Analyst at TD Cowen, and I have the pleasure of hosting a.k.a. Brands CEO, Ciaran Long. Just a quick introduction on the brands. a.k.a. Brands maintains a portfolio of global fashion brands such as Princess Polly and Petal & Pup. Through these brands, a.k.a. reaches a broad audience of next-generation consumers who seek fashion inspiration on social media and primarily shop online. Thank you for joining us today. Maybe for those who are less familiar with the a.k.a. platform, could you just talk about maybe core competencies of your brands and what really differentiates your brands from others in the market?
Yeah, thanks, Jonna, and appreciate being here today and looking forward to talking to you all. Yeah, at a.k.a., we're a portfolio of fashion brands for the next generation of consumers. Today, we've got four brands. On the women's side, we have Princess Polly and Petal & Pup. On the men's side, we predominantly go to market with Culture Kings and mnml. You know, within those brands, really, I would say what differentiates us from others is, particularly on the merchandising side, you know, predominantly all of the product is exclusive to our brands. That allows us to really lean into the test-and-repeat merchandising model that we use.
That allows us to bring new styles, new fashion to our consumers on a weekly basis and allows us with a really short lead time from a supply chain perspective to be very much on trend from a fashion perspective. I would say the second big differentiator for us is just on the marketing side and really showing up wherever our consumer, you know, that Gen Z, Millennial consumer, wherever they are streaming, wherever they are scrolling, wherever they are shopping. You know, we go to market very much with an influencer-led marketing approach. For us, you know, not mega influencers, very much smaller influencers that are much more authentic to that consumer. That is a big differentiation for us. Maybe I will just touch on each of the brands.
Princess Polly focused on the teen, you know, college consumer and bringing to them, you know, on-trend fashion at an accessible price point and doing it in a sustainable way. Petal & Pup, slightly older consumer in that 25 to 40-year-old space and really bringing elevated styles at an accessible price point. Culture Kings on the men's side, just a really, really different brand. You know, we would talk about it as that collision of sports, music, and fashion, bringing that to life in a retail way through very, very differentiated products. They go to market with a mix of about 50% of the product is their own first-party owned brands that they've developed and kind of across eight to ten brands are key for them. Then third-party products, think of it the New Eras, the footwear, things like that.
Even a lot of that product is exclusive to them. And then mnml, very much forward on the fashion side, but very much accessible price point.
Maybe you can also touch on the uniqueness of you have the Australian market advantage and kind of taking the read-throughs from that market to the U.S.
Yeah, sure. It's been really interesting. Three of the brands started in Australia: Princess Polly, Petal & Pup, and Culture Kings. We're bringing them here and scaling them in the U.S. U.S. market is obviously, you know, 17x larger than the Australian market. We're very early on that journey in scaling the brands. At this stage, about 70% of our business is in the U.S. Interestingly, with that kind of, you know, the Australian market being off season, we get to introduce products there first, you know, and essentially test it in that market. If it's doing well, then we can really lean into it for the next season and bring it to the U.S. We see that particularly powerful on the women's brands.
You know, you get to see, I would say, kind of, you know, a little bit now fashion is coming from the East and kind of across where probably in the past, maybe more from Europe and, you know, to it heading West. That just allows us with our test-and-repeat model to be very much on trend from a fashion perspective. With that, right, you get, you know, better margins, better inventory management, and obviously more effective marketing as well.
Yeah. Your U.S. sales grew 14% last quarter, which is very impressive. Could you touch on the key drivers and how you're thinking about the market in the near term as well as over the medium term?
Sure. Yeah, you know, really happy with the U.S. growth. And that's the sixth consecutive quarter of U.S. growth. You know, 14% in the U.S. on, you know, on top of, you know, the last couple of quarters where we're in the, you know, the low 20s. So really just seeing great response to the brand as we bring them and scale them into the U.S. And I would say, look, that's a combination of, I would say, with our test-and-repeat model just having really on-trend fashion. And obviously, look, for us all, when the product is good, the customers really respond and the growth rate is certainly there. And I think then, you know, leaning into our strategy of just putting our product wherever our customers are. And so recently, we've done a lot on, you know, taking our brands beyond just being online businesses.
