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What changed in A.K.A. BRANDS HOLDING CORP.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of A.K.A. BRANDS HOLDING CORP.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+368 added−334 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-09)

Top changes in A.K.A. BRANDS HOLDING CORP.'s 2023 10-K

368 paragraphs added · 334 removed · 265 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

63 edited+16 added−18 removed24 unchanged
Biggest changePresently, 20% of Princess Polly’s product range is made from verified lower-impact materials, including organic, recycled, water-based or forest-friendly alternatives to conventional materials. Princess Polly has also introduced recycled nylon basics and recycled sequin party styles. We are aiming to have over 40% of our products made with lower-impact materials by the end of 2023.
Biggest changeSustainability We are making on-trend fashion more sustainable and accessible to everyone by transitioning our products to be made with lower environmental impact. Presently, 30% of Princess Polly’s product range is made from verified lower-impact materials, including organic, recycled, water-based or forest-friendly alternatives to conventional materials.
While each of our brands celebrates its own unique culture and brand values, we collectively embrace a next-generation mindset: • We are customer-led; focusing relentlessly on delivering a high-quality customer experience, • We move fast; executing on innovative ideas swiftly, • We are data driven; using data and analytics to make smarter decisions every day, • We are growth minded; testing and learning continuously in and across our brands, • We are diverse; celebrating and expanding the diversity of our customers and teams, • We act with integrity and practice responsible fashion; when in doubt, we resort to the high standard.
While each of our brands celebrates its own unique culture and brand values, we collectively embrace a next-generation mindset: • We are customer-led—focusing relentlessly on delivering a high-quality customer experience; • We move fast—executing on innovative ideas swiftly; • We are data driven—using data and analytics to make smarter decisions every day; • We are growth minded—testing and learning continuously in and across our brands; • We are diverse—celebrating and expanding the diversity of our customers and teams; and • We act with integrity and practice responsible fashion—when in doubt, we resort to the high standard.
Culture Kings engages with customers through a combination of compelling online and offline marketing strategies that leverage the latest in music, fashion, art and celebrities to create brand hype and product excitement. The brand operates eight experiential concept stores in major cities in Australia and New Zealand, and opened its first U.S. store in Las Vegas in November 2022.
Culture Kings engages with customers through a combination of compelling online and offline marketing strategies that leverage the latest in music, fashion, art and celebrities to create brand hype and product excitement. The brand operates nine experiential concept stores in major cities in Australia and New Zealand, and opened its first U.S. store in Las Vegas in November 2022.
Core to our marketing strategy is the use of social media influencers, and we maintain relationships with approximately 25,000 influencers globally and utilize them to test and launch new products, gather customer feedback, increase brand awareness and acquire new customers in a cost-effective manner. In 2022, across a.k.a.
Core to our marketing strategy is the use of social media influencers, and we maintain relationships with approximately 25,000 influencers globally and utilize them to test and launch new products, gather customer feedback, increase brand awareness and acquire new customers in a cost-effective manner. In 2023, across a.k.a.
These stores serve as a powerful customer acquisition tool, and provide customers a unique and immersive brand experience. The stores feature engaging in-store designs and product displays, storefronts designed by best-in-class graffiti artists, exclusive product releases including promotional products only available in-store and event-driven in-store activations.
We believe these stores serve as a powerful customer acquisition tool, and provide customers a unique and immersive brand experience. The stores feature engaging in-store designs and product displays, storefronts designed by best-in-class graffiti artists, exclusive product releases, including promotional products only available in-store and event-driven in-store activations.
By pairing our own in-house technology with cloud software, we have been able to create a differentiated user experience that we can adjust as necessary while also leveraging engineering talent from some of the best SaaS companies in the world to scale rapidly and efficiently.
By pairing our own in-house technology with cloud software, we have been able to create a differentiated user experience that we can adjust as necessary while also leveraging engineering talent from some of the best software as a service (“SaaS”) companies in the world to scale rapidly and efficiently.
Our customers’ satisfaction with the fit, quality, affordability and exclusivity of our styles is further reflected in our sales return rates across our brands, which was well below industry average in 2022 at approximately 16.6% of net sales. 5 Table of Contents We Efficiently Acquire Customers Through Authentic Content and Innovative, Measurable Marketing Our brands engage with customers by releasing a stream of inspiring digital content at high frequency across multiple channels where we know our customers are.
Our customers’ satisfaction with the fit, quality, affordability and exclusivity of our styles is further reflected in our sales return rates across our brands, which was well below industry average in 2023 at approximately 18.5% of net sales. 5 Table of Contents We Efficiently Acquire Customers Through Authentic Content and Innovative, Measurable Marketing Our brands engage with customers by releasing a stream of inspiring digital content at high frequency across multiple channels where we know our customers are.
Our women’s brands sell mostly exclusive styles and the majority of our streetwear styles are either exclusive in-house designed Culture Kings brands or exclusive styles from leading third party brands.
Our women’s brands sell mostly exclusive styles and the majority of our streetwear styles are either exclusive in-house designed brands or exclusive styles from leading third-party brands.
Flexible Technology Stack and Operations Our brands leverage a broad network of third-party service and technology providers, which allows us to implement the latest capabilities with limited upfront investment and quickly adopt innovations in the market.
Our brands leverage a broad network of third-party service and technology providers, which allows us to implement the latest capabilities with limited upfront investment and quickly adopt innovations in the market.
The stores host a variety of public events and creative activities designed to instill feelings and emotions of excitement such as sneaker vending machines, basketball shooting competitions, live DJ sessions and appearances of global celebrities and tastemakers, including athletes and on-trend music artists.
The stores host a variety of public events and creative activities designed to instill feelings and emotions of excitement such as sneaker vending machines, basketball shooting competitions, live DJ sessions and appearances by global celebrities and tastemakers, including athletes and on-trend musicians.
The brand targets male consumers between the ages of 18 and 35 who are fashion conscious, highly social and digitally focused. More than 50% of Culture Kings’ products are exclusive and approximately 76% of its sales are made online.
The brand targets male consumers between the ages of 18 and 35 who are fashion conscious, highly social and digitally focused. More than 40% of Culture Kings’ products are exclusive and approximately 75% of its sales are made online.
We seek to leverage our collective scale and use the same suppliers for our brands, where possible, in order to obtain more favorable terms from our suppliers.
We seek to leverage our collective scale and use the same suppliers across our multiple brands, where possible, in order to obtain more favorable terms from our suppliers.
As of December 31, 2022, across a.k.a. Brands, we had more than 1,000 full- and part-time employees. The majority of our workforce is located in Australia, with the remaining employees located throughout the United States. On a limited basis, we may use temporary personnel to supplement our workforce as business needs arise. Sustainability and Responsible Fashion a.k.a.
As of December 31, 2023, we had more than 1,300 full- and part-time employees. The majority of our workforce is located in Australia, with the remaining employees located throughout the United States. On a limited basis, we may use temporary personnel to supplement our workforce as business needs arise. Sustainability and Responsible Fashion a.k.a.
However, as our expansion into the U.S. market continues, our quarterly revenues are less concentrated in the fourth fiscal quarter. In fiscal year 2022, our net revenues in the first, second, third and fourth quarters represented 24%, 26%, 25% and 24% , respectively, of our total net sales for the year.
However, as our expansion into the U.S. market continues, our quarterly revenues are less concentrated in the fourth fiscal quarter. In fiscal year 2023, our net revenues in the first, second, third and fourth fiscal quarters represented 22%, 25%, 26% and 27% , respectively, of our total net sales for the year.
We seek next-generation brands with strong customer followings and a proven track record of operating profitably but need help scaling to further accelerate their growth. We look for talented and passionate teams who have proven abilities to leverage data, technology and content to grow. We seek asset-light brands that have the potential to benefit from the a.k.a. expertise and resources.
We seek next-generation brands with strong customer followings and a proven track record of operating profitably but that need help scaling to further accelerate their growth. We look for talented and passionate teams who have proven abilities to leverage data, technology and content to grow.
Sourcing We source our products from a network of international suppliers. Our supplier base included 311 suppliers across 10 different countries as of December 31, 2022. 8 Table of Contents We have strong long-term relationships with our manufacturers, but we do not have any long-term commitments requiring us to purchase minimum volumes from any supplier or manufacturer.
Sourcing We source our products from a network of international suppliers. Our supplier base included 370 suppliers across 18 different countries as of December 31, 2023. We have strong long-term relationships with our manufacturers, but we do not have any long-term commitments requiring us to purchase minimum volumes from any supplier or manufacturer.
We believe we are disrupting the status quo and pioneering a new approach to fashion. Through our portfolio of next-generation global brands, we reach a broad audience across accessible price points and varied styles. Our current brands share a common focus on Millennial and Gen Z consumers who seek fashion inspiration on social media and primarily shop online.
Through our portfolio of next-generation global brands, we reach a broad audience across accessible price points and varied styles. Our current brands share a common focus on Millennial and Gen Z consumers who seek fashion inspiration on social media and primarily shop online.
In fiscal year 2021, our net revenues in the first, second, third and fourth quarters represented 12%, 27%, 29% and 32% , respectively, of our total net sales for the year. Intellectual Property We primarily protect our intellectual property through the trademark, copyright and trade secret laws of Australia and the United States.
In fiscal year 2022, our net revenues in the first, second, third and fourth fiscal quarters represented 24%, 26%, 25% and 24% , respectively, of our total net sales for the year. Intellectual Property We primarily protect our intellectual property through the trademark, copyright and trade secret laws of Australia and the United States.
Our Operating Model Creates Value by Driving Synergies Across the Portfolio Our brands operate independently but have access to resources, guidance and vendors at the a.k.a. Brands level. We believe this model balances scale-enabled cost savings with operational flexibility, facilitates low-risk innovation and accommodates the needs of our brands at various stages of growth.
Flexible Back-End Operations Our brands operate independently but have access to resources, guidance and vendors at the a.k.a. Brands level. We believe this model balances scale-enabled cost savings with operational flexibility, facilitates low-risk innovation and accommodates the needs of our brands at various stages of growth.
Grow Through Acquisitions We employ a corporate development team dedicated to the identification, evaluation and acquisition of brands, and we maintain a strong pipeline of potential targets which typically includes multiple acquisition opportunities at differing stages of evaluation.
Additionally, we plan to enter into key markets through strategic wholesale and marketplace partnerships. Grow Through Acquisitions We employ a corporate development team dedicated to the identification, evaluation and acquisition of brands, and we maintain a strong pipeline of potential targets, which typically includes multiple acquisition opportunities at differing stages of evaluation.
In addition, in the U.S., a content consumption study found that Millennials are the biggest users of social media with as many as 84% using at least one social network, while Gen Z consumers are the most digitally native with 98% of them owning a smartphone and spending an average of four hours on apps each day.
In addition, in the U.S., content consumption studies found that Millennials are the biggest users of social media, with 88% of them using social media weekly, while Gen Z consumers are the most digitally native, with 98% of them owning a smartphone and spending an average of four-and-a-half hours on social media each day.
We will continue to target markets that demonstrate strong social and digital media usage. As part of our long-term strategy, we have identified several markets in which we believe we can introduce one or more of our brands in the future, such as expanding Culture Kings in Korea and Japan and Princess Polly in Canada, Europe and the U.K.
As part of our long-term strategy, we have identified several markets in which we believe we can successfully introduce one or more of our brands in the future, such as expanding Culture Kings in South Korea and Japan and Princess Polly in Canada, Europe and the U.K.
This model ensures that our merchandise is always on-trend and customer-led, with minimal inventory risk because we only replenish the styles that our customers show us that they like. Our brands’ compelling merchandising strategy is anchored by a high proportion of exclusive styles that cannot be found elsewhere.
This model provides greater certainty that our merchandise is always on-trend and customer-led, with minimal inventory risk because we only replenish the styles for which there is demonstrated customer demand. Our brands’ compelling merchandising strategy is anchored by a high proportion of exclusive styles that cannot be found elsewhere.
Culture Kings is a premium multi-channel retailer of streetwear apparel, footwear, headwear and accessories. The brand offers its customers a curated assortment from over one hundred leading third-party streetwear brands, as well as a large and growing portfolio of in-house designed brands and exclusive products that embody the relationship between music, sports, art and fashion.
The brand offers its customers a curated assortment from over 100 leading third-party streetwear brands, as well as a large and growing portfolio of in-house designed brands and exclusive products that embody the relationship between music, sports, art and fashion.
Nimble by design, our innovative brands are customer-centric and have authentic and engaging relationships with their target audiences through highly relevant social content and other digital marketing strategies. Leveraging innovative, data-driven insights, our brands introduce fresh content and high-quality merchandise daily.
Nimble by design, our innovative brands are customer-centric and have authentic and engaging relationships with their target audiences through highly relevant social content and other marketing strategies. Leveraging innovative, data-driven insights, our brands introduce fresh content and high-quality merchandise daily. Our operating model accelerates the growth and profitability of our existing brands, and we aim to continue expanding our portfolio.
Princess Polly is the leader on ethical sourcing in our portfolio and amongst their digitally native brand peers, and we will leverage their best practices and apply them to the rest of our portfolio.
Princess Polly is the leader on ethical sourcing in our portfolio and amongst their digitally native brand peers, and we will leverage Princess Polly’s best practices and apply them to the rest of our portfolio. We are devoted to making continual progress towards our commitments and being transparent along the way.
We intend to execute the following strategies to expand our business and gain market share: 6 Table of Contents Grow Our Brands Organically in Our Existing Markets and Channels Grow Brand Awareness and Acquire New Customers Through Omni-Channel Expansion We believe our brands are underpenetrated in the markets in which they operate.
We intend to execute the following strategies to expand our business and gain market share: Grow Our Brands Organically in Our Existing Markets Through Direct-to-Consumer Growth and Omni-channel Expansion We believe our brands are underpenetrated in the markets in which they operate.
For example, in 2022, Princess Polly maintained valid ethical manufacturing audits for 100% of final stage production, or tier one production, and packaging production sites, while completing the tracing of 100% of their suppliers, or tier two supply chain.
For example, in 2023, Princess Polly maintained valid ethical manufacturing audits for 100% of final stage production, or tier-one production, and packaging production sites, and 100% visibility of non-functional process suppliers, or tier-two supply chain.
Our network of third party suppliers allows us to be capital efficient and nimble, giving us the ability to move new designs we receive from our suppliers into production and then into inventory in as few as 30 to 45 days for the majority of our inventory, as compared to up to nine months for traditional apparel brands.
Our network of third-party suppliers allows us to be capital efficient and nimble, giving us the ability to move new designs we receive from our suppliers into production and then into inventory in as few as 30 to 45 days for the majority of our inventory, as compared to up to nine months for traditional apparel brands. 8 Table of Contents We strategically establish sourcing relationships to ensure a constant supply of high-quality, low-cost inventory, with a number of our suppliers exclusively manufacturing for our brands.
Environment We are committed to protecting the planet by promoting circularity and improving the environmental impact of our packaging, business operations and factories. Our business model limits the planetary burden of overproduction. Our real-time, demand-driven and automated ordering system allows production to track demand as accurately as possible. This high velocity, low waste strategy allows us to avoid unnecessary production.
Our business model limits the planetary burden of overproduction. Our real-time, demand-driven and automated ordering system allows production to track demand as accurately as possible. This high-velocity, low-waste strategy allows us to avoid unnecessary production.
ITEM 1. BUSINESS Our Vision To be the global leader in fashion for the next generation of consumers through a portfolio of the most innovative brands. Who We Are a.k.a. Brands (“a.k.a.”) is an accelerator of fashion brands for the next generation.
ITEM 1. BUSINESS Our Vision To be the global leader in fashion for the next generation of consumers through a portfolio of the most innovative brands. Who We Are a.k.a. Brands Holdings Corp. (“a.k.a.”) was formed as a Delaware corporation on May 19, 2021. a.k.a. is a group of next-generation fashion brands for the next generation of consumers.
Our business is also subject to additional laws and regulations, including restrictions on imports from, exports to, and services provided to persons located in certain countries and territories, as well as foreign laws and regulations addressing topics such as advertising and marketing practices, customs duties and taxes and consumer rights, any of which might apply by virtue of our operations in foreign countries and territories or our contacts with consumers in such foreign countries and territories.
Our business is also subject to additional laws and regulations, including restrictions on imports from, exports to, and services provided to persons located in certain countries and territories, as well as foreign laws and regulations addressing topics such as advertising and marketing practices, customs duties and taxes and consumer rights, any of which might apply by virtue of our operations in foreign countries and territories or our contacts with consumers in such foreign countries and territories. 10 Table of Contents In addition, apparel, shoes and accessories sold by us are also subject to regulation by governmental agencies in Australia, New Zealand and the United States, as well as various other federal, state, local and foreign regulatory authorities.
Through continued investment in these initiatives, we believe we will be able to further appeal to our core demographic of Millennial and Gen Z consumers and increase our market share. While our brands primarily operate direct to consumer and are digitally native, to further build brand awareness, we expect to test select omnichannel experiences in 2023.
Through continued investment in these initiatives, we believe we will be able to further appeal to our core demographic of Millennial and Gen Z consumers and increase our market share. 6 Table of Contents While our brands primarily operate in the direct-to-consumer channel, and we expect that to continue in 2024, based on the success of our omnichannel tests in 2023, we intend to further expand our omnichannel initiatives in 2024 to further build brand awareness.
Our brands aim to identify trends and evaluate opportunities leveraging digital capabilities, data-driven insights and a test-and-repeat merchandising model. We believe our brands have a significant opportunity to expand product ranges, increase average order value and broaden customer reach. For example, Princess Polly launched their extended size collection, Curve, and expanded upon their sustainably-made Low Impact assortment in 2022.
