Key Highlights

● Net sales grew on US strength and a UK surge

● Ohio distribution center relocation costs widened the net loss

● Higher air freight cost drove an outlook cut

● Full-year adjusted EBITDA range was lowered

a.k.a. Brands Holding Corp. (NYSE:AKA), one of the digital-first fashion retailers building out a physical store presence, reported third-quarter net sales that rose from the prior-year period while its net loss widened. The company, which owns Princess Polly, Culture Kings, Petal & Pup and mnml, also narrowed its full-year net sales range and lowered its adjusted EBITDA range, according to its Earnings release filed with the SEC.

Those messages arrived together. Chief executive Ciaran Long said in the release that the quarter reflected strong execution, and he pointed to the "third consecutive quarter of double-digit adjusted EBITDA growth." On the Earnings Call the same day, chief financial officer Kevin Grant explained that freight costs were the reason the full-year adjusted EBITDA range moved down, describing those costs as "a near-term headwind" that did not change the structural improvements in gross margin.

Net sales also grew on a constant currency basis, at a somewhat slower rate than the reported figure. Orders rose at a double-digit pace, and active customers over the trailing year increased. Average order value slipped from a year earlier, a decline management attributed on the call mainly to a greater mix of lower-value orders from TikTok Shop.

The comparison base was soft. According to market data, third-quarter net sales in the prior year had fallen slightly from the year before, on a decline in average order value. In March, net sales for the last full fiscal year rose while the net loss grew, and that Long had been named permanent chief executive after a long interim stint, with Grant named chief financial officer. The current year's initial sales guidance, as Market commentary noted it, matches the wider range the company has now narrowed.

The US Carries the Quarter

Geography explains most of the top-line result. US net sales rose at a double-digit rate and represent the largest portion of the business; Long called the US the company's largest market in the release. The year-to-date US figure also advanced, though at a slower pace, which indicates that the third quarter marked an acceleration.

Rest of World sales grew rapidly from a small base. Long said on the call that UK sales were far above the level of a year earlier, with the UK customer count climbing sharply as well, and the release credits Princess Polly's UK growth for the regional gain. Long also said a German website and app were launching this quarter, with plans to place product closer to customers there at a later stage.

Australia and New Zealand went the other way. Sales in that region declined, though the rate of decline improved from the second quarter. Grant said consumers there "remained under pressure from the macro environment," and that the decline also reflected lapping unproductive units during the merchandising transition at Culture Kings. Market data, the Australian trade publication, has previously reported that Culture Kings operates most of its stores in Australia, which leaves that Brand particularly exposed to local conditions.

Princess Polly Leans Into Back-to-School and Stores

Princess Polly remains the engine of the portfolio. In March, the brand accounts for about half of a.k.a. Brands' revenue. Long described back-to-school as the brand's "strongest season to date," citing large gains in sweats and knit tops, and said its TikTok Shop channel is "one of the brand's fastest-growing channels," with US sales there far above the prior-year level.

The store rollout is moving from plan to execution. Long said Orlando and Houston opened during the quarter, and the release put the US fleet at its largest level so far at quarter end. On the call he said stores in Edina, Minnesota, and Frisco, Texas, were slated for the fourth quarter, and that leases had been signed for at least a further group of US locations next year. In March, the Minnesota and Texas openings would be the brand's first in those states.

Asked about performance, Long said stores are paying back "on track and even a little bit faster," a remark he linked to growing confidence in the expansion. According to market data, the brand launched digitally in Australia, opened its first US store in Los Angeles in recent years, and sees physical retail as a way to reach shoppers where they live and shop. According to market data, Princess Polly has since also opened at Westfield Bondi in Sydney, its first Australian store, with chief merchandise officer Courtney Dres confirming plans for more openings in both countries.

The store format is also evolving. The Bondi location shares design elements with the US stores while tailoring its product mix to Australian seasons and trends, and it uses transparent window LED technology and retro-styled televisions. Dres told the publication that entering a store is meant to feel like stepping into the brand itself. Responding to SCC Research's Eric Beder, management said the US remains the focus for stores and that the international retail opportunity is at an early stage.

Culture Kings Shifts to Full Price, and Petal & Pup Goes Wholesale

The streetwear side of the company is undergoing its own reset. Long said the move at Culture Kings to a full-price, test-and-repeat merchandising model drove much of the quarter's gross Margin gain. The release similarly credits better full-price selling on streetwear brands. The trade-off appears in Australia, where lapping the older inventory approach has weighed on sales.

A new Culture Kings location is on the way. Long said a store at Plaza Las Americas in San Juan, Puerto Rico, is due to open in late December, "built around the immersive format that defines Culture Kings." The release's risk language also refers to a second US Culture Kings location. Long added that a National Football League activation in Melbourne produced one of the Melbourne store's strongest sales days in years.

Petal & Pup is expanding through other retailers' doors rather than its own. Long said the brand's distribution pipeline is "the strongest in the brand's history," including Dillard's full fleet and Urban Outfitters and Scheels next year. He said wholesale Demand was "solid across partners," including Nordstrom and ASOS, that Petal & Pup grew at a double-digit rate at Nordstrom and Macy's, and that the brand had launched on Bloomingdale's website. The company also reported opening a large group of boutique accounts in recent quarters.

