Q2 2022 Allbirds Inc Earnings Call

August 8, 2022

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Yeah.

Good afternoon, ladies and gentlemen, and welcome to the all Bird's second quarter 2022 conference call.

All participants have been placed in a listen only mode.

After managements 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 to Katina <unk>, Vice President of Investor Relations and business development at all birds. Please go ahead.

Good afternoon, everyone and thank you for joining US with me on the call today are Joe will endure and Tim Brown Albertas co founders and co Ceos, and Mike Bufano, Albertas, Chief Financial Officer before we start I'd like to remind you that we will make certain statements today that are forward looking within the meaning of the federal securities laws, including statements about our financial.

Outlook, 2022, and medium term guidance target impact and duration of external headwinds, our simplification initiatives 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 day of this call and we undertake no obligation to revise any statements to reflect changes that occur after this call.

Please refer to our SEC filings, including our quarterly report on Form 10-Q for the quarter ended March 31, 2022 for a more detailed description of the risk factors that may affect our results.

Also during this call we will discuss non-GAAP financial measures that adjust our GAAP results to eliminate the impact of certain items.

These 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 to the extent reasonably available in today's earnings release now I'll turn the call over to Joe to begin the formal remarks.

Good afternoon, everyone. Thanks for joining the call today and a warm welcome to Katina thrilled that you've joined the block.

I am pleased that we delivered solid financial results during the second quarter in line with our top line guidance and ahead of our EBITDA guidance net.

Net revenue grew 15% year over year or 18%, excluding FX headwinds.

Was driven by strength of our U S business, which grew a solid 21% year over year or.

Our adjusted EBITDA loss was $9 2 million.

Importantly, ahlberg surpassed $1 billion in <unk>.

Net revenue this quarter, which is an incredible achievement for a brand founded in 2016.

And what continues to be a tough macroeconomic backdrop, we are proud of our growth compared to the category and believe we continue to take share as our products and value proposition continued to resonate.

As for product Q2 also saw the highly successful launch of our first high performance running shoe the flyer we've.

We've made incredible strides in our foray into the performance footwear category with the Dasher Trail and Flyer franchises together now comprising 24% of total sales.

We believe that now perhaps more than ever given the record heat way, it's occurring around the globe, a relentless focus and authentic leadership and a sustainable footwork category truly sets us apart and will allow us to win with consumers for years to come.

Yeah.

Stepping back I'd like to make a few comments about how we currently see the external environment and how that is informing our view of the second half.

Since our May earnings call persistently high inflation has started to take its toll on consumers.

Across our industry elevated inventory and promotional levels have begun to impact digital and retail traffic trends.

Our customer tends to have higher than average income and hence there was a lag on the impact of inflation, but this trend became notable in the U S. Beginning in the back half of June .

One of the greatest advantages of our business model is that our sophisticated data platform and our direct relationship with our customer allows for rapid visibility into changes in demand signals.

As a result, we are likely seeing the slowdown.

For many others in our industry and therefore have been able to pivot sooner.

In our international markets FX headwinds have intensified since may.

In China, while Covid restrictions have eased they are persistent and translating to lower consumer spending.

And sentiment in Europe continues to be negatively impacted by the ripple effects from the Ukraine crisis.

As it pertains to our 2022 guidance target, we are taking a conservative view of demand in the second half and proactively managing our business with the assumption that these headwinds will continue through the remainder of 2022.

We anticipate that the most significant impact of this change since our last call will come from the U S.

In response to this backdrop and current business trends, we have taken a series of actions to set ourselves up to continue delivering strong topline growth, while keeping us on our path towards our profitability target.

These actions are intended to have positive impacts across gross and adjusted EBITDA margin and to tighten inventory to more efficiently generate cash I will expand on these to give additional color.

First we are investing in various elements of our supply chain to reduce both cost of goods and our carbon footprint.

This includes forming new relationships and our manufacturing base upgrading to more automated distribution centers and moving to a dedicated returns processing provider in the U S.

Second we are streamlining our organizational structure and reducing SG&A.

In addition to slowing the pace of new hires which we began doing early in Q2, we made the difficult, but prudent decision to reduce global corporate head count by approximately 8%.

These reductions in part free us up to shift resources to continue to invest in areas that are critical for long term demand growth, including product sourcing and brand marketing.

Overall, we believe the simplification initiatives, we will optimize our cost structure, enabling us to drive substantial adjusted EBITDA improvement next year.

In addition, because of the high quality nature of our inventory, we feel comfortable taking a leaner approach to our inventory management by tightening the open to buy over the next few quarters, increasing turns and focusing on improved free cash flow generation.

Now I'd like to move on to provide updates on our three growth pillars. These.

These pillars remain unchanged and are where we will focus efforts in this dynamic market.

As a reminder, these pillars are expanding and energizing our product portfolio.

Growing our store fleet.

Scaling our international business.

Within product, we will further enhance our emphasis on footwear products and innovation to expand our offering across the lifestyle and performance footwear the.

The highlight from the second quarter was our successful true flyer launch and its unique midsole technology, Switzerland.

Tim will talk through what's on deck in the second half of the year why were excited about our recent materials innovation and how these enable a robust long term pipeline.

Moving to our second growth pillar stores, we remain pleased with the performance of our U S store fleet.

Stores are not only the best expression of the Albert's brand, but are a fantastic customer acquisition tool all while delivering strong four wall economics.

Moreover, as we grow our store footprint, we continue to expand our base of valuable omni channel customers, who spend around one five times more than single channel repeat customers and now comprised approximately 15% of our repeat customer base.

During the quarter, our U S store sales increased nearly 120% year over year.

We opened seven stores in Q2, bringing us to a total of 46 as of June 30 to highlight a few.

In the U S. We opened in fashion Island in Newport Beach in early June which was our first store in Orange County, and seventh in Southern California, and it has exceeded our expectations.

As we build stores in regions, such as southern California, we see meaningful gains in awareness.

Drive strong store economics across the region, while substantially lifting overall commerce across channels.

We also launched our first ever store in Canada in Vancouver, and opened a second in Toronto, just a few days ago.

And finally I'd be remiss, if I did not mention our Shanghai based China team for their incredible execution, while on lockdown managing to launch our fifth store in the city of Hangzhou, which demonstrated our ability to generate high sales productivity and a low capex buildout format.

Moving onto our third growth pillar scaling our international business.

Based on our early investments in Europe , and Asia, We continue to view the opportunity in our international business as at least as large as the one in the U S.