Our brands aim to identify trends and evaluate opportunities leveraging digital capabilities, data-driven insights and a test-and-repeat merchandising model. We believe our brands have a significant opportunity to expand product ranges, increase average order value and broaden customer reach.
We further control the use of our technology and intellectual property through provisions in both our client terms of use on our website and in our vendor terms and conditions. 10 Table of Contents Government Regulation Our business is subject to a number of domestic and foreign laws and regulations that affect companies conducting business on the Internet, many of which are still evolving and could be interpreted in ways that could harm our business.
Government Regulation Our business is subject to a number of domestic and foreign laws and regulations that affect companies conducting business on the Internet, many of which are still evolving and could be interpreted in ways that could harm our business.
We look for brands with similar operating and financial characteristics as our existing brands. We are continuously evaluating opportunities for such acquisitions. 7 Table of Contents Continue to Drive Efficiencies As we continue to scale organically and through acquisitions, we aim to improve operational performance across our portfolio and enhance profitability.
We seek asset-light brands that have the potential to benefit from the a.k.a. expertise and resources. We look for brands with similar operating and financial characteristics as our existing brands. We are continuously evaluating opportunities for such acquisitions. Continue to Drive Efficiencies As we continue to scale, we aim to improve operational performance across our portfolio and enhance profitability.
With global traveling reopening, Princess Polly was able to visit a significant number of sites in India and China, while also engaging an on-ground ethical sourcing resource in China. The suite of tools to support factory managers and empower workers has also been improved, piloting e-learning for managers and grievance hotlines accessible to workers.
With global travel reopening, Princess Polly achieved 150 site visits in India, the U.S. and China, while also expanding to two on-ground ethical sourcing resources in China. The suite of tools to support factory managers and empower workers has also been improved, piloting e-learning for managers and grievance hotlines accessible to workers.
In addition to the protections provided by our intellectual property rights, we enter into confidentiality agreements with our employees, consultants, contractors and business partners.
In addition to the protections provided by our intellectual property rights, we enter into confidentiality agreements with our employees, consultants, contractors and business partners. We further control the use of our technology and intellectual property through provisions in both our client terms of use on our website and in our vendor terms and conditions.
We will also look for ways to reduce our input costs by leveraging our collective scale to negotiate improved terms with suppliers and vendors, including for raw materials, freight and shipping. As our brands grow and gain scale, we intend to invest in automation and process improvement within our operations to drive lower variable costs and improved profitability.
We will also look for ways to reduce our costs by leveraging our collective scale to negotiate improved terms with suppliers and vendors, including for raw materials, freight and shipping.
We think there is a significant opportunity to grow awareness of our brands due to the continued secular shift to eCommerce, as well as the strength of our data-driven marketing model. We intend to efficiently acquire new customers through continued investment in our content creation and social media capabilities, as well as through our network of approximately 25,000 influencers.
We think there is a significant opportunity to grow awareness of our brands due to the continued secular shift to eCommerce, as well as the strength of our data-driven marketing and merchandising model.
Our operating model accelerates the growth and profitability of our existing brands, and we aim to continue expanding our portfolio. Simply put, our brands are better together. We believe we are differentiated by our ability to attract and retain a wide range of Millennial and Gen Z consumers through authentic brand messaging and curated, on-trend fashion. In 2022, across a.k.a.
Simply put, our brands are better together. We believe we are differentiated by our ability to attract and retain a wide range of Millennial and Gen Z consumers through authentic brand messaging and curated, on-trend fashion. In 2023, we achieved $546.3 million in net sales and adjusted EBITDA of $13.8 million. Our Brands a.k.a.
Attracting, motivating and retaining passionate talent at all levels is vital to continuing our success. We actively look for talented people across multiple geographies and promote a “work from anywhere” approach, which allows us to maintain a lean physical footprint and employ offices as team collaboration hubs.
We actively look for talented people across multiple geographies and promote a “work from anywhere” approach, which allows us to maintain a lean physical footprint and employ offices as team collaboration hubs. We continuously work to improve the team member experience to drive retention and engagement.
We aim to achieve this by enhancing our user experience, improving engagement, refining our customer segmentation, increasing personalization, launching loyalty programs across our brands and constantly introducing new styles, designer collaborations and exclusive items. Our authentic content and steady stream of new styles encourages deep connections with new and existing customers, resulting in an attractive customer lifetime value.
Increase Loyalty and Wallet Share We intend to deepen customer relationships to improve customer retention and increase wallet share. We aim to achieve this by enhancing our user experience, improving engagement, refining our customer segmentation, increasing personalization, launching loyalty programs across our brands and constantly introducing new styles, designer collaborations and exclusive items.
The brand targets female customers typically in their twenties or thirties, with more than 70% of customers between the ages of 25 and 34. In 2019, Petal & Pup expanded to the United States, which is now its fastest growing geography. 4 Table of Contents Culture Kings Founded in Australia in 2008, Culture Kings joined a.k.a. Brands in March 2021.
In 2019, Petal & Pup expanded to the United States, which is now its fastest growing geography. 4 Table of Contents Culture Kings Founded in Australia in 2008, Culture Kings joined a.k.a. Brands in March 2021. Culture Kings is a premium multi-channel retailer of streetwear apparel, footwear, headwear and accessories.
Digital-Savvy Millennial and Gen Z Consumers Seeking the Next-Generation Shopping Experience According to data from the United Nations, Millennial and Gen Z consumers, our primary target demographic today, account for 23% and 32% of the global population, respectively, making them a large and growing demographic group with significant economic influence.
Census Bureau, Millennial and Gen Z consumers, our primary target demographic today, account for 22% and 21% of the U.S. population, respectively, making them a large and growing demographic group with significant economic influence.
We continuously work to improve the team member experience to drive retention and engagement. None of our employees are represented by a labor union or covered by a collective bargaining agreement.
None of our employees are represented by a labor union or covered by a collective bargaining agreement.
As of December 31, 2022, we owned approximately 496 trademark registration and approximately 83 Internet domain names.
As of December 31, 2023, we owned nearly 550 trademark registrations and 79 Internet domain names.
We believe the key factors driving growth within the global apparel, footwear and accessories industry include favorable demographic trends and desire for constant newness.
The Australian apparel market is expecting to grow to an estimated $21.5 billion in 2024 and grow at a 2.4% CAGR from 2023 to 2027. We believe the key factors driving growth within the global apparel, footwear and accessories industry include favorable demographic trends and desire for constant newness.
We strategically establish sourcing relationships to ensure a constant supply of high quality, low cost inventory with a number of our suppliers exclusively manufacturing for our brands. Although we have our own design team, a number of suppliers have the capability to produce concepts and designs with no obligation for our brands to purchase.
Although we have our own design team, a number of suppliers have the capability to produce concepts and designs with no obligation for our brands to purchase. With less seasonal demand for our products, we offer our manufacturing partners predictable and consistent growth in inventory purchases throughout the year.
In 2022, Culture Kings began to sell mnml on Culture Kings’ website and in their stores in Australia and the U.S. Our Operating Model Data-Driven Merchandising with High Penetration of Exclusive High-Quality Fashion Our brands aim to deliver constant newness and excitement by creating and curating on-trend and affordable fashion.
In 2023, mnml apparel was spotted on over 100 professional athletes who shared their outfits across social media, and became a top selling brand for Culture Kings in the U.S. Next Generation Retail Data-Driven Merchandising with High Penetration of Exclusive High-Quality Fashion Our brands aim to deliver constant newness and excitement by creating and curating on-trend and affordable fashion.
We achieved $611.7 million in net sales and adjusted EBITDA of $31.9 million in 2022. Our Brands a.k.a. Brands currently consists of four brands: two women’s brands, Princess Polly and Petal & Pup, and two streetwear brands, Culture Kings and mnml.
Brands currently consists of four brands: two women’s brands, Princess Polly and Petal & Pup, and two streetwear brands, Culture Kings and mnml. Princess Polly Founded in Australia in 2010, Princess Polly joined a.k.a. Brands in July 2018.
We seek out and hire team members who bring specialized, functional expertise while able to collaborate effectively across brands, functions and geographies. Our culture is fast-paced, promotes accountability, empowers team members to drive the business forward daily, stresses a bias toward action and embraces the individuality of each team member.
Our culture is fast-paced, promotes accountability, empowers team members to drive the business forward daily, stresses a bias toward action and embraces the individuality of each team member. Attracting, motivating and retaining passionate talent at all levels is vital to continuing our success.
The U.S. had the largest apparel market of any country, expecting to grow to an estimated $343 billion in 2023 and grow at a 2.0% CAGR from 2023 to 2027. The Australian apparel market is expecting to grow to an estimated $20 billion in 2023 and grow at a 2.0% CAGR from 2023 to 2027.
Though we ship our products globally, we operate primarily in two geographies: the U.S. and Australia. The U.S. has the largest apparel market of any country, and is projected to grow to an estimated $357 billion in 2024 and grow at a 1.9% CAGR from 2023 to 2027.
Our Industry We primarily operate in the large and growing global apparel, footwear and accessories industry. According to Statista, a platform specialized in market and consumer data, the global apparel market grew to $1.5 trillion in 2021 and the global footwear market was valued at $382 billion in 2022.
According to Statista, a platform specialized in market and consumer data, the global apparel market grew to $1.7 trillion in 2023 and the global footwear market was valued at $400 billion in 2023. The global apparel and footwear market is expected to grow to almost $2.0 trillion by 2027.
Grow Internationally We intend to leverage the strength of our brands and our ability to connect with customers to expand into new international markets beyond our core U.S. and Australian markets. Net sales to customers outside of the U.S. and Australia was $71.8 million across 184 countries and territories and represented 12% of total sales in 2022.
Our authentic content and steady stream of new styles encourages deep connections with new and existing customers, resulting in an attractive customer lifetime value. Grow Internationally We intend to leverage the strength of our brands and our ability to connect with customers to expand into new international markets beyond our core U.S. and Australian markets.
We target and acquire high-potential brands that we believe are at a pivotal point in their growth trajectory that we can integrate into our operating model and accelerate their growth. Leveraging our proven track record, industry expertise and operational synergies, we believe our brands can grow faster, reach broader audiences, achieve greater scale and enhance their profitability.
Leveraging our industry expertise and operational synergies, we help accelerate our brands so they can grow faster, reach broader audiences, achieve greater scale and enhance their profitability. We believe we are disrupting the status quo and pioneering a new approach to fashion.
Brands, we had nearly 10.0 million followers on social media and served more than 3.8 million active customers. In addition to social media marketing, we also tested live video shopping events and increased our penetration of SMS text message marketing in 2022.
Brands, we had nearly 13 million followers on social media and served more than 3.7 million active customers. In addition to social media marketing, we also leverage our stores and off-site locations to host both influencer marketing events as well as events open to customers to deepen our engagement.
Princess Polly Founded in Australia in 2010, Princess Polly joined a.k.a. Brands in July 2018. With a tagline of “Wear It This Weekend,” Princess Polly focuses on providing fun dresses, tops, shoes and accessories with body-confident and trendy fashion designs.
With a tagline of “Wear It This Weekend,” Princess Polly focuses on providing fun dresses, tops, shoes and accessories with body-confident and trendy fashion designs. The brand operates predominantly online and targets female customers between the ages of 15 and 25, who value the brand’s high-quality assortment, compelling price points and free and fast shipping.
We believe diversity and sustainability align with our core values and drive better results. We operate responsibly and are committed to responsible fashion and sustainability through prioritization of transparency, fair labor practices and reduced waste. Our Growth Strategies We believe our global next-generation fashion brands are disrupting categories with strong fundamental growth and capitalizing on long-term global secular tailwinds.
Additionally, given our scale, we negotiate favorable rates with our vendors, providing our brands with attractive terms and enhancing overall profitability. Our Growth Strategies We believe our global next-generation fashion brands are disrupting categories with strong fundamental growth and capitalizing on long-term global secular tailwinds.
We intend to continue to increase our mix of owned brands and exclusive offerings, which we believe generate higher margins and drive traffic to our websites. Increase Loyalty and Wallet Share We intend to deepen customer relationships to improve customer retention and increase wallet share.
We intend to continue to increase our mix of owned brands and exclusive offerings, which we believe generate higher margins and drive traffic to our websites. In 2024, we anticipate that Princess Polly will expand its offering to include active and sleepwear, and we intend to bring more top-tier third party footwear brands to Culture Kings in the United States.
The brand operates predominantly online and targets female customers between the ages of 15 and 25, who value the brand’s high quality assortment, compelling price points and free and fast shipping. Princess Polly customers are inspired by the brands’ constant stream of inspirational social media content and the fresh, new and affordable merchandise arriving daily. Since joining a.k.a.
We engage with Princess Polly customers through the brand’s constant stream of inspirational social media content, and the Princess Polly brand provides fresh, new and affordable merchandise arriving daily. Since joining a.k.a. Brands, Princess Polly has experienced rapid growth and increasing brand awareness in the United States.
According to BigCommerce, the U.S. online apparel, footwear and accessories market was valued at approximately $180 billion in 2021, and is expected to have reached $205 billion in 2022.
According to Grand View Research, a market research and consulting company, the global online apparel market was valued at approximately $583 billion in 2022, and was expected to grow at a 8.6% CAGR from 2022 to 2030.
With less seasonal demand for our products, we offer our manufacturing partners predictable and consistent growth in inventory purchases throughout the year. People & Culture We promote a holistic approach to building our team and have created a culture that is inclusive, diverse and high performing.
People & Culture We promote a holistic approach to building our team and have created a culture that is inclusive, diverse and high performing. We seek out and hire team members who bring specialized, functional expertise while able to collaborate effectively across brands, functions and geographies.
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Brands, we grew our active customer base by 2.7% from 2021, who placed 13.8% more orders compared to 2021, and had a low sales return ratio of approximately 16.6% of net sales. We believe our robust growth and profitability validate our business approach and asset-light business model.
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In connection with Princess Polly’s expansion in the U.S., in September of 2023, Princess Polly opened its first brick and mortar store in Century City, Los Angeles, and we plan to open more stores across the U.S. in 2024. Petal & Pup Founded in Australia in 2015, Petal & Pup joined a.k.a. Brands in August 2019.
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The Company owned Rebdolls, a brand that the Company purchased in December 2019, throughout all of 2022, but subsequently sold in February 2023 back to its founder. While the Company believed in Rebdolls’ long-term success, the brand was below the scale that would allow it to experience the full potential of the a.k.a. Brands platform.
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The brand operates exclusively online and offers an assortment of trendy, flattering, feminine styles and dresses for special occasions. The brand targets female customers typically in their 20s or 30s, with more than 70% of customers between the ages of 25 and 34.
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Brands, Princess Polly has experienced rapid growth and increasing brand awareness in the United States. Petal & Pup Founded in Australia in 2015, Petal & Pup joined a.k.a. Brands in August 2019. The brand operates exclusively online and offers an assortment of trendy, flattering, feminine styles and dresses for special occasions.
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Meet Our Customers Anywhere Nimble by design, our brands meet our customers with a great experience whether online or in person. Our brands greatly value the direct relationship with customers and the primary channel for all of our brands is direct-to-consumer and online.
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Our operating model is designed to provide collective advantages and accelerate profitable growth in both existing and new markets and allows us to manage the brands at a portfolio level.
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However, to build a next-generation brand, we believe it’s imperative to show up where our customers are shopping. Culture Kings operates nine experiential and immersive concept stores in major cities in Australia and New Zealand, and opened its first U.S. store in Las Vegas in November 2022.
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Additionally, given our scale, we negotiate favorable rates with our vendors, providing our brands with attractive terms and enhancing overall profitability. Deep Industry Expertise Our brands have access to our highly-skilled leadership team, each of whom has a proven track-record and years of experience building and scaling successful eCommerce businesses.
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We believe these stores serve as a powerful customer acquisition tool, and provide customers a unique and immersive brand experience. In 2023, we began piloting wholesale and marketplace initiatives and opened a store for Princess Polly to build brand awareness and increase brand touchpoints for our customers.
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We have deep expertise in the business of fashion, and we support our brands so they can focus on customer-facing priorities such as branding, merchandising and maintaining an authentic connection with customers.
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Our operating model is designed to provide collective advantages, by leveraging access to a highly-skilled leadership team who have deep expertise in the business of fashion, sharing learnings across the brands and accelerating profitable growth through flexible back-end operations at lower costs.
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Innovation Hub and Knowledge Sharing We enable and encourage a network of cross-brand learnings to advance innovation and promote best practices – what accelerates profitable growth for one brand can accelerate profitable growth for others.
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We intend to efficiently acquire new customers through continued investment in our content creation and social media capabilities, as well as through our network of approximately 25,000 influencers.
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Across our brands, we test and learn digital innovation and facilitate knowledge sharing and benchmarking of key performance metrics to improve growth, operational efficiency and profitability. We Promote Diversity and Practice Responsible Fashion Our brands reflect the diversity and beauty of our customers and we continuously seek ways to expand the diversity in our brands, products and marketing.
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For example, in 2023, our women’s brands partnered with top-tier influencers, including Alix Earle, Delaney Childs, Georgie Stevenson, and our men’s brands partnered with athletes and celebrities such as Caleb Plant, Lando Norris, Chito Vera and more.
