Q2 2023 Allbirds Inc Earnings Call

Yeah.

Good afternoon, ladies and gentlemen, and welcome to the Alder in second quarter 'twenty two 'twenty three conference call. All participants have been placed in a listen only mode. After management's prepared remarks, there'll be a question and answer session at which time instructions will follow.

I'd now like to turn the call over to Christine dreamy of the Blue shirt group. Please go ahead.

Good afternoon, everyone and thank you for joining US with me today on the call are Joey's Willinger, CEO and Andy Mitchell 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.

Statements about our financial outlook, including cash flow and adjusted EBITDA expectations Q.

Q3 guidance targets.

Impact and duration of external headwinds.

Vacation initiatives.

Strategic transformation plan.

Related planned efforts go to market strategy plan to transition to a distributor model in certain international markets.

Dissipated distributor model arrangements.

<unk> profitability.

Cost savings targets gross margin estimates.

<unk> plans and expectations.

Third party partnership strategy marketing strategy 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 refer to our SEC filings, including our quarterly report on Form 10-Q for the quarter ended March 31 2023.

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.

Yeah.

First inventory level declined approximately 24% on a year over year basis, ending the quarter below $95 million for the first time in two years.

This is a prudent financial and inventory planning and our balanced approach to meeting the consumer where they are on price, while maintaining brand integrity.

Next we continued our strategic sourcing efforts and between materials optimization and factory footprint management. We are confident that we are trending towards the upper end of the target range of cost of goods savings of $20 million to $25 million in 2025 versus 2022 on a volume neutral basis.

Also on cost management, we are pleased to be able to reaffirm our range of expected SG&A cost savings of $15 million to $20 million by 2025 versus 2022.

And lastly, we closed the quarter with $140 million of cash, reflecting significantly improved operating cash usage versus a year ago, and our commitment to driving capital efficiency over the long term.

Most recently, we executed on another material proof point under our transformation Mark.

Yesterday, the signing of two letters of intent with international distributors as part of our plan to transition select overseas regions from a direct go to market model to a third party distributor model encompassing an omnichannel scope.

Aimed in part at driving volume via wholesale distribution.

These first two transitions are in Canada, and South Korea, and we anticipate announcing additional geographies in the coming quarters.

Transitioning our international model is one of the four key pillars of our strategic transformation plan.

As a reminder, these include one reigniting product and brand key optimizing U S distribution on four wall profitability in stores.

Evaluating a transition of our international direct go to market strategy towards a distributor model in <unk>.

Sure so improving overall gross margin and leverage on operating expenses.

I will take you through a brief update on each of these strategies and how we're progressing.

Starting with product and brand.

Our product team remains laser focused on recalibrating, our assortments with a focus on revitalizing our core franchises and driving more of the business from these models, while also delivering important innovation to engage with our loyal consumers.

With an incredibly strong NPS of 86 in the quarter, we continued to deliver a wonderful experience, which helps to build confidence in our ability to reconnect with our core consumer and drive greater brand momentum over the long term.

To be clear, we expect this to begin meaningfully taking shape next year in the spring of 2024.

We are deliberate thoughtful innovation in select newness this year with measured inventory buys to help provide our confidence.

There are several noteworthy callouts.

Our recent core franchise extension of the golf Dasher has met with solid demand and rave reviews from our consumers around the Gulf growth with PGA tour players organically, finding our products and playing with them internally.

A much more comfortable around that.

We dropped our Super light collection in April our lightest ever sneaker that is perfect for travel and also boosts our lowest carbon footprint today.

Last month, we debuted our Arctic securities a string of collaborations with artist designed to amplify creative voices and reach new consumers.

First one I was curious as a limited edition riser.

Created in partnership with London based fashion designer Olivia Rubin.

In the future you will see us increase focus towards our core franchise with this and other collaborations.

Most recently, we launched the tree fire too.