We've now opened stores for the Princess Polly brand in the U.S. We've eight open at this stage. Then leaning into wholesale opportunities as well. For us, just, you know, from a strategy perspective, we're going to put our product where, you know, where our customers are if we feel it's brand elevating and has the right economics from a wholesale perspective. I would say, you know, just seeing really good success with that strategy.
Any particular trends you're seeing in terms of the consumer? I mean, your consumers are a little bit younger, but just given the macro dynamics here, any notable trends you've seen?
You know, I think, yeah, we obviously have a little bit younger consumer. I think for us, consumer still, you know, it seems is certainly there, particularly when the product is good. You know, and for us, really leaning into that on-trend, accessible price point, they're certainly there. You know, we haven't seen, you know, any particular changes from an AOV, AUR, trending down or anything like that at the moment. I would say just continue to be really happy with the growth we're seeing in the U.S. Look, I think the brands are back to growth now in Australia. It's taken us a little bit of time to get them there. Finally, getting Culture Kings on that test-and-repeat model has led to that as well.
Great. You mentioned this already a little bit, but digging a little deeper, the wholesale partnership, Princess Polly and Petal & Pup are now in Nordstrom. What has been the reception like? Are those customers different from your original sort of core customer set? Any early learnings there? Do you anticipate additional wholesale partnership going forward?
Sure. Yeah, look, I think we're delighted with the partnership that we've developed with Nordstrom. It's still early on it. You know, we put product from Petal & Pup on Nordstrom about March last year just on nordstrom.com. Really strong response. We did an in-store test with Nordstrom last September, October. We went chain-wide for spring, summer this year with both Princess Polly, as you mentioned, and Petal & Pup. Just seeing really good response. You know, from what we've been able to measure from an online perspective, about 95% of the customers we're getting are new to the brands. You know, again, going back to that strategy of just putting our brands where our customers are, increasing our TAM, introducing us to new customers. Really happy with what we're seeing there.
I would say from a merchandising perspective, what's really interesting at Petal & Pup is the Nordstrom customer is buying across more categories and we're seeing stronger response in some of the categories, which we have probably less penetration on petalandpup.com. I think, you know, again, for us, you know, giving us this feeling that we certainly have category expansion opportunities with that brand as well. Really happy with the success. You know, we've got some in-store marketing at all of the Nordstroms for Petal & Pup going on at the moment for the next four to six weeks. Yeah, I think just really happy with that.
Yeah. Moving on to the store side of things, obviously you started digital. You're now expanding the footprint. We visited the SoHo store. It looks really great. Do you, what's your sort of long-term goal for the brand in terms of the store count? And then what are sort of early learnings that you've had? Do you see a lift in the market you enter? And also similar, any synergies you see between stores and digital? Yeah.
Yeah, I think thanks. So, you know, we've had stores for the Culture Kings brand in Australia. You know, we opened the store for them in Vegas in November 2022 and seeing great success there. And then just started opening stores for Princess Polly. And the Princess Polly brand is about half our portfolio, you know, so very strong brand in the U.S., has a lot of brand awareness. But we're seeing great success from the stores. We've now eight open. We expect to be at 13 by the end of the year for Princess Polly. And, you know, I would say just, you know, doing a great job of introducing new customers to the brand. You know, from what we've seen, about 30% of the customers that are buying from us in stores are new to the brand.
Also just seeing tremendous, I would say, response from their existing customers just being able to go in and touch and feel the product. You know, we've seen them, you know, going in in groups with their friends and just real delight on their faces as they walk into the store is just really showing for us there is a huge opportunity for us to keep, you know, opening stores for the brand. From an online perspective, we're also seeing a nice lift. We've been able to measure, as we've opened stores, a lift to the online business within a radius of, you know, 5 mi-10 mi of each of the stores.
