Digital Brands Group(DBGI) - 2025 Q1 - Quarterly Report

Financial Performance - For the three months ended March 31, 2025, the company generated net revenues of $1,871,701, a decrease of $1,704,886 (approximately 47.6%) compared to $3,576,587 in the same period of 2024 [192]. - The company reported a net loss of $2,089,910 for the three months ended March 31, 2025, compared to a net loss of $683,735 in 2024, representing an increase in loss of approximately 205.5% [204]. - Gross profit decreased to $872,455 for the three months ended March 31, 2025, down from $1,720,736 in 2024, reflecting a decline of approximately 49.3% [197]. - The company's gross margin was 46.6% for the three months ended March 31, 2025, compared to 48.1% for the same period in 2024, indicating a decrease of 1.5 percentage points [198]. - Cash used in operating activities increased by $3,266,807 to $4,507,347 for the three months ended March 31, 2025, compared to $1,240,540 in 2024 [209]. - The company had cash of $2.2 million as of March 31, 2025, but reported a working capital deficit of $8.2 million [206]. Debt and Financing - Digital Brands Group has an aggregate principal amount of debt outstanding of approximately $6.5 million as of March 31, 2025, which is considered significant for the company's size and revenue base [145]. - The company entered into a securities purchase agreement for a promissory note of $121.9 million, with a 12% interest rate, maturing on October 16, 2025 [177]. - The company issued a second promissory note of $260,000 with an original issue discount of $60,000, maturing on April 22, 2025 [180]. - The February 2025 Offering raised funds through the sale of 11,365,340 units, including common stock and pre-funded warrants, at a purchase price of $0.66 per unit [183]. Operating Expenses - Operating expenses are expected to increase substantially due to acquisitions and compliance costs, but the company anticipates that these expenses as a percentage of revenue will decrease over time [153]. - The company expects to continue incurring additional expenses related to operating as a public company, which will increase overall operating costs [158]. - The company expects to incur additional expenses due to public company operations, including compliance and reporting obligations, which will increase operating costs [171]. - The company’s operating expenses include general and administrative costs, sales and marketing, and fulfillment and shipping expenses [169]. - The company expects to reduce operating expenses by an additional $700,000 over the next 12 months following significant headcount reductions in April and May 2025 [202]. Revenue Growth Strategies - The company aims to achieve near-term free cash flow through cash flow positive acquisitions and the elimination of redundant expenses, with a focus on increasing customer annual spend and lowering acquisition costs [152]. - The company has identified opportunities to drive customer lifetime value (LTV) through targeted marketing and cross-merchandising across its brand portfolio [140]. - The company is transitioning several brands from wholesale to digital direct-to-consumer models, aiming to enhance customer engagement and operational efficiencies [138]. - The company has strategically expanded into omnichannel strategies, blending physical and online channels to enhance customer acquisition and retention [139]. - Digital revenue increased over 80% from the previous quarter despite limited marketing spend in the first quarter of 2025 [196]. Cost Increases - The company has experienced increased costs in raw materials, with fabric prices rising between 10% to 100%, and shipping costs increasing from 25% to 300% depending on various factors [144]. - The company anticipates that changes in tariff policies will lead to increased prices for competitors, enhancing its market share potential [176]. - The company produces over 90% of its products in the USA, significantly limiting tariff exposure and providing a competitive advantage [174]. - The company does not utilize the "de minimis" exemption, which may impact e-commerce retailers and reduce competition in the online apparel market [175]. Cost Management - The company has successfully eliminated several million in expenses within six months of acquiring Bailey, including merging technology contracts and reducing office space costs [152].