Digital Brands Group, Inc. (NASDAQ: DBGI) posted a record-setting quarter on Thursday. But just as important, its guidance was decidedly bullish. In fact, those that listened to the call likely came away with a common theme- DBGI stock is appreciably undervalued. Details support that presumption.
DBGI generated $2.2 million in revenues for the quarter, a roughly 75% increase over the prior quarter. And as noted, guidance going forward adds to that increase, with sales momentum leading to expectations for DBGI to roughly double its revenues to $4 million in the current quarter. Keep in mind, DBGI is accelerating its growth during one of the most challenging times in the apparel sector's history. Moreover, management importantly noted that they have successfully navigated the logistical hurdles and have secured substantial inventories, already in hand, to accelerate growth in Q4 and in 2022.
The more excellent news is that in addition to improving business trends putting a tailwind at DBGI's revenue-generating back, they said to expect more revenue-generating firepower added to its portfolio through a planned acquisition planned to close by the end of this quarter. Thus, while its sum of the parts performed well in Q3, going forward, it can perhaps do exponentially better. Indeed, management instilled confidence to expect that to be the case.
Bullish Guidance Q4 and 2022
Again, DBGI CEO Hil Davis reiterated that he expects revenues to reach between $37.5 million and $42.5 million during FY 2022. That represents a more than 350% increase over its 2021 projections. Not only that, he is forecasting positive EBITDA for the new year as well, leveraging the power inherent to its shared services platform. In addition, he emphasizes that his bullish guidance does not include any impact from planned acquisitions. He was emphatic that DBGI is an acquisition vehicle. Thus, the takeaway is that current guidance may be conservative. Better still, all targets in the acquisition crosshairs contribute from a positive cash flow perspective. Thus, none should be a drag on bottom-line performance.
That's not all. The best part of the call was supporting evidence that all its brands are in hyper-growth mode. Also, DBGI highlighted that 2022 will be the first time its current brand portfolio will contribute an entire year's worth of revenues. Despite the record-setting gains announced on Thursday, some of that came from only a limited period of revenue contribution from its brands.
Moreover, it's important to note that its brand growth is happening with only a fraction of its marketing budget spent. Also, from an investor's perspective, it's good to know its message is performing well. Last month, DBGI reported its Bailey 44 brand saw a 379% surge and DSTLD a 52% jump in revenues after spending only a tiny part of their respective ad budgets. They noted, in fact, that as of that report date, it has spent only about $30,000 of a marketing budget of roughly $500,000. Thus, the dollar-to-dollar returns from the campaigns are more than impressive. They also show that its message is reaching the right audience and markets at the right times.
Investors should also be impressed by the substantial increase in gross margins. In that respect, DBGI said its gross profit margin increased 96% year over year to 55.9%. The better news is by utilizing the inherent strength of its shared services platform that adds efficiencies and cost savings, those already impressive margins can get even stronger. The end result, reaching EBITDA positive results sooner rather than later.
And those strengthening bottom-line results come from a stable of brands that are attracting significant consumer attention. Its styles are forward-thinking and target a consumer wanting inspired styling, responsible manufacturing processes, and comfortable wearability. DBGI's current brand portfolio covers all the market bases. An overview and link to each provide investors reasons to be bullish for their expected market penetration.
Brand Overview
-DSTLD (dis-tilld)
Its DSTLD brand is a favorite of those that enjoy the lived-in feel of soft premium denim. But, while simple-sounding from a fashion perspective, DSTLD takes its mission very seriously, positioning its DSTLD apparel as an attitudinal staple that should be comfortable, wearable, and most of all, allow people to feel like themselves when they wear it. In addition, by standing for quality over quantity, DSTLD designers seek to create consciously minimal designs that are edited for everyday life. And its collections show that intent.
Not only that, its inherent design principles, inspired by the scientific method and creative process, motivate the company to continually examine, explore, and express a distilled vision of what a core wardrobe should be. And unwavering in their pursuit of methodical expertise, they focus on purified fits, premium fabrics, manufacturing integrity, and sustainability practices.
Check out DSTLD's most current apparel here.
-Bailey 44
Bailey 44 apparel is a compelling line from every direction. Referred sometimes as "date-night" apparel, its styles can be show stoppers. And while it only contributed about six months of revenue this year, its growing popularity can help DBGI sales to surge in 2022. In fact, supported by a significantly increased marketing budget, triple-digit-percentage revenue growth is again expected.
