Teleconferência de Resultados do 3T 2026 da aka Brands (AKA): Vendas nos EUA sobem 14%

Principais Destaques

• As vendas líquidas no 3T26 subiram 9,7% na comparação anual, para US$ 161,3 milhões, ou 7,6% em moeda constante.
• As vendas nos EUA aumentaram 14%, para US$ 112,6 milhões, voltando a registrar crescimento de dois dígitos pela primeira vez desde que a aka Brands reestruturou sua rede de fornecimento em 2025.
• A margem bruta avançou aproximadamente 100 pontos-base, para 60,1%, apesar do impacto adverso de cerca de 140 pontos-base com o frete de entrada. O EBITDA ajustado aumentou 16,6%, para US$ 8,2 milhões.
• As vendas no Resto do Mundo cresceram 78,9%, para US$ 7,6 milhões, lideradas pela Princess Polly no Reino Unido. As vendas na Austrália e Nova Zelândia caíram 6,7%, mostrando melhora frente à queda de 12% no 2T.
• A administração reduziu o intervalo da projeção de vendas líquidas para o ano todo para US$ 626 milhões a US$ 632 milhões e agora projeta um EBITDA ajustado de US$ 29 milhões a US$ 30 milhões.
• Os custos elevados de frete continuam sendo um limitador no curto prazo. A administração espera um impacto adicional de 80 pontos-base na margem bruta do 4T em comparação com sua projeção anterior.

Principais Dados Financeiros

As despesas com vendas aumentaram para US$ 52,3 milhões, ou 32,4% das vendas, frente a 29,4% um ano antes. Isso incluiu US$ 5,3 milhões em despesas não recorrentes com a realocação do centro de distribuição, que foram desconsideradas no cálculo do EBITDA ajustado.

As despesas com marketing somaram US$ 21,1 milhões, ou 13,1% das vendas, refletindo investimentos na aquisição de clientes e no reconhecimento da marca. As despesas gerais e administrativas totalizaram US$ 27,7 milhões, mas recuaram como proporção das vendas, passando de 18,1% para 17,1%.

Desempenho Comercial e Operacional

A Princess Polly continuou sendo o principal motor de crescimento. Suas vendas no TikTok Shop nos EUA quase triplicaram na comparação anual e aumentaram mais de 40% em relação ao 2T. A marca operava 15 lojas nos EUA ao final do 3T e planejava duas aberturas adicionais no 4T. Além disso, assinou contratos de locação para pelo menos seis novos pontos nos EUA em 2027.

As vendas da Princess Polly no Reino Unido foram cerca de quatro vezes superiores ao nível do ano anterior e avançaram 27% sequencialmente, apoiadas por site, aplicativo e centro de distribuição locais. A empresa está usando o Reino Unido como base para uma expansão europeia mais ampla, começando com um site dedicado na Alemanha no 4T.

O desempenho dos produtos também se fortaleceu. A categoria de moletons da Princess Polly gerou quatro vezes as vendas do ano anterior, enquanto as blusas de tricô quase dobraram. A administração atribuiu isso a um mix de produtos orientados por tendências e a posições de estoque mais robustas em categorias atemporais consolidadas.

A Petal & Pup continuou a se expandir por meio do atacado. A Nordstrom e a Macy's registraram crescimento de dois dígitos, enquanto a marca conquistou 100 contas de boutiques, representando mais de 140 lojas. A distribuição adicional inclui o e-commerce da Bloomingdale's, a Myer na Austrália e a Lea Fashion na Índia, com planos de distribuição mais ampla na Dillard's e lançamentos na Urban Outfitters e na Scheels em 2027.

A transição da Culture Kings para um modelo de comercialização a preço cheio, no formato "test-and-repeat", sustentou a expansão da margem bruta consolidada. A marca planeja inaugurar uma loja de 5.000 pés quadrados em Porto Rico no final de dezembro. A administração também vê oportunidades para expandir as marcas próprias da Culture Kings por meio do TikTok Shop, do atacado e de outros parceiros estratégicos.

