Dive Brief:
- Digital Brands Group has a deal to buy the women's apparel brand Sundry for $34 million in cash plus $7.5 million in stock.
- Sundry, which describes itself as "coastal casual with a certain French chic," made $19.9 million in revenue and $3.7 million in net income in 2020. For the first nine months of 2021, it made $18.2 million in revenue, up 37.9% year over year, and $2.7 million in net income, according to a press release.
- Even as it expands its brand stable and customer base, Digital Brands disclosed that it received a delisting warning from Nasdaq because its market cap has fallen below required levels, with its stock trading below $2 for most of January.
Dive Insight:
Digital Brands has been buying up apparel lines at a brisk pace as it looks to build a stable of in-house names which it can sell across a centralized marketing and operational platform.
Sundry, founded in 2011 by Matthieu Leblan, fits with that strategy, and widens the reach of Digital Brands. "Regarding customer reach, we believe this acquisition should result in a significant acceleration in our customer base due to Sundry's large direct-to-consumer list," Digital Brands Chief Marketing Officer Laura Dowling said in the press release. "We plan to leverage Sundry's customer list to cross market with our other brands."
In a statement, Digital Brands CEO Hil Davis described the deal as a "transformative" acquisition that "should result in a significant acceleration in our marketing strategies, customer acquisition growth, customer retention and annual spend per customer."
The acquisitions — which in 2021 included the Stateside and Harper & Jones brands — have been a boost for the company's top line. For fiscal 2021, Digital Brands management estimates revenue of $7.6 million, up 44% year over year. Wholesale bookings for the first quarter of this year, made in Q4, are up 125% year over tear driven by the company's Bailey 44 and Stateside brands.
While revenue is up at Digital Brands, so are its losses. For the first nine months of 2021, Digital Brands posted a $22 million operating loss and a net loss of $24.4 million.
A prospectus from earlier this month tied to a stock sale came with an attached "going concern" warning that the company might not be able to survive the next 12 months if it cannot generate sufficient cash from operations or the capital markets. At the time the document was filed, Digital Brands had a working capital deficit of $18.2 million. After going public last year, the company made multiple appearances on S&P Global Market Intelligence's list of retailers most vulnerable to default.
Davis told Retail Dive last summer the company went up for IPO when it did to help facilitate acquisitions even though it mean stricter disclosures and an outsized risk profile shaped by its small scale. Digital Brands ultimately aims to buy brands in apparel, home and beauty to cross-sell to the same consumers based on certain looks and aesthetics. "If Nordstrom and VF Corp had a baby, we would be the baby," Davis said.