Margin Gains on One Line, Costs on Others

Gross margin improved by about a full percentage point from the prior-year quarter, helped by the better full-price performance in streetwear and held back by higher inbound freight. Year to date, the improvement in gross margin is larger, and the net loss for that period narrowed from a year earlier.

The operating lines below Gross Profit were less favorable. Selling expenses rose both in dollars and as a share of net sales, and they included one-time costs to relocate the company's distribution center. Marketing expense also rose faster than sales. General and administrative expense increased in dollars but fell as a share of net sales, offering a modest sign of operating leverage. The net effect was a wider loss from operations.

Interest expense declined slightly from a year earlier. The net loss per share also widened. Adjusted EBITDA, which adds back the distribution center charges as well as depreciation, equity-based compensation and certain non-routine items, rose from the prior-year quarter and expanded slightly as a share of sales. The divergence between a wider net loss and a higher adjusted figure owes a good deal to the relocation charge, which the company excludes from the adjusted measure and which Grant said came in higher than expected.

Telsey Group's Dana Telsey pressed on the same set of issues, asking about freight, Culture Kings margins and the drop in average order value. Management's response tied the order value decline mainly to TikTok Shop mix, while the release separately credits better full-price selling in streetwear for the margin gain.

The Ohio Move and the Freight Bill

A pair of logistics stories dominated the financial discussion. The first is a one-off cost with a longer-term aim. Long said the relocation of the distribution center to Ohio was completed during the quarter and ought to "enhance the customer experience and improve margins going forward." Grant said the company anticipates "faster delivery times and lower shipping costs" starting next year. Those are management's expectations, and the benefits have not yet appeared in reported results.

The second is a recurring cost that has grown less predictable. Grant said inbound freight reduced gross margin in the third quarter and that the second-half effect on adjusted EBITDA drops straight through to that line. He said rising air freight rates and surcharges are expected to weigh further on fourth-quarter gross margin relative to the prior outlook. The company guided fourth-quarter gross margin below the level achieved in the third quarter.

Tariffs did not feature in the call, based on the transcript, but they remain in the company's risk disclosures. The release cites tariffs on imports into the US and Australia, possible escalation on goods from China and other countries, and the risks of doing Business in China, while noting those factors could raise cost of goods, reduce margins and require sourcing changes. The release does not quantify any Tariff cost for the quarter.

Inside the Revised Outlook

The revised outlook moved several figures at once. The full-year net sales range was narrowed from both ends, with the low end raised and the high end reduced. The full-year adjusted EBITDA range was lowered, which Grant tied to elevated freight costs. Planned capital expenditures also came down, while the expected diluted share count was unchanged.

The fourth-quarter range implies continued growth on the top line, and Grant said the Quarter-to-date net sales trend was running at mid-single-digit growth. That is slower than the third quarter's rate. Long said comparisons get harder as the quarter progresses because the company carried a stronger inventory position last year.

Long also expects the holiday period to be "as promotional as last year," adding that short lead times allow the company to "be very reactive to anything" in the market. He said consumers remain interested in the brands but are "a little bit cautious" about extra items in their baskets. Those comments suggest that the company is planning for steady demand with limited room on pricing rather than a marked pickup through the holidays.

Debt, Cash and the Funding Question

The Balance Sheet is modest relative to the company's expansion ambitions. Cash at quarter end was below the level at the end of last year. Total Debt declined from both the year-end and year-ago figures, with Grant saying net leverage improved from a year earlier. Inventory rose from year-end but stood slightly below the prior-year level. Operating Cash Flow for the year to date also rose from the prior-year period.

Analysts pressed on how store growth and debt reduction fit together. Responding to a question from Jefferies (NYSE:JEF) analyst Randal Konik, management said it was comfortable funding growth from operating cash flow. Long said the company intends to keep paying down debt while also investing in growth, and that inventory improvements driven by artificial intelligence could "unlock some capital" to support both.

Further out, in response to a question from Lake Street's Ryan Meyers, management said it sees potential for adjusted EBITDA margins at a double-digit level over the long term through scale, distribution center savings and leverage on general and administrative costs. That aspiration sits well above the single-digit margin reported in the latest quarter, and the company gave no timetable for reaching it in the release.

Open Items on the Calendar

The company's release flags other matters that sit alongside the operating story, including risks relating to compliance with New York Stock Exchange listing standards and to the implementation of artificial intelligence. They appear within standard risk language and are not accompanied by new detail about any specific action.

Against that backdrop, the near-term markers are concrete. Fourth-quarter results will show whether the net sales trend holds within the guided range through a promotional holiday, whether air freight costs match the revised assumption, and whether the Princess Polly openings and the Puerto Rico Culture Kings store arrive on the stated schedule. Next year's figures will then test the company's claim that the Ohio move lowers shipping costs. For now, the third quarter leaves a.k.a. Brands with stronger sales in its largest market and a thinner profit cushion than it had projected only a quarter earlier.