What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-03-06 compared with 2024-03-07 · 170 added, 248 removed, 373 unchanged (53% of the section changed)

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Our fiscal year ends on December 31.

On September 29, 2023, we effected a one-for-12 reverse stock split of our common stock (the "Reverse Stock Split").

As a result of the Reverse Stock Split, every twelve shares of our outstanding common stock was consolidated into one share.

Accordingly, all per share values have been adjusted as necessary to reflect the Reverse Stock Split for all prior periods presented.

Refer to Note 14, "Stockholders’ Equity," in the notes to our consolidated financial statements included in this Annual Report on Form 10-K.

Brands is a portfolio of next-generation fashion brands for the next generation of consumers.

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We have since built a portfolio of next-generation brands with distinct fashion offerings and consumer followings:

• In July 2018, we acquired Princess Polly, a fashion brand focusing on fun, trendy dresses, tops, shoes and accessories with slim fit, body-confident and trendy fashion designs.

• Princess Polly, a fashion brand focusing on fun, trendy dresses, tops, shoes and accessories with slim fit, body-confident and trendy fashion designs.

The brand targets a female customer between the ages of 15 and 25.

• In August 2019, we acquired Petal & Pup, a fashion brand offering an assortment of trendy, flattering and feminine styles and dresses for special occasions.

• Petal & Pup, a fashion brand offering an assortment of trendy, flattering and feminine styles and dresses for special occasions.

The brand targets female customers typically in their twenties or thirties, with more than 70% of customers between the ages of 25 and 34.

• In March 2021, we acquired Culture Kings, an Australia-based premium online retailer of streetwear apparel, footwear, headwear and accessories.

• Culture Kings, a premium online retailer of streetwear apparel, footwear, headwear and accessories.

The brand targets male consumers between the ages of 18 and 35 who are fashion conscious, highly social and digitally focused.

• In October 2021, we acquired mnml, a Los Angeles-based streetwear brand that offers competitively priced, on-trend wardrobe staples.

• mnml, a streetwear brand that offers competitively priced, on-trend wardrobe staples.

The brand targets male consumers between the ages of 18 and 35.

While we have owned Princess Polly and Petal & Pup from before 2020, information presented hereafter on an “across a.k.a.

Brands” basis assumes we also owned Culture Kings for all periods presented.

We also owned Rebdolls for all periods shown prior to March 2023, when we sold the brand back to its original owner.

Our annual financial results discussed below represent the consolidated results of Princess Polly and Petal & Pup for all years shown, the results of Rebdolls for all periods shown prior to March 2023, the results of Culture Kings’ operations from the date of its acquisition on March 31, 2021, and the results of mnml’s operations from the date of its acquisition on October 14, 2021.

Across a.k.a.

Brands for 2023, we attracted over 3.7 million active customers, received approximately 6.8 million orders and had an average order value of $80.

Initial Public Offering

In September 2021, we completed an initial public offering (the “IPO”), in which we issued and sold 833,333 shares of newly authorized common stock for $132.00 per share for net proceeds of $95.7 million, after deducting underwriting discounts and commissions of $6.6 million, and offering costs of $7.7 million.

Goodwill Impairment

In August 2023, due to elevated interest rates and unfavorable demand in Australia, we reduced our earnings forecasts and expectations for the Culture Kings and Petal & Pup reporting units.

This reduction was identified as a triggering event and a subsequent quantitative test concluded that the carrying value of the Culture Kings and Petal & Pup reporting units exceeded their fair values as of August 31, 2023.

As a result, we recorded a non-cash goodwill impairment charge of $68.5 million during the third quarter of 2023.

As of December 31, 2023, $11.3 million of goodwill related to Petal & Pup remained on our balance sheet, while the goodwill related to Culture Kings was fully impaired.

In 2024 as compared to 2023, we:

• Increased net sales to $574.7 million from $546.3 million , representing 5% year-over-year growth

• Increased U.S.

net sales to $368.8 million from $315.5 million , representing 17% year-over-year growth

• Expanded gross margin by 200 basis points to 57% from 55%

• Reduced our net loss to $26.0 million from $98.9 million

• Increased Adjusted EBITDA to $23.3 million from $13.8 million , representing 69% year-over-year growth

• Attracted 4.1 million active customers, an increase of 9% from the prior year

• Received approximately 7.3 million orders, an increase of 7% from the prior year

Key Operating and Financial Metrics

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Active customers

Active customers across a.k.a.

Average order value

4.07 3.72 3.78

Average order value across a.k.a.

Average order value

$ 79 $ 80 $ 82

Number of orders

Number of orders across a.k.a.

(1) Includes the impact of Culture Kings as if we had owned it for all periods presented.

7.32 6.85 7.42

Active Customers

We view the number of active customers as a key indicator of our growth, our value proposition, consumer awareness of our brand, and their desire to purchase our products.

We view the number of active customers as a key indicator of our growth, our value proposition, consumer awareness of our brand, and our customer’s desire to purchase our products.

In any particular period, we determine our number of active customers by counting the total number of unique customer accounts who have made at least one purchase in the preceding 12-month period, measured from the last date of such period.

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We define average order value as net sales in a given period divided by the total orders placed in that period.

Average order value may fluctuate as we expand into new categories or geographies or as our assortment changes.

Average order value may fluctuate as we expand into new categories, geographies or channels, or as our assortment changes.

Number of Orders

We define the number of orders as the total number of orders placed by our customers, prior to product returns, across our platform or in our stores in any given period.

An order is counted on the day the customer places the order.

We consider the number of orders to be a key indicator of our ability to attract and retain customers, as well as an indicator of the desirability of our products.

Key Financial Metrics

The following table sets forth our key GAAP and non-GAAP financial metrics for each period presented:

The following table sets forth our key financial metrics prepared in accordance with GAAP and certain non-GAAP financial metrics for each period presented:

Year Ended December 31,

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• the cost of compensation we provide to our employees in the form of equity awards.

