a.k.a. Brands Holding Corp.

Greetings. Welcome to AKA Brand's holding first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad. Please note that this call is being recorded. I will now turn the conference over to our host, Emily Schwartz, investor relations. Thank you. You may begin.

Good afternoon. Thank you for joining AKA Brands to discuss our first quarter 2025 results released this afternoon, which can be found on our website at -brands.com. With me on the call today is Kieran Long, Chief Executive Officer, and Kevin Grant, 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 from those expressed. For 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 also contain non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margins. Reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the release, furnished to the SEC, and available on our website. With that, I'll turn the call over to Kieran.

Good afternoon, everyone, and thank you for joining us today to discuss our first quarter 2025 results. I'm pleased to report that we delivered a strong start to the year with outstanding first quarter performance that reflects our team's strong execution across our brands and business. This marks our fourth consecutive quarter of growth, underscoring the effectiveness of our strategic initiatives and operational discipline. Before reviewing the quarter, I want to acknowledge and thank our talented teams whose commitment to our brands and customers continue to drive our success. Their consistent performance has been instrumental in delivering the solid first quarter results and navigating the current environment. Now, let me share some highlights from the first quarter. We grew net sales approximately 12% on the constant currency basis to 129 million, with continued strength in the U.S., which grew 14%. As mentioned, this marks our fourth consecutive quarter of growth overall and the seventh consecutive quarter of growth in the U.S. In the Australian and New Zealand region, we registered first quarter revenue growth of more than 6%. The success stems from a combination of the extensive strategic work our teams have been actioning in the region, particularly in the Culture Kings brand, leveraging our highly effective test and repeat model and an improved macro environment. We strengthen our customer connections and deliver nearly 8% growth in our active customer base over the training 12 months, underscoring that demand for our brands is strong. Our omnichannel expansion plans are on track and exceeding expectations. Princess Polly opened its seventh store in Soho in the first quarter, which was our strongest opening to date, and early reads from Princess Polly and Petal & Pup's debuts chain-wide at Nordstrom are encouraging. And rounding out the quarter, benefiting from the strong top-line growth, healthy growth margin performance, and continued operating discipline, we exceeded our profitability expectations and delivered $2.7 million of adjusted EBITDA. On the heels of the solid first quarter, I want to address the current macro environment and the uncertainty surrounding trade and tariffs. As we approach the evolving trade policies, we continue to lean into our goals of building brands for the long term, delivering high-quality fashion to our customers, and balancing growth and profitability. We're confident that our proactive approach, flexible business model, and speed of execution will allow us to navigate through this period and position us to emerge stronger on the other side. Let me walk you through our three-pronged approach to tariffs. First, we leverage our relationships and scale with our key partners in China to agree on discounts that will allow us to share the burden of the first round of tariffs. Second, over the past six months, we've been intensely working on diversifying our supply chain. We anticipate our U.S. business will have minimal exposure to China in the fourth quarter, with production already shifting to countries such as Vietnam and Turkey. We are making this change in combination with our existing vendors, who have operations outside of China, and new partners that have a global footprint. We have teammates who are working on-site in the new locations to ensure the quality of our products meet both our high standards and those of our customers. Lastly, where necessary, we have the ability to take strategic price increases, carefully designed to limit impact on customer demand, uphold our commitment to accessible fashion, and protect our margins. Kevin will walk you through our outlook momentarily, but we continue to see solid demand trends in the first six weeks of the second quarter in line with our outlook for the year. The actions we're taking to diversify our supply chain are primarily focused on our U.S. operations. We will leverage our -U.S. business to maintain our long-term vendor relationships that are based in China. Longer term, this will allow us to leverage different regions as tariffs rebalance. We believe the actions we're taking will enhance our agility, resilience, and long-term competitiveness. We've faced challenges before, and we're well prepared to adapt as the landscape evolves. And as we've seen in the past, we come out stronger than before. While this work is well underway, we are committed to growing our brands