Q1 2024 Allbirds Inc Earnings Call
Operator: Good afternoon, and thank you for standing by. At this time, I would like to welcome everyone to Allbirds' first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.
Good afternoon, and thank you for standing by at this time I would like to welcome everyone to <unk> first quarter 2024 earnings conference call.
Operator: Have been placed on mute to prevent any background noise.
Operator: After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time super breast powerful, but the number one on your telephone keypad. If you would like to withdraw your question. Please press star one again. Thank you I would now like to turn the call over to Christine Green Investor Relations. Please go ahead.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the call over to Christine Greany, Investor Relations. Please go ahead.
Christine Greany: Good afternoon, everyone, and thank you for joining us. With me on the call today are Joe Vernachio, CEO, and Annie Mitchell, CFO. 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, including cash flow and adjusted EBITDA expectations. 2024 Guidance Targets, Impact and Duration of External Headwinds, Strategic Transformation Plan, and Related Planned Efforts Go-to-Market Strategy, Planned Transitions to a Distributor Model in Certain International Markets, Anticipated Distributor Model Arrangements, Expected Profitability, Cost Savings Targets, Gross Margin Estimates
Christine Greany: Good afternoon, everyone and thank you for joining US with me on the call today are Joe <unk>, CEO and Andy Mitchell CFO.
Christine Greany: 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.
Christine Greany: <unk> statements about our financial outlook, including cash flow and adjusted EBITDA expectations two.
Christine Greany: 2024 guidance target.
Christine Greany: Impact and duration of external headwinds strategic transformation plan and related planned effort.
Christine Greany: Go to market strategy planned transition to a distributor model in certain international markets anticipated distributor model arrangements expected profitability cost savings targets gross margin estimates.
Christine Greany: Product Plan Timelines 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.
Christine Greany: Product plans timelines and expectation third party partnership strategy marketing strategy and other matters referenced in our earnings release issued today.
Christine Greany: These forward looking statements involve a number of risks and uncertainties that could cause.
Christine Greany: Actual results to differ materially. Please also note that these forward looking statements reflect our opinions only as of the date of this call.
Christine Greany: And we undertake no obligation to revise any statements to reflect changes that occur after this call.
Christine Greany: Please refer to our SEC filings, including our annual report on Form 10-K for the year ended December 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. 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.
Christine Greany: Please refer to our SEC filings, including our annual report on Form 10-K for the year ended December 31 2023 for.
Joe: For a more detailed description of the risk factors that may affect our results.
Joe: Also during this call we will discuss non-GAAP financial measures that adjust our GAAP results to eliminate the impact of certain items.
Joe: These non-GAAP items should be used in addition to and not as a substitute for GAAP results.
Joe: You will find additional information regarding these non-GAAP financial measures.
Joe: 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.
Christine Greany: Now I'll turn the call over to Joe to begin the formal remarks.
Joe Vernachio: Hello, I'm pleased to be here today hosting my first earnings call as CEO. I've been in the seat for nearly 60 days, and it's been gratifying to see that our teams are coalesced around our transformation plan, leaning into the tasks at hand, and operating with purpose. Today's headline is that we know what needs to be done, and we're executing with urgency. We're pleased to share that first quarter results were in line with expectations, highlighted by our ability to achieve a significant improvement in gross margin and narrow our adjusted EBITDA loss despite a 28% sales success.
Joe: Hello, I am pleased to be here today hosting my first earnings call as CEO.
Joe Vernachio: And the secret nearly 60 days and it's been gratifying to see that our teams are coalesce around our transformation plan leaning into the tasks at hand, and operating with purpose. Today's headline is that we know what needs to be done and we're executing with urgency.
Joe Vernachio: We're pleased to share that first quarter results were in line with expectations.
Joe Vernachio: Highlighted by our ability to achieve significant improvement in gross margin and narrow our adjusted EBITDA loss, despite a 28% sales decline.
