Q4 2021 Allbirds Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Alberta fourth quarter and full year 2021 conference call. All participants have been placed in a listen only mode. After management's prepared remarks, there will be a question and answer session at which time instructions will follow now I would like to turn the call over.
<unk> two <unk>.
<unk> finance and all birds.
Good afternoon, and thank you for joining US with me on the call today are Joe is willinger, and Kim Brown, Albert's co founders and co Ceos, and Mike Bufano, Albers, Chief Financial Officer.
Before we start I would like to remind you that we will make certain statements today that are forward looking within the meaning of the federal securities laws.
Statements about our financial outlook and other matters referenced in our earnings release issued today.
These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please also note that these forward looking statements reflect our opinions only as of the date of this call and we undertake no obligation to revise any statements to reflect changes that occur. After this call. Please.
Please refer to our SEC filings as well as our earnings release and form 8-K filed today for a more detailed description of the risk factors that may affect our results.
Also during this call we may discuss non-GAAP financial measures, which adjusts our GAAP results to eliminate the impact of certain items.
non-GAAP items should be used in addition to and not as a substitute for any GAAP results you will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP measures to their most directly comparable GAAP measures in today's earnings release.
Now I will turn the call over to Julie to begin the formal remarks.
Got it thanks, and Hello to everyone on the call. We are pleased to report a strong finish to a successful year for all brands headlined by annual sales growth of 27% and 43% on a two year basis, including record breaking sales performance in Q4.
Underpinning. This success is our continued brand momentum across multiple geographies. We believe that this brand heat atop a healthy consumer spending backdrop positions us to accelerate our growth rate for a second year in a row in 2022 with year over year sales growth projected between 28% and 32%.
At or above the high end of our medium term targets.
We are also laser focused on generating meaningful and durable profitability. We saw great progress here as well in 2021 with adjusted EBITDA coming in ahead of our expectations for the fourth quarter and full year, continuing our disciplined march towards our long term profitability targets.
Given this is the close of our fiscal year I'd like to remind everyone of the core elements that underpin our value creation model the integration of unique advantages in product distribution and brand in this enormous market.
We put natural material innovation at the center of our product engine unlocking magical consumer experiences across lifestyle and performance, while fulfilling our brand promise of trading later on the planet.
Many people still no as well for the iconic product that we launched the company with in 2016 will runner in 2018, we added three as our second hero material. Both of these had been successful in fact, one of the most exciting developments in 2021, we're seeing tree surpassed wall as our top selling material.
This is an example of the multiyear growth opportunity from each material platform that we create with more in store in the coming years.
Our go to market processes vertical making it unique in the footwear industry. This model unlocks significant value for us in fact for a third year in a row, we acquired over 1 million new customers.
It also helps to protect our premium brand position, enabling our 27% year over year growth, while maintaining 97% full price yield in 2021.
And it helped deliver a great experience to our average net promoter score for 2021 was 85 and our physical retail experience is especially strong at an NPS of 88.
This is an important indicator of future purchase and tests and in 2021. We continued this trend with more than 40% of customers that are at least a year in age purchasing again.
And those customers who came back spent 30% more in their second year than they did in their first.
The power is not just in the vertical nature of our distribution, but in the Omnichannel approach in 2021, we opened 13, new doors expanding our portfolio to 35 locations globally. We ended the year with Omnichannel repeat customers, representing 14% of those who purchased twice or more this isn't.
Horton metric as we continue to see these omnichannel repeat customers that lease.
A year old spend one five X when compared to single channel repeat customers, hence our focus on expanding the fleet.
This is not just true in the U S. But also in our key international locations and our early investment.
In our global infrastructure is paying off our international business continues to grow quickly at elevated gross margins.
And now accounts for 24% of our total business in 2021, China was our single largest country of sales outside the U S. For the first time and we are optimistic that the Chinese consumer is increasingly aware of the environmental impact of consumption positioning our brand for future success in that region.
Of course, our product engine and distribution model would be nothing without our brand. We are purpose native meaning that we started with an approach that aligns our financial outcomes with the positive environmental impact such that the more market share we earn better our planet will be in 2021 was a great year in terms of us extending our leaders.
<unk> in the industry on this topic.
Tim will talk more about some of our brand highlights, but I'd like to remind everyone of the sustainability principles and objectives framework that we released during our IPO in November introducing this framework was a major milestone on our journey to submit all birds as a sustainable leader in consumer products.
Relatedly in 2021, we also launched the all birds flight plan a set of initiatives aimed at reducing our per unit carbon dioxide equivalent emissions by 50% by the end of 2025 and by 95% by 2030, all while targeting to grow rapidly and expand margins we.
I'll leave our sales will have expanded by multiples between 2020 and 2030, but to put our goals in context, we estimate that we will emit approximately 40% less cotwo in 2030, and we did in 2020 on absolute terms, if we achieve these goals.
In 2021 as part of this plan, we surpassed our annual carbon reduction goal and drop the average carbon footprint of our top 10 products by 14% year over year.
These carbon reduction initiatives are aligned with our financial goals and in fact are a large part of the reason we expect to grow so quickly in 2022, we aim to reduce the average carbon footprint of our top 10 products by an additional 6% and we will update you on progress along the way.
To bring this all together I'll reiterate three outcomes that embody the effectiveness of our strategy. In 2021, we grew sales by 27% grew gross profit by 30% and reduce carbon emissions on our top 10 products by by volume by 14%.
That is what <unk> is all about profit and purpose coming together when we improve our impact our business gets better.
Okay.
Now to the fourth quarter, our biggest quarter ever and an appropriate end to a strong 2021, we reported top line results ahead of our targets with growth of 23% versus a strong Q4 in 2020 and 43% versus Q4 2019.
This quarterly growth rate marks an acceleration of our two year growth rate from the 40% we posted in the third quarter.
We experienced notable strength in the U S punctuated by a strong holiday season.
Consumers had a positive reaction to our product offerings, particularly our fluff footwear collection, our slippers that we call. The dwellers. The rerelease of small birds for kids and on the apparel side to our company and Cozy lounge wear.