We remain steadfast in our conviction that our international expansion will prove to be an early mover advantage, allowing us to define what a sustainable footwear and apparel brand can be for consumers globally.

Given the current macro uncertainty and our actions to streamline workflows, we are focusing our resources more heavily in five region.

China, Japan, the UK, Germany and Canada.

We are proud of the inroads, we are making in China and continue to see it as a key engine for future growth with attractive margins.

Japan is experiencing significant consumer spending and FX headwinds yet our underlying growth is strong.

This is encouraging as Japan is an important region to generate global style credibility.

In addition to its large sales and profit opportunity.

In the U K, we continue to gain traction with growing brand awareness, particularly within the 25% to 34 age group.

During Q2, we acquired more new ecommerce customers in London than in any other market outside of New York City.

In Germany, we have had early success with our partnership with Alonso and are seeing traffic recover in our Berlin store.

In addition to our three core growth pillars, we are continuing to expand select third party distribution as a profitable marketing vehicle for our direct channel with incremental top and bottom line growth over the medium term, albeit with modest impact in 2022.

We believe that thoughtful and disciplined expansion into third party distribution can be a critical lever to help us expand awareness of the Albert's brand, while also building greater credibility in the performance category.

While it's still early days for our third party distribution strategy. We have established initial partnerships with marquee retailers, including Nordstrom Yolanda public lands and shields, all of which are off to a strong start.

Prospective partners view, our brand as an exciting new growth lever for their businesses and also way to express their own commitment to environmental values, helping them meet this growing demand from their shoppers.

When we evaluate future partners, we focused most importantly on the consumer that shops, there and.

And look for both credibility with those consumers and reached to a new group, who we haven't met through our own direct channels.

This includes accessing geographies that we don't expect to reach with our brick and mortar stores.

A good example of that is our partnership with shield, which is a premium regional chain in locations, where we do not expect to build stores for many years if ever.

We then focus on partners that present, our brand in a compelling and prominent manner such as our recent activation into high visibility center stage at Nordstrom's flagship store in New York City.

And finally, we show preference to retailers, who are committed to improving their environmental impact.

Looking ahead in the coming weeks, we will be launching an exciting new partnership with Selfridges in London, a key shopping destination for global trend centers, which should help drive significant brand heat and we will continue to update you as we get closer to launch dates with other marquee partners.

Hum.

In closing I'm incredibly proud that we've grown all of ours into a beloved brand.

Sumer focused innovation is the lifeblood of great consumer companies and we believe that our innovative sustainable approach to footwear and apparel is truly what sets us apart.

I believe that one of the most important characteristics of an innovative company is the ability to quickly determine what is working and what misses the mark and having the agility and prudent to pivot accordingly.

Today's announcement of our simplification initiatives shows our team's ability to proactively manage this dynamic demand environment and position us for continued success, even amidst a difficult landscape.

Importantly, and despite the increasingly challenged consumer backdrop, we have several proof points that I and other members of our executive leadership team track that showed that our fundamental model is working.

As a consumer obsessed company, we look to maintain our best in class NPS, which we have continued to deliver.

We also focus on repeat purchase rate, which is strong at over 40% that lets us know that our customers love our products.

Similarly, we also track customer LTV, which continues to grow as we provide new products that our customers love and offer them additional occasions to buy in our stores and more recently in our third party partner stores.

These metrics demonstrate a best in class customer experience with a modern distribution model all inside an enormous and growing addressable market, where we still have low double digit awareness collectively this gives us great confidence in our future potential.

I firmly believe that the strength of our operating model will continue to propel us towards our medium term financial and sustainability targets and we continue to win with consumers that we believe are increasingly aligned with our core tenants of the olive Garden brand.

With that I'll turn it over to Tim.

Thanks, Jody and good afternoon, everyone.

I am excited to update you today on the steps, we're taking to reinforce our brand positioning of supernatural comfort.

We are proud of how quickly we were able to become a leading source for sustainable footwear and establish <unk> as a standard Bureau for the industry.

Our relentless focus on innovation has been key to our success.

'twenty two is no exception.

And as we shared in prior calls is shaping up to be the strongest year in our history for new product launches.

The successful launch of <unk> in Q2 represented our third performance shoe for running.

The flowers lightweight bouncy and super comfortable bringing a powerful combination of performance style and natural material innovation to our consumers. We wanted an expanded offering to complement our dash and trial run of franchises.

We know that if you're going to make a running shoe that has to be extraordinary and so we spent more than 200 hockey is researching designing testing and iterating to create a running shoe that is a key building block of outperformance journey.

Maywood Revolutionary, Switzerland technology, the fly represents a big moment for all goods and another groundbreaking step forward for our values, our purpose and our journey to meet consumer demand for natural material innovation in the category.

Switzerland is a first of its kind <unk> midsole technology using plant based test have been oils, enabling an estimated 20% reduction in carbon footprint versus petroleum based synthetic alternatives.

We believe that <unk> balance sheet <unk> are among the most responsive largest and most energy efficient to produce <unk> on the market.

Kudos to our teams for bringing the Florida loss on yet another new <unk> materials platform the.

That delivers both unique consumer benefits alongside significant advancement towards our sustainability objectives.

Cracking the code and meeting and expanded running use case opens up a substantial opportunity for us to build an enduring competitive moat in the performance category and.

And the response from both consumers and media alike has been overwhelmingly positive.

In fact, 43% of <unk> sales in the first 30 days post launch, which are new customers, which.

Which we believe is a strong proof point that our performance offering is not only resonating with our existing audience.

New customers into the <unk> brand.

We also delivered some exciting brand heat moments in the quarter with the launch of our <unk> X rosy echelon sugar Sliders and limited edition, <unk>, plus which were top selling style in the quarter. Thanks to a cheeky Ed we launched with the actress Lindsay logo.

And just this past month due to overwhelmingly popular demand, we relaunched our children's small bits shoes with updated stores as a permanent collection with.

With an extended offering to cover toddler and <unk>.

Okay.

Turning now to apparel.

We are sharpening our focus and refining our offering going forward.

I think it's important to take a moment to ground, everyone and the origins of our apparel strategy.

First and foremost we know those customers have a disaster or apparel and we also know that having apparel increases average order value and lifetime value.

When we decided to connect our successful footwear franchises to apparel offerings with <unk>.

<unk> unique natural materials to deliver nixed the skin comfort.

<unk> hallmark the whole goods brand.