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We recently announced that we expect to partner on select wholesale engagements to expand our brands’ visibility in key retailers that we know our customers love.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn addition, while we generally enter into confidentiality agreements with our employees and third parties to protect our trade secrets, know-how, business strategy and other proprietary information, such confidentiality agreements could be breached or otherwise may not provide meaningful protection for our trade secrets and know-how related to the design or manufacture of our products. 32 Table of Contents Similarly, while we seek to enter into agreements with all of our employees who develop intellectual property during their employment to assign the rights in such intellectual property to us, we may fail to enter into such agreements with all relevant employees, such agreements may be breached or may not be self-executing, and we may be subject to claims that such employees misappropriated relevant rights from their previous employers.
Biggest changeIn addition, while we generally enter into confidentiality agreements with our employees and third parties to protect our trade secrets, know-how, business strategy and other proprietary information, such confidentiality agreements could be breached or otherwise may not provide meaningful protection for our trade secrets and know-how related to the design or manufacture of our products.
There are numerous risks associated with our acquisition strategy, including: • our inability to identify appropriate candidates for acquisition; • competition for acquisition targets driving up purchase prices; • disruption of our ongoing business, including loss of management focus on existing businesses; • problems retaining key personnel; • unanticipated operating losses and expenses of the businesses we acquire or in which we invest; • risks of losing a target company’s customer and other relationships; • the difficulty of completing acquisitions or investments and achieving anticipated benefits within expected timeframes, or at all; 16 Table of Contents • the difficulty of integrating acquired brands on our platform, and unanticipated expenses related to their integration; • the difficulty of integrating another company’s accounting, financial reporting, management, information and data security, human resource and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not successfully implemented; • losses we may incur as a result of declines in the value of an acquisition or an investment or as a result of incorporating its financial performance into our financial results, and our dependence on its accounting, financial reporting, systems, controls and processes; • the risks associated with businesses we acquire or invest in, which may differ from or be more significant than the risks our existing businesses face; • potential unknown, unidentified or undisclosed liabilities or risks associated with a company we acquire or in which we invest; and • for foreign transactions, additional risks related to the integration of operations across different cultures and languages, and the economic, political and regulatory risks associated with specific countries.
There are numerous risks associated with our acquisition strategy, including: • our inability to identify appropriate candidates for acquisition; • competition for acquisition targets driving up purchase prices; • disruption of our ongoing business, including loss of management focus on existing businesses; • problems retaining key personnel; 16 Table of Contents • unanticipated operating losses and expenses of the businesses we acquire or in which we invest; • risks of losing a target company’s customer and other relationships; • the difficulty of completing acquisitions or investments and achieving anticipated benefits within expected timeframes, or at all; • the difficulty of integrating acquired brands on our platform, and unanticipated expenses related to their integration; • the difficulty of integrating another company’s accounting, financial reporting, management, information and data security, human resource and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not successfully implemented; • losses we may incur as a result of declines in the value of an acquisition or an investment or as a result of incorporating its financial performance into our financial results, and our dependence on its accounting, financial reporting, systems, controls and processes; • the risks associated with businesses we acquire or invest in, which may differ from or be more significant than the risks our existing businesses face; • potential unknown, unidentified or undisclosed liabilities or risks associated with a company we acquire or in which we invest; and • for foreign transactions, additional risks related to the integration of operations across different cultures and languages, and the economic, political and regulatory risks associated with specific countries.
For example: • we may have difficulty growing our brands as demand falls in a challenging macroeconomic environment; • we may have difficulty completing acquisitions to expand our platform, and we may not be able to successfully integrate a newly acquired business or achieve the expected growth, cost savings or synergies from such integration, or it may disrupt our current business; • we may not be able to continue to evolve to meet our customers’ changing needs and expectations, and our existing customers may reduce their purchases of our products; 17 Table of Contents • we may not successfully expand our market share by winning new customers; • our brands may not be widely accepted in new countries or regions; • we may have difficulty recruiting, developing or retaining qualified employees; • we may not be able to manage our growth effectively, adapt our business model or develop relationships with customers or successfully operate our Culture Kings brick-and-mortar stores, including our first flagship U.S.
For example: • we may have difficulty growing our brands as demand falls in a challenging macroeconomic environment; 17 Table of Contents • we may have difficulty completing acquisitions to expand our platform, and we may not be able to successfully integrate a newly acquired business or achieve the expected growth, cost savings or synergies from such integration, or it may disrupt our current business; • we may not be able to continue to evolve to meet our customers’ changing needs and expectations, and our existing customers may reduce their purchases of our products; • we may not successfully expand our market share by winning new customers; • our brands may not be widely accepted in new countries or regions; • we may have difficulty recruiting, developing or retaining qualified employees; • we may not be able to manage our growth effectively, adapt our business model or develop relationships with customers or successfully operate our Culture Kings and Princess Polly brick-and-mortar stores, including our first flagship U.S.
These provisions: • authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting and special approval, dividend or other rights or preferences superior to the rights of the holders of common stock; • prohibit stockholder action by written consent at any time when Summit controls, in the aggregate, less than 35% in voting power of our outstanding common stock; • provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; • establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; provided, however, at any time when Summit controls, in the aggregate, at least 10% in voting power of our outstanding common stock entitled to vote generally in the election of directors, such advance notice procedure will not apply to Summit; • establish a classified board of directors, as a result of which our board of directors will be divided into three classes, with each class serving for staggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting; • provide that, at any time when Summit controls, in the aggregate, less than 40% in voting power of our stock entitled to vote generally in the election of directors, directors may only be removed for cause, and only by the affirmative vote of holders of at least 66 2⁄3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; • prohibit stockholders from calling special meetings of stockholders; provided, however, at any time when Summit controls, in the aggregate, at least 35% in voting power of our outstanding common stock, special meetings of our stockholders shall also be called by our Board or the Chairman of our Board at the written request of Summit; and • require the approval of holders of at least 66 2/3% of the outstanding shares of our voting common stock to amend certain provisions of our certificate of incorporation and for stockholders to amend our bylaws.
These provisions: • authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting and special approval, dividend or other rights or preferences superior to the rights of the holders of common stock; • prohibit stockholder action by written consent at any time when Summit controls, in the aggregate, less than 35% in voting power of our outstanding common stock; • provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; • establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; provided, however, at any time when Summit controls, in the aggregate, at least 10% in voting power of our outstanding common stock entitled to vote generally in the election of directors, such advance notice procedure will not apply to Summit; • establish a classified board of directors, as a result of which our board of directors will be divided into three classes, with each class serving for staggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting; • provide that, at any time when Summit controls, in the aggregate, less than 40% in voting power of our stock entitled to vote generally in the election of directors, directors may only be removed for cause, and only by the affirmative vote of holders of at least 66 2⁄3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; 44 Table of Contents • prohibit stockholders from calling special meetings of stockholders; provided, however, at any time when Summit controls, in the aggregate, at least 35% in voting power of our outstanding common stock, special meetings of our stockholders shall also be called by our Board or the Chairman of our Board at the written request of Summit; and • require the approval of holders of at least 66 2/3% of the outstanding shares of our voting common stock to amend certain provisions of our certificate of incorporation and for stockholders to amend our bylaws.
It is possible that we could have another impairment charge for goodwill or intangible assets in future periods if (i) overall economic conditions in fiscal 2023 or future years vary from our current assumptions (including changes in discount rates), (ii) business conditions or our strategies for a specific business unit change from our current assumptions, (iii) investors require higher rates of return on equity investments in the marketplace, or (iv) enterprise values of comparable publicly traded companies, or of actual sales transactions of comparable companies, were to decline, resulting in lower comparable multiples of revenues and earnings before interest, taxes, depreciation and amortization and, accordingly, lower implied values of goodwill and intangible assets.
It is possible that we could have another impairment charge for goodwill or intangible assets in future periods if (i) overall economic conditions in fiscal 2024 or future years vary from our current assumptions (including changes in discount rates), (ii) business conditions or our strategies for a specific business unit change from our current assumptions, (iii) investors require higher rates of return on equity investments in the marketplace, or (iv) enterprise values of comparable publicly traded companies, or of actual sales transactions of comparable companies, were to decline, resulting in lower comparable multiples of revenues and earnings before interest, taxes, depreciation and amortization and, accordingly, lower implied values of goodwill and intangible assets.
In addition, if we are unable to meet the requirements of Section 404 of SOX, we may not be able to remain listed on the NYSE. The requirements of being a public company with common stock listed on the NYSE will increase certain of our costs and require significant management focus.
In addition, if we are unable to meet the requirements of Section 404 of SOX, we may not be able to remain listed on the NYSE. The requirements of being a public company with common stock listed on the NYSE will continue to increase certain of our costs and require significant management focus.
A breach of the covenants or restrictions under the financing documents that govern our new credit facility could result in an event of default under such documents. Such a default may allow the creditors to accelerate the related debt, which may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies.
A breach of the covenants or restrictions under the financing documents that govern our credit facility could result in an event of default under such documents. Such a default may allow the creditors to accelerate the related debt, which may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies.
The financing documents that govern our credit facility contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to: • incur additional indebtedness or other contingent obligations; • create or incur liens; • make investments, acquisitions, loans and advances; • wind up, consolidate, merge, liquidate or dissolve; • sell, lease, transfer or otherwise dispose of our assets, including capital stock of our subsidiaries; • pay dividends on our equity interests or make other payments in respect of capital stock; • engage in transactions with our affiliates; • make payments in respect of indebtedness secured on a junior lien basis, unsecured indebtedness and subordinated debt; • modify organizational documents in a manner that is materially adverse to the lenders under the new credit facility; 36 Table of Contents • enter into burdensome agreements with negative pledge clauses or restrictions on subsidiary distributions; • materially alter the business we conduct; and • change our fiscal year.
The financing documents that govern our credit facility contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to: • incur additional indebtedness or other contingent obligations; • create or incur liens; • make investments, acquisitions, loans and advances; • wind up, consolidate, merge, liquidate or dissolve; • sell, lease, transfer or otherwise dispose of our assets, including capital stock of our subsidiaries; • pay dividends on our equity interests or make other payments in respect of capital stock; • engage in transactions with our affiliates; • make payments in respect of indebtedness secured on a junior lien basis, unsecured indebtedness and subordinated debt; • modify organizational documents in a manner that is materially adverse to the lenders under the new credit facility; • enter into burdensome agreements with negative pledge clauses or restrictions on subsidiary distributions; • materially alter the business we conduct; and • change our fiscal year.
This could have a material adverse effect on our results of operations, liquidity and financial condition. 23 Table of Contents If we experience problems with our distribution and warehouse management systems, or if we do not successfully optimize, operate and manage the expansion of the capacity of our fulfillment centers, our ability to meet customer expectations, manage inventory, complete sales transactions and achieve objectives for operating efficiencies could be adversely affected.
This could have a material adverse effect on our results of operations, liquidity and financial condition. 24 Table of Contents If we experience problems with our distribution and warehouse management systems, or if we do not successfully optimize, operate and manage the expansion of the capacity of our fulfillment centers, our ability to meet customer expectations, manage inventory, complete sales transactions and achieve objectives for operating efficiencies could be adversely affected.
Our reliance on these third-party suppliers also subjects us to other risks that could harm our business, including: • interruption of supply resulting from modifications to, or discontinuation of, a supplier’s operations; • delays in product shipments resulting from errors in manufacturing, defects or reliability issues from suppliers; • inability to obtain adequate supplies in a timely manner or on commercially reasonable terms; • difficulty locating and qualifying alternative suppliers, especially with respect to our 13% supplier; • the failure of our suppliers to comply with regulatory requirements, which could result in disruption of supply or increased expenses; and • inability of suppliers to fulfill orders and meet requirements due to financial hardships. 26 Table of Contents If we are unable to arrange for third-party supply or manufacturing of our products, or to do so on commercially reasonable terms, we may not be able to complete development of, market and sell our current or new products.
Our reliance on these third-party suppliers also subjects us to other risks that could harm our business, including: • interruption of supply resulting from modifications to, or discontinuation of, a supplier’s operations; • delays in product shipments resulting from errors in manufacturing, defects or reliability issues from suppliers; • inability to obtain adequate supplies in a timely manner or on commercially reasonable terms; • difficulty locating and qualifying alternative suppliers, especially with respect to our 14% supplier; • the failure of our suppliers to comply with regulatory requirements, which could result in disruption of supply or increased expenses; and • inability of suppliers to fulfill orders and meet requirements due to financial hardships. 27 Table of Contents If we are unable to arrange for third-party supply or manufacturing of our products, or to do so on commercially reasonable terms, we may not be able to complete development of, market and sell our current or new products.
Increased scrutiny and regulation of this practice may adversely affect our business. 27 Table of Contents Additionally, some scientists have concluded that increasing concentrations of greenhouse gases in the earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other climatic events.
Increased scrutiny and regulation of this practice may adversely affect our business. 28 Table of Contents Additionally, some scientists have concluded that increasing concentrations of greenhouse gases in the earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other climatic events.
We are also subject to international laws, regulations and standards in many jurisdictions, which apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information , such as GDPR . 25 Table of Contents Furthermore, in November 2020, California voters passed the California Privacy Rights Act of 2020 (“CPRA”).
We are also subject to international laws, regulations and standards in many jurisdictions, which apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information, such as GDPR. 26 Table of Contents Furthermore, in November 2020, California voters passed the California Privacy Rights Act of 2020 (“CPRA”).
Moreover, any actual or alleged corruption in our supply chain could carry significant reputational harms, including negative publicity, loss of goodwill and decline in share price. 28 Table of Contents Risks Relating to Our Intellectual Property Rights and Our Technology We rely significantly on information technology.
Moreover, any actual or alleged corruption in our supply chain could carry significant reputational harms, including negative publicity, loss of goodwill and decline in share price. 29 Table of Contents Risks Relating to Our Intellectual Property Rights and Our Technology We rely significantly on information technology.
In addition, fluctuations in the price, availability and quality of fabrics, leather or other raw materials used by us in our manufactured products, or of purchased finished goods, could have a material adverse effect on our cost of goods sold or our ability to meet our customers’ demands.
In addition, fluctuations in the price, availability and quality of fabrics, leather or other raw materials used by our suppliers in our manufactured products, or of purchased finished goods, could have a material adverse effect on our cost of goods sold or our ability to meet our customers’ demands.
Finally, any acquisitions we do make may cause large one-time expenses or create goodwill or other intangible assets that could result in significant impairment charges, such as the recent impairment charges related to the Culture Kings and Rebdolls reporting unit goodwill (see Note 6, “Goodwill,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K).
Finally, any acquisitions we do make may cause large one-time expenses or create goodwill or other intangible assets that could result in significant impairment charges, such as the recent impairment charges related to the Culture Kings and Petal & Pup reporting unit goodwill (see Note 6, “Goodwill,” in the notes to our consolidated financial statements included in this Annual Report on Form 10-K).
If we are unable to evolve with our customers’ and employees’ expectations and standards, our brand, reputation and customer and employee retention may be negatively impacted. 24 Table of Contents Our balance sheet includes a significant amount of intangible assets and goodwill.
If we are unable to evolve with our customers’ and employees’ expectations and standards, our brand, reputation and customer and employee retention may be negatively impacted. 25 Table of Contents Our balance sheet includes a significant amount of intangible assets and goodwill.
We have only limited abilities to verify data from our sites or third parties, and perpetrators of fraudulent impressions may change their tactics and may become more sophisticated, which would make it still more difficult to detect such activity. 20 Table of Contents Our methodologies for tracking metrics may also change over time, which could result in changes to the metrics we report.
We have only limited abilities to verify data from our sites or third parties, and perpetrators of fraudulent impressions may change their tactics and may become more sophisticated, which would make it still more difficult to detect such activity. Our methodologies for tracking metrics may also change over time, which could result in changes to the metrics we report.
We depend upon third-party suppliers and manufacturers, making us vulnerable to supply disruptions and price fluctuations. We rely on a number of third-party suppliers and manufacturers to provide our products, including one supplier that represents approximately 13% of our purchase orders.
We depend upon third-party suppliers and manufacturers, making us vulnerable to supply disruptions and price fluctuations. We rely on a number of third-party suppliers and manufacturers to provide our products, including one supplier that represents approximately 14% of our purchase orders.
We may have to develop alternative systems to determine our consumers’ behavior, customize their online experience or efficiently market to them if consumers block cookies or regulations introduce additional barriers to collecting cookie data. Third parties may claim that we are infringing, misappropriating or otherwise violating their intellectual property rights or those of others.
We may have to develop alternative systems to determine our consumers’ behavior, customize their online experience or efficiently market to them if consumers block cookies or regulations introduce additional barriers to collecting cookie data. 32 Table of Contents Third parties may claim that we are infringing, misappropriating or otherwise violating their intellectual property rights or those of others.
See “—Risks Relating to Law and Regulation—Changes in laws or regulations relating to data privacy and security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to data privacy and security, could lead to government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.” Merchandise returns could harm our business.
See “—Risks Relating to Laws and Regulation—Changes in laws or regulations relating to data privacy and security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to data privacy and security, could lead to government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.” 15 Table of Contents Merchandise returns could harm our business.
We do not currently maintain key-person life insurance policies on any member of our senior management team or other key employees. 22 Table of Contents On March 9, 2023, we announced that Jill Ramsey, our Chief Executive Officer, and our Board determined that Ms. Ramsey would take time to work through unforeseen medical issues.
We do not currently maintain key-person life insurance policies on any member of our senior management team or other key employees. On March 9, 2023, we announced that Jill Ramsey, our Chief Executive Officer, and our Board determined that Ms. Ramsey would take time to work through unforeseen medical issues.
The back-up facilities may not process effectively during time of higher traffic to our sites, may process transactions more slowly and may not support all of our sites’ functionality. 34 Table of Contents We rely on our partners who use complex custom-built proprietary software in our technology infrastructure, which they seek to continually update and improve.