The peak period of Black Friday through cyber Monday was exceptional for US and included two record sales days demonstrating the power of our Omnichannel model. We also delivered a superior customer experience on these high volume days evidenced by our stellar NPS scores.
On Black Friday more than 10 of our U S stores were in what we refer to as the 100 club, meaning they recorded an NPS of 100 on that incredibly high volume debt.
This doesn't come easy and we want to recognize the excellence of our store leadership has demonstrated this year during December our stores grapple with Covid exposures that forced us to temporarily shut down a number of locations in the U S. And we also saw the <unk> surge impact international markets.
Cyber Monday was the first time, we utilize markdowns on old models and colors as well as on styles of broken size runs and we were encouraged by our consumers reaction, including full price sales that alone would have been our biggest day ever.
We previously noted that we successfully navigated a very tough supply chain environment throughout Q2, and Q3 with full continuity of our manufacturing operations, while pulling forward critical inventory that we were able to weaponize during the holidays.
This strength has continued in Q4, we have yet to face the government mandated shutdown in any of our manufacturing operations.
Our of course contending with ongoing bottlenecks in inbound transportation that are facing the entire industry and Mike will unpack the deliberate increase as we've taken on inventory to mitigate possible impacts of an elongated supply chain.
The many successes and strong financial outcomes. In 2021 are result of investment in our people the flock.
And continued belief in the power and potential of our product engine, our brand and our distribution model.
In 2020 in 2021, we were named one of America's Best startup employers by Forbes, taking the top spot in 2020 the.
The magnetism of our brand for top talent is augmented by our investment in culture, and our mission and what we felt the benefits of this throughout 2021 and has accelerated since our IPO in November we expect a strong employer brand to create tailwind for us for many years to come.
In total our 2021 performance gives us tremendous confidence in our business and keeps us firmly on track to achieve our medium term financial targets of 20% to 30% revenue growth more than 60% gross margin and mid to high teens adjusted EBITDA margin.
As we turn to 2022, we're excited to add a tool that we expect to be incremental to our core operating and value creation model <unk>.
Beginning in Q2, we will selectively enter third party retail relationships.
To build brand awareness and to establish greater credibility in the performance category, all while accelerating our ability to drive top and bottom line growth.
We've talked previously about the fact that our aided brand awareness in the U S is 11%, leaving us unknown to a vast majority of Americans.
In related in the relationships, we choose to engage with we expect our presence in their multi brand environment to be additive to our vertical business and the <unk> brand more broadly.
Many of these partnerships will also be instrumental in educating runners about the quality of our performance product offering for it.
We have experience in this via partnerships, we have successfully engaged in previously.
As an example, we've worked with Nordstrom on two separate occasions and saw excellent uplift in our aided brand awareness and a positive halo into our direct sales channel.
Before anyone gets ahead of us on this I want to note that while we believe this will be incremental to our business. In 2022, we expected sales from these partnerships will be modestly accretive and in terms of profitability. The overall impact will be slightly dilutive to overall gross margin and be cash flow neutral to positive.
As we support these early efforts with a small team internally.
Yeah.
I'll close my section with a note on the overall trends we are seeing in the marketplace. Some companies enjoyed a significant bump during the peak of Covid.
We were not one of those companies.
We believe that in many cases the significant help these tailwind provided has been underestimated and similarly, how quickly these talents may recede as Covid dissipates.
In contrast to this we are seeing consumer demand shift in our favor.
As the world tires of restrictions related to the pandemic.
This leaves us even more confident than ever that we will continue to accelerate our growth and profitability with notable progress expected in 2022.
Now I'll pass it over to Tim to talk product and then over to Mike for specifics on our financials.
Thanks Joey.
<unk> is still a young brand with a tremendous runway we have a great deal of confidence in the product and material innovation platform. We built to meet what we believe is a transformational consumer shift in our category towards natural materials 2021 was a solid year for product without this product cadence and selection of the coming in Q4.
You said Joey said, we acquired a 1 million new customers to the brand, which is a testament to our ability to consistently create products with groundbreaking natural materials building product franchises that resonate with consumers around the globe.
Well, we know that sustainability is becoming an increasingly important part of purchase consideration, especially among younger consumers. Our focus remains on creating great products with differentiated consumer benefits from a natural material innovation.
One future innovation, we've expressed our assortment publicly as a plant based literal tentative.
We also plan to introduce a new to the world Midsole technology that will fuel our lifestyle and performance product pipeline.
Combining these novel materials across product franchises, what the lounger runner and desha along with continued activation through tolerant collaboration is at the core of our product strategy.
From a nearly decade long career as a professional athlete I know the bar for making performance products is a high one.
Switching as possible going to happen overnight.
In a short space of time <unk> credibility in a highly competitive arena and we're just getting started.
Simply put we continue to believe that natural materials can create better performing products for athletes, including runners of all levels in this journey.
In 2021, we expanded our presence in the performance category with a trail running SWT and perform run apparel lodges.
We're thrilled to be embarking on another significant chapter in outperformance story this year.
The first notable step on that path is the arrival of the desert just yesterday.
Meaningful upgrade to an already successful franchise that was born from the deep level of engagement, we have with our customers and the ongoing feedback impart to us.
This upgrade brings a streamlined look less carbon list way introduces refill activity with improved foot and great attraction.
As we look forward to a greatly expanded product portfolio across all our categories. You should expect to see consistent technical upgrades and versions of outperformance footwear products.
This will lead us to naturally wind down early visions at times, taking select pricing actions as we have done with the that you won in recent weeks in the lead up to yesterday's launch.
We look forward to sharing more in future calls and outperformance pipeline and the consumer trends that are reshaping the footwear and apparel industry.
In addition to performance. We also made big strides on the lifestyle front in 2021 with new product introductions across both footwear and apparel.
In Q4, we leveraged our positioning of comfort and brought new energy to our small goods fluff and dwell of franchises all of which performed well during the holiday season.