This is reflected in the success some of our core apparel offerings, including our socks underwear, a classic T shirts, and switch, which continue to perform well as expansions of our mature platforms and articulations of supernatural comfort.

As we look back on our apparel journey. There are a couple of key learnings, we're bringing forward to our next generation of product.

First we went too deep on leggings, an incredibly competitive category.

Second we were overly focused on narrow in use cases and have come to understand our customers want items that provide visited city across occasions that are material innovation supports.

Finally, given the strong sell through data, we know that our customer values and prefers classic seasonal items, such as Ts that complement our footwear offering.

Going forward, we will focus on our simplified lineup of apparel that showcases the versatility of our natural materials.

Gen. One assortment was less than half did a great product.

With our Gen. Two collections a vast majority of the assortment will be evergreen product, which will cause less seasonal merchandising and simplifies our buying process.

We'll be leaning into classic everyday stores that emphasize functionality and versatility and we will sunset leggings offering.

Similar to our successful footwear strategy, we will continue to focus on the key material platforms that can be leveraged across multiple products.

On a separate note I am excited to share that we are launching a new design and product hub in Portland, Oregon.

This office will serve as the creative headquarters for the majority of our design and product development teams, enabling us to centralized resources operate with greater agility and excess world class talent and the greater Portland area.

Moving forward, we remain committed to investing in our product and innovation teams, which play a critical role in the continued success of all goods.

Later this year, we will be introducing a plant leader platform with a rollout of a new lifestyle franchise, which will represent a new and more contemporary storm on that for <unk>. This is just a teaser of what's to come.

I'll have more to discuss on our Q3 earnings call, but needless to say, we're excited to be bringing yet another groundbreaking all goods franchise to market.

In 2023, we have more on deck and both our lifestyle and performance categories.

As we matrix our materials across silhouettes, we have a big opportunity to create families of products and associated pricing tiers across different lifestyle and performance occasions.

We believe this investment in innovation in materials platforms continues to be our most powerful and durable competitive mode.

Now over to Mike to discuss the financials.

Thanks, Tim and Hello, everyone. We are pleased that we delivered on our net revenue guidance target and beat our adjusted EBITDA guidance target in the quarter.

Our ability to deliver these results in this incredibly dynamic operating environment shows us that the underlying competitive moats, Tim just mentioned R&D durable.

Simplification initiatives announced today will allow us to continue to invest in the customer while we navigate the external headwinds and work towards achieving our medium term targets.

Going deeper into our Q2 results net revenue grew by 15% versus last year, 18%, excluding the impact of FX rates.

Our two year growth rate accelerated to 55% versus Q2 2020.

The growth in Q2 was equally balanced between orders and <unk> with.

With <unk> driven by a combination of price increases and increased units per order due in great part to core apparel offerings.

The price increase we implemented in March has broadly played out in line with our expectations with the increase in price more than offsetting any short term elasticity.

This speaks to the strength of our brand and the quality of our product offering.

Net revenue growth by region was consistent with our expectations with international flat in the U S growing 21%.

Our international business is again pressured by external headwinds.

In the U S. The primary driver of growth was the retail channel, which continues to perform well.

Given the U S consumer dynamics Joey outlined earlier I'd like to provide some color on our recent monthly trends.

From May to June we saw a sequential slowdown in total company net revenue growth from the mid <unk> to the mid teens.

This was driven by our U S business, which began to slow starting in the back half of June as of today. These trends have not yet abated.

Our read on the data is that this slowdown corresponds to a broader slowdown in U S. Discretionary good spending specifically in footwear in other words, we do not believe we are alone in experiencing these dynamics in our U S business.

Looking at adjusted gross profit Q2 increased by 4% to $40 million with adjusted gross margin at 51% down 519 basis points for Q2 of last year.

The main drivers are an estimated 400 basis points of year over year COVID-19 related cost headwinds as well as a lower mix of sales and our margin accretive international business.

These factors were partially offset by mix shift of physical retail and higher margin products as well as the price increase.

Wrapping up Q2, adjusted EBITDA was negative $9 2 million ahead of our guidance target range due to tight management of corporate SG&A.

I'd like to now provide more detail about our simplification initiatives starting with why we are proactively taking these actions now.

It starts with our belief that we have a beloved brand great products durable competitive moats and our powerful business model.

We believe that at the time of our IPO and we believe it with even greater conviction today.

In light of how the operating environment has changed over the last quarter and continues to evolve. The reality is that to be good financial stewards, we have to take quick and decisive steps to ensure that we can drive the business towards our medium term targets.

As we said last quarter, we remain steadfast in our belief that there are several paths by which all birds can achieve those targets.

Said simply the destination that not changed but the route we need to take over the next several quarters to reach that destination has.

Joey discuss the strategic rationale for the simplification initiatives I would like to discuss how they will positively impact our cost structure going forward.

Starting with the supply chain initiatives the transition to automated Dcs and a dedicated returns processor will provide greater cost predictability in the second half of 2022 and should begin to positively impact adjusted gross margin as soon as 2023.

The more rapid scaling of our manufacturing network should begin to meaningfully reduce product cost by late 2023.

Taken together, we believe these initiatives can keep us on track to achieve our medium term target of 60% plus gross margin and our direct business and make up some of the ground. We lost to the Covid related headwinds in 2021 and 2022.

Moving to the SG&A initiatives the steps, we've taken to simplify our operating structure and reduce office space are expected to generate annualized corporate SG&A savings of 13% to $15 million and will allow us to continue to invest in marketing spend as well as that talent across <unk>.

<unk> brand and sourcing.

The 2022 impact of these actions is approximately $45 million and it's factored into our updated 2022 guidance.

There are nonrecurring costs associated with the simplification initiatives.

We expect most of these to be incurred in 2022, but we'll keep investors updated on our progress.

Let me walk you through our current estimates of those expenses.

One we are liquidating end of life inventory, primarily first generation apparel we.

We expect the nonrecurring net expense related to this liquidation to be $12 million to $14 million.

The bulk of that expense already came through as a noncash charge of $11 $6 million in Q2.

Two in Q3, and Q4 there'll be $3 million to $5 million of nonrecurring SG&A expenses associated with employee related expenses, reducing office space and other projects.

We estimate that there will be another $3 million to $5 million associated with the transition to the automated Dcs and the dedicated returns processor.

Summing that up we expect the total nonrecurring net costs associated with the simplification initiatives to be $18 million to $24 million.

I'd like to close this section by again, emphasizing that we are taking these steps to optimize our cost structure and set us up for significant adjusted EBITDA improvement in 2023.