Joe Vernachio: We're delivering strong execution against the key pillars of our strategic transformation plan, which are reinvigorating product and brand, optimizing our U.S. distribution and store profitability, transitioning to a distributor model in international markets, and Improving Costs and Capital Efficiency.
Joe Vernachio: We're delivering strong execution against the key pillars under our strategic transformation plan, which are reigniting product and brand optimizing our U S distribution and store profitability.
Joe Vernachio: Transitioning to a distributor model in international markets, and improving cost and capital efficiency.
Joe Vernachio: We made substantial progress in this first year of our transformation, with our initiatives across stores, distributor transitions, and cost reductions well underway in generating benefits. We've set up 2024 as a year to regain top line momentum to improve product and storytelling and position the brand for growth in 2025. Among our strategic imperatives is the return to full-price selling. After a year of promotional activity, we recognize this shift will create a near-term impact on sales, but we know it's the right decision for the long-term health of the brand. In Q1, we had just one promotion, a planned event in March.
Joe Vernachio: We made substantial progress in this first year of our transformation with our initiatives across stores distributor transitions and cost reduction is well underway and generating benefits.
Joe Vernachio: We have set up 2020 for the year to regain top line momentum through improved product and storytelling and position the brand for growth in 2025.
Joe Vernachio: All of our strategic imperatives is the return to full price selling after a year of promotional activity. We recognize this shift will create near term impact of the sale, but we know it's the right decision for long term health of the brand.
Joe Vernachio: In Q1, we had just one promotion a planned event in March going forward, you can expect to see a similar cadence of limited promotion connected to consumer driven moments throughout the year.
Joe Vernachio: Going forward, you can expect to see a similar cadence of limited promotions connected to consumer-driven moments throughout the year. As we start to deliver a more robust offering a fresh, updated product later this year, we believe the consumer will receive the benefits they deserve. We are laser focused on creating a cohesive icon strategy that celebrates and innovates upon the core franchises that Allbirds is known for and our customers love. It has been encouraging to see some green shoots.
Joe Vernachio: As we start to deliver a more robust offering of fresh updated product later this year, we believe the consumer will respond.
Joe Vernachio: We are laser focused on creating a cohesive icon strategy that celebrates and innovate upon the core franchises that Alberta is known for and our customers love.
Joe Vernachio: It has been encouraging to see some green shoots.
Joe Vernachio: When we have brought in new, Most recently, we introduced the latest edition of our runner franchise, the TreeRunner GO. This shoe draws inspiration from one of our best-selling silhouettes, with new innovations and upgrades. It's still early, but consumer feedback has been extremely positive, with our customers responding well to the style, color, and comfort. And our limited color drop to date leaves the opportunity to bring additional newness in the coming months. Initial conversion rates have been robust in both men and women.
Joe Vernachio: When we have brought newness.
Joe Vernachio: Recently, we introduced the latest edition of our runner franchise, which we run our go.
Joe Vernachio: This two draws inspiration from one of our best selling silhouette with new innovations and upgrades.
Joe Vernachio: It's still early but consumer feedback has been extremely positive.
Joe Vernachio: Our customers responding well to the style color and comfort.
Joe Vernachio: And our limited color dropped to date leaves the opportunity to bring additional newness in the coming months.
Joe Vernachio: Initial conversion rates have been robust in both mens and womens.
Joe Vernachio: And for the two-week period subsequent to launch, it's the highest-performing product we have seen in almost two years. Following the success of our War Runner 2 launch last November, this tells us that our franchise offense strategy is working, and we have more to come for fall and Halloween.
Joe Vernachio: And for the two week period subsequent to launch it as the highest performing product we have seen in almost two years.
Joe Vernachio: Following the success of our well run or two launched last November. This tells us that our franchise offense strategy is resonating.
Joe Vernachio: And we have more to come for fall and holiday.
