a.k.a. Brands’ Channel Mix Hierarchy and Margin Recovery Timing Clash in 2026 Q2 Earnings Call

Date of Call: Aug 5, 2026

Financials Results

• Revenue: $160.1M, essentially flat YOY; $160.5M prior year; constant currency basis declined 5.3% YOY
• Gross Margin: 61.1%, up 360 basis points YOY; 240 bps from lower tariffs, 120 bps from higher full-price selling in streetwear brands partially offset by higher air freight

Guidance:

• Full-year FY26 net sales expected between $625M-$635M.
• Full-year FY26 adjusted EBITDA expected between $30M-$32M.
• Q3 FY26 net sales expected between $160M-$164M.
• Q3 FY26 gross margin expected ~59%.
• Q3 FY26 adjusted EBITDA expected between $8M-$8.5M.
• Q3 FY26 includes ~$3M one-time charge (distribution center relocation) excluded from adjusted EBITDA.
• Full-year FY26 stock-based comp ~$6.5M-$7M; Depreciation & amortization ~$20M-$21M; Interest & other expense ~$16M-$18M; Effective tax rate negative 10%; Capex ~$18M-$20M; Diluted share count ~11M.

Business Commentary:

Revenue and Profitability Trends:

• AKA Brands reported net sales of $160.1 million for Q2 2026, essentially flat compared to the prior year, while adjusted EBITDA grew by 16% year-over-year to $8.7 million.
• The growth in adjusted EBITDA was driven by structural improvements across the business, including expanded distribution, strengthened operational foundations, and financial discipline.

Geographic Sales Performance:

• U.S. net sales increased by 2%, while rest of world sales surged by 51%, primarily due to the launch of a new UK distribution center.
• The Australia and New Zealand region experienced a sales contraction of 13%, attributed to a challenging macroeconomic backdrop and tough prior-year comparisons from clearance sales.

Inventory and Balance Sheet Improvements:

• The company reduced its inventory by 14% and debt by 8% year-over-year, resulting in a net leverage ratio of 3.37x.
• These improvements reflect better inventory management and a strategic focus on reducing leverage, providing increased financial flexibility for growth investments.

Expansion and Strategic Initiatives:

• Princess Polly expanded its omnichannel presence with new store openings and pop-up events, contributing to over 50% sales growth in the rest of the world.
• The strategic focus on global expansion and an evolved merchandising approach are key drivers for long-term growth and market penetration.

Gross Margin and Cost Management:

• Gross margin increased by 360 basis points to 61.1%, driven by lower tariffs and higher full-price selling in streetwear brands.
• The company's disciplined approach to cost management and sourcing network diversification has strengthened its financial model and profitability.

Sentiment Analysis:

Overall Tone: Positive

• "We're off to a solid start in Q3, and I remain confident that 2026 will serve as another meaningful proof point that our strategy is working and our business is on a stronger trajectory." "Q3 to date, momentum has accelerated in all regions, with overall net sales growth in the high single digits alongside healthy margins, giving us continued confidence in our outlook for the second half of the year." "We are pleased with our execution this quarter against our strategic plan. We believe we are well positioned to build on this momentum and continue delivering long-term value for our stockholders."

Q&A:

• Question from Ryan Myers (Lake Street Community): Walk through what you're seeing in the business for the second half momentum, unchanged revenue guidance, demand pickup, etc.
  Response: Momentum accelerated in Q3 with high single-digit net sales growth. Drivers include improved inventory positioning, more wholesale/marketplace partners, and seven additional stores versus last year. The UK distribution center contributed over 50% rest-of-world growth in Q2.

• Question from Ryan Myers (Lake Street Community): Long term, with Princess Polly targeting at least 100 stores, what gives confidence in that target based on current store productivity and paybacks?
  Response: Stores are introducing new customers, creating a halo effect for online, and showing better-than-modeled paybacks (model assumes two years or less). The brand is evolving its assortment to be more evergreen, performing strongly in back-to-school.

• Question from Eric Better (SCC Research): Compare new Culture Kings stores in Puerto Rico/metropolitan area to the Vegas store and how you'll leverage learnings.
  Response: New stores (~4,500-6,000 sq ft) will be smaller than Vegas but will incorporate learnings from the successful Brisbane (Australia) store and Vegas flagship. They will emphasize core components and strong-performing first-party brands.

• Question from Eric Better (SCC Research): How are new Princess Polly stores performing in Australia, and what's causing economic pressure there?
  Response: The second Princess Polly store in Australia (Gold Coast) has seen phenomenal success and strong traffic. Macro pressure (fuel, rate hikes) has eased in June/July; stores in the region are now positive comping, and new product is seeing double-digit comps.

• Question from Randy Connick (GIF): Long-term thoughts on channel penetration (e-com vs. stores vs. wholesale) and margin contribution across the portfolio.
  Response: Long-term, direct-to-consumer is expected to be the largest channel, followed by stores, then wholesale/marketplace. This holds across women's (Princess Polly, Petal & Pop) and men's (Culture Kings) brands.

