a.k.a. Brands Holding Corp.

Hello, and welcome to the AKA Brand second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Jean Fontana. Please go ahead.

Good afternoon. Thank you for joining AKA Brand's second quarter 2022 conference call to discuss the results we released this afternoon, which can be found on our website at ir.aka-brand.com. With me on the call today are Jill Ramsey, Chief Executive Officer, and Kiran Long, Chief Financial Officer. Before we get started, I'd like to remind you of the company's Safe Harbor language. Management may make forward-looking statements which refer to expectations, projections, and other characterizations of future events, including guidance and underlying assumptions. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially than those expressed. For a further discussion of risks related to our business, please see our filings with the SEC. Please note, we assume no obligation to update any such forward-looking statements. This call will contain non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margins. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and available on our website. The call will also contain certain numbers presented on a pro forma basis, which includes the impact of Culture Kings as if we own the brand for all periods and comparable periods described. With that, I'll turn the call over to Jill.

Thank you, Jean, and thanks, everyone, for joining our call today. I'd like to begin by recognizing and appreciating our teams for their hard work and agility, delivering profitable growth in what continues to be a complex macro environment. As we stated on our recent press release, second quarter global net sales grew 6%, 11% in constant currency, on top of last year's 76%, pro forma growth for the acquisition of Culture Kings. Sales in the U.S., our largest region, grew 16% on top of impressive 138% pro forma growth last year. Australia decreased 5%, but was up 3% in constant currency on top of 41% pro forma growth. And while we achieved double-digit global growth this quarter on top of last year's robust increases, we did experience deceleration as we moved through the quarter. Net sales in the second quarter were impacted by inflationary pressures on consumers, shifts in spending behavior, and a slower than anticipated recovery in Australia. Additionally, lower return on marketing investments, a competitive promotional environment, and higher returns contributed to lower than expected adjusted EBITDA of $6 million. As we continue to manage our business through this challenging period, we are focused on driving profitable growth and protecting our margins. by maintaining discipline around inventory and promotion, driving greater marketing efficiency, and carefully controlling expenses, which Kiran will speak to shortly. Importantly, we remain confident in our long-term growth outlook. Active customers grew 34%, demonstrating the growing demand for our differentiated brand. We now serve 3.9 million active customers globally, and yet, We believe this is just a small percentage of our potential target demographic. We are still in the early days of our expansion in both the U.S. and rest of the world. Our unique operating model is flexible and resilient, enabling us to pull levers to manage between growth and profit during times of volatility. First, our next generation merchandising strategy leverages a powerful combination of data-driven test and repeat buying with fast lead times a dual hemisphere footprint, and a high mix of exclusives, all of which create a huge competitive advantage. Our proven model gets trends to customers faster while managing inventory risk and maintaining strong growth margins. Second, our brands have an efficient approach to marketing that all starts with great content, amplified across a vast network of social media followers and influencers. We combine this with performance marketing and highly efficient in-house channels, which leads to lower costs and higher flexibility. Third, our unique multi-brand platform and collaborative culture enables us to share ideas, innovation, vendors, and resources across our teams to drive both growth and efficiencies. Turning to our brand updates, I'll share some highlights from the quarter and what's ahead, starting with our women's brands. Princess Polly, our largest brand and contributor to growth on the quarter, continues to have tremendous opportunity in the U.S. and rest of the world. Princess Polly's mission is to make on-trend fashion sustainable and accessible, and they are quickly establishing as a leader at this. Earth Club, their line of sustainable fashion, gained further traction this quarter with sales up 30% quarter over quarter. They've made tremendous progress by rebuilding their supply chain to use sustainable materials on over 20% of their new styles and remain on track to reach their goal of 40% by year end. In addition to expanding their sustainable range, Princess Polly is proud to share that customers will soon be able to buy and sell pre-owned Princess Polly on their site through a strategic partnership. Standing by their quality and allowing customers to buy and sell secondhand is an incredible step that positions them to participate in the fast-growing re-commerce space and the full circularity of fashion. With these initiatives, Princess Polly is bolstering their competitive differentiation and strengthening their brand position with their target demographic. Princess Polly also continues to see growth in their extended size collection, Curve, which launched in the fall. This quarter, sales were up 35% from the prior quarter across nearly 600 styles, And we are very pleased with the strong initial response with 30% of customers returning after a first purchase. I'll share a quote from a customer. I cannot thank you enough for your inclusive sizing. I have always wanted to dress the same as my friends. You have no idea how much it means to fit in, not to mention the incredible quality. My self-esteem is so high right now. Thank you from the bottom of my heart. And while Curve is a small proportion of sales today, we believe there is continued growth potential that will enable Princess Polly to reach a broader audience. Innovators at Next Generation Marketing, Princess Polly efficiently optimizes spend across over 20 channels from social media to performance and in-house. They are a leader at micro-influencer marketing with a vast network of smaller audience influencers. Last fall, they took this to the next level, rolling out a college ambassador program that received 20,000 applications. And this quarter, another 3,000 students applied. Converting brand enthusiasts into ambassadors is a cost-effective and authentic way to reach new customers. And Princess Polly is currently in full swing for the back-to-college season with their ambassador program and a robust Campus Cool marketing campaign activated across channels. One of Princess Polly's incredible strengths is their ability to pivot marketing wherever their customer goes. They were early on TikTok, testing and learning with content and strategies to increase efficiency. Now, as TikTok emerges as a dominant platform, they are seeing significant