A empresa concluiu sua mudança para um novo centro de distribuição em Ohio. A administração espera que a instalação viabilize entregas mais rápidas e custos de frete menores a partir de 2027. A aka Brands também está testando uma ferramenta de IA desenvolvida internamente para compras, alocação de estoques e precificação, com o objetivo de melhorar o giro de estoque e reduzir remarcações.

Guidance da Administração

A administração afirmou que a projeção de vendas para o 4T reflete um crescimento na faixa média de um dígito no acumulado do trimestre até o momento. A empresa espera que o crescimento na base comparativa acumulada de dois anos acelere do 3T para o 4T.

No prazo mais longo, a administração afirmou enxergar um caminho para atingir uma margem EBITDA ajustada de dois dígitos por meio de ganhos na margem bruta, economia na distribuição e maior alavancagem operacional nas despesas com marketing, gerais e administrativas. Isso permanece como um objetivo da gestão, e não como um guidance formal.

Riscos e Pontos de Atenção

• Os custos com frete de entrada reduziram a margem bruta do 3T em cerca de 140 pontos-base e causaram um impacto estimado de US$ 2,3 milhões no EBITDA ajustado. A administração projeta que o impacto sobre o EBITDA no segundo semestre totalize cerca de US$ 6 milhões.
• A margem bruta do 4T deve enfrentar um impacto adicional de 80 pontos-base com frete em comparação à projeção anterior.
• Os consumidores na Austrália e na Nova Zelândia continuam pressionados pelo cenário macroeconômico, embora a retração nas vendas da região tenha desacelerado em base sequencial.
• A administração espera que o ambiente promocional de fim de ano seja semelhante ao de 2025. Ela também observou que os consumidores parecem mais cautelosos ao adicionar itens extras aos seus carrinhos de compras.
• A base de comparação nos EUA se torna mais difícil no final do 4T, pois a posição de estoques da empresa havia melhorado no mesmo período de 2025.

Destaques da Sessão de Perguntas e Respostas com Analistas

A administração afirmou que o ritmo positivo nos EUA continuou no 4T, sustentado por novas lojas da Princess Polly, pela abertura da Culture Kings em Porto Rico, pelo crescimento no atacado e pelo TikTok Shop. No entanto, a empresa não chegou a fornecer uma projeção separada de crescimento para os EUA no 4T.

A queda no ticket médio foi atribuída principalmente ao mix de canais, e não a uma pressão generalizada sobre os preços. O TikTok Shop apresenta um ticket médio mais baixo porque os clientes costumam comprar menos itens por transação.

Em relação à alocação de capital, a administração declarou que a aka Brands pretende continuar amortizando dívidas enquanto financia a expansão de lojas e canais por meio do fluxo de caixa operacional. A empresa também espera que um melhor giro de estoque, incluindo os ganhos viabilizados por sua ferramenta de IA para merchandising, libere capital adicional.

A administração afirmou que as lojas da Princess Polly estão gerando novos clientes, um efeito halo sobre as vendas online e sólida rentabilidade operacional por unidade ("four-wall profitability"). A empresa acredita que a marca poderia eventualmente comportar 100 lojas nos EUA, embora seu foco imediato no varejo físico permaneça no mercado doméstico.

Transcrição Completa da Teleconferência de Resultados

Transcrição completa da teleconferência de resultados

Comentários da administração

Emily Goldberg Schwartz

Good afternoon. Thank you for joining aka Brands to discuss our third quarter 2026 results released this afternoon, which can be found on our website at ir.aka-brands.com. With me on the call today is Jerome Long, Chief Executive Officer; and Kevin Grant, Chief Financial Officer. Before we get started, I'd like to remind you of the company's safe harbor language.

Management may make forward-looking statements, which refer to expectations, projections and other characterizations of future events, including guidance and underlying assumptions. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed. For a further discussion of risks related to our business, please see our filings with the SEC.

Please note, we assume no obligation to update any such forward-looking statements. This call will also contain non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin and constant currency net sales. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the release furnished to the SEC and available on our website.

With that, I'll turn the call over to Ciaran.