For us, I would say all going back and just validating that strategy that we have of, you know, being where our customers are, whether that's online, you know, stores or wholesale partnerships and continuing to lean into that.
Could you just touch on how you're leveraging stores as a marketing channel as well? You hosting events and sort of how are you thinking about that dynamic?
Sure. Yeah, I think, look, stores are certainly for us more than just, look, they're obviously very, we're very focused on sales and EBITDA and all of our stores are, you know, four-wall profitable. For us, kind of building in a model with a, you know, two-year or less return on investment on the stores. Really happy from that perspective. Also, just they're great to introduce new customers and for marketing activations. I would say for us, the Culture Kings brand is certainly furthest ahead and best at leveraging the store as a marketing space and bringing to life events that they do in stores online and just feeding that, you know, content to the customer. The Princess Polly brand is, you know, figuring it out for their customers. They're doing a lot of what they call sip and shops.
Bringing in influencers kind of after, you know, later in the day for the store towards the time it's closing and just having events there. And for us, you know, they're very authentic events. You know, those micro influencers that they're using, they will put that content online, continuing to introduce the brand to more and more customers. And when we like the content, we'll also put marketing dollars behind it to amplify it. And again, just kind of, you know, really talking to that customer wherever they are.
Yeah. Your active customer count grew about 8% on a trailing 12-month basis last quarter. What are strategies around increasing both acquisition and retention? Is one more important to you versus the other? Or, you know, sort of how are you thinking about that active customer number as you continue to grow your brands?
Sure. Yeah, you know, great to see kind of active customers up again, that 8%. And for us now, we're over 4 million active customers. And that's on a trailing 12-month basis. Just really strong results there. I think, look, for us, we are very, very early on bringing these brands to the U.S. and scaling them in the U.S. We feel this tremendous runway for us to continue to bring new customers to the brand. We are very focused on that. I would say a combination of, you know, the teams are probably working across 20 different marketing platforms at any one time. You know, within those, continuing to evolve and change the content to be more on point for the different marketing platforms.
I would say, you know, Culture Kings has probably done the best job from a brand marketing, traditional marketing activations perspective. You know, Princess Polly has done a great job on TikTok and TikTok Shops. The other brands are jumping on that now. You know, Petal & Pup is probably the furthest along on Pinterest and user-generated content. For us, it's interesting that each of the brands kind of can play a different role in the marketing space. As they learn and evolve those, each of the other brands can lean in there as well.
Could you talk about a little bit your core customer maybe on the Petal & Pup and Princess Polly side, sort of what their typical engagement is like? Do they shop, you know, how frequently do they shop with you? How much do they spend? And do they, you know, sort of shop across categories more focused on addresses? Any sort of characteristics of your core customer?
Sure. Yeah, I think, you know, at both brands, we've got really engaged customers, right? I would say, you know, there are interestingly from, I would say, our content, our marketing, they're really engaging with us on a daily basis, right? I think particularly with our model, that test and repeat model, right? Each of those brands will introduce probably 100 new styles each week, right? You're maybe only going 100 or 200 units deep on a style, but with that, you see how strong the response is and buy back into it or not. You know, that newness that you're bringing each week is just a super way to activate the customers, right? It's probably our most heavily trafficked area. They start their journey with us every week looking at that new styles and new product.
You know, we've some customers that will purchase from us in that newness on a weekly basis. It's interesting in the stores we are, we're trying to figure out that model from a store perspective. You know, you certainly can't introduce 100 new styles into a store every week, but we are bringing newness. It's interesting, our customers coming into stores certainly are very loyal, frequent customers. They are asking for that newness in stores every week. You know, we're trying to figure that out. It's certainly an opportunity for us. Yeah, I would say, look, we've just got a very, I would say our existing customers are very, very engaged with the product. They certainly feel being on trend is so important for them and dressing them for all the different events they have.
