Hi, and good morning, everyone. My name is Ashley Owens, and I cover soft lines and internet retail here at KeyBank. I'm pleased to introduce a.k.a. Brands today. For those unfamiliar, a.k.a. owns and operates a portfolio of consumer fashion brands, including Princess Polly, Petal & Pup, Culture Kings, and Minimal. Over the past few years, a.k.a. has been focused on navigating a dynamic consumer environment while continuing to focus on brand building, disciplined execution, and positioning the business for longer-term value creation. With me today is Chief Executive Officer Ciaran Long. We will get started shortly, but for anyone who may have questions during our presentation, please feel free to write them in the chat box, and we will get to them, so for now, welcome, Ciaran, and great to have you.
Thanks, Ashley. Delighted to be here.
So let's start with fundamentals a bit. First, with your biggest brand, Princess Polly. Despite the inventory constraints that you faced in the third quarter, which we will touch on a little bit more later, traffic was still up and consumer engagement remained strong. What is it about Polly's positioning, whether it be product marketing or otherwise, that kept demand intact even during a low-newness period?
Yeah, I think Princess Polly is just a great brand for us. It's been around for 10-plus years at this stage. It's about half of our portfolio from a sales perspective. And I would say it just does a really great job of really executing against their brand promise. And for them, that's bringing on-trend fashion to their consumers at accessible price points and doing it in a sustainable way. And they have a couple of key differentiating tenets of their business. Firstly, it's that test and repeat from a merchandising perspective, so bringing new product every week. How they go to market is really just putting their product in front of their customers wherever they are. And I would say starting to do more of that from an omnichannel perspective, but also doing a huge amount of that from a marketing perspective.
They're probably in 20 different marketing channels at any one time and just really making sure that they are in front of wherever their customer is. And then I would say just from a technology operating perspective as well at Princess Polly and really across our group, very much an asset-like model, so we can really deploy our capital against going after building the brands and building new customers.
Great. You also mentioned in the quarter that double-digit denim was strong, strong back-to-school and homecoming, and an acceleration in TikTok and social commerce. How meaningful is TikTok becoming as a longer-term acquisition and conversion driver for Princess Polly?
Yeah, I think firstly, as I mentioned, I think the brand and really all of our brands really focused on being in front of their customers wherever they are. And I think this consumer is, they're on their phone, they're on their app, that's how they're spending their time, that's how they're consuming their media. And I think the importance of TikTok has certainly risen over the last few years and is becoming more important. I think we are tackling that opportunity in a couple of ways. One, we're on TikTok Shop and just product listed there and kind of engaging with customers there, and they can buy from our brands directly on TikTok. We're also now doing a lot of TikTok lives.
For us, that's putting our own employees in front of camera, talking about product, talking about the different features of product, why they stand out, how they're differentiated, and really helping the consumers kind of understand and engage with the product. I think we've seen a lot of success with that. I would say very much from an awareness and traffic driver. I would say the transactions happening directly at the time of the live event and through TikTok Live not as kind of really meaningful at this stage, but growing nicely. We do see if we're talking about a particular product on TikTok Live, we will see an uplift on our own website from sales of that product kind of at that time and really soon afterwards.
Continue to see that platform be important for us, and we're spending more and more time in it and really engaging with customers there.
Then on the physical retail side, you opened your 11th and 12th stores this quarter. First Australia store is opening later this year. Eight to 10 more in 2026 is also what I believe that you've outlined. How is the store fleet shaping the trajectory of the brand from both a financial perspective and from a consumer experience perspective? Then further, just how are stores helping to shape lifetime customer value?
Yeah, so we started opening stores for Princess Polly a couple of years ago. And really, for us, that brand has been really built itself all exclusively online. And really, a couple of years ago, we started leaning into the strategy for us and for all the brands of, let's put our product in front of our customers wherever they are. Princess Polly has certainly led the way from opening physical stores. I would say the other brands are doing more maybe from a wholesale or kind of other opportunities. We've seen a fantastic customer response to the stores. And from what we're seeing, about 30% of the customers are new to the store. We're also seeing a halo effect from the stores to the online business, and we're kind of measuring that in a five and 10-mile radius of the store. So great from that perspective.
