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01/11 03:18
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The company's earnings call reflects a positive sentiment due to strong net sales growth, expansion in customer base, and successful marketing initiatives. Despite a slight decline in margins due to tariffs, the company is diversifying its supply chain to mitigate these effects. The company's focus on omni-channel expansion and new store openings, along with a positive outlook on EBITDA and gross margins, further strengthen the sentiment. Although there are concerns about debt, the overall growth strategy and market expansion plans indicate a positive stock price movement in the short term.
Net Sales Net sales increased 7.8% to $160.5 million and 9.5% on a constant currency basis compared to the same period last year. This growth was driven by a 13.7% increase in the U.S. business to $108 million year-over-year, while sales in Australia were flat at $45.7 million. The growth in the U.S. was attributed to successful merchandising and marketing initiatives, while the flat sales in Australia were due to lapping heavy promotional activity from the previous year.
Active Customers Active customers grew 3% on a trailing 12-month basis to 4.13 million by the end of the second quarter. This increase reflects the company's efforts to deepen customer connections and expand its total addressable market.
Global Orders Global orders increased by 6.8% to 2.05 million compared to the second quarter last year, driven by strong customer acquisition and retention.
Gross Margin Gross margin declined 20 basis points to 57.5% compared to 57.7% in the same period last year. The decline was primarily due to a 120 basis point transitory headwind from elevated China tariffs, partially offset by more full-price selling.
Adjusted EBITDA Adjusted EBITDA was $7.5 million, down from $8 million in the same period last year, with a margin decline of 70 basis points to 4.7% from 5.4%. The decline was primarily due to increased tariffs.
Inventory Inventory levels decreased by 13% to $92.5 million compared to a year ago, driven by healthier inventory levels at streetwear brands and the impact of elevated tariffs.
Cash and Debt Cash and cash equivalents were $23.1 million, down from $25.5 million at the end of the second quarter of 2024. Debt increased slightly to $108.7 million from $106.9 million a year ago. The company reduced its leverage to 3.5x from 5.5x in the second quarter of last year.
Princess Polly store openings: Successfully opened 3 stores in Q2 2025, with plans to open 8-10 more stores in 2026.
TikTok Shop revenue: Princess Polly saw a 60% year-over-year increase in TikTok Shop revenue.
New product categories: Princess Polly expanded into matching sets, bottoms, denim, and swim categories, showing strong year-over-year growth.
Petal & Pup product strategy: Utilized a test-and-repeat merchandising model to scale successful styles from Australia to the U.S. market.
Culture Kings in-house brands: Revenue from in-house brands grew double digits in Q2 2025.
U.S. market growth: Net sales in the U.S. grew 14% in Q2 2025, driven by merchandising and marketing initiatives.
Nordstrom partnership: Princess Polly and Petal & Pup debuted chain-wide in Nordstrom, boosting brand awareness and sales.
Australia market performance: Net sales in Australia were flat year-over-year but showed meaningful margin improvement.
Tariff mitigation efforts: Implemented vendor discounts, supply chain diversification, and strategic price increases to offset tariff impacts.
Supply chain diversification: Transitioned sourcing to multiple countries, reducing reliance on China and improving flexibility and cost efficiency.
Inventory management: Inventory levels reduced by 13% year-over-year, reflecting healthier stock levels.
Omnichannel expansion: Continued to expand omnichannel presence, with new channels exceeding expectations.
Retailtainment strategy: Culture Kings hosted high-energy events, including a WWE partnership and music festival activations, to enhance customer engagement.
Sustainability commitment: Princess Polly received B Corp Certification, formalizing its ESG goals.
Tariff Impact: The company faced elevated tariff rates, which negatively impacted gross margins by 120 basis points in Q2 and is expected to have a similar impact in Q3. This has also caused temporary inefficiencies in fulfillment centers.
Supply Chain Diversification: Efforts to diversify the supply chain are ongoing, but the transition has required significant resources and time. The company is still working through inventory affected by elevated tariffs.
Retail Expansion Costs: Increased selling expenses due to retail expansion, including new store openings, have impacted profitability.
