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Digital Brands Group Warns of Potential Bankruptcy Filing Shortly After Going Public

Digital Brands Group is warning that it could take drastic measures to raise additional capital to improve its financial standing.

The collective of luxury and lifestyle brands said in a recent 10-K filing with the Securities and Exchange Commission that it could potentially seek “bankruptcy protection or other alternatives” if it fails to come up with funding to continue running the business.

Digital Brands, which owns the DSTLD, ACE Studios, Bailey 44, Harper & Jones and Stateside brands, became a publicly traded company in May with an IPO priced at $10 million.

Net loss was about $32.4 and $10.7 million in 2021 and 2020, respectively. The company also said it had a capital deficit of $30.3 million as of the end of 2021, which has made growth and profitability more difficult to achieve.

“We may continue to incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications, delays, and other unknown events, including the length of time COVID-19 related restrictions impact the business,” the company warned in the filing.

In addition to the warnings of bankruptcy, the company last week also reported that annual revenue in 2021 grew by $2.4 million to $7.6 million. Fourth quarter revenues grew 425% to $4 million compared to $0.8 million in the Q4 of 2020.

Digital Brands Group added two brands — Stateside and Harper & Jones — in 2021 and in January announced a deal to acquire Sundry, an omnichannel women’s lifestyle brand.

“We continued to build momentum throughout 2021 as we were able to leverage the cash raised on our IPO,” said Digital Brands Group CEO Hil Davis in a release last week regarding the company’s earnings. “We believe this momentum is illustrated by our fourth quarter revenue growth of 425%, as well as our recently announced January and February 2022 revenue growth. Our operating losses were driven by our low revenue results, especially in the first nine months of 2021. We expect to leverage these fixed costs in 2022 with the revenue momentum we have experienced.”

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