While we are very high quality technical running shoes. The past couple of years have taught us that our consumers look to us most of our versatility of their active lives rather than for support getting marathons. In addition to buying this update tightly from an inventory perspective, we have introduced important aesthetic changes that elevate the product and lifestyle locations and a <unk>.

Match, the marketing message and approach to meet our consumers needs better.

We have additional innovation, we plan to deliver to consumers in the second half of this year, including a key update to the wall runner. This will be the first significant and highly visible change to this hero franchise that launched our business in 2016. When it was broadly described as the most comfortable shoe in the world.

The wall run or two we'll have a modernized the aesthetic and deliver superior comfort and durability.

Q4 will also begin our execution against the agenda differentiated product strategy with a capsule for.

This will be just a taste of what's ahead in the coming year leaning into novelty materials and trends to drive further differentiation and seasonally right expression.

While we were also cycling disciplined inventory management and more Muslim buys from new launches. This year, we are still bringing excitement and newness to consumers and we're pleased to see sell through are trending on plan and in some cases ahead of our expectations.

Looking further ahead, we are pleased by the consumer and industry response to our release of the Moonshot project further cementing our leadership and sustainability with the world's first net zero carbon ship.

While small in volume, we anticipate those projects will pave the way for important collaborations that have the potential to capitalize on momentum in 2024 and beyond.

To showcase all of this newness and to drive traffic, we continue to employ a social influencer led marketing approach builds.

Building on the success of our Super Natural exploration campaign. This spring, we will be expanding our influencer programs throughout the second half of 2023, and leading up to the holiday selling season.

We anticipate that this refined marketing approach coupled.

Coupled with compelling price offers during consumer led promotional windows like back to school and Labor day will help continue our execution during this transition year.

Turning to our second pillar optimizing use distribution and store profitability.

We know that brick and mortar both our own and third party is an important way to reach new consumers and also increased spend among our valuable omnichannel consumers.

During Q2, we opened two full price of U S stores in Greenwich, Connecticut, and in Walnut Creek in the Bay area.

Bringing our total U S store count to 44 at quarter end.

Subsequent to the close of Q2, we opened one additional U S store in Columbus, Ohio.

As a reminder, these three locations were opened again early 2022 lease timing and we currently have no further U S openings planned.

On the international front, we opened a new location in Hamburg, Germany during Q2, marking our loss overseas store opening plan for 2020 growth.

Returning to the U S store base traffic remains challenging and we expect this to persist through the end of the year.

As we work to optimize our U S store profitability, we are underway on a number of initiatives designed to help establish a consistent selling and performance culture across the organization. This.

This includes new visual messaging more targeted merchandising strategies that bring greater excitement and energy to our floor sets.

In wholesale we made substantial progress working down existing inventory so that we exit this year in a healthy position.

Promotional levels remain somewhat elevated but have trended lower over the past couple of months, we are fortunate to be working with marquee partners, who understand our priority to recalibrate our product lineup closely manage inventory levels and move at a very measured pace as we bring newness to the channel.

One noteworthy example of the strength of our third party relationships as the opening of our Selfridges carbon concept pop up store in mid July .

Located in a premier location in London, Oxford Street, the six week immersive experience highlights our mutual commitment to sustainability, while delivering style and comfort to their global case, making shoppers.

The budget has been tremendous bringing visibility to our brand in the UK enhancing our credibility and paving the way for future collaborations and partnerships.

Now on to our third pillar transitioning our direct go to market strategy towards the distributor model in international markets.

We believe today's announcement of our expected transition to distributors in Canada, and South Korea will mark the beginning of a more profitable path to growth.

Alternative grant in overseas markets.

We've been searching for the right partners with strong merchandising capabilities to drive the right products for the right channels as well as the ability to connect with the local consumer enhance brand equity and pure customer engagement.

The goal of this strategic shift towards the distributor model is multifaceted and is designed to position the Alberta brands for long term scalable growth internationally.

First we believe these partnerships will help us build upon our global brand equity by leveraging regional expertise and wholesale capabilities to resonate with local consumers in each respective geographies.