for the near and long term. As a reminder, building on the success of last year, we laid out three key priorities for 2025 grounded in expanding our total addressable market. First, we will attract and retain customers on our direct consumer channels through on-trend, exclusive merchandising, and differentiated marketing strategies. In the first quarter, our merchandising team successfully optimized our inventory mix to align with current trends and evolving customer preferences and our innovative marketing approach deeply resonated with our customers, leading to solid growth in our direct consumer channels. Second, we will expand our brand awareness through physical retail and growing wholesale partnerships. Investments in our omnichannel expansion continue as planned, and as mentioned, in the first quarter, Princess Polly held its grand opening for its New York store, and both Princess Polly and Petal & Pop expanded to all Nordstroms. And lastly, we remain committed to streamlining our operations and strengthening our financial foundation. I'm very proud of our ability to adapt to the rapidly changing macro environment while protecting the core of our business. We ended the first quarter with a healthy inventory position and improved operating cash compared to the same period last year. Now, let me share some highlights from our brands from the first quarter, as well as upcoming strategic growth drivers. Starting with Princess Polly, the largest brand in our portfolio, which accounts for approximately half of the portfolio's revenue, Princess Polly is a leading fashion brand known for its trend-forward styles and strong connection with its next generation customers. With a growing digital business and expanding retail footprint, the brand continues to deliver strong performance, demonstrating its constant pulse on its customers' preferences. In the first quarter, Princess Polly's fashion-forward approach capitalized on emerging trends in classic prints such as polka dots, gingham, and modern animal prints. Dresses continue to be a leading category, with emphasis on key moments including prom and graduation, with the collection driving double-digit revenue growth compared to last year. Princess Polly also continues to expand its lifestyle category and offer offerings, including new arrivals such as active wear and sleepwear, as well as swim, which has seen a significant growth year to date. And heading into the -to-school season, basics such as tees and denim will further round out the lifestyle assortment strategy. Princess Polly's marketing success is rooted in a deep understanding of where its customers spend time, showing up wherever they stroll, stream, or shop. In the first quarter, this customer-first approach led to early success in TikTok Shop, where the brand is blending content and commerce in fresh, innovative ways. At the end of March, Princess Polly launched a five-day campaign highlighting its new arrivals, featuring TikTok banners, a live shopping event on TikTok, and in-store activations at a Los Angeles store. The campaign exceeded revenue targets, and notably, more than 75% of TikTok Shop orders during the quarter came from new customers. The first quarter also marked a significant period of high-impact marketing activations, with the likes of an exclusive edit with influencer Ashton Earle, in-store events, and the highly anticipated Soho store opening, which drew lines on Broadway and featured Times Square billboards and a large-scale influencer event. In addition to its strong online presence, Princess Polly is expanding its physical footprint with plans to open seven new stores in 2025, bringing the total to 13 by the year end. All existing locations are outperforming revenue expectations, creating a halo effect on surrounding online markets, and serving as a powerful customer channel. With each new opening, the team continues to optimize operations, enhancing inventory flow, reconfiguring store layouts to increase capacity, and broadening the assortment of new style and accessories. New stores in Florida, Ohio, and California are slated to open in the second quarter, with three additional locations in New York and Pennsylvania planned for the second half of the year. In addition to its own store rollout, Princess Polly is also leveraging wholesale partnerships to expand brand awareness. As mentioned, Princess Polly debuted in all Nordstrom stores in the first quarter, and early results are exceeding expectations in both the stores and on Nordstrom.com, particularly in formal addresses. Princess Polly is also seeing an uptick in organic search from customers that have previously purchased on Nordstrom.com, confirming the thesis that putting our products on multiple channels helps expand awareness and drive customer acquisition. Petal & Puff also delivered solid performance in the quarter. The brand continues to resonate with its core 25 to -year-old female customer through a curated assortment of feminine fashion, everyday essentials, and occasion-ready styles at accessible price points. In the quarter, during Australia's summer months, customers responded well to tropical florals and vibrant prints, while offerings in the US were tailored to capture modern feminine spring trends, including waffles and lace details. Petal & Puff's approach of