Thank you for standing by. My name is Jill [ph] and I'll be your conference operator today. At this time, I would like to welcome everyone to the a.k.a. Brands Holding Corp. Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. [Operator Instructions]. I would now like to turn the conference over to Emily, Head of Investor Relations. You may begin.

Good afternoon. Thank you for joining a.k.a. Brands' third quarter fiscal 2024 conference call to discuss the results released this afternoon, which can be found on our website at ir.aka-brands.com. With me on the call today is Ciaran Long, Interim Chief Executive Officer and 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 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 measures such as adjusted EBITDA and adjusted EBITDA margin. 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 Ciaran.

Thanks, Emily. Good afternoon, everyone, and thank you for joining us today to discuss our third quarter results. I'm very pleased that we had another strong quarter, exceeding expectations on both the top and bottom lines. I want to take a moment to thank the teams for their continued commitment to building great next-generation brands that customers love. Our steadfast focus on executing our strategic initiatives and innovation continues to drive growth and profitability. Let me highlight some key achievements from the quarter. Our net sales growth surpassed expectations, reaching approximately $150 million, a 6.4% increase year-over-year. The momentum in the U.S. continues, and we delivered net sales of $100 million, a robust 19.5% increase over the same period last year. Our strong top-line performance marks our 2nd consecutive quarter of overall growth, and importantly, our 5th consecutive quarter of positive growth in the U.S. We're seeing tremendous traction with customers, both new and existing, and we achieved an impressive 14% growth in our active customer base year-over-year. We delivered a gross margin of 58%, our highest level achieved in the past three years. Our strong gross margin underscores the strength and effectiveness of our test and repeat business model, the uniqueness of our portfolio brand strategy, and our ability to drive operational efficiency. And I'm proud to announce that we delivered over $8 million in adjusted EBITDA, an impressive 75% increase compared to the same period last year, which was ahead of our expectations. Based on the exceedingly strong customer response from Petal & Pub on Nordstrom.com, Petal & Pub launched in over 40 Nordstroms in October, Princess Polly also launched in 20 Nordstrom stores in October, amplifying our brand's visibility and customer reach. And lastly, on the brick-and-mortar expansion front, Princess Polly opened two new stores in the…

Thank you. The floor is now open for questions. [Operator Instructions]. Your first question comes from the line of Ashley Owens of KeyBanc. Your line is open.

Hi, good afternoon. Thanks for taking our question. Maybe just to start with the guide for 4Q, help us unpack some of the puts and takes here, how we should be thinking about the balance between AOV and order growth? And then just any color on current trends quarter-to-date.

Thanks Ashley. I think as we head into Q4, I think we are certainly like I said in call, really energized by the performance we've seen over the last couple of quarters that we are continuing to be overall back to growth. I think really a standout for us is that 19.5% growth in the U.S. coupled with gross margins up 260 basis points and increasing EBITDA 75% year-over-year to $8 million. So I think just really performance. As we think about Q4, we feel really good about the composition and quality of the inventory as we head into the quarter. And for us from a guide perspective, expecting the same trends we're seeing on the regional growth rates that we've seen now across Q3 and Q2. We are expecting those to continue into Q4. As it relates to AOV, and to AOV and orders, I think a slight increase in AOV year-over-year and probably more of the growth coming from order volume year-over-year. And I think that is kind of how we feel the business is performing and feeling good as we head into the Q4 period.

Okay, got you. That is super helpful. Just a follow up. As we think about additional marketplace and wholesale expansion, going well for Petal & Pup and you increased into some physical doors there, would you say you are open to continued expansion? And is this a strategy you are assessing for any of your other brands in the portfolio? Thanks.

Yes. Thanks Ashley. Look, I think we're really happy with the performance and the work all of the different brands are doing to test new omnichannel opportunities. Certainly, I think Petal & Pup is one of the standouts, the test that they did on Nordstrom.com performed really well. They put product on there in February of this year, so a really strong success. And with that, Nordstrom have asked them to test in 40 doors in the Q4 period. So I think we are really looking forward to seeing the results there and hopefully expanding on that. Great to see Polly also in 20 doors from Nordstrom. I think, look, we're open to, like we said in our strategy, putting our product in front of customers wherever they are. And that is leaning into testing marketplace wholesale opportunities. And also, I think what Princess Polly is doing in opening new stores, one store last year. They left six by the end of the year. And I think just seeing really strong success there and coming from just sales, the EBITDA delivery, but also introducing the brand to new customers with over 30% of the customers in the stores are new to Princess Polly.