We're very excited about the cumulative years of experience. These distributors will bring to our operation and the growth plan and they are committed to helping us attain.

Which we anticipate will generate unit sales growth in excess of what we might achieve on our own in the short and midterm.

A secondary benefit of this strategic shift is to reduce overall complexity and lower operating expenses to improve profitability.

Lastly, the adoption of this model positions us to free up cash tied up in inventory.

Internationally and reduce our overall inventory balance.

As a directional blueprint based on the signed letters of intent, we anticipate that these arrangements in Canada, and South Korea will be multiyear in duration and we plan to include volume minimums and marketing commitment.

We expect our business under these international partnerships to deliver gross margins below our U S wholesale business.

We anticipate equal or higher contribution margin and anticipate strong cash flow dynamics with expected title transfer from us to our distributor partners X factor.

Looking ahead, we are impressed by the caliber of potential partners. We are hearing from other international market.

<unk> distributors with deep industry expertise, who have a high regard for the olive garden brand and are eager to collaborate.

Ongoing discussions in other countries gives us confidence that we will be able to announce additional transmission in future quarters.

Moving to our fourth and final pillar, improving overall gross margins and managing operating expenses.

We made continued progress in Q2 and entering the second half of the year. We are on track to deliver the cost savings targets, we outlined previously.

This includes $20 to $25 million and savings on Cogs and $15 million to $20 million in savings in SG&A by 2025 compared to our run rate at the end of 2022.

Andy will provide additional context for these shortly.

Before I pass it over to Mark I want to note, how well our block is performing.

Resolute spirit hard work and resilience in the face of Big change has allowed us to make such important progress thus far in our transformation.

Our teams are aligned on our core objectives focused on superior execution and energized by the opportunity to win as we work collectively to take over into our next phase of growth.

I am proud to see everyones stacking hands and doing the work that transformation like this require.

We are entering the second half of the year with confidence in our trajectory and our relentless focus on managing cash and achieving our goal of positive adjusted EBITDA in 2025.

As always underpinning both our near term objectives and long term vision is our unwavering commitment to create better things in a better way.

Now I will turn the call over to Andy to discuss the financials.

Thanks Joey.

Our second quarter results reflect ongoing progress with our transformation work with significant improvement across the key benchmarks, we laid out in March including lower inventory levels reduced usage of operating cash and cost control.

Q2 revenue of $70 5 million declined 10% year over year and came in ahead of our expectations.

Excluding an estimated $700000 impact from FX.

Q2 revenue would have been $71 2 million, which would have represented a 9% decline year over year.

We delivered significant expansion in gross margin for Q2, which came in at 42, 8% that's up six seven percentage points compared to Q2 2022 and reflects a few key factors.

First inventory write downs were significantly lower on a year over year basis.

Second we captured some benefit from lower inbound freight expense.

And lastly, we benefited from an increased mix of higher margin sales in Asia.

These factors more than offset the impact of higher promotional activity in the second quarter of 2023 versus the second quarter of 2022.

We're pleased with the continued progress towards our 20% to $25 million cost reduction targets for 2025 versus 2022.

In Q2, we largely completed the transition to our new manufacturing partner in Vietnam, and our material optimization initiatives are continuing to progress.

Moving to expenses.

SG&A, excluding depreciation and stock based compensation increased just $4 $5 million compared to Q2 2020 to.

That reflects the continued improvement in trend as we focus on careful cost control, most notably the ongoing tightening of discretionary expenses.

Looking at the second half, we anticipate that SG&A dollars in Q3 will be flat to up slightly from Q2 level.

Additionally, we anticipate that Q4 SG&A dollars will be up on both a sequential and a year over year basis, primarily reflecting our larger store portfolio.

Marketing expenses declined $3 3 million or 21% compared to Q2 2022.

In the first half of the year, we made the strategic decision to pull back on marketing as we focus on our transformation plan and navigating the promotional environment.