In apparel, we launched a switch product that has been well received by our customers and our bodies are a key differentiator leveraging unique natural materials to deliver nixed the skin comfort a hallmark of your goods brand, which we expect will help us win long term.
We have tremendous excitement to the brand through our partnerships and collaborations in the past year. A great example of this is Marshall Loeb series, which bought humor and are grounded sensibility to the complex topic of sustainability.
The series generated viral content around our core purpose and enabled us to educate entertain and connect our unique purpose to culture Youll see more of this from all goods in the year ahead.
Another 2021 part chip highlight was the August Adidas future crops.
This provocative partnership drove substantial traffic to our site and sold out within hours.
Another moment I'll point to is last Thursday in April when we open sourced our carbon emissions calculator on freedom footprint I'll call empowering other brands take ownership of the carbon emissions.
We will continue to tap into part ships and thought leadership as a way to amplify not only our product franchises, but also our thought leadership and sustainability.
Relatedly last week, we were excited to announce the official launch of Ubuntu rerun, our resale platform.
This launch has two key components the U S digital marketplace of slightly imperfect and gently used products and an in store trade in program.
We'll goods rerun is a small step on a particularity June that allows us to extend the lives of our products, while also acquiring new customers.
As our product assortment grows we are placing an emphasis on community without growing collective of <unk> investors, which we called yoga collected or AGC.
The AGC brings together a cross section of young leaders and influential everyday athletes connected with the read through at about sustainability took us to engage with our customers through in store events run clubs and digital content.
The agency also provides another mechanism to explain the prominence of the materials, we use in our products, our carbon methodology and unique material innovation behind the outperformance fluid products.
As I mentioned, our product lineup was solid in 2021, but as we enter 2022. We believe we were on a trajectory for the most compelling product roadmap in the history of the company and we look forward to revealing more of that story as the year unfolds now I will turn the call to Mike to discuss the financials.
Thanks, Tim I'm excited to walk you through our Q4 and full year results are strong materials and product innovation engine authentic purpose led brand deep connection with our customers and Omnichannel distribution model all came together to deliver fourth quarter net revenue gross profit and adjusted EBITDA performance above our guidance targets.
In the press release, we noted the drivers of the year over year change in each line of the P&L.
I'll use my prepared remarks to add some color starting at the top of the P&L and breaking down what drove our accelerating top line and record revenue performance of $97 million in Q4.
In Q4 orders increased 6% and average order value was up 17% for.
For the full year orders increased 13% and <unk> increased 11%.
Our strong product launches, which attracted new customers and delighted repeat customers, but the big factor here.
The other contributor to the growth in <unk> was a small price increase we took in August .
Our internal analysis shows that we saw effectively no drop off in demand, which speaks to the power of our brand and the quality of our products.
Looking at revenue by geography for the full year, we saw balanced growth with 26% growth in the U S and 29% and international.
In the quarter the U S grew faster at 25% with international at 14%.
The last view of revenue all shares by channel in Q4, we were pleased with the growth in both digital and physical retail physical.
Physical retail was the biggest driver of Q4 growth that being said in December that <unk> shifted shopping habits and drove a notable uptick in digital especially in the U S.
This builds on the point Joey made earlier about how our Omnichannel model allowed us to have a strong holiday season, we were able to meet our customers wherever they want to engage with all birds in our supply chain had us in position to meet that demand.
I want to provide a bit more color on how the channels performed for full year 2021.
We won't give this level of detail each quarter, because we believed geography is the more instructive way to look at our revenue growth.
That being said we know for some of you. The channel data is helpful. In how you think about our business. So we are including more detail for this year end call.
In 2021 digital grew 16% to $225 million and accounted for over 80% of sales said simply we remain a digitally led business.
The two drivers of digital growth come back to what we shared during the road show.
One we continue to consistently and profitably acquire new customers with a digital channel remaining far and away the largest source of new customer acquisition.
Two we delight repeat customers with new products colors and styles, our product innovation combined with our data driven personalized marketing drove strong repeat purchase behavior as you heard from Joey.
In 2021, physical retail more than doubled growing 112% to $52 million.
We opened 13, new stores in 2021 going from 22% to 35 stores and the class of 2021 contributed 43% the total physical retail dollar growth this year.
The 22 stores opened before 2021 contributed the rest of the dollar growth in physical retail.
Within this group of stores the seven U S stores opened in 2019 and prior.
<unk> bounced back from the depths of Covid with 63% year over year growth in Q4 in spite of the Omar Khan surge in December .
These stores continue to work their way back towards pre Covid sales levels and also saw a market improvement in four wall profitability in 2021, when compared to 2020.
Looking forward on U S. Retail, we previously shared pro forma U S. New store target of three five to $4 $5 million in gross sales and low 20% four wall EBITDA margins.
When adjusted for the estimated impact of Covid the performance of our U S store fleet, especially the classes of 2020 in 2021, continuing to give us confidence in these targets.
I'll keep moving down the P&L in Q4 gross profit was $49 million, an increase of 24% and gross margin expanded by 45 basis points to 52%.
For the full year gross profit was $147 million, an increase of 30% and ahead of our guidance target while gross margin expanded by 145 basis points to 52, 9% in line with our gross margin guidance target of 52, 9% to 53, 4%.
For both Q4 and the full year the year over year improvement in gross profit and gross margin was driven by a faster growth in physical retail and international both of which are gross margin accretive.
The other tailwind here, where the price increase or decrease in product costs and favorable product mix.
These tail winds were partially offset by headwinds in logistics costs, both inbound and outbound and distribution center costs.
All together these headwinds created an estimated 200 basis points year over year drag on gross margin for both Q4 and the full year.
Staying on the subject of Covid headwinds I'll wrap up on gross margin by providing color on the impact <unk> had on our business in December and how that affected Q4 gross margin.
One we saw choppiness in physical retail traffic with some of that demand shifting to digital.
Two given the channel shift compared to our expectations U S. Digital made up a greater percentage of sales mix versus physical retail, which is gross margin accretive.
Three labor issues in our east coast DC led to excess costs in that facility and forced us to ship volume at a higher cost to us from our west Coast DC.