launching collections in Australia before bringing successful styles to the US remains valuable, providing insight into emerging trends and improving merchandising decisions. In addition to its strength in occasion wear, Petal & Puff is also expanding its assortment to capitalize on the growing demand for basics and luxe everyday pieces, including fine-knits, denim, and software wear details. Petal & Puff's innovative marketing and storytelling initiatives are transforming how customers are engaging with the brand, creating social narratives around tropical gateways, romantic occasions, and everyday elegance. This focus on authentic connections has driven social traffic up 6% year over year, with Pinterest inspirational boards and TikTok content such as styling videos and user-generated content bringing the brand to life. Building on the momentum, Petal & Puff is launching a TikTok shop in the second quarter, creating a seamless path from inspiration to purchase. I'm really excited that Petal & Puff's expanded omnichannel presence continues to be a driving force for the brand. As noted, Petal & Puff rolled out to all Nordstrom stores in March and we're seeing incredibly strong results out of the gate in terms of sell-through, as well as views on Nordstrom.com. Petal & Puff's high quality styles at accessible price points tap into a white space opportunity at Nordstrom and really resonate with customers. Petal & Puff is bringing the brand to life this spring through standalone, expanded branding throughout all Nordstrom stores from mid-May through June, designed to build awareness and engage new customers. They will also have four immersive pop-up shops in select Nordstroms which will feature a branded coffee bar alongside activations with influencers and customers. In addition to this exciting expansion at Nordstrom, Petal & Puff launched new wholesale partnerships with Dillard's and Stitchfix in the first quarter. Turning to our three web brands, Culture Kings and Minimal. I'm thrilled to report that the Australian New Zealand region is back to growth driven in large part by improvements in the Culture Kings business over the last 18 months. As noted on our last call, in the first quarter we strengthened the global Culture Kings leadership team with strategic hires and the teams have already hit the ground running, optimizing the current business as well driving strategic growth opportunities for the future. Culture Kings unique differentiator in the streetwear space is its fashion forward in-house design brands including Loiter, Minimal, Caray and St. Morita which consistently rank as best sellers in both the US and Australia. As a reminder, Culture Kings began shifting its merchandising strategy to the test and repeat approach for its in-house brands last year and we're already seeing really strong results. In Australia, revenue for in-house brands grew over 40 percent in the first quarter, a testament to the power of the test and repeat model. Leading the growth in both regions is in-house brands Loiter which continue to accelerate through its fashion forward on-trend collections including the highly anticipated Moda launch. In addition to its in-house brands, roughly half of Culture Kings assortment comprises of legacy and emerging third-party brands to complete the world's fit. Culture Kings continues to see meaningful growth in its collaborations with leading brands such as New Era and Asics in the US and Ed Hardy in Australia. Culture Kings signature retail payment concept comes to life through high energy marketing activations including live music, celebrity and aptly hosted events making each visit to a Culture Kings store a unique experience. In the first quarter, the brand hosted events in stores across both regions with partners including F1, the UFC and the NFL driving store traffic, viral moments across social media and positive customer experiences. In the US, Culture Kings recently partnered with WWE during WrestleMania 41 in Las Vegas which included an exclusive capsule collection and a large-scale in-store event with over a thousand attendees lined up outside Culture Kings. The activation includes celebrity WWE wrestlers, a cage installation and exclusive merchandise leading to one of the biggest sales day at the Culture Kings Las Vegas store since its grand opening showcasing the power of the immersive brand events and cultural relevance. As mentioned last quarter, we're viewing locations for our next Culture Kings store in the US and I'm confident that there is significant runways for the brand both in the US and globally. In closing, I'm proud of our strong first quarter performance and our execution against our growth initiatives. I'm also very impressed by the team's speed and agility in navigating the current environment. As mentioned, we believe the impact the tariffs to our business is transitory and while distracting, it does give us the opportunity to showcase our resilience. Our brands and teams have successfully navigated multiple macro environment challenges before and I'm confident that we will emerge in a position of strength and we'll be well positioned from both a brand and operational standpoint to capture additional market share through this transition. Now I'll hand it over to Kevin to walk you through the financials in more detail.

