Digital Brands Group, Inc. (NASDAQ: DBGI) shares turned higher on Tuesday after announcing it closed its planned acquisition of Stateside apparel. Shares jumped more than 9% pre-market and continued to move higher in the regular session. It's an acquisition that was expected to happen. Nonetheless, now that DBGI closed the deal, investors are rallying around how its new source of revenues will impact DBGI going forward. Obviously, investors are bullish on its prospects; DBGI, too, expects the latest brand to be immediately accretive to operations in Q3 and fiscal 2021. Better still, a new $17.5 million equity purchase agreement announced in the same release should fuel DBGI's acquisition strategy in the back half of this year.
Keep in mind, too, its revenue contribution from Stateside follows those from Harper & Jones, a company that came with its IPO in Q2. That company alone is expected to bring more than $900,000 in revenues per quarter. And those sales will add to a back half of 2021 that is shaping up to be a potentially substantial period of growth, with two other portfolio brands, Bailey 44 and DSTLD, also gearing for accelerated growth as the country emerges from pandemic-related headwinds.
The value proposition gets more interesting after taking a sum total of its parts. Using apparel industry multiples for revenues and EBITDA, which value at nearly 10X and 12X, respectively, DBGI's rally on Tuesday is more than deserved. It's overdue. In fact, combining DBGI's known sales with its guidance, a more accurate share price could be near the $9.00 mark. This morning's action could be the start of that move higher.
And, while its small trading float and roughly 11.3 million shares outstanding can create some violent swings, it appears as though the path of least resistance on a multiples basis is to the upside.
Adding To Its Brand Portfolio
Furthermore, from a valuation perspective, there's a lot of space to fill between its share price and asset-based intrinsic value. And if DBGI meets its decidedly bullish guidance, higher prices can be earned and held.
Of note, DBGI expects revenues from Harper & Jones, Bailey 44, and DSTLD to all increase in the back half of 2021. Perhaps helping exceed its guidance, current and future quarters will be enhanced by a comprehensive marketing campaign, a strengthened balance sheet, and its integration into Amazon Marketplace. Expect those initiatives to gain revenue-generating traction in Q3 and Q4.
Further, coming off its successful IPO last quarter, DBGI has tools in its arsenal to drive top-line growth sooner rather than later. Better yet, their responsible capital structure puts them in an excellent position to continue their strategy to find and execute on its accretive acquisition initiatives. For investors pre and post-IPO, the moves made by management during the past three months appear to be transformational to the company. Moreover, they are accelerating its growth. That was happening even before this morning's announcement.
Last month, DBGI noted that DSTLD inventories are building to meet a considerable increase in demand. And its Bailey 44 brand is following suit, also seeing an acceleration of wholesale booking orders ahead of the Fall season. Notably, DBGI added another bullish comment, saying that Bailey 44 is nearing wholesale order levels that compare favorably to pre-COVID levels. Hence, with at least four brands contributing to a surging revenue stream combined with a normalizing market, the logical expectation is for shares to move higher in tandem. Chances are they will.
Know this too, DBGI's digitally-focused sales model is intending to maximize every dollar of revenue earned. They can do that by streamlining their sales channels and controlling the manufacturing process from sourcing to end-sale. Thus, every dollar in sales has substantially more impact than traditional apparel retailers with very slim operating margins.
Moreover, DBGI is positioning itself to be a leading player in the shift from traditional retail. And while small compared to brick and mortar competitors like Macy's (NYSE: M), the clear advantage of DBGI revenues is that they contribute to a business model designed to be profitable from the start. Most brick-and-mortar companies can't make the same claim. And some are shedding assets to stay alive.
For example, Naked Brands (NASDAQ: NAKD) recently announced its divestiture of Bendon Ltd. to rid itself of the costs related to operating a retail store location. Bendon, by the way, is no small company. But despite its massive sales, it had $56 million in accumulated operating losses since 2017. It shows that not all revenues are created equal. Also, with its traditional sales model apparently a drag on NAKD, they dumped it.
That's happening throughout the sector. So much so that malls may soon become charging stations for electric vehicles. That's no exaggeration, either. Mall REITs are already considering how to manage their abandoned properties. Thus, DBGI may be on point when they say its digital business model is the future of retail. If so, expect quality revenues to hit its books.
Profiting On A Retail Rebound
And those revenues may surge heading into the back half of 2021, with apparel sector analysts expecting consumers to drive retail apparel sales substantially higher in Q3 and Q4. And with stimulus cash combined with the roughly 18 months of logistical headwinds easing, they may be right to expect a perfect storm of opportunity to those positioned to benefit from massive dollars coming off the sidelines. DBGI is. Moreover, it's reporting of $1 million in revenues last quarter should be considered more than impressive in the face of massive economic headwinds. Other peer competitors didn't fare near as well.