These factors landed us at the low end of our gross margin guidance target range.
In spite of the Covid headwinds for the year, we delivered 145 basis point improvement in gross margin and have now improved our gross margin by 600 basis points from 2018 through the end of 2021.
Moving below gross profit the driver of the change of SG&A and marketing are discussed in our earnings release.
On marketing I did want to proactively address the likely question around the impact of apples privacy changes.
As we shared in the past we have built a diversified marketing mix and are not overly dependent on Facebook or any other single media channel for our AD spend.
While AD costs are increasing in certain segments of our spend our Q4 digital advertising costs were in line with our expectations.
I'll wrap up the P&L walk with adjusted EBITDA, which improved markedly in both Q4 and the full year.
We were adjusted EBITDA positive in Q4 and delivered an improvement of 24% on a full year basis narrowing our adjusted EBITDA loss to $11 7 million.
This adjusted EBITDA performance exceeded the high end of our guidance targets by $3 $3 million, primarily due to the flow through of the sales upside and some favorability in SG&A.
Backing out approximately $4 million of public company costs, our full year 2021, adjusted EBITDA loss would have been up 48% improvement versus 2020 on an apples to apples basis.
Turning now to inventory we.
We ended the year with $107 million of inventory on the balance sheet. That's an increase of 8% from the end of Q3, so I want to walk through it.
And this logistics environment, we separate out the noise from higher freight costs and elongated shipping times due to ongoing supply chain disruptions by looking at those factors separately from our on hand inventory.
We feel that this cut of the data it gives us a cleaner view of what's happening and better informs our planning.
Using that lens, we saw our inventory on hand at our distribution centers and in our stores decreased meaningfully in the quarter.
That means that all of the sequential increase in inventory was attributable to a combination of higher in transit inventory given the extended lead times as well as the impact of higher inbound freight costs.
For added context, a year ago and transit was about 20% of our finished goods inventory and this year its almost one third.
As I mentioned earlier, we believe our strong inventory position contributed to our ability to meet consumer demand in Q4 in this environment. We believe it's prudent to maintain a somewhat elevated inventory position to meet accelerating demand into 2022.
To summarize how we hold our Q4 and full year 2021 financial results in the midst of another year of unprecedented challenges for our industry. We are pleased that we grew net revenue by 27%, while continuing to improve our profitability as evidenced by a 30% year over year improvement in gross profit of one one.
Hundred 45 basis point improvement in gross margin and a 24% year over year improvement in adjusted EBITDA.
Now, let's turn to 2022 I will start with a couple of notes on what's included in our 2022 guidance targets.
One as Jerry talked about while we believe the expanded retail partnerships will be incremental to our business over time in 2022, we expect them to be only modestly accretive to net revenue and can be adjusted EBITDA neutral to positive.
Two I would like to provide an update on 2022 pricing.
Despite the fact that some of the cost headwinds our industry is facing may prove to be transitory. We believe taking deliberate pricing actions in 2022 is prudent.
After experiencing effectively no drop off in demand after taking a small price increase last year, we have confidence that our premium brand positioning and quality products will allow us to take price in the coming months.
At this time, we estimate the pricing actions will add approximately 1% to 3% to 2022 net revenue growth, depending on timing and elasticity.
Again, both of these items are factored into the following guidance targets.
For net revenue, we are raising our 2022 guidance target from $350 million to a range of $355 million to $365 million.
That represents growth versus 2021 of 28% to 32% and growth versus 2020 or 62% to 66%.
That's an acceleration on both a one year and two year basis and at the high end is above our medium term target of 20% to 30%.
This net revenue guidance target assumes we'll open 16% to 17, new stores in 2022, primarily in the U S and 2022, we expect to spend $25 million to $30 million in Capex, primarily on those new stores.
Next we are establishing our 2022 guidance target for gross profit at a range of 187, 5% to $195 million.
At the midpoint of our net revenue and gross profit guidance target ranges gross margin would be 53, 1% or 27 basis point improvement from 2021.
One note here consistent with my comments earlier about cost inflation, we are not factoring in any sort of normalization in logistics or distribution center costs in 2022.
For these items our guidance target assumes another 200 basis points of gross margin headwinds compared to 2021.
For adjusted EBITDA, we are establishing our 2022 guidance target at a range of minus 13 to minus $9 million.
The Big plan that range represents an improvement versus 2021, 6%. As a reminder, this includes $8 million of expected public company costs of $4 million year over year increase.
Finally, our 2022 targets are not just financial targets as Joey mentioned earlier in 2022, we aim to reduce the average carbon footprint of our top 10 products by an additional 6%.
If we achieve these 2022 guidance targets, we will continue to make meaningful progress towards our medium term targets of 20% to 30% net revenue growth, 60% plus gross margin mid to high teens, adjusted EBITDA margin and a 50% reduction in our carbon footprint per unit by 2025, and a 95% rich.
<unk> by 2030.
Looking quickly at Q1, we are providing our net revenue guidance target range of $60 million to $62 million.
That represents growth versus Q1, 2021 of 21% to 25%.
And growth versus Q1, 2020 or 42% to 47%.
With the high end, representing an acceleration on the two year when compared to Q4.
After experiencing a bit of omicron choppiness early in January trends improve later in the month and into February thus far setting us up for a strong start to the year.
For adjusted EBITDA, we are providing our Q1 guidance target at a range of minus 13 to minus $11 million, including an estimated $2 million of public company cost.
I'd like to remind you that Q1 is historically, our lowest sales quarter of the year, which affects the absolute EBITDA dollars in the quarter.
Per our full year guidance target range of minus 13 to minus $9 million, we expect EBITDA to build throughout the year.
We're excited about the year ahead, and look forward to providing updates on progress on future calls with that lets open things up to Q&A.
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Our first question or comment comes from the line of Jim Jim Duffy from Stifel. Your line is open.
Hello. Thank you. Good afternoon. Thank you guys are doing well.
In the fourth quarter.
Wanted to start I am talking about.
