Digital Brands Group, Inc. Q1 FY2024 earnings call

• Wholesale shipments were delayed due to a container issue at the LA port, shifting revenue from Q1 to Q2, but operating expense leverage is expected to continue. - A store opened in mid-April with healthy week-to-week revenue growth, using existing Sundry products with no cost. - Fall bookings are strong, and strategic e-commerce decisions are planned for the second half of the year. - Significant operating leverage expected as the company laps the first year of the Sundry acquisition, leading to higher flow-through to operating and net income. - The Board will continue to pursue strategic alternatives given the dislocation between the company's public market valuation and its underlying assets/performance.

Net revenues for Q1 2024 were $3.6 million, down from $4.4 million the prior year. Gross margin profit increased to 48.1% from 45.5% year-over-year. G&A expenses decreased to $1 million from $4.5 million. Sales and marketing expenses were $700,000 compared to $1 million. Net operating loss was $225,000 versus $3.7 million a year ago. Net loss was $684,000 or a loss of $0.46 per diluted share compared to a loss of $6.1 million or $27.48 per diluted share a year ago. Revenue contribution details: Wholesale shipment timing shifted revenue, but store opened in mid-April with healthy week-to-week increases.

• Operating leverage is expected to continue throughout the year, with higher revenues increasing flow-through to operating and net income. - Benefit from Q2 shift of March revenue into April, store performance, and strong fall bookings. - Interest expense will roll off in Q2 and Q3, and goodwill amortization will start benefiting next year, leading to improved cash flow and GAAP performance.

• Wholesale shipment delay was a one-off port issue that impacted revenue. - Nasdaq delisting risk due to noncash charges and burn rate, leading to additional capital raises. - Auditing costs and PCAOB review adding to expenses.

Q: What is the company's competitive advantage/approach to the retail market?

A: Need to be in wholesale, e-commerce, and stores if they work, focusing on design, price point, and ROAS in e-commerce, monitoring store performance.

Q: Equity raises in 2024?

A: Driven by Nasdaq delisting risk due to noncash charges and burn rate, raised capital to stay in compliance, with interest expense and goodwill amortization set to improve.

Q: Revenue increase probability?

A: Difficult to predict wholesale, e-commerce is steady state, but lapping low revenue from last year and building customer base could lead to growth, similar to brands like J.Hilburn.

Q: Response to haters of physical stores?

A: Many digital-first companies have physical stores (e.g., Warby Parker, Allbirds), and apparel requires physical touch, fit, etc., so need to be in multiple channels.