• Question from Randy Connick (GIF): Perspective on medium-term capital deployment between store growth (e.g., Princess Polly units) and debt paydown.
  Response: The company prioritizes both growth and balance sheet health. Over the last 18 months, $35M operating cash flow has funded $25M CapEx and $10M debt paydown, showing a track record of supporting growth while reducing leverage.

• Question from Dana Telsey (Telsey Advisory Group): On Princess Polly store expansion, how many can open a year, are there cost/fixture efficiencies, and learnings from Culture Kings for U.S. stores? Also, margin structure of retail vs. wholesale.
  Response: Target is 10 new Princess Polly stores next year (50% fleet increase). Learnings on store placement, layout, and fixtures are being refined to improve efficiency. Culture Kings store openings will benefit from these processes. Gross margin is higher for stores (full-price retail), but selling/marketing expenses are also higher; EBITDA before G&A is similar across channels.

Contradiction Point 1

Long-Term Channel Mix Hierarchy

The expected ranking of channel sizes for the overall portfolio appears to change.

What was Randy Connick's role in the earnings call? - Randy Connick (GIF)

2026Q2: The long-term view is that direct-to-consumer (including stores) will be the largest channel, followed by wholesale/marketplace. - Kiran(CEO)

"With the plan to expand to 100 stores, how do you balance long-term channel penetration (e.g., e-com vs. stores vs. wholesale) and their margin contributions across the entire portfolio?" - Randy Konik (Jefferies)

2026Q2: Across the portfolio... the long-term channel mix is expected to remain: majority direct-to-consumer (e-commerce), then stores, then wholesale/marketplace. - Ciaran(CEO)

Contradiction Point 2

Consumer Demand and Regional Performance

Contradiction on consumer pressure and regional sales performance between quarters.

What insights does Eric Better (SCC Research) highlight regarding the company's earnings? - Eric Better (SCC Research)

2026Q2: In Australia/New Zealand, the region saw a 13% sales decline pressured by macro factors like fuel and interest rate hikes. - Kiran

How are the new Princess Polly stores performing in Australia amid the country's economic pressures following a long period of growth? - Ryan Meyers (Lake Street Capital Markets)

2026Q1: The company is seeing some pressure on the consumer in both the U.S. and Australia... However, the progress made in transforming the business is evident: Princess Polly is having its best season graphically, Petal & Pup secured 30 new specialty accounts within a month of its showroom opening, and the streetwear brands are seeing the best product sell-through and customer response - Ciaran Long(CEO)

Contradiction Point 3

Gross Margin Expectations

Contradiction on the drivers and assumptions behind gross margin guidance for the near term.

Ryan Myers (Lake Street Community) - Ryan Myers (Lake Street Community)

2026Q2: The Q3 is off to a strong start with high single-digit net sales growth... This momentum is driven by... a better product flow... - Kiran

Can you explain the unchanged revenue guidance for the second half and whether the trend reflects increasing demand or continuity from the first half? - Ryan Meyers (Lake Street Capital Markets)

2026Q1: The step-up from the Q1 normalized 59% reflects: *no IEEPA tariff headwinds* (as the refund takes effect), the *current 10% Section 122 tariffs* still in place, and some *inbound freight headwinds*. For the back half, rates are assumed to revert to pre-Supreme Court (i.e., higher) levels. - Kevin Grant(CFO)

Contradiction Point 4

Gross Margin Recovery Timing

Contradiction on when gross margin expansion is expected to peak.

Randy Connick (GIF) - Randy Connick (GIF)

2026Q2: The streetwear business continues to improve (margin up 120 bps), the benefit will flow to increased EBITDA and cash flow... - Kevin and Kiran(CFO & CEO)

How will the company prioritize medium-term capital deployment between expanding Princess Polly units and paying down debt? - Dana Telsey (Telsey Group)

20260306-2025 Q4: The bulk of the expected EBITDA improvement (~120 bps expansion) comes from gross margin recovery, moving past the ~100 bps headwind from 2025 tariffs... with the bulk of the expansion occurring in Q2 and Q3 (about 100 bps higher YoY) and a larger impact in Q4. - Kevin Grant(CFO)

Contradiction Point 5

Retail Store Performance & Strategy

Contradiction on store profitability metrics and the strategic role of stores.

Ryan Myers (Lake Street Community) - Ryan Myers (Lake Street Community)

2026Q2: The 13 current stores are performing above the modeled two-year payback, with strong productivity and a halo effect boosting online sales. - Kiran(CEO)

What factors related to store productivity and paybacks support confidence in the long-term target of at least 100 Princess Polly stores? - Ryan Meyers (Lake Street Capital)

20260306-2025 Q4: Retail (stores) is a growing and profitable part of the business, with strong productivity and 4-wall profitability at Princess Polly stores. - Ciaran Long(CFO)