Digital Brands Group Inc (NASDAQ: DBGI) has seen its share price jump as it closes its acquisition of Sunnyside LLC, also known as Sundry. On 16 December the company signed and secured the debt documents that would provide it the remaining $2.5m in funding for the acquisition.
The debt provider set today, December 23rd as the funding and closing date for the Sundry acquisition.
Digital Brands Group CEO, Hil Davis, commented:
"The Sundry acquisition is expected to contribute significant revenue scale and operating leverage. We believe adding Sundry to our Bailey Shop, which is our multi-brand e-commerce site will contribute revenue immediately.
“Additionally, we are also excited about the large opportunity to expand the Sundry brand into other verticals. We believe that the opportunity to cross merchandise Sundry and their customers to our other brands, add additional product categories and leverage synergies to reduce expenses will be accretive."
But would the acquisition be enough to make DBGI stock a good investment.
What is Digital Brands Group?
Digital Brands Group, Inc. provides apparel under various brands on direct-to-consumer and wholesale basis.
The company offers denims under the DSTLD brand and luxury men’s suiting under the ACE Studios brand.
It also designs, manufactures, and sells women’s apparel, such as dresses, tops, jumpsuits, bottoms, sets, jackets and rompers under the Bailey brand.
It offers luxury custom and made-to-measure suiting and sportwear, as well as shirts, jackets, pants, shorts, polos and other products that are made-to-measure under the Harper & Jones brand.
The company also offers luxury T-shirts, tops and bottoms under the Stateside brand.
Digital Brands Group, Inc. sells directly to the consumer through its websites, as well as through its wholesale channel in specialty stores, select department stores and own showrooms.
The company, which was formerly known as Denim.LA Inc, was incorporated in 2012 and is headquartered in Austin, Texas.
DBGI Stock Financials
Digital Brands Group’s most recent earnings, which covered the three months ended 30 September, showed a 58% increase in third quarter net revenues to $3.4m. Their net losses amounted to $4.9m, down from $8.9m in the same period 12 months prior.
This drop in net loss was due to the revenue increase and a major reduction in other expenses from $7.9m down to $2.6m.
The company had cash and cash equivalents of around $195,000 on 30 September. However, the business has since received a cash injection of $10m.
This was raised through a public offering of 1,818,181 shares of its common stock, Class B Warrants to purchase up to 1,818,181 shares and Class C Warrants to purchase up to 1,818,181 shares, at an offering price to the public of $5.50 per share.
However, this money is being used to partially fund the company’s acquisition of Sundry. It has fallen from a high of $275 per share to less than $5 per share.
DBGI stock has fallen in price by 98.21% across the year to date. This severe decline is partially due to dilution from the issuance of new shares through different listings throughout the year.
DBGI Investment Risks
One of the clearest risks for DBGI investors is further dilution of the company’s shares. Recent weeks have already seen the business issuing new shares in an effort to afford its acquisition of Sundry, and the company’s financial position could mean more similar efforts are on the horizon.
Is DBGI Stock a Good Investment?
A decline in share price as dramatic as that suffered by DBGI doesn’t happen for no reason. The company’s financial position has seriously deteriorated and the acquisition of Sundry doesn’t look like it will do anything to change that.
The business is still some distance from profitability despite a significant jump in revenues. Profitability is essential for the business as it is really scraping the barrel when it comes to funding.
Having already seen significant dilution from the business attempting to scrabble together enough money for its Sundry acquisition, it could be leaving itself with limited options for the future.
The business’ strategy of snapping up clothing brands to all be operated from one central e-commerce site could turn the business’ fortunes around, but DBGI stock looks like a very speculative investment at the moment.