The fourth quarter marketing spend Accumulable Hollywood expected you mentioned performance marketing is in line with your expectations did you step up top of the funnel marketing investments in the fourth quarter.
And then I have a follow up.
Yes, we ended up with a little bit slightly higher spend especially earlier in the quarter, because we saw customers moving up their demand ahead of the holiday season, and then as we got into December we did a little bit more remarketing on repeat customers, which we think helped land the overall quarter in a good spot on marketing and the point on.
In line with our expectations is the rates, we are paying across the different channels on performance marketing.
I see okay, and then through the lens of marketing. So you wanted to talk about your decision to embrace wholesale trends.
Has there been some sort of change in consumer response to marketing.
Inspiring new direction here or was this kind of a color do you have in your back pocket and anticipated playing in.
In 2022.
Even through the IPO process.
Yes, Jim this is Joey.
We have been.
We've been pretty upfront about this we've talked about awareness as a really important indicator for for our future growth and being at 11% in the U S, which is our biggest market of course and highest brand awareness. That's something we got to work on every day so.
Awareness is one aspect that we're focused on and as we mentioned it's also about credibility with performance.
It's about 25% of the mix and it's not something we take for granted that we're going to build that overnight.
And so it's showing up in the right places in front of the right consumers is something thats important but as we said first of all a couple of points to remind you of when Youre thinking about this Jim.
One is that it's incremental to the core model, so meaning that additional sales and EBITDA are all going to be accretive to kind of the medium term targets that we've set out there and further we actually think that this will accelerate our ability to capture the demand in our core channels. So that halo, we've seen it before.
It gets kind of.
Yeah.
Something we can we can really bank on that that should translate to great owned channel sales and we're focused on a lot of execution there.
And I'll, just reiterate that we're doing it really slowly and methodically and we've tried to make that clear as we as we introduced this topic, but this is about working with third parties that we think show up great in front of the right consumers and it should be just purely brand additive and we've also done this with a different.
A differentiated mix in our product Assortments and Thats, an important element here that we haven't had all of the weapons that we have today.
And our product assortment to enable this and so this is yes.
This is absolutely not what I would say is reactive.
Very proactive and deliberate strategy and one we're going to do very slow and expect to be quite incremental to the model.
Understood.
I get questions about this but can you share a little details on just the scope of some of those channel partners might be.
Maybe you could speak to what's embedded in.
Get deliberate about what's embedded into 2022 revenue numbers.
I think what we'll do Jim for now is the reason we want to introduce this as well.
We're going to show up in some fantastic partners and this is something we've been working on for a while and so we want to we want to make sure that we can share it with this community.
Proactively, but we don't want to get we don't want to get ahead of ourselves here. This is something we're going to do like slow Methodical award I'll, probably repeat a few times into the future. This isn't about this isn't about near term financial results. This is about building a brand and continuing to build what is a really strong brand not a sale.
Strategy, that's how we think about ourselves we're really a brand first.
That is that's something we're going to do just just real slowly and consider this like a very early heads up.
And something we'll certainly.
We will certainly share a lot and there is not.
If nothing else, we're going to be transparent about this so we'll share more as this unfolds alright lets move onto the next question and we'll chat with you more on the follow up Jim. Thanks for the question. Thank you.
Thank you. Our next question or comment comes from the line of Lorraine Hutchinson from Bank of America. Your line is open.
Thanks, guys.
I wanted to ask a question about flow through.
If sales growth does continue to outpace your expectation.
Is your confidence in that flowing through to reach breakeven adjusted EBITDA sooner than the previous goal of 2023.
Yes, so some of the upside that we saw in Q4 like I mentioned in the prepared remarks was that sales upside flowing through to the bottom line. We're obviously pleased with how that worked.
I think it's reasonable to assume some of that in the future and I'd say, we want to continue to invest towards the future. So I don't know that will be the same exact level of flow through that you saw happen in Q4.
Look at the broader question on this path to adjusted EBITDA.
We were very pleased to be in the bottom line.
In this in this quarter and for the full year and when we look at Q4, we feel like it's a good improvement we're putting out there right now, especially with the headwinds of public company costs. So we think we're really on the right path and the right pace here and yet we are building this business for the long term.
Thank you.
Thanks, Brian .
Thank you. Our next question or comment comes from the line of Kimberly Greenberger from Morgan Stanley . Your line is open.
Okay, great. Thank you so much.
Mike I wanted to ask about.
Store revenues you talked about.
Nice recovery here in 2021, when you look at those stores that were opened pre COVID-19 .
Can you.
To help us understand what the.
What the run rate in volume looks like compared to 2019 run rate are we.
It's still.
Down.
30%, 40%, 50%.
And are we on an improving trajectory. Thanks, so much.
Yes, the latter part I think is really what you should focus on what we feel like we're on a very good trajectory with those stores plus that class of 2020, all of which opened during COVID-19 and 'twenty one.
So we feel like it gives us continued to give us confidence in that three five to $4 5 million new store sales target.
We're not going to get any more granular right now unlike the class in 19, and breaking things out by cohort because there's just so much noise in there with COVID-19 in new stores and everything going on there.
What I would just share like I said in prepared remarks, they've made a really strong recovery and they are working their way all the way back to those pre COVID-19 levels and that continues to give us confidence in retail channel is a really good use of our capital.
Excellent Okay, great. Thanks, and then Joe just a follow up for you on the wholesale strategy can you just.
Articulate for us what are the criteria.
You are looking for in some of the select wholesale partners that you are.
Looking at here in 2022.
Yes, it's a great question. Thanks.
A couple of things that when we are thinking about the landscape. We've obviously had five years under our belt of a lot of inbounds.
That we have.
That we've chosen not to enter into and so when we think about it today, it's really about awareness and credibility and let me unpack a little bit of what I mean on that so these partners need to be very brand additive to us we're going to show up in premium locations.
Even within premium retailer. So this is this is focused on showing up in front of the right people and meeting a lot of new people with that 11%, we're showing up for the first time for a lot of customers who are going to walk through the doors of the select partnerships.
