a.k.a. Brands Holding Corp. 2026 Q2 Earnings Call

Good afternoon, thank you for joining us to discuss our second quarter 2026 results. In the second quarter, we generated net sales of $160.1 million, essentially flat to the prior year, while driving Adjusted EBITDA growth of 16% year-over-year to $8.7 million, further validating that the structural improvements we've made across the business are enabling strong profit flow through. We delivered on our growth expectations in both the U.S. and rest of world geographies with net sales of 2% and 51% respectively. The Australia and New Zealand region were the outlier, with net sales there contracted approximately 13%, pressured by a challenging macro backdrop and a tough prior year comparison from the clearance of non-go-forward goods.

Importantly, Q3 to date momentum has accelerated in all regions, with overall net sales growth in the high single digits alongside healthy margins, giving us continued confidence in our outlook for the second half of the year. We're seeing clear proof points of success across both our women's and men's businesses, reinforcing that our strategic initiatives are resonating with customers and positioning us well for long-term growth. As I highlighted on our Q1 call, a.k.a. Brands is a fundamentally repositioned operating model anchored on profitability and durability. Our second quarter results are a clear reflection of that transformation, with strong profit flow through driving Adjusted EBITDA growth in the mid-teens. Our performance this quarter was driven by the expanded distribution of our brands across stores, wholesale, and marketplace, the strengthening of our operational foundation, and continued financial discipline across the business.

We're off to a solid start in Q3. I remain confident that 2026 will serve as another meaningful proof point that our strategy is working and our business is on a stronger trajectory. Reiterating our strategy, we've continued building out our omni-channel model beyond our direct-to-consumer roots. Princess Polly now operates 13 U.S. stores plus our first two Australian locations, with more openings planned in both markets this year. As we announced this morning, Culture Kings is also expanding its store footprint in the U.S. with a signed lease for a new store in Puerto Rico and final negotiations for a major metropolitan opening later this year. At the same time, we are expanding our wholesale and marketplace partnerships, which are exceeding expectations, expanding brand awareness, attracting new customers, and creating incremental growth opportunities. Behind the scenes, we've laid the operational groundwork for this expansion.

Inventory has been well managed, driving more full price sell-through and improved inventory turns are giving us greater flexibility to invest in growth. That discipline has also enabled Culture Kings and mnml to further evolve towards a test and repeat merchandising model, which has been a multi-year initiative that is now showing up clearly in our margin improvements. As I previously mentioned, we also completed a full overhaul of our sourcing network in 2025, diversifying across geographies and vendors. That gives us a more resilient supply chain, one built to support test and repeats, and to handle the current trade environment as we keep growing. Together, these initiatives have strengthened our financial model. We ended the quarter with our strongest balance sheet since becoming a public company, reducing our inventory by 14% and our debt by 8% versus the prior year.

We ended the period with net leverage of 3.37 times. This provides us with increased financial flexibility to continue investing in both growth and profitability. Looking ahead, three priorities remain. Driving direct-to-consumer growth through differentiated products and marketing. Expanding reach through retail, wholesale, and marketplace, and continuing to sharpen our operating model. We're also scaling our AI investment, already seeing early gains in imagery, marketing efficiency, and inventory with more margin benefit expected over time. Turning now to our brand highlights. Princess Polly, our largest brand, delivered another strong quarter. The brand's expanding omni-channel presence continued to extend its reach beyond its successful direct-to-consumer model, driving growth across board, new and returning customers with stores, wholesale, and marketplace, each making meaningful contributions.

Princess Polly's 1,000 square foot pop-up at The Grove in Los Angeles, which opened in May, far exceeded our expectations, and we're excited to have made The Grove a permanent location. Princess Polly is on track to open four additional stores in the U.S. and one in Australia all by year-end. Looking ahead to 2027, we plan to open as many as 10 new Princess Polly stores with five leases already executed in major trade areas, including Charlotte, Boca Raton, Nashville, Burlington, and Jacksonville. Longer term, we see the potential for a minimum of 100 Princess Polly stores in the U.S. alone, up from a current fleet of 13 stores. As I mentioned, our sales growth of more than 50% in the rest of world was another bright spot in the quarter.

The largest driver was the U.K. distribution center that launched in March, which is delivering the customer experience we envisioned. The two-day delivery window is transforming conversion with momentum compounding week over week. This confirms for us the tremendous growth opportunity we have for Princess Polly in the U.K. and internationally, which we will look to capitalize on over the coming years. From a merchandising perspective, Princess Polly enters the back-to-school selling season with an evolved approach that builds on its test and repeat model. Beginning this month, and informed by strong customer feedback, the brand expanded its offering with deeper buys in core seasonal styles across denim, sweats, and tops. This is designed to capitalize on peak selling throughout the season, both in stores and online. I want to be clear though, test and repeat remains the core of Princess Polly's assortment strategy.

What we're doing is layering in evergreen programs season after season in the categories where customer demand has proven durable. Taken together, these results underscore why global expansion of Princess Polly's addressable market remains a key strategic priority. Our smaller women's brand, Petal & Pup, continued to expand its wholesale and marketplace distribution in Q2. Nordstrom remains a productive partner with strong unit velocity and sell-through across dresses and casual styles in-store and online. Macy's was a notable Q2 call-out and newly remains a strong growth partner, with tops now the number 1 performing category on the platform, reinforcing the strength of our expanding separates offering.

Petal & Pup continues to build distribution of its expanding lifestyle assortment by adding more specialty wholesale partners, and during this quarter, it will take another important step, taking part in the specialty retail trade show MAGIC in Las Vegas, the largest wholesale trade show in the U.S. Looking ahead for Petal & Pup, we've intentionally pulled forward our product flow with fall launching in August and holiday in October, four to six weeks earlier than last year. This gives both our direct-to-consumer and wholesale partners a longer selling window heading into the back half. Petal & Pup is well positioned for the second half, and I'm confident in the white space runway and long-term trajectory of the brand. Turning now to our streetwear brands.

Over the past several years, we've strengthened the foundation of the streetwear business. We're now applying the same omni-channel playbook that has driven success across our women's brands. We're expanding beyond direct-to-consumer through stores and wholesale while continuing to execute our disciplined full price test and repeat merchandising strategy. Customers are responding to improved product and a less promotional approach, driving strong sell-through. While sales were not at the level we expected for Culture Kings in Australia in the quarter, the business contributed meaningfully to the overall gross margin expansion. Culture Kings' experiential retail model, together with its portfolio of in-house brands that we have now transitioned to a test and repeat model, including mnml, Loiter, and Carré, provide a strong foundation as we expand across new channels.

mnml's recent performance have been among the strongest we've seen from the brand, with several key products achieving exceptional success in TikTok Shop. mnml now ranking as a top 5 brand in the men's category on the platform. Loiter will lean further into collaborations with their recent WrestleMania partnership and the upcoming Sonic the Hedgehog collaboration, serving as great examples of how differentiated the Loiter brand is. Finally, in Q2, Carré launched their first global collaboration with Coca-Cola centered around the World Cup. We're excited by Carré's product pipeline and future collaborations. The team's continued work expanding the in-house brand portfolio, curating third-party brands such as New Era, Adidas, and ASICS, and driving the strategic transition towards a more full price test and repeat model sets the stage for meaningful, profitable growth ahead. Marketing remains a key strength for Culture Kings.