But look, we are also building these stores to be profitable stores, right? We're interested in the sales. We are also very interested in the EBITDA, and so far, seeing great results from the stores, I would say in general, ahead of plan, executing well, and so we certainly see kind of more and more opportunity there for us. The store in Australia actually just opened last week, and just a fantastic response. And I think for us, opening stores where the brand at Princess Polly scale has a presence, there's a strong awareness. You're pretty much getting great sales, profitability from day one when you open the store, and I must say kind of sitting outside the stores when they're just opening and just seeing the excitement that's there from their customer set that they can now go in and physically touch product, feel it, try it on.
It's a real social occasion for their customers, and so I think we can really see a lot of opportunity there for us going forward.
Yeah, I would say that the New York store always has a line around the block every time I walk by, so it's clearly working.
It is really amazing. Kind of I think that block in Soho is fantastic. But look, the brand and the customers that know and love their brand, the product that they have, the newness that they're putting into stores on a constant basis is just getting fantastic engagement.
Great. So you also have a wholesale presence in the brand. You're now sitting in Nordstrom stores as well as ASOS in the UK. As you look ahead, how should we think about the wholesale door expansion in both domestic and international markets as part of Polly's next wave of growth?
Look, I think first, if you step back and kind of know where we are on the journey of kind of three of our brands starting in Australia or bringing to the U.S., scaling them in the U.S., I think we're just really early on that scaling phase and just have tremendous opportunity U.S. and internationally. As you said, we're kind of doing more from a wholesale side now, and really, I would say that started firstly with Petal & Pup brand, so a lot, we tested some product on Nordstrom.com. They asked us to do a test in store, and we're now in all Nordstrom doors for Princess Polly and Petal & Pup, and look, again, I think just seeing a fantastic response from customers there. I think as you go through it, it is a wholesale physical retail. It is a new muscle for us.
There are things that are a little bit different than from an online perspective. But I think, look, we do clearly see that it is introducing new customers to the brands. It's building that brand awareness and I think really showing us that long-term we've got great potential here.
I think that's a great segue over to your other female-focused brand, Petal & Pup. You called out strong performance in event and occasion dressing in the third quarter as well as triple-digit demand growth during your Nordstrom fall promotion. What's driving the continued resonance with that consumer?
Yeah, Petal & Pup is focused on that kind of 25 to 40 year-old consumer, so slightly older than the Polly consumer, onto the next stage of different stage of life and really focused on dressing them for all occasions. It's predominantly, I would say, early on the growth phase. While Polly has kind of leaned into very much physical retail and opening their own stores, I would say Petal & Pup is more focused on wholesale opportunities. I would say the first one that they really leaned into and have just seen tremendous success there is with Nordstrom. Kind of, as I mentioned, went from just online to a test to being in all doors within the space of 12 months. I think just seeing tremendous success there. I think that it's interesting.
We certainly feel that, look, they have really great product that's talking to their customer, high quality, but a very accessible price point. And I think inside in the department stores, I think we certainly feel that they've hit on some white space in there with kind of that great product, but a very accessible price point. And I think a lot of opportunity for growth there. I think very much will continue to execute against Nordstrom, but are also looking at other wholesale opportunities across the U.S. and internationally.
I think that's a good point on international as well because you have expanded through, and I'm going to mispronounce this potentially, Nykaa in India, and then Australia's David Jones. So how are you thinking about the evolvement of the brand's multi-channel strategy and where do you see the biggest unlocks over the next year?
Yeah, just delighted, I think, how that brand is growing and the opportunity in front of it. I think now really getting that into that kind of cadence of expanding the brand and executing against the opportunity. I think the success it's seen that they've seen at Nordstrom. I think other retailers are seeing that. It's popping up on their search results. They have customers asking for it. So I would say a lot of Petal & Pup have a lot of inward demand for that brand at the moment or incoming demand for the brand. They launched on Nykaa in India, which is a big opportunity, David Jones in Australia.
So I think what you'll see us doing is really kind of picking those kind of key tier one, I would say, kind of retailers in those regions or in specific countries and kind of leaning in and focusing on those opportunities. So I think a lot to come there in 2026 and beyond.
Good. Let's move to Culture Kings and mnml. So you've been working on this business for a couple of years now, implementing tests and repeat, strengthening some of the first-party brands and building hype through collaborations. Gross margin and profitability also continue to improve. What are the main factors behind this turnaround?
