Telsey cuts AKA Brands shares target, keeps Market Perform rating

Telsey Advisory Group has adjusted its price target for AKA Brands Holding Corp (NYSE: NYSE:AKA), lowering it to $20.00 from the prior $22.00 as the firm maintained its Market Perform rating on the company's stock.

The adjustment follows AKA Brands' recent financial performance, which included a second consecutive quarter of top and bottom line beats for the start of fiscal year 2024, attributed to strong U.S. sales, gross margin expansion, and improved expense management.

AKA Brands experienced challenges in the Australian and New Zealand markets, where sales continued to decline in the mid-single digits during the second quarter of 2024. Efforts to realign inventory levels and implement a new merchandising strategy are ongoing in these regions.

Despite this, the company achieved high-single-digit sales growth overall, marking the first quarter of topline growth in two years, thanks to a 19% year-over-year increase in U.S. consumer demand.

The company has capitalized on the U.S. market's strength by expanding its online reach through partnerships with major retailers such as Nordstrom (NYSE:JWN), Target, and Macy’s. The strategic move has bolstered AKA's confidence in the potential for expanding its physical retail presence. Based on the solid performance in the year's first half, AKA has raised its sales and adjusted EBITDA outlook, surpassing the market's previous expectations.

While the company's management is optimistic about the future growth of its brands, driven by new product offerings and active customer growth, the path to profitability remains uncertain. The competitive retail landscape and ongoing challenges in the Australian market contribute to this uncertainty.

In light of the global operating environment's unpredictability, Telsey has set the new price target based on a 0.52x multiple applied to the company's forecasted two-year forward sales of $599 million, which aligns with the recent average next twelve months (NTM) multiple.

A.k.a Brands reported mixed results for the first quarter of 2024. Despite experiencing a 6% growth in net sales in the U.S. market, the company's overall net sales saw a 3% decline, amounting to $117 million. However, A.k.a Brands managed to expand its active customer base by 5.5% and launched new initiatives, including an activewear collection by Princess Polly and the expansion of Petal & Pup on Nordstrom's website.

The company also reduced its debt by 22%, ending the quarter with $21.9 million in cash and cash equivalents. The gross margin remained stable at 56.2%, and the adjusted EBITDA was reported at $874,000.

Looking ahead, A.k.a Brands is focusing on retaining and attracting customers, expanding omni-channel strategies, and streamlining operations. The company's full-year net sales are projected to be between $545 million and $555 million, with an anticipated gross margin between 55.5% and 56%.

InvestingPro Insights

As AKA Brands Holding Corp (NYSE: AKA) navigates its financial journey, real-time metrics from InvestingPro offer key insights into the company's performance and valuation. With a market capitalization of $151.72 million, AKA Brands is operating in a competitive retail market where size and financial stability are crucial. The company's price-to-book ratio, sitting at 1.11 as of the last twelve months ending Q2 2024, indicates that the stock is trading at a value relatively close to the company's book value, which may appeal to value investors.

Despite recent operational successes, AKA Brands has experienced significant price volatility, with a one-week total return of -17.27% and a three-month return of -30.77%, reflecting the high-risk nature of the retail sector and the stock's sensitivity to market movements. However, on a more positive note, the company has seen a substantial year-to-date price total return of 79.75%, showcasing the potential for strong returns over shorter periods. This aligns with one of the InvestingPro Tips, which highlights that the stock has seen a large price uptick over the last six months, with a 43.55% return during that period.

InvestingPro Tips also reveal that AKA Brands does not pay a dividend to shareholders, which may be a factor for income-focused investors to consider. For those interested in a deeper analysis, there are additional InvestingPro Tips available, providing more nuanced information that could influence investment decisions. The company's financial health, as indicated by its liquid assets exceeding short-term obligations, provides some reassurance of its ability to meet immediate financial liabilities.

To explore further InvestingPro Tips related to AKA Brands and to gain a comprehensive understanding of the company's prospects, investors can visit https://www.investing.com/pro/AKA. With additional tips at their disposal, investors can make more informed decisions based on a broader set of data and expert analysis.

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