Digital Brands Group(DBGI) - 2025 Q3 - Quarterly Report

Financial Performance - For the three months ended September 30, 2025, the company generated net revenues of $1.6 million, a decrease of $0.8 million from $2.4 million in the same period in 2024[207][209]. - Gross profit for the same period was $0.7 million, down from $1.1 million in 2024, resulting in a gross margin of 43%, compared to 46% in the prior year[207][211][213]. - Operating expenses totaled $4.0 million for the three months ended September 30, 2025, consistent with $3.9 million for the same period in 2024[214]. - The company reported a net loss of $3.5 million for the three months ended September 30, 2025, unchanged from the loss reported in 2024[207][216]. - Net revenues decreased by $3.6 million to $5.8 million for the nine months ended September 30, 2025, compared to $9.4 million in 2024, primarily due to dropping the largest wholesale account and limited cash for marketing[218]. - Gross profit decreased by $2.1 million to $2.3 million for the nine months ended September 30, 2025, from $4.4 million in 2024, with a gross margin of 40% compared to 47% in the prior year[221][222]. - Operating loss increased to $7.3 million for the nine months ended September 30, 2025, compared to $4.7 million in 2024[218]. - Net loss was $7.7 million for both the nine months ended September 30, 2025, and 2024, maintained due to effective cost-cutting measures[226]. Debt and Cash Flow - Digital Brands Group's total outstanding debt as of September 30, 2025, is approximately $6.4 million, which is considered significant for the company's size and revenue base[164]. - The company has an accumulated deficit of $134.8 million as of September 30, 2025[207]. - Cash provided by financing activities was $23.4 million for the nine months ended September 30, 2025, compared to $3.7 million in 2024, including $6.6 million from common stock issuance[234]. - Cash used in operating activities increased by $7.8 million to $11.2 million for the nine months ended September 30, 2025, driven by higher operational losses[232]. - As of September 30, 2025, the company had cash of $6.7 million and a working capital deficit of $4.8 million[229]. Operational Strategy - The company aims to expand its customer base through both online and traditional wholesale channels, utilizing paid and organic online strategies as well as physical retail distribution[170]. - Digital Brands Group's strategy includes transitioning several brands from wholesale to direct-to-consumer models, enhancing customer engagement and retention[156]. - The company defines "closet share" as the percentage of a customer's clothing units that belong to its brands, with a higher closet share indicating increased revenue potential[159]. - The company anticipates that operating expenses will increase in absolute dollars due to brand acquisitions, but expects operating expenses as a percentage of revenue to decrease over time[170]. - The company has successfully eliminated several million in expenses within six months of acquiring Bailey, including merging technology contracts and reducing office space costs[171]. - The company is focused on achieving near-term free cash flow through cash flow positive acquisitions and reducing redundant expenses[171]. - The company has identified the need to balance marketing spend between online and offline channels to effectively acquire customers at a reasonable cost[170]. - The company expects gross margins to expand as revenues increase and leverage fixed costs, with a higher mix of e-commerce revenue[223]. Marketing and Investments - The company plans to invest approximately $1 million in marketing, technology, and product development by the end of 2025[201][205]. - The company signed an Exclusive Private Label Manufacturing Agreement with AAA Tuscaloosa, LLC to manufacture private label knit apparel products for the University of Alabama[200]. - The company completed a Series D Preferred Stock offering, raising approximately $12.7 million before deducting offering costs[196][199]. - The second largest wholesale account requested to double the number of domestic retail doors from 50 to 100, which may offset the decline in wholesale revenue[219]. 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[162]. - The company expects to continue incurring additional expenses related to operating as a public company, which will increase overall operating costs[178].