Yeah, so Culture Kings is our streetwear brand and really focuses on that experiential retail, and that I would say a cross between kind of fashion, sports, music, and really trying to play across the three and bring them together through physical retail and through the product they sell. The brand has a mix of first-party kind of owned private label brands that we develop ourselves. There's probably six to eight brands that really matter and make a difference there. And then third-party brands that they sell in the business as well. So the New Era's, Nike's, ASICS, people like that. I think that brand has taken time for us to get them onto that Test and Repeat model that we see is so powerful in the women's brands, right? And that's a model of bringing in newness every week, but shallow buys so you're not taking huge inventory risk.
And then with that, very quickly, when you're seeing success, chase into the winners and keep repeating on those. I think, look, it is a fantastic model. It's a model that you lose a little bit of topside demand sometimes when you're kind of chasing into a winner, but it does really help you mitigate the downside. So it's taken this time to get those brands on test and repeat, but really seeing success there. I think the Loiter brand in particular has been a standout in the Culture Kings business for us over the last 12 months. That's also doing a lot of really cool marketing activations. They've done stuff with WWE. They've done stuff with ComplexCon recently. There's super collaboration with Yu-Gi-Oh!
And so I think that brand is starting to get their kind of, I suppose, that test and repeat model really working now in the business. And I think a lot of success for them in the future.
You've mentioned WWE and ComplexCon. Some of those activations are uniquely tied to how the brand shows up culturally. Then you also had F1 recently, but how impactful are moments like that in terms of brand heat and sales conversion?
Look, I think firstly, it's core to the business that they have, right? I think while our women's brands will do a lot of marketing with influencers, I think on the men's side, how you connect with their customers is a little bit different, right? So very much focused on that music, sports, and fashion and those kind of cultural events that are going on there, and I think the F1 is a great example. In Vegas, we have a store in Vegas, and we kind of leverage that really for those marketing activations, so for F1, we've had a collaboration with McLaren now for a couple of years where we will develop products specifically in collaboration with McLaren and Mitchell & Ness, which is available in our stores. We've had one of their cars in the store for the last couple of years, racing simulators.
And then one of their drivers has come into the store for each of the last three years. And then we've kind of a marketing event inside there where they're spending time with the customers. And so that's just fantastic for us. And our ability to take that from store and really amplify that online through our own marketing channels. We also have McLaren talking about it on their channels, Mitchell & Ness talking about it. And I think just a fantastic example of how you can use one of those cultural moments that's really important for those customers, and generate sales, profitability from it from a retail perspective, but also use it for marketing. And for us, it's a marketing activation that we can continue to use that content over quite a period of time.
Now they've won the championship, so.
Great to be associated with the winners.
Yeah, yeah.
Yeah, I think we have a lot of photos of Lando Norris hanging out in the store the last couple of times, and so it's just super. It's a great buzz for the brand, for Culture Kings, for our customers, and just to know that they're associated with a group like that.
Yeah, definitely. You're in the early innings of global expansion as well, but just looking out to 2026, what do you think success looks like for the brand?
I think we've got to get back to, look, I think that consistent execution of that test and repeat model where we're seeing those kind of cohorts of winning product every week that you can kind of for us play back into and repeat. I think that's really, I suppose, internally how we get the first signals of success, I think, as well. Getting back to opening stores for the brand in the U.S. and I would say also just, look, executing on that model that we have of let's put our product in front of customers where they are, right? So I think that's opening more stores for Culture Kings, the retailer, I think as well the individual brands within there, be it Loiter, HRA, Saint Morta. I think they do have wholesale opportunities that we need to start executing against in 2026.
And I think so. I think lots of opportunity for the brand and really looking forward to getting on in 2026.
Great. And then just to close it out in terms of brands and fundamentals, I believe in the quarter, you spent some time discussing AI adoption across your platform with initiatives like image editing, product descriptions, CX workflows, and then instant checkout on ChatGPT as well. How are you thinking about AI as an accelerator for feed creativity and also margin over time?
Look, I think we certainly feel there's a lot of opportunities, so much happening in this space, and I think the pace that it's happening is really exciting. I think, yeah, that instant checkout in ChatGPT and Princess Polly being one of the first brands that they're executing with is just a great testament to the strength of that brand and the opportunity that we have. Look, we're very fortunate that for us, from a technology perspective, we sit on that Shopify ecosystem, so it's very easy for us to test new things at each individual brand and depending on where we see success, replicate that across all of the brands, so I'd say a lot for us happening on, I would say a lot on kind of imaging, content, the management, creation, and kind of use of all of that at the moment.