Looking ahead, we are preparing to support our recalibrated product lines in Q4 and ended 2024 with new campaigns.

And during the second half, we expect Q3 marketing dollars to decline slightly from Q2 levels, followed by a modest uptick from third quarter into the fourth quarter.

In Q2, we incurred $1 million and restructuring charges associated with our strategic transformation.

The combination of better than expected top line performance and careful cost control drove an adjusted EBITDA loss of $18 3 million in Q2.

That's ahead of our guidance for negative 20 to 23 million and represents an improvement of 12% versus a year ago.

Turning now to the balance sheet and cash flow I am pleased to report that we made significant improvement with in both areas.

First you know that we've been laser focused on inventory, we ended the quarter with inventory levels down approximately 24% compared to Q2 of 2022 and down 21% from year end.

The improvement reflects more selective and disciplined buyers, resulting in lower levels of inventory on hand.

Looking at the remainder of 2023, we expect to see ongoing progress from quarter to quarter ended the year with a healthier composition and clean position.

Now, let's look at cash at the close of Q2, we had $140 million in cash on the balance sheet, we dramatically cut our operating cash usage in the second quarter generating positive cash flow of close to $1 million compared to negative operating cash flow of $24 million a year ago.

The improvement can be traced to our aggressive actions to bring down inventory levels and reduced operating expenses.

For added perspective, our working capital needs typically peak in the first and third quarters as we prepare for the spring and holiday selling season.

Looking at the balance of the year, we anticipate seasonally higher working capital needs in Q3 compared to Q2 with a moderating trend in Q4.

Moving to guidance, we are maintaining a cautious outlook given the extensive transformation work, we have underway, including our methodical approach to right sizing existing inventory.

To enable us to drive healthy growth in 2024 and beyond.

We are providing the following outlook for the third quarter of 2023, which reflects the ongoing work we are doing to execute against our transformation plan.

Q3 revenue is expected to be in the range of $56 million of $61 million representing year over year comparisons of negative 23 to negative 16%.

The deceleration in trend from Q2 to Q3 can largely be traced to dynamics around promotional intensity level as well as the lapping of significant sell in to the third party channel last year.

Adjusted EBITDA loss is expected to be in the range of $20 million to $23 million.

Looking ahead, we anticipate that our expected shift to a distributor model in Canada, and South Korea will benefit in working capital and the profitability of these markets on a go forward basis.

The agreement contemplated by the letters of intent, we signed with the distributors in these two geographies are expected to be completed in the second half of the year.

To that end, we expect to be in a position on our next earnings call to provide a framework for how the transitions will strengthen our financial model over the long term.

The transformation plan, we laid out in March is designed to reignite growth improved capital efficiency and drive improved profitability.

While the majority of our product and branding initiatives will be coming to market. In 2024, you can expect to see us continue to aggressively manage inventory cash and cost in both the near and long term.

Now I'll ask the operator to open the call for Q&A.

Thank you.

Ken I think we will conduct a question and answer session. As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of Matthew Boss from Jpmorgan go ahead Matthew.

Great. Thanks, It's Amanda Douglas on for Matt.

So Kelly with QQ inventories, finishing down 24% year over year could you speak to the composition of inventory levels.

Maybe how best to break apart core franchise inventory levels relative to progress you've made on clearing through some of the obsolete styles and then just what level of promotional activity have you contemplated in your forward guidance.

Hey, Matt Thanks for the question.

No.

But the way that we've been approaching markdowns and our promotions in terms of what assortment. We're putting in is primarily focused on kind of eliminating the long tail of product that is outside of the core franchise.

And then and then perhaps even deeper when you get to seasonal colors that are no longer relevant.

Sure.

So far.

Right and pleased at the progress that the team has been making in terms of selecting which assortments and managing the depth of markdown or promotion that we're offering there and so where that where that lands us in a position where in Q2, a very significant portion of the inventory that we that we moved within the.

