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Digital Brands Group, Inc. (DBGI)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 net revenues were $3.40M, down 24% year over year from $4.49M as DBG paused digital advertising to prioritize paying down over $5.0M of debt and liabilities; gross margin was 45.9% vs 52.0% last year, and diluted EPS was a loss of $2.08 vs profit of $0.31 in Q2 2023 due to a prior-year $10.7M non-cash benefit .
  • Management highlighted balance sheet cleanup ($5.0M debt/liability reductions) and G&A savings ($4.5M in H1) as strategic priorities; digital ads have been turned back on producing 2.6x–2.9x ROAS, and wholesale sell-through ranked Top 5 at a major, with door expansions underway .
  • Q2 call emphasized near-term growth drivers: DSTLD “Build Your Own Bundle” (BYOB) lifted orders 144% since mid-June, 400%+ when featured in dedicated email campaigns; new women’s DTC brand AVO launched in early September to deliver premium apparel at value bundle pricing .
  • No formal quantitative guidance was issued; management expects operating expense leverage to continue and interest expense to roll off in H2/H1’25, positioning the company closer to breakeven as growth spend resumes post balance sheet cleanup .

What Went Well and What Went Wrong

What Went Well

  • Balance sheet and cost actions: “paid off over $5.0 million in debt and other liabilities” in H1 and “lowered G&A expenses by $4.5 million,” improving partner interest and operating leverage .
  • Attractive ROAS and wholesale momentum: digital ads turned back on with 2.6x–2.9x ROAS; wholesale sell-through ranked Top 5 at a major and doors are increasing, supporting revenue acceleration potential .
  • New growth initiatives: DSTLD BYOB boosted orders +144% since mid-June and 400%+ with dedicated emails; launch of AVO aims to capture premium/value gap with bundles and LA-made quality .

What Went Wrong

  • Revenue decline and margin compression: net revenues fell 24% YoY to $3.40M due to no digital ad spend; gross margin contracted to 45.9% from 52.0% given the mix shift away from higher-margin digital .
  • Bottom-line pressure: Q2 net loss was $3.51M vs net income of $5.04M in Q2 2023 (the prior year benefited from a $10.7M non-cash contingent consideration change), and diluted EPS was $(2.08) vs $0.31 .
  • Soft consumer backdrop: management cited broader softness (even among higher-income cohorts) and chose to lean away from growth marketing in H1 while cleaning up the balance sheet, delaying revenue ramp .

Financial Results

Quarterly Comparison (oldest → newest)

MetricQ2 2023Q4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$4.49 $2.79 $3.60 $3.40
Gross Profit ($USD Millions)$2.34 $0.51 N/A$1.56
Gross Margin %52.0% 18.3% (GAAP, incl. non-cash) 48.1% 45.9%
Net Income (Loss) ($USD Millions)$5.04 (incl. $10.7M non-cash benefit) $(3.72) $(0.68) $(3.51)
Diluted EPS ($USD)$0.31 $(8.76) $(0.46) $(2.08)
G&A Expense ($USD Millions)$4.07 $2.18 N/A$2.95
Sales & Marketing Expense ($USD Millions)$1.10 $0.85 $0.70 $0.62

Notes:

  • Q2 2023 includes a $10.7M non-cash benefit from change in fair value of contingent consideration; margins and EPS benefited accordingly .
  • Q4 2023 margins include non-cash audit-related items; management disclosed an adjusted gross margin would have been 43.5% excluding such charges .

Year-over-Year (Q2 2024 vs Q2 2023)

MetricQ2 2023Q2 2024YoY Change
Revenue ($USD Millions)$4.49 $3.40 −24%
Gross Profit ($USD Millions)$2.34 $1.56 −33%
Gross Margin %52.0% 45.9% −610 bps
Diluted EPS ($USD)$0.31 $(2.08) Down $2.39

Segment Breakdown

  • Not disclosed; revenue was “almost all wholesale” in Q2 as digital advertising was paused .

KPIs

KPIQ2 2024Prior Context
Digital ROAS2.6x–2.9x (after turning ads back on) “Breakeven” at ~2x ROAS threshold per mgmt
DSTLD BYOB Orders+144% since mid-June; 400%+ with dedicated emails Strategy launched mid-June
Wholesale Sell-ThroughTop 5 at a major; doors increasing Additional major exploring onboarding
Debt/Liability Reduction>$5.0M paid off in H1 Funded by working capital and ~$2.8M net from May warrant exchange
G&A Savings$4.5M reduction in first half Operating leverage expected to continue