Joe Vernachio: Importantly, we are moving as quickly as possible to advance the product pipeline for 2025. The work being done now will be in the market mid-year, and we are thrilled with how our design direction is taking shape. We will be designing through consumer-led insights and stories and anchoring on core colors to meet the needs of our consumers throughout their day, their week, and across seas, all in a very focused brand lab, with a healthy inventory position and rejuvenated product design. We are beginning to sharpen our brand position in marketing. In the short term, we plan to keep our spend efficient.
Joe Vernachio: Importantly, we are moving as quickly as possible to advance the product pipeline in 2025.
Joe Vernachio: The work being done now will be in market mid year.
Joe Vernachio: We're thrilled with how our design direction is taking shape.
Joe Vernachio: We will be designing through consumer led insights and stories and anchoring on core colors to meet the needs of our consumers throughout their day, they're weak and across all.
Joe Vernachio: All through a very focused brand led.
Joe Vernachio: With a healthy inventory position and rejuvenated product design.
Joe Vernachio: We are beginning to sharpen our brand position in marketing message in the short term, we plan to keep our spend efficient as.
Joe Vernachio: As we begin to flow in updated product offerings during the second half of the year, we expect to make incremental investments in upper funnel marketing, broaden brand awareness, and reach new customers, in parallel with our efforts to reignite our product and brand. We are taking actions to create a healthy, balanced U.S. marketplace, which includes optimizing our store profitability and distribution. We are on track with the store optimization initiative that we outlined last quarter. We closed three U.S. stores in Q1 and plan to close 10 to 15 underperforming U.S. locations this year.
Joe Vernachio: As we begin to flow and updated product offerings. During the second half of the year, we expect to make incremental investments in upper funnel marketing.
Joe Vernachio: Brand awareness and reach new customers.
Joe Vernachio: In parallel with our efforts to reignite, our product and brand.
Joe Vernachio: We are taking actions to create a healthy balanced U S marketplace, which includes optimizing our store profitability and distribution.
Joe Vernachio: We are on track with the store optimization initiatives that we outlined last quarter.
Joe Vernachio: We closed three U S stores in Q1 and plan to close 10 to 15 underperforming U S locations. This year.
Joe Vernachio: As we focus on maximizing the productivity of our remaining stores, we're encouraged that our initiatives to drive conversion, including new visual merchandising strategies and an enhanced selling culture, are beginning to bear fruit. Wholesale is another critical channel where we can reach both new and existing customers. In the near term, we will continue to be conservative to ensure that we don't over-assort before we have a portfolio of responsive products. You've heard us say this previously, but it bears repeating.
Joe Vernachio: As we focus on maximizing the productivity of our remaining stores, we're encouraged that our fix to drive conversion, including new visual merchandising strategies and enhanced selling culture are beginning to gain traction.
Joe Vernachio: Wholesale is another critical channel, where we can reach both new and existing customers in the near term. We will continue to be conservative to ensure that we don't over assort before we have a portfolio of resident products, you've heard us say this previously but it bears repeating.
Joe Vernachio: We are fortunate to have exceptional partners in the Wholesale Channel, including Dick Sportinggoods, Nordstrom, and Arias. We intentionally pulled back the brand's presence in these doors in 2023 as we wanted to ensure that we could show up in this channel with a clean book of inventory and compelling products. We're now positioned to become better partners to them. We're moving forward with a long-term game plan to strengthen these relationships and deliver a compelling product offering that will excite their customers. The decision to add Amazon as an additional digital marketplace last year was very imprudent and was far beyond our expectations.
Joe Vernachio: We are fortunate to have exceptional partners in the wholesale channel.
Joe Vernachio: Including Dick's Sporting goods Nordstrom ARIA.
Joe Vernachio: We intentionally pulled back the brand's presence in these doors in 2023 as we wanted to ensure that we could show up in this channel with a clean book of inventory and compelling product.
Joe Vernachio: Now positioned to become better partners to them.
Joe Vernachio: We're moving forward with a long term game plan to strengthen these relationships and deliver a compelling product offering that will excite us.