<unk> franchise, which you may recall from the last couple of quarters. We noted was a bit high and outside of what we would consider a core franchise. So as we transition to a much more measured by in a different positioning on the tree Flyer two we wanted to sunset that first generation product.

So alongside that some of the other ancillary products that we will no longer support going forward plus some of the more kind of flashy seasonal color. So so far so good in terms of the.

A look back and in terms of the look forward again.

Seeing a really nice methodical pace into this and you can see that as we flex things like.

Pulling marketing spend that 21%.

And moving inventory down 24% in the quarter, that's pretty significant progress in much better than the trend on sales.

So that is that is something that we expect to be able to continue.

And well as Andy noted continuing to deliver some positive news in terms of sequential gross margin on that.

That's helpful color. Thank you.

Thank you John .

Our next question comes from the line of.

Dana Telsey from Telsey Advisory Group. Please go ahead.

Dana Your line is open.

Okay.

And on that please.

The next question comes from the line of Alex Stratton.

Oregon Stanley go ahead Alex.

Great. Thanks for taking my question Hydro A&D.

For me just on the second quarter guide it looks like it's embedding a deceleration in the underlying revenue growth trends. So I'm. Just wondering is that a function of what you're seeing so far quarter to date or is that just some conservatism on your part.

Any help there with how you thought that through and then I think just secondly on the promo question I'm wondering if you could speak to like the broader environment and in jewelry. I think you also said it trended lower in the last couple of months. So if you have any sense for what drove that and kind of how it how it panned out that way. Thanks, a lot sure.

I'll follow up on that one and maybe Andy can give a little color on our Q3 guidance.

Alex.

The decelerating trend that we're expecting from Q2 and into Q3.

In a number of factors first is that elevated promotional activity that we had in Q2 that enabled us to clear through so much of that inventory. We do believe there were some level of a pull forward of demand from Q3 into Q2.

The other major topics that we're looking at is in Q3 last year, we had a major sell in a moment with our three P.

And so as we're as we're ramping up our presence in that channel last year. Therefore, we are up against a tough comparison year over year.

Yeah.

And on the promo environment Alex.

Sure.

It's an interesting situation, we would have expected at this point for to subside a bit but what we're seeing in the.

Overall industry as continued elevated promotional cadence.

Both frequency and depth.

In terms of the discount rate and we're seeing that kind of anecdotally as well as in the numbers that we look at weekly.

And and.

In some ways I think it's a good thing for us because we're able to really surgically use promo and markdowns on our sale pitch to drive pretty solid conversion and allow us to be competitive on a price basis with an industry, that's a bit over inventoried while also moving.

Very importantly through the inventory that we don't want to support when we start to reignite growth in 'twenty four. So unfortunately, we are able to be quite opportunistic during this period and maintain a very premium brand integrity with the way we show for consumers because of that environment.

Okay.

Thanks, a lot.

Thank you. Our next question comes from the line.

Cristina Fernandez of Telsey Advisor Group go ahead Christina.

Hi, good afternoon, I'm filling in for Dana today.

I wanted to see if I'm if you can talk about your core styles.

How are those performing and how it's to full price selling those styles.

Okay.

So.

Hello Cristina.

The core franchises as we've as we've noted that if you go.

From non core to core youre going to get higher full price sell through.

And the trends are going to be better.

When you go from your seasonal colors, and particularly at the very high pop lines, which are short duration lifecycle for us towards more classic neutral.

Given the softer it gets better.

So that is a trend that we're seeing that said I think we've had a couple of franchises that have been.

Iconix for the brand and have been around for quite a long time now and so one of the key focal areas for us in 2024 is to revitalize some of these core franchises, both updated tooling and in many cases, a lot of new designs on that on the upper both reinforcing from a quality perspective, but also in asset quality.

And then the actual comfort and the durability of the product as well as modernizing the aesthetic and that is going to be a pretty important update for us.

In Q4 this year in terms of the wall runner and we will have subsequent revitalization of those core franchises in 2024, I would say that has given a lot of optimism inside the building in terms of how we're set up for that for the coming quarters as we as we get into 2024 and beyond.