The back-up facilities may not process effectively during time of higher traffic to our sites, may process transactions more slowly and may not support all of our sites’ functionality. We rely on our partners who use complex custom-built proprietary software in our technology infrastructure, which they seek to continually update and improve.
In addition, any intellectual property lawsuits in which we are involved could cost a significant amount of time and money and distract management’s attention from operating our business, which may negatively impact our business and results of operations. The success of our brands has also made us the target of counterfeiting and product imitation strategies.
In addition, any intellectual property lawsuits in which we are involved could cost a significant amount of time and money and distract management’s attention from operating our business, which may negatively impact our business and results of operations. 34 Table of Contents The success of our brands has also made us the target of counterfeiting and product imitation strategies.
This summary should be read together with the more detailed description of each risk factor below. • Economic downturns and market conditions could materially adversely affect our business, operating results, financial condition and growth prospects; • Changes in the political and economic policies of the Chinese government or in relations between China and the United States may materially and adversely affect our business, financial condition, results of operations and the market price of our common stock; • Rapidly-changing consumer preferences in the apparel, footwear and accessories industries expose us to the risk of lost sales, harmed customer relationships and diminished brand loyalty if we are unable to anticipate such changes; • Our future revenues and operating results will be harmed if we fail to acquire new customers, retain existing customers, and maintain average order value levels; • We face risks related to our growth strategy if we are unsuccessful in identifying brands to acquire, integrate and manage on our platform; • Our business and the success of our products could be harmed if we are unable to maintain our corporate integrity or the images and reputations of our brands; • Our use of third-party suppliers and manufacturers that are primarily based in China exposes us to risks inherent in doing business there; • We face risks to our operating results if we fail to manage our inventory effectively; • Increases in labor costs, including wages, and fluctuations in the price, availability and quality of raw materials and finished goods could adversely affect our business, financial condition and results of operations; • Changes in laws or regulations relating to data privacy and security that are applied adversely to us may have a material adverse effect on our reputation, results of operations, financial condition and cash flows; • Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition; and • We face risks related to our debt covenants if we fail to generate sufficient cash flow to service our debt. 12 Table of Contents Risks Relating to Our Business and Strategy Economic downturns and market conditions beyond our control, including periods of inflation, could materially adversely affect our business, operating results, financial condition and prospects.
This summary should be read together with the more detailed description of each risk factor below. • Economic downturns and market conditions could materially adversely affect our business, operating results, financial condition and growth prospects; • Changes in the political and economic policies of the Chinese government or in relations between China and the United States may materially and adversely affect our business, financial condition, results of operations and the market price of our common stock; • Rapidly-changing consumer preferences in the apparel, footwear and accessories industries expose us to the risk of lost sales, harmed customer relationships and diminished brand loyalty if we are unable to anticipate such changes; • Our future revenues and operating results will be harmed if we fail to acquire new customers, retain existing customers, and maintain average order value levels; • We face risks related to our growth strategy if we are unsuccessful in identifying brands to acquire, integrate and manage on our platform; • Our business and the success of our products could be harmed if we are unable to maintain our corporate integrity or the images and reputations of our brands; • Our use of third-party suppliers and manufacturers that are primarily based in China exposes us to risks inherent in doing business there; • We face risks to our operating results if we fail to manage our inventory effectively; • Increases in labor costs, including wages, and fluctuations in the price, availability and quality of raw materials and finished goods could adversely affect our business, financial condition and results of operations; • Changes in laws or regulations relating to data privacy and security that are applied adversely to us may have a material adverse effect on our reputation, results of operations, financial condition and cash flows; • Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition; and • We face risks related to our debt covenants if we fail to generate sufficient cash flow to service our debt which could arise from changes in our results of operations or general economic conditions. • If we fail to maintain compliance with the New York Stock Exchange’s (“NYSE”) continued listing standards, the NYSE may delist our common stock. 12 Table of Contents Risks Relating to Our Business and Strategy Economic downturns and market conditions beyond our control, including periods of inflation, could materially adversely affect our business, operating results, financial condition and prospects.
These events may fail to promote awareness of our brands and products and may not generate a meaningful return on investment. 14 Table of Contents We also acquire and retain customers through retargeting, paid search and product listing ads, affiliate marketing, paid social, personalized email marketing, SMS text and mobile “push” communications through our mobile apps.
These events may fail to promote awareness of our brands and products and may not generate a meaningful return on investment. We also acquire and retain customers through retargeting, paid search and product listing ads, affiliate marketing, paid social, personalized email marketing, SMS text and mobile “push” communications through our mobile apps.
Any loss or interruption to our systems or the services provided by third parties would adversely affect our business, financial condition and results of operations. 30 Table of Contents Customer growth and activity on mobile devices depends upon effective use of mobile operating systems, networks and standards that we do not control.
Any loss or interruption to our systems or the services provided by third parties would adversely affect our business, financial condition and results of operations. Customer growth and activity on mobile devices depends upon effective use of mobile operating systems, networks and standards that we do not control.
Any court decision or settlement that prevents trademark protection of our brands, that allows a third-party to continue to sell products similar to our products, or that allows a manufacturer or distributor to continue to sell counterfeit versions of our products, could lead to intensified competition and a material reduction in our sales. 33 Table of Contents We are subject to payments-related risks.
Any court decision or settlement that prevents trademark protection of our brands, that allows a third-party to continue to sell products similar to our products, or that allows a manufacturer or distributor to continue to sell counterfeit versions of our products, could lead to intensified competition and a material reduction in our sales. We are subject to payments-related risks.
Any challenges that we encounter as we expand internationally may divert financial, operational and managerial resources from our existing operations, which could adversely impact our financial condition and results of operations. 18 Table of Contents Shipping is a critical part of our business and any interruptions in, or increased costs of, shipping could adversely affect our operating results.
Any challenges that we encounter as we expand internationally may divert financial, operational and managerial resources from our existing operations, which could adversely impact our financial condition and results of operations. Shipping is a critical part of our business and any interruptions in, or increased costs of, shipping could adversely affect our operating results.
Expanding into new countries and regions involves significant risk, particularly if we have no experience in marketing, selling and engaging with customers in the market. For example, we recently opened our first U.S. flagship store for our brand, Culture Kings, in Las Vegas, Nevada.
Expanding into new countries and regions involves significant risk, particularly if we have no experience in marketing, selling and engaging with customers in the market. For example, in November 2022, we opened our first U.S. flagship store for our brand, Culture Kings, in Las Vegas, Nevada.
Our failure to successfully respond to these risks might adversely affect our sales, as well as damage our reputation and brands. Use of social media and influencers may materially and adversely affect our reputation or subject us to fines or other penalties. We use third-party social media platforms as, among other things, marketing tools.
Our failure to successfully respond to these risks might adversely affect our sales, as well as damage our reputation and brands. 19 Table of Contents Use of social media and influencers may materially and adversely affect our reputation or subject us to fines or other penalties. We use third-party social media platforms as, among other things, marketing tools.
An inactive market may also impair our ability to raise capital to continue to fund operations by issuing shares and may impair our ability to acquire other companies or technologies by using our shares as consideration. 38 Table of Contents Our stock price has been volatile, and the market price of our common stock may drop below the price you pay.
An inactive market may also impair our ability to raise capital to continue to fund operations by issuing shares and may impair our ability to acquire other companies or technologies by using our shares as consideration. Our stock price has been volatile, and the market price of our common stock may drop below the price you pay.
Our business could be significantly harmed if we are not able to establish, maintain, protect and enforce our intellectual property rights. We believe our competitive position is largely attributable to the value of our trademarks, trade dress, trade names, trade secrets, copyrights and other intellectual property rights.
Our intellectual property is an essential asset of our business. Our business could be significantly harmed if we are not able to establish, maintain, protect and enforce our intellectual property rights. We believe our competitive position is largely attributable to the value of our trademarks, trade dress, trade names, trade secrets, copyrights and other intellectual property rights.
In addition, we may face difficulties in recovering any losses from our provider and any losses we recover may be lower than we initially expect. We are also reliant on the security practices of our third-party service providers, which may be outside of our direct control.
In addition, we may face difficulties in recovering any losses from our provider and any losses we recover may be lower than we initially expect. 31 Table of Contents We are also reliant on the security practices of our third-party service providers, which may be outside of our direct control.
Further, our credit facility will likely contain customary affirmative and negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business.
Further, our existing credit facility contains, and any future credit facility will likely contain, customary affirmative and negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business.
In addition, the financing documents that govern our credit facility do not restrict our Principal Stockholder from creating new holding companies that may be able to incur indebtedness without regard to the restrictions set forth in the financing documents governing our credit facility.
In addition, the financing documents that govern our credit facility do not restrict Excelerate, L.P., our principal stockholder, from creating new holding companies that may be able to incur indebtedness without regard to the restrictions set forth in the financing documents governing our credit facility.
If our future operating results are below the expectations of securities analysts or investors, or below any financial guidance we may provide to the market, our stock price may further decline. Our operating results fluctuate from period to period.
If our future operating results are below the expectations of securities analysts or investors, or below any financial guidance we may provide to the market, our stock price may further decline. 20 Table of Contents Our operating results fluctuate from period to period.
Culture Kings store in Las Vegas, which exposes us to premises liability, such as slip and falls, and may subject us to greater potential labor union activity; • we may not be successful in securing wholesale partnerships or securing favorable terms; • we may not successfully identify the correct markets in which to open retail stores for our brands; • we may not be able to scale the abilities of our supply chain operations to meet increased consumer demand, and we may not be able to offset rising materials, procurement and shipping costs with pricing actions or efficiency improvements; • any new brands we acquire might cannibalize our existing brands and cause a decrease in sales of our existing brands; and • we may not be able to complete dispositions of nonstrategic assets in the future.
Culture Kings store in Las Vegas, which exposes us to premises liability, such as slip and falls, and may subject us to greater potential labor union activity; • we may not be successful in opening new brick-and-mortar stores, including the planned Princess Polly locations in the U.S.; • we may not be successful in securing wholesale partnerships or securing favorable terms; • we may not successfully identify the correct markets in which to open retail stores for our brands; • we may not be able to scale the abilities of our supply chain operations to meet increased consumer demand, and we may not be able to offset rising materials, procurement and shipping costs with pricing actions or efficiency improvements; • any new brands we acquire might cannibalize our existing brands and cause a decrease in sales of our existing brands; and • we may not be able to complete dispositions of nonstrategic assets in the future.
A decline in the fair value of an intangible asset or of a business unit could result in an asset impairment charge, such as the recent impairment charges related to the Culture Kings and Rebdolls reporting unit goodwill.
A decline in the fair value of an intangible asset or of a business unit could result in an asset impairment charge, such as the recent goodwill impairment charges related to the Culture Kings and Petal & Pup reporting units.
In addition, our ability to meet customer demand may be negatively impacted by a shortage in inventory due to reduced inventory purchases or disruptions in the supply chain due to a number of factors, including the COVID-19 pandemic.
In addition, our ability to meet customer demand may be negatively impacted by a shortage in inventory due to reduced inventory purchases or disruptions in the supply chain due to a number of factors.
We entered into a Director Nomination Agreement with Summit that provides Summit the right to designate the following number of nominees for election to our Board: (i) all of the nominees for election to our Board for so long as Summit beneficially owns at least 40% of the total number of shares of our common stock outstanding upon completion of this offering, as adjusted for any reorganization, recapitalization, stock dividend, stock split, reverse stock split, or similar changes in the Company’s capitalization (the “Original Amount”); (ii) a majority of the nominees for election to our Board for so long as Summit beneficially owns less than 40% but at least 30% of the Original Amount; (iii) 30% of the nominees for election to our Board for so long as Summit beneficially owns less than 30% but at least 20% of the Original Amount; (iv) 20% of the nominees for election to our Board for so long as Summit beneficially owns less than 20% but at least 10% of the Original Amount; and (v) one of the nominees for election to our Board for so long as Summit beneficially owns at least 5% of the Original Amount, which could result in representation on our Board that is disproportionate to Summit’s beneficial ownership.
We entered into a Director Nomination Agreement with Summit that provides Summit the right to designate the following number of nominees for election to our Board: (i) all of the nominees for election to our Board for so long as Summit beneficially owns at least 40% of the total number of shares of our common stock outstanding upon completion of this offering, as adjusted for any reorganization, recapitalization, stock dividend, stock split, reverse stock split, or similar changes in the Company’s capitalization (the “Original Amount”); (ii) a majority of the nominees for election to our Board for so long as Summit beneficially owns less than 40% but at least 30% of the Original Amount; (iii) 30% of the nominees for election to our Board for so long as Summit beneficially owns less than 30% but at least 20% of the Original Amount; (iv) 20% of the nominees for election to our Board for so long as Summit beneficially owns less than 20% but at least 10% of the Original Amount; and (v) one of the nominees for election to our Board for so long as Summit beneficially owns at least 5% of the Original Amount, which could result in representation on our Board that is disproportionate to Summit’s beneficial ownership. 39 Table of Contents Summit and its affiliates engage in a broad spectrum of activities, including investments in the services industry generally.
We may be able to incur significant additional indebtedness in the future. Although the financing documents that govern our credit facility contain restrictions on the incurrence of additional indebtedness and liens, these restrictions are subject to a number of important qualifications and exceptions, and the additional indebtedness and liens incurred in compliance with these restrictions could be substantial.
Although the financing documents that govern our credit facility contain restrictions on the incurrence of additional indebtedness and liens, these restrictions are subject to a number of important qualifications and exceptions, and the additional indebtedness and liens incurred in compliance with these restrictions could be substantial.
Certain holders of approximately 117,496,642 shares of our common stock have the right to require us to register the sales of their shares under the Securities Act of 1933, as amended (the “Securities Act”), under the terms of a registration right agreement between us and the holders of these securities.
Certain holders of approximately 9,791,387 shares of our common stock have the right to require us to register the sales of their shares under the Securities Act of 1933, as amended (the “Securities Act”), under the terms of a registration right agreement between us and the holders of these securities.
Our ability to conduct business internationally may be adversely impacted by geopolitical (such as the Russian invasion of Ukraine or relations between China and Taiwan), economic, and public health events, such as the COVID-19 pandemic, the manner in which governments respond to such events, as well as the global economy.
Our ability to conduct business internationally may be adversely impacted by geopolitical (such as the Russian invasion of Ukraine, relations between China and Taiwan, or the ongoing conflict in the Middle East), economic, and public health events, the manner in which governments respond to such events, as well as the global economy.
In addition to Summit’s beneficial ownership of 56.3% of our common stock as of March 6, 2023, our certificate of incorporation and bylaws contain provisions that may make the acquisition of the Company more difficult without the approval of our board of directors.
In addition to Summit’s beneficial ownership of 57.6% of our common stock as of March 5, 2024, our certificate of incorporation and bylaws contain provisions that may make the acquisition of the Company more difficult without the approval of our board of directors.
In order to expand our customer base, we must appeal to and acquire customers who have historically used other means of commerce in shopping for apparel and may prefer alternatives to our offerings, such as traditional brick-and-mortar retailers or the websites of our competitors.
Our success depends on our ability to acquire customers in a cost-effective manner. In order to expand our customer base, we must appeal to and acquire customers who have historically used other means of commerce in shopping for apparel and may prefer alternatives to our offerings, such as traditional brick-and-mortar retailers or the websites of our competitors.
Other jurisdictions in the U.S. have also adopted or are proposing privacy and data security laws that are similar or more restrictive than the CCPA, CPRA and GDPR, including t he Virginia Consumer Data Protection Act, which became effective on January 1, 2023, and the Colorado Privacy Act and the Utah Consumer Privacy Act, which were signed into law in July 2021 and March 2022, respectively, and will become effective in July 2023 and December 2023, respectively , further complicating the legal landscape.
Other jurisdictions in the U.S. have also adopted or are proposing privacy and data security laws that are similar or more restrictive than the CCPA, CPRA and GDPR, including t he Virginia Consumer Data Protection Act, which became effective on January 1, 2023, the Colorado Privacy Act, which became effective in July 2023, and the Utah Consumer Privacy Act, which became effective in December 2023, further complicating the legal landscape.
While we now collect, remit and report sales tax in all states that impose a sales tax, it is still possible that one or more jurisdictions may assert that we have liability for previous periods for which we did not collect sales, use or other similar taxes, and if such an assertion or assertions were successful it could result in substantial tax liabilities, including for past sales taxes and penalties and interest, which could materially adversely affect our business, financial condition and operating results. 21 Table of Contents Our business is exposed to the risks of foreign currency exchange rate fluctuations.
While we now collect, remit and report sales tax in all states that impose a sales tax, it is still possible that one or more jurisdictions may assert that we have liability for previous periods for which we did not collect sales, use or other similar taxes, and if such an assertion or assertions were successful it could result in substantial tax liabilities, including for past sales taxes and penalties and interest, which could materially adversely affect our business, financial condition and operating results.
An active trading market for our common stock may not be sustained. Although we have listed our common stock on the New York Stock Exchange (“NYSE”) under the symbol “AKA,” an active trading market for our shares may not be sustained.
An active trading market for our common stock may not be sustained. Although we have listed our common stock on the NYSE under the symbol “AKA,” an active trading market for our shares may not be sustained.
As of March 6, 2023, Summit beneficially owned approximately 56.3% of our common stock which means that, based on its percentage voting power, Summit controls the vote of all matters submitted to a vote of our Board or stockholders, which enables it to control the election of the members of the Board and all other corporate decisions.