Joe Vernachio: The decision to add Amazon as an additional digital marketplace last year is bearing fruit and outpacing our expectations.
Joe Vernachio: This is a profitable extension of our reach and allows Allbirds to meet our customers where they are. Turning now to international, we have made substantial progress in a short period of time with our transition to a distributorship model. Canada and South Korea transitioned in Q3 of last year, while Japan and Australia and New Zealand are on track to transition in the next few months.
Joe Vernachio: This is a profitable extension of our reach and allows <unk> to meet our customers where they are.
Joe Vernachio: Turning now to international we have made substantial progress in a short period of time with our transition to a distributor model.
Joe Vernachio: Canada, and South Korea transitioned in Q3 of last year.
Joe Vernachio: Japan, and Australia, and New Zealand are on track to transition in the next June.
Joe Vernachio: Additionally, we are pursuing opportunities to localize key regional marketplaces throughout the continental U.S. We're also entering new regions and recently announced distribution agreements in the Gulf countries and Southeast Asia. By the end of 2024, we expect to have a much stronger expression of the Allbirds brand across key international geographies. Most importantly, we will be utilizing the knowledge, local marketplace expertise, and wholesale capabilities of our distributors to drive scalable growth over the coming years.
Joe Vernachio: Additionally, we are pursuing opportunities to localize key regional marketplaces throughout Continental Europe.
Joe Vernachio: We're also entering new regions, and recently announced distribution agreements in the Gulf countries in Southeast Asia.
Joe Vernachio: By the end of 2024, we expect to have a much stronger expression of the <unk> brand across key international geographies.
Joe Vernachio: Most importantly, we will be utilizing the knowledge local marketplace expertise and wholesale capabilities of our distributors to drive scalable growth over the coming years.
Joe Vernachio: As Annie talked about last quarter, we view 2024 as a stair step as we transition these markets at different times throughout the year and make the trade-off necessary to generate high-quality revenue that allows for stronger flow-through to the bottom line. Underlying all of our strategic actions we're taking is cost-effectiveness. We are rebuilding the wireframe of the company, making significant progress across the cost structure, inventory, and cash to lay the groundwork to achieve profitability. This year, we'll begin to realize COGS savings resulting from our factory shifts and materials innovation, while also capturing operating expense savings from our workforce reductions, international transitions, and store closures. More on this shortly from me.
Joe Vernachio: As any talk about last quarter. We view 2024 is a stair step as we transition these markets at different times throughout the year.
Joe Vernachio: And make the tradeoff necessary to generate high quality revenue that allows for stronger flow through to the bottom line.
Joe Vernachio: Underlying all of our strategic actions, we're taking this cost discipline.
Joe Vernachio: We are rebuilding the wire frame the company, making significant progress across the cost structure inventory and cash to lay the groundwork to achieve profitability.
Joe Vernachio: This year, we'll begin to realize cost savings, resulting from our factory shifts in materials innovation, while also capturing operating expense savings from our workforce reductions international transitions and store closures more on this shortly for Manny.
Joe Vernachio: Our key areas of focus within our transformation pillars, which our teams are executing this year, are as follows: returning our brand to full price selling. Creating a Cohesive Icon Product Strategy and refreshing our brand position and message. Building a balanced U.S. marketplace across digital, retail storefronts, and wholesale. Executing our international transition, and continuing to right-side our construct. As I said earlier, we have our plan, and we're executing with urgency. We greatly appreciate the dedication of our teams and the support of our shareholders during this transformational time at Allbirds. We look forward to keeping you updated on our progress and driving value for all our stakeholders in the quarters and years to come. Now, I'll turn the call over to Annie to discuss the final.
Joe Vernachio: Our key areas of focus within our transformation pillars, where our teams are executing this year are as follows.
Annie: Returning to our brands of full price selling.
Annie: Creating a cohesive eikon product strategy.
Annie: Refreshing our brand position and message.
Annie: Building, a balanced U S marketplace across digital retail storefronts and wholesale.