And then a second question I'm not sure how much you can share on that ship to the distributor model, but our lease on the ones that you signed the LOI.

Well the distributors will be running the stores in Canada that another any like one time sort of horse.

Here in the second half that we should expect that dose.

Deals get close.

Yeah, Let me give you a bit of high level color and Andy can Kevin.

With that as well so in general just to just to be clear when we when we make a transition what we expect is that we'll have a decline in revenue and a volume neutral basis, but we will be supported by an immediate benefit to profitability and cash flow and what we're also looking all in these partners is the ability to drive additional volume due to their footprint.

Within the wholesale marketplace in their regions. So that's the overall expectation, which was because we have not invested in infrastructure for wholesale inside of these international markets. We would expect some really interesting growth opportunity and we're very pleased with the partners that were having conversations with in particular, the two that were.

Mentioning today that we're through the LOI phase with.

So thats the kind of that is the high level and maybe Andy if you want to fill in any details for.

Accounting of the Portland, So to go back to the first part of your question, Yes, we do anticipate that our partners in California, and in Canada will take over existing operations across E com and retail and we'll have the opportunity.

To grow the business with potential wholesale partners as well.

In terms of impact and we do expect that any impact from the transitions in terms of revenue in Q3 will be de Minimis.

But we do look forward to walking you through more details on these transactions.

Our next earnings call.

Yes.

Thank you.

Thank you.

Our next question.

Comes from the line.

James from Stifel Go ahead, Jim.

Oh, Thank you for taking my question good afternoon.

I have a question about the big picture objectives for the international market transition. So international currently contribute $1 loss upon transition to the international businesses under a distributor relationship immediately contribute to positive profitability.

Yes that is the expectation we have so upon transition we would expect virtually an immediate threat to profitable contribution and also a really nice positive impact from working capital.

And just to note these relationships the way, we expect them to happen.

There will be from the partners are minimum marketing commitment that will also be a minimum volume commitment.

If they agree to.

And they will pick up inventory from us ex factory.

Which will be a positive improvement in terms of the working capital cycle on an ongoing basis.

Excellent that seems.

A meaningful beneficial transition and then.

With respect to the big picture objective to be EBITDA positive by fiscal 'twenty five I presume. The assumption is that the international business is profitable would you foresee the domestic business to be contributing profitably as well.

At that objective or is that not the framework.

Andy why don't you fill in the color here and just to be clear that is as we referenced that that's on a calendar year basis to be adjusted EBITDA and cash flow profitable.

For the full year.

In terms of the segment breakdown do you want to give a little color for sure.

Sure Yes.

Yes, moving each of our international businesses to distributor will definitely be positive as Joey mentioned.

We see the immediate benefit and we are.

Also see it over the long term.

We have additional work to do between now and then to ensure that our overall business is profitable by the end of 2025.

And let you know that our team is in lockstep.

And we're all marching towards that full year 2025 to have a positive cash flow and positive adjusted EBITDA in that year.

Thank you very helpful.

Thank you.

Next question.

Comes from the line of.

Bob Macdougall from Guggenheim. Please go ahead Bob.

Hi, good afternoon.

Just a couple of questions for me.

First one is just on the store optimization can you just expand a little bit more sort of the progress that you've made and sort of how you approached it and sort of where you see the opportunities for the remainder of the year into next year and then.

And when you think about the cost savings program have there been any sort of low hanging fruit surprises that you've found as you've dug in a little bit more of the last few months.

Thanks, Bob So on the first part of your question I would say kind of zooming out.

The most important thing for our historically it has to do is to control what they can control within our four walls.

And so our our objective in the stores is to be is to have that segment not only contribute what it does from a marketing perspective, and a customer experience perspective shifting customers to that Omnichannel is a very valuable omnichannel.

Customer shopping journey, but it's also to be profitable on a four wall basis and accretive to our overall profitability.