As of March 5, 2024, Summit Partners LP (“Summit”) beneficially owned approximately 57.6% of our common stock which means that, based on its percentage voting power, Summit controls the vote of all matters submitted to a vote of our Board or stockholders, which enables it to control the election of the members of the Board and all other corporate decisions.
Our credit facility, or any future credit facility or other indebtedness we may enter into, may have important consequences, including: • limiting funds otherwise available for financing our capital expenditures by requiring us to dedicate a portion of our cash flows from operations to the repayment of debt and the interest on this debt; • limiting our ability to incur additional indebtedness; • limiting our ability to capitalize on significant business opportunities; • making us more vulnerable to rising interest rates; and • making us more vulnerable in the event of a downturn in our business.
Our credit facility, or any future credit facility or other indebtedness we may enter into, may have important consequences, including: • limiting funds otherwise available for financing our capital expenditures by requiring us to dedicate a portion of our cash flows from operations to the repayment of debt and the interest on this debt; • limiting our ability to incur additional indebtedness; • limiting our ability to capitalize on significant business opportunities; • making us more vulnerable to rising interest rates; and • making us more vulnerable in the event of a downturn in our business. 36 Table of Contents Our level of indebtedness may place us at a competitive disadvantage to our competitors that are not as highly leveraged.
The prices we pay depend on demand and market prices for the raw materials used to produce them.
The prices we pay to our suppliers depend on demand and market prices for the raw materials used to produce our products.
We could remain an “emerging growth company” until 2026 or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenue exceeds $1.07 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, and (c) the date on which we have issued more than $1 billion in non-convertible debt securities during the preceding three- year period.
We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of these exemptions and as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. 43 Table of Contents We could remain an “emerging growth company” until 2026 or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenue exceeds $1.07 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, and (c) the date on which we have issued more than $1 billion in non-convertible debt securities during the preceding three- year period.
These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such cash flows and resources, we could face substantial liquidity problems and might be required to sell material assets or operations to attempt to meet our debt service obligations.
In the absence of such cash flows and resources, we could face substantial liquidity problems and might be required to sell material assets or operations to attempt to meet our debt service obligations.
If we raise additional equity financing, you may experience significant dilution of your ownership interests. If we raise additional debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions.
If we raise additional debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions.
If either we are unable to conclude that we have effective internal controls over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report on the effectiveness of our internal controls over financial reporting as required by Section 404(b) of SOX, investors may lose confidence in our reported financial information, the price of our common stock could decline and we may be subject to litigation or regulatory enforcement actions.
It is possible that, had we and our independent registered public accounting firm performed a formal assessment of the effectiveness of our internal control over financial reporting in accordance with the provisions of SOX, additional material weaknesses may have been identified. 42 Table of Contents If either we are unable to conclude that we have effective internal controls over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report on the effectiveness of our internal controls over financial reporting as required by Section 404(b) of SOX, investors may lose confidence in our reported financial information, the price of our common stock could decline and we may be subject to litigation or regulatory enforcement actions.
If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to, among other things: • invest in our business and continue to expand our sales and marketing efforts; • hire, train and retain employees; • respond to competitive pressures or unanticipated working capital requirements; or • pursue acquisition opportunities, including new brands, the inability of which could adversely impact the execution of our growth strategy. 37 Table of Contents Risks Relating to Ownership of Our Common Stock Summit controls us, and its interests may conflict with ours or yours in the future.
If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to, among other things: • invest in our business and continue to expand our sales and marketing efforts; • hire, train and retain employees; • respond to competitive pressures or unanticipated working capital requirements; or • pursue acquisition opportunities, including new brands, the inability of which could adversely impact the execution of our growth strategy.
Our ability to receive inventory and ship merchandise to customers may be negatively affected by weather, fire, flood, power loss, earthquakes, public health crises such as the COVID-19 pandemic, labor disputes, acts of war or terrorism, port closures, import and export tariffs, complex local laws and other factors.
Our ability to receive inventory and ship merchandise to customers may be negatively affected by weather, fire, flood, power loss, earthquakes, public health crises, labor disputes, acts of war or terrorism, including attacks on shipping vessels in the Red Sea, port closures, import and export tariffs, complex local laws and other factors.
A perception that introducing a high volume of styles and manufacturing and selling of fast fashion at scale results in lower quality or increased textile waste, or that we are not honoring our commitment to responsible fashion, could harm our reputation. Our reputation could also be adversely affected by negative consumer perception of our sourcing concentration in particular countries.
A perception that introducing a high volume of styles and manufacturing and selling of fast fashion at scale results in lower quality or increased textile waste, or that we are not honoring our commitment to responsible fashion, could harm our reputation.
Even when a security breach is detected, the full extent of the breach may not be determined immediately. The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, while we have implemented security measures to protect our systems, our efforts to address these problems may not be successful.
The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, while we have implemented security measures to protect our systems, our efforts to address these problems may not be successful.
If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and could have a material adversely effect on our business, financial condition and results of operations. 40 Table of Contents Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.
If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and could have a material adversely effect on our business, financial condition and results of operations.
If we cannot meet our debt service obligations, the holders of our indebtedness may accelerate such indebtedness and, to the extent such indebtedness is secured, foreclose on our assets. In such an event, we may not have sufficient assets to repay all of our indebtedness.
If we cannot meet our debt service obligations, the holders of our indebtedness may accelerate such indebtedness and, to the extent such indebtedness is secured, foreclose on our assets.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).
Our evaluation was based on the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control — Integrated Framework (2013). 39 Table of Contents The material weaknesses identified by management related to the following: • We have not sufficiently designed, implemented and documented internal controls at the entity level and across the key business and financial processes to allow us to achieve complete, accurate and timely financial reporting. • We have not designed and implemented controls to maintain appropriate segregation of duties in our manual and IT-based business processes.
The material weaknesses identified by management related to the following: • We have not sufficiently designed, implemented and documented internal controls at the entity level and across the key business and financial processes to allow us to achieve complete, accurate and timely financial reporting. • We have not designed and implemented controls to maintain appropriate segregation of duties in our manual and IT-based business processes.
Furthermore, an adverse outcome of a dispute may result in an injunction requiring us to cease the commercialization of our products and could require us to pay substantial monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property rights. 31 Table of Contents Our liability insurance may not cover potential claims of this type adequately or at all.
Furthermore, an adverse outcome of a dispute may result in an injunction requiring us to cease the commercialization of our products and could require us to pay substantial monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property rights.
Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.
Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court.
The frequency, intensity, and sophistication of cyber-attacks, ransom-ware attacks and other data security incidents has significantly increased in recent years. As with many other businesses, we have experienced, and are continually at risk of being subject to, attacks and incidents.
The frequency, intensity, and sophistication of cyber-attacks, ransom-ware attacks and other data security incidents has significantly increased in recent years. As with many other businesses, we have experienced, and are continually at risk of being subject to, attacks and incidents, although none have had a material adverse impact on our financial condition or results of operations.
In addition, because the techniques used to obtain unauthorized access to information technology systems are constantly evolving and becoming more sophisticated, they may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments or agencies, we may be unable to anticipate these techniques or implement adequate preventive measures in response. 29 Table of Contents Cyber-attacks or data security incidents could remain undetected for an extended period, which could potentially result in significant harm to our systems, as well as unauthorized access to the information stored on and transmitted by our systems.
In addition, because the techniques used to obtain unauthorized access to information technology systems are constantly evolving and becoming more sophisticated, they may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments or agencies, we may be unable to anticipate these techniques or implement adequate preventive measures in response.
As a result, exchange rate changes between foreign currencies and the U.S. dollar affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results. We expect that our exposure to foreign currency exchange rate fluctuations will grow as the relative contribution of our non-U.S. operations increases.
As a result, exchange rate changes between foreign currencies and the U.S. dollar affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results.
If we fail to predict or react appropriately to changes in consumer preferences and fashion trends or fail to adapt to shifting spending patterns or demand, consumers may consider our brands and products to be outdated or unattainable or associate our brands and products with styles that are no longer popular, which may adversely affect our overall financial performance.
If we fail to predict or react appropriately to changes in consumer preferences and fashion trends or fail to adapt to shifting spending patterns or demand, consumers may consider our brands and products to be outdated or unattainable or associate our brands and products with styles that are no longer popular, which may adversely affect our overall financial performance. 14 Table of Contents If we fail to acquire new customers, or fail to do so in a cost-effective manner, we may not be able to increase net sales or maintain profitability.
Our current growth strategy includes plans to expand our digital marketing and grow our eCommerce and retail presence internationally over the next several years. As we seek to expand internationally, we face competition from more established retail competitors.
Any of these developments could adversely impact our financial condition and results of operations. We face risks from our international business. Our current growth strategy includes plans to expand our digital marketing and grow our eCommerce and retail presence internationally over the next several years. As we seek to expand internationally, we face competition from more established retail competitors.
If any of these events occur, our business, financial condition and results of operations could be materially and adversely affected. 13 Table of Contents The apparel, footwear and accessories industries are subject to rapid changes in consumer preferences, and if we do not accurately anticipate and promptly respond to changes in consumer preferences, we could lose sales, our relationships with customers could be harmed and our brand loyalty could be diminished.
The apparel, footwear and accessories industries are subject to rapid changes in consumer preferences, and if we do not accurately anticipate and promptly respond to changes in consumer preferences, we could lose sales, our relationships with customers could be harmed and our brand loyalty could be diminished.
Further, we may modify our policies relating to returns from time to time, which may result in customer dissatisfaction or an increase in the number of product returns.
Further, we may modify our policies relating to returns from time to time, which may result in customer dissatisfaction or an increase in the number of product returns. From time to time our products are also damaged in transit, which can increase return rates and harm our brand.
We are also exposed to currency translation risk because the results of our Australian businesses are generally reported in local currency, which we then translate to U.S. dollars for inclusion in our financial statements.
Changes in foreign currency exchange rates could have an adverse impact on our financial condition, results of operations and cash flows. We are also exposed to currency translation risk because the results of our Australian businesses are generally reported in local currency, which we then translate to U.S. dollars for inclusion in our financial statements.
We rely on these exemptions. As a result, our Compensation Committee and Nominating and Corporate Governance Committee may not consist entirely of independent directors and may not subject to annual performance evaluations.
We rely on these exemptions. As a result, our Compensation Committee and Nominating and Corporate Governance Committee may not consist entirely of independent directors and may not subject to annual performance evaluations. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
The Board also appointed Ciaran Long, our Chief Financial Officer, to serve as acting Chief Executive Officer on an interim basis. Any failure to ensure effective transfer of knowledge and a smooth transition could impact our business strategy, our relations with investors, suppliers and customers and affect employee morale. We also face significant competition for personnel.
Any failure to identify a suitable permanent Chief Executive Officer candidate and ensure an effective transfer of knowledge and a smooth transition could impact our business strategy, our relations with investors, suppliers and customers and affect employee morale. 23 Table of Contents We also face significant competition for personnel.
Our certificate of incorporation further provides that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the provisions of our certificate of incorporation described above.
Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder. 45 Table of Contents Our certificate of incorporation further provides that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the provisions of our certificate of incorporation described above.
Since identifying these material weaknesses, we have been, and are currently in the process of, remediating each of them. Although we plan to complete the remediation process as quickly as possible for each material weakness, we cannot at this time estimate when the remediation will be completed.
Although we plan to complete the remediation process as quickly as possible for each material weakness, we cannot at this time estimate when the remediation will be completed.
Accordingly, if you purchase our common stock, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur. 43 Table of Contents If securities or industry analysts cease to publish research or reports about our business, if they adversely change their recommendations regarding our common stock or if our results of operations do not meet their expectations, the price of our common stock and trading volume could decline.
If securities or industry analysts cease to publish research or reports about our business, if they adversely change their recommendations regarding our common stock or if our results of operations do not meet their expectations, the price of our common stock and trading volume could decline.
We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms, or at all. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all.
We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms, or at all.
The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium over the market price, and adversely affect the market price and the voting and other rights of the holders of our common stock. 42 Table of Contents Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders and the federal district courts of the United States as the exclusive forum for litigation arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders and the federal district courts of the United States as the exclusive forum for litigation arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe lease and operate three distribution centers in Australia, but use third parties for distribution in the United States. The three distribution centers have lease terms expiring from July 2024 to January 2026. All have sufficient renewal periods. Culture Kings leases and operates seven physical retail stores in Australia, one in New Zealand and one in the United States.
Biggest changeWe lease and operate three distribution centers in Australia, but use third parties for distribution in the United States. The three distribution centers have lease terms expiring from September 2024 to December 2026. All of our leased properties have sufficient renewal periods.
ITEM 2. PROPERTIES We lease two offices in Los Angeles, California, one office in Newark, New Jersey, three offices in Queensland, Australia, and our corporate headquarters is located at 100 Montgomery Street, Suite 1600, San Francisco, California 94104 (approximately 4,867 square feet).
ITEM 2. PROPERTIES We lease two offices in Los Angeles, California, one office in Costa Mesa, California, three offices in Queensland, Australia, and our corporate headquarters is located at 100 Montgomery Street, Suite 2270, San Francisco, California 94104 (approximately 3,690 square feet).
Removed
The nine retail stores have lease terms expiring from June 2023 to January 2033.
Added
Culture Kings leases and operates eight physical retail stores in Australia, one in New Zealand and one in the United States. The ten retail stores have lease terms expiring from January 2024 to January 2033. Princess Polly leases and operates one physical retail store in Los Angeles, California, with a lease term expiring in August 2028. 48 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMINE SAFETY DISCLOSURES Not applicable. 44 Table of Contents PART II
Biggest changeMINE SAFETY DISCLOSURES Not applicable. 49 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 44 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 45 Item 6. Selected Consolidated Financial Data 46 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 47 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 67 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 49 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 50 Item 6. [Reserved] 51 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 52 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 72 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeStockholders of Record American Stock Transfer & Trust Company, LLC is the transfer agent and registrar for our common stock. As of March 6, 2023, there were 10 stockholders of record of our common stock.
Biggest changeStockholders of Record American Stock Transfer & Trust Company, LLC is the transfer agent and registrar for our common stock. As of March 5, 2024, there were 11 stockholders of record of our common stock.
Removed
Stock Performance Graph The following shall not be deemed “soliciting material” or deemed “filed” for purposes of Section 18 of the Exchange Act, or subject to Regulation 14A or 14C, other than as provided by this Item 5, or to the liabilities of Section 18 of the Exchange Act, or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act, except to the extent we specifically incorporate it by reference into such filing.
Added
Issuer Purchases of Equity Securities On May 25, 2023, the Company’s board of directors approved a share repurchase program (the “Share Repurchase Program”), authorizing the Company to repurchase up to $2 million of shares of the Company’s common stock.
Removed
The following graph and table compare the cumulative total return on our common stock with that of the S&P 500 Index and the S&P Retail Select Industry Index during each monthly accounting period from September 22, 2021 (the date our common stock began trading on the NYSE) through December 31, 2022.
Added
Subsequently, in 2023, the Company’s board of directors approved an additional repurchase capacity under the Share Repurchase Program of $3.0 million of shares of the Company’s common stock.
Removed
The graph assumes $100 was invested in our common stock, the S&P 500 Index, and the S&P Retail Select Industry Index at the close of market on September 22, 2021, and assumes the reinvestment of any dividends.
Added
The timing of any repurchases by the Company and the actual number of shares repurchased are at the Company’s discretion, and, in deciding when to repurchase shares and the amount of shares to repurchase, the Company will consider available liquidity, general market and economic conditions, alternate uses for the capital and other factors.
Removed
The returns shown are based on historical results and are not intended to suggest future performance. 45 Table of Contents Company/Index 9/22/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 12/31/2022 a.k.a.
Added
Share repurchases may be made from time to time through a Rule 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements. The Share Repurchase Program may be suspended or discontinued at any time and has no expiration date.
Removed
Brands Holding Corp. $ 100.00 $ 92.59 $ 44.24 $ 27.63 $ 14.51 $ 12.71 S&P 500 Index 100.00 105.86 101.00 84.73 80.60 86.69 S&P Retail Select Industry Index 100.00 97.02 81.23 62.88 61.32 66.25
Added
All repurchased shares under the Share Repurchase Program will be retired. 50 Table of Contents The following table sets forth our share repurchase activity, on a settlement date basis, for the three months ended December 31, 2023: Period Total Number of Shares Purchased 1 Average Price Paid per Share Total number of shares purchased as part of a publicly announced plan or program Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (millions) 2 October 1, 2023 - October 31, 2023 76,325 $ 5.99 60,913 $ 3.7 November 1, 2023 - November 30, 2023 53,986 7.71 52,852 3.3 December 1, 2023 - December 31, 2023 44,850 9.74 43,005 2.9 Total 175,161 156,770 1 18,391 of these shares represent shares of common stock surrendered by certain of our employees to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares of common stock issued under the 2021 Employee Stock Purchase Plan.
Added
With respect to these surrendered shares, the price paid per share is based on the fair value at the time of surrender. 2 Reflects the dollar value of shares that may yet be repurchased under the Share Repurchase Program announced on May 25, 2023.