Annie: Executing our international transition.
Annie: And continuing to rightsize our cost structure.
Annie: As I said earlier, we have our plan and we're executing with urgency.
Annie: We greatly appreciate the dedication of our teams and the support of our shareholders. During this transformational time at Oliver <unk>.
Annie: We look forward to keeping you updated on our progress and driving value for all our stakeholders in the quarters and years to come.
Annie: Now I'll turn the call over to Andy to discuss the financials.
Annie Mitchell: Thanks, Joe, and good afternoon, everyone. We're pleased to report a fifth consecutive quarter of operational and financial progress under our Strategic Transformation Plan. Our first quarter performance reflects strong execution by our teams, with revenue meeting and adjusted EBITDA exceeding our guidance. Notably, we delivered significant gross margin expansion and a 4% improvement in adjusted EBITDA on a 28% sales decline. Q1 revenue totaled $39 million, primarily reflecting a few key factors.
Annie: Thanks, Joe and good afternoon, everyone.
Annie Mitchell: We're pleased to report our fifth consecutive quarter of operational and financial progress under our strategic transformation plan.
Annie Mitchell: Our first quarter performance reflects strong execution by our teams with revenue and adjusted EBITDA exceeding our guidance.
Annie Mitchell: Notably we delivered significant gross margin expansion and a 4% improvement in adjusted EBITDA on a 28% sales decline.
Annie Mitchell: Q1 revenue totaled $39 million.
Annie Mitchell: Lower overall demand levels and our strategic decision to return to full price selling, as well as the anticipated impact from our International Distributor Transition and Retail Storeclosure. Gross margin came in at 46.9%. That reflects 680 basis points of expansion versus a year ago as we start to realize the benefits of our strategic action. This includes initial product cost savings related to our factory shift and materials innovation, a healthier inventory position, and a return to full price selling in our direct channel.
Annie Mitchell: Primarily reflecting a few key factors.
Annie Mitchell: Lower overall demand level and our strategic decision to return to full price selling.
Annie Mitchell: As well as the anticipated impact from our international distributor transitions and retail store closures.
Annie Mitchell: Gross margin came in at 46, 9%.
Annie Mitchell: That reflects 680 basis points of expansion versus a year ago as we start to realize the benefits from our strategic action.
Annie Mitchell: This includes initial product cost savings related to our factory ships and materials innovation.
Annie Mitchell: Healthier inventory position and will return to full price selling in our direct channel.
Annie Mitchell: Looking for the remainder of the year, we expect gross margin to be in the mid 40s, with some moderation in Q4 due to planned seasonal promotion. We also saw improvement in operating expenses. SG&A dollars, excluding stock-based compensation and depreciation and amortization, total $32 million, down 1% versus the prior year. The results can primarily be traced to lower payroll and occupancy costs, as well as ongoing hospice.
Annie Mitchell: Looking at the remainder of the year, we expect gross margin to be in the mid 40 with some moderation in Q4 due to planned seasonal production.
Annie Mitchell: We also saw improvement in operating expenses.
Annie Mitchell: SG&A dollars, excluding stock based compensation, and depreciation and amortization totaled $32 million down 1% versus prior year.
Annie Mitchell: The results can primarily be traced to lower payroll and occupancy costs.
Annie Mitchell: As well as ongoing cost discipline.
Annie Mitchell: This was partially offset by costs associated with our retail foreclosures and distributor transition. As planned, during the quarter, we closed three Allbirds stores in the U.S. We expect to close the next tranche of U.S. doors in Q2 and early Q3, putting us squarely on track with our previously communicated plan for 10 to 15 closures in 2024. In connection with the store closing, we incurred one-time cash charges of $2 million in the quarter and expect to incur additional charges this year.
Annie Mitchell: This was partially offset by costs associated with our retail store closures and distributor transition.
Annie Mitchell: As planned during the quarter, we closed three operate stores in the U S.