That's very important for us to crisply convey our message and do it with a robust assortment and so noting that a lot of people found out about us for the first time, when we went and did a nordstrom partnership some of those people don't know the breadth of the assortment that we have now grown and increasing the use occasions to performance and secondly.
On the credibility side.
There is a little bit on the on the style side that we're looking for and that's where you can you can get partners that really add something meaningful from a style curation and convey that well to customers, but the biggest aspect of credibility. We're trying to gain here is in performance.
And this can be really important when when a consumer is walking into a store and thinking about running for the first time in a long time and asking what's going to what's going to be a great entry level running shoe.
It's going to be safe for the body and not create any injuries. They rely on the sales associates at select retailers to inform them of what's the best in the market, what's new and we're the best technology is and so that's something we're really leaning into this strategy to make sure that we show up in the right way for for those kind of runners and consumers.
Makes perfect sense. Thank you so much.
Thank you.
Next question or comment comes from the line of Erinn Murphy from Piper Sandler Your line is open.
Great. Thank you good afternoon.
Wanted to focus a little bit more on product innovation and curious I guess for Tim and Joey what's the right balance between upgrading existing existing franchises like we're seeing with the dash or two right now versus creating brand new franchises altogether and then just secondarily have the supply chain or logistics pressures have they created any meaningful.
Shifts product launches curious on if Q1 is seeing any revenue shift out of Q1 into Q2, just based on maybe product availability to the market. Thank you very much.
Yeah. Thanks, Erinn I'll take the last part of that and then pass it over to Tim on the innovation product set so for.
The last part that Hasnt been meaningful changes, we've really navigated this.
Great way and a lot of thoughtful forward planning on timing, including buffering or lead times quite substantially given the environment that we're in with Ocean shipping.
So it's not a lot of meaningful thing, but we have done some moves which have pushed some product introductions into into Q2.
Isn't meaningful from a overall annual revenue perspective, but does of course shift some things between quarters, which I hope you guys are expecting given our size and nascency of the company.
But thats, a small things and I'll pass over to Tim on the core of your question, Yes sure. Thanks for the question here.
From the beginning without lifestyle products.
Focus on continuous improvement has been there we've upgraded every aspect of the product from the beginning we will continue to do that what you won't see US version upgrades and then lost all but what you're seeing as we add material platforms. Looking you hit the 2022, rather offer and extend and will mean existing franchises and really powerful was and I think it will lead to.
Greatly increased product cadence and merchandising headed through 'twenty, two which we're really excited about performance is a different story for the first time.
A second version of the Dasher is a couple of days ago really proud moment.
It shows sort of how far we've come really advanced methods of Mike really notable feature upgrades and you should expect that to be quite good.
Consistent sort of focus for us across the web performance franchises and we will have more of those two this year.
Great. Thank you so much.
Thank you. Our next question or comment comes from the line of Sharon Zackfia from William Blair. Your line is open.
Ask about wholesale so I guess a lot of us are asking about.
I appreciate that.
Color there Im also curious, though in addition to your awareness and credibility if theres any.
Banco graphic or geographic area that you think wholesale can be particularly impactful for you with and I didn't catch whether this was a north American strategy, our global strategies and then I know you mentioned you've done some before with with Nordstrom do you have anything you can share on kind of what the capture rate is of.
Those customers then converting over coming over to the Alberta ecosystem at some point.
Hey, Sharon Thank you.
On the geographic approach here, if we're going to start for the most part in the U S.
And youll see a little bit in Europe .
And I think Asia will follow that well behind and Theres just some dynamics in each of these marketplaces that.
That makes us want to crawl before we run here and.
In terms of the psychographics.
It's not just it's not just psychographics I mean with 11% handful that are just basic demographics and of course, we're also looking to reach the consumer that we see shifting back demand, particularly as COVID-19 restrictions kind of loosen people are looking for style and versatility in our footwear again, and we're seeing that demand shift back really nice.
We want to show up when those customers are coming back and thinking about and thinking about.
Great and that will drive this year and so we want to show up in particular places that meet new people and meet people that are well within our psycho graphic target that.
That frankly, just don't know about us yet.
And on the capture rate yeah. The capture rate I mean, we did the two partnerships are really at Nordstrom earlier Sharon.
Too small to really give us.
A great read on that.
Well, obviously sharpen as we do this.
We've we've.
We've focused a lot on loyalty and our.
CRM efforts are very data driven and that for our own channel. We expect to deploy some of those same tools to the extent possible with some of our third party partnerships and of course with an expanded assortment, we're not going to give our entire breath of product line to every retailer we need to show up at the right mix and the right retailer.
For the consumer who is walking through those doors and so a lot of that obviously when you think about our own channel of the primary major driver of our business. The best that's going to be there and that's something we'll stay true for very long time.
Just one follow up question do you have any assurances that you can.
You can have these retailers to maintain the pricing architecture that you want them to maintain and we won't see 'twenty.
20% off sales lines.
Yes that would be really disappointing to us given.
Given the fact that we built this business for over five years fully direct it allows us to enter into these conversations where we don't need these retailers to build our business. This is this is incremental to the core strategy and so if we're if we're finding that we're doing business with partners that are not.
Supporting our brand building efforts and price is a critical one there that would be really disappointing for us and thats a lot of the reason why we're going to move slowly and methodically, we don't want to expand doors or anything.
Without.
Without maintaining full priced and as we said, 97% full price yield for the year last year fairly fairly.
Clearly impressive number for the industry and really high maybe even unhealthily high frankly.
High enough that we want to maintain our premium brand position and we would never enter into a relationship, particularly this early in the journey with somebody who had that might might degrade that.
Okay. Thank you.
Thank you. Our next question or comment comes from the line of Dana Telsey from Telsey Group. Your line is open.
Good afternoon, everyone.
As you think about the path of logistics costs for the balance of the year, how do you break it out between the first half in the second half of the year and what it means for inventory levels and secondly on the product innovation portion how do you think when we sit here a year from now what are the highlights going to be a product innovation and will you have.
