Digital Brands Group, Inc. (NASDAQ: DBGI, $DBGI) stock is catching a bid, up about 10% over the past week. And the better news is that there could be plenty more of the bullish bias in the coming weeks after $DBGI updated investors that its acquisition of Sundry should close next quarter and require less cash and equity to complete the transaction.
Updated terms of the revised agreement give Sundry membership interests an exchange for all such interests for (i) $5.0 million in cash, (ii) $7.0 million paid in either cash or equity, at the option of the Sellers at the Issuance Price, and (iii) $20.0 million in equity valued at the Issuance Price. Digital Brands Group added that it has received several options for debt financing to cover the capital cost of the acquisition and that company stockholder approval will be required to close the transaction, which, as noted, is now expected to close in the third quarter.
The deal is by all measures transformative to DBGI.
Sundry Adds Revenue And Brand Strength
Post-acquisition, Sundry revenues are expected to be immediately accretive to EBITDA. Keep in mind that Sundry is no small contribution. Sundry generated $22.8 million in revenue in 2021 versus $19.9 million in 2020, a 14.5% increase year-over-year.
In addition to adding significant revenues, Sundry is expected to drive more brand awareness and customer demand, which should fuel future growth across its platform, brands, and customers and, at the same time, help create meaningful synergies between all its portfolio brands. That should significantly lower customer acquisition costs and increase customer retention, annual spend per customer, and lifetime value per customer.
From a brand perspective, Sundry will add a strong omnichannel women's lifestyle apparel brand to the DBGI portfolio. The company was founded in 2011 and offers distinct collections of women's clothing, including dresses, shirts, sweaters, skirts, shorts, athleisure bottoms, and accessories. Sundry's products are coastal casual and consist of soft, relaxed, and colorful designs that feature a distinct French chic, resembling the spirits of the French Mediterranean and the energy of Venice Beach in Southern California.
The brand also fits in nicely with other portfolio assets. Analysts are taking notice.
Analyst Likes The Combination
One at Goldman Small Cap Research expects a massive increase in the DBGI share price, modeling for growth to come through an uptick in sales and continued sales momentum from its flagship brands, including Bailey 44, DSTLD, Harper & Jones, and Stateside.
Remember, too, that Digital Brands Group is backing up that bullish report. 2021 revenues increased by 44% over comparative 2020. Better yet, DGBI's 2022 guidance projects the company's revenues to skyrocket from $7.6 million to nearly $45 million. In fact, post-IPO of Sundry, that number could stretch as high as $52 million, according to a revised DBGI forecast. Still, there's more to the DBGI story.
Business Model Ripens DBGI For 2H 2022
Increased sales aren't the only driver of success for Digital Brands Group. The company's digitally native-first business model's cost savings are expected to significantly strengthen DGBI's margins by taking command over distribution, efficiently using existing supply lines, and leveraging a direct-to-consumer sales model to minimize business costs. With these cost reductions in mind, Digital Brands could very well generate EBITDA positive results ahead of schedule, even as soon as the end of Q4.
And the expectations for 2023 get even better. DBGI is guiding for 2023 revenues to increase substantially, with contributions from existing and newly acquired assets potentially helping revenues ramp toward $78 million. If so, prices at current levels are more than attractive; they may be too good to ignore. And for those investors playing the wait-and-see game and staying on the sidelines pre-Sundry closing may be timing a window of opportunity that can and likely will close quickly.
Indeed, those following DBGI stock know that triple-digit percentage gains aren't unlikely after the company posts positive updates. And make no mistake, the closing of Sundry will be news the bulls should and likely will embrace, which could ultimately send shares stampeding higher.
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