Ciaran Long

Good afternoon, and thank you for joining us to discuss the third quarter of 2026. Our results reflect strong execution against our strategic plan. Net sales grew 9.7% to $161.3 million and adjusted EBITDA increased nearly 17% to $8.2 million, both in line with expectations. We delivered top line growth this quarter while achieving our third consecutive quarter of double-digit adjusted EBITDA growth. That combination demonstrates that the structural improvements we've made across the business are now driving both growth and profitability.

Our performance this quarter was led by three key drivers: our expanding omnichannel model in the U.S., international growth and significant gross margin improvement. The U.S., our largest market and greatest growth opportunity, led our performance with net sales growing 14%. This marks a return to double-digit growth in the U.S. for the first time since we transformed our sourcing network last year. That transition was a significant undertaking, and we are now growing from a more resilient foundation.

Rest of World continued to accelerate with net sales up 79% compared to approximately 49% in the second quarter, led by the ongoing success of Princess Polly in the U.K. Performance in Australia and New Zealand improved sequentially in Q3, with net sales declining approximately 7% compared to 12% in Q2 as we lap our strategic shift to a more profitable full price selling model. While the macro environment continues to pressure consumers, we remain focused on executing a disciplined operating model.

Importantly, gross margin expanded approximately 100 basis points year-over-year to 60.1%. This expansion was driven primarily by Culture Kings, where our multiyear transition to a full price test and repeat model is now firmly embedded in how the business operates. Notably, we achieved this gross margin improvement while absorbing significantly elevated freight costs, which speaks to our underlying margin profile.

The quarter also demonstrated the momentum of our expanding omnichannel model. Online remains the foundation of our business, while stores and wholesale also delivered growth, broadened our reach and introduced our brands to new customers. Our store fleet was a meaningful growth driver while delivering strong profitability and our wholesale partners continue to respond positively to our product with significant runway ahead. We also continue to improve our operational foundation.

During the quarter, we completed our planned distribution center relocation to a new facility in Ohio. This transition will enhance the customer experience and improve margins going forward, while also supporting the next stage of growth for our brands across online, stores and wholesale. At the same time, we're expanding our investment in AI, strengthening our team's ability to make faster and more informed decisions.

Our smaller brands are now testing a proprietary AI tool we developed in-house, which helps the merchandising and planning teams determine what we buy, how much we buy, where to allocate it and how we price it. The result is a sharper, more disciplined merchandising engine that helps us chase what's working, reduce markdowns and expand margins. AI is also accelerating our content engine.

Our creative teams can now take new content from production to live in a matter of days, and we are expanding our use of AI across video and imagery to create more content faster. We're also building AI into how customers shop. As more consumers start their search with AI assistance, we are making sure our brands show up in those results and traffic from those channels is growing. We're still early, but we see AI as a meaningful driver of conversion, inventory productivity and margin expansion in the years ahead.

Turning now to our brand highlights, starting with Princess Polly, our largest brand. Princess Polly delivered a strong third quarter as the brand continues to show the power of its omnichannel model. Our test and repeat engine is driving full price sell-through. Our stores and partners are introducing the brand to new customers and our international expansion is opening meaningfully new growth opportunities.

From a merchandising perspective, this year's back-to-school was Princess Polly's strongest season to date, and the quarter highlighted the key strength of the brand's test and repeat model, the ability to capitalize quickly on emerging trends while building a growing base of durable, repeatable programs. An example is that we can quickly build on viral cultural moments, such as the Cielo Halter top in Zebra Print that was featured in the film obsession. It became the brand's biggest selling style of the quarter, and Princess Polly is carrying that momentum into holiday with new going-out styles inspired by its success.

At the same time, the deeper buys and proven core evergreen categories discussed last quarter delivered exceptional results. Sweat sold 4x last year's level and knit tops nearly doubled. This balance of being both on trend and repeatability keeps the assortment fresh for customers while supporting more predictable demand, healthier inventory productivity and better margins.

Princess Polly's marketing engine remains a key competitive advantage, building cultural relevance at scale while driving efficient customer acquisition. The scale of the creator engine is a meaningful differentiator. Princess Polly ran thousands of creator collaborations in the quarter with more than 10,000 creator videos live each month and over 13 million weekly TikTok Shop video views.