Taking a look at the balance sheet, we ended Q2 with $122 million of inventory, which was up 3% from the end of Q1.

While shipping times have improved somewhat in transit continues to account for about one third of our total inventory.

Adding more color here included in that $122 million is about $10 million at the end of life product that we plan to liquidate as part of the simplification initiatives.

Looking at the remaining $112 million. This is good inventory primarily core evergreen footwear.

And this dynamic demand environment, we will by tighter on core footwear for the next few quarters, enabling us to make calculated buys a new footwear styles.

This tighter buying approach when coupled with our selected promotional strategy is expected to lead to lower inventory levels and improved turns.

We ended Q2 with $207 million of cash.

To be clear the majority of the nonrecurring expenses outlined earlier are noncash and we will not have a material impact on our cash needs.

With mid teens revenue growth this year slower SG&A spending improved inventory turns and tighter buying we expect free cash flow to improve and do not anticipate having any incremental cash needs in the foreseeable future as we have ample cash to fund our growth initiatives.

I'd like to now share some thoughts on our guidance targets.

Until we have more certainty around the length and severity of the external headwinds, which now include the slowdown in U S. Consumer spending we will continue to take a cautious approach with our 2022 guidance targets.

There are three elements driving our outlook.

First we now estimate.

1% to $25 million full year impact on international net revenue from external headwinds.

Worsening FX rates are driving the entire increase from our prior estimate of $15 million to $20 million.

Second we anticipate that the U S consumer discretionary spending trends will worsen in the back half of the year.

Yeah.

And third and then demand environment like this we know it's critical to stay nimble and meet customers where they are.

We will continue to be thoughtful about our selective promotional strategy, but we do believe the competitive environment will require an increased level of promotional activity, especially in Q4.

We know that for all of our promotions introduce the brand to new customers drive demand and efficiently move inventory.

We are beginning to implement an expanded promotional calendar to include a more typical customer centric cadence around holidays as well as markdowns on end of season, our last call products.

To be clear we.

We will still be selective with promotions and for the full year anticipate full price yield in our direct channels of approximately 85% to 90%, which we believe is in line with our higher than other premium brands.

One housekeeping note.

Our guidance targets exclude any nonrecurring revenue and costs associated with our simplification initiatives.

Our updated 2022, adjusted net revenue guidance target is $305 to $315 million up 10% to 14% versus 2021, including an estimated year over year FX impact of 275 to 350 basis points.

We continue to target opening 16 to 17 new stores in 2022.

Our updated 2022 adjusted gross profit guidance target is 150 to $157 5 million.

At the midpoint of our revenue and gross profit targets. This represents an adjusted gross margin target of 49, 6%.

The changes from our prior target our business segment mix and modestly increased level of promotional activity.

Our updated 2022, adjusted EBITDA guidance target is negative $42 five to negative $37 $5 million.

The change from our prior target reflects the flow through of lower revenue and gross margin, partially offset by corporate SG&A savings from our simplification initiatives.

Looking briefly at Q3, our adjusted net revenue guidance target of $65 million to $70 million up 4% to 12% versus Q3 2021 <unk>.

Including an estimated year over year FX impact of 225 to.

To 300 basis points.

Our Q3 adjusted EBITDA guidance target is negative 17, five to negative $15 5 million.

Let me add a few more thoughts to help you model out the second half.

First in the second half total adjusted net revenue growth is targeted to be in the mid to high single digits.

We expect the U S and international to grow at similar rates for the balance of the year.

Second for the full year, we are now targeting international to grow low to mid single digits in the U S business to grow mid teens, we expect the second half slowdown in the U S to impact digital and retail equally.

Finally on an absolute basis, we expect adjusted gross margin to moderate sequentially in Q3, and then strengthened sequentially in Q4.

Let me close by acknowledging that this is a meaningful change to our 2022 guidance targets compared to what were expecting at the start of the year.

The reality is that the world and the operating environment have also changed meaningfully in the past six months.

We believe that the external headwinds our industry is currently facing will pass and do not change our long term story.

We are a sustainability leader in an attractive market with a massive wide space opportunity to grow brand awareness from low double digits.

During this consumer downturn, we are investing in building brand momentum through product innovation marketing retail stores and marquee third party partnerships.

We are confident that these investments in the customer coupled with the simplification initiatives will allow us to navigate this environment position us well when the headwinds pass and help us continue to make progress towards our medium term targets.

Again, the destination has not changed but the route we need to take over the next several quarters to reach that destination has.

Thank you for hanging with us for longer than usual prepared remarks, let's open up the call for questions.

Okay.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to.

To withdraw from the question queue. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Okay.

And the first question will be from Alex Stratton.

Stanley. Please go ahead.

Great. Thanks for taking my question here I, just wanted to touch on the demand evolution in the quarter it.

It sounds like you guys saw a slowdown to that mid teens rate in the back half of June and that continued through July . So I just want to understand first is that right you Didnt see further deceleration and then second could you guys. Just touch on you mentioned you you had some data points I told you about the slowdown earlier, so maybe tell us what.

Those data points and how are you monitoring in them now and going forward. Thank you.

Yeah, Hi, Alex Yes.

Thanks for the question. So Thats correct, we saw the slowdown really start to hit back part of June kind of after fathers day, just CMI People's behavior, just started to change, especially on the balance of good spending versus services spending.

It would primarily start to see that in some of our own direct data, but theres also a few other data points that we look at Joe did you want to jump in and talk a bit more about that yes.

Thanks for the question most of it is just related to our business model and the investment we've made in a really rich data ecosystem. So we see virtually all of our transactions happen between us and the consumer and and we've developed and invested in significant data ecosystems such that.

We can compare on a huge number of kpis, what we should expect to see from a trend perspective, and what we are seeing and that gives us a speed and agility to understand what's happening with the consumer and any deviation. We can usually pivot quite quickly and that might pertain to marketing spend a whole bunch of other actions that we're taking in that.

One persisted and we saw pretty consistent across a number of metrics and I'll say it was it was it was true in our digital trends and it also happened in physical retail so.

That's why we wanted to reflect that and make it clear.

And then for the first part of your question Alex Yeah that same rate continued in in July . So it didn't further Terry in July and then it's obviously only a few days into August but it stays consistent with what we've seen thus far.

Yes.

Great. That's super helpful. Maybe just one quick follow up on your answer when you guys had this agile respond to the change in trend maybe what was like the top one or two things that you immediately did that you saw approved super effective.