Annie Mitchell: We expect to close the next tranche of <unk> in Q2 and early Q3.
Annie Mitchell: Putting us squarely on track with our previously communicated plan for 10 to 15 closures in 2024.
Annie Mitchell: In connection with the store closings, we incurred onetime cash charges of $2 million in the quarter and expect to incur additional charges. This year.
Annie Mitchell: We expect to begin capturing incremental savings from our strategic actions around store closures and distributor transitions in the second half of the year. Q1 Marketing Expense came in at $8 million. That's down sequentially and year over year, in line with our plan to maintain conservative spend until we begin to flow in an expanded offering of new products in the second half of the year. Additionally, and to a lesser degree, lower Q1 spend is reflective of our international distributor transition.
Annie Mitchell: We expect to begin capturing incremental savings from our strategic actions around store closures and distributor transitions in the second half of the year.
Annie Mitchell: Q1 marketing expense came in at $8 million step down sequentially and year over year in line with our plan to maintain conservative stance until we begin to flow in an expanded offering of new products in the second half of the year.
Annie Mitchell: Additionally, and to a lesser degree lower Q1 spend is reflective of our international distributor transition.
Annie Mitchell: We continue to expect full-year marketing spend to be down versus 2023, with planned incremental investments in the U.S. in the back half of 2024. Moving to the balance sheet and cash flow, we are pleased to have a solid balance sheet as we progress through our strategic transformation. Inventories at the end of Q1 totaled $61 million.
Annie Mitchell: We continue to expect full year marketing spend to be down versus 2023 with planned incremental investments in the U S. In the back half of 2024.
Annie Mitchell: Moving to the balance sheet and cash flow. We are pleased to have a solid balance sheet as we progressed through our strategic transformation.
Annie Mitchell: Inventories at the end of Q1 totaled $61 million.
Annie Mitchell: That's down 45% versus a year ago and up 5% from year end, reflecting healthy levels and composition following our successful reset in 2022. We close the quarter with $102 million of cash and cash equivalents and no outstanding borrowings under our $50 million revolver. Operating cash use was $26 million and a quarter and reflects a few key factors. First, as a reminder, our working capital needs peak in Q1, which is the lowest revenue quarter of the year.
Annie Mitchell: That's down 45% versus a year ago and up 5% from year end, reflecting healthy level and competition following our successful reset in 2023.
Annie Mitchell: We closed the quarter with $110 million of cash and cash equivalents and no outstanding borrowings under our $50 million revolver.
Annie Mitchell: Operating cash used was $26 million in the quarter and request a few key factors.
Annie Mitchell: First as a reminder, our working capital needs peak in Q1, which is the lowest revenue quarter of the year.
Annie Mitchell: Next, we used approximately $4 million of cash to build inventory, including new products such as the TreeRunner GO, as well as color updates to existing franchises. And lastly, we deployed approximately $2 million to exit underperforming locations. For added perspective and understanding of our cash flows in 2024, I want to highlight some important nuances that will have a bearing on our full year of cash. First, when we transition to a new distributor, they purchase all of our inventory and assets in the region, which results in an initial infusion of cash.
Annie Mitchell: Next we use approximately $4 million of cash to build inventory, including new products, such as the <unk> as well as color updates to existing franchises.
Annie Mitchell: And lastly, we deployed approximately $2 million to exit underperforming leases.
Annie Mitchell: For added perspective, and understanding of our cash flows in 2024 I want to highlight some important nuances.
Annie Mitchell: On a full year cashiers.
Annie Mitchell: First when we transitioned to a new distributor.
Annie Mitchell: All of our inventory and assets in the region, which resulted in an initial infusion of cash.
Annie Mitchell: Next.
Annie Mitchell: We're beginning to see cost of goods benefits flow through the P&L and remain on track to achieve our savings target of $20 to $25 million by 2025 on a volume-neutral basis versus 2022. Thus, we are buying inventory at a lower average cost compared to last year. Therefore, inventory will continue to be a source of cash this year. Importantly, we continue to have the runway and financial flexibility to execute our strategic transformation plan.