The following table reflects a reconciliation of Adjusted EBITDA to net income (loss) and Adjusted EBITDA margin to net income (loss) margin, the most directly comparable financial measure prepared in accordance with GAAP:

The following table reflects a reconciliation of Adjusted EBITDA to net loss and Adjusted EBITDA margin to net loss margin, the most directly comparable financial measures prepared in accordance with GAAP:

Year Ended December 31,

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Total other expense, net 11,340 13,556 8,575

(Benefit from) provision for income tax

Provision for (benefit from) income tax

4,329 1,921 (3,917)

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Inventory step-up amortization expense — — 707

Distribution center relocation costs

2,101 — 1,302

Transaction costs — — 140

Goodwill impairment — 68,524 173,786

Non-routine legal matters 1

Non-routine items 2

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Adjusted EBITDA margin 4 % 3 % 5 %

*Non-routine items include costs to establish or relocate distribution centers;

severance from headcount reductions;

1 Non-routine legal matters include a $2.0 million accrual in 2024 in connection with the legal matter described in Part I, Item 3, “Legal Proceedings” of this Annual Report on Form 10-K.

2 Non-routine items include severance from headcount reductions;

sales tax penalties;

insured losses, net of recoveries;

and non-routine legal matters.

and insured losses, net of recoveries.

Free Cash Flow

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Our Free Cash Flow has fluctuated over time primarily as a result of timing of inventory purchases, purchases of property and equipment and fluctuations in earnings.

Our operating model requires a low level of capital expenditures.

For the twelve months ended December 31, 2023, net cash provided by operating activities increased by $33.7 million compared to net cash used in operating activities for the twelve months ended December 31, 2022.

This was attributable primarily to a decrease in inventory compared to the prior period, which was driven by reduced inventory buying and sell-through of aged inventory, partially offset by lower earnings.

For the twelve months ended December 31, 2023, Free Cash Flow increased by $47.5 million compared to Free Cash Flow for the twelve months ended December 31, 2022.

This was attributable primarily to a decrease in inventory compared to the prior period, which was driven by reduced inventory buying and sell-through of aged inventory, and a reduction in purchases of property and equipment, partially offset by lower earnings.

The reduction in purchases of property and equipment in 2023 was primarily due to the build-out of the Culture Kings Las Vegas store in 2022.

For the year ended December 31, 2024 , net cash provided by operating activities decreased by $32.8 million compared to net cash provided by operating activities for the year ended December 31, 2023 .

This was attributable primarily to more cash used to purchase inventory in 2024, as compared to 2023, to support growth in the U.S., partially offset by the timing of payments.

For the year ended December 31, 2024 , Free Cash Flow decreased by $38.4 million compared to Free Cash Flow for the year ended December 31, 2023 .

This was attributable primarily to more cash used to purchase inventory in 2024 and additional capital expenditures related to new stores, as compared to 2023, to support growth in the U.S., partially offset by the timing of payments.

Factors Affecting Our Performance

Macroeconomic Environment

The macroeconomic environment in which we operate has been and, we anticipate, will continue to be pressured by adverse conditions worldwide.

Inflationary pressures on consumers globally, particularly on our Australian customers, and our supply chain, rising interest rates and shifts in global spending in anticipation of a potential economic slowdown or recession have pressured our net sales.

Additionally, lower return on marketing investments, increasing labor rates, a higher-than-historical competitive promotional environment and higher merchandise returns, all stemming from the pressures previously identified, led to reduced operating income and Adjusted EBITDA performance, as well as impairment to the goodwill associated with Culture Kings and Petal & Pup.

Consequently, our business and results of operations, including earnings and cash flows, could continue to be adversely impacted, including as a result of:

• decreased consumer confidence and consumer spending and consumption habits, including spending for the merchandise that we sell and shifting to more in-store retail experiences, and negative trends in consumer purchasing patterns due to inflationary pressures and changes in consumers’ disposable income, credit availability and debt levels;

• challenges filling staffing requirements at our stores, corporate headquarters and distribution centers;

• increased materials and procurement costs as a result of scarcity or increased prices of commodities and raw materials.

All of these factors have contributed and may continue to contribute to reduced orders, increased merchandise returns, higher discounts, lower net sales, lower gross margins, reduced effectiveness of marketing, increased inventories and goodwill impairment, and it is possible that future annual or interim impairment tests could result in additional impairment charges.

The macroeconomic environment in which we operate impacts consumer behavior and may have a significant impact on our business.

While positive conditions in the economy generally promote customer spending on our sites and in our stores, any economic weakness can result in a reduction of customer spending and have a significant negative impact on our results of operations.

Macroeconomic factors that could cause significant negative impacts on our results of operations include, but are not limited to:

inflationary pressures on consumers globally and on our supply chain;

elevated interest rates;

employment rates;

business conditions;

changes in the housing market;

changes in stock markets;

adverse developments affecting the financial services industry;

the availability of credit, both for us and for our customers;

foreign currency exchange rates;

fuel, energy and raw materials costs;

supply chain challenges;

wars and geopolitical tensions;

and the effects of tariffs.

Brand Awareness

Our ability to promote our brands and maintain brand awareness and loyalty is critical to our success.

We have a significant opportunity to continue to grow awareness and loyalty to our brands through word of mouth, brand marketing, performance marketing and increased store openings in key locations.

We plan to continue to invest in performance marketing and increase our investment in brand awareness across our brands, including wholesale and marketplace opportunities, to drive our future growth.

We have a significant opportunity to continue to grow awareness and loyalty to our brands through word of mouth, brand marketing, performance marketing, wholesale and marketplace opportunities, and increased store openings in key locations.

We plan to continue to invest in performance marketing and increase our investment in brand awareness across our brands to drive our future growth.

Failure to successfully promote our brands and maintain brand awareness would have an adverse impact to our operating results.

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Our methods to acquire customers have evolved and will need to continue evolving in response to changes in shopping behaviors, content consumption, costs to advertise and developments in technology.

As a result of macroeconomic pressures, we reduced certain of our marketing efforts, which may result in acquiring customers at slower rates.

Competition for social media and influencer-based marketing channels continues to increase, making it more difficult to differentiate ourselves and cost-effectively acquire customers.

Failure to continue attracting customers efficiently and profitably would adversely impact our profitability and operating results.

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Our results are driven not only by the ability of our brands to acquire customers, but also by their ability to retain customers and encourage repeat purchases.

We monitor retention across our entire customer base.

Our brands are at various stages of rolling out and evolving loyalty programs.

We monitor retention across our entire customer base and use loyalty programs to attempt to retain customers.

Failure to retain customers would adversely impact our profitability and operating results.

Impact of COVID-19

In the second half of 2022, we started to experience reductions in air freight costs (which had increased in the first half of 2022 as a result of vendor delays and shutdowns due to the COVID-19 pandemic), the impact of which has been and will continue to be realized in the Company’s cost of goods sold during 2023 and 2024.