This reach converts into sales and TikTok Shop remains one of the brand's fastest-growing channels, with U.S. sales nearly tripling year-over-year and growing more than 40% from the second quarter. The brand also launched TikTok Shop in the U.K. in July, opening a second market to the scale on the platform. Store expansion continued in the third quarter with new openings in Orlando and Houston, bringing the U.S. fleet to 15 stores. We look forward to opening Southdale Center in Idena, Minnesota and Stonebreer Center in Frisco, Texas in the fourth quarter.

Looking ahead, Princess Potty has signed leases for at least six new locations in the U.S. in 2027. In wholesale, demand was solid across partners in the third quarter, including Nordstrom and ASOS. Internationally, the U.K. remains a standout growth story. Since the launch of the local site app and distribution center in March, faster delivery has resonated strongly with customers. Third quarter U.K. sales were roughly 4x last year's level. U.K. customers nearly quadrupled and sales grew 27% from the second quarter. Looking ahead, the U.K. serves as Princess Polly springboard into Europe, beginning with a dedicated German site launching this quarter, and we see significant growth potential across the region.

Turning now to Petal & Pub. Petal & Pub continued to build its reach as a multichannel lifestyle brand in the quarter. Event dressing remains the brand's signature strength. Its August event collection was the most successful third quarter launch to date with customers trading up to more elevated styles, a signal of the brand's pricing power.

Heading into holiday, the brand launched its seasonal assortment earlier than last year, including a curated sweaters shop, giving customers and wholesale partners a longer selling window. Wholesale remains a key growth driver, led to double-digit growth at Nordstrom and Macy's.

At the Nordstrom anniversary sale, Petal & Pop ranked as the #6 most demanded brand across all women's apparel. The brand has also opened 100 boutique accounts, representing more than 140 stores in just two quarters of focused specialty wholesale effort.

Looking ahead, Petal & Pop's distribution pipeline is the strongest in the brand's history. In the U.S., the brand recently launched on bloomingdales.com. Internationally, we will expand into new markets in the fourth quarter through launches with Myer in Australia and Lea Fashion in India. That momentum continues into 2027.

Following a successful initial launch with Dillard's, Pet & Pop will expand across the retailer's full store fleet and Urban Outfitters and Scheels will both begin carrying the brand next year. Each new partner broadens the brand's reach and reinforces our confidence in Petal & Pop's long-term growth trajectory.

Turning now to our streetwear brands. Culture Kings continues to make progress on its product and margin transformation with its full price test and repeat model driving a meaningful contribution to our consolidated gross margin expansion. With a stronger margin structure now in place, Culture Kings is well positioned to drive profit flow-through as it grows.

Culture Kings in-house brands continue to resonate with customers, fueled by a robust slate of collaborations. The highlight of the quarter was Carry's collaboration with Mickey & Friends, which was revealed at Disney's D23 showcase and launched globally in September. 73 Studio built on its success with Marvel through Spider-Man and expanded into gaming with Halo, while Leder carried that momentum into October with global launches alongside Sonic and Alpha Industries.

Beyond product, Culture Kings continues to stand out for its ability to bring sport, culture and retail together. Around Australia's first regular season NFL game, the brand partnered with the San Francisco 49ers and the NFL on a citywide activation in Melbourne, delivering the Melbourne store biggest sales day outside of Boxing Day in more than 5 years. That success provides a blueprint for future sporting partnerships in both Australia and the U.S. Culture Kings U.S. expansion is also underway in Puerto Rico.

In late December, the brand will open a 5,000 square foot store at Plaza Las Americas in San Juan, the largest shopping center in the Caribbean. Built around the immersive format that defines Culture Kings, the store features a basketball hoop, a wall of headwear, a light DJ booth alongside a curated mix of global brands such as Adidas, ASICS and New Era and our in-house brands, Loiter, 73 Studio and Minimal.

