.a. Brands Holding Corp. Q4 FY2025 earnings call

Key Highlights - Full year net sales grew 4.4% to $600 million. - US region net sales grew 7% to $394 million, making up 66% of the business. - Princess Polly had double-digit net sales growth, opened seven US stores and first Australia store in 2025, with 14 stores globally. - Wholesale performed well, including strong results at Nordstrom. - Strengthened streetwear brands' leadership, operations, and go-to-market strategy, with inventory down 10% year-over-year. - Completed supply chain diversification, with 50% of US sourcing outside of China. - Gross margin expanded 30 basis points to 57.3% for the year, despite tariff headwinds. - 2026 strategy focuses on attracting/retaining customers via direct to consumer, expanding brand awareness via physical retail and wholesale, and streamlining operations/strengthening financial foundation with AI integration. - Princess Polly to continue global growth, expand US retail footprint, and begin UK distribution. - Petal & Pup to deepen product differentiation, expand assortment, elevate brand storytelling, and expand omnichannel and international. - Culture Kings to strengthen fundamentals, expand in-house brands, enhance third-party assortment, and test US store prototype with Brisbane store relocation.

For the full year, net sales grew 4.4% to $600 million. The US region, the largest and fastest growing market, delivered net sales growth of 7% to $394 million, making up 66% of the business. Princess Polly generated double-digit net sales growth. Wholesale performed well across the portfolio. Inventory was down 10% year-over-year. In 2025, supply chain was structurally transformed with 50% of US sourcing outside of China. Gross margin was 57.3% for the year, with tariff headwinds offset by mitigation efforts negatively impacting gross margins by approximately 100 basis points.

For fiscal 2026, expect net sales between $625 - $635 million (4.2% - 5.8% growth). Adjusted EBITDA expected between $27 - $29 million. First quarter net sales expected between $130 - $132 million (low single-digit growth). Q2 - Q4 expected high single-digit growth on a two-year stack. Adjusted EBITDA expected $1.5 - $2 million in first quarter, with Q2 and Q3 expected to have about 100 basis points EBITDA margin expansion and larger expansion in Q4 compared to same period last year.

Risks include rapidly evolving macro environment affecting sourcing and demand. Tariff changes could impact gross margins. Supply chain disruptions could affect inventory levels and sales. Competition in the retail and fashion industry could impact market share. Changes in consumer preferences could affect brand performance.

Q: Hey, guys. Thanks for taking my questions. First off, just thinking about the EBITDA guide for 2026, obviously a pretty significant step up here from what you guys reported in 2025. Can you just walk us through kind of the key drivers of that? Is most of that coming from the gross margin side? You know, are we seeing any operating expense leverage? And then are there any, you know, lower non-recurring costs? Just kind of bridge that gap for us would be helpful.

A: Yeah, thanks Ryan for the question. Yeah, we're coming out of the quarter with good momentum, that strong performance for the year, the over 4% growth, 5% on a constant currency basis. We've mentioned we've seen mid-single digit growth so far in Q1. The guide for the year on the top line is that sort of mid-single digits. And then from a profit perspective, we mentioned EBITDA, we expect over the entire year about 120 basis points of EBITDA expansion. I would say the bulk of that, Ryan, comes from gross margin. We mentioned the headwind of 100 basis points in gross margin in FY25, so we'll be moving past that in the year. We're finishing inventory in a really strong position, down 10% year over year and down 10% sequentially, so we're feeling great about that. We'll have some channel mix impact in the gross margin as well. The balance of the EBITDA improvement will come across the rest of the operating expense lines. As mentioned, we'll continue to see the shape of the P&L move as the channels change shape of the P&L. But overall, I feel really good about that guidance. And then on the non-recurring charges, no, not really anything of note for the guide for FY26.

Q: And then just switching to the retail business, can you guys tell us what percentage of the revenue mix now does come from retail? Obviously, pretty significant store openings in 2025, expected again here in 2026, you know, Is that starting to become a more meaningful percentage of the overall revenue mix? And then, you know, how should we think about the growth of the stores or the revenue growth at the stores relative to the direct-to-consumer businesses? Is the growth outpacing that there? Just, you know, any more details on that as it's becoming a larger portion of the business?

A: Yeah, Ryan, this is Jerome. We are really happy with the store performance, you know, and I think for us, seeing really good productivity on a square foot in the Princess Party store is, you know, also really strong four-wall profitability. And I think, you know, really feel good about the opportunity that we have to continue to lean into stores. You know, we've now 13 open in the US, which is great progress. You know, as we mentioned, signed eight more leases, and I would say kind of four to five of them will open in FY26. You know, so we're going to continue to lean into the opportunity that we have at the stores. I think, you know, tremendous growth. It's also great for us, you know, bringing in new customers. We're also seeing a nice halo effect from the online business or to the online business from the store. So I think just kind of more and more ahead of us.

Q: Hi, good afternoon, everyone. As you think about the Princess Polly business and the opening of the eight stores, how do you envision the business retail versus wholesale, your direct online? What do you want the complexion to look like? And can you talk about what the gross margin differentials is between?

A: Yeah, sure, Dana. Look, I think there is tremendous opportunity. And just as a reminder, Princess Polly is about half the revenue for the group at the moment. 13 stores open, also a great presence in Nordstrom across all Nordstrom doors in the US, just like the Petal & Pop brand has, and seeing really good response rate really across all of the channels for new and existing customers. I think, look, from a long-term perspective, we're going to continue to grow the online business. We think we are still have a lot of opportunity there, but obviously from a wholesale and stores perspective, we are, you know, extremely early. I think as I relate to those, I would see the more focus from the poly team is on opening stores and building out that store footprint. You know, I would say on the pedal team, they're more focused on the wholesale opportunity in front of them. And we mentioned a few of the new partners that they have this year and coming in 2026. From a margin perspective, I would say, look, they're all profitable channels. They're all bringing new customers. We do see gross margins a little bit higher in the stores than online, as the stores are a little bit less promotional at this stage. Obviously, gross margins lower in the wholesale channel, but very limited selling expenses, marketing in those channels as well. kind of on a contribution profit basis, pretty similar across them all and really gives us confidence to kind of our ability to push into them all and that they'll all be margin-inclusive. And just lastly, the shaping of the year, how are you thinking of the cadence with top line and adjusted EBITDA given the lapping of tariffs and the supply chain transition that you had?

A: Yeah, Dana, so from a top-line perspective, we've talked about that sort of mid-single-digit growth for the full year and the guide for FY26. As you alluded to, there's definitely a lot of disruption with the tariffs and supply chain issues in FY25 that sort of disrupts our normal cadence. So that's why we're guiding from a top-line perspective the growth from Q2 through Q4 on a two-year stack. It's sort of that high single-digit perspective. We mentioned EBITDA over the balance of the year expanding about 120 basis points, with that really picking up in Q2. So Q2 and Q3 look very similar and will be about 100 basis points higher than FY25 with a little bit of a larger impact in Q4.

Q: Good afternoon. Can we talk a little bit, I know, a little bit about the inventories here? So that's a really nice number down 10%. I'm assuming given the tariffs that you count, That's down even more. Is that something that, you know, what we should be thinking about that going forward for this year given the kind of ups and downs in the tariffs last year?

A: Yeah, Eric, I think, you know, really good to see kind of inventory down 10%, you know, and doing that in a period where we're, you know, growing the overall business up 4.4% for the year. and in a period when such progress on diversifying resourcing last year as well. I would say a big driver of that change in inventory is just the progress we've made at the Culture Kings business and moving them on to test and repeat. It's a slow build to change that and such a transformational difference for the group, but I think the leadership team that's been in there now for 12 months and longer have just made huge progress and That's a big driver of the inventory change. I think, you know, look, I think philosophically we always want to, you know, have lower inventory growth and sales growth, and that's how we're looking to go through this year.

Q: And Australia and New Zealand, four quarters of growth here. You know, is this market back? And how can you leverage that even more now that pretty much the inventories have been cleaned up and some of the other positives have rolled through there?

A: Yeah, it is great to see four quarters in a row of growth in the Australia region. And I think, you know, look, Padlin Park and Princess Polly have been doing well there because they have been on that test and repeat model. I think now that Culture Kings is and the new leadership and kind of ways of working that the team has there. We're really seeing progress there. We're seeing, you know, real improvements in productivity for new products and new SKUs that we're bringing in. So I think there's, you know, back to growth there is great. You know, also, as we talked about, we opened and we relocated a store in Brisbane for Culture Kings, you know, down at a 5,000 square foot kind of size. It's a new model that we can, you know, testing there. We can do that quickly. and then leverage to roll out in the US. You know, I think for us, we are expecting moderate growth in Australia, but I think, you know, glad that it's back to growth and we'll be consistently there. And just to follow up on that, what is the average size of the Culture King stores outside of the Brisbane store in Australia Museum?

A: Yeah, traditionally there were more in that kind of 8,000 square foot size. As a reminder, the Vegas store in the US is bigger again. For us, really figuring out as we look to scale in the US, how do we retain those key aspects of the retail attainment that is just core to Culture Kings, sets it apart from anybody else out there, and is really the opportunity for us to show off the great 1P brands that we have in that business. We're fortunate that you can test a bit quicker. And down in Australia from the store side and also, you know, being the off-season there does give us a good view into what should be best sellers in the U.S. going forward.

Q: Hi. Great. Thanks so much. So maybe to start, and correct me if I'm wrong, but I believe I heard that the 1Q quarter state growth has been mid-single digits. Can you just provide more detail as to what's shaping the key assumptions driving deceleration from current trends in the quarter and maybe from a brand perspective where that moderation is coming from or if this is just general conservatism built in?

A: Yeah, hey, Ashley. Yeah, you know, good observation. Yeah, we've seen, you know, strong mid-single-digit growth so far in the quarter, and that's largely coming from the U.S. online business, which is great to see. Just as a reminder, we launched in all the Nordstrom doors for both pilot and pedal in March of 25, and that's what's driving kind of that more difficult comp as we move through the quarter and kind of explains why we're guided there. for Q1.

Q: Maybe just to follow up, thinking about some of the other drivers of growth in 2026, how we should break this down or balance between order growth and AOV as the primary drivers. I know AOV was declining through the first half of the year. Then we're also lapping really strong order volume in 2Q and then a little bit in 3Q as well. So just any insight there would be helpful.

A: Yeah, for sure. We're pleased really to see in the year that growth in our active customers as well as that strong growth in orders. Q4 order growth was over 6%, and that's really what drove the top-line performance. Listen, with our evolving channel mix, we're going to see some up and down in the AOV, and we've got channels like wholesale will drive the AOV up. We've got other channels like TikTok and new categories that will drive the opposite. We've modeled AOV flat for FY26 with the top line growth really coming from growth in orders.