We continue to monitor vendor and manufacturer shipping times and other potential disruptions in our supply chain and implement mitigation plans as necessary.

Inventory Management

Our test, repeat & clear inventory strategy, utilized fully by our Princess Polly and Petal & Pup brands, consists of smaller initial inventory purchases followed by analysis of real-time data and customer feedback, which allows us to identify and quickly re-order best sellers.

While our initial orders are limited in size and, therefore, limit financial risk, we nonetheless purchase inventory in anticipation of future demand and therefore are exposed to potential shifts in customer preferences and price sensitivity over time.

We have begun to adopt this strategy, with initial success, at our Culture Kings and mnml brands as well.

Investment in our Operations and Infrastructure

We will continue to invest in our operations to facilitate further growth of our business.

We intend to invest in headcount, inventory, stores, fulfillment, logistics, and software and data capabilities, including best-in-class third-party providers in order to improve customer experience, expand into more markets and drive operational efficiencies.

While we are disciplined in our capital spending and believe we can generate positive returns on our investments over the long term, we cannot guarantee that increased spending on these investments will be cost effective or result in future growth in our customer base.

Foreign Currency Rate Fluctuations

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Total operating expenses 337,826 383,689 509,286

(Loss) income from operations

Loss from operations

(10,321) (83,409) (172,039)

1 unchanged sentence

Interest expense (10,296) (11,165) (7,043)

Loss on extinguishment of debt — — (10,924)

Other expense (1,044) (2,391) (1,532)

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$ (25,990) $ (98,886) $ (176,697)

Net loss attributable to noncontrolling interests

Net loss attributable to a.k.a.

Brands Holding Corp.

$ (98,886) $ (176,697) $ (5,968)

Year Ended December 31,

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59 % 70 % 83 %

(Loss) income from operations

Loss from operations

(2 %) (15 %) (28 %)

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Interest expense (2 %) (2%) (1%)

Loss on extinguishment of debt — % —% (2%)

Other expense — % —% —%

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(5 %) (18 %) (29 %)

Net loss attributable to noncontrolling interests

Net loss attributable to a.k.a.

Brands Holding Corp.

(18 %) (29 %) (1 %)

Comparison of the Years Ended December 31, 2024 and 2023

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$ 574,697 $ 546,258

Net sales decreased by $65.5 million, or 11%, in 2023 compared to 2022.

The overall decrease in net sales was primarily driven by an 8% decrease in the number of orders we processed in 2023 compared to 2022, which drove a decrease in net sales of $49.7 million, and a decrease in our average order value of 2%, from $82 in 2022 to $80 in 2023, which drove a decrease in net sales of $15.8 million.

The decrease in the number of orders and average order value were primarily due to adverse macroeconomic conditions in Australia and New Zealand.

On a constant currency basis, net sales and average order value for 2023 would have decreased 9% and 1%, respectively, as compared to 2022.

Net sales increased by $28.4 million, or 5%, in 2024 compared to 2023.

The overall increase in net sales was primarily driven by an 7% increase in the number of orders we processed in 2024 compared to 2023, partially offset by a decrease in our average order value of 1%, from $80 in 2023 to $79 in 2024.

The increase in the number of orders was primarily driven by growth in the U.S.

across all sales channels.

On a constant currency basis, net sales and average order value for 2024 would have increased 7% and decreased 1%, respectively, as compared to 2023.

Cost of Sales

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Percent of net sales

Cost of sales decreased by $28.5 million, or 10%, in 2023 compared to 2022.

This decrease was primarily driven by an 8% decrease in the total number of orders in 2023, as compared to 2022, a decrease in our average order value of 2% and lower inbound air freight costs, partially offset by a higher merchandise return rate.

While cost of sales as a percent of net sales was flat in 2023 compared to 2022, cost of sales as a percent of net sales would have increased due to targeted discounting in Culture Kings Australia and a higher merchandise return rate if not offset by lower inbound air freight costs.

Cost of sales increased by $1.2 million in 2024 compared to 2023, due to a 7% increase in the total number of orders in 2024, as compared to 2023, and the effect of growing wholesale and marketplace initiatives, mostly offset by more full price selling and an improved inventory position.

The decrease in cost of sales as a percentage of net sales was primarily due to the impact from more full price selling and improved inventory position, partially offset by the effect of growing wholesale initiatives, which have lower gross margins.

Years Ended December 31,

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Gross margin 57 % 55 %

Gross profit decreased by $37.0 million, or 11%, in 2023 compared to 2022.

This decrease was primarily driven by the 11% decrease in net sales, as well as a higher merchandise return rate.

These impacts were partially offset by lower air freight expense.

While gross margin was flat in 2023 compared to 2022, gross margin would have decreased due to targeted discounting in Culture Kings Australia and a higher merchandise return rate, if not offset by lower inbound air freight costs.

Gross profit increased by $27.2 million, or 9%, in 2024 compared to 2023.

This increase was primarily driven by the 5% increase in net sales in 2024, as compared to 2023, and an increase in gross margin.

Gross margin increased primarily due to the impact from more full price selling and improved inventory position, partially offset by the effect of growing wholesale initiatives, which have lower gross margins.

Selling Expenses

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Percent of net sales

Selling expenses decreased by $16.8 million, or 10%, in 2023 compared to 2022.

This decrease was driven by the 8% decrease in the number of orders shipped in 2023 compared to 2022, and operational efficiencies in distribution, fulfillment and outbound shipping.

Selling expenses increased by $12.5 million, or 8%, in 2024 compared to 2023.

This increase was driven by the 5% increase in net sales, as well as the opening of additional stores and the impact from growing marketplace initiatives in 2024 compared to 2023.

The increase in selling expenses as a percentage of net sales was primarily due to the opening of additional stores and the impact from growing marketplace initiatives.

Marketing Expenses

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Marketing expenses increased by $5.8 million, or 8%, in 2024 compared to 2023.

The increase in marketing expenses was driven by additional marketing spend due to reduced marketing effectiveness, particularly in Australia.

The increase in marketing expenses as a percentage of net sales was primarily due to lower net sales in 2023 compared to 2022.

Marketing expenses as a percentage of net sales for 2024 was flat compared to 2023.

General and Administrative Expenses

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Percent of net sales 18 % 18 %

General and administrative expenses decreased by $5.7 million, or 6%, in 2023 compared to 2022.

The decrease was primarily driven by a $2.7 million decrease in intangible amortization, a $2.1 million decrease in wages and benefits and a $1.5 million decrease in insurance costs.

