Release Date: November 14, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Digital Brands Group Inc (NASDAQ:DBGI) has partnered with Intercommerce, resulting in a 34% increase in daily digital revenues and a 7% increase in average order volume.

• The company plans to launch several growth initiatives, including selling on platforms like Amazon and TikTok, and launching influencer campaigns.

• DBGI expects a $4.5 million increase in earnings in 2025 due to amortized non-cash expenses and interest expense reductions.

• The company has successfully reduced its G&A expenses by $1.3 million year-over-year, indicating effective cost management.

• DBGI has eliminated convertible debt from its balance sheet, leaving only long-term, patient debt, which reduces financial pressure.

Negative Points

• Net revenues for the third quarter were $2.4 million, down from $3.3 million a year ago, partly due to walking away from a major wholesale account.

• Gross profit margins declined to 46% from 52.3% a year ago, impacted by fixed costs and lower digital revenue.

• The company experienced a net loss of $3.5 million, although this was an improvement from the $5.4 million loss a year ago.

• Digital advertising spend was limited, resulting in lower e-commerce revenue for the quarter.

• The company faced a challenging macroeconomic environment, which impacted consumer spending and overall market conditions.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with DBGI.

Q: What is the current status of the company's convertible debt? A: Hil Davis, CEO, stated that the company has paid back $1.3 million in convertible debt, leaving no convertible debt on the balance sheet. The remaining debt is longer-term and patient, which alleviates financial pressure and allows the company to focus on growth.

Q: Can you elaborate on the partnership with Veer Media and its significance? A: Hil Davis explained that Veer Media initially thought Digital Brands Group was too small but became interested after the launch of Avo. The partnership is structured as a heavily incentivized percentage of revenue deal, indicating Veer Media's commitment. This collaboration provides access to a performance marketing group with extensive experience, which would be costly to replicate internally.

Q: How did the decision to walk away from a major wholesale account impact the company's financials? A: The CEO noted that the decision to leave the largest wholesale account, which had a single-digit gross margin and was net negative in cash contribution, resulted in a revenue decline but improved profitability. This move is expected to enhance profitability moving forward.