Rounding out the portfolio, Minimal continued its momentum and remained the top 5 men's brand on TikTok Shop. This quarter, the brand relaunched its standard form basic collection with a refreshed logo, minimal branding on the outside of the garment for the first time and fully redesigned packaging. Minimal also celebrated its 10-year anniversary with a pop-up in Los Angeles, bringing the brand's community together in person.

Overall, I'm very pleased with our performance this quarter. We returned the U.S. to double-digit growth, expanded gross margin and continue to scale our omnichannel model while strengthening our balance sheet. We have a clear set of catalysts ahead, a growing Princess Polly store fleet and a pipeline of 2027 openings, expansion into Europe beginning with Germany.

The broadest wholesale pipeline in Petal & Pop's history and a new Culture Kings store in the U.S. I'm confident in our strategy and in the long-term growth opportunity across our portfolio. I want to thank our teams for their hard work and commitments. These results are a direct reflection of their dedication to our brands and our customers.

With that, I'll turn it over to Kevin.

Kevin Grant

Thanks, Karan. Net sales were $161.3 million for the third quarter, an increase of 9.7% compared to $147.1 million a year ago. On a constant currency basis, net sales increased 7.6%. By region, sales in the U.S. increased 14% to $112.6 million, which, as Kiran noted, marks our first quarter of double-digit U.S. growth since our sourcing transition last year.

Sales in the Rest of World increased 78.9% to $7.6 million, driven by the continued success of Princess Polly in the U.K. In the Australia and New Zealand region, sales declined 6.7% to $41.2 million, an improvement from the 12% decline in the second quarter. Consumers in the region remained under pressure from the macro environment, and we were lapping sales from unproductive units as we completed the Culture Kings merchandising transition.

Total orders were $2.12 million, up 12.8% year-over-year. Trailing 12-month active customers, excluding wholesale, increased 8.8% to $4.43 million compared to $4.07 million a year ago. And average order value was $76 compared to $78 last year. As mentioned, we're particularly proud of the approximate 100 basis point gross margin expansion to 60.1%, driven by our continued discipline and focus on full price selling, led by our streetwear brands.

These gross margin improvements were partially offset by approximately 140 basis points year-over-year headwind in inbound freight costs or roughly a $2.3 million adjusted EBITDA impact. Selling expenses were $52.3 million or 32.4% of net sales compared to $43.2 million or 29.4% of net sales a year ago.

As Ciaran discussed, we completed our distribution center relocation during the quarter. The associated one-time charges of $5.3 million were higher than we anticipated and are excluded from adjusted EBITDA.

Starting in 2027, we expect faster delivery times and lower shipping costs as we continue to build the foundation for online stores and wholesale growth. Marketing expenses were $21.1 million or 13.1% of net sales compared to $18.5 million or 12.6% of net sales a year ago, reflecting continued investment in customer acquisition and brand awareness.

General and administrative expenses were $27.7 million or 17.1% of net sales compared to $26.7 million or 18.1% of net sales a year ago. And as mentioned, adjusted EBITDA increased 16.6% to $8.2 million compared to $7 million a year ago, and our adjusted EBITDA margin expanded 30 basis points to 5.1%, marking our third consecutive quarter of double-digit adjusted EBITDA growth.

Turning to the balance sheet. We ended the quarter with $15.6 million in cash and cash equivalents. Total debt at the end of the quarter declined 8.5% to $101.9 million from $111.3 million a year ago, and net leverage improved to 3.5x compared to 3.8x a year ago. We ended the quarter with $95.4 million in inventory, down 1.3% from $96.7 million a year ago, while net sales grew nearly 10%. Importantly, we are pleased with both the composition and freshness of our inventory heading into the fourth quarter.

Turning now to our outlook. We are tightening our full year net sales guidance to $626 million to $632 million to be in line with our quarter-to-date net sales trend of mid-single-digit growth. For the fourth quarter, we expect net sales to be between $172 million to $178 million.

We are confident in the momentum across our growth initiatives, and our outlook implies an acceleration in net sales growth from the third quarter to the fourth quarter on a 2 year stack. At the same time, we continue to face increasing air freight rates and surcharges, which we expect to weigh on fourth quarter gross margin by an additional 80 basis points compared to our prior outlook.

