First Quarter Results Exceed Expectations and Company Raises Full Year Outlook

Inventory Down 7% Year-Over-Year and Down 11% Since the End of Fiscal 2022

a.k.a. Brands Holding Corp. (NYSE: AKA), a brand accelerator of next generation fashion brands, today announced financial results for the first quarter ended March 31, 2023.

Results for the First Quarter

• Net sales decreased 18.8% to $120.5 million, compared to $148.3 million in the first quarter of 2022; down 16% in Constant Currency¹.
• Net loss was $(9.6) million or $(0.07) per share, and (7.9%) of net sales in the first quarter of 2023, compared to net income of $1.5 million or $0.01 per share, and 1.0% of net sales in the first quarter of 2022.
• Adjusted EBITDA² was $2.2 million, or 1.8% of net sales, compared to $10.7 million, or 7.2% of net sales in the first quarter of 2022.

“I’m proud of our solid first quarter performance, which exceeded our expectations on both sales and adjusted EBITDA, driven by the strong execution across our brands and our continued focus on managing the business prudently,” said Ciaran Long, interim chief executive officer and chief financial officer of a.k.a. Brands. “Thanks to the hard work of our teams, we advanced our strategic initiatives, while simultaneously improving operating efficiencies across the business. We are setting the stage for improved operating performance as the year progresses. I’m particularly pleased with the incremental pay down of our debt in the quarter and our diligent approach to managing inventory. Our inventory balance is down 11% from the end of fiscal 2022 and down 7% from the first quarter last year.”

“As we look ahead, we believe that key to building durable next-generation brands is to be everywhere our customers are. While direct to consumer remains our priority, we are excited by the initial results of our omnichannel initiatives across our brands. Princess Polly had a successful wholesale pilot launch with PacSun in March, and Princess Polly will open its first brick and mortar location in the third quarter. We are also very pleased with the launch of Petal & Pup on Target’s marketplace. We remain laser focused on our growth initiatives, as well as strengthening our balance sheet. We are confident in our ability to deliver both growth and profit over the long-term, and plan to continue to pay down our debt as the year progresses,” concluded Long.

Recent Business Highlights

• Princess Polly will open its first store in Century City, Los Angeles in the third quarter and is expanding its wholesale relationship with PacSun based on the initial success.
• Culture Kings continues to gain awareness and traction in the U.S. bolstered by the flagship store in Las Vegas outperforming expectations.
• mnml remains a top 10 brand at Culture Kings and is leveraging Culture Kings as a distribution partner to grow brand recognition.
• Petal & Pup’s omnichannel test on Target’s marketplace is exceeding expectations.

First Quarter Financial Details

• Net sales decreased 18.8% to $120.5 million, compared to $148.3 million in the first quarter of 2022. The decrease was driven by a decline in the number of orders and average order value during the quarter, which was primarily due to macroeconomic conditions, including a higher promotional environment and changes in foreign currency rates. On a Constant Currency¹ basis, net sales decreased 16%.
• Gross margin was 56.9%, compared to 56.8% in the first quarter of 2022.
• Selling expenses were $34.4 million, compared to $40.4 million in the first quarter of 2022. Selling expenses were 28.6% of net sales compared to 27.2% of net sales in the first quarter of 2022. The increase was primarily due to the increased costs for distribution and store facilities, as well as lower average order value. This was partially offset by improved operational efficiencies in fulfillment and outbound shipping.
• Marketing expenses were $14.8 million, compared to $15.7 million in the first quarter of 2022. Marketing expenses were 12.3% of net sales compared to 10.6% of net sales in the first quarter of 2022. The increase was primarily driven by lower sales volume compared to the prior year.
• General and administrative (“G&A”) expenses were $25.9 million, compared to $24.8 million in the first quarter of 2022. G&A expenses were 21.5% of net sales compared to 16.7% of net sales in the first quarter of 2022. The increase in G&A expenses during the quarter was primarily due an increase in salaries and benefits and equity-based compensation.
• Adjusted EBITDA² was $2.2 million, or 1.8% of net sales, compared to $10.7 million, or 7.2% of net sales in the first quarter of 2022.

Balance Sheet and Cash Flow

• Cash and cash equivalents at the end of the first quarter totaled $30.2 million, compared to $46.3 million at the end of fiscal year 2022.
• Inventory at the end of the first quarter totaled $112.5 million, compared to $126.5 million at the end of fiscal year 2022.
• Debt at the end of the first quarter totaled $132.4 million, compared to $143.6 million at the end of fiscal year 2022.
• Cash flow used in operations for the three months ended March 31, 2023 was $3.0 million, compared to $14.9 million for the three months ended March 31, 2022.

