Digital Brands Group, owner of clothing brands such as ACE Studios, Stateside and Bailey 44, warns of its viability as a going concern due to mounting losses, hinting at the possibility of a bankruptcy filing, less than a year after its IPO.
For the year ended Dec. 31, the company reported a net loss of $32.4 million, compared to $10.7 million in fiscal 2020, on revenue of $7.6 million, compared to 5 .2 million the previous year. Its stock, meanwhile, is down 46.7% year-to-date at $1.29 as of Tuesday’s close.
All of that, plus a working capital shortfall of $30.3 million as of Dec. 31, makes the company’s growth-by-acquisition model — at one point it was eyeing six such deals in 2022 — hard to fathom. to achieve.
Digital Brands Group CEO Hil Davis put a positive spin on the company’s stance, noting a 425% increase in fourth-quarter revenue, along with continued growth in January and February, and its acquisitions in 2021 from Stateside – owner of DSTLD jeans – and Harper & Jones.
“Our operating losses were driven by our weak revenue results, particularly in the first nine months of 2021,” Davis said in a statement. “We expect to take advantage of these fixed costs in 2022 with the revenue momentum we have experienced.”
In its annual 10k filing, Digital Brands Group noted that it had suffered losses every year since its inception and planned to continue to do so, warning that it may not be able to raise capital at favorable conditions, which would further hamper its operational prospects.
If this turns out to be the case, the filing stated: “…we will be required to significantly delay, reduce or restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on our business, share price and our relationships with third parties with whom we do business, at least until additional financing is obtained… (and) we may be required to seek bankruptcy protection or other alternatives.
On a fourth quarter and year-end earnings conference call, which analysts did not attend live, Davis said Digital Brands Group was using cash from its 2021 IPO to expand company, and he was beginning to see his momentum building.
“That’s what people don’t necessarily understand about a business in operation,” he said. “Going from zero to one is the hardest, and then going from one to two to three to four to five is much easier every step of the way. And 2021 was all about going from zero to one. What you start to see at fourth quarter is that we’ve started to see a shift from first to top gear, and that’s what’s exciting and we’ve seen it across all areas of the business.
Digital Brands Group has also been the subject of litigation over the past two years against vendors and a service provider for non-payment, as well as an investor for reimbursement, some of which have been settled while others are in Classes.