The midpoint of our fourth quarter guide contemplates a 57% gross margin. As a result, we now expect fourth quarter adjusted EBITDA of $7 million to $8 million, bringing our full year adjusted EBITDA outlook to $29 million to $30 million. These freight costs are a near-term headwind and do not change the structural gross margin improvements we have made across the business.

For modeling purposes, we anticipate fiscal 2026 stock-based compensation of approximately $4.5 million to $5.5 million, depreciation and amortization expense of roughly $20 million to $21 million, interest and other expense of approximately $23 million to $25 million, which includes the DC relocation costs, an effective tax rate of negative 10% CapEx between $16 million to $17 million and a weighted average diluted share count of approximately 11 million.

In closing, our third quarter results reflect continued progress against our strategic plan with growth in our priority markets, structurally higher gross margins, a cleaner and more productive inventory position and a stronger balance sheet. We believe we are well positioned to execute through the holiday season and continue delivering long-term value for our shareholders.

With that, we'll open it up for questions.

Operator

[Operator Instructions] Our first question comes from the line of Randy Konik with Jefferies.

Perguntas e respostas

Randal Konik

I guess just on the strong growth in the U.S., what is your feel for the holiday season and beyond in terms of just the environment out there and kind of how you think about the different companies you're witnessing in the environment, kind of what are they doing with promotionally, pricing architecture? And how are you guys thinking about kind of responding to that or navigating that as we get through holiday and beyond?

Ciaran Long

Yes. Thanks, Randy. I think certainly good to see us back to that double-digit growth. And I think it took us a while to -- like we had to make a huge effort last year to restructure and change our sourcing and supply chain. And I think we're really seeing the benefit of that now being back to that double-digit growth in the U.S. and doing it at a time when we're continuing to expand gross margins.

I think it was good for us as we went through the quarter, we saw the performance across all the brands and all the channels, be it direct-to-consumer, wholesale stores, TikTok. And so kind of really pleased to see that as well. As we think about the promotional environment, I think certainly, we see that from a macro perspective, there's a lot going on for the consumer.

I think we're very fortunate, and we can see it with the growth we had in Q3, right there. They are very interested in our brands. They like our product. They continue to come to the site. I think we do see that they are a little bit cautious in adding that last item to the basket or maybe that extra item to the basket. So we're very conscious of that. As we think about Q4, we certainly feel we're well set up for holiday.

And we've got growth going into the holiday as we've kind of reflected in the guidance. We're expecting it to be as promotional as last year, and that's kind of how we're set up for the holiday. But look, we're fortunate that with our short lead time and our test and repeat model, we can be very reactive to anything we see out there in the environment. So, I feel like we're in a good place and looking forward to executing against holiday.

Randal Konik

Super helpful. And then -- it looks like you've made good progress on the balance sheet. And I noticed on the outlook, you reduced your CapEx guide a few million. So I just want to understand, as we think about kind of just next year and beyond.

Maybe without giving actual numbers, maybe just qualitatively, how are you thinking about kind of debt paydown versus store expansion where it sounds like you've made some great progress and you're seeing like great response when you're putting stores in, especially around Princess Polly.

So just give me some -- I guess, also a culture change. So basically, just give us some thoughts on how you're weighing that store expansion, obviously, the CapEx for that, but also the debt paydown where you've done a nice job of starting to get that debt paid down relative to EBITDA.

Ciaran Long

Yes. I think it is great to see the performance of the stores. They're introducing new customers to the brand. We're getting great engagement there from existing customers. There's a halo from online, good performance from a four-wall profitability and paying back on track and even a little bit faster. So, I think from what we're seeing, it does give us more and more confidence to lean into that opportunity for Princess Polly and also for Culture Kings.

And we're really looking forward to having the -- finally having the second store in the U.S. open for Culture Kings in December. I think as it relates to the capital structure, I think, look, we want to continue to pay down debt, but also very much invest in the growth opportunity that we have. I think we've done a nice job of straddling both of those. We do think, look, we can certainly fuel and fund the growth we need with the operating cash that we have.