A $1.2 million increase in professional fees partially offset these decreases.

The increase in general and administrative expenses as a percentage of net sales resulted primarily from lower net sales in 2023 compared to 2022.

General and administrative expenses increased by $4.3 million, or 4%, in 2024 compared to 2023.

The increase was primarily driven by a $6.2 million increase in wages and incentive compensation expense, a $2.0 million accrual for a legal matter, and a $2.1 million increase in other non-routine legal matters.

Partially offsetting these increases was a $1.8 million decrease in intangible amortization, a $1.6 million decrease in sales tax penalties and interest, a $1.4 million decrease in professional and administrative fees and a $1.1 million decrease in insurance costs.

General and administrative expenses as a percentage of net sales for 2024 was flat compared to 2023.

Goodwill Impairment

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Percent of net sales — % 13 %

Goodwill impairment decreased by $105.3 million, or 61%, in 2023 compared to 2022.

There was no goodwill impairment in 2024.

Goodwill impairment in 2023 was recognized on the goodwill recorded from the acquisitions of the Culture Kings and Petal & Pup reporting units.

Goodwill impairment in 2022 was recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.

In August 2023, due to elevated interest rates and unfavorable demand in Australia, we reduced our earnings forecasts and expectations for the Culture Kings and Petal & Pup reporting units.

As of December 31, 2023, the goodwill related to Culture Kings was fully impaired, while $11.3 million of the goodwill related to Petal & Pup remained on our balance sheet.

Other Expense, net

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Percent of net sales

Other expense, net increased by $5.0 million in 2023 compared to 2022 primarily due to $4.1 million in additional interest expense from rising interest rates on our variable rate debt.

(Provision for) Benefit from Income Tax

Other expense, net decreased by $2.2 million, or 16%, in 2024 compared to 2023, primarily due to lower interest expense from a reduction in our long-term balance, the impact of changes in foreign currency exchange rates and the loss recognized on the sale of the Rebdolls reporting unit in 2023.

Provision for Income Tax

Years Ended December 31,

(Provision for) benefit from income tax

Provision for income tax

$ (4,329) $ (1,921)

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Provision for income tax increased by $2.4 million, or 125%, in 2024 compared to 2023.

This increase was primarily due to the increase in the valuation allowance on the net deferred tax assets in Australia.

This increase was primarily due to limitations in interest expense deduction in Australia and the additional valuation allowance on the net deferred tax assets in the U.S.

Comparison of the Years Ended December 31, 2023 and 2022

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$ 546,258 $ 611,738

Net sales increased by $49.5 million, or 9%, in 2022 compared to 2021.

The overall increase in net sales was primarily driven by a 14% increase in the number of orders we processed in 2022 compared to 2021, driving an increase in net sales of $76.0 million.

A decrease in our average order value of 5%, from $86 in 2021 to $82 in 2022, partially offset the increase in net sales by $26.4 million.

The increase in the number of orders was largely driven by the acquisition of Culture Kings on March 31, 2021, the acquisition of mnml in October of 2021 and growth of Princess Polly in the U.S.

The decrease in our average order value was primarily due to the impact of foreign currency, higher return rates and incremental promotional activity.

On a constant currency basis, net sales and average order value for 2022 would have increased 13% and been flat, respectively.

Net sales for 2022 include the operations of Culture Kings and mnml, or $269.6 million of net sales, while 2021 includes the operations of Culture Kings and mnml, or $208.0 million of net sales, from the date of their acquisitions.

Net sales decreased by $65.5 million, or 11%, in 2023 compared to 2022.

The decrease in the number of orders and average order value were primarily due to adverse macroeconomic conditions in Australia and New Zealand.

On a constant currency basis, net sales and average order value for 2023 would have decreased 9% and 1%, respectively, as compared to 2022.

Cost of Sales

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Percent of net sales

Cost of sales increased by $20.0 million, or 8%, in 2022 compared to 2021.

This increase was primarily driven by a 14% increase in the total number of orders in 2022, as compared to 2021, which includes the impact of the operations of Culture Kings and mnml, or $132.0 million of cost of sales, while 2021 includes the impact of the operations of Culture Kings, or $114.7 million of cost of sales, from the dates of their respective acquisitions.

While cost of sales as a percent of net sales was flat in 2022 compared to 2021, the impact of the fair value adjustment to inventory acquired in the Culture Kings acquisition of $15.9 million, included in 2021, was offset by a change in the mix of products sold due to the acquisition of Culture Kings, as Culture Kings inventory has higher average costs.

Cost of sales decreased by $28.5 million, or 10%, in 2023 compared to 2022.

Years Ended December 31,

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Gross margin 55 % 55 %

Gross profit increased by $29.6 million, or 10%, in 2022 compared to 2021.

This increase was primarily driven by the significant increase in net sales.

While gross margin was flat in 2022 compared to 2021, the impact of the fair value adjustment to inventory acquired in the Culture Kings acquisition of $15.9 million, included in 2021, was offset by a change in the mix of products sold due to the acquisition of Culture Kings, as Culture Kings inventory has lower average gross margins.

Gross profit decreased by $37.0 million, or 11%, in 2023 compared to 2022.

This decrease was primarily driven by the 11% decrease in net sales, as well as a higher merchandise return rate.

These impacts were partially offset by lower air freight expense.

Selling Expenses

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Percent of net sales

Selling expenses increased by $21.7 million, or 15%, in 2022 compared to 2021.

This increase was driven by the 14% increase in the number of orders shipped in 2022 compared to 2021, which includes the operations of Culture Kings and mnml, or $71.6 million of selling expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $48.0 million of selling expenses, from the dates of their respective acquisitions.

The increase in selling expenses as a percentage of net sales was primarily due to increased costs for distribution facilities and stores, the 5% decrease in our average order value and a $1.3 million charge related to a relocation of distribution centers for Culture Kings and mnml.

Selling expenses decreased by $16.8 million, or 10%, in 2023 compared to 2022.

This decrease was driven by the 8% decrease in the number of orders shipped in 2023 compared to 2022, and operational efficiencies in distribution, fulfillment and outbound shipping.

Marketing Expenses

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Marketing expenses increased by $2.2 million, or 3%, in 2023 compared to 2022.

The increase in marketing expenses was driven by the inclusion of the operations of Culture Kings and mnml, or $31.4 million of marketing expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $23.6 million of marketing expenses, from the dates of their respective acquisitions.