Yeah.

It's a whole host of things I mean, this is the kind of execution that we do every day and it's about the messaging to the consumer based on what theyre responding to whether that be a surgeon travel spending and we know people are on the road. We know were great shoes to use on the road and so we might position some of the <unk>.

Messaging around that to something as simple as just watching our return on AD spend and flexing up in demand.

The marketing that's a bit more performance oriented in a way that's that's.

Responsive to the trends that we're seeing.

Great. Thanks, Tom Great.

Thanks, Alex.

And the next question will come from Bob <unk> from Guggenheim. Please go ahead.

Hi, good evening.

Two questions for you I think on the first one when you look at the store base.

And the new stores, you are opening but in aggregate.

How many of the stores.

If you could wave a magic wand today, how many stores would you like to exit if you could and do you have any flexibility to to get out of some of those stores.

Given the environment.

Without major cost to you and the second question.

Mike in terms of the cash burn or the end of year cash your expectations can you just talk through you said you don't really think youll need any additional cash but could you just help us understand your expectations on the next few quarters and maybe even into 'twenty three.

Yeah. Thanks, Bob.

I'll start on the back end of that question and then I'll answer the first part of the first part of your question and I'll turn it over to Joey maybe there are some more thoughts on the store side and certainly the cash expectations is really not a whole lot more to add beyond what we said earlier in the call. We are taking these practice steps, especially around tighter buying better inventory management. So we feel really good.

Comfortable cash position, we're sitting at we think that our operating cash flow continued to improve and we're not at this point really getting into any kind of detail on 2023.

Thats, how we hold the cash question, but again really just kind of wanted to convey to folks we feel great about having the cash on hand that we do to be able to continue to grow the business.

On your question on stores I'll answer the specific question with that level of Jeremy you could share a little bit kind of moderate or more broader details on how we're thinking about the store fleet.

I would say Theres no stores, we would exit today right and even leases we have coming up there is a reason we reaffirm the 16 to 17 and fast there might be a chance to pull a couple of end of Q4. This year, we'll see how Q4 goes.

So for US we're not looking at it as any sort of slowdown in what we've already opened or what we have in the immediate pipeline. Our real estate team has done a great job of picking great sites in our operation then our retail team has done a good job getting those stores open.

Joe why don't you maybe share a little bit more about kind of are still holding retail overall I think it may be just helpful that.

Recap, how we think about retail and how that creates this omnichannel impact for us So first and foremost.

When we see the NPS that we do in stores, we understand the customer experience speaks to a higher repeat rate and we often see as I noted in my prepared remarks, we often see now it's up to 15% of our repeat customers are coming back and buying digitally and theyre spending over 50% more than single channel repeat customers.

So that's a really big impact on the profitability profile of a single customer that we can acquire and that's really important for us driving.

Driving the health of the business and of course these stores operated billboards and generate awareness within the region that we're in so all of that is incredibly important for the business model overall, but when we do real estate. We do this very conservatively and we only underwrite these leases to the four wall economics, and we built in cushion to make sure that.

We can hit our four wall EBITDA profitability target and we're very payback in ROIC centric when we make these decisions. So when we look at this what we expect is a quick payback and when you expect to be good capital allocators. So even in the demand environment like we're in today, where there's a drop off in <unk>.

Store traffic across the industry, we can still feel confident in our long term performance of each of these stores and the fleet overall and of course, how that halos into the cross Cross channel Commerce dynamic.

Great. Thank you.

Thanks Robyn.

Sure.

The next question is from Lorraine Hutchinson from Bank of America. Please go ahead.

Thanks, Good afternoon, I wanted to understand how youre thinking about the.

Profitability.

Obviously the cost cuts, but are you also considering level is to put on the top line to both scale like click our wholesale rollout or more new stores.

Yes, Hi, Lorraine Thanks, Yeah.

A couple of pieces here.

I think the first thing just to keep in mind that some of the stuff we're doing with the simplification initiatives, we're really shifting some dollars and resources around to continue to invest in marketing spend and continuing to invest in resources across the.

The product team and the brand teams, so really investing in the customer we know that investment the customer we've made historically that's driven these durable competitive moat that we see today. So please don't take the comment that though we're slowing down investing in the customer and it's all just about kind of getting to the cost side, that's not the message certainly at all.

Joey in terms of ordering specific question around would we accelerate store openings will be accelerated on the third party side, maybe you can share some thoughts to that part of the question.

Yeah, I think the way we're thinking about this is as we've mentioned before this year is quite slow and methodical and not particularly material in the financials and then we do expect to continue to roll it out and the reason we do think that as we know it is going to do well for awareness.

When people, we get maybe 1000 eyeballs on a pair of shoes in one of our marquee partners for every for every one pair that we sell through that through that channel.

Do you expect that halo to really positively impact our direct channel. So we want to do that we also want performance credibility and we're not going to lose discipline over the approach to make sure that we maintain a really clean marketplace, but as Tim mentioned, we have great performance products that have come out and you can see how.

And that interacts with our business and drives a lot of new customer acquisition with over 40% of the customers who bought that shoe in the first 30 days being new to our business. So when we augment that.

And we scale that with third party in a location where it gives us credibility in terms of the performance aspects of the product that's going to supercharge. It. So I think that's the approach we want to maintain and of course, we'll continue to look at data as things as things go and make sure that we maintain a really thoughtful and healthy set of relationships.

Thank you.

Yeah.

The next question will come from Mark <unk> from Baird. Please go ahead.

Great. Thanks for taking my question I guess first for Mike can you provide a bit more detail on the magnitude of the cost of goods savings you're expecting in 'twenty three related to the simplification plan.

But could you maybe speak to the level of sales of range of sales that would be needed to achieve breakeven adjusted EBITDA with all the changes you're talking about today.

Yeah. Thanks for the question Mark So when you think about that the cost savings piece over the course of the last two years, the COVID-19 related headwinds on logistics costs and distribution center costs had been about 450 to 500 basis points. So a big part of what we're looking at here.

We know we're not going to make all of that up in one year, but by accelerating some of these initiatives in taking these steps now we should be able to put a pretty good dent into that in 2023 by the end of 2023. So that kind of helps you think about how to size. It we're not going to get into Super detailed 2023 guidance.

Certainly today and look in terms of your question about is there like a magic sales number when it gets to your adjusted EBITDA breakeven I think the reality is kind of going back to part of what we shared earlier. This idea that the destination has not changed for US we're focused not just on getting to adjusted EBITDA breakeven, we're focused on the medium term targets and getting to.