Added
The Company’s board of directors initially authorized the repurchase of an aggregate of $2.0 million of shares of common stock pursuant to the Share Repurchase Program. On December 18, 2023, the Company announced its board of directors approved an additional repurchase capacity under the Share Repurchase Program of $3.0 million of shares of the Company’s common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

93 edited+34 added−31 removed59 unchanged
Biggest changeThree Months Ended In thousands Mar 31, 2021 Jun 30, 2021 Sep 30, 2021 Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Dec 31, 2022 Net sales $ 68,779 $ 149,227 $ 161,762 $ 182,423 $ 148,319 $ 158,471 $ 155,822 $ 149,126 Cost of sales 28,191 67,793 75,652 82,891 64,123 71,024 68,965 70,379 Gross profit 40,588 81,434 86,110 99,532 84,196 87,447 86,857 78,747 Operating expenses: Selling 18,254 40,023 40,582 45,486 40,364 45,254 41,450 39,002 Marketing 6,224 14,908 15,463 21,525 15,705 19,064 16,532 15,429 General and administrative 13,430 19,220 28,900 27,266 24,778 25,703 26,133 26,086 Goodwill impairment — — — — — — — 173,786 Total operating expenses 37,908 74,151 84,945 94,277 80,847 90,021 84,115 254,303 Income (loss) from operations 2,680 7,283 1,165 5,255 3,349 (2,574) 2,742 (175,556) Total other expense, net (123) (4,155) (15,589) (1,755) (1,171) (2,593) (2,758) (2,053) Income (loss) before income taxes 2,557 3,128 (14,424) 3,500 2,178 (5,167) (16) (177,609) Benefit from (provision for) income tax (767) (939) 4,331 (3,477) (653) 955 (98) 3,713 Net income (loss) 1,790 2,189 (10,093) 23 1,525 (4,212) (114) (173,896) Net income (loss) attributable to noncontrolling interests (318) 242 199 — — — — — Net income (loss) attributable to a.k.a.
Biggest changeThree Months Ended In thousands Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Dec 31, 2022 Mar 31, 2023 Jun 30, 2023 Sep 30, 2023 Dec 31, 2023 Net sales $ 148,319 $ 158,471 $ 155,822 $ 149,126 $ 120,485 $ 136,028 $ 140,833 $ 148,912 Cost of sales 64,123 71,024 68,965 70,379 51,985 58,672 62,865 72,456 Gross profit 84,196 87,447 86,857 78,747 68,500 77,356 77,968 76,456 Operating expenses: Selling 40,364 45,254 41,450 39,002 34,406 35,932 36,660 42,309 Marketing 15,705 19,064 16,532 15,429 14,777 18,354 18,511 17,265 General and administrative 24,778 25,703 26,133 26,086 25,868 24,191 24,622 22,270 Goodwill impairment — — — 173,786 — — 68,524 — Total operating expenses 80,847 90,021 84,115 254,303 75,051 78,477 148,317 81,844 Income (loss) from operations 3,349 (2,574) 2,742 (175,556) (6,551) (1,121) (70,349) (5,388) Total other expense, net (1,171) (2,593) (2,758) (2,053) (3,885) (3,591) (3,339) (2,741) Income (loss) before income taxes 2,178 (5,167) (16) (177,609) (10,436) (4,712) (73,688) (8,129) (Provision for) benefit from income tax (653) 955 (98) 3,713 883 (328) 3,278 (5,754) Net income (loss) 1,525 (4,212) (114) (173,896) (9,553) (5,040) (70,410) (13,883) Three Months Ended Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Dec 31, 2022 Mar 31, 2023 Jun 30, 2023 Sep 30, 2023 Dec 31, 2023 Net sales 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Cost of sales 43 % 45 % 44 % 47 % 43 % 43 % 45 % 49 % Gross profit 57 % 55 % 56 % 53 % 57 % 57 % 55 % 51 % Operating expenses: Selling 27 % 29 % 27% 26% 29% 26% 26% 28% Marketing 11 % 12 % 11% 10% 12% 13% 13% 12% General and administrative 17 % 16 % 17% 17% 21% 18% 17% 15% Goodwill impairment — % — % —% 117% —% —% 49% —% Total operating expenses 55 % 57 % 54% 171% 62% 58% 105% 55% Income (loss) from operations 2 % (2 %) 2 % (118 %) (5 %) (1 %) (50 %) (4 %) Total other expense, net (1%) (2%) (2%) (1%) (3%) (3%) (2%) (2%) Income (loss) before income taxes 1 % (3 %) — % (119 %) (9 %) (3 %) (52 %) (5 %) (Provision for) benefit from income tax —% 1% —% 2% 1% —% 2% (4%) Net income (loss) 1 % (3 %) — % (117 %) (8 %) (4 %) (50 %) (9 %) 65 Table of Contents Quarterly Trends and Seasonality Net Sales, Cost of Sales and Gross Profit Our net sales are impacted by foreign currency exchange rates, inflationary pressures on consumers globally and our supply chain, shifts in global spending in anticipation of a potential economic slowdown or recession, increasing labor rates and a slower-than-expected recovery from the economic downturn in Australia.
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 in this Annual Report on Form 10-K 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, 2021, which was the last day of our prior fiscal year) rather than the actual exchange rates in effect during the respective periods.
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 in this Annual Report on Form 10-K 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.
The brand targets a female customer between the ages of 15 and 25. • In August 2019, we acquired Petal & Pup, an Australian fashion brand offering an assortment of trendy, flattering and feminine styles and dresses for special occasions.
The brand targets a female customer between the ages of 15 and 25. • In August 2019, we acquired Petal & Pup, a fashion brand offering an assortment of trendy, flattering and feminine styles and dresses for special occasions.
While gross margin was flat in 2022 compared to 2021, the impact of the fair value adjustment to inventory acquired in the Culture Kings acquisition of $15.9 million, included in 2021, was offset by a change in the mix of products sold due to the acquisition of Culture Kings, as Culture Kings inventory has lower average gross margins. 55 Table of Contents Selling Expenses Years Ended December 31, 2022 2021 Selling $ 166,070 $ 144,345 Percent of net sales 27 % 26 % Selling expenses increased by $21.7 million, or 15%, in 2022 compared to 2021.
While gross margin was flat in 2022 compared to 2021, the impact of the fair value adjustment to inventory acquired in the Culture Kings acquisition of $15.9 million, included in 2021, was offset by a change in the mix of products sold due to the acquisition of Culture Kings, as Culture Kings inventory has lower average gross margins. 62 Table of Contents Selling Expenses Years Ended December 31, 2022 2021 Selling $ 166,070 $ 144,345 Percent of net sales 27 % 26 % Selling expenses increased by $21.7 million, or 15%, in 2022 compared to 2021.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are recorded net on the face of the balance sheet.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are recorded net on the balance sheet.
As a result, our Company’s net sales and operating income will continue to be affected by changes in the U.S. dollar against international currencies, but predominantly against the Australian dollar.
As a result, our Company’s net sales and operating income will continue to be affected by changes in the U.S. dollar against international currencies, predominantly against the Australian dollar.
Such disclosure throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations will be described as “on a constant currency basis.” Volatility in currency exchange rates may impact the results, including net sales and operating income, of the Company in the future. 52 Table of Contents Results of Operations The following tables set forth our results of operations for the periods presented and express the relationship of certain line items as a percentage of net sales for those periods.
Such disclosure throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations will be described as “on a constant currency basis.” Volatility in currency exchange rates may impact the results, including net sales and operating income, of the Company in the future. 57 Table of Contents Results of Operations The following tables set forth our results of operations for the periods presented and express the relationship of certain line items as a percentage of net sales for those periods.
We continue to monitor vendor and manufacturer shipping times and other potential disruptions in our supply chain and implement mitigation plans as necessary. 51 Table of Contents Foreign Currency Rate Fluctuations Our international operations have provided and are expected to continue to provide a significant portion of our Company’s net sales and operating income.
We continue to monitor vendor and manufacturer shipping times and other potential disruptions in our supply chain and implement mitigation plans as necessary. 56 Table of Contents Foreign Currency Rate Fluctuations Our international operations have provided and are expected to continue to provide a significant portion of our Company’s net sales and operating income.
If actual return costs differ from previous estimates, the amount of the liability and corresponding revenue are adjusted in the period in which such costs occur. We have not made any material changes to our assumptions included in our calculations of expected customer refund activity during the year ended December 31, 2022.
If actual return costs differ from previous estimates, the amount of the liability and corresponding revenue are adjusted in the period in which such costs occur. We have not made any material changes to our assumptions included in our calculations of expected customer refund activity during the year ended December 31, 2023.
We have since built a portfolio of next-generation brands with distinct fashion offerings and consumer followings: • In July 2018, we acquired Princess Polly, an Australian fashion brand focusing on fun, trendy dresses, tops, shoes and accessories with slim fit, body-confident and trendy fashion designs.
We have since built a portfolio of next-generation brands with distinct fashion offerings and consumer followings: • In July 2018, we acquired Princess Polly, a fashion brand focusing on fun, trendy dresses, tops, shoes and accessories with slim fit, body-confident and trendy fashion designs.
Senior Secured Credit Facility In connection with the IPO, we entered into a senior secured credit facility inclusive of a $100.0 million term loan and a $50.0 million revolving line of credit, with an option of up to $50.0 million in additional term loan through an accordion provision.
Senior Secured Credit Facility In connection with the IPO, we entered into a senior secured credit facility comprised of a $100.0 million term loan and a $50.0 million revolving line of credit, with an option of up to $50.0 million in an additional term loan through an accordion provision.
This increase was primarily driven by a 14% increase in the total number of orders in 2022, as compared to 2021, which includes the impact of the operations of Culture Kings and mnml, or $132.0 million of cost of sales, while 2021 includes the impact of the operations of Culture Kings, or $114.7 million of cost of sales, from the date of their acquisitions.
This increase was primarily driven by a 14% increase in the total number of orders in 2022, as compared to 2021, which includes the impact of the operations of Culture Kings and mnml, or $132.0 million of cost of sales, while 2021 includes the impact of the operations of Culture Kings, or $114.7 million of cost of sales, from the dates of their respective acquisitions.
Accordingly, we believe that non-GAAP financial information, when taken collectively, may provide useful supplemental information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. The non-GAAP financial measures are presented for supplemental informational purposes only.
Accordingly, we believe that non-GAAP financial information may provide useful supplemental information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. The non-GAAP financial measures are presented for supplemental informational purposes only.
This increase was driven by the 14% increase in the number of orders shipped in 2022 compared to 2021, which includes the operations of Culture Kings and mnml, or $71.6 million of selling expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $48.0 million of selling expenses, from the date of their acquisitions.
This increase was driven by the 14% increase in the number of orders shipped in 2022 compared to 2021, which includes the operations of Culture Kings and mnml, or $71.6 million of selling expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $48.0 million of selling expenses, from the dates of their respective acquisitions.
The increase in marketing expenses was driven by the inclusion of the operations of Culture Kings and mnml, or $31.4 million of marketing expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $23.6 million of marketing expenses, from the date of their acquisitions.
The increase in marketing expenses was driven by the inclusion of the operations of Culture Kings and mnml, or $31.4 million of marketing expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $23.6 million of marketing expenses, from the dates of their respective acquisitions.
Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We have not made any material changes to our assumptions and estimates related to our income tax positions during the year ended December 31, 2022. 66 Table of Contents
Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We have not made any material changes to our assumptions and estimates related to our income tax positions during the year ended December 31, 2023. 71 Table of Contents
General and administrative expenses for 2022 include the operations of Culture Kings and mnml, or $32.8 million of general and administrative expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $20.3 million of general and administrative expenses, from the date of their acquisitions.
General and administrative expenses for 2022 include the operations of Culture Kings and mnml, or $32.8 million of general and administrative expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $20.3 million of general and administrative expenses, from the dates of their respective acquisitions.
We have not made any material changes to our assumptions included in the calculations of the lower of cost or net realizable value reserves during the year ended December 31, 2022. Goodwill and Impairment of Intangible Assets Goodwill represents the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets.
We have not made any material changes to our assumptions included in the calculations of the lower of cost or net realizable value reserves during the year ended December 31, 2023. 69 Table of Contents Goodwill and Impairment of Intangible Assets Goodwill represents the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets.
Adjusted EBITDA and Adjusted EBITDA Margin 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; inventory step-up amortization expense, distribution center relocation costs; transaction costs; costs related to severance from headcount reductions; goodwill and intangible asset impairment; sales tax penalties; 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 We calculate Adjusted EBITDA as net income (loss) adjusted to exclude: interest and other expense; benefit from or provision for income taxes; depreciation and amortization expense; equity-based compensation expense; inventory step-up amortization expense; distribution center relocation costs; 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.
The worsening economic trends in the fourth quarter of 2022, including continued inflation and rising interest rates, as well as unfavorable demand due to changing customer preferences towards a mix of online and physical store shopping led the Company to lower its forecasts and expectations for the Culture Kings and Rebdolls brands, driving the reduction in their fair values.
The worsening economic trends in the fourth quarter of 2022, including continued inflation and rising interest rates, as well as unfavorable demand due to a gradual customer shift from primarily online shopping to a mix of online and physical store shopping led the Company to lower its forecasts and expectations for the Culture Kings and Rebdolls brands, driving the reduction in their fair values.
The brand targets female customers typically in their twenties or thirties, with more than 70% of customers between the ages of 25 and 34. • In March 2021, we acquired Culture Kings, an Australia-based premium online retailer of streetwear apparel, footwear, headwear and accessories. We acquired the remaining noncontrolling interest in tandem with our IPO.
The brand targets female customers typically in their twenties or thirties, with more than 70% of customers between the ages of 25 and 34. • In March 2021, we acquired Culture Kings, an Australia-based premium online retailer of streetwear apparel, footwear, headwear and accessories.
While we have owned Princess Polly and Petal & Pup from before 2020, information presented hereafter on an “across a.k.a. Brands” basis assumes we also owned Culture Kings for all periods presented. We also owned Rebdolls for all periods shown, but subsequently sold the brand back to its original owner in February 2023.
While we have owned Princess Polly and Petal & Pup from before 2020, information presented hereafter on an “across a.k.a. Brands” basis assumes we also owned Culture Kings for all periods presented. We also owned Rebdolls for all periods shown prior to March 2023, when we sold the brand back to its original owner.
We determine revenue recognition through the following steps in accordance with Topic 606: • identification of the contract, or contracts, with a customer; • identification of the performance obligations in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenue when, or as, we satisfy a performance obligation.
We determine revenue recognition through the following steps in accordance with the Financial Accounting Standards Board’s Revenue from Contracts with Customers (Topic 606) : • identification of the contract, or contracts, with a customer; • identification of the performance obligations in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenue when, or as, we satisfy a performance obligation.
As of December 31, 2022, $60.0 million of goodwill related to Culture Kings remained, while the goodwill related to Rebdolls was fully impaired.
As of December 31, 2022, $60.0 million of goodwill related to Culture Kings remained on our balance sheet, while the goodwill related to Rebdolls was fully impaired.
Consequently, our business and results of operations, including earnings and cash flows, could continue to be adversely impacted, including as a result of: • decreased consumer confidence and consumer spending and consumption habits, including spending for the merchandise that we sell and shifting to more in-store retail experiences, and negative trends in consumer purchasing patterns due to inflationary pressures and changes in consumers’ disposable income, credit availability and debt levels; • disruption to the supply chain affecting production, distribution and other logistical issues, including port closures and shipping backlogs; • challenges filling staffing requirements at our headquarters and distribution centers; and • increased materials and procurement costs as a result of scarcity or increased prices of commodities and raw materials.
Consequently, our business and results of operations, including earnings and cash flows, could continue to be adversely impacted, including as a result of: • decreased consumer confidence and consumer spending and consumption habits, including spending for the merchandise that we sell and shifting to more in-store retail experiences, and negative trends in consumer purchasing patterns due to inflationary pressures and changes in consumers’ disposable income, credit availability and debt levels; • challenges filling staffing requirements at our stores, corporate headquarters and distribution centers; and • increased materials and procurement costs as a result of scarcity or increased prices of commodities and raw materials.
Brands Holding Corp. $ (176,697) $ (5,968) $ 14,334 53 Table of Contents Year Ended December 31, 2022 2021 2020 Net sales 100 % 100 % 100 % Cost of sales 45 % 45 % 41 % Gross profit 55 % 55 % 59 % Operating expenses: Selling 27 % 26 % 27 % Marketing 11 % 10 % 8 % General and administrative 17 % 16 % 13 % Goodwill impairment 28 % — % — % Total operating expenses 83 % 52 % 48 % Income (loss) from operations (28 %) 3 % 10 % Other expense, net: Interest expense (1 %) (2%) —% Loss on extinguishment of debt — % (2%) —% Other expense — % —% —% Total other expense, net (1 %) (4%) —% Income (loss) before income taxes (30 %) (1 %) 10 % Benefit from (provision for) income tax 1 % —% (3%) Net income (loss) (29 %) (1 %) 7 % Net loss (income) attributable to noncontrolling interests — % — % — % Net income (loss) attributable to a.k.a.
Brands Holding Corp. $ (98,886) $ (176,697) $ (5,968) 58 Table of Contents Year Ended December 31, 2023 2022 2021 Net sales 100 % 100 % 100 % Cost of sales 45 % 45 % 45 % Gross profit 55 % 55 % 55 % Operating expenses: Selling 27 % 27 % 26 % Marketing 13 % 11 % 10 % General and administrative 18 % 17 % 16 % Goodwill impairment 13 % 28 % — % Total operating expenses 70 % 83 % 52 % (Loss) income from operations (15 %) (28 %) 3 % Other expense, net: Interest expense (2 %) (1%) (2%) Loss on extinguishment of debt — % —% (2%) Other expense — % —% —% Total other expense, net (2 %) (1%) (4%) Loss before income taxes (18 %) (30 %) (1 %) (Provision for) benefit from income tax — % 1% —% Net loss (18 %) (29 %) (1 %) Net loss attributable to noncontrolling interests — % — % — % Net loss attributable to a.k.a.