But look, one of the other initiatives that we have is just improving our turns and some of the early work that we've done with a proprietary tool that we've developed, leveraging AI, we feel there's an opportunity to improve our turns, unlock some capital there that can also help in our efforts to pay down debt and go after the growth opportunity. So, I feel like we have a good plan as it relates to that.

Randal Konik

Super helpful. Thanks.

Operator

Our next question comes from the line of Dana Telsey with Telsey Group.

Dana Telsey

Dana Telsey from Telsey Group. Can you hear me now? As you think about the freight impact, which I think was around a $2.3 million impact or 140 basis points, how are you planning that going forward? And then with the improvement of significance that Culture Kings, both stronger margins driving profit flow-through, how does that evolve going forward? And any history based to what it was?

Or is this just a new momentum? And what could that add to the overall architecture of the company overall? And then when you were talking about consumer caution, is that what you mean with the AOV, which is down, I think, nearly 3%. Is that more visible in any of the particular brands? And how does that impact wholesale orders? Are you seeing any change there?

Kevin Grant

Yes. Thanks, Dana, for the question. I'll take the first part of that on the impact of the freight, and I'll pass it to Kiran. Yes, no doubt, the impact of the elevated freight costs has had a significant impact, like you mentioned, $3 million in Q3. And for the back half, it's a $6 million impact that drops straight to EBITDA. So, despite that, we're really proud that we expanded the gross margin in Q3, up 100 basis points.

And then the guide for the Q4 gross margin is expanding another 150 basis points despite that headwind. So we're very proud of what we put in place structurally. And obviously, there would be upside too, if the freight rates normalize to historical levels next year.

Ciaran Long

And then Dana, let me -- I'll touch on Culture Kings Yes. Look, we are really glad to see the improvements the business has made in just getting on to that test and repeat model, much better product. Customers are reacting really well to it, seeing no better gross margins. And with that will come improving EBITDA and comps as well.

I think as we think about it, I think, look, there's just a lot of potential there. I think that the retail payment aspect of that brand is extremely strong. And then within there, the mix of the third-party products that they have, and they've got great brands with Adidas, ASICS, New Era, people like that and our own brands, Loiter, 73 Studios, Car, Minimal, they're all having a really nice impact. And we see big potential, I think, for each of those first-party brands.

And as we think about it, I think there is certainly huge growth opportunities under the umbrella of Culture Kings, and that will start when we open the next door for us in Puerto Rico. in December. But also, I think taking some of those brands on the journey that Princess Polly, Petal & Pup and Minimal have gone on to open.

Really take them into new channels, whether it be TikTok, wholesale or into other strategic partners. So look, I think there's a lot of opportunity there for them. And I think really, the foundations are there now, great product clean inventory and the team is -- I feel a really good team that can really kind of go after that opportunity.

And then I'll just touch on AOV. I think it's down a little bit year-over-year, but just really more coming from channel mix than anything else. And I think as we see -- I think we've talked a little bit really, really strong growth on TikTok, up 3x for Princess Polly versus last year and nearly 40% from Q2. That's a little bit lower AOV in that channel, and it's more kind of less basket building than you would see in others. So it's a little bit of that as it relates to that.

Ryan Meyers

Our next question comes from the line of Ryan Meyers with Lake Street Capital Markets.

First one for me. And Karen, I think you kind of mentioned it on the first question that you had had, but the U.S. business sounds like that remains strong headed into the fourth quarter. Did you say that, that's continuing at a double-digit growth rate? Just want to make sure I understand sort of the momentum that you guys are seeing in the U.S. business here in the fourth quarter.

Ciaran Long

Yes. What we've seen, Ryan, is that momentum continue, and it was great to see it up that 14% in Q2 and kind of continue into Q4. I would say, as we go through the quarter, the comps or yes, the compares get a little bit harder. We got into a better inventory position as we went through Q4 last year. But look, I think we feel really good about the catalysts that we have in place to continue growth, right?