The increase in marketing expenses as a percentage of net sales was primarily due to reduced effectiveness of our marketing channels at driving traffic to our websites, and the inclusion of mnml, which had a higher rate of advertising spend as compared to some of our other brands.

The increase in marketing expenses was driven by additional marketing spend due to reduced marketing effectiveness, particularly in Australia.

The increase in marketing expenses as a percentage of net sales was primarily due to lower net sales in 2023 compared to 2022.

General and Administrative Expenses

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Percent of net sales 18 % 17 %

General and administrative expenses increased by $13.9 million, or 16%, in 2022 compared to 2021.

The increase was primarily driven by a $18.3 million increase in salaries and related benefits related to increases in our headcount across functions to support business growth and $3.7 million in additional insurance costs.

Partially offsetting these increases was a $5.8 million decrease in professional fees, including transaction costs, and a $1.3 million decrease in equity-based compensation, due to vesting of performance-based incentive units upon the Company’s IPO in 2021.

General and administrative expenses for 2022 include the operations of Culture Kings and mnml, or $32.8 million of general and administrative expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $20.3 million of general and administrative expenses, from the dates of their respective acquisitions.

The increase in general and administrative expenses as a percentage of net sales resulted primarily from additional salaries and related benefits, as well as additional insurance costs.

General and administrative expenses decreased by $5.7 million, or 6%, in 2023 compared to 2022.

The decrease was primarily driven by a $2.7 million decrease in intangible amortization, a $2.1 million decrease in wages and benefits and a $1.5 million decrease in insurance costs.

A $1.2 million increase in professional fees partially offset these decreases.

The increase in general and administrative expenses as a percentage of net sales resulted primarily from lower net sales in 2023 compared to 2022.

Goodwill Impairment

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Percent of net sales 13 % 28 %

Goodwill impairment was $173.8 million in 2022 and recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.

As of December 31, 2022, $60.0 million of goodwill related to Culture Kings remained on our balance sheet, while the goodwill related to Rebdolls was fully impaired.

The worsening economic trends in the fourth quarter of 2022, including continued inflation and rising interest rates, as well as unfavorable demand due to a gradual customer shift from primarily online shopping to a mix of online and physical store shopping led the Company to lower its forecasts and expectations for the Culture Kings and Rebdolls brands, driving the reduction in their fair values.

Goodwill impairment decreased by $105.3 million, or 61%, in 2023 compared to 2022.

Goodwill impairment in 2023 was recognized on the goodwill recorded from the acquisitions of the Culture Kings and Petal & Pup reporting units.

Goodwill impairment in 2022 was recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.

In August 2023, due to elevated interest rates and unfavorable demand in Australia, we reduced our earnings forecasts and expectations for the Culture Kings and Petal & Pup reporting units.

As of December 31, 2023, the goodwill related to Culture Kings was fully impaired, while $11.3 million of the goodwill related to Petal & Pup remained on our balance sheet.

Other Expense, net

2 unchanged sentences

Interest expense $ (11,165) $ (7,043)

Loss on extinguishment of debt — (10,924)

Other expense (2,391) (1,532)

1 unchanged sentence

Percent of net sales

Other expense, net decreased by $13.0 million in 2022 compared to 2021 primarily due to the 2021 loss on extinguishment of debt resulting from the early payment and termination of our previous term debt, revolver and senior secured notes, as well as a decrease in interest expense in 2022 from more favorable rates related to borrowings under our senior secured credit facility compared to our previous term debt, revolver and senior secured notes in 2021.

Benefit from (Provision for) Income Tax

Other expense, net increased by $5.0 million in 2023 compared to 2022 primarily due to $4.1 million in additional interest expense from rising interest rates on our variable rate debt.

(Provision for) Benefit from Income Tax

Years Ended December 31,

Benefit from (provision for) income tax

(Provision for) benefit from income tax

$ (1,921) $ 3,917

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Effective tax rate 2 % (2 %)

Benefit from (provision for) income tax changed by $4.8 million, or 560%, in 2022 compared to 2021.

This change was driven primarily by the finalization of Australia tax basis allocation pertaining to the inventory and intangibles included in the purchase of the Culture Kings noncontrolling interest, as well as an intra-entity transfer of certain intellectual property rights related to the Culture Kings’ brands to one of our subsidiaries in the U.S., aligning the ownership of these rights with our evolving business.

The change in our effective tax rate is primarily driven by the impairment recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.

Quarterly Results of Operations

The following tables set forth selected unaudited quarterly results of operations for the eight quarters ended December 31, 2023, as well as the percentage that each line item represents of net sales.

The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this Annual Report on Form 10-K and in the opinion of management, includes all adjustments, which include only normal recurring adjustments, necessary for the fair statement of our consolidated results of operations for these periods.

This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Our quarterly results of operations will vary in the future.

These quarterly operating results are not necessarily indicative of our operating results for any future period.

Three Months Ended

In thousands Mar 31,

Net sales $ 148,319 $ 158,471 $ 155,822 $ 149,126 $ 120,485 $ 136,028 $ 140,833 $ 148,912

Cost of sales 64,123 71,024 68,965 70,379 51,985 58,672 62,865 72,456

Gross profit 84,196 87,447 86,857 78,747 68,500 77,356 77,968 76,456

Operating expenses:

Selling 40,364 45,254 41,450 39,002 34,406 35,932 36,660 42,309

Marketing 15,705 19,064 16,532 15,429 14,777 18,354 18,511 17,265

General and administrative 24,778 25,703 26,133 26,086 25,868 24,191 24,622 22,270

Goodwill impairment — — — 173,786 — — 68,524 —

Total operating expenses 80,847 90,021 84,115 254,303 75,051 78,477 148,317 81,844

Income (loss) from operations 3,349 (2,574) 2,742 (175,556) (6,551) (1,121) (70,349) (5,388)

Total other expense, net (1,171) (2,593) (2,758) (2,053) (3,885) (3,591) (3,339) (2,741)

Income (loss) before income taxes 2,178 (5,167) (16) (177,609) (10,436) (4,712) (73,688) (8,129)

(Provision for) benefit from income tax

Provision for income tax increased by $5.8 million, or 149%, in 2023 compared to 2022.

This increase was primarily due to the increase in the valuation allowance on the net deferred tax assets in Australia.

Due to our operations being concentrated in two distinct geographies (Australia and the United States), our business has experienced seasonality that may differ from that of other retailers.