Additionally, lower return on marketing investments, a higher than historical competitive promotional environment and higher merchandise returns, all stemming from the pressures previously identified, led to reduced operating income and Adjusted EBITDA performance, as well as increased inventories and impairment to the goodwill associated with the Culture Kings and Rebdolls reporting units.
Additionally, lower return on marketing investments, increasing labor rates, a higher-than-historical competitive promotional environment and higher merchandise returns, all stemming from the pressures previously identified, led to reduced operating income and Adjusted EBITDA performance, as well as impairment to the goodwill associated with Culture Kings and Petal & Pup.
This was attributable primarily to increased capital expenditures, the timing of payments and a decrease in net income after adjusting for non-cash items, partially offset by a smaller build of inventory compared to the prior year.
This was attributable primarily to timing of payments and a decrease in earnings after adjusting for non-cash items, partially offset by a lower build of inventory compared to the prior year.
Our cash equivalents primarily consist of money market funds. As of December 31, 2022, most of our cash was held for working capital purposes. We had historically financed our operations and capital expenditures primarily through cash flows generated by operations, the incurrence of debt and through the issuance of equity.
As of December 31, 2023, most of our cash was held for working capital purposes. We have historically financed our operations and capital expenditures primarily through cash flows generated by operations, the incurrence of debt and through the issuance of equity.
Our annual financial results discussed below represent the consolidated results of Princess Polly, Petal & Pup and Rebdolls for all years shown, results of Culture Kings’ operations from the date of their acquisition, March 31, 2021, and results of mnml’s operations from the date of their acquisition, October 14, 2021. Across a.k.a.
Our annual financial results discussed below represent the consolidated results of Princess Polly and Petal & Pup for all years shown, the results of Rebdolls for all periods shown prior to March 2023, the results of Culture Kings’ operations from the date of its acquisition on March 31, 2021, and the results of mnml’s operations from the date of its acquisition on October 14, 2021.
This was primarily attributable to the 2021 proceeds received from debt issuances and the IPO, as well as proceeds from the issuance of partner units to acquire Culture Kings in March 2021. The impact of these proceeds in 2021 was partially offset by proceeds from the line of credit in 2022.
This was primarily attributable to the 2021 proceeds received from debt issuances and the IPO, as well as proceeds from the issuance of partner units to acquire Culture Kings in March 2021.
Adjusted EBITDA does not represent net income or cash flow from operating activities as it is defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs.
We calculate Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales. Adjusted EBITDA does not represent net income (loss) or cash flow from or used in operating activities as it is defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs.
The following table presents a reconciliation of Free Cash Flow to net cash (used in) provided by operating activities, the most directly comparable financial measure prepared in accordance with GAAP: Year Ended December 31, 2022 2021 2020 Net cash (used in) provided by operating activities $ (319) $ 23,968 $ 21,712 Less: purchases of property and equipment (19,746) (7,734) (1,328) Free cash flow $ (20,065) $ 16,234 $ 20,384 Our Free Cash Flow has fluctuated over time primarily as a result of timing of inventory purchases to support our rapid growth.
The following table presents a reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, the most directly comparable financial measure prepared in accordance with GAAP: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Net cash provided by (used in) operating activities $ 33,426 $ (319) $ 23,968 Less: purchases of property and equipment (5,970) (19,746) (7,734) Free Cash Flow $ 27,456 $ (20,065) $ 16,234 Our Free Cash Flow has fluctuated over time primarily as a result of timing of inventory purchases, purchases of property and equipment and fluctuations in earnings.
Adjusted EBITDA has other limitations as an analytical tool when compared to the use of net income (loss), which is the most directly comparable GAAP financial measure, including that Adjusted EBITDA does not reflect: • the interest or other expense we incur; • the provision for or benefit from income tax; • any attribution of costs to our operations related to our investments and capital expenditures through depreciation and amortization charges; • any transaction or debt extinguishment costs; • any costs to establish or relocate distribution centers; • any costs related to severance from headcount reductions; • any impairment of goodwill or intangible assets; • any costs related to sales tax penalties; • any amortization expense associated with fair value adjustments from purchase price accounting, including intangibles or inventory step-up; and • the cost of compensation we provide to our employees in the form of equity awards. 49 Table of Contents The following table reflects a reconciliation of Adjusted EBITDA to net income (loss) and Adjusted EBITDA Margin to net income (loss) margin, the most directly comparable financial measure prepared in accordance with GAAP: Year Ended December 31, In thousands 2022 2021 2020 Net income (loss) $ (176,697) $ (6,091) $ 14,805 Add (deduct): Total other expense, net 8,575 21,622 485 Provision for income tax (3,917) 852 6,850 Depreciation and amortization expense 20,348 16,710 6,762 Equity-based compensation expense 6,730 8,043 1,380 Inventory step-up amortization expense 707 15,908 — Distribution center relocation costs 1,302 — — Transaction costs 140 5,387 — Severance 306 — — Goodwill impairment 173,786 — — Sales tax penalties 592 — — Adjusted EBITDA $ 31,872 $ 62,431 $ 30,282 Net income (loss) margin (29) % (1) % 7 % Adjusted EBITDA margin 5 % 11 % 14 % Free Cash Flow We calculate Free Cash Flow as net cash (used in) provided by operating activities reduced by purchases of property and equipment.
Adjusted EBITDA has other limitations as an analytical tool when compared to the use of net income (loss), which is the most directly comparable GAAP financial measure, including that Adjusted EBITDA does not reflect: • the interest or other expense we incur; • the provision for or benefit from income tax; • any attribution of costs to our operations related to our investments and capital expenditures through depreciation and amortization charges; • any transaction or debt extinguishment costs; • any costs to establish or relocate distribution centers; • any costs related to severance from headcount reductions; • any impairment of goodwill or intangible assets; • any costs related to sales tax penalties; • any insured losses, net of recoveries; • any non-routine legal matters; • any amortization expense associated with fair value adjustments from purchase price accounting, including intangibles or inventory step-up; and • the cost of compensation we provide to our employees in the form of equity awards. 54 Table of Contents The following table reflects a reconciliation of Adjusted EBITDA to net income (loss) and Adjusted EBITDA margin to net income (loss) margin, the most directly comparable financial measure prepared in accordance with GAAP: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Net loss $ (98,886) $ (176,697) $ (6,091) Add (deduct): Total other expense, net 13,556 8,575 21,622 (Benefit from) provision for income tax 1,921 (3,917) 852 Depreciation and amortization expense 19,141 20,348 16,710 Equity-based compensation expense 7,640 6,730 8,043 Inventory step-up amortization expense — 707 15,908 Transaction costs — 140 5,387 Goodwill impairment 68,524 173,786 — Non-routine items* 1,894 2,200 — Adjusted EBITDA $ 13,790 $ 31,872 $ 62,431 Net loss margin (18) % (29) % (1) % Adjusted EBITDA margin 3 % 5 % 11 % *Non-routine items include costs to establish or relocate distribution centers; severance from headcount reductions; sales tax penalties; insured losses, net of recoveries; and non-routine legal matters.
The impact of this prior year activity was partially offset by purchases of property and equipment, which was driven by the build-out of the Culture Kings Las Vegas store. In 2021, net cash used in investing activities increased $275.7 million.
The impact of this prior year activity was partially offset by purchases of property and equipment, which was driven by the build-out of the Culture Kings Las Vegas store.
Key Financial Metrics The following table sets forth our key GAAP and non-GAAP financial metrics for for each period presented: Year Ended December 31, 2022 2021 2020 Gross margin 55 % 55 % 59% Net income (loss) (in thousands) $ (176,697) $ (6,091) $ 14,805 Net income (loss) margin (29) % (1) % 7% Adjusted EBITDA (in thousands) $ 31,872 $ 62,431 $ 30,282 Adjusted EBITDA margin 5 % 11 % 14 % Net cash provided by operating activities (in thousands) $ (319) $ 23,968 $ 21,712 Free cash flow (in thousands) $ (20,065) $ 16,234 $ 20,384 Adjusted EBITDA, Adjusted EBITDA margin and free cash flow are non-GAAP measures.
Key Financial Metrics The following table sets forth our key GAAP and non-GAAP financial metrics for each period presented: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Gross margin 55 % 55 % 55% Net loss $ (98,886) $ (176,697) $ (6,091) Net loss margin (18) % (29) % (1)% Adjusted EBITDA $ 13,790 $ 31,872 $ 62,431 Adjusted EBITDA margin 3 % 5 % 11 % Net cash provided by (used in) operating activities $ 33,426 $ (319) $ 23,968 Free Cash Flow $ 27,456 $ (20,065) $ 16,234 53 Table of Contents Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow are non-GAAP measures.
Year Ended December 31, In thousands 2022 2021 2020 Net sales $ 611,738 $ 562,191 $ 215,916 Cost of sales 274,491 254,527 89,515 Gross profit 337,247 307,664 126,401 Operating expenses: Selling 166,070 144,345 58,313 Marketing 66,730 58,120 17,871 General and administrative 102,700 88,816 28,077 Goodwill impairment 173,786 — — Total operating expenses 509,286 291,281 104,261 Income (loss) from operations (172,039) 16,383 22,140 Other expense, net: Interest expense (7,043) (9,485) (329) Loss on extinguishment of debt — (10,924) — Other expense (1,532) (1,213) (156) Total other expense, net (8,575) (21,622) (485) Income (loss) before income taxes (180,614) (5,239) 21,655 Benefit from (provision for) income tax 3,917 (852) (6,850) Net income (loss) (176,697) (6,091) 14,805 Net loss (income) attributable to noncontrolling interests — 123 (471) Net income (loss) attributable to a.k.a.
Year Ended December 31, (in thousands) 2023 2022 2021 Net sales $ 546,258 $ 611,738 $ 562,191 Cost of sales 245,978 274,491 254,527 Gross profit 300,280 337,247 307,664 Operating expenses: Selling 149,307 166,070 144,345 Marketing 68,907 66,730 58,120 General and administrative 96,951 102,700 88,816 Goodwill impairment 68,524 173,786 — Total operating expenses 383,689 509,286 291,281 (Loss) income from operations (83,409) (172,039) 16,383 Other expense, net: Interest expense (11,165) (7,043) (9,485) Loss on extinguishment of debt — — (10,924) Other expense (2,391) (1,532) (1,213) Total other expense, net (13,556) (8,575) (21,622) Loss before income taxes (96,965) (180,614) (5,239) (Provision for) benefit from income tax (1,921) 3,917 (852) Net loss (98,886) (176,697) (6,091) Net loss attributable to noncontrolling interests — — 123 Net loss attributable to a.k.a.
This reflects the investments in infrastructure and technology in addition to the opening of new stores. 63 Table of Contents Historical Cash Flows Year Ended December 31, 2022 2021 2020 Net cash (used in) provided by operating activities $ (319) $ 23,968 $ 21,712 Net cash used in investing activities (25,314) (278,075) (2,379) Net cash provided by financing activities 33,260 269,850 1,240 Net Cash (Used In) Provided by Operating Activities Cash (used in) provided by operating activities consists primarily of net income (loss) adjusted for certain non-cash items, including depreciation, amortization, equity-based compensation, the effect of changes in working capital and other activities.
Historical Cash Flows Year Ended December 31, 2023 2022 2021 Net cash provided by (used in) operating activities $ 33,426 $ (319) $ 23,968 Net cash used in investing activities (6,031) (25,314) (278,075) Net cash (used in) provided by financing activities (52,829) 33,260 269,850 Net Cash Provided by (Used in) Operating Activities Cash provided by (used in) operating activities consists primarily of net income (loss) adjusted for certain non-cash items, including depreciation, amortization, equity-based compensation, the effect of changes in working capital and other activities.
Net Cash Provided by Financing Activities Our financing activities have historically consisted of cash proceeds received from the issuance of borrowings, cash used to pay down borrowings, cash received in exchange for partner units and cash received from the sale of our common stock in the IPO. In 2022, net cash provided by financing activities decreased $236.6 million.
Net Cash (Used in) Provided by Financing Activities Our financing activities have historically consisted of cash proceeds received from the issuance of borrowings, cash used to pay down borrowings, cash received from the sale of our common stock in the IPO and cash used to repurchase shares. In 2023, net cash used in financing activities increased $86.1 million.
As discussed above, significant judgment and estimates are required in assessing impairment of goodwill and intangible assets, including identifying whether events or changes in circumstances require an impairment assessment, estimating future cash flows and determining appropriate discount rates.
Any impairment would be measured as the difference between the asset group's carrying amount and its estimated fair value. 70 Table of Contents As discussed above, significant judgment and estimates are required in assessing impairment of goodwill and intangible assets, including identifying whether events or changes in circumstances require an impairment assessment, estimating future cash flows and determining appropriate discount rates.
The worsening economic trends in the fourth quarter of 2022, including continued inflation and rising interest rates, as well as unfavorable demand due to a gradual customer shift from primarily online shopping to a mix of online and physical store shopping led the Company to lower its forecasts and expectations for the Culture Kings and Rebdolls brands, driving the reduction in their fair values. 56 Table of Contents Other expense, net Years Ended December 31, 2022 2021 Other expense, net: Interest expense $ (7,043) $ (9,485) Loss on extinguishment of debt — (10,924) Other expense (1,532) (1,213) Total other expense, net $ (8,575) $ (21,622) Percent of net sales (1) % (4) % Other expense, net decreased by $13.0 million in 2022 compared to 2021 primarily due to the 2021 loss on extinguishment of debt resulting from the early payment and termination of our previous term debt, revolver and senior secured notes, as well as a decrease in interest expense in 2022 from more favorable rates related to borrowings under our senior secured credit facility compared to our previous term debt, revolver and senior secured notes in 2021.
Other Expense, net Years Ended December 31, 2022 2021 Other expense, net Interest expense $ (7,043) $ (9,485) Loss on extinguishment of debt — (10,924) Other expense (1,532) (1,213) Total other expense, net $ (8,575) $ (21,622) Percent of net sales (1) % (4) % Other expense, net decreased by $13.0 million in 2022 compared to 2021 primarily due to the 2021 loss on extinguishment of debt resulting from the early payment and termination of our previous term debt, revolver and senior secured notes, as well as a decrease in interest expense in 2022 from more favorable rates related to borrowings under our senior secured credit facility compared to our previous term debt, revolver and senior secured notes in 2021.
As part of our entering into the senior secured credit facility, we are subject to certain financial covenant ratios and certain annual mandatory prepayment terms based on excess cash flows, as defined by the credit agreement, based on our net leverage ratio for years beginning with the fiscal year ending December 31, 2022.
Under the senior secured credit facility, we are subject to certain financial covenant ratios and certain annual mandatory prepayment terms based on excess cash flows, as defined in the Credit Agreement, based on our net leverage ratio.
Borrowings under the term loan accrue interest at a benchmark rate plus an applicable margin dependent upon our net leverage ratio. The revolving line of credit accrues interest at a benchmark rate plus an applicable margin dependent upon our net leverage ratio.
The revolving line of credit, when used, also accrues interest at a benchmark rate plus an applicable margin dependent upon our net leverage ratio, as defined in the Credit Agreement.
The increased capital expenditures was driven by the build-out of Culture Kings’ new store in Las Vegas. 50 Table of Contents Factors Affecting Our Performance Macroeconomic Environment The macroeconomic environment in which we operate has been, and we anticipate will continue to be, pressured by events and conditions worldwide.
The reduction in purchases of property and equipment in 2023 was primarily due to the build-out of the Culture Kings Las Vegas store in 2022. 55 Table of Contents Factors Affecting Our Performance Macroeconomic Environment The macroeconomic environment in which we operate has been and, we anticipate, will continue to be pressured by adverse conditions worldwide.
If the recoverability test indicates the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using the discounted cash flow method. Any impairment would be measured as the difference between the asset group's carrying amount and its estimated fair value.
If the recoverability test indicates the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using the discounted cash flow method.
Brands Holding Corp. (29 %) (1 %) 7 % 54 Table of Contents Comparison of the Years Ended December 31, 2022 and 2021 Net Sales Years Ended December 31, 2022 2021 Net sales $ 611,738 $ 562,191 Net sales increased by $49.5 million, or 9%, in 2022 compared to 2021.
Brands Holding Corp. (18 %) (29 %) (1 %) 59 Table of Contents Comparison of the Years Ended December 31, 2023 and 2022 Net Sales Years Ended December 31, 2023 2022 Net sales $ 546,258 $ 611,738 Net sales decreased by $65.5 million, or 11%, in 2023 compared to 2022.
Goodwill Impairment Years Ended December 31, 2022 2021 Goodwill impairment $ 173,786 $ — Percent of net sales 28 % — % Goodwill impairment was $173.8 million in 2022 and recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.
The increase in general and administrative expenses as a percentage of net sales resulted primarily from additional salaries and related benefits, as well as additional insurance costs. 63 Table of Contents Goodwill Impairment Years Ended December 31, 2022 2021 Goodwill impairment $ 173,786 $ — Percent of net sales 28 % — % Goodwill impairment was $173.8 million in 2022 and recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.
Our quarterly cost of sales and gross profit have fluctuated quarter-to-quarter primarily due to the quarterly fluctuations in net sales, mix of inventory between private label and third-party products and the impact from the amortization of the fair value increases in inventory acquired in the Culture Kings and mnml acquisitions.
Our quarterly cost of sales and gross profit have fluctuated quarter-to-quarter primarily due to the quarterly fluctuations in net sales and the mix of inventory between private label and third-party products. Operating Expenses Selling expenses have fluctuated quarter-to-quarter primarily due to fluctuations in shipping and fulfillment costs.