Also just, I would say, in operations across kind of the groups within the fulfillment area, the shipping area, back office stuff, some interesting things there. And for us, we'll have individual brands test where we see success that we'll replicate across all of the brands then. I think, look, for us, we are very focused on let's get after demand first, right? And kind of anything that will help us generate more sales, engage with more customers, bring in new customers, better repeat rates, I think super interesting and kind of the first focus for us. But we also see a lot of opportunity in just kind of cost management. And I think it's there. It's clearly there. We are chasing hard after it. And kind of I think it's an interesting thing as well.
I think we're doing it from some top-down initiatives, but I think it's really impressive as well what we're seeing with some of the individual work teams are doing or individuals are doing and how they're using AI just to help them do a better job or kind of save time, and so I think certainly a lot of potential out there.
Great. I do want to recap the quarter just really quickly. You did have a supply chain transition that you were actively working through. There was a temporary delay in newness and out of stocks in Princess Polly, but maybe for starters, just walk us through operationally what you were seeing as the quarter unfolded and to frame it how quickly some of those in-stock levels did start to improve and when you saw that translate into better performance in the U.S. specifically.
Yeah, look, I think with all the supply chain changes that were happening this year, and really for us, I would say kind of started last November on how do we diversify our supply chain. We were predominantly out of China. We focused on three different areas. One is getting pricing concessions from our suppliers that we have today, also diversifying production out of China, and then also price increases. And I think we really felt we needed to kind of do all three to kind of get through the changes from the tariffs. We made good progress on moving production to a vendor, but I think probably at the speed we went, I think early signs were good.
And then when we tried to really push through the volume, we got caught out for a period of time in that kind of late Q3 and into early Q4 of just not having that newness that we wanted and also not having that kind of what we would call replenishment or when you're chasing into that kind of first repeat from the newness. And look, for us, we're kind of buying kind of six, eight weeks out for product. And when you suddenly miss a couple of weeks of that or kind of three, four weeks of that, you kind of get caught out. And to some extent, there's a compounding impact from it, right? You're just kind of missing that newness and that repeat.
We have, I would say, as we went through kind of early Q4, gotten back in stock at the level we wanted and felt good about our inventory from a newness perspective, the composition of it, the levels that we had as we kind of went into the holiday period, so kind of feel we're back on track from a product perspective, and look, I think still a lot going on and moving parts from a supply chain perspective, but certainly feel good about where we are. I think we made a lot of changes really quickly. We've had some impact in Q3 and a little bit coming into that early Q4 period, but certainly feel kind of we're now set up for long-term success.
Great. And I think related to that, you did note that for Q2 to date, comps were running positive, low single digits. What's resonating with the customers now that inventory is in a better place? And how does that give you confidence heading into the holiday?
Yeah, I think for us that it's good to kind of get our inventory back where we are. I think certainly the newness that we have had and have been bringing in is certainly resonating with customers. And I think we're just going to continue to look to kind of execute against that opportunity as we kind of go through holiday and the rest of December.
Great. And I think it shouldn't go without mentioning too that there were two standout areas in the quarter, the first one being gross margin. Despite the choppiness, still delivered 110 basis points of expansion and reached your highest level in, I think, five years. So what were the biggest contributors to that performance? And what of those drivers feel more structural in nature versus temporary?
Look, great to see the margins there and kind of the progress we've made there, and I think a lot of that really testament to the work the team has done and the changes that we've made now in kind of really diversifying that supply chain and strengthening it, and look, in some other combination as well with some of the price increases that we did in that kind of May, June time period, we did mid-single digits increases in the U.S., which is obviously helping with margin as well, but we are seeing customer response still positive and kind of real great engagement there. I think long term, we certainly kind of feel that that's where we can certainly kind of be from a gross margin perspective.
I think as we continue to scale the business, there will be more opportunity to increase gross margins, but feel good that the model is there. It's working and a lot of big opportunity ahead of us.
And then to touch on the guide for gross margin for 4Q, I think it does imply some moderation from that 3Q peak. Just any color on what factors you're embedding there from both a mix and promotional standpoint?
Yeah, I think for us, we always see somewhat of a step down in gross margins in Q4 relative to that Q3 period. I think that's just coming from the seasonal nature of the business and the kind of promotional environment that's out there. For us, kind of as we head in and execute through holiday, expecting somewhat the same promotional environment as this time last year. That's really how we modeled and contemplated the guide.
Got it. And then just to close out on Q3, another strong point, EBITDA did come in at $7 million. Year-to-date cash flow is ahead of last year. As you look across the P&L, what allowed the business to remain profitable through this transition?