The first quarter has historically been our lowest sales quarter, and that trend is likely to continue as we continue to expand into the U.S.

The following table presents quarterly net sales as a percentage of total annual net sales:

Years Ended December 31,

First quarter

20 % 22 % 24 %

Net income (loss) 1,525 (4,212) (114) (173,896) (9,553) (5,040) (70,410) (13,883)

Three Months Ended

Net sales 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %

Cost of sales 43 % 45 % 44 % 47 % 43 % 43 % 45 % 49 %

Gross profit 57 % 55 % 56 % 53 % 57 % 57 % 55 % 51 %

Operating expenses:

Selling 27 % 29 % 27% 26% 29% 26% 26% 28%

Marketing 11 % 12 % 11% 10% 12% 13% 13% 12%

General and administrative 17 % 16 % 17% 17% 21% 18% 17% 15%

Goodwill impairment — % — % —% 117% —% —% 49% —%

Total operating expenses 55 % 57 % 54% 171% 62% 58% 105% 55%

Income (loss) from operations 2 % (2 %) 2 % (118 %) (5 %) (1 %) (50 %) (4 %)

Total other expense, net (1%) (2%) (2%) (1%) (3%) (3%) (2%) (2%)

Income (loss) before income taxes 1 % (3 %) — % (119 %) (9 %) (3 %) (52 %) (5 %)

(Provision for) benefit from income tax

Second quarter

26 % 25 % 26 %

Net income (loss) 1 % (3 %) — % (117 %) (8 %) (4 %) (50 %) (9 %)

Quarterly Trends and Seasonality

Net Sales, Cost of Sales and Gross Profit

Our net sales are impacted by foreign currency exchange rates, inflationary pressures on consumers globally and our supply chain, shifts in global spending in anticipation of a potential economic slowdown or recession, increasing labor rates and a slower-than-expected recovery from the economic downturn in Australia.

Our quarterly cost of sales and gross profit have fluctuated quarter-to-quarter primarily due to the quarterly fluctuations in net sales and the mix of inventory between private label and third-party products.

Operating Expenses

Selling expenses have fluctuated quarter-to-quarter primarily due to fluctuations in shipping and fulfillment costs.

Drivers of these fluctuations include our mix of air and sea freight, increases or decreases in number of orders, as well as generally increasing labor rates in fulfillment over time.

Marketing expenses have generally increased sequentially quarter-to-quarter as we have continued to scale our marketing efforts together with the growth of our business, or to drive growth in our business.

General and administrative expenses have fluctuated quarter-to-quarter, with such fluctuations primarily driven by the increases in our headcount to support business growth.

Historically, we have achieved our largest quarterly sales in the fourth fiscal quarter.

However, as our expansion into the U.S.

market continues, our quarterly revenues are less concentrated in the fourth fiscal quarter.

In fiscal year 2023, our net sales in the first, second, third and fourth quarters represented 22%, 25%, 26% and 27%, respectively of our total net sales for the year.

In fiscal year 2022, our net sales in the first, second, third and fourth quarters represented 24%, 26%, 25% and 24%, respectively, of our total net sales for the year.

Quarterly Adjusted EBITDA and Adjusted EBITDA Margin

The following table sets forth a reconciliation of net income (loss) to adjusted EBITDA for the eight fiscal quarters ended December 31, 2023:

Three Months Ended

(in thousands)

Net income (loss) $ 1,525 $ (4,212) $ (114) $ (173,896) $ (9,553) $ (5,040) $ (70,410) $ (13,883)

Add (deduct):

Total other expense, net 1,171 2,593 2,758 2,053 3,885 3,591 3,339 2,741

Provision for (benefit from) income tax 653 (955) 98 (3,713) (883) 328 (3,278) 5,754

Depreciation and amortization expense 5,217 5,590 4,566 4,975 5,440 4,720 4,533 4,446

Equity-based compensation expense 1,368 1,494 1,586 2,282 1,936 1,824 1,719 2,162

Inventory step-up amortization expense 707 — — — — — — —

Transaction costs 11 90 39 — — — — —

Goodwill impairment — — — 173,786 — — 68,524 —

Non-routine items*

Third quarter

26 % 26 % 25 %

Adjusted EBITDA $ 10,652 $ 5,891 $ 9,236 $ 6,093 $ 2,186 $ 5,568 $ 4,697 $ 1,339

Net income (loss) margin 1 % (3) % — % (117) % (8) % (4) % (50) % (9) %

Adjusted EBITDA margin 7 % 4 % 6 % 4 % 2 % 4 % 3 % 1 %

*Non-routine items include costs to establish or relocate distribution centers;

severance from headcount reductions;

sales tax penalties;

insured losses, net of recoveries;

and non-routine legal matters.

Fourth quarter

28 % 27 % 25 %

100 % 100 % 100 %

Our business is directly affected by the behavior of consumers.

Economic conditions and competitive pressures can significantly impact, both positively and negatively, the level of demand by customers for our products.

Consequently, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.

Liquidity and Capital Resources

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Senior Secured Credit Facility

In connection with the IPO, we entered into a senior secured credit facility comprised of a $100.0 million term loan and a $50.0 million revolving line of credit, with an option of up to $50.0 million in an additional term loan through an accordion provision.

In connection with our initial public offering of common stock in September 2021 (the “IPO”), we entered into a senior secured credit facility comprised of a $100.0 million term loan and a $50.0 million revolving line of credit, with an option of up to $50.0 million in an additional term loan through an accordion provision.

We used borrowings under this credit facility, together with a portion of the proceeds from the IPO, to repay our previous debt in full.

As of December 31, 2023, we owed a combined $94.5 million in term loan and accordion borrowings.

As of December 31, 2023, there were no amounts outstanding under the revolving line of credit.

The term loan requires us to make amortized annual payments of 5.0% during the first and second years, 7.5% during the third and fourth years and 10.0% during the fifth year with the balance of the loan due at maturity.

Borrowings under the term loan accrue interest at a benchmark rate (Term SOFR, as defined in the credit agreement for the senior secured credit facility (the “Credit Agreement”)) plus an applicable margin dependent upon our net leverage ratio, as defined in the Credit Agreement.

The revolving line of credit, when used, also accrues interest at a benchmark rate plus an applicable margin dependent upon our net leverage ratio, as defined in the Credit Agreement.

