Digital Brands Group, Inc. Q3 FY2023 earnings call

• Sundry has turned around, with first quarter 2024 wholesale bookings tripling the third quarter 2023 wholesale revenue, and Anthropologie requesting an exclusive sweater program for next fall and holiday.
• Achieved operating leverage due to revenue increase and cost synergies, expecting EBITDA-neutral in first quarter.
• Generated internal free cash flow in October, used to pay down payables and debt, with free cash flow expected to increase in April and October.
• Finalizing a lease for an outlet store opening March 1, which could add to cash flow.
• Board reviewing strategic alternatives due to public market value dislocation.

Net revenues increased 22.5% to $3.3 million compared to $2.7 million a year ago. Gross margin increased 77% to $1.7 million compared to $1 million a year ago, with gross profit margins at 52.3% from 36% a year ago. G&A expenses including noncash items increased 25.3% to $3.7 million, but excluding noncash items decreased 30.8% to $1.6 million. Sales and marketing expenses increased 12.6% to $1.2 million. Net operating loss excluding noncash charge was $1.2 million vs. $2.5 million a year ago. Net loss per diluted share was $5.4 million vs. $4.9 million a year ago.

• Expect revenue growth of 50% plus in first and second quarters and close to 100% in third and fourth quarters.
• Anticipate EBITDA neutral to positive in first quarter and EBITDA positive in third and fourth quarters.
• Internal free cash flow expected to increase, with monthly free cash flow rising in April and October, including an additional $60k in October from normalized rent.

• Soft macro environment causing softer e-commerce trends with earlier and deeper promotions.
• Prefunded warrants causing volatility in the stock as they've been exercised recently.

Q: Do we expect our gross margins to continue at this level?

A: Yes, due to fixed costs in gross margin leading to leverage as revenues increase, and expecting to cut another $0.5 million in costs.

Q: Are we frustrated with where we are and serious about pursuing strategic alternatives?

A: Yes, we are actively pursuing strategic alternatives as we aren't getting credit for our business build, acquisitions, leverage, revenue growth, and internal free cash flow.

Q: About prefunded warrants?

A: They have been exercising prefunded warrants, almost clear of all of them, which created volatility, but mostly done now