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Digital Brands Group, Inc.'s Shares Surge 67% After Bullish Q2 Guidance; Planned Acquisition Of Stateside Apparel Could Be Near (NasdaqGS: DBGI)

07/09/2021 | 08:22am EDT

Digital Brands Group, Inc. (NASDAQ: DBGI) shares surged 67% intraday on Thursday to $8.80 on massive volume after the company guided for an expected 100% increase in revenues on a sequential basis. The better news is that the increase still only accounts for about seven weeks of its Harper & Jones acquisition revenues. Better still, its planned acquisition of Stateside clothing could be near its closing, adding yet another substantial revenue stream to its expanding brand portfolio. Thus, on a revenues multiple, DBGI may conceivably be undervalued even at its $8.80 level.

In fact, assuming that the deal with Stateside apparel is consummated, those revenues will add to the more than $900,000 contribution expected from its Harper & Jones acquisition. And with logistics channels strengthening as pandemic-related headwinds ease, revenues at Harper & Jones could contribute considerably more in the next two quarters. Combining value from its other compelling brands, DBGI appears to be set up for a tremendous surge in valuation heading into the back half of 2021.

Still, as we noted prior, consider the planned acquisition of Stateside as speculative. With that said, however, DBGI management has been executing its acquisition and brand development strategy at near-flawless levels. And that should provide confidence that this deal will get done.

Keep in mind, too, DBGI will benefit from its other compelling brands also positioned to contribute substantially to revenue growth in the next two quarters.

Revenues On The Rise From Brand Portfolio

In fact, DBGI has already guided for revenues from Harper & Jones, Bailey 44, and DSTLD to all increase in the back half of 2021. And that growth may get accelerated through a comprehensive marketing campaign, integration into Amazon Marketplace, and, as noted, the acquisition of another revenue-generating asset, Stateside. Best of all, those efforts are expected to provide a boost to its current quarter.

Better still, the "post-IPO" DBGI plans to leverage its strengthened balance sheet to grow its brand portfolio sooner rather than later. And that includes increasing existing brand sales as well. Last month, the company announced that DSTLD inventories are building to support a considerable increase in demand, and its Bailey 44 products are seeing a significant acceleration of wholesale booking orders into the Fall. In fact, they noted that Bailey 44 is nearing wholesale order levels that compare to pre-COVID levels. Indeed, that's a bullish sign.

And, after factoring in potential revenues from Stateside, DBGI would undoubtedly be in its strongest operating position even to capitalize on a number of additional acquisition and brand development opportunities. Moreover, by focusing on acquiring brands that are immediately accretive and can benefit from its digitally-focused sales model, those deals can generate immediate high-margin revenues. Thus, even DBGI's bullish guidance may prove to be conservative. And with other deals likely to happen before year's end, that's likely.

Moreover, it's important to value that DBGI's digitally-focused sales model is designed to maximize every dollar of revenue. It also keeps them away from the fading era of brick-and-mortar retail, which is getting abandoned by even the most prominent brand owners. In fact, Macy's (NYSE: M) is substantially increasing its marketing budget to increase its online presence, and Naked Brands (NASDAQ: NAKD) recently announced its divestiture of Bendon Ltd. to rid itself of the costs related to operating a retail store location. In essence, DBGI is already doing what they want to do, showing that the company may indeed be ushering in the future of retail.

The best part of it all is that DBGI is executing its strategy in the right market at the right time.

A Surge In Retail Apparel Sales In 2H 2021

Keep in mind, analysts expect that the post-COVID retail environment will likely surge in the back half of this year, especially online sales. Moreover, as consumers shifted to online purchasing during the past 18 months, they expect that part of the sales channel to be most positively impacted. And, with pent-up demand combined with stimulus dollars, the retail atmosphere, which DBGI feeds, could see one of the sharpest snap-back rallies ever. That's also excellent news for DBGI.

Moreover, after closing its IPO, its revenue recognition of Harper & Jones, and taking advantage of its lean capital structure, DBGI is better positioned and capitalized than ever to maximize its potential from recovering retail markets. And if it closes on the Stateside deal, they get even stronger.

Bottom line- the rally in DBGI shares is justified. It also shows that investors are paying attention to what the company is doing. And despite giving back some of those gains after trading more than 3X its float, expect that when prices settle, the stock will resume its upward trajectory. After all, it's unlikely that its planned Stateside acquisition and 100% revenue growth will be the last of the good news this year. Thus, staying bullish on DBGI may be the right play.

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Stocks mentioned in the article
ChangeLast1st jan.
DIGITAL BRANDS GROUP, INC. -2.14% 2.75 Delayed Quote.0.00%
MACY'S, INC. 2.29% 23.7 Delayed Quote.110.67%
NAKED BRAND GROUP LIMITED 15.04% 0.6839 Delayed Quote.256.20%
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08/30Digital Brands Group, Inc. acquired stateside.us for $8.9 million.
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Financials (USD)
Sales 2020 5,24 M - -
Net income 2020 -10,7 M - -
Net Debt 2020 13,5 M - -
P/E ratio 2020 -
Yield 2020 -
Capitalization 31,3 M 31,3 M -
EV / Sales 2019 -
EV / Sales 2020 -
Nbr of Employees 9
Free-Float 57,1%
Duration : Period :
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Managers and Directors
John Hilburn Davis Chairman, President & Chief Executive Officer
Reid Yeoman Chief Financial Officer
Mark T. Lynn Director
Trevor Pettennude Director
Laura Dowling Chief Marketing Officer
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