Culture Kings has marginally impacted its parent company’s gross margin through targeted discounting in Australia.
AKA Brands' gross margin was 55.4% for the third quarter of 2023, compared to 55.7% in Q3 2022.
As well as targeted discounting by Culture Kings, the company saw a higher return rate, partially offset by lower freight expenses.
AKA Brands' net sales decreased by 9.6% to US$140.8 million, compared to $155.8 million in the Q3 2022. The decrease was driven by a decline in the number of orders and average order value during the quarter, primarily driven by adverse macroeconomic conditions in Australia and New Zealand.
This is despite net sales increasing in the US by 2% in the same period.
Interim CEO and CFO Ciaran Long said the company continued to face macroeconomic pressures in Australia, which led to a lower-than-expected adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of US$4.7 million
"We are taking clear and decisive actions to improve our operations in the region, including rightsizing inventory to make way for product newness and rapidly transitioning Culture Kings to a data-driven, short lead time merchandising cycle," Long said.
"I’m confident that the actions we are taking will set our brands up for long-term success and that we will deliver both growth and profitability in 2024."
AKA Brands has also fielded the stepping down of now former-CEO Jill Ramsay, who has transitioned to a strategic advisory role effective immediately. Long now holds the roles of interim CEO as well as his current position of CFO.
Meanwhile, Australian-born fashion brand and another subsidiary under AKA, Princess Polly opened its first store at the Westfield Century City mall in Los Angeles, California during the quarter. AKA Brands reported it has exceeded revenue expectations since the grand opening in September.
Culture Kings' new Las Vegas flagship store has surpassed its annual revenue goal, and the brand will host in-store activations during the Formula 1 Las Vegas Grand Prix in partnership with McLaren Racing and Mitchell & Ness.
And Australian-born Petal & Pup launched on Macy’s Marketplace in the quarter. AKA reported that 96% of shoppers who purchased Petal & Pup on Macy’s and Target marketplaces are new customers.
AKA Brands' fourth fashion brand mnml has also become a top three brand at Culture Kings Las Vegas.
Long said the new Princess Polly store is feeling profitable in-store revenue generation.
"[This is] a halo effect in our e-commerce business and resulting in 30% of in-store customers new to the Princess Polly brand providing a significant runway for potential growth," Long said.
Overall, Long said AKA Brands has made improvements to its operating model in the quarter, which has helped generate positive operating cash flow of US$11 million.
"We continue to strengthen our balance sheet by reducing debt by 26% year-to-date, coupled with a strategic reduction in our inventory position, which is down 21% year-to-date," Long said. "I am also very pleased with the progress we are making in the U.S. where we registered third quarter net sales growth of 2%.
"Accounting for approximately 60% of total net sales, the U.S. region represents our greatest opportunity for growth and brand expansion."