Digital Brands Group, Inc. Q3 FY2024 earnings call

• Transitioned from focusing on paying down debt to increasing top-line growth starting October 2024. • Partnered with VAYNERCOMMERCE, which led to a 34% increase in daily digital revenues and 7% increase in average order volume from October 22 to November 7. • Intend to add e-mail and SMS campaigns starting this week. • Plan to add apps to Shopify platform to increase conversion rates, sell on Amazon and TikTok in Q1, launch influencer campaigns, and monthly limited edition product capsules. • Took a meaningful wholesale price increase at Sundry, which is expected to add over $500,000 annually to gross margins with zero resistance. • Majority of cash was previously used for debt paydown, now able to invest in growth with cleaned-up balance sheet and right digital partner.

Net revenues for the third quarter were $2.4 million, compared to $3.3 million a year ago. The decrease was due in part to walking away from a large wholesale account that was net negative in cash contribution (over $800,000 of the year-over-year difference) and limited digital advertising spend leading to low e-commerce revenue. Gross profit margins were 46% compared to 52.3% a year ago. The main factor in the margin decline was fixed costs in gross margins. G&A expenses decreased $1.3 million to $2.4 million from $3.7 million a year ago. Sales and marketing expenses were $655,000 compared to $1.2 million a year ago. Net loss was $3.5 million compared to $5.4 million a year ago, with a significant portion attributable to the negative wholesale account.

• 2025 will see a $4.5 million earnings benefit associated with amortized non-cash expenses (including goodwill and interest expense). • Interest expense will decline from over $700,000 per quarter to $105,000 starting Q1 2025, providing an annual benefit of $3.1 million to net earnings. • Transitioned into growth mode with confidence due to stabilized consumer and cleaned-up balance sheet.

• Macro-economic uncertainties affecting consumer market. • Dependence on successful execution of growth initiatives with VAYNERCOMMERCE and other partnerships. • Risks associated with forward-looking statements and potential differences between expected and actual results.

Q: About the Vayner relationship and how it came about?

A: Knew VaynerMedia as they reached out initially but felt too small. Followed up later, Vayner dug in and saw potential, leading to a heavily incentivized revenue deal. Their team is highly invested with 15 people on calls weekly.

Q: About paying back convertible debt?

A: Paid back $1.3 million in convertible debt, so no convertible debt left on balance sheet; only longer-term debt remains, clearing the overhang to focus on growth.