Digital Brands Group, Inc. (NasdaqGS: DBGI) CEO Hil Davis made a point of telling investors after posting Q1 results on Monday that DBGI is a tale of two companies- Pre-IPO and Post-IPO. And with shares higher by 19%* since its IPO, investors appear to be siding with the latter. Better still, despite the massive logistical and economic headwinds created by COVID-19, DBGI has guided for growth in the coming three quarters, with contributions from Harper & Jones, Bailey 44, and DSTLD adding more robustly to revenues. (* share price percentage calculated with shares trading at $4.96 at 10:46 EST 6/28/21)
Keep in mind, DBGI went into the quarter with limited cash, limited inventory, and minimal marketing spend. However, after its $10 million IPO in Q2, DBGI expects improved operating results in the current quarter and significantly improved operating results in the back half of this year. Notably, with ample cash on hand supporting inventory making its way to warehouses, DBGI is already positioning to make that happen.
In fact, with its strengthened balance sheet, DBGI is accelerating growth for DSTLD, with deliveries from May expected to be supported by more significant inventory additions during mid-July to mid-September. DBGI also shipped Bailey 44 products to wholesale accounts during the middle part of May and expects a considerable acceleration in wholesale booking orders in the Fall, suggesting they could return to pre-pandemic wholesale levels. Best of all, sales should benefit from enhanced marketing and advertising, including an Amazon marketing strategy set to roll out in the middle of July. And with a significant marketing push in the Fall, sales could be positively impacted, especially as the markets emerge from pandemic-related headwinds.
On a special note, revenues from Harper & Jones, which DBGI acquired as part of its IPO, were not reflected in its Q1 results. If they were, another $903,000 would have been posted to the books. Better still, if the company closes on its intended acquisition of Stateside, an additional revenue stream will add to sales momentum. The Stateside acquisition, by the way, is advancing the company's mission to acquire high-quality brands that are immediately accretive to ongoing operations.
Video Link: https://www.youtube.com/embed/5cQPP8jHNV4
Post-IPO Growth In 2H 2021
Undoubtedly, steps taken in Q1 set the company up well to take advantage of a strengthening economy during the remainder of this year. In fact, guidance calls for Q2 to be better than Q1, and more importantly, Q3 is expected to start with healthy inventory levels, a comprehensive marketing strategy, and Bailey 44 wholesale shipments back to pre-pandemic levels.
Better still, in addition to Bailey 44 returning back toward pre-COVID wholesale order levels, DSTLD is also gearing up for sales after receiving a men's denim shipment in May, with additional inventory coming in July. DSTLD will receive women's denim and other apparel collections in July as well. Thus, the actions taken YTD should have DBGI close to firing on all revenue-generating cylinders in Q3.
Indeed, shares took an 11% hit on its Q1 report. Still, the stock is higher by roughly 19% since its May 17th IPO. And, the Monday weakness in share price may also present an opportunity. Moreover, with support at the $4.70 level, DBGI stock is still within striking distance of its 52-week high, which DBGI is positioning to hit based on its bullish guidance for Q3 and Q4.
And that bullishness likely comes from DBGI knowing it holds an impressive brand portfolio.
Excellent Brands And A Digitally-Focused Business Model
Indeed, DBGI has an impressive brand portfolio. But to leverage its consumer appeal and maximize revenues, DBGI utilizes a digitally-focused strategy to streamline its operations. Simply put, DBGI uses the power of digital technology to maintain the ability to source, manufacture, and sell at high margins. Thus, the entire model works seamlessly from concept to sale. And that's how to make money. In fact, with Naked Brands (NASDAQ: NAKD) divesting Bendon to rid itself of brick and mortar overhead, they support the case that the DBGI strategy is the future of retail.
Better still, its portfolio brands are already making a statement by bringing fashion-forward, socially conscious designs direct to its customers. And the expected addition of Stateside would add yet another value driver. Still, as DBGI noted in its Q1 remarks, the value comes from DBGI combining brand quality with a streamlined business model. More specifically, by cutting out almost every intermediary, DBGI can generate high-margin sales compared to industry competitors that don't share that same luxury. And from an investor's perspective, especially those that look out a quarter or two, is where the value proposition lay. Moreover, DBGI's socially responsible, high fashion brands do much of the work to attract consumers.
An already popular brand is Bailey 44, an apparel line showing that the "future of retail" could already be here. This brand does more than contribute revenues to the company; it offers consumers a high-end style and function at a competitive price. Its fashions are influenced by LA's urban architecture and iconic landscapes, attracting business from clients wanting modern details, classic elements, and fashion-forward designs that combine luxe fabrics and on-trend styling to create sophisticated designs ready-to-wear apparel for women on the go. Moreover, the brand is a socially conscious manufacturer, often using vegan leather and responsibly sourced materials to take the "art of nonchalance" to another level. It's the combination of the two that makes it a perfect fit in the DBGI brand arsenal.
Another top brand in the portfolio is DSTLD. Launched in 2014, this ethically produced, well-crafted clothing line shows that high-quality doesn't mean cost-prohibitive. Taking its inspiration from the creatives that constitute Los Angeles (filmmakers, writers, entrepreneurs, artists, and designers), DSTLD markets a contemporary brand based on the modern elements of style and function: Jeans, t-shirts, and other luxury-level basics that make up the smart-casual wardrobe. Like Bailey 44, DSTLD combines its stylish yet simplistic approach to fashion with sustainable manufacturing methods making the brand more than comfortable; it's an eco-friendly value driver as well. There's more.
Expected to come online as well is ACE Studios, a brand specializing in custom and made-to-measure suiting. Also, as noted, expect Harper & Jones to contribute substantially in Q2. While DBGI missed the $903,000 they generated this quarter, it will accrue to DBGI going forward.
Moreover, with ample cash on hand following its $10 million IPO, expect more acquisitions during the back half of this year.
Guidance For Robust 2H 2021
Even better, expect its current brand portfolio to increase its revenue contributions as well. And while Q1 revenues were at the low end of expectations, DBGI took opportunities to set itself up for substantial growth during the back half of 2021. In fact, they already said to expect some inventories to be back near pre-pandemic levels by Q3, which is only days away.
Best of all, with momentum expected in the coming quarters supported by its completed IPO, the combination of compelling brands and excellent management could drive substantial revenue growth sooner rather than later. In fact, based on management's quarter-end commentary, DBGI appears better positioned than ever to capitalize on emerging market opportunities.
And with Q1 behind them and a stronger Q2 and remainder of 2021 expected, acting on share price weakness may be wise, especially for investors looking for long-term investment appreciation.
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