Digital Brands Group, Inc.

Greetings. Welcome to the Digital Brands Group Q1 2024 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, John McNamara. You may begin.

Thank you, Holly. Good morning, everyone, and welcome again to the Digital Brands Group 2024 First Quarter Earnings Conference Call and Webcast. With us on the call this morning from Digital Brands is Hill Davis, Chief Executive Officer. Hill will begin the call with an overview of the quarter, and then we will open up the lines for questions. Please keep in mind this earnings call may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding, among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These statements are based largely on the company's expectations and are subject to a number of risks and uncertainties. some of which cannot be predicted or quantified and are beyond the company's control. Future developments and actual results could differ materially from those set forth in contemplated by or underlying the forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking statement will prove to be accurate. With that, I'll turn the call over to Hill Davis. Go ahead, Hill.

Hi. Thank you, John. Good morning. Despite a timing shift in our wholesale shipments, which shifted revenue from the first quarter to the second quarter, we experienced a significant operating expense leverage. We expect this operating leverage to continue throughout the year. In fact, this operating leverage coupled with higher revenues result in higher flow through to our operating and net income. Regarding the shift in wholesale, we had Our fabrics, a majority of our fabrics get stuck in a shipment container at the L.A. port due to an X-ray check. We're in other products. So we lost two weeks there, which meant January shipped in middle of February, middle of February shipped in middle of March, and majority of March shipped into the April period, which is what impacted revenue, which is pretty significant. If you kind of take the current revenue and divide by two. And I think that's really something people need to pay attention to because we will pick that up and we should ship the majority of June at the end, as the wholesalers have unkinked this based on sell through rates in their stores. And we do not expect that to happen again. It was just a one-off where us customs flagged the container we were in. There was nothing we could do. We just had to wait until it went through its X-way process, which we lost two weeks on, and then everything was behind by then. By the way, as we move into the second quarter, not only will we benefit from that shift of March into April, but we'll also benefit from our store, which opened in mid-April. We are experiencing healthy week-to-week revenue increases since we first opened the store, and we're excited to see where that goes as it continues to grow. And as we said before, we're just sending product down there that we already have. So we're not making product for the store, which is just basically no cost on that side. We also plan to benefit from additional e-commerce strategic decisions in the second half of the year. On top of that. So in Q2, you're going to have the benefit of the store as well as the shift of March into April. And then you're also going to, as you move through the second half of the year, our fall bookings are strong coupled with some strategic e-commerce decisions we've made. So let's discuss the first quarter results. Net revenues were $3.6 million compared to $4.4 million a year ago. Again, as we mentioned, net revenues were negatively impacted by the wholesale shipments for March slipping into April, and then we expect to benefit from that in the second quarter of this year. The gross margin profit increased 48.1% compared to 45.5% a year ago. We expect that gross margin number to be higher as there are significant fixed costs such as pattern makers, sewer, a fulfillment center, the pick, pack, ship costs are all built in gross profit or cost of goods sold. So, as the revenues are higher, so are the gross profit margins. G&A expenses decreased $1 million compared to $4.5 million a year ago. This was 27.2% compared to 100.5% a year ago, and we expect to continue to benefit from these synergies since the Sundry acquisition. Sales and marketing expenses were $700,000 compared to $1 million a year ago, 19.8% versus 22% a year ago. And part of that too was the fact that the March e-commerce orders also then slipped into April as well. So really only two months of e-commerce in the Q1 numbers. Net operating loss was $225,000 compared to $3.7 million a year ago. What's interesting is if you look at what revenues slipped into the April period, we would have actually reported positive net operating income based on those results. Net loss was $684,000 or a loss of $0.46 per diluted share compared to a loss of $6.1 million or a loss of $27.8 per diluted share a year ago, which is a significant improvement. In concluding, as we stated, the company would achieve significant operating leverage as we lapped the first year of our Sundry acquisitions. We expect this operating leverage to continue throughout the year on higher revenues, which will increase the flow through to the net and operating income. Additionally, given our results and given what we expect to achieve in Q2, Q3, and Q4, the Board will continue to achieve strategic alternatives given the continued dislocation between digital brands, group public markets, and the intrinsic value of the company's underlying assets and operating performance. We have several options that we can pursue, all of which should increase shareholder value meaningfully. And we know based on inbound demand that what our NASDAQ shell is worth, which is significant. So we will continue to pursue this, especially, like I said, as we know what Q2 is shaping up to be and what Q3 wholesale orders are, the strategic alternatives to store, et cetera. So thanks, everyone, for their time. We look forward to continued momentum. And this concludes our first quarter 2024 earnings call. So let's open it up to Q&A, please.