Thanks, Kieran. We're incredibly pleased with our first quarter results as both sales and adjusted EBITDA came in ahead of our expectations driven by strong customer response to our product offerings as well as our team's ability to execute at the highest levels. For the first quarter, net sales increased .1% to 129 million and .3% on a constant currency basis compared to the same period last year. This was driven by continued strength in our US business which increased .2% year over year. As Kieran mentioned, we're really pleased that Australia is back to growth and delivered .2% growth in the first quarter, a result of the hard work the teams have done over the last 18 months and an improved macro environment in the region. Total orders for the first quarter were 1.66 million, increasing .2% as compared to the first quarter last year. Our brands continue to resonate as we acquire new customers and retain our existing customers. I'm pleased that our trailing 12-month active customer count rose to 4.13 million by the end of the first quarter, which is a .8% increase compared to a year ago. Our first quarter average order value was $78, increasing .3% compared to the first quarter last year. Turning now to our profitability metrics, gross margin expanded 100 basis points in the first quarter to .2% compared to .2% in the same period last year, which was in line with our expectations. The increase in gross margin was driven by a higher penetration of full price selling and an improved inventory position, partially offset by the impact of our growing wholesale business. Selling expenses were $38.2 million compared to $34.2 million in the first quarter of 2024. The increase was due to the opening of new stores as we record pre-opening rent costs and selling expenses. As a reminder, we're slated to open six additional stores this year. As a percentage of net sales, selling expenses were .7% compared to .3% a year ago. Marketing expenses in the quarter were $15.2 million compared to $14.9 million in the first quarter of 2024. As a percentage of net sales, marketing expenses were .8% compared to .7% the first quarter of 2024, in line with our expectations. General and administrative expenses were $25.7 million compared to $22.7 million in the first quarter of 2024, due to an increase in wages and incentive compensation. As a percentage of net sales, G&A expenses increased to 20% from .4% in the first quarter of last year. As noted, we're proud that our strong top-line results flowed through the P&L and yielded a better than expected $2.7 million adjusted EBITDA metric, which compared to $0.9 million in the same period last year. Adjusted EBITDA margin for the first quarter of 2025 increased 140 basis points to .1% compared to .7% in the same period last year, showcasing the power of our model when we scale on the top line. Turning now to the balance sheet. We ended the quarter with $26.7 million in cash and cash equivalents compared to $24.2 million at the end of the first quarter of 2024. Net debt at the end of the quarter was $93.2 million compared to $81.6 million a year ago. The increase was related to additional inventory to meet demand, as well as to invest in new Princess Polly stores in the U.S. We will continue to invest in new Princess Polly stores with three stores opening in late Q2, one in Q3, and two in Q4. We're especially pleased that we brought our leverage down to 3.7 compared to 6.4 in the first quarter of last year. On inventory, our test and repeat merchandising model allows us to optimize our inventory to meet current trends, and we're proud that we ended the quarter with $94.4 million in inventory, which is an increase of 3% compared to a year ago, and well below our 10% net sales growth. A quick update on our stock buyback program. In the first quarter, we purchased nearly 16,000 shares for a total cost of approximately $250,000. As at the end of Q1, we have $1.1 million remaining in our share of repurchase authorization. Turning now to our guidance. As Kiran mentioned, we continue to see solid demand trends in the first six weeks of the second quarter. We're confident that our demand for our brands is strong, and we're continuing to deliver on-trend fashion that our customers love, while broadening our reach and acquiring new customers through omni-channel initiatives. We believe the current tariff environment will have a brief and transitory impact on our business, primarily as we ship production out of China in the second and third quarter. For the full year, we're reaffirming our top-line outlook for net sales to be between $600 to $610 million, representing growth in the 4% to 6% range. Given the current uncertainties surrounding trade negotiations and the impact of the heightened tariffs over the last month, we're adjusting the range of our adjusted EBITDA outlook to be between $24 to $27.5 million. Our outlook contemplates no changes to the tariff rates in place as of today, May 13th. For the full year of 2025, we anticipate gross margin to be between .4% and 56.7%, with the other expense rates relatively in line with our outlook. Importantly, the tariffs will have an outsized impact in the second and third quarters as we work through our three-pronged action plan. As Ciarán noted, we anticipate limited exposure to China in the fourth quarter. For modeling purposes, we anticipate fiscal 2025 stock-based compensation of approximately $8 to $10 million, depreciation and amortization expense of roughly $19 to $21 million, interest and other expense of approximately $15 to $17 million, an effective tax rate of negative 40%, capex between $12 to $14 million, and weighted average diluted share count of approximately $10.8 million. For the second quarter, as noted, we continue to see strong demand for our brands. We expect net sales to be between $154 and $158 million, which includes the impact of lower promotional activity in the second quarter as we navigate the current macro environment. We expect gross margin in the range of .2% to .4% and adjusted EBITDA to be between $7 to $8 million. For modeling purposes for the second quarter, we anticipate stock-based compensation of approximately $1.5 to $2.5 million, depreciation and amortization, $4.5 to $5.5 million, interest and other expense of $4.5 to $5.5 million, an effective tax rate of negative 40%, capex between $3 to $5 million, and weighted average diluted shares of $10.7 million in the second quarter. In closing, we're really proud of our first quarter performance and the strong start to the year. While the recent tariff changes and uncertainty pose a near-term challenge, we're confident that we have a comprehensive plan in place and are taking swift action to not only mitigate the current tariff levels, but to emerge with a stronger, healthier foundation. We're operating with discipline as we approach the remainder of the year, and we're laser-focused on controlling what we can control. We remain committed to building durable and resilient fashion brands for the near and long term and delivering value for all of our stakeholders. With that, we'll open it up for questions.

