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Digital Brands Group CEO Describes Amazon Denim ‘Beta Test’

Digital Brands Group Inc., (DBGI) saw revenues skyrocket 425 percent to $4 million in the fourth quarter of 2021 as net losses reached $9.7 million. But the upstart fashion house expects stronger revenue growth as it expands this year into new channels.

In a Nutshell: The owner of denim label DSTLD, contemporary women’s wear brand Bailey 44, custom men’s suits seller Harper & Jones, American-made basics brand Stateside and inactive men’s wear label Ace Studios is still finding its footing as it experiments with new sales channels.

The company most recently bought Sundry, an ocean and beach-inspired women’s lifestyle apparel brand based in Los Angeles.

In March, DBGI said its e-commerce revenue growth increased a record-setting 776 percent year-over-year for the months of January and February.

Through the period, DBGI said its wholesale channel continued to outperform plans, with a 200 percent improvement on an annual basis.

Chief marketing officer Laura Dowling gave Wall Street analysts on an earnings call insight into DSTLD’s November launch on Amazon. Currently, the denim label sell eight products, all jeans, on the e-commerce platform. Dowling addressed the general lack of reviews on Amazon (DSTLD’s men’s skinny slim jeans have the most reviews at just four), saying that it typically takes about three months for new brands to grow their relevance on the platform.

Dowling noted that the company is working with Amazon on strategies to generate more reviews, indicating that the denim brand will be promoted on Monday to the @AmazonFashion Instagram account’s more than 1.9 million followers.

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“We’ve also been working on the merchandising assortment,” Dowling said. “I’m changing up the assortment slightly and once we make some modifications, they will be driving more traffic towards our Amazon shop. I wanted to clean up and change the inseams a little bit based on what we’re seeing from customer feedback and responses and what we have on our own site before driving more traffic there.”

DBGI CEO Hil Davis described the Amazon launch as “kind of a beta test” to see how the company can bring its other brands onto the dominant marketplace.

Davis stressed DBGI’s ability to both acquire new customers and ultimately drive repeat business, so far without cross-merchandising any of its brands. The company’s long-term strategy is to operate on its shared back-end system that leverages customer data and purchase history to curate more personalized looks and styles for shopping across all the brands. Davis has previously discussed wanting to more of the consumer’s “closet share” as the company adds new brands to its portfolio.

“I think this is really critical,” Davis said. “In Q4, we focused on just the brand-specific marketing alone and not cross-merchandising the brands. Historically, when we cross-merchandise our brands, we have seen a massive lift in revenue. And we plan to really roll this out as we move forward in 2022. Now that we built a nice new customer acquisition pipeline, we could offer DSTLD denim with a Bailey’s top or a Stateside bottom with a Bailey’s or DSTLD top and a leather jacket or a cashmere sweater.”

DBGI inventory totals $2.75 million, up 136.8 percent from last year’s $1.16 million, with the significant increase coming from the brands acquired in 2021 including Harper & Jones and Stateside.

Gross profit margin increased 42.2 percentage points year over year to 37.4 percent from negative 4.8 percent at the end of 2020. Gross profit increased by $1.5 million as margins improved for all of the company’s brands.

Davis reaffirmed the company’s previously established fiscal year 2022 net revenue guidance of $37.5 million to $42.5 million. Accounting for the midpoint of $40 million, DGBI would see revenue improve 426 percent from 2021’s $7.6 million. The company expects positive EBITDA for 2022.

DBGI had $528,395 in cash and cash equivalents to end 2021.

Net Sales: Net revenues increased 425 percent to $4 million in the fourth quarter of 2021, compared to $763,930 in the year-ago quarter. The increase in net sales was driven by the increase in revenue at all the company’s brands and the addition of Stateside and Harper & Jones labels on a pro-forma basis.

Net revenues for fiscal 2021 increased 44.8 percent to $7.6 million compared to $5.2 million in 2020.

Earnings: The fourth quarter’s net loss reached $9.7 million, or 76 cents per diluted share. The losses widened compared to last year’s net loss attributable to common stockholders of $2.6 million, or a $3.97 loss per diluted share in the fourth quarter of 2020.

DBGI’s full-year net losses totaled $32.4 million, or $4.21 per diluted share, including $16.4 million in non-cash expenses. This compared to a net loss attributable to common stockholders in fiscal 2020 of $10.7 million, or a net loss of $16.15 per diluted share.

CEO’s Take: Davis attributed “meaningful” revenue growth to the ability to use DBGI’s IPO proceeds to develop a marketing plan for each brand.

“Now we’re going to take those customers who are going across merchandise and we’re going to continue to drive the repeat,” Davis said. “And then we’re going to continue to drive new customers in. It’s like a cycle. You drive them into the funnel and you convert them into customers, then you drive the repeat and then you drive the cross-merchandising. So Q4 was just about part one of the three-part phase: drive them into the funnel and get them to purchase.”