We're fortunate that the brands have that breadth of product that they can do that. I think, you know, we certainly have an opportunity across, you know, as we bring in new customers to the brand, the different marketing channels that we bring them in, you know, whether that's wholesale, stores, or online. I think, you know, people are finding us now in different ways. Interestingly, I would say where the brands probably started off predominantly really strong on the dresses side, I think now opportunities in different categories and kind of as we look to expand all the brands.
On marketing last quarter, you spent about 12% of sales on the marketing front. What is the right level of spend in your opinion and which channels are you most focused on to drive sort of highest ROI?
Sure. Yeah. As I talked about, we predominantly, you know, very much focused on influencer marketing and kind of bringing the brands to life there. Look, I think we certainly see the marketing is working for us at the moment. And particularly, look, strong when the product is right, right? Great product, great pricing. You know, I would say all the marketing teams think their marketing is great. You know, we're very fortunate there. I think, you know, we continue to, you know, lean into different channels from a marketing perspective. You know, we certainly see newer channels coming on these days that we have to test into. And we continue to do that probably, like I said, across 20 channels at this stage. Look, we do feel we're just very early on these brands' life in the U.S. There's tremendous opportunity for them.
We're going to continue to, you know, invest in marketing, lean into marketing. You know, I think over time, there are certainly efficiencies to get there as we continue to build kind of core to new customers and opening stores. At this stage, I think we feel we're at a good level and we'll continue to kind of run at that pace.
Yeah. Obviously, the environment remains very dynamic. How are you sort of planning for the rest of the year? What is your assumption built in, you know, in your business?
Yeah, I think, look, it is very dynamic. You know, I think we're really happy with the, you know, performance we saw in the first quarter of 10% overall, 14% in the U.S. and Australia back to growth. You know, I think we're continuing to plan for a very dynamic environment. We're very fortunate with our short lead times on product. So we're buying product now for August. Our ability to kind of flex to be on trend, but also flex quantities as we see changes in the market is very flexible. We're very fortunate to have that model. Look, we're just going to continue to keep an eye on what's going on. We see our consumer every day. We see how they're reacting to product and we'll be as nimble as we need to be.
One of the favorite topics is tariffs.
I love talking about it.
What's sort of your exposure like? It seems like you've got a lot of agility in your supply chain to navigate. What are sort of the mitigation measures that you have in place? Overall, how are you looking at the landscape?
Yeah, I think as you said, right, you know, very dynamic. There's a lot going on. I think, look, for us, we are very, very fortunate that as I mentioned, right now we're buying product for August, right? And we don't have long commitments with vendors. So we're able to flex and move very quickly. You know, we've started, I would say since kind of last November working on, you know, moving some of our supply chain out of China. You know, we have teams been working on it now for the last, what is that, nearly eight months and have made a lot of progress there. We continue to feel like we will be predominantly, you know, out of China by Q4. And we're on pace for that at the moment and making good progress.
You know, besides that, we also worked very quickly with our vendors to get discounts from them to certainly address the first two rounds of tariffs and felt we were in a really good spot there and happy where we are. We also took some price action, you know, not kind of across the whole assortment, but in targeted places where we felt we had opportunity. For us, really kind of, you know, tackling the kind of what's going on on that side across those three different areas, you know, making good progress and feel with the model we have and the teams that we have being so dynamic, we'll certainly be kind of where we need to be.
You mentioned Australia turned to growth. What are you projecting in terms of the growth in that region overall? Also, consumer health-wise, are you seeing any sort of cautiousness there or similar to?
Look, we're delighted Australia is back to growth, right? It's taken us some time, you know, but really happy with the 6% in Q1. I would say some of that coming from the macro environment there, but also us getting Culture Kings on to that test and repeat model. You know, we've seen our Princess Polly and Petal & Pup, our women's brands, stronger performance in Australia and growing for a while now. It's taken us time to get Culture Kings on that test and repeat model. You know, now that they are for that owned product that they have, you know, bringing in new product that's fresh, you know, great price point and kind of getting past that older inventory that they have. You know, we certainly feel we'll be growth there for this year and continuing.