Thank you. And at this time, we will conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, ask a question, press star 1 on your telephone keypad. We'll pause for a moment while we pull for questions. And your first question comes from Dana Telsey with Telsey Advisory Group. Please state your question.

Hi. Good afternoon, everyone, and good to hear that Australia returned to growth. As you think about the guidance provided, the revenues and the adjustability, but, can you give us the puts and takes on margins as we go through and how much is the headwind from tariffs, how you're mitigating the tariffs, and what's different in this 2.0 tariff environment from 1.0, and also thoughts on price increases. And then just the other topic on average order value, active customers, what are you seeing there in terms of customer behavior, and how is the tariff order? Thank you.

Thanks, Dana. Yeah, it is great to see Australia back to growth at the 6%, and look, the US growth of 14% as well is great. Maybe if I take the tariff question, and I suppose talk first about really how we have approached this tariff environment now is looking to really end up as we come through this with a very diversified, robust supply chain that sets us up for the next stage of growth. I would say kind of with that, going back six months ago, last November, we started intensively working at looking at how do we diversify outside of China, and for us, very focused on finding vendors that can work in our test and repeat model, and also at the quality that we expect and the quality that our customers expect. We kind of spent that last period finding those and really happy now with the new vendors that we're bringing on, working through the process with them, and scaling now with those vendors, some in Vietnam, some in Turkey, some new to us, and some of our existing suppliers. We feel that we will be predominantly out of China by Q4 of this year, and with that, just a much more robust supply chain and kind of set us up for the next stage of growth. The other actions we've taken as it relates to this tariff environment was working with existing vendors that are in China, getting discounts from them where we could kind of share the initial tariff rounds that came out in that kind of Jan fair period. Also, we have, I would say, very selectively taken some pricing actions in the last number of weeks across the brands, but I would say very focused on us looking at where do we have opportunity against our competitive set. We are very fortunate with pretty much all of the product exclusive to us. We do feel we had pricing opportunities. We hadn't taken pricing actions since 2021, so I would say very selectively and taking it across the brands. I think that sets us up well to kind of achieve that guidance that we've put out there for Q4 and for the rest of the year.

Got it. Yeah, and

just to add on to that from a gross margin perspective, Dana, very happy with the Q1 performance, up 100 basis points year over year, and that really does reflect the strategy that we have to move culture kings to a test and repeat. Really a solid inventory position across all of our brands, as well as a great product offering, really helped drive the full price selling performance in Q1. With the three pronged approach to tariffs that Kieran just walked through, that of course is incorporated into the guidance for gross margin, we feel very confident. We expect the impact to really be most pronounced in Q2 and Q3. It's a transitory impact, and then we'll kind of return to more normalized margins in Q4. We do see Q3 as the most impacted quarter due to the timing of inventory purchases. And then also just to touch on your AOV question, again, I think this quarter we saw AOV as relatively flat, and most of the sales growth really driven by order growth. And that's how we've been modeling really the balance of the year as well.

Thank you.

And your next question comes from Ryan Myers with Lake Street Capital Markets. Please state your question.

Hey guys, I just wanted to make sure I clarified this on the last question that you had answered, Kieran. So it sounds like you guys will be completely out of China by the fourth quarter. I guess that's faster than I would assume. So you guys will have no exposure by the end of the year then.