Outlook

For the second quarter of 2023, the Company expects:

• Net sales between $137 million and $140 million
• Adjusted EBITDA³ between $5.5 million and $6.0 million
• Weighted average diluted share count of 130 million

For the full year 2023, the Company is raising its outlook and now expects:

• Net sales between $575 million and $605 million
• Adjusted EBITDA³ between $36 million and $38 million
• Weighted average diluted share count of 130 million

The above outlook is based on several assumptions, including but not limited to, foreign exchange rates remaining at the current levels and a continued promotional environment. See “Forward-Looking Statements” for additional information.

Conference Call

A conference call to discuss the Company’s first quarter results is scheduled for May 10, 2023, at 4:30 p.m. ET. Those who wish to participate in the call may do so by dialing (877) 858-5495 or (201) 689-8853 for international callers. The conference call will also be webcast live at https://ir.aka-brands.com in the Events and Presentations section. A recording will be available shortly after the conclusion of the call. To access the replay, please dial (877) 660-6853 or (201) 612-7415 for international callers, conference ID 13737879. An archive of the webcast will be available on a.k.a. Brands’ investor relations website.

Use of Non-GAAP Financial Measures and Other Operating Metrics

In addition to results determined in accordance with accounting principles generally accepted in the United States of America (GAAP), management utilizes certain non-GAAP performance measures such as Adjusted EBITDA, Adjusted EBITDA margin, net income (loss), as adjusted, net income (loss) per share, as adjusted and pro forma net sales for purposes of evaluating ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP operating measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance. See additional information at the end of this release regarding non-GAAP financial measures.

About a.k.a. Brands

a.k.a. Brands is a brand accelerator of next generation fashion brands. Each brand in the a.k.a. portfolio targets a distinct Gen Z and millennial audience, creates authentic and inspiring social content and offers quality exclusive merchandise. a.k.a. Brands leverages its next-generation retail platform to help each brand accelerate its growth, scale in new markets and enhance its profitability. Current brands in the a.k.a. Brands portfolio include Princess Polly, Culture Kings, mnml and Petal & Pup.

Forward-Looking Statements

Certain statements made in this release are “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. These forward-looking statements include statements related to our financial and operational results for the second quarter and long-term expectations, as well as our brands’ omnichannel expansion initiatives.

These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company’s control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements.

Important factors, among others, that may affect actual results or outcomes include the effects of economic downturns and unstable market conditions; our ability to regain compliance with the NYSE minimum share price requirement within the applicable cure period; our ability in the future to comply with the NYSE listing standards and maintain the listing of our common stock on the NYSE; risks related to doing business in China; our ability to anticipate rapidly-changing consumer preferences in the apparel, footwear and accessories industries; our ability to acquire new customers, retain existing customers or maintain average order value levels; the effectiveness of our marketing and our level of customer traffic; merchandise return rates; our ability to manage our inventory effectively; our success in identifying brands to acquire, integrate and manage on our platform; our ability to expand into new markets; the global nature of our business; interruptions in or increased costs of shipping and distribution, which could affect our ability to deliver our products to the market; our use of social media platforms and influencer sponsorship initiatives, which could adversely affect our reputation or subject us to fines or other penalties; fluctuating operating results; the inherent challenges in measuring certain of our key operating metrics, and the risk that real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business; the potential for tax liabilities that may increase the costs to our consumers; our ability to attract and retain highly qualified personnel, including key members of our leadership team; fluctuations in wage rates and the price, availability and quality of raw materials and finished goods, which could increase costs; foreign currency fluctuations; and other risks and uncertainties set forth in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Forward-Looking Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, quarterly reports on Form 10-Q and any other periodic reports that the Company may file with the Securities and Exchange Commission (the “SEC”) on March 9, 2023. a.k.a. Brands does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Active Customers

We view the number of active customers as a key indicator of our growth, the value proposition and consumer awareness of our brand, and their desire to purchase our products. In any particular period, we determine our number of active customers by counting the total number of unique customer accounts who have made at least one purchase in the preceding 12-month period, measured from the last date of such period.

Average Order Value

We define average order value (“AOV”) as net sales in a given period divided by the total orders placed in that period. AOV may fluctuate as we expand into new categories or geographies or as our assortment changes.

a.k.a. BRANDS HOLDING CORP.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(in thousands, except per share data)

(unaudited)

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are key performance measures that management uses to assess our operating performance. Because Adjusted EBITDA and Adjusted EBITDA margin facilitate internal comparisons of our historical operating performance on a more consistent basis, we use these measures for business planning purposes.