Any <unk>.
Limited edition inventory for any of these new wholesale partners.
All the same inventory.
Yes, so on the logistics cost piece. So we set it at 200 basis point headwind for the full year Dana. So I would say, that's probably going to be a little bit more front loaded than back loaded across the year.
The price increase youll start to see some of that show up relatively soon but it is going to have a greater impact obviously kind of like as the year goes on along the way and just to remember on that whole logistics cost piece, it's 200 basis points in 2022 and on top of 200 basis points in 2021 on a full year basis, Thats 400 basis points in aggregate.
That's part of our moving forward on the price increase the balance of that.
That's how we think about that in terms of inventory that the comments that I made in the prepared remarks, I think that's really the extent of what we're going to share their a lot of what we saw happened in Q4 was really about in transit times and the increased freight costs I think the reality is those things are staying with US right. That's why we're not being more we're continuing to put the trends forward within <unk>.
22, and then they built their inventory that we had on hand really did help us meet the demand in Q4. So we think it's prudent to have the inventory position, we do right now.
Just to the first part of the question on product.
Pointing towards the prepared remarks that to hit the real highlights.
The plant later on our new Midsole technology. These are multi year efforts that are going to land this year that we.
Beyond excited about and that will kind of matrix.
Cross existing franchises will also add new franchises.
These materials will impact both performance and lifestyle and because the plant whether.
It's a category leading innovation that we suspect will be.
<unk> is a great story for us as we've touched on with performance you should expect to see us at a law in performance of different running moments, we're really excited about the potential there in the tail winds of running community because they're starting to demand natural materials and these products and no one's really doing that so that's really exciting.
Add up to increased merchandising cadence across color on materials that will allow us within our digital ecosystem to serve different products to different customers. We're really excited about this really is expanding with five six years into this julien starting to build out our product portfolio.
Through our emotion territories comfort to serve different products to different people in different moments. So that's really exciting I mean lastly, apparel is a journey, we continue to see that as something that can be.
Footwear franchises increase average order value repeat purchase rate. The strategy is working and we're very excited about the potential of propel to build on these franchises too and.
What's to come like a sort of see it the.
But the most.
Exciting roadmap, we had in the history of the company in the next year or two.
Thank you.
Thank you.
Next question or comment comes from the line of Matthew Boss from Jpmorgan. Your line is open.
Great. Thanks, So on fourth quarter revenues could you just help walk through the drivers of that.
900 basis points upside versus your forecast.
What youre seeing from your customer file in terms of new customers to the brand relative to larger order values from your existing base and then Mike just on 2022 is there a way to help bridge the 300 basis points of revenue growth acceleration that you've embedded relative to the performance you saw this year.
Yes.
Let me try to take those piece by piece. So I'll start the last answer I guess the easiest we raised the range from 350 million to $3 55 to 365, that's really a combination primarily to factor some of the upside that we saw in Q4 are carrying over into 2022 and the rest of it really is a price increase which are estimated at 1% to two.
3% impact again, depending on timing of elasticity. So I think that kind of hopefully on tax that for you there Matt in terms of what drove the Q4 net revenue beat it really starts first with it was the strongest product pipeline.
We had all year, we felt great about what we had in front of the customer in Q4 and saw really positive response to that.
Second piece is the Omnichannel model really works for us like Joey reference like I referenced yet we were able to win across wherever customers, where even when we saw the coma concert to have an impact in physical retail we saw that shift kind of go over to the digital business that we felt like it was really the combination of those two things the great product in the Omnichannel model also.
On top of a really strong brand position is what led to the upside within the quarter then in terms of breaking it down in terms of like new customer acquisition.
The thing I went through in <unk>.
Our prepared remarks, the increase in orders the increase in <unk> and some of the drivers within <unk>.
It only really go any deeper on that in terms of like a quarter by quarter like NCA trend or repeat rate trends, we shared some of the full year numbers in the prepared remarks, I think that gives you a good sense of how things would have played out in the quarter.
Great and then maybe just a follow up on profitability.
Would you just walk through the puts and takes that's built into the $53. One gross margin forecast for this year more so any material callouts on cadence between the first versus the second half of the year and is there any change to your low sixty's medium term targets. If we think about drivers from here.
So I'll start the second part of that.
Definitely no change on that 60%.
Julian I talked about that both in the script that that's definitely kind of the medium term target that we're trying to hit here and the fact that we improved by 145 basis points in 2021 in spite of those headwinds and we've improved 600 basis points over the last three years continues to give us confidence in that target.
We feel really good about where that's coming together in terms of the puts and takes on the gross margin side, we have the 200 basis points of headwind from logistics costs, both inbound and outbound as well as warehousing, that's really being offset by the channel shift so very similar story to what you saw in.
And 2021, and the channel and region shift the benefit of new products and product mix shift and then in this case the pricing as well what will offset that that's one more reason why we felt it was really important to have this balance between the top line growth continuing to make the material improvements. We are in gross profit and gross margin and then make material improvement on the bottom line is.
Well.
Great Best of luck guys.
Thank you. Our next question or comment comes from the line of Bob <unk> from Guggenheim. Your line is open.
I think the first one is you called out China, but just wondering if you could just give us a little more color in terms of.
What shoes are doing well there lifestyle performance and I don't know if apparel is doing anything for you there I'd be curious for a little more color on that side and then I think.
You talked a lot about growing I think the Boston market was the study that you highlighted a lot just curious if maybe give us an update on that market or any other examples of some of the markets that youre getting some traction and you're encouraged by.
Thanks, Bob So on China.
We called that out intentionally this is an interesting marketplace right now where I would say a lot of brands within our industry or.
We're seeing a lot of.
Struggle frankly in that region.
We put up really impressive high.
High double digit growth in that region last year.
As we noted surpassed our previously highest single country sales. So we're really encouraged by the process I'll couch that by saying, it's so small.
All are part of the business in the U S. As are our dominant focus but as we scale when we position the brand correctly in China, you know things can move very quickly and we're really focused there on building a great team and positioning the brand effectively in front of the consumers and as the government and other other key influencers in there.