But, more than expected, it's likely, especially with Bailey 44 combining beautiful, luxe fabrics and on-trend designs to create sophisticated ready-to-wear capsules for women on the go. The styles are edgy, too, inspired by Los Angeles' urban architecture and iconic landscapes that lead the design team to embed modern details, classic elements, and feminine designs.
For women, by women, the brand is considered "cool sexy classic," with minimalist vegan-leather and soft textured designs styled to be perfect capsules for tropical getaways, early morning meetings, or a night on the town. Put simply, Bailey 44 is a brand that makes its clients look and feel great for every stop along their way. As they put it, with Bailey 44, style travels. Check out their attractive lineup of available products here.
- Harper & Jones
Harper & Jones appeals to the masculine crowd with a collection of premium custom-fit apparel. This luxury, premium lifestyle brand leverages knowledge gained from Europe's finest clothiers and the belief that confidence comes from outside your comfort zone. Its founder, Drew Jones, set out to redefine what quality means with modern American style. Harper & Jones is the result — and his meticulous commitment to quality and manufacturing shows in every piece of custom-made apparel.
The brand combines a bench-made journey with custom-fit and delivery to position itself as a premium clothier embracing forward-thinking designs and staying true to its passion of using only luxe fabrics that are responsibly sourced. The brand is expected to grow rapidly under DBGI management, with marketing dollars earmarked to drive sales in 2022. DBGI will enjoy a full year of revenues from the brands next year. Check out why Harper & Jones can be a significant contributor to revenues in 2022 here.
-Stateside apparel
Stateside apparel is DBGI's most recent acquisition. It's an elevated basics brand developed to stylize comfort, colors, and everyday wearability. The brand is influenced by a mix of cultures and attitudes that lead to elevated but straightforward designs that make a statement. Stateside recently added a new product category to bring women's knits and woven tops to the marketplace. To date, sales have been strong.
But, that was always the expectation. In fact, expectations are for the brand to top at least $5 million next year in normal market conditions. Better still, navigating supply and distribution channel hurdles along with solid margins generated through its shared services platform should help those revenues fall quickly toward the bottom line.
One of the most attractive features of the brand is its influence from American basics, including the evolution of the classic t-shirt. But, Stateside takes design a step further, using brilliant saturated-dyed finishes that give its styles the soft feel of a perfectly lived-in piece that has been washed and worn to perfection. The collection's weathered color palette includes a range of neutrals (washed-out grays and navy, pure white) as well as faded brights.
And like its other brands, Stateside endorses sustainable manufacturing processes, uses only the best raw materials, and is true to its community by designing and producing in Los Angeles. Smart designs, smart fashion, Check out why Stateside is expected to make a substantial revenue impact here.
Accelerating Momentum Into 2022
Now that you understand and visualize the brands, it's understandable why revenues are doubling Q over Q. Moreover, despite the stock zig-zagging between highs and lows, they also support a valuation disconnect that investors can take advantage of. Not only is each brand exciting, detailed, and reaching markets that embrace sustainable practices, comfort, and style, they do so at the very high end of industry margins.
And not only do DBGI's brand portfolio check all the right boxes, but their revenue contributions also justify a substantially higher share price based on more transparent industry multiples. There, recent IPO's of a.k.a Brands (NYSE: AKA) and Solo Brands (NYSE: DTC) help make a case for DBGI to be an $11 stock. How? By investors giving DBGI the same revenues multiple given to AKA during its IPO.
But, more than deserving of the same appreciation, DBGI may be worthy of a premium, noting that its balance sheet and capital structure are more inviting than AKA's. Solo Brands raised about $220 million after being priced at $17 per share. Both of those stocks, by the way, are trading appreciably higher than the IPO prices. In addition, DBGI is focused more on brand acquisition, paving the way for additional premium consideration in the coming day, weeks, and quarters.
Hence, DBGI, which appears to be growing at warp speed, is well-deserving of a higher share price after Thursday's report. And with decidedly bullish guidance and a near-term acquisition expected, DBGI stock may grow into a more appropriate valuation sooner than many expect. Thus, trying to time this trade may be perilous to building a position. DBGI historically runs high double-digit increases on value-adding news. So, with guidance suggesting an acquisition in the next 45 days, staying long may be a wise consideration. In fact, its earnings report was certainly not a sell-the-news- event. Instead, it was a reason to go long and stay long.
From all indications, DBGI stock can undoubtedly be in fashion this season.
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