The highest interest rates under the agreement for both the term loan and revolving line of credit occur at a net leverage ratio of greater than 2.75x, yielding an interest rate of a benchmark rate plus 3.25%.

As of December 31, 2024, we owed a combined $89.1 million in term loan and accordion borrowings, as well as $23.3 million borrowed under the revolving line of credit.

Borrowings under the term loan accrue interest at Term SOFR, as defined in the credit agreement for the senior secured credit facility (the “Credit Agreement”), plus an applicable margin dependent upon our net leverage ratio, as defined in the Credit Agreement.

The revolving line of credit, when used, also accrues interest at Term SOFR plus an applicable margin dependent upon our net leverage ratio.

The highest interest rates under the Credit Agreement for both the term loan and the revolving line of credit occur at a net leverage ratio of greater than 2.75x, yielding an interest rate of a benchmark rate plus 3.25%.

The accordion provision allows us to borrow additional amounts of term loan at terms to be agreed upon at the time of issuance, but on substantially the same basis as the original term loan.

As of December 31, 2023, principal payments of our term loan and accordion for the next twelve months are anticipated to total $3.3 million, which reflects the impact of early prepayments made in 2023.

As of December 31, 2024, principal payments of our term loan and accordion for the next twelve months are anticipated to total $6.3 million.

Under the senior secured credit facility, we are subject to certain financial covenant ratios and certain annual mandatory prepayment terms based on excess cash flows, as defined in the Credit Agreement, based on our net leverage ratio.

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Furthermore, the variable interest rates associated with our senior secured credit facility could result in interest payments that are higher than anticipated.

We were in compliance with all debt covenants as of December 31, 2023, and expect to be in compliance beyond 12 months, although our ability to meet these financial ratios and tests can be affected by the interpretation of certain provisions within our Credit Agreement, macro economic factors and the seasonality of our business, which is more concentrated in the third and fourth fiscal quarters .

We were in compliance with all debt covenants as of December 31, 2024, and expect to be in compliance beyond the next 12 months, although our ability to meet these financial ratios and tests can be affected by the interpretation of certain provisions in our Credit Agreement, macro economic factors and the seasonality of our business, which is more concentrated in the third and fourth fiscal quarters .

Refer to Note 7, “Debt,” in the notes to our consolidated financial statements included in this Annual Report on Form 10-K for additional information regarding our senior secured credit facility.

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Most of our property, equipment and software have been purchased with cash.

As of December 31, 2023, our future minimum payments under non-cancelable operating leases totaled $50.3 million, with $9.5 million payable within 12 months.

While we routinely contract for the purchase of inventory from vendors, we have no material long-term purchase obligations outstanding with any vendors or third parties.

As of December 31, 2023, i nventory and other purchase obligations payable within the next 12 months totaled $2.7 million, which primarily represent open purchase orders for materials and merchandise as of that date.

As of December 31, 2024, our future minimum payments under non-cancelable operating leases totaled $92.9 million, with $13.2 million payable within the next 12 months.

While we routinely contract for the purchase of inventory from vendors, we have no material purchase obligations outstanding with any vendors or third parties.

Additionally, we plan to incur capital expenditures of approximately $12.0 to $14.0 million in 2025.

This reflects the opening of new stores, as well as investments in infrastructure and technology.

This reflects the planned opening of 6-8 new stores, as well as investments in infrastructure and technology.

Historical Cash Flows

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(11,594) (6,031) (25,314)

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

15,506 (52,829) 33,260

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Cash provided by (used in) operating activities consists primarily of net income (loss) adjusted for certain non-cash items, including depreciation, amortization, equity-based compensation, the effect of changes in working capital and other activities.

In 2023, net cash provided by operating activities increased $33.7 million.

In 2024, net cash provided by operating activities decreased $32.8 million.

This was attributable primarily to timing of payments and a decrease in earnings after adjusting for non-cash items, partially offset by a lower build of inventory compared to the prior year.

This was attributable primarily to more cash used to purchase inventory in 2024, as compared to 2023, to support growth in the U.S., partially offset by the timing of payments.

In 2023, net cash provided by operating activities increased $33.7 million.

This was attributable primarily to a decrease in inventory compared to 2022, which was driven by reduced inventory buying and sell-through of aged inventory, partially offset by lower earnings .

Net Cash Used in Investing Activities

Our primary investing activities have consisted of acquisitions to support our overall business growth, investments in our fulfillment centers and our internally developed software to support our infrastructure, and investments in stores.

Our primary investing activities have consisted of acquisitions to support our overall business growth, and investments in fulfillment centers, stores and internally developed software to support our infrastructure.

Purchases of property and equipment may vary from period to period due to timing of the expansion of our operations.

In 2024, net cash used in investing activities increased $5.6 million.

This was attributable to additional capital expenditures related to new stores.

In 2023, net cash used in investing activities decreased $19.3 million.

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The purchases of property and equipment in the prior year were primarily due to the build-out of the Culture Kings Las Vegas store .

In 2022, net cash used in investing activities decreased $252.8 million.

This was attributable to the acquisition of Culture Kings in March 2021, the purchase of the Petal & Pup noncontrolling interest in September 2021 and the acquisition of mnml in October 2021.

The impact of this prior year activity was partially offset by purchases of property and equipment, which was driven by the build-out of the Culture Kings Las Vegas store.

Net Cash (Used in) Provided by Financing Activities

Our financing activities have historically consisted of cash proceeds received from the issuance of borrowings, cash used to pay down borrowings, cash received from the sale of our common stock in the IPO and cash used to repurchase shares.

In 2023, net cash used in financing activities increased $86.1 million.

Net Cash Provided by (Used in) Financing Activities

Our financing activities have historically consisted of cash proceeds from borrowings, cash used to pay down borrowings, cash received from the sale of our common stock in the IPO and cash used to repurchase shares of our common stock.

In 2024, net cash provided by financing activities increased $68.3 million as compared to net cash used in financing activities in 2023.

This was primarily attributable to the combined $50.7 million in principal payments, net of borrowings, on our senior secured credit facility in 2023 and the $17.9 million in borrowings, net of repayments, under our senior secured credit facility in 2024.

In 2022, net cash provided by financing activities decreased $236.6 million.

This was primarily attributable to the 2021 proceeds received from debt issuances and the IPO, as well as proceeds from the issuance of partner units to acquire Culture Kings in March 2021.

The impact of these proceeds in 2021 was partially offset by proceeds from the line of credit in 2022.