That's the overall framing and when I say control what they can control in the floral wall significantly putting our resources around training and development lowering attrition of historically and the gap there and then driving conversion and units per transaction for every time someone walks in the door and so those were.

Starting to see some sequential improvement.

Over a quarter and I expect that to continue over time and as we as we drive to a more new product.

And freshness style of marketing and put that Recalibrated product line into place, particularly with the materiality of that coming in 2024, we would expect to start lifting traffic as well.

That's kind of how we framed it for the team pretty happy with the early progress the team is doing a great job.

And and are working methodically to get the building blocks in place such that one traffic come significantly we hold on that conversion and drive continued expansion to Avi.

In terms of overall cost savings.

Major savings this year comes from the workforce reduction that we had done in Q2 as you would expect there are a number of other areas across the P&L and especially in Opex, where we are really reviewing our discretionary spend and we've come up with a plan and we're executing against it and as you can imagine coming up with the plan as such.

The easier part is the execution that matters and this is where the team is really coming together to make sure that we are all driving towards a more profitable business going forward.

Great. Thank you.

Thank you.

Our next question comes from the line.

Edward <unk> from.

Piper Sandler go ahead Edward.

Hey, good afternoon. Thanks for taking the question guys I guess.

First of all new product I know you said in last call you'll see a lot more in the second half just trying to understand cadence of when that gets released and maybe a little bit of a cough down I call. You guys were exiting technical Vanda. We noticed you dropped the nutrient wire curious I'm just trying to understand that and then as a bigger picture question. When should we expect marketing expenses to kind of re ramp into some of these new parts.

Production. Thank you.

Thanks, Ed.

So in terms of the.

Recalibrated product just to kind of clarify the way you frame that question I would say the second half of this year, we will have some additional products, but probably at the same measured pace that we did in the first half with I would call. It disciplined inventory buys that will give us a good forward leading read in.

Re buying those into 2020 for the more material changes that we were able to make.

Starting early this year arent really going to take place in any significant quantity until 2024, albeit we should see the benefits of a more <unk>.

<unk> differentiated.

Coach in Q4, and also the first revitalization of the core franchise with the wall runner in November .

So that is.

I would say that.

It's trending a little bit more in the direction that you described but the materiality of those changes are really going to hit home in 2024 for consumers.

And then on <unk>, we're about halfway through the year here and.

Frankly, as we saw some of the trends in TF. One we already had purchased some of the tier two and that was fully through the development and the important thing is while while we may have scale technology and technical running.

Componentry and performance in our product, we can still take that aesthetic and positioning more in that active lifestyle crossover space and expect to see better results when its position more effectively.

Versus what we did in the tree firewall.

Which was a little more hardcore technical running performance in our consumer just wasn't ready for that from us.

So.

That's a big part of the learning the inventory by in this case is quite measure I think the colors are fantastic and do great with our lifestyle occasion, and the messaging has improved.

Happy with how happy with how that is set up despite the fact that it kind of have the similar aesthetic from from the <unk>.

And then the last one on marketing spend.

I will say, we're definitely managing this and making those tradeoffs with them with between markdowns and marketing cadence and really want to save a lot of dry powder in terms of new product, particularly wanting to revitalize the core franchises, but maybe some specifics any can drill and to help you all.

As we put some numbers to paper too absolutely.

As you May recall, we were down in our marketing spend both in Q1, and Q2 by $2 million and $3 million, respectively compared to the prior year and we did that as Joey said to be really prudent as we really wanted to make sure that we are allowing the promos and the margin impact from that and to drive conversion.

In terms of Q3 marketing dollars, we do expect them to decline slightly from Q2 level, followed by a modest uptick from Q3 and into Q4, and we will do that as we want to make sure that we capture the opportunity to drive greater conversion and full price sell through as a product line improved in the back half of the year.

Thank you.

As a reminder, if you'd like to ask the question. Please.

Star one one on your telephone and wait for your name to Vietnam.

Our next question.

Comes from the line of John <unk> of William Blair Go ahead Darren.