I think, you know, it'll be maybe slightly negative in Q2, just we've got some pretty significant promotions that we're lapping. I would say, you know, feeling really good about the progress the team have made there. You know, we brought in some new people early this year. They've really hit the ground running. I think, you know, we are in general back to growth in Australia, which is great.
Yeah. On promotion front, obviously it's part of retail, but what are you seeing in terms of promotions and how are you thinking about it in the back half as well?
Yeah, look, I think for us, obviously kind of how we go to market with that really new product that we're bringing in each week, being on trend and talking to our customers wherever they are, you know, it allows us to be very nimble when it comes to promotions. I would say we certainly feel the, you know, the customer is there for our product, you know, particularly we're seeing strength as we saw in Q1 with the U.S. up 14%. You know, we're going to continue to lean into that opportunity. We feel good about the guidance that we have out there for the year. You know, absent all this tariff noise, we would certainly feel we'd be up in gross margins year over year. I think some of that's going to kind of close the progress that we've made.
In general, I would say feeling really good about the opportunity we have with these brands in the U.S.
Assuming back to school is sort of a fun event for the brands given the younger consumer base, how are you positioned this year versus last year? Is there any sort of difference in how you're allocating merchandise or just would love your thoughts?
Yeah, I think probably the big way we're different for us is just having more stores now than we had last year. You know, we'll continue with our store opening. You know, I think that's just a great ability for us to kind of flex into that seasonal product. You know, I think Nordstrom, obviously full chain, not as important from a back to school perspective. I think events around back to school, like homecoming, things like that, they're big moments for that brand. I think that they'll be great from that perspective. I think, look, as we continue to scale these brands in the U.S., we are moving into different categories of products.
I think, you know, back to school, you know, starting to become more important for us as we kind of flex into basics and more sweats and hoodies and tees in brands like Polly. I think lots of opportunity for us there.
On the margin front, what is the long-term target in terms of your margin profile? Maybe you can touch on the major puts and takes that we can think about and potential areas of, you know, leverage and efficiency going forward.
Yeah, look, I think we've got huge opportunities with these brands. I think we're very fortunate that even today in our brands being predominantly direct to consumer, all of the brands make money, all of the brands generate cash. I think we're very fortunate that way. I think, look, as we continue to scale these brands, I think we feel there's opportunities across all the lines of the P&L. You know, we've done a lot of work in the last couple of years on, you know, the variable costs inside and all of our selling expenses, whether that's shipping costs or our fulfillment centers. You know, we've done great work on balancing our mix of air freight and sea to, you know, improve gross margins.
You know, I think as we continue to scale these brands, I think, you know, we certainly feel that we should be in that kind of, you know, I would say low teens from an EBITDA perspective. I think, you know, we'll see benefits across the P&L as we think about that.
Last two questions for you. First one is, what do you think is most misunderstood by investors about a.k.a. at this point? And, you know, looking three to five years out, what are you most excited about?
Yeah, I think probably for me, two things. I think one is just probably the opportunities for these brands in the U.S., right? We're very early on. You know, we did bring three brands from Australia. The U.S. is now 60% of our business. Like you said, up 14% in Q1. I think there's just tremendous growth opportunities for all of these brands across online, across wholesale, across stores. We're going to continue to lean into that. I think the other thing is just the power of the test and repeat model. You know, I think we're very fortunate that, you know, with us, except for that kind of small, that third-party product we have at Culture Kings, all of the product we have is pretty much exclusive to us. We can run that test and repeat model across it.
That does really allow you to, you know, take much less merchandising risk than other brands take, you know, much stronger gross margins, much less markdown risk, and with it, much more efficient marketing because you're selling product that's on trend for that customer. I think, look, you know, we'll obviously have some, you know, I think some of the benefits will be hidden with the tariffs this year and at the moment. I think the strength of that model is still not fully understood. I think we're just going to continue to lean into it as we go to market.
Yeah. Thank you so much for your time. We're very excited to see the progress you've made and excited for additional openings as well. Thank you everyone for joining us. Please fill out the Excel survey I'm supposed to say.