traffic, sales, and new customers, and it has become one of their fastest growing and highest performing marketing channels. Princess Polly is also doubling down on in-house marketing, which drives repeat, engagement, and high efficiency. With nearly 1.3 million subscribers, SMS text marketing is one of their highest ROI channels with potential for even higher conversion as they lean into personalization. Princess Polly's loyalty program also continues to exceed expectations with nearly 2 million members now who spend 130% more than non-members. Even more impressive is that top-tier members purchase at three times the rate of non-members. Princess Polly's ability to drive marketing efficiency is unparalleled, and while we continue to face a dynamic landscape, their ability to shift between channels combined with the strength of their influencer and in-house programs will enable them to optimize spend in the back half and beyond. Furthermore, a powerful aspect of our model is to leverage these successes across our brands. Turning to Petal & Pup. This brand continues to be our fastest growing, driving growth across the U.S., Australia, and rest of the world. Petal & Pup's performance demonstrates the strength of our platform as they successfully leverage Princess Polly strategies to drive their own growth. From a merchandising perspective, Petal & Pup shares many vendors and uses the same test and repeat strategy as Princess Polly. In Q2, they were able to quickly read and react to trends like cutouts on dresses and the shift to two-piece sets and jumpsuits. And like Princess Polly, they are leaning into their dual hemisphere advantage to optimize inventory. For example, they reallocate on orders between Australia and U.S. just before delivery based on up-to-the-minute sales data. In marketing this quarter, Petal & Pup successfully took learnings from Princess Polly to lean into advertising on streaming content platforms. targeting new customers with high-performing ads on relevant shows. And like Princess Polly, they're focused on growing in-house SMS text marketing. This quarter, they doubled the size of their customer file, and SMS became one of their fastest-growing and highest-returning channels. Red Dolls also continues to engage customers with their incredible content and leverage resources, learnings, and best practices from our group of brands. Moving to our streetwear brands. Renowned for their highly experiential stores that are closer to a Vegas nightclub, Culture King stores delivered strong growth in Q2 that has sustained into Q3. With the return to in-person events following COVID restrictions, we are thrilled by the high level of engagement, energy, and traffic back in our stores. Culture King hosted a number of high-impact events in the second quarter, including a press conference featuring famed boxers Kambosos and Haney leading up to their marquee fight. The event was promoted with visible branding, exclusive merchandise, and content that was amplified on social media. Additionally, Nick Scott of the LA Rams created a viral moment in stores when he arrived with the Vince Lombardi trophy. This quarter, we are excited to host a continued lineup of world-class celebrities, such as Hall of Famer Shaq, who will be in our Melbourne and Sydney stores later this month. Recently, I had a chance to visit our stores in Auckland, Sydney, and Brisbane, They were buzzing with traffic and energy, and I am so excited for the launch of this incredible retail concept in the U.S. The flagship location in Las Vegas is on track to open this November with an exciting lineup of artists and athletes. The store will carry over 60 highly recognizable brands that are confirmed for launch. We are confident that the Culture King's one-of-a-kind experiential store format will resonate with a U.S. audience as it has in Australia and New Zealand, and we remain bullish on global potential for this incredible brand. World famous for streetwear, Culture Kings offers a broad range of over 200 brands online with a mix of highly sought-after third-party brands, SMUs, and exclusive private labels. More than half their sales come from exclusive products, of which the fastest-growing segment is printed tees and hoodies. Since the acquisition of the print-on-demand facility in the fall, we've nearly doubled this business. With just-in-time production, the team can quickly jump on trends such as championship winners in sports or popular series in entertainment. This quarter, we launched over 24 successful licensed key programs, including Warriors, Stranger Things, and Avatar. With this demand-driven capability at Culture Kings, we get trends to customers faster, reduce inventory risk, and realize higher gross margins, and we are sharing this capability with our other brands. This quarter, Minimal launched its first-ever vintage tea program, leveraging the print-on-demand capabilities at Culture Kings, and we are very pleased with the early results we're seeing. Minimal also launched assortment in Culture Kings stores and online with strong response, particularly in the U.S., and we are excited to continue unlocking the synergies between these two incredible streetwear brands. Turning to operations, this quarter we successfully moved Culture King's U.S. fulfillment to a shared distribution center with minimal, on schedule and on budget. By shipping from a U.S.-based D.C., we have cut delivery times to customers and shipping expenses in half, an important part of our U.S. rollout plan. Before turning the call to Kiran, I'd like to welcome two new leaders to our talented team. In June, we announced the appointment of Jonathan Yuska to President of Culture Kings U.S. John brings over 20 years of experience growing and leading divisions at global sports brands, including Adidas, Mitchell & Neff, Reebok, and Fila. And we look forward to his contributions as we scale in the U.S. and globally. Also, Kenneth White joined us in mid-June as VP, Head of Legal and Human Resources, bringing over 15 years of experience. He also possesses a uniquely relevant operational skill set with a proven track record of scaling a high-growth, digitally native streetwear brand, making him an even greater asset to our broader organization. Looking ahead, we anticipate macro challenges will continue through the remainder of the year and are focused on leveraging the flexibility of our model to deliver improved margin while balancing focus on longer-term growth. We are excited to see Culture King's expansion into the U.S. with a new flagship store in Vegas. Princess Polly is well positioned for the back-to-college season, and we will continue to leverage our successful playbook across our brands. Despite current headwinds, we remain confident in the growth potential of our differentiated brands. Our unique model positions us to achieve our vision to become the global leader in next-generation fashion. On my recent trip to Australia, I had a chance to spend time with our team and was once again reminded why AKA truly is the future of fashion. More than anything, it's the incredible talent on our team that inspires me every day with confidence, and I look forward to all that is ahead. With that, I'll turn it over to Kiran.