Macroeconomic Environment: The company is navigating a dynamic macroeconomic environment, particularly in Australia, which has shown signs of stabilization but remains a concern.
Inventory Management: The company has been managing elevated inventory levels, particularly in its streetwear brands, which has required promotional activity in the past.
Marketing and Operational Costs: Increased marketing and operational costs, including labor inefficiencies in fulfillment centers, have added to expenses.
Revenue Expectations: For the full year 2025, net sales are expected to be between $608 million to $612 million, representing growth in the 5% to 7% range, up from the previously expected growth of 4% to 6%. For Q3 2025, net sales are projected to be between $154 million and $158 million.
Adjusted EBITDA: The full-year 2025 adjusted EBITDA outlook is raised to be between $24.5 million to $27.5 million. For Q3 2025, adjusted EBITDA is expected to be between $7.3 million and $7.7 million.
Gross Margin: For the full year 2025, gross margin is anticipated to be between 57% and 57.4%. For Q3 2025, gross margin is expected to range from 57.6% to 57.8%, with a temporary 120 basis point impact due to elevated China tariff rates.
Capital Expenditures: Full-year 2025 CapEx is projected to be between $14 million to $16 million, including the addition of Princess Polly's new store in Australia. For Q3 2025, CapEx is expected to be between $4 million to $5 million.
Store Expansion: Princess Polly plans to open 3 more stores by the end of 2025 and 8 to 10 new stores in 2026. The first store in Australia is set to open later in 2025.
Sourcing and Tariff Mitigation: By Q4 2025 and beyond, sourcing diversification and strategic price increases are expected to offset the impact of tariffs at current levels. The transition to a diversified sourcing structure is on schedule.
Marketing and Brand Awareness: Princess Polly will launch an influencer collaboration with Lexi Wood and immersive college campus stores in the second half of 2025. Petal & Pup is actively testing TikTok Shop growth levers and planning fall assortments for Nordstrom.
Strategic Partnerships: Culture Kings in the U.S. is launching a partnership with Adidas, with assortments building in Q1 2026 for the World Cup in North America.
Stock Buyback Program: In the second quarter, the company purchased approximately 12,000 shares for a total cost of approximately $110,000. As of the end of Q2, there is $1 million remaining in the share repurchase authorization.
The earnings call presents a mixed but generally positive outlook. While Q3 revenue declined, the company resolved inventory issues and expects positive growth in Q4. Gross margins improved, and strategic store expansions are underway. Despite short-term supply chain challenges, the company has diversified its sourcing. The Q&A highlights improved inventory levels and marketing plans for Q4, boosting confidence. However, the lack of detailed guidance on diversification impacts is a concern. Overall, with raised full-year guidance and strategic initiatives, a positive sentiment is justified.
The company's earnings call reflects a positive sentiment due to strong net sales growth, expansion in customer base, and successful marketing initiatives. Despite a slight decline in margins due to tariffs, the company is diversifying its supply chain to mitigate these effects. The company's focus on omni-channel expansion and new store openings, along with a positive outlook on EBITDA and gross margins, further strengthen the sentiment. Although there are concerns about debt, the overall growth strategy and market expansion plans indicate a positive stock price movement in the short term.
The earnings call revealed strong financial performance with a 10.1% increase in net sales and a significant improvement in adjusted EBITDA. Despite concerns about tariffs, the company is diversifying its supply chain and has a strategic plan for growth, including new store openings and a share buyback program. The Q&A section highlighted confidence in U.S. market growth and opportunities for expansion, although some responses lacked clarity. Overall, the positive financial metrics and strategic initiatives outweigh the uncertainties, suggesting a positive stock price movement.
The company demonstrates strong financial performance with a 10.1% increase in net sales and improved EBITDA. Despite tariff risks, the proactive supply chain diversification and positive U.S. growth outlook are reassuring. The share repurchase program supports shareholder value. Though uncertainties exist, such as tariff impacts on margins, overall guidance remains optimistic, and strategic initiatives are in place to mitigate risks. Therefore, a positive stock price movement is expected.
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