In 2023, net cash used in financing activities increased $86.1 million as compared to net cash provided by financing activities in 2022.

This was primarily attributable to the combined $50.7 million in principal payments, net of borrowings, on our senior secured credit facility in 2023 and the $34.4 million in borrowings, net of repayments, under our senior secured credit facility in 2022 .

Share Repurchase Program

On May 25, 2023, the Company’s board of directors approved the Share Repurchase Program, authorizing the Company to repurchase up to $2.0 million of shares of the Company’s common stock.

Subsequently, in 2023, the Company’s board of directors approved an additional repurchase capacity under the Share Repurchase Program of $3.0 million of shares of the Company’s common stock.

The timing of any repurchases by the Company and the actual number of shares repurchased are at the Company’s discretion, and, in deciding when to repurchase shares and the amount of shares to repurchase, the Company will consider available liquidity, general market and economic conditions, alternate uses for the capital and other factors.

On May 25, 2023, our board of directors approved the Share Repurchase Program, authorizing us to repurchase up to $2.0 million of shares of our common stock.

Subsequently, in 2023, our board of directors approved an additional repurchase capacity under the Share Repurchase Program of $3.0 million of shares of our common stock.

The timing of any of our repurchases and the actual number of shares repurchased are at our discretion, and, in deciding when to repurchase shares and the amount of shares to repurchase, we will consider available liquidity, general market and economic conditions, alternate uses for the capital and other factors.

Share repurchases may be made from time to time through a Rule 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements.

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All repurchased shares under the Share Repurchase Program will be retired.

During the year ended December 31, 2023, the Company repurchased 319,486 shares of its common stock under the Share Repurchase Program for $2.1 million, at an average price of $6.71 per share.

During the year ended December 31, 2024, we repurchased 131,618 shares of our common stock under the Share Repurchase Program for $1.5 million, at an average price of $11.53 per share.

Critical Accounting Estimates

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Revenue Recognition

Our primary sources of revenues are from sales of fashion apparel primarily through our digital platforms, stores, third-party marketplaces and, when applicable, shipping revenue.

Revenue is primarily derived from the sale of apparel merchandise through our online websites, stores, third-party marketplaces, wholesale partnerships and, when applicable, shipping revenue.

We determine revenue recognition through the following steps in accordance with the Financial Accounting Standards Board’s Revenue from Contracts with Customers (Topic 606) :

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Under the similar transactions method, valuation multiples are calculated utilizing actual transaction prices and revenue/EBITDA data from target companies deemed similar to the reporting unit.

Based on the range of estimated fair values developed from the income and market-based methods, the Company determines the estimated fair value for the reporting unit.

Based on the range of estimated fair values developed from the income and market-based methods, we determine the estimated fair value for the reporting unit.

If the estimated fair value of the reporting unit exceeds its carrying value, the goodwill is not impaired and no further review is required.

However, if the estimated fair value of the reporting unit is less than its carrying value, the Company calculates the impairment loss as the difference between the carrying value of the reporting unit and the estimated fair value.

The income-based fair value methodology requires management’s assumptions and judgments regarding economic conditions in the markets in which the Company operates and conditions in the capital markets, many of which are outside of management’s control.

However, if the estimated fair value of the reporting unit is less than its carrying value, we calculate the impairment loss as the difference between the carrying value of the reporting unit and the estimated fair value.

The income-based fair value methodology requires management’s assumptions and judgments regarding economic conditions in the markets in which we operate and conditions in the capital markets, many of which are outside of management’s control.

At the reporting unit level, fair value estimation requires management’s assumptions and judgments regarding the effects of overall economic conditions on the specific reporting unit, along with assessment of the reporting unit’s strategies and forecasts of future cash flows.

Forecasts of individual reporting unit cash flows involve management’s estimates and assumptions regarding:

• Annual cash flows, on a debt-free basis, arising from future revenues and earnings, changes in working capital, capital spending and income taxes for at least a 10-year forecast period.

• Annual cash flows, on a debt-free basis, arising from future revenues and earnings, changes in working capital, capital spending and income taxes for at least an 8-year forecast period.

• A terminal growth rate for years beyond the forecast period.

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Under the market-based fair value methodology, judgment is required in evaluating market multiples and recent transactions.

Management believes that the assumptions used for its impairment tests are representative of those that would be used by market participants performing similar valuations of the Company’s reporting units.

Management believes that the assumptions used for its impairment tests are representative of those that would be used by market participants performing similar valuations of our reporting units.

The carrying value of definite-lived intangible assets is reviewed whenever events or changes in circumstances indicate the carrying amount of the assets might not be recoverable.

Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset or a significant decline in the observable market value of an asset, among others.

If such facts indicate a potential impairment, the Company would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group.

If the recoverability test indicates the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using the discounted cash flow method.

If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group.

If the recoverability test indicates the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using the discounted cash flow method.

Any impairment would be measured as the difference between the asset group's carrying amount and its estimated fair value.

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Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

In August 2023, due to elevated interest rates and unfavorable demand in Australia, the Company reduced its forecasts and expectations for the Culture Kings and Petal & Pup reporting units.

In August 2023, due to elevated interest rates and unfavorable demand in Australia, we reduced our forecasts and expectations for the Culture Kings and Petal & Pup reporting units.

As a result, the Company recorded a non-cash goodwill impairment charge of $68.5 million during the third quarter of 2023.

As of December 31, 2023, $11.3 million of goodwill related to Petal & Pup remained on the Company’s balance sheet, while the goodwill related to Culture Kings was fully impaired.

Additionally, as of August 31, 2023, the estimated fair value of the mnml reporting unit exceeded the carrying value by 1.4%, and the carrying value of the related goodwill was $30.0 million.

Holding all other assumptions used in the fair value measurement of the mnml reporting unit constant, a 2% increase in the selected discount rate would result in impairment.

No additional impairment was identified as part of the annual goodwill impairment test conducted in the fourth quarter of 2023.

As a result, we recorded a non-cash goodwill impairment charge of $68.5 million during the third quarter of 2023.

As of December 31, 2023, $11.3 million of goodwill related to Petal & Pup remained on our balance sheet, while the goodwill related to Culture Kings was fully impaired.

Additionally, as of December 31, 2024, the estimated fair value of the mnml reporting unit exceeded the carrying value by 11.2%, and the carrying value of the related goodwill was $30.0 million.

No impairment was identified as part of the annual goodwill impairment test conducted in 2024.

Income taxes are accounted for under the asset and liability method.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis