a.k.a. Brands Holding Corp. Q2 FY2026 earnings call

• Overall Financial & Strategic Progress: Management reported net sales flat year-over-year at $160.1 million, with 16% year-over-year adjusted EBITDA growth to $8.7 million, the highest quarterly adjusted EBITDA since Q2 2022. The 360 basis point year-over-year gross margin expansion to 61.1% was driven by 240 basis points from lower tariffs and 120 basis points from higher full-price selling across streetwear brands. The company ended the quarter with its strongest balance sheet since IPO, reducing inventory by 14% and total debt by 8% year-over-year, with net leverage of 3.37x. Core strategic priorities are: driving DTC growth via differentiated product and marketing, expanding reach via retail, wholesale and marketplaces, and refining the operating model, with ongoing scaling of AI investments to drive margin improvements.
• Omnichannel Expansion: Princess Polly currently operates 13 US stores and 2 Australian stores, with 4 additional US stores and 1 additional Australian store planned by the end of 2026, and up to 10 new stores planned for 2027, with a long-term target of at least 100 US stores. Culture Kings has signed a lease for a new store in Puerto Rico and is in final negotiations for a second US store opening in a major metro, both planned to open in Q4 2026, marking the brand's first new US stores since 2022. Wholesale and marketplace partnerships are exceeding expectations, expanding brand awareness, attracting new customers, and driving incremental growth.
• Operational & Merchandising Improvements: The full 2025 overhaul of the company's sourcing network created a more geographically diverse, resilient supply chain to support ongoing growth. A disciplined inventory management approach has driven higher full-price sell-through and improved inventory turns, providing greater flexibility for growth investments. The multi-year transition of streetwear brands to a test-and-repeat merchandising model is now delivering clear margin improvements; Princess Polly has layered deeper buys of core seasonal evergreen styles into its test-and-repeat assortment to capitalize on peak selling seasons.
• International Highlights: The UK distribution center launched in March 2026 has exceeded expectations, enabling two-day delivery that is driving accelerating conversion, confirming significant long-term growth opportunity for Princess Polly in the UK and international markets.

By geography: U.S. net sales of $110.7 million, a 2.1% year-over-year increase, contributing 69.1% of total Q2 net sales. Rest of world net sales of $9.6 million, a 50.5% year-over-year increase, contributing 6.0% of total Q2 net sales, driven by the newly opened UK distribution center. Australia and New Zealand net sales of $39.8 million, a 13% year-over-year contraction, contributing 24.9% of total Q2 net sales, pressured by a challenging macroeconomic environment and tough prior year comparisons. By brand segment: Princess Polly (largest women's brand): delivered strong growth across omnichannel, with new store openings and international expansion driving new customer acquisition and strong full-price sell-through. Petal & Pop (smaller women's brand): expanded wholesale and marketplace distribution, with strong sell-through performance at Nordstrom and Macy's, where tops became the top performing category. Culture Kings (men's streetwear brand): Q2 sales in Australia came in below expectations, but contributed meaningfully to overall gross margin expansion; sub-brands Minimal, Loiter, and Carre all saw strong performance after transitioning to the test-and-repeat merchandising model. Minimal is now a top 5 men's brand on TikTok Shop.

• Management reaffirmed its full fiscal 2026 guidance, maintaining the prior net sales target range of $625 million to $635 million and adjusted EBITDA target range of $30 million to $32 million.
• For the third quarter of fiscal 2026, management expects net sales of $160 million to $164 million, gross margin of approximately 59%, and adjusted EBITDA of $8 million to $8.5 million. A one-time $3 million charge for a planned distribution center relocation will be incurred in Q3, excluded from adjusted EBITDA.
• Full year 2026 modeling assumptions: stock-based compensation of $6.5 million to $7 million, depreciation and amortization of $20 million to $21 million, interest and other expense of $16 million to $18 million, effective tax rate of negative 10%, capital expenditure of $18 million to $20 million, and weighted average diluted share count of approximately 11 million.
• Management noted Q3 year-to-date net sales are tracking high single-digit growth overall, with double-digit growth in the US, supporting confidence in the second half outlook.

• The Australia and New Zealand region has faced significant macroeconomic pressure from repeated fuel and interest rate hikes, which caused a 13% year-over-year contraction in Q2 net sales for the region.
• All forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from projected outcomes, as detailed in the company's SEC filings.
• Higher air freight costs acted as a partial offset to gross margin expansion in Q2, and are incorporated into the lower projected Q3 2026 gross margin.

Q: Management maintained full-year revenue guidance despite seeing strong Q3 momentum and easier year-over-year comparisons in the second half. What is driving current demand trends that support this strength? / A: Q3 to date overall net sales are up high single digits, with double-digit growth in the US. Strength comes from three core factors: much better positioned inventory and inventory flows after 2025 supply chain overhauls that resolved last year's operational challenges, expanded distribution via new wholesale and marketplace partners that drive incremental customer acquisition, and seven more open stores compared to last year that contribute positive comps. Rest of world growth remains strong, driven by the new UK distribution center, keeping broad momentum across the business.

Q: What performance from current Princess Polly stores gives management confidence in the long-term 100+ US store target? / A: Early results from the current 13-store fleet show strong productivity that exceeds internal projections. All new stores are modeled to hit payback within two years, and the current fleet is outperforming that target. Stores introduce the brand to new customers and create a positive halo effect on the brand's online business, and the updated assortment strategy adding core evergreen items is particularly well-suited for in-store sales, further supporting long-term growth potential.

Q: How does management balance capital allocation between store expansion growth and debt paydown over the medium term? / A: Over the past 18 months, smoothing out tariff-related cash flow volatility, the company generated $35 million in operating cash flow, spent $25 million on capital expenditure for growth, and allocated $10 million to debt paydown, demonstrating an ability to simultaneously fund expansion and reduce leverage. Reducing leverage remains a key priority to maintain a healthy balance sheet, and as Culture Kings' margin improvements flow through to higher EBITDA and cash flow, the company will have increased capacity to invest in additional growth opportunities.

Q: What is the long-term expected channel mix split across DTC e-commerce, brick-and-mortar stores, and wholesale/marketplaces for the overall brand portfolio? / A: Management expects direct-to-consumer e-commerce will remain the largest channel long-term for all brands, even after hitting the 100-store target for Princess Polly. Brick-and-mortar stores will be the second-largest channel, followed by wholesale and marketplaces as the smallest but still meaningful contributor to overall revenue. This channel mix framework is expected to hold across women's and men's brands, with slight differences in the timing of expansion for smaller brands.