Guidance Changes

  • Management provided directional commentary but no explicit quantitative guidance (revenues, margins, OpEx, OI&E, tax rate, dividends) for Q3/Q4 2024.
MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueH2 2024None disclosedResume growth marketing; wholesale door expansion; AVO launch N/A
Gross MarginH2 2024None disclosedMix improvement expected as digital ramps (digital GM ~75–80%) N/A
OpEx (G&A)FY 2024/H1 2025None disclosedSustained lower G&A; additional non-cash amortization roll-off expected in early 2025 N/A
Interest ExpenseH2 2024/H1 2025None disclosedMajority to roll off by Q3/Q4, ~20% of current run-rate by next year per mgmt N/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023, Q1 2024)Current Period (Q2 2024)Trend
Cost discipline & leverageGAAP/non-cash charges depressed Q4; operating leverage visible; G&A down sharply YoY $4.5M G&A savings H1; continued leverage expected Improving
Balance sheet cleanupFocus on debt repayment and equity compliance >$5.0M debt/liability paydown; funded by working capital and warrant exchange Completed key actions
Digital strategy/ROASROAS-based spend discipline emphasized; e-comm impacted by shipment delays Ads back on at 2.6x–2.9x ROAS; DSTLD BYOB success Positive inflection
Wholesale momentumSundry trough in H2’23; bookings improving into 2024 Top-5 sell-through at major; door expansion; new license revenue potential Strengthening
Supply chain/logisticsQ1 shipment delays due to LA port X-ray impacted timing No new delays cited; focus on mix and growth spend Normalizing
Macro/consumerSoft consumer; cautious on growth spend in H1 Consumer still soft; ramp marketing post-election; rate cut expectations Cautious but opportunistic
New brand initiativesOutlet store ramp; strategic alternatives discussed AVO launch in Sept; “Sunny Side by Sundry” license; women’s bundles Expanding growth vectors
Regulatory/listingNasdaq process and compliance concerns noted Continued strategic review and reverse merger interest Active review

Management Commentary

  • “The company paid off over $5.0 million in debt and other liabilities during the first half of this year. The Company also lowered its G&A expenses by $4.5 million during the same period… we have recently turned back on digital advertising and are experiencing a 2.6x to 2.9x ROAS.” — Hil Davis, CEO .
  • “We are in their Top 5 of sell-through… They’re increasing the number of doors… another big major wants to add us.” — John Davis on wholesale .
  • “DSTLD… Build Your Own Bundle… with zero digital advertising, we saw 150% growth… we’re launching another license brand, Sunny Side by Sundry… and… a new DTC brand [AVO]… with zero incremental cost to launch.” — John Davis on growth drivers .
  • “We… paid off over $5 million of debt and other liabilities… used working capital and… warrant exchange… approximately $2.8 million after fees.” — John Davis on funding balance sheet cleanup .
  • “Interest expense… some of it rolls off at the end of Q2… majority… in Q3… Q4 and next year… probably ~20% of what it is now.” — John Davis on interest trajectory .

Q&A Highlights

  • Sources and uses: Debt/liability reduction funded primarily from working capital and ~$2.8M net proceeds from May warrant exchange; strategic alternatives remain active (reverse merger interest) .
  • Insider activity constraints: Strategic discussions create MNPI, limiting insider purchases; management emphasized focusing on fundamentals and closing the valuation gap .
  • Capital allocation: Share buybacks not prioritized; focus is on growth marketing and executing growth drivers (BYOB, AVO, licensing) after balance sheet cleanup .
  • Profitability path: Management indicated breakeven threshold is close (“$250k–$300k per month in revenue away” from cash flow breakeven), with interest expense and amortization roll-offs aiding GAAP trajectory .

Estimates Context

  • S&P Global Wall Street consensus for Q2 2024 (revenue and EPS) was unavailable via our data interface at this time due to request limits; therefore, we cannot present estimate comparisons for Q2 2024. As a result, traders should anchor on reported actuals and management’s qualitative outlook until consensus data can be retrieved [GetEstimates error].

Key Takeaways for Investors

  • Near-term inflection setup: With >$5.0M in H1 debt/liability reductions and $4.5M G&A cuts, DBG has improved operating leverage; resuming digital marketing at 2.6x–2.9x ROAS can drive revenue recovery as consumer conditions stabilize .
  • Wholesale strength: Top-5 sell-through and door expansion at majors support H2 momentum, partially offsetting prior digital pause; licensing revenue (Sunny Side by Sundry) adds incremental contribution .
  • Product/brand catalysts: DSTLD BYOB momentum (+144% orders; 400%+ with email) and AVO’s launch in September aim to capture value-oriented premium demand with bundle pricing, leveraging existing fabric and supply chain .
  • Margin trajectory: Mix shift back to higher-margin digital (75–80% GM) should improve gross margins; interest and amortization roll-offs bolster EPS optics into late 2024/2025, though explicit guidance is absent .
  • Trading implications: Lack of formal guidance and ongoing strategic review may contribute to volatility; watch for digital ad scaling pace, wholesale door ramps, and evidence of operating leverage translating to cash breakeven .
  • Medium-term thesis: If DBG executes controlled growth marketing and capital-light brand extensions (AVO, licensing) while maintaining cost discipline, operating leverage can drive a path to breakeven/profitability; private market interest in the NASDAQ shell provides optionality, but execution on core brands remains paramount .
  • Data watchlist: Monitor Q3/Q4 actuals vs the ROAS-led revenue plan, gross margin mix shift, interest expense decline, and any consensus estimate updates as they become available (S&P Global) .