DBG’s current raise has no valuation cap, which thereby provides very little protection for potential investors. For reference, DBG’s valuation during its most recent previous round of funding was $52.8 million. The company is currently planning for its IPO, which does include a 30% discount for investors. However, the lack of a valuation results in DBG’s price score being very weak.

Given DBG’s desire to grow their specifically digitally focused apparel lines, it would be fair to assess them within the market of e-commerce apparel sales. The U.S apparel, footwear, and accessories e-commerce revenue was $110 billion in 2020 and is set to grow to $153 billion by 2024. 

With the pandemic continuing to alter the way people buy goods, the e-commerce apparel industry could quickly begin to rival the normal retail apparel market. Black Friday traffic saw a 52.1% decrease in in-store shopping, compared to a 21.6% increase in online spending. Because DBG is focused on acquiring pre-built fashion brands and tailoring their model to an e-commerce form, the company can be slightly less concerned with competition than other startups. Also, DBG has successfully executed this model with multiple brands already. Thus, DBG’s market score is very high. 

DBG’s executive leadership team is led by CEO Hil Davis. Davis has a long history in the apparel business, founding luxury men’s brand J. Hilburn in 2007. Davis successfully built J. Hilburn into a multimillion-dollar company. He recently founded e-commerce beauty and charitable organization, Beautykind – giving him first-hand experience with leading a company focusing on e-commerce.

Davis is joined by Chief Marketing Officer Laura Dowling. Dowling has a proven track record in the field of marketing, previously holding strategic positions at Harry Winston and Ralph Lauren. Her experience in apparel marketing at large companies makes her a great asset for DBG.

Rounding out the team is CFO Reid Yeoman, who comes to DBG with prior experience in leading financial teams at both Hurley and Nike.

While DBG’s team certainly brings strong industry experience, there is a distinct lack of technical expertise. Additionally, although Davis brings entrepreneurial know-how, he has yet to have a successful exit. Bringing all of this together, DBG’s team score is middle-of-the-road.

At DBG’s own admission, their overall strategy is no different than that of the biggest holding companies. This may be true at a macro scale, but the difference is that DBG started out with a wholly digital-first mindset.

Older companies have been forced to adapt to the changes in consumer patterns. However, DBG has and will continue to build a portfolio of companies that focus entirely on e-commerce. This allows the company and the brand to market their products directly to  consumers online, as opposed to paying extra for a physical store – saving money and avoiding wholesale markup. Thus, the differentiators score for DBG is strong.

DBG’s performance, on the surface, looks promising. They have four brands already as a part of their portfolio and allege that four more are on the way. It isn’t until you delve deeper into the financials of DBG where the story looks vastly different.

The company’s debt rose 41% in the most recent fiscal year – ballooning up to $8.4 million. Its yearly revenue sat just north of $3 million ($3.03M), down 20% from the previous year ($3.77M). Overall, DBG operated at a $5.6 million net loss. This debt may be part of the reason the company is pursuing an IPO — beyond further crowdfunding campaigns, an IPO could be a good way to raise a significant amount of money in a short period of time. 

However, even with these debts, DBG has still brought in substantial revenue. If the company succeeds in bringing in four more brands to the portfolio and maintains strong sales across all brands, there’s no reason to think that DBG won’t reach profitability. Therefore, DBG’s performance score is near perfect — as well as its strongest across all five metrics.

From a financial perspective, DBG looks like a company on the wrong track. Debt rising and revenue falling is a recipe for disaster. On top of that, their CEO’s first company (J. Hilburn) filed for bankruptcy earlier in the year due to COVID-19 – a worrying sign for a company in the same industry. If the pandemic drags on, consumers will have less and less money to spend on the luxury apparel that DBG brands sell – pushing them further and further into the red on their financial sheet. Another concern is whether the company will be able to successfully market new brands and new items in the coming months. An effective marketing campaign will be necessary for DBG to increase its market share. But marketing is notoriously expensive and predicting the effectiveness of a campaign is nigh impossible. DBG will need to handle its operations and marketing carefully in the near future in order to stay on solid footing.

DBG already has four brands under its umbrella – with four more on the way and plans to grow to double digits.If its early successes are any indication, DBG is on a strong path. Its executive team has long standing experience in apparel, marketing, and finance, which is certainly an encouraging sign for investors. The CEO knows how to grow an apparel business, the Chief of Marketing knows how to appeal to customers, and the Chief Financial Officer has a history with running balance sheets at large corporations. This gives DBG all the behind-the-scenes tools needed to grow into a successful business. Additionally, this round is ostensibly investors’ last change to buy in before the company goes public. That’s a big opportunity for early investors to have.

If DBG can stay afloat for long enough to continue acquiring companies and growing their portfolio — and the COVID-19 pandemic slowly begins to fade into memory — it very well may be on the way to be a successful business.

However, the company’s balance sheet is not something to inspire hope in investors. The pandemic has caused a slowdown in production, and revenue is down as a product. Debt continues to rise, and while revenue is flat or negative, this number will only continue to grow. DBG also has marketing costs on the horizon that have no guarantee of attracting new customers, and a pricey IPO process ongoing that is in no way guaranteed to get them listed on the NYSE or NASDAQ. 

The Kingscrowd investment team has given Digital Brands Group a Neutral rating.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written by Ethan Thomas.