a.k.a. Brands Holding Corp. (AKA) Q1 2025 Earnings Report, Transcript and Summary

Greetings. Welcome to a.k.a. Brands Holding’s First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this call is being recorded. I’ll now turn the conference over to our host, Emily Schwartz, Investor Relations. Thank you. You may begin.

Good afternoon. Thank you for joining a.k.a. Brands to discuss our first quarter 2025 results release this afternoon, which can be found on our website at ir.aka-brands.com. With me on the call today is Ciaran 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 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 also contain non-GAAP financial measures, such as adjusted EBITDA and adjusted EBITDA margin. Reconciliations 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 will turn the call over to Ciaran.

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 these 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 a 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 US. In the Australia 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 omni-channel 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 gross margin performance and continued operating discipline, we exceeded our profitability expectations and delivered $2.7 million of adjusted EBITDA. On the heels of a 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 allowed 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. And 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 non-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 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-to-consumer channels. Second, we will expand our brand awareness through physical retail and growing wholesale partnerships. Investments in our omni-channel 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 & Pup expanded to all Nordstrom’s. 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 plastic 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 collections driving double-digit revenue growth compared to last year. Princess Polly also continues to expand its lifestyle category offerings including newer arrivals such as activewear and sleepwear as well as swim, which has seen a significant growth year-to-date and heading into the back to school season, basics such as tees [ph] 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 their 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 Ashtin Earle in store events and the highly anticipated SoHo store opening, which drew lines down 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 acquisition 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 dresses. 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 & Pup also delivered solid performance in the quarter. The brand continues to resonate with its core 25 to 40-year old female customer through a curated assortment of feminine fashion, everyday essentials and occasional 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 U.S. were tailored to capture modern feminine, spring trends, including waffles and lace details. Petal & Pup’s approach of launching collections in Australia before bringing successful styles to the U.S. remains valuable, providing insight into emerging trends and improving merchandising decisions. In addition to its strength in occasional wear, Petal & Pup is also expanding its assortment to capitalize on the growing demand for basics and luxe everyday pieces including fine knits, denim and soft workwear details. Petal & Pup’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 & Pup is launching a TikTok shop in the second quarter, creating a seamless path from inspiration to purchase. I’m really excited that Petal & Pup expanded omni-channel presence continues to be a driving force for the brand. As noted, Petal & Pup 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 & Pup’s high quality styles at accessible price points tap into a white space opportunity at Nordstrom and really resonate with customers. Petal & Pup is bringing the brand to life this spring through stand alone 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 Nordstrom’s, which will feature a branded coffee bar alongside activations with influencers and customers. In addition to this exciting expansion at Nordstrom, Petal & Pup launched new wholesale partnerships with Dillard’s and Stitch Fix in the first quarter. Turning to our streetwear brands, Culture Kings and mnml. I’m thrilled to report that the Australia and 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 as 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, mnml, Carre and Saint Morta, which consistently rank as best sellers in both the U.S. 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% 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 continued to accelerate through its fashion forward on trend collections including the highly anticipated mobile 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 streetwear outfit. Culture Kings continues to see meaningful growth in its collaborations with leading brands such as New Era and ASICS in the U.S. and Ed Hardy in Australia. Culture Kings signature retail payment concept comes to life through high energy marketing activations including live music, celebrity and athlete 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 U.S., 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 1,000 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 King store in the U.S. and I’m confident that there is significant runway for the brand both in the U.S. 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 of 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, Ciaran. 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 10.1% to $129 million and 12.3% on a constant currency basis compared to the same period last year. This was driven by continued strength in our U.S. business which increased 14.2% year-over-year. As Ciaran mentioned, we’re really pleased that Australia is back to growth and delivered 6.2% 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 9.2% 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 7.8% increase compared to a year ago. Our first quarter average order value was $78, increasing 1.3% compared to the first quarter last year. Turning now to our profitability metrics, Gross margin expanded 100 basis points in the first quarter to 57.2% compared to 56.2% 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 29.7% compared to 29.3% 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 11.8% compared to 12.7% in 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 19.4% 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 compares to $0.9 million in the same period last year. Adjusted EBITDA margin for the first quarter of 2025 increased 140 basis points to 2.1% compared to 0.7% 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 of the end of Q1, we have $1.1 million remaining in our share repurchase authorization. Turning now to our guidance. As Ciaran 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 shift 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 million to $610 million, representing growth in the 4% to 6% range. Given the current uncertainty 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 million to $27.5 million. Our outlook contemplates no changes to the tariff rates in place as of today May 13. For the full year of 2025, we anticipate gross margin to be between 56.4% and 56.7%, with the other expense rates relatively in line with our prior 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 Ciaran noted, we anticipate limited exposure to China in the fourth quarter. For modeling purposes, we anticipate fiscal 2025 stock-based compensation of approximately $8 million to $10 million, depreciation and amortization expense of roughly $19 million to $21 million, interest and other expense of approximately $15 million to $17 million, an effective tax rate of negative 40%, CapEx between $12 million 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 million 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 57.2% to 57.4% and adjusted EBITDA to be between $7 million to $8 million. For modeling purposes for the second quarter, we anticipate stock-based compensation of approximately $1.5 million to $2.5 million, depreciation and amortization $4.5 million to $5.5 million, interest and other expense of $4.5 million to $5.5million, an effective tax rate of negative 40%, CapEx between $3 million 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. [Operator Instructions] 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 adjusted EBITDA, can you give us the puts and takes on margins as we go through and how much is a 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 cadence of the quarter? Thank you.