Yeah, maybe to touch on that point, I would say it's predominantly out, right? And look, we are very fortunate that with just over 30% of our business from the Australia, New Zealand, or outside of the US, right, we will continue to service those regions from our existing China suppliers, so continuing to hold on to those relationships. So for us, again, kind of going back to just building a much more robust supply chain. So I think we'll have multiple regions, and as we see kind of the tariff environment settle down, we'll have the option to work across regions, but making sure we have vendors who can fit into that test and repeat model at the quality we want. And obviously, we work in a kind of lowest price with fully loaded lowest price as we think about the different regions.

Okay, got it. And then, you know, it sounded like you saw some positive improvements out of Australia, New Zealand. So, you know, I'm just curious as we think about the business as a whole, given what you saw in the first quarter, what you're seeing here in the second quarter, you know, what sort of demand trends are you thinking in as we roll into the second half of the year? And what kind of incorporated in the guidance? Obviously, still, I would assume, continued double digit growth in the US. But, you know, is there any areas of upside if we see positive traction in those two regions and maybe a return to growth in the rest of the world? Any commentary there would be helpful.

Yeah, thanks, Ryan. Yeah, look, I think it's great to see Australia back to growth at the 6%. And I think as we get more and more kind of progress on moving Culture Kings on to that test repeat model and getting all their products fully there, I think we're really confident that we will see certainly positive growth in Australia for the next year or so, you know, and we'd probably see expect to see them a little bit negative in Q2, but then back to growth in Q3 and beyond. And then from a US perspective, you know, just really, really happy with the continued growth and performance in the US up 14%. And, you know, we're seeing it across the brands, we're seeing it, you know, indirect to consumer, also great progress in the wholesale partnerships that we have, particularly Nordstrom and how the Princess Poly stores are performing. You know, I think as we kind of went through Q2, we are, you know, certainly saw that kind of strong performance from Q1 continue. And we did moderate some shipments from our vendors in that in April period, we've also, you know, been much more selective on promotions as we've just managed through that tariff uncertainty, you know, so that will have some impact in Q2. But look, you know, feel good about the guidance that we have out there for and you know, really good about just continues kind of increasing time and bigger and bigger opportunities for the brands.

Awesome. Thanks for taking my questions.

Thank you. Just a reminder to the audience to ask a question, press star one to remove your question, press star two. Your next question comes from Ashley Owens with KeyBank Capital Markets. Please state your question.

Hi, good afternoon. Thanks for taking the question. So quickly, you know, I think the US business as well as technically lapsing some more difficult comparisons, we moved through the balance of the year, we just love to gauge your thoughts as to how sustainable that growth is, you know, we are lapsing some of the initiatives from last year that did contribute to that strong 19 to 20% growth, give or take. And then additionally, just wanted to touch on selling expenses here too. You mentioned these were up due to the additional store openings in the press release and I know there's additional stores slotted for the remainder of the year. So just wanting to double check if this is something we should still expect to see some modest leverage in this year.

Thanks. Yes, thanks, Ashley. I'll take the first part and maybe Kevin, you on the selling expenses. So yeah, look, I think as we kind of go through the year, we certainly feel confident about that overall guidance that we have out there. Ashley, I think, you know, particularly as it relates to the US, you know, obviously really good performance in Q1, that 14%. And look, I think as we look at the underlying metrics with that customer growth up strongly as well or the growth continuing, and as we continue to introduce more and more new customers to the brand, whether through the wholesale relationships that we now have with Princess Polly and Petal & Pup in Nordstrom. And you also saw that Dillards and Stitch Fix are going to start doing some wholesale in with Petal & Pup. And also just look, I suppose, the confidence that we are seeing as we open more stores for Princess Polly, you know, continuing to introduce new customers to the brand, continuing to get more share of wallet. I think we feel good. You know, the brands are actively working on, you know, some of the categories we started in, you know, probably this time last year, whether it's active in sleep for Princess Polly or, you know, some of the work that Petal is doing in basics and everyday looks. I think, you know, feel good about the opportunity that we have and the teams are actively getting after us.

Yeah, and to touch on the selling expense question, we made good progress in Q1 on our supply chain optimization and we saw some lower costs related to outbound freight and fulfillment costs. Excluding one-time costs, we actually did leverage selling expenses in a quarter. And with, you know, even with the impact of pre-opening costs for stores incorporated into, you know, the second quarter into the back half, we still feel good about the initial guidance that we provided on selling. And, you know, I think that's kind of around a mid-26%. And so we reiterate that guidance for the year and for the quarter.