Of that mid teens adjusted EBITDA as a percent of sales and there is lots of levers we can pull to get there. Obviously continued topline growth, which is why we invest in the brand and invest in the customer even during this economic downturn, that's a big part of it but a lot of these proactive steps. We took today on the cost of goods structure in the $13 million to $15 million of SG&A save.

<unk> those things combined really help us along the way and the pathmark.

Yes.

Thank you and maybe for Tim or Joey just given the learnings in apparel and the adjustments you're making to that strategy can you give us some broader perspective on how youre thinking about the revenue opportunity there where do you think apparel contract as a percentage of your sales in the medium term.

Yeah. Thanks, I'll take a first crack at that one look apparel at the moment is about Tim similar business, we don't see that materially changing the innovation and product focus remains.

Lastly on footwear, we've got some really exciting stuff coming with the new material platform in the next.

Short period of time, and you lost all franchise, but we're really really excited about but apparel has got a really important role to play we know that consumers want from us socks underwear classic T shirts switch.

Articulations of our Super natural comfort and part of the strategy there.

To focus on that.

Shifting from a lineup of Gen. One apparel that was listen half evergreen to the vast majority of of evergreen servicing these classic items.

Leveraging our deep deep knowledge in these natural material platform. So that's the plan going going forward and again.

As we are.

We've started it.

Central to our product and innovation if it is going forward.

Thanks again.

Okay.

And the next question will be from Matthew boss from Jpmorgan. Please go ahead.

Great. Thanks.

So Mike relative to your inventory position today and incorporating actions from the simplification strategy. What are you targeting for inventory to exit this year relative to revenue growth and then for Joey larger picture. What are you seeing in the competitive landscape today or what do you believe is driving the.

And the backdrop relative to three months ago in footwear.

Yes, so on the first one I really think of inventory as a forward looking metric Matt.

I kind of look at where will we be really notwithstanding this year, even by the end of 2023, I think with the steps, we're taking to by tighter on the core product that we have in stock now that we know is evergreen that we know our customer loves that is going to do pretty dramatic improvement. When it comes to turns so I am kind of looking out further to where we want to be by the end of 'twenty three.

And we think we're going to see the inventory position certainly come down by the end of 2023 and have a big improvement in turns next year.

I'll turn it to you for the second piece on your thoughts on the competitive dynamics, Yes, I mean, I think I'm sure you're all over that but.

I think the inventory situation in the industry is one that's quite notable where a lot of companies had difficulty navigating the supply environment for quite a long time during COVID-19 and those shipments are now just catching up and that happens.

The simultaneous with a slowdown in the overall appetite from consumers.

Maybe some of their spending is staying the same the shift from goods and particularly discretionary goods over to travel and other things in the economy.

<unk> is making a notable impact, particularly on footwear and so that's kind of a demand shift that we're seeing and I think what we're what we're seeing in the environment is already a much more dramatic promotional environment, then I think we'd anticipated by the industry wide going on.

That this part of the year, we might have expected in the holidays.

<unk> lived through what we've lived through in the past couple of years, but it is happening earlier now in a much more significant fashion than I think we would have predicted earlier.

Fortunate situation is that while well with any kind of slowdown we're of course going to be a little heavier on the inventory than we might otherwise planned for it's all really good quality inventory, it's evergreen and while we may make sure to be competitive in the environment with some smart promotion and.

Smart end of season markdowns were going to we don't need to do anything dramatic and can keep a really good discipline and make sure that we keep tracking against both the topline and margin expectations.

That's helpful color best of luck.

And the next question will be from Dana Telsey from Telsey Advisory Group. Please go ahead.

Good afternoon, everyone. As you think about the new product introductions that are coming up.

Are you, making any adjustments to pricing for these new products.

Would've before this downturn and what does that imply for the margin also.

Yes.

Thanks, Dana so on price and I can give back to Tim for a little color on that on the actual products and the innovation we're focused on but.

We talked about this earlier in the year, we really established a pricing architecture that signaled a few different things that we wanted to convey to consumers. When we made our pricing adjustment in March what we do.

We established a framework, where we were a material centric so super natural comfort deriving from materials is what the brand stands for we really want to make sure that we.

We orient the customer around that key value proposition, so where we might introduce something and tree that might be a lower price point than wall, which might be a lower price point than our newest innovation and plant leather so that architecture speaks to the quality and the delivery and expectations. We would expect from the consumer and then similarly.

On our lifestyle performance when you get into the higher technical offering that we have something like a flyer.

We would expect that consumers would be able to understand that the technology that we're investing in something like the mid Mitchell with Swift is of the highest quality in the industry and hence would be willing to pay more and Fortunately we priced at the highest price point I think we've ever sold any mainline product that we have at 160 Bucks in the U S.

And sold very well and also sold very well, while delivering all of that plus 40% of the mix being from new customers. So we're pretty pretty enthusiastic about that and are happy with the architecture that we've setup and thank the rest of the year is going to fit right into that into that model.

Okay.

Yes, Joe Joe that really well.

I think the key point to underline is that.

Natural material innovation is at the core of our growth engine, we have invested in that from the beginning we continue to invest in our recently opened up Portland design and innovation hub.

And that ability to continue to bring new and sustainable materials to market that meet consumer demand and we see it in our research every day this increasing consumer demand for natural and sustainable materials allows us to take price.

And to enhance the value for our consumers and we'll keep doing that across performance and lifestyle and like I sort of sit again.

Short term, we have a big new material platform and a new lifestyle franchise coming that we're excited about which will be a good example of that.

And then just wait.

Thank you.

Fireeye Dana but their follow up question there yeah, Yeah, just lastly on promotion.

What type of promotions or are you thinking about as we head into the third and the fourth quarter compared to and particularly you havent been promotional how you're thinking about promotions what should we be watching.

Sure I think so we have done some and I don't think its going to be inconsistent with what you've already seen from us.

You can look on our on our digital platform today and you can see that we had some end of season markdowns and these are really.

These are styles that were a little bit slower moving highly seasonal in terms of the color where the style and may have broken sizes. So that we're starting to move to kind of an end of season markdown cadence and that's just really going to help both be helpful. In terms of managing the expanding breadth of our assortment. So that's really align with what we've been.

Expecting to do.

And then I think in terms of the holiday cadence that we're doing that's pretty typical.

Pretty typical we did.

