On Friday, Telsey Advisory Group adjusted its financial outlook on AKA Brands Holding Corp (NYSE: NYSE:AKA), increasing the price target to $25 from the previous $20.
The firm sustained its Market Perform rating on the stock. This decision follows AKA Brands' report of strong performance in the first half of fiscal year 2024, marked by two consecutive quarters of better-than-expected results. The company experienced a significant sales increase in the second quarter, marking the first instance of top-line growth in two years.
The growth was attributed primarily to a 19% year-over-year increase in U.S. sales, as consumer interest in AKA's brands remained robust. Despite challenges in New Zealand, the company is capitalizing on the positive momentum in the United States by enhancing its online presence through partnerships with Nordstrom (NYSE:JWN), Target, and Macy’s. These strategic moves have bolstered AKA's confidence in its ability to expand its physical store footprint and explore new market opportunities.
In light of the solid performance in the first half of the year, AKA Brands revised its sales and adjusted EBITDA forecasts, surpassing previous market expectations. The company's management has expressed confidence in the potential of its brands to continue growing, driven by product innovation and an increasing customer base.
While the long-term growth trajectory of AKA’s brands appears promising, Telsey noted that there are still some uncertainties regarding the company's profitability potential. The competitive retail landscape and the pressures in the Australian market present ongoing challenges. Nevertheless, the recent stabilization signs have led Telsey to raise its price target, which is now based on a 0.58x multiple on a two-year forward sales forecast of $599 million, aligning with the recent average next twelve months (NTM) multiple.
In other recent news, a.k.a. Brands Holding Corp. has reported significant financial growth in the second quarter of the fiscal year 2024. The company experienced a substantial 9.5% increase in net sales, reaching $149 million, with a notable 19.3% growth in its US business. The company's active customer count also rose by 11.7% on a trailing 12-month basis. In addition, a.k.a. Brands saw an improvement in gross margins and a 44% year-over-year increase in Adjusted EBITDA to $8 million.
The firm has outlined ambitious plans for expansion, including the opening of new stores for its Princess Polly brand and enhancing the omni-channel presence of its Petal & Pup brand. The company forecasts full-year net sales to be between $560 million to $565 million. However, it anticipates challenges in Australia due to increased promotional activity and upcoming debt maturities.
In an effort to mitigate potential tariffs on Chinese goods, a.k.a. Brands is actively diversifying its supply chain, with further details to be provided in the next quarter's update. Despite these challenges, the company remains confident in its ability to scale its brands profitably and continue its growth trajectory.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on AKA Brands Holding Corp's financial position and market performance. The company's market capitalization stands at $242.43 million, reflecting its current market valuation. Despite the challenges noted in the article, AKA has shown remarkable stock performance, with a 283.17% price total return over the past year and a strong 31.45% return in the last three months.
InvestingPro Tips highlight that AKA generally trades with high price volatility, which aligns with the significant stock price movements mentioned in the article. Additionally, the company's liquid assets exceed short-term obligations, providing some financial stability as it pursues growth strategies.
However, it's important to note that AKA is not currently profitable, with a negative operating income of $12.67 million in the last twelve months. This supports Telsey Advisory Group's cautious stance on profitability potential. The company's revenue for the same period was $555.52 million, with a gross profit margin of 55.1%, indicating a solid foundation for potential future profitability if operational efficiencies improve.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for AKA Brands, providing deeper insights into the company's financial health and market position.
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