Okay, great. Maybe just one follow-up. So with the new partners you're moving to as you diverse away from China, you've heard from others that just the demand is high in those regions for sourcing, due to some of the volatility, maybe not as favorable of the cost profile, especially with them being newer entrants into those markets. So I would be curious from your standpoint, since, you know, you are moving into them, just any color on the margin profiles there versus what we were seeing in China and if you've served any differences.

Sure. Thanks, Ashley. Yeah, I think, look, we've been, I suppose, actively working to find the right partners for us over the last six months now. And the team, I feel, has done a really good job of that. You know, for us, you know, the key attributes of that are can they work in our test and repeat model, right? So small MOQs and then scaling up to larger, you know, do they have the right quality profiles that we want, that our customers want? And then obviously from a price point perspective, I think for us, making sure they can work in that test and repeat model and quality are certainly kind of the most important things. And, you know, as it relates to price, we see, you know, some slight differences. And, you know, I think as we work through it, though, that there's a lot of confidence with our team and with the partners we're working with that we can get to, you know, the equivalency of where we are today. And certainly, you know, we'll end up with a much more robust supply chain and a lot of optionality depending on where various tariff ends up for different jurisdictions.

Okay, great. Thanks, and best of luck.

Your next question comes from Eric Beter with SCC Research. Please, set your question.

Good afternoon. Congratulations. We'll talk a little bit about the future with some of these bases here. So we're going to end the year with like 13 stores, approximately, if I remember correctly. You know, what should we be thinking about as a potential longer term for the amount of stores? And I guess the follow-up is, are you still seeing the stores' ability to drive new customers, A, to the stores and B, to online?

Yeah, thanks, Eric. I'll maybe take the second part first. And, you know, certainly seeing that new customer growth, I think you see it in the overall business, and we're certainly seeing it from or on the channel initiatives. And, you know, in the stores, what we're seeing is 30% of the customers are new to the brand, and we've seen that now for each of the new store openings that we've done. So, you know, great, great to see that. But we're also seeing that in the wholesale relationships that we have, particularly with Nordstrom's for both Princess Polly and Petal & Pup. So I think all of those giving us a lot of confidence to continue to build into these omnichannel opportunities, you know, build on the brand awareness, put our in front of customers wherever they are, and continue to go after the long-term time for these brands. You know, as it relates to new stores, and, you know, look, we're really happy with the store performance that we've seen so far. They're ahead of sales plan. They're all profitable. You know, we've modeled these on a two-year less payback, so kind of all in line there. I think, look, we are, we're fussy as we go look for new locations for all the brands, because we've got such great brands here. And we look, we would look to kind of, I suppose, at the moment, keep the pacing that we're at for next year. And certainly as we kind of add new leases or new opportunities, we share them on calls.

Sure. And let's talk about Dillard's here. So, you know, Dillard's has a customer base in some respects, especially for Petal & Pup, which I think would be somewhat ideal. Is there the opportunity to have Petal & Pup kind of penetrate that chain as well as they've done here with Nordstrom's going forward? And are there, you know, what is the longer-term thought process in wholesale in terms of where else you can go after this? Thank you.

Yeah, thanks, Eric. Look, I think the Petal & Pup team has done a really great job, you know, with the brand that they have, you know, developing great products for it and really bringing it to life in, you know, not just direct to consumer, but also in other channels. You know, they've seen great success at Nordstrom. I think, you know, what they are seeing there, what the retailers are seeing and are eager to get the brand. And, you know, I think looking to roll out now in Dillard's is a really nice opportunity for them. I think, you know, it'll probably go a bit slow before it goes fast. But I think we're fine working at that pace and leaning into the long-term opportunity there. And we certainly feel it's there, you know, with Dillard's and regionally with the footprint that they have for the Petal & Pup brand. So, yeah, looking forward to executing against this.

Okay, thank you.

Thank you. And ladies and gentlemen, that was our last question today. So at this point, we conclude, aka Brands holding first quarter 2025 earnings conference call. All parties may disconnect. Have a good day.