This black Friday event last year, which worked quite well and we're going to do something similar again here and these things are all aligned around the idea that we're a premium brand and we don't want to hit that you had customers to think that they can get products on discount if they want the best if they want the newest if they want the most core that's going to be full price from us.

So maintaining discipline around that is really critical to us and it is helpful to have an inventory base that really is so heavily focused on core and a little bit more evergreen style that allows us to do what we're just describing remain competitive in the marketplace and still keep full price yield at $85, 90% for the year, even in such a promotional environment. So what we are.

Pleased with the execution of that yes, one last thing I'd add to that Dan is we know in our experience while limited so far with like promotions, what we see it does is it increases awareness for the brand and we're still remember in the mid teens aided brand awareness today and definitely drives demand. So it helps us bring in some new customers. So that's part of the reason why we want to meet the customer where they are and some of this.

Stuff right now.

Thank you.

And the next question will be from Ed Umar from Piper Sandler. Please go ahead.

Hey, good afternoon, guys. Thanks for taking the questions. Two from me I guess first you guys told me when we get store about performance. So congrats on the early success there wanted to click down a little bit on the lifestyle business, what kind of performance trends are you seeing within your legacy platform is particularly well Robert.

Seasonally the hottest shoe during the summertime and then as a follow up I wanted to confirm what the write down in apparel was $12 million to $14 million and I just want to kind of understand a little why should we treat that as a one time given that companies in your space kind of create new product discontinue all the time is that really appropriate as a as a one time charge and kind of how would you.

Like I said treat that.

Yeah happy to follow up in more detail on the second question.

We have a call back with you later, but the reason we think of that as a one time is it's a pretty big move in this generational change on the apparel side of things. That's the biggest driver in sync than with some of these changes we're making on logistics side. There truly is onetime in nature and that's why we've chosen to liquidate as opposed to trying to.

Two.

As opposed to trying to move through our own direct channels, which we do a pretty good job of it Joe I was just saying with some like end of life and markdowns. So there's a bit of a different beast, but happy to talk you through that at all but more on the follow up call in terms.

To your question on that performance versus lifestyle trends.

We continue to be happy with the overall growth across each side of the footwear category. There are certainly times during the year, where the focus is we'll have around performance, where it's a little heavier on lifestyle. There has tightened a little heavier on <unk> right now, but then we're getting into more season. So we continue to feel pleased with the overall growth we see I think the credit at Tam and the product team the expansion there.

We've had across the whole product portfolio, especially on the footwear side gives us the stability to have things that are top of mind for our customers at every given timing year and thats, how we see it sort of flow all the way through the year on our end.

Thank you.

Thanks Pat.

And the next question is from Jim Duffy from Stifel. Please go ahead.

Thank you and good afternoon. So my question is around the digital business more challenging environment here not unique to all birds I'm trying to understand how this plays forward can you maybe speak to differences in what youre seeing with repeat customer engagements and your yield on new customer acquisition efforts and then from a tactical standpoint, I'll, let steering your allocation.

For them its marketing spend.

Yes.

Chip good question.

So I wouldn't say that at this point, we're seeing any deviation really in trends between new customer acquisition and repeat and in fact, we're seeing really positive trends in terms of LTE LTV growth and repeat engagement, we track that on a number of different periodic basis and we're seeing.

Absolutely no falloff and the number of.

Repeat purchases that people are making and when you couple that with the <unk> growth that we're seeing generally.

Quite a positive sign for us, particularly in an environment like this.

And Mike alluded to this.

Even despite the fact of what we're seeing on the demand side. This is.

This isn't going to be a knee jerk reaction to a downturn, we're going to continue to invest not just in marketing as a line item, but really specifically around brand and really emphasize to the we know we are aligned with what the customer wants and we're going to double down in our biggest opportunity is in the fact that we.

Still have low to mid teens awareness aided awareness people, who have heard the name Alberta before we can increase that number and connect with people around the values orientation that we know they are aligned with our brand, that's where we're going to win and so that's.

That's something we're not really letting off and we haven't seen any data to suggest that that would be a prudent move at this point.

Okay Joe.

You guys aren't the only ones with a strategy like that I'm trying to understand in that context, what's the margin impact for the business and what's the long run prospect for the margin of that business. So are we going to look back at 2018 to 2021 as the halcyon days for digital engagement.

Is there a reason to believe the economics on that business can improve.

Well it doesn't exist in a vacuum Jim I would really think about the model that we're building as a.

A little bit more than just a channel by channel segmentation.

When we when we invest in our retail footprint, we see the digital business right and we know we can attribute that back to awareness being lifted in that geography, when we have fantastic organic brand marketing Activations, we see that we see that come through in aided brand awareness and then we can.

Can double click on that a more performance oriented ads and I would say despite the fact that cpm's had been rising across the industry I think thats, a well known trend that everyone has faced over the last five years, we've done such a good job of early diversification of the media spend that we have that we come back to a place where our overall bid.

<unk> can still have leverage on the marketing line item, while we're investing and doubling down in brand and that to US is the right long term formula. So that we can be adaptive and dynamic to the current situation, while not sacrificing any of the long term possibility that this brand has.

Thank you.

Thanks, Jim Thanks, Tim.

The next question is from Dylan Carden from William Blair. Please go ahead.

Thank you.

I know you guys think about the channels holistically, but kind of understanding trends through the quarter.

Any additional color you might provide on was the slowdown more concentrated in the U S online.

Was it pretty even between the two channels and kind of what Youre expecting go forward.

Online and retail.

Hey, John we say, it's been pretty consistent across the channel. That's why we talk about it as a broad based slowdown we don't think it's just certainly and it seems to be both brick and mortar and digital.

Thanks.

Okay.

Yeah.

And the next question is from Ashley Helgen from Jefferies. Please go ahead.

Hey, Thanks for taking our question just a quick one for you you mentioned the gross margin is expected to be down in Q3, and a nice rebound in the fourth quarter.

What's driving that rebound.

Yes, Theres a couple of components there Ashley thanks for the question, we're glad to make sure. We had time to me on the call.

So the first thing is it is our highest seasonal quarter of the year sales loss that certainly gives us a little bit leverage on a few parts.

Gross margin that are fixed the second thing is we're starting to lap.

Some of the absolute highest level of inbound shipping we're also lapping pretty high fuel surcharges and outbound surcharges last year. So it will still have some of that stuff built in in Q4. This year. We're just starting to lap some of the rail ugly and ask some of the COVID-19 headwinds thats going to be the big driver there.

Super helpful. Thanks, guys.

Yes. Thank you.