Really appreciate the color there. I will pass it along.

Your next question comes from the line of Dana Telsey of the Telsey Group. Your line is open.

Hi, good afternoon. As you think about the potential for tariffs going forward, can you elaborate on what percent of your goods are directly imported, including how much comes from China? If there is a tariff, how do you offset it, whether it is changes in sourcing or pricing? Thank you.

Thanks, Dana. Look, the majority of our product does come in from China. We are actively working with our manufacturing partners to reduce the exposure that we have there. That will take some time. We are very fortunate with the test and repeat model that we have. The brands are pretty much currently bound for Q1 next year. Also, across Petal & Pup, Princess Polly and Minimal, pretty much 100% of the product we have is exclusive to us. As we think about Culture Kings, about 50% of it is exclusive to us. So, we feel that if we need to take pricing actions, we can. But look, we are very focused on reducing our concentration within China. We have a very nimble team of really strong performers. They are going to react and continue to adjust as we get clarity on any changes in the area.

Got it. And can you just talk a little bit on the wholesale channel? How is that doing? What are you seeing in terms of growth there? And how do you think of full price selling in the margins on that distribution channel? Thank you.

Sure. Thanks, Dana. Yes, I think, look, we are really happy with the success that we have seen across all of the brands on the channel initiatives. And I think really coming a nice part of that 90.5% growth we saw in the U.S., the expanding gross margins of 260 basis points and the great delivery of EBITDA. At the moment, all of the brands are performing well in all of the channels they are in, direct-to-consumer, wholesale, marketplace and stores. And it's really strong performance on full price selling. I feel the inventory that we have on our own direct-to-consumer sites in these channels, they just performing really, really well and we are continuing to chase into demand across the brands and across the channels, and expecting to see that again with some nice strong Q4 performance like we have seen over the last couple of quarters.

Thank you.

Your next question comes from the line of Eric Beder of SCC Research. Your line is open.

Good afternoon. Congratulations. I want to talk about the stores. So your anniversary the Century City location in September. What is the learning experience from that and how have you transported that into the rest of the chain and the newer stores here?

Yes. Thanks, Eric. Look, I think we are really happy with the performance we are seeing across all of the stores. We opened our first one in Century City last year. And in Q3 we opened in Scottsdale and San Diego and I would say over the last couple of weeks we opened in Boston. I would say all of the new openings performing ahead of expectations from all of our metrics. I think what we are seeing is, well, I think firstly people love the brand Princess Polly. It just performs really, really well. And the fact that we can give them know that in real life experience with the product where they can touch and feel it is really resonating with their customers. It is amazing the lines that they have for the new openings of the store and that demand that's there. And we are in the new openings. They are bigger than the Century City store. Century City is about 3,800 square foot and the new stores are more around 5,000 square foot. And we are certainly seeing as we put more products in front of customers and more of that breadth of the range that they can see online, they are reacting to it really, really positively. We are also able to do more in just different categories, more accessories, more on footwear and other categories with that additional space. So I think we can see that -- look, we can see the model is working really well, customers are responding to it and we feel there is just a lot of opportunity for Princess Polly to continue to put their products in front of more customers and broaden their omnichannel opportunities.

Are the two California stores going to be open I guess in the next week or two, take full advantage of the holiday?

We are working hard to get them open. I think we just opened Boston last week. So the team are on to the next two and it will be touch and go before they get them open before Thanksgiving, but if not it will be really quickly afterwards.

Okay. I had a question about Culture Kings with the test and repeat you mentioned. What percent of Culture Kings will work with the test and repeat model? And how should we be thinking about that and the opportunity for it going forward? Thank you.

Yes, thanks Eric. Really happy with -- firstly with the progress the team of Culture Kings are making and that's the team in the U.S., the team in Australia. And Culture Kings in the U.S. continues to do really well and we are making good progress on getting back to where we feel we should be in the Australian market. For Culture Kings, about 50% of their product is first party exclusive brands that they have developed in-house. I would say within that all of that product can be on that test and repeat model. We see the strength of that test and repeat model across the other brands and we also see the strength of it as we move more and more of the brands and the assortment for Culture Kings on to that model. I would say Loiter is certainly for us the first example and the best example of the success there, up over 100% comp this year and even more from a gross margin dollar perspective. So we can certainly see big improvements there and that will continue across all of the Culture Kings first party assortment and about 50% of their revenue.

Great. Thank you.

With no further questions this concludes our Q&A session and today's conference call. You may now disconnect.