And with its Q2 now history, and with an economy expanding quickly, fueled with pricing power, expect DBGI's four brands to hit the fall fashion season with momentum. Further, consider its $1 million Q2 as a starting point for much better and bigger things to come during the back half of this year. As DBGI noted, it's proper to consider DBGI as a pre and post-IPO company, with the latter now leveraging a $17.5 million credit line to create a powerhouse brand portfolio.
Indeed, that funding puts its acquisition strategy into high gear, which DBGI has said from the start is a huge part of its corporate strategy. Also, keep in mind DBGI will be frugal in its mission, saying they carefully screen acquisition candidates to meet specific criteria, including having accretive synergies and being socially conscious in its manufacturing and marketing practices. Further, the company prefers its brands to sell on both the retail and wholesale sides of the sale. Its wholesale model hopes to feed the expected market frenzy with inspiring apparel that targets consumers appreciating its stylish and Eco-friendly fashions.
Hence, with a well-designed, active, and accretive business model, the rally this morning is more than justified. They completed a substantial acquisition and secured a massive line of credit. Further, its Bailey 44 and DSTLD brands are selling into hot demand, and DBGI is guiding for additional near-term acquisitions to add to its already impressive brand portfolio. Thus, on a valuation basis alone, expect the trend higher to continue. And with only about 11.3 million shares outstanding as of its latest filing, the stock has shown that when demand for shares percolates, its shares can fly.
Keep an eye on DBGI. This growth story is only just beginning.
Disclaimers: Hawk Point Media Group, LLC. (Hawk Point Media) is responsible for the production and distribution of this content. Hawk Point Media is not operated by a licensed broker, a dealer, or a registered investment adviser. It should be expressly understood that under no circumstances does any information published herein represent a recommendation to buy or sell a security. Our reports/releases are a commercial advertisement and are for general information purposes ONLY. We are engaged in the business of marketing and advertising companies for monetary compensation. Never invest in any stock featured on our site or emails unless you can afford to lose your entire investment. The information made available by Hawk Point Media is not intended to be, nor does it constitute, investment advice or recommendations. The contributors may buy and sell securities before and after any particular article, report and publication. In no event shall Hawk Point Media be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or made available by Hawk Point Media, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information in this video, article, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. Hawk Point Media strongly urges you conduct a complete and independent investigation of the respective companies and consideration of all pertinent risks. Readers are advised to review SEC periodic reports: Forms 10-Q, 10K, Form 8-K, insider reports, Forms 3, 4, 5 Schedule 13D. For some content, Hawk Point Media, its authors, contributors, or its agents, may be compensated for preparing research, video graphics, and editorial content. As part of that content, readers, subscribers, and website viewers, are expected to read the full disclaimers and financial disclosures statement that can be found by clicking HERE.
Forward-Looking Statements: Certain information set forth in this presentation contains “forward-looking information”, including “future-oriented financial information” and “financial outlook”, under applicable securities laws (collectively referred to herein as forward-looking statements). Except for statements of historical fact, the information contained herein constitutes forward-looking statements and includes, but is not limited to, the (i) projected financial performance of the Company; (ii) completion of, and the use of proceeds from, the sale of the shares being offered hereunder; (iii) the expected development of the Company’s business, projects, and joint ventures; (iv) execution of the Company’s vision and growth strategy, including with respect to future M&A activity and global growth; (v) sources and availability of third-party financing for the Company’s projects; (vi) completion of the Company’s projects that are currently underway, in development or otherwise under consideration; (vi) renewal of the Company’s current customer, supplier and other material agreements; and (vii) future liquidity, working capital, and capital requirements. Forward-looking statements are provided to allow potential investors the opportunity to understand authors beliefs and opinions in respect of the future so that they may use such beliefs and opinions as one factor in evaluating an investment. Investors should never consider the material presented as the only source of information available when making investment decisions. Investors are asked to reference all public information regarding featured companies prior to making any investment decision. Investing in stocks can result in the loss of an entire investment. Stocks trading on OTC markets have more volatility than those that trade on major exchanges. Investors should consider all risks associated in purchasing OTC stocks and understand they may lose all of their money when investing in any stock.
The Private Securities Litigation Reform Act of 1995 provides investors a safe harbor in regard to forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact may be forward looking statements. Forward looking statements are based on expectations, estimates, and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through use of words such as projects, foresee, expects, will, anticipates, estimates, believes, understands, or that by statements indicating certain actions & quote; may, could, or might occur. Understand there is no guarantee past performance will be indicative of future results.Investing in micro-cap and growth securities is highly speculative and carries an extremely high degree of risk. It is possible that an investors investment may be lost or impaired due to the speculative nature of the companies profiled.
Media Contact
Company Name: Hawk Point Media
Contact Person: Ken Lawrence
Email: info@hawkpointmedia.com
Phone: 3057806988
City: Miami Beach
State: Florida
Country: United States
Website: https://www.digitalbrandsgroup.co/
