Dive Brief:

• Almost two years after going public, Digital Brands Group is planning to go private after being approached by a private equity firm, according to a company call Tuesday.
• Although it did not name the firm, Digital Brands CEO Hil Davis said on the call the firm already owns multiple brands and that the companies started a due diligence process.
• However, Davis noted that “if the price were to come in lower than we expected and our valuation doesn't change, we will hire bankers to go private.”

Dive Insight:

For Digital Brands Group, going private comes after a rough performance since it began publicly trading on the New York Stock Exchange.

Davis said on Tuesday's call that the private equity firm the company is working with appreciates Digital Brands' business, whereas "clearly, the markets now don't value our model."

The company received several delisting warnings from the New York Stock Exchange. In January 2022, Digital Brands was notified by the NYSE that it risked delisting because its common stock Market Value of Listed Securities had been below the minimum $35 million required. After not regaining compliance with the standard, the company received another notice in July saying it would be delisted if it did not appeal. It appealed the notice, after which Digital Brands was given an extension to meet compliance. However, it then received another delisting warning in November because its bid price had closed below 10 cents per share for the preceding ten consecutive trading days.

To regain compliance, Digital Brands implemented a reverse stock split in November and received a notice in January that it successfully met Nasdaq requirements. But the company noted in a filing that month that “there can be no assurance that we will be successful in its efforts to maintain the Nasdaq listing.”

While Digital Brands was working to stay listed, it was also trying to close the acquisition of apparel brand Sundry. The intent to acquire the brand was announced in January 2022 and officially closed a year later. To partially fund the closing of that deal, Digital Brands turned to investors in December and closed on a $10 million public offering.

During Tuesday’s call, Davis said Sundry’s focus has been on wholesale since the acquisition. 

“After a competitive analysis and review of the business, we decided to reposition Sundry and lower their price point to compete with Marine Layer, Free People, AG Supply and others like that versus being toward the high end of the market,” Davis said.

This new pricing approach, according to Davis, has helped Sundry increase the number of boutiques it sells through from 500 to 1,500 stores. The number of major department stores buying Sundry has increased from two to six, and the buyers are now able to buy more units per style.

While the company is at risk of bankruptcy, Digital Brands is planning to reach a positive EBITDA by July, according to Davis, stemming from plans to launch a membership program, a licensing deal with an off-price retailer for the Bailey 44 brand and a new affiliate launch campaign.