Region shifting to a kind of a greener consumption trend, we think were fantastic position to accelerate there and in terms of product I think it's pretty consistent frankly across them across our portfolio.
Countries.
And then on the.
On the U S.
There is still some noise going into into our store reads and geography, given what's happening in Covid and how we've gone through I think three spikes in 2021 of Covid cases, so it's still quite a noisy environment to read through a general retail traffic and idiosyncratic staff, but Boston is a great one to point to.
We note that because we are now in two separate regions in Boston and Youll see us add more in the near future enter that marketplace, we see a great residents for our product there.
Added a store in Cambridge, which is just down the road and we've seen almost no cannibalization.
Really great incremental lift to the business in that region and that Omnichannel impact that we that we mentioned in the.
Prepared remarks around those repeat customer spending $1 five X versus single channel, that's still killing it for US there. So that's the model that's the core of what we're doing.
Alright, I think we have time for a couple more questions in the queue. We're okay on a few minutes over if you all are thanks. Thanks for the flexibility we went long in prepared remarks, but theres a lot to get through at the end of the year.
Thank you. Our next question or comment comes from the line of Mark Outswinger from Baird. Your line is open.
Thanks, Good afternoon, I guess following up on the store topic for a moment.
Can you give us some color on your expected pace of store openings through the year in 2022.
And then in the broader context of building brand awareness of any anecdotes you can share on.
What youre seeing in the market performance for the stores that you've opened in the back half of 2021. Thank you.
Yes in terms of pace of opens it's going to be pretty pretty even across the quarters and we can talk a little bit more on the follow up call Mark If theres specific question jab in your model.
We always like to try to get them open if we can ideally kind of Q1 Q2 Q3 before we get into the busy holiday season.
In terms of the second part of the question just about brand awareness in store openings I think the Joey's point.
It's obviously, an interesting environment with Covid and all the different surgeons. So we're not quite giving a new update right now on the.
On the market performance trend market by market in the U S or how we're kind of editorial business, but we're certainly hearing that is the question.
And some of them will definitely kind of followed through with investors. All the time and you just kind of keep going back to that for us the power of the Omnichannel model came together in Q4, and how we saw the ability to overall meet demand from the customers Joey referenced the value of that 14% of repeat customers is spent 50% more than people, who repeat Geoff and one <unk>.
And that's why we keep going back to it's really important for us that is balanced across the channels and proceed a strategy.
Thank you. Our next question or comment comes from the line of Edward <unk> from Keybanc Capital. Your line is open.
Hey, guys. Thanks for taking my questions Tonight, I guess, just would like to dig down a little bit on the three dash or too I know. This is the first time you guys have really done kind of a rethink of the product.
Most of the iterative with your other products.
From a margin perspective are there any changes I know you lightened up the product, we're able to take any cost out.
And as a follow up as we think about the model transition plan as you guys.
As expected with the just kind of initial modeling any learnings from that as you think about releasing new product. Thank you.
I would say Tim is much more a prepare to answer the second half of that question is didn't will give a much better answer than.
And then I will add in terms of the margin question. If you look at the dash or two.
Launched at a higher price point than where the dasher was <unk> was and we continue to always sort of cost engineering and one of the things we referenced in the release around the improvement in gross margin in 2021 was product cost savings and that's a great example, right whether its on current products or when we do new generations of products, we're always kind of looking.
To continue to be able to make improvements in those products over time and improve the margin profile, but Jim why don't you get more to the heart of his question on improvements of the product itself.
Exciting I think for us, we're able to really flow through.
Sure.
I mean, the dasher was our first and foremost product that was a very successful franchise really pulling out of the gate, but we use quite quickly there was a bunch of things we could improve on.
<unk> traction reflectivity.
And it speaks also to our growing innovation capability that we were able to flow advanced methods of make into this product.
You'll see that through this year with the addition of new performance franchises. These real momentum give for us in the performance category. We continue to believe we can win and do.
Do something that no one has really done with natural materials, there to create better product experiences so the debt.
So just to start for us but again.
You should expect to see that consistently for us from here on it.
Alright, I think we have one more question in the queue, which will try to answer quickly and thanks again, everybody for your flexibility in going over with US a few minutes here, we'll try to get to this one quickly if I can now.
Our final question is from the line of Brian Macnamara from Bahrenburg capital markets. Your line is open.
Thank you for squeezing me in here.
We've.
Upgrade of 2022 full year guidance, including pricing of 1% to 3% I'm curious how much pricing was contemplated in your prior guidance and secondly, I am curious if you could talk to the split between your sales.
New and existing customers and how we should think about that.
Because of that mix in 2022.
Yes, there was no pricing contemplated in the last guidance. We gave you and we are all in a couple of months into having taken a modest price increase Brian . So if that had been factored in and we want to share the context like we did in the call today, So definitely new news, especially as we saw the macro environment than in terms of thinking about that split between new and repeat customers that's on.
Something we're really kind of break it out as we think about the guidance and sort of the going forward. So we feel.
We feel good about that for sure and then going back to sort of on the overall guidance point for us we definitely see.
What we saw happen in 2021, both on a full year basis in Q4, and now what we're seeing into Q1 and for the full year of 2022. This is an acceleration in the business, especially in the top line, we feel really good about the position during the year end and we're excited to have a great year in 2022.
Yeah.
Thank you.
Okay.
If you're in the queue at this time.
Yes, maybe I'll just close out operator, thanks, I appreciate all the thoughtful questions today and hopefully.
We've conveyed ever on the strength of the underlying business and how this translated to our financial outlook. Both for Q4, but also for the full year 'twenty, one and our continued growth and expectations for 'twenty two.
So I think I'll point to the momentum what's most exciting for US is the product lineup that we have coming to Tim alluded to it a couple of times and also the team to deliver against these goals, we're really eager to execute against our impact and our financial targets and start this year with a lot of optimism for the growth in our brand this year.
Thanks, again and look forward to talking with you guys next quarter.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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