Yeah, I think, look, really, I think the model we have is certainly working, that the strategy of putting our product in front of our customers wherever they are. And I think in that, certainly for us, that kind of Q2, Q3, just really strong periods as well from a product perspective, right? The product we have really resonates with customer. That's spring, summer, certainly for Princess Polly and Petal & Pup, just a really strong period. But look, we've also done a huge amount of work over the last number of years on cost management, whether that's in, gosh, there's multiple areas within our supply chain and operations on managing our distribution centers, optimization of the shipping carriers that we use, how do we do package routing to save costs.
Just, I would say, also managing headcount and people and just making sure we've really tight control of that, even as we expanded to new areas like wholesale and stores where we will have to bring on some people. I think we're just kind of, there's a real cost management discipline here in the business. And so I think we've got the structure in place that as we continue to execute against the growth, I think there's a model here where you see a lot of strong EBITDA flow through.
Great. And then just on AOV really quickly, it did decline in the quarter, though there is some nice resilience within that orders and active customers. Those both grew. As inventory normalizes from here on out, how should we think about AOV versus order volume as growth drivers heading into next year?
Yeah, I think for us, we would see it more as order or sorry, we'd see it more as order volume, yeah, rather than AOV as being the big driver for us. I think, look, in Q3, AOV was probably particularly impacted from just missing that newness that we wanted to have in that period, right? And with that, you kind of, when you have newness and just inventory issues, I would say there's kind of that last product that people are adding to orders kind of do impact your AOV. So we saw a bit of that. But I think we'll get that back on track. And I think very much would expect our growth drivers really to be, I think, across the channels. I think as we continue to expand in stores and wholesale will be big drivers for us and then order volume from an online perspective.
We've already touched on inventory a little just given the results in the quarter, but with the improvements, would also be curious to hear what a healthy inventory position looks like for the model and how does that new sourcing structure influence how you're balancing buys, newness, and being agile?
Yeah, I think, look, from a philosophy perspective, how we want to run the business is that our inventory growth will be lower than sales growth at all times, right, and I think that's kind of fundamental to where we are. I certainly feel there's obviously been a lot of change and disruption to our supply chain this year, but feel really good about where we are at this stage and do feel that over time, there's an opportunity for us to probably bring up our inventory turns and continue to do that over the next couple of years as we kind of even as we expand the channel opportunities we have at these brands, the growth opportunities that we have across these brands.
I think you'll very much see us having lower inventory growth and sales growth, improving turns, and I think just really improving the cash flow of these businesses as well.
And then just to round out the conversation on the balance sheet, you've also made meaningful progress reducing leverage, and then you recently refinanced your credit facility with extended maturities. How does that improve balance sheet position support your strategic priorities into next year?
Look, I think it's great that we were in this environment with all that was going on in supply chain, able to refinance the debt on pretty favorable terms for us and a nice extension in the period. I think we certainly feel that we're continuing to bring down leverage and a combination of increasing EBITDA and also just paying down our debt. As you mentioned earlier, just really, really impressive improvements in cash flow over the last couple of years. And I think, look, that's going to continue to be a focus for us. We would like to be in kind of from a long-term perspective, want to run this business at less than two times leverage. That's where we're looking to get to. And I think we certainly can do that and have all the attributes in place to do that.
We're coming up on time here. So maybe zooming back out, we've covered a lot today about multi-brand portfolio, sourcing, the differentiation between all of your brands, AI, and then growing international. From your standpoint, what are the elements that give you the most confidence into delivering both growth and profitability sustainably over the next several years? And what are you looking forward to most heading into 2026?
Look, I think as we head into 2026, I suppose just executing against the growth opportunities that we have in front of us. And that's, I would say, continuing to open more stores for Princess Polly and get back to opening stores for Culture Kings, expanding the wholesale opportunities for each of the brands within the U.S. and also internationally. And I think just for us, building that brand awareness, I think our brands have great products, really sharp from a price point perspective. We just need to put it in front of more people. And I think we have it. With that, then we have a model that as we have sales growth, we'll have really good EBITDA performance. And for us, really looking to get that balance of growth and profitability on a consistent basis.
We certainly feel we've a lot of opportunity ahead of us and just going to look to execute against it.
I think that's a great place to leave it for today. But thank you for your time, Ciaran, and best of luck for the holiday season.
Thanks, Ashley.
All right.