We've got a couple of more stores opening for Princess Polly in the quarter. We'll have Culture Kings next door with great pipeline of wholesale and I think continuing that momentum that we're seeing in TikTok and other channels. So we feel good about the guidance that's out there.

Ryan Meyers

Okay. Got it. And then obviously, freight remains a headwind. But if we think of the business outside of the freight headwind and the improvements that you guys have made across inventory, sourcing, merchandising, I mean, how should we think about how much more operating leverage there is in the business as this -- where the revenue growth accelerates or kind of stays at this mid- to high single-digit rate?

Ciaran Long

Yes. We certainly long term, certainly see double-digit EBITDA profitability in this business. And I think, look, we've obviously done a lot of structural work to put the building blocks in place for that. But we think there's still a lot of opportunity. And I would say, look, across each of the lines, gross margin, obviously, we've seen a lot of improvement despite the headwinds of airfreight.

I think moving to our new DC, we feel great from a capacity and a service level, but there should also be savings there going forward. And I think as we just scale certainly from a marketing and the G&A potential, there's opportunities there as well. So look, I think some of it will come from scale, and I think some of it will come from the initiatives that we have going across all of the lines to continue to drive improvement and increase our profitability.

Operator

And our last question comes from the line of Eric Beder with SCC Research.

Eric Beder

I'll talk a little bit about Princess Polly. So, you're up to 17 stores by year-end. What are the learnings here? And what have you been changing in terms of Princess Polly business? I know you mentioned sweat and some more basics, those have been approved. What do you think you need to do to continue to kind of maximize the Princess Polly store base?

Ciaran Long

Yes. Thanks, Eric. We're really pleased with the performance of the brand. And I think the work the team there has is doing and continues to do has been phenomenal as they kind of go into these new channels and execute them and channels that are new to the brand, right? I think we've seen the stores performing really well.

As I mentioned, introducing new customers to the brand. We're getting a halo effect online and great for sales and profitability. And I think within that, they are evolving their model. And we talked a little bit last quarter about how they were going deeper in areas where they have more confidence. Sweats was a good example and sweats in the quarter were up 4x versus last year.

Knit category nearly doubled. And I think all of those things are giving them continued confidence to -- that they can play into new categories that they can evolve the model slightly as they move into stores. I think they are always going to be test and repeat. But I think there are places where they have more confidence to kind of make sure that they're in stock at all times in some of these kind of evergreen styles and evergreen winners.

And so, I feel we continue to see a lot of potential for the brand. As I mentioned last quarter, we could certainly see 100 stores for them in the U.S., but we're also getting a good view on the opportunity internationally with some of the growth we've seen in the U.K., up 40% year-to-date and other areas as well.

Eric Beder

Yes, I talk a little bit about that. So Yes. So, you put in the 3PL, which enables you to now ship to the U.K. and I guess, ship to Germany quicker. What are you seeing kind of in the potential differences in the customer bases there? Does it make sense? I guess, in the longer term to eventually have retail stores potentially in New York? How should we think about that opportunity as evolving going forward?

Ciaran Long

Yes. So, for the U.K. first, we have U.K. customized website. The app is customized for the U.K. and then we put product in there in that proximity of product. And I would say just that better customer offering, right, being more attuned to them is driving the growth there. I think we see that same opportunity in Europe, and that's what we're doing now in Germany.

The website and app first, and then we'll start putting product closer there as well, certainly delighted with the customer response we've seen. I think they've been -- I suppose the social channels that these consumers engage their content are global. So, the brand awareness has somewhat been there for Princess Polly and is there in the U.K. and Europe. So, they've been waiting for the brand nearly to come and kind of put that better service level out there so they can engage easy with the brand. And so, we're delighted to have done that and the response we see. I think it does give us confidence that there are absolutely a lot of growth opportunities for Princess Polly internationally, and we've confidence there.

I think, look, our focus is very much U.S. at the moment. That is -- continues to be a huge opportunity, and we're still very early days for the brand. But it's good to know that there are multiple growth levers out there.

Operator

And ladies and gentlemen, we have reached the end of the question-and-answer session. And this also concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.