We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business. We expect Adjusted EBITDA margin to increase over the long-term as we continue to scale our business and achieve greater leverage in our operating expenses.

We calculate Adjusted EBITDA as net income (loss) adjusted to exclude: interest and other expense; provision for income taxes; depreciation and amortization expense; equity-based compensation expense; costs to establish or relocate distribution centers; transaction costs; costs related to severance from headcount reductions; goodwill and intangible asset impairment; sales tax penalties; insured losses, net of any recoveries; and one-time or non-recurring items, and Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales. Adjusted EBITDA and Adjusted EBITDA margin are considered non-GAAP financial measures under the SEC’s rules because they exclude certain amounts included in net income (loss) and net income (loss) margin, the most directly comparable financial measures calculated in accordance with GAAP.

A reconciliation of non-GAAP Adjusted EBITDA to net income (loss) for the three months ended March 31, 2023 and 2022 is as follows:

Net Income (Loss), As Adjusted and Net Income (Loss) Per Share, As Adjusted

Net income (loss), as adjusted and net income (loss) per share, as adjusted are considered non-GAAP financial measures under the SEC’s rules because they exclude certain amounts included in net income (loss) and net income (loss) per share calculated in accordance with GAAP, the most directly comparable financial measures calculated in accordance with GAAP. Management believes that net income (loss), as adjusted and net income (loss) per share, as adjusted are meaningful measures to share with investors because they better enable comparison of the performance with that of the comparable period. In addition, net income (loss), as adjusted and net income (loss) per share, as adjusted afford investors a view of what management considers a.k.a.’s core earnings performance and the ability to make a more informed assessment of such core earnings performance with that of the prior year.

We have calculated net loss, as adjusted and net loss per share, as adjusted for the three months ended March 31, 2023 by adjusting net loss and net loss per share for the loss on disposal of the Rebdolls reporting unit.

A reconciliation of non-GAAP net loss, as adjusted to net loss, as well as the resulting calculation of net loss per share, as adjusted for the three months ended March 31, 2023 are as follows:

We have calculated net income, as adjusted and net income per share, as adjusted for the three months ended March 31, 2022 by adjusting net income and net income per share for the inventory step-up amortization expense resulting from the acquisition of mnml.

A reconciliation of non-GAAP net income, as adjusted to net income, as well as the resulting calculation of net income per share, as adjusted for the three months ended March 31, 2022 are as follows:

Pro Forma Net Sales

Pro forma net sales is considered a non-GAAP financial measure under the SEC’s rules calculated in accordance with Article 11 of Regulation S-X. We believe that pro forma net sales is useful information for investors as it provides a better understanding of sales performance, and relative changes therein, on a comparable basis. We calculate pro forma net sales as net sales including the historical net sales relating to the pre-acquisition periods of Culture Kings, assuming that the Company acquired Culture Kings at the beginning of the period presented. Pro forma net sales is not necessarily indicative of what the actual results would have been if the acquisition had in fact occurred on the date or for the periods indicated nor does it purport to project net sales for any future periods or as of any date. A reconciliation of non-GAAP pro forma net sales to net sales, disaggregated by geography, which is the most directly comparable financial measure calculated in accordance with GAAP, for the three months ended March 31, 2023 and 2021, is as follows:

<sup>____________________

1</sup> In order to provide a framework for assessing the performance of our underlying business, excluding the effects of foreign currency rate fluctuations, we compare the percent change in the results from one period to another period using a constant currency methodology wherein current and comparative prior period results for our operations reporting in currencies other than U.S. dollars are converted into U.S. dollars at constant exchange rates (i.e., the rates in effect on December 31, 2022, which was the last day of our prior fiscal year) rather than the actual exchange rates in effect during the respective periods.

² See additional information at the end of this release regarding non-GAAP financial measures.

³ The Company has not provided a quantitative reconciliation of its Adjusted EBITDA outlook to a GAAP net income outlook because it is unable, without making unreasonable efforts, to project certain reconciling items. These items include, but are not limited to, future equity-based compensation expense, income taxes, interest expense and transaction costs. These items are inherently variable and uncertain and depend on various factors, some of which are outside of the Company’s control or ability to predict. See additional information at the end of this release regarding non-GAAP financial measures.

⁴ Trailing twelve months.

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