The accordion provision allows us to borrow additional amounts of term loan at terms to be agreed upon at the time of issuance, but on substantially the same basis as the original term loan. As of December 31, 2022, principal payments of our term loan and accordion for the next twelve months are anticipated to total $5.6 million.
The accordion provision allows us to borrow additional amounts of term loan at terms to be agreed upon at the time of issuance, but on substantially the same basis as the original term loan.
We used borrowings under this credit facility, together with a portion of the proceeds from the IPO, to repay the Fortress Credit Facilities in full. As of December 31, 2022, the Company owed a combined $105.2 million in term loan and accordion borrowings, as well as $40.0 million borrowed under the revolving line of credit.
We used borrowings under this credit facility, together with a portion of the proceeds from the IPO, to repay our previous debt in full. As of December 31, 2023, we owed a combined $94.5 million in term loan and accordion borrowings. As of December 31, 2023, there were no amounts outstanding under the revolving line of credit.
Management believes Free Cash Flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash.
Free Cash Flow We calculate Free Cash Flow as net cash provided by (used in) operating activities reduced by purchases of property and equipment. Management believes Free Cash Flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash.
Initial Public Offering In September 2021, we completed an initial public offering (the “IPO”), in which we issued and sold 10,000,000 shares of newly authorized common stock for $11.00 per share for net proceeds of $95.7 million, after deducting underwriting discounts and commissions of $6.6 million, and offering costs of $7.7 million.
Brands for 2023, we attracted over 3.7 million active customers, received approximately 6.8 million orders and had an average order value of $80. 52 Table of Contents Initial Public Offering In September 2021, we completed an initial public offering (the “IPO”), in which we issued and sold 833,333 shares of newly authorized common stock for $132.00 per share for net proceeds of $95.7 million, after deducting underwriting discounts and commissions of $6.6 million, and offering costs of $7.7 million.
Inflationary pressures on consumers globally and our supply chain, shifts in global spending in anticipation of a potential economic slowdown or recession, increasing labor rates and a slower-than-expected recovery from the economic impacts of the COVID-19 pandemic in Australia have pressured our net sales.
Inflationary pressures on consumers globally, particularly on our Australian customers, and our supply chain, rising interest rates and shifts in global spending in anticipation of a potential economic slowdown or recession have pressured our net sales.
We have a significant opportunity to continue to grow awareness and loyalty to our brands through word of mouth, brand marketing, performance marketing and increased store openings in key locations. We plan to continue to invest in performance marketing and increase our investment in brand awareness across our brands, including wholesale and marketplace opportunities, to drive our future growth.
Brand Awareness Our ability to promote our brands and maintain brand awareness and loyalty is critical to our success. We have a significant opportunity to continue to grow awareness and loyalty to our brands through word of mouth, brand marketing, performance marketing and increased store openings in key locations.
Operating Expenses Selling expenses have fluctuated quarter-to-quarter primarily due to fluctuations in shipping and fulfillment costs. Drivers of these fluctuations include the Company’s mix of air and sea freight, increases or decreases in number of orders, as well as generally increasing labor rates in fulfillment over time.
Drivers of these fluctuations include our mix of air and sea freight, increases or decreases in number of orders, as well as generally increasing labor rates in fulfillment over time. Marketing expenses have generally increased sequentially quarter-to-quarter as we have continued to scale our marketing efforts together with the growth of our business, or to drive growth in our business.
If we are unable to comply with certain financial covenant ratios and terms requiring mandatory prepayment based on a percentage of excess cash flows, our long-term liquidity position may be adversely impacted. Furthermore, the variable interest rates associated with our senior secured credit facility could result in interest payments that are higher than anticipated.
If we are unable to comply with certain financial covenant ratios, which include provisions that are not precisely defined and are subject to interpretation, and terms requiring mandatory prepayment based on a percentage of excess cash flows, our long-term liquidity position may be adversely impacted.
Refer to Note 2, “Significant Account Policies,” in the notes to our consolidated financial statements included in this Annual Report on Form 10-K for a description of our significant accounting policies. The preparation of our financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes.
Critical Accounting Estimates We believe that the following accounting estimates involve a high degree of judgment and complexity. Refer to Note 2, “Significant Accounting Policies,” in the notes to our consolidated financial statements included in this Annual Report on Form 10-K for a description of our significant accounting policies.
However, if the estimated fair value of the reporting unit is less than its carrying value, the Company calculates the impairment loss as the difference between the carrying value of the reporting unit and the estimated fair value. 65 Table of Contents The income-based fair value methodology requires management’s assumptions and judgments regarding economic conditions in the markets in which the Company operates and conditions in the capital markets, many of which are outside of management’s control.
The income-based fair value methodology requires management’s assumptions and judgments regarding economic conditions in the markets in which the Company operates and conditions in the capital markets, many of which are outside of management’s control.
Our operating model requires a low level of capital expenditure. For the twelve months ended December 31, 2022, Free Cash Flow decreased by $(36.3) million compared to Free Cash Flow for the twelve months ended December 31, 2021.
Our operating model requires a low level of capital expenditures. For the twelve months ended December 31, 2023, net cash provided by operating activities increased by $33.7 million compared to net cash used in operating activities for the twelve months ended December 31, 2022.
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.
Brands (1) 6.8 7.4 7.0 (1) Includes the impact of Culture Kings as if we had owned it for all periods presented. Active Customers We view the number of active customers as a key indicator of our growth, our value proposition, consumer awareness of our brand, and their desire to purchase our products.
In the second half of 2022, we started to experience some reductions in air freight costs, the impact of which we expect will be realized in the Company’s cost of goods sold during 2023.
Impact of COVID-19 In the second half of 2022, we started to experience reductions in air freight costs (which had increased in the first half of 2022 as a result of vendor delays and shutdowns due to the COVID-19 pandemic), the impact of which has been and will continue to be realized in the Company’s cost of goods sold during 2023 and 2024.
In fiscal year 2022, our net sales in the first, second, third and fourth quarters represented 24%, 26%, 25% and 24%, respectively of our total net sales for the year. 61 Table of Contents Quarterly Adjusted EBITDA and Adjusted EBITDA Margin The following table sets forth a reconciliation of net income (loss) to adjusted EBITDA for the eight fiscal quarters ended December 31, 2022: Three Months Ended In thousands Mar 31, 2021 Jun 30, 2021 Sep 30, 2021 Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Dec 31, 2022 Net income (loss) $ 1,790 $ 2,189 $ (10,093) $ 23 $ 1,525 $ (4,212) $ (114) $ (173,896) Add (deduct): Total other expense, net 123 4,155 15,589 1,755 1,171 2,593 2,758 2,053 Provision for (benefit from) income tax 767 939 (4,331) 3,477 653 (955) 98 (3,713) Depreciation and amortization expense 2,566 4,535 4,235 5,374 5,217 5,590 4,566 4,975 Equity-based compensation expense 523 609 5,582 1,329 1,368 1,494 1,586 2,282 Inventory step-up amortization expense — 6,266 5,985 3,657 707 — — — Distribution center relocation costs — — — — — 1,291 12 — Transaction costs 2,557 736 1,580 514 11 90 39 — Severance — — — — — — 291 15 Goodwill impairment — — — — — — — 173,786 Sales tax penalties — — — — — — — 591 Adjusted EBITDA $ 8,326 $ 19,429 $ 18,547 $ 16,129 $ 10,652 $ 5,891 $ 9,236 $ 6,093 Net income (loss) margin 3 % 1 % (6) % — % 1 % (3) % — % (117) % Adjusted EBITDA margin 12 % 13 % 11 % 9 % 7 % 4 % 6 % 4 % 62 Table of Contents Liquidity and Capital Resources As of December 31, 2022, our principal sources of liquidity were cash and cash equivalents totaling $46.3 million, our revolving line of credit and our term loan accordion provision.
Quarterly Adjusted EBITDA and Adjusted EBITDA Margin The following table sets forth a reconciliation of net income (loss) to adjusted EBITDA for the eight fiscal quarters ended December 31, 2023: Three Months Ended (in thousands) Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Dec 31, 2022 Mar 31, 2023 Jun 30, 2023 Sep 30, 2023 Dec 31, 2023 Net income (loss) $ 1,525 $ (4,212) $ (114) $ (173,896) $ (9,553) $ (5,040) $ (70,410) $ (13,883) Add (deduct): Total other expense, net 1,171 2,593 2,758 2,053 3,885 3,591 3,339 2,741 Provision for (benefit from) income tax 653 (955) 98 (3,713) (883) 328 (3,278) 5,754 Depreciation and amortization expense 5,217 5,590 4,566 4,975 5,440 4,720 4,533 4,446 Equity-based compensation expense 1,368 1,494 1,586 2,282 1,936 1,824 1,719 2,162 Inventory step-up amortization expense 707 — — — — — — — Transaction costs 11 90 39 — — — — — Goodwill impairment — — — 173,786 — — 68,524 — Non-routine items* — 1,291 303 606 1,361 145 270 119 Adjusted EBITDA $ 10,652 $ 5,891 $ 9,236 $ 6,093 $ 2,186 $ 5,568 $ 4,697 $ 1,339 Net income (loss) margin 1 % (3) % — % (117) % (8) % (4) % (50) % (9) % Adjusted EBITDA margin 7 % 4 % 6 % 4 % 2 % 4 % 3 % 1 % *Non-routine items include costs to establish or relocate distribution centers; severance from headcount reductions; sales tax penalties; insured losses, net of recoveries; and non-routine legal matters. 66 Table of Contents Liquidity and Capital Resources As of December 31, 2023, our principal sources of liquidity were cash and cash equivalents totaling $21.9 million, our revolving line of credit and our term loan accordion provision.
See “Non-GAAP Financial Measures” for information regarding our use of Adjusted EBITDA, Adjusted EBITDA margin and free cash flow and their reconciliation to net income (loss), net income (loss) margin and net cash provided by operating activities, respectively. 48 Table of Contents Non-GAAP Financial Measures In addition to our results determined in accordance with GAAP, we monitor the following supplemental non-GAAP financial measures to evaluate our operating performance, identify trends, formulate financial projections and make strategic decisions on a consolidated basis.
Non-GAAP Financial Measures In addition to our results determined in accordance with GAAP, we monitor the following supplemental non-GAAP financial measures to evaluate our operating performance, identify trends, formulate financial projections and make strategic decisions on a consolidated basis.
As of December 31, 2022, $60.0 million of goodwill related to Culture Kings remained, while the goodwill related to Rebdolls was fully impaired.
As of December 31, 2023, $11.3 million of goodwill related to Petal & Pup remained on our balance sheet, while the goodwill related to Culture Kings was fully impaired.
As of December 31, 2022, $60.0 million of goodwill related to Culture Kings remained, while the goodwill related to Rebdolls was fully impaired.
As of December 31, 2023, the goodwill related to Culture Kings was fully impaired, while $11.3 million of the goodwill related to Petal & Pup remained on our balance sheet.
In 2022, net cash provided by operating activities decreased $24.3 million. This was attributable primarily to timing of payments and a decrease in net income after adjusting for non-cash items, partially offset by a lower build of inventory compared to the prior year. In 2021, net cash provided by operating activities increased $2.3 million.
In 2023, net cash provided by operating activities increased $33.7 million. This was attributable primarily to a decrease in inventory compared to the prior period, which was driven by reduced inventory buying and sell-through of aged inventory, partially offset by lower earnings. In 2022, net cash provided by operating activities decreased $24.3 million.
Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. In August 2023, due to elevated interest rates and unfavorable demand in Australia, the Company reduced its forecasts and expectations for the Culture Kings and Petal & Pup reporting units.
The following table sets forth our key operating metrics for each period presented. Year Ended December 31, (in millions, other than dollar figures) 2022 2021 2020 Active customers 3.8 3.7 1.4 Active customers across a.k.a. Brands (1) 3.8 3.7 2.3 Average order value $ 82 $ 86 $ 75 Average order value across a.k.a.
Year Ended December 31, (in millions, other than dollar figures) 2023 2022 2021 Active customers 3.7 3.8 3.7 Active customers across a.k.a. Brands (1) 3.7 3.8 3.7 Average order value $ 80 $ 82 $ 86 Average order value across a.k.a. Brands (1) $ 80 $ 82 $ 87 Number of orders 6.8 7.4 6.5 Number of orders across a.k.a.
The change in our effective tax rate is primarily driven by the impairment recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.
Goodwill impairment in 2023 was recognized on the goodwill recorded from the acquisitions of the Culture Kings and Petal & Pup reporting units. Goodwill impairment in 2022 was recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.
General and administrative expenses have fluctuated quarter-to-quarter, with such fluctuations primarily driven by the timing of transaction costs, increases in our headcount to support business growth and certain one-time stock-based compensation expenses related to the IPO that occurred in the third quarter of 2021. Seasonality Historically, we have achieved our largest quarterly sales in the fourth fiscal quarter.
General and administrative expenses have fluctuated quarter-to-quarter, with such fluctuations primarily driven by the increases in our headcount to support business growth. Seasonality Historically, we have achieved our largest quarterly sales in the fourth fiscal quarter. However, as our expansion into the U.S. market continues, our quarterly revenues are less concentrated in the fourth fiscal quarter.
Our methods to acquire customers have evolved and will need to continue evolving in response to changes in shopping behaviors, content consumption, costs to advertise and developments in technology. Failure to continue attracting customers efficiently and profitably would adversely impact our profitability and operating results.
Customer Acquisition To continue to grow our business profitably, we intend to acquire new customers and retain our existing customers at a reasonable cost. Our methods to acquire customers have evolved and will need to continue evolving in response to changes in shopping behaviors, content consumption, costs to advertise and developments in technology.
We have lease arrangements for certain equipment and facilities, primarily office locations, warehouse facilities and retail stores. Most of our property, equipment and software have been purchased with cash. As of December 31, 2022, our future minimum payments under non-cancelable operating leases totaled $48.9 million, with $8.3 million payable within 12 months.
We have lease arrangements for certain equipment and facilities, primarily office locations, warehouse facilities and retail stores. Most of our property, equipment and software have been purchased with cash.
The change in effective tax rate from 2020 is primarily due to the impact of permanent differences, the most significant of which was non-deductible stock-based compensation related to incentive units. 59 Table of Contents Quarterly Results of Operations The following tables set forth selected unaudited quarterly results of operations for the eight quarters ended December 31, 2022, as well as the percentage that each line item represents of net sales.
The change in our effective tax rate is primarily driven by the impairment recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units. 64 Table of Contents Quarterly Results of Operations The following tables set forth selected unaudited quarterly results of operations for the eight quarters ended December 31, 2023, as well as the percentage that each line item represents of net sales.
All of these factors have contributed and may continue to contribute to reduced orders, increased merchandise returns, higher discounts, lower net sales, lower gross margins, reduced effectiveness of marketing and increased inventories. Brand Awareness Our ability to promote our brands and maintain brand awareness and loyalty is critical to our success.
All of these factors have contributed and may continue to contribute to reduced orders, increased merchandise returns, higher discounts, lower net sales, lower gross margins, reduced effectiveness of marketing, increased inventories and goodwill impairment, and it is possible that future annual or interim impairment tests could result in additional impairment charges.
While we routinely contract for the purchase of inventory from vendors, we have no material long-term purchase obligations outstanding with any vendors or third parties. As of December 31, 2022, i nventory and other purchase obligations payable within the next 12 months totaled $10.2 million, which primarily represent open purchase orders for materials and merchandise as of that date.
As of December 31, 2023, i nventory and other purchase obligations payable within the next 12 months totaled $2.7 million, which primarily represent open purchase orders for materials and merchandise as of that date. Additionally, we plan to incur capital expenditures of approximately $10.0 to $12.0 million in 2024.
Failure to retain customers would adversely impact our profitability and operating results. Impact of COVID-19 In fiscal year 2022, the COVID-19 pandemic continued to impact our business and results of operations.
Failure to retain customers would adversely impact our profitability and operating results.
Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates. 64 Table of Contents Revenue Recognition Our primary source of revenues is from sales of fashion apparel primarily through our digital platforms and stores.
The preparation of our financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.
Goodwill Impairment As part of the annual goodwill impairment test conducted in the fourth quarter of 2022, the Company determined that the carrying value of its Culture Kings and Rebdolls reporting units exceeded their fair values and recorded a total non-cash goodwill impairment charge of $173.8 million during the year ended December 31, 2022.
This reduction was identified as a triggering event and a subsequent quantitative test concluded that the carrying value of the Culture Kings and Petal & Pup reporting units exceeded their fair values as of August 31, 2023. As a result, the Company recorded a non-cash goodwill impairment charge of $68.5 million during the third quarter of 2023.
Brands leverages its next-generation operating model to help each brand accelerate its growth, scale in new markets and enhance its profitability. We founded a.k.a. with a focus on Millennial and Gen Z audiences who primarily find inspiration for fashion on social media.
We believe we are disrupting the status quo and pioneering a new approach to fashion. a.k.a. was founded with a focus on Millennial and Gen Z audiences who primarily find inspiration for fashion on social media.
Comparison of the Years Ended December 31, 2021 and 2020 Net Sales Years Ended December 31, 2021 2020 Net sales $ 562,191 $ 215,916 Net sales increased by $346.3 million, or 160%, in 2021 compared to 2020.
This increase was primarily due to the increase in the valuation allowance on the net deferred tax assets in Australia. Comparison of the Years Ended December 31, 2022 and 2021 Net Sales Years Ended December 31, 2022 2021 Net sales $ 611,738 $ 562,191 Net sales increased by $49.5 million, or 9%, in 2022 compared to 2021.

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