Thanks, Dana. Yes, it is great to see Australia back to growth at the 6%. And look, the U.S 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’ve kind of spent that last period finding those 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. And the other actions we’ve taken as it relates to the 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. And 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 have pricing opportunity. We hadn’t taken pricing action 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.

Yes. 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 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 Ciaran just walked through, that of course is incorporated into the guidance for gross margin. And 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 Meyers 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, Ciaran. So it sounds like you guys will be completely out of China by the fourth quarter, I guess, that’s faster than I would have assumed. You guys will have no exposure by the end of the year then.

Yes. Maybe to touch on that, Ryan, I would say, it’s predominantly outright. And look, we are very fortunate that with just over 30% of our business from the Australia, New Zealand are outside of the U.S. 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 will 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 can – we have vendors who can fit into that test and repeat model at the quality we want. And obviously, we work then at kind of lowest price with fully loaded lowest price as we think about the different regions.

Okay, got it. And then sounded like you saw some positive improvements out of Australia and New Zealand. So 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. What sort of demand trends are you thinking in as we roll into the second half of the year and what’s kind of incorporated in the guidance obviously still I would assume continued double-digit growth in the U.S. but 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.

Yes. Thanks, Ryan. Yes. 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 onto that test repeat model and getting all that product fully there, I think feel really confident that we will see certainly positive growth in Australia for the full year. But I think they are up against a particularly tough promotional lap in Q2 this year. So 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 U.S. perspective, just really, really happy with the continued growth and performance in the U.S. up 14%. We’re seeing it across the brands. We’re seeing it in direct to consumer, also great progress in the wholesale partnerships that we have, particularly Nordstrom and how the Princess Polly stores are performing. I think as we kind of went through Q2, we are certainly saw that kind of strong performance from Q1 continue. We did moderate some shipments from our vendors in April period. We’ve also been much more selective on promotions as we’ve just managed through that tariff uncertainty. So that will have some impact in Q2. But look, feel good about the guidance that we have out there and really good about just continued kind of increasing time and bigger and bigger opportunities for the brands.

Awesome. Thanks for taking my questions.

Thank you. [Operator Instructions] Your next question comes from Ashley Owens with KeyBanc Capital Markets. Please state your question.

Hi, good afternoon. Thanks for taking the questions. So quickly, I think the U.S. business as well is technically lapsing some more difficult compares as we move through the balance of the year. We’d just love to gauge your thoughts as to how sustainable that growth is. 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, I 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 maybe Kevin, on the selling expenses. So yes, 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 particularly as it relates to the U.S. obviously really good performance in Q1 that 14%. And look I think as we look at the – I suppose the underlying metrics with that, that customer growth up strongly as well or order 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 and Nordstrom. And you also saw that Dillard’s and Stitch Fix are going to start doing some wholesaling with Petal & Pup. And also just look the – I suppose the confidence that we are seeing as we open more stores for Princess Polly, continuing to introduce new customers to the brand, continuing to get more share of wallet. I think we feel good. The brands are actively working on some of the categories we started in probably this time last year, whether it’s active and sleep for Princess Polly or some of the work that Petal is doing in basics and everyday looks. I think feel good about the opportunity that we have and the teams are actively getting after us.

Yes. 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 the quarter and with – even with the impact of pre-opening costs for stores incorporated into the second quarter into the back half, we still feel good about the initial guidance that we provided on selling and I think that’s kind of around 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 – diversify away from China, you’ve heard from others that just given the demand is high in those regions for sourcing due to some of the volatility maybe not as favorable of a cost profile especially with them being newer entrants into those markets. So would be curious from your standpoint since you are moving into them? Just any color on the margin profiles there versus what we were seeing in China and if you’ve observed any differences.

Sure. Thanks, Ashley. Yes, 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. For us, 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, do they have the right quality profile 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 as it relates to price, we see some slight differences. And I think as we work through it though that there’s a lot of confidence with our team and with the partners that we’re working with that we can get to the equivalency of where we are today. And certainly, 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 Beder with SCC Research. Please state your question.

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

Yes. Thanks, Eric. I’ll maybe take the second part first. And certainly seeing that, that new customer growth, I think you see it in the overall business and we’re certainly seeing it from our omni-channel initiatives. In the stores, what we’re seeing is about 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 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 omni-channel opportunities, build on the brand awareness, put our product in front of customers wherever they are and continue to go after the long-term TAM for these brands. As it relates to new stores, 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. We’ve modeled these on a two-year less payback. So kind of all in line there. I think look, we’re fussy as we go look for new locations for all the brands because we’ve got such great brands here. But 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. Let’s talk about Dillard’s here. So Dillard’s has a customer base in some respects, especially for Petal & Pup, which you probably 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 – what is the longer-term thought process in wholesale in terms of where else you can go after this? Thank you.

Yes. Thanks, Eric. Look, I think the Petal & Pup team have done a really great job with the brand that they have developing great products for it and really bring it to life in not just direct-to-consumer but also in other channels. They’ve seen great success at Nordstrom. I think what they are seeing there, other retailers are seeing and are eager to get the brand. And I think looking to rollout now in Dillard’s is a really nice opportunity for them. I think 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 and with Dillard’s and regionally with the footprint that they have for the Petal & Pup brand. So yes, looking forward to executing against it.

Okay. Thank you.

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