Great. Thanks, and I apologize I missed some of this call, but I'm just curious what it might take as far as sort of an internal infrastructure standpoint, if you wanted to more fully ramp North America wholesale.

And is that sort of something that you're thinking about here as you kind of assess the landscape and sort of where you've come from after this last year.

Yes, it's a great question Bill.

We are.

Building the appropriate infrastructure, both from an IP perspective, a personnel perspective on the sales team as well as the necessary kind of <unk>.

<unk> seasonal muscle that is required to enter that into that channel effectively. The one thing that I would say is holding us back is that infrastructure is that we really want to drive sell through and margin for our partners and that is the only way that youre going to be successful in that channel. We would much rather have higher sell through first and then I have.

A pull strategy, where the retailers are really Klein for more and that is then the time that we would like to methodically expand.

Side of those accounts with more doors and more skus.

And then in tests a lot of other accounts as well the time that that's really going to be.

Effective for us to drive that approach isn't going to be in any material quantity of growth until two <unk> 24, and that is a bit of a hangover from the fact that we're putting a lot of change and recalibrating, our product portfolio and to hit those seasonal selling windows were just a little bit behind schedule on that.

I want to make sure we see the sell through in our own channels before we put it through the partners.

Although it makes sense and again with the same caveat any update on golf.

I know, it's small and sort of more of a test, but just kind of curious if it emboldens you as far as sort of category extension brand extension.

Yes.

The way to think about the golf Gasser is more of a dasher than an entry in the Gulf.

It's one of those things, where we know we have an absolutely star product there, but the resources required to really fully get into golf isn't something we're ready to undertake and so the idea with that.

Okay.

Yes.

Quench their thirst out with customers, who have been asking for this for years and it's an amazing product.

As I said you might have missed it.

Tour players playing in PG events would be on there for you right now.

And it's just that phenomenon will ship and I think it speaks to the breadth and idea of franchise expansion and core franchise management that we expect to bring to all of the key core franchises to make sure that they continue to bring energy to consumers.

Very good thank you very much.

Okay.

Okay.

Thank you.

Okay.

One moment as we can.

Q&A roster Sandoz.

Okay.

Alright. Our next question comes from the line of John Kernan from TD Cowen go ahead John .

This is Alex Douglas on for John .

I had one additional question on the international business.

It looks like it's outpacing the domestic business for last three quarters and inflected positively in Q2, which was nice to see.

Sure.

Specific callouts there that you guys would have.

Either product perspective brand perspective, a consumer behavior perspective would be driving that or is that more just a function of a broader market dynamics. Thank you.

Yes. Thanks for the question I think it's largely the latter I mean first of all the international business in each geography is coming off a smaller base. The second thing is that there is a lot of idiosyncratic idiosyncrasies by market. If you think back to the first half of 'twenty. Two there was a number of reasons with pretty severe COVID-19 lockdown still at that time.

And so we're lapping some kind of unique backdrop in terms of the way those regions, where or how the retail environment was in those regions frankly, so we saw some extreme and stellar growth out of a couple of regions that that had those lapping periods, even though we pulled back on marketing.

Expanded pretty significantly and really drove towards a really nice business in that as we as we started to explore some of those transitions.

That's helpful. Thank you.

Thank you.

And as a reminder, if you'd like to please ask your question.

Press Star one on your telephone and you'll be prompted to be announced that your hand, just rates than unions recall and then.

Just you to have your question yet.

Amit I'm showing no further questions at this time I'd like to turn the call back over to management for closing remarks.

Thanks, Neely I'll, just close by noting that we are spending every waking moment focused on driving sustained and durable profit for the future chapter of Albert It is not going to happen overnight, but rest assured that this is our myopic focus and we are working in all the right areas with the urgency you all would expect.

I appreciate your continued support and we look forward to speaking with you next quarter to update you on our continued progress. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yes.

[music].

Yes.

[music].

Yes.

[music].

Yeah.

[music].

[music].

[music].