Dive Brief:
- Digital Brands Group on Monday reported that fourth-quarter revenue declined 15.8% year over year from $4 million to $3.4 million, according to a company press release. Net loss increased from $9.7 million to $15.8 million, which included a non-cash impairment charge of $9.7 million and $3 million in interest expense. Operating expenses increased from $10.7 million to $13.8 million, and operating loss widened to $13.3 million from $10.2 million in the year-ago period.
- Full-year fiscal 2022 revenue increased 84.2% from $7.6 million to $14 million. Including $16.1 million in impairment charges and $9 million in interest expense, Digital Brands Group’s net loss increased from $32.4 million to $38 million. Gross margin for the year was 42.6% compared to 24.6% the year before.
- The company’s annual filing showed that it is currently in technical default on at least two promissory notes with aggregate principal amounts worth millions of dollars. Digital Brands Group’s filing said it is “currently unable to repay or refinance these borrowings so any such action by these lenders could force us into bankruptcy or liquidation.” The company declined to comment on the defaulted debts.
Dive Insight:
Digital Brands Group’s earnings report follows news in January that it completed the acquisition of apparel brand Sundry.
"Our business is completely different now than it was in 2022. We lost a year due to the market decline in 2022, which delayed our acquisition of Sundry,” Hil Davis, chief executive officer of Digital Brands Group, said in a statement. “We knew this acquisition was the critical step in our path to create a company with scale, positive ebitda and positive cash flow. Now that the Sundry acquisition has happened, we are well on our way to achieving our initial goals."
The company also attributed its fourth-quarter sales decrease to a decline in advertising spend to focus on the launch of the Bailey Shop and a lack of wholesale sales for the Bailey 44 brand — the company has now restarted wholesale operations for Bailey 44.
In March, Digital Brands Group — which also owns the brands Stateside, Harper & Jones and DSTLD — said on a company call that it had been approached by a private equity firm to go private. At the time, Davis said that “if the price were to come in lower than we expected and our valuation doesn’t change, we will hire bankers to go private.”
During its earnings call on Monday, Davis said the company is still evaluating going private and “valuations that we're getting are very low relative to where we are with that free cash flow coming into the business starting in October.”
Digital Brands Group said it expects to reach an internal free cash flow of $500,000 each month starting October once its weekly merchant cash advance payments end.