The next question is from Noah <unk> from Keybanc. Please go ahead.

Alright, Thanks for taking my question.

Just on the cadence of gross margin I know you mentioned that you were through the bulk of inventory write downs, but just in terms of.

The mix of inventory on the balance sheet still up quite a bit.

Ending the second quarter could you just give a little more color on kind of the mix of the inventory balance and what gives you confidence that you will.

I'll be taking further write downs than what you've guided to in the back half of the year.

And then just very quickly on the international business.

Guidance implies a slight uptick there versus the second quarter. So just any color there would be helpful. Thank you.

Okay.

Yeah on the international piece I'll answer that first because that's quick.

Staying on the local currency side things really are playing out.

Very much in line with what we expected at the end of last quarter. It's really just kind of the move in FX and look it's a pretty volatile environment out there and some of the international Geos, but our teams are doing a great job of executing the product and the brand are resonating well with those customers. So.

You are kind of reading that guidance right. There now on that part of it.

The first part of the question then was about the inventory piece of it.

So after the part that's anticipated to be liquidated to a 122 million today 10 million more coming on the liquidation side to that $112 million that we have left after that again, we think of that as healthy evergreen product largely footwear. This is stuff that we know our customers are going to continue to buy.

The things that are sort of the timeless classic Oliver it's products that people know and love. So that's why I'm confident we'll be able to continue to move through that inventory. It's also nice for us because the products, we can be tighter buying on going forward, especially over the next several quarters. Because we know we have the inventory in place to meet demand and then finally, where reduce some of this selective.

Promotion that Joe is talking about around our cyber Monday or that sort of thing we know that those types of things do help us move through inventory as well. So that's why we're confident that the stuff that's going on primarily around apparel is sort of a unique onetime thing we're going to move through that without it is important to take the quick and decisive action now that we've made some adjustments to the apparel side.

<unk> and.

Being able to do this now will be able to accelerate some of those logistics cost savings as well and we're happy to talk to that a little bit more on a follow up call as well.

Thank you.

Yeah.

The next question is from John Kernan from Cowen. Please go ahead.

Good afternoon. This is Christian on for John most of our questions have been answered just just one year in relation to the simplification initiatives. How should we think about your capital allocation and Capex run rate over the next few years. Thank you.

Yeah look again, we really believe the cash position we have now.

It is in a great spot, we're going to see improvements in our operating cash flow. There's lots of stuff, we talked about on the call today, we have more than enough cash available to like fund our growth and have no cash needs.

The exact pace of Capex, and how that spreads across different projects will get into that detail a little bit more of a when we start to give 2023 guidance, but no change on anything on the Capex side for us tied to what we talked about today.

Thank you.

Alright, Thank you and with that I think Joe you are just going to close this out with the <unk>.

Hosing thought yes. Thanks, thanks for everyone's time today and all the great questions. I think we've tried to do a good job here hopefully we conveyed it.

Particularly that.

The love that we're seeing from our customers and that they are demonstrating through repeat purchase.

I think it's testament to the strong health of the brand.

There's probably no more important indicator than that and it's underpinned by new footwear products like the flyer that we talked about and the energy moments within our existing franchises. So we're confident that these proactive steps that we've taken in that we have detailed today will ensure that we can still deliver on the medium term commitments to the financial and environmental stake.

And as Mike said, a couple of times.

The destination is still the same the path that we might use to get there may adjust a little bit on the way.

So thanks again, we appreciate all your support and look forward to.

Talking to next quarter.

Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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Good afternoon, ladies and gentlemen, and welcome to the all Bird's second quarter 2022 conference call.

All participants have been placed in a listen only mode.

After managements 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 to Katina <unk>, Vice President of Investor Relations and business development at all birds. Please go ahead.

Good afternoon, everyone and thank you for joining US with me on the call today are Joe will endure and Tim Brown Albertas co founders and co Ceos and Microfinance Albertas Chief Financial Officer before we start I'd like to remind you that we will make certain statements today that are forward looking within the meaning of the federal securities laws, including statements about our financial.

Forward looking statements reflect our opinions only as of the day of this call and we undertake no obligation to revise any statements to reflect changes that occur after this call.

Please refer to our SEC filings, including our quarterly report on Form 10-Q for the quarter ended March 31, 2022 for a more detailed description of the risk factors that may affect our results.

Also during this call we will discuss non-GAAP financial measures that adjust our GAAP results to eliminate the impact of certain items.

These 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 the extent reasonably available in today's earnings release.

Now I'll turn the call over to Joe to begin the formal remarks.

Good afternoon, everyone. Thanks for joining the call today and a warm welcome to Katina thrilled that you've joined the block.

I am pleased that we delivered solid financial results during the second quarter in line with our top line guidance and ahead of our EBITDA guidance net revenue grew 15% year over year or 18%, excluding FX headwinds.

That was driven by strength of our U S business, which grew a solid 21% year over year.

Our adjusted EBITDA loss was $9 2 million.

Importantly, ahlberg surpassed $1 billion in lifetime net revenue this quarter, which is an incredible achievement for a brand founded in 2016.

As for product Q2 also saw the highly successful launch of our first high performance running shoe the flyer we've.

We've made incredible strides in our foray into the performance footwear category with the Dasher Trail and Flyer franchises together now comprising 24% of total sales.

We believe that now perhaps more than ever given the record heat way, it's occurring around the globe, a relentless focus and authentic leadership and a sustainable footwear category truly sets us apart and will allow us to win with consumers for years to come.

Okay.

Stepping back I'd like to make a few comments about how we currently see the external environment and how that is informing our view of the second half.

Since our May earnings call persistently high inflation has started to take its toll on consumers.

Across our industry elevated inventory and promotional levels have begun to impact digital and retail traffic trends.

Our customer tends to have higher than average income and hence there was a lag on the impact of inflation, but this trend became notable in the U S. Beginning in the back half of June .

One of the greatest advantages of our business model is that our sophisticated data platform and our direct relationship with our customer allows for rapid visibility into changes in demand signals.

As a result, we are likely seeing the slowdown.

Before many others in our industry and therefore have been able to pivot sooner.

In our international markets FX headwinds have intensified since may.

In China, while Covid restrictions have eased they are persistent and translating to lower consumer spending there and sentiment in Europe continues to be negatively impacted by the ripple effects from the Ukraine crisis.

As it pertains to our 2022 guidance targets, we are taking a conservative view of demand in the second half and proactively managing our business with the assumption that these headwinds will continue through the remainder of 2022.