Annie Mitchell: We are beginning to see cost of goods benefits flow through the P&L and remain on track to achieve our savings target of 20% to $25 million.
Annie Mitchell: By 2025 on a volume neutral basis versus 2022.
Annie Mitchell: So we are buying inventory at a lower average cost compared to last year.
Annie Mitchell: Therefore inventory will continue to be a source of cash this year.
Annie Mitchell: Importantly, we continue to have a runway and financial flexibility to execute our strategic transformation plan.
Annie Mitchell: We finished the quarter with inventories down 45%, a gross margin of 680 basis points, and over 100 million in cash. We're reiterating our full year guidance as follows. Revenue is expected to be in the range of $190 to $210 million. As we previously communicated, this reflects a headwind of $32 to $37 million related to our strategic actions to close certain underperforming U.S. stores and transition our existing international markets to a more profitable distributor model. Taking a look at revenue by geographical market.
Annie Mitchell: We finished the quarter with inventory down 45%.
Annie Mitchell: Gross margin up 680 basis points and over 100 million of cash.
Annie Mitchell: Full year U.S. revenue is expected to be $150 to $165 million and includes approximately $7 to $9 million of impact resulting from our anticipated U.S. door closures. Full year international revenue is expected to be $40 to $45 million and includes approximately $25 to $28 million of impact resulting from our anticipated transition to a distributor model in international markets. Gross margin is expected to be in the range of 42-45% and reflects a few key factors.
Annie Mitchell: We're reiterating our full year guidance as follows.
Annie Mitchell: Revenue is expected to be in the range of $190 million to $210 million.
Annie Mitchell: As we previously communicated this reflects a headwind of $32 million to $37 million related to our strategic actions to close certain underperforming U S doors and transition our existing international markets to a more profitable distributor model.
Annie Mitchell: Taking a look at revenue by geographical market.
Annie Mitchell: Full year U S revenue is expected to be $150 million to $165 million and includes approximately $7 million to $9 million of impact, resulting from our anticipated U S store closures.
Annie Mitchell: Full year International revenue is expected to be 40% to $45 million and includes approximately $25 million to $28 million of impact, resulting from our anticipated transition to a distributor model in international markets.
Annie Mitchell: Gross margin is expected to be in the range of 40% to 45% and reflects a few key factors.
Annie Mitchell: Reduced promotional intensity compared to 2023.
Annie Mitchell: Lower inbound and outbound freight and initial savings from our factory ship to Vietnam and material innovation.
Annie Mitchell: These benefits are expected to be partially offset by lower gross margin from international regions that have transitioned or plan to transition to a distributor model in 2024.
Annie Mitchell: Full year adjusted EBITDA loss is expected to be in the range of $78 million to $63 million.
Annie Mitchell: Turning to Q2 guidance.
Annie Mitchell: Reduced promotional intensity compared to 2023. Lower inbound and outbound freight and initial savings from our factory shift to Vietnam and material innovation. These benefits are expected to be partially offset by lower growth margins from international regions that have transitioned or are planned to transition to a distributor model in 2024. Full year adjusted EBITDA loss is expected to be in the range of $78 to $63 million. Turning to Q2 guidance, second quarter revenue is expected to be in the range of $48 to $53 million.
Annie Mitchell: Second quarter revenue is expected to be in the range of $48 million to $53 million.
Annie Mitchell: That includes the U S revenue guidance of $35 million to $37 million and international revenue guidance of $13 million to $16 million.
Annie Mitchell: Adjusted EBITDA loss is expected to be in the range of $20 million to $17 million.
Annie Mitchell: We're pleased with our solid start to the year and proud of the way. Our teams are executing as we continue on our path to transform the business and deliver long term shareholder value.
Annie Mitchell: That includes U.S. Revenue Guidance of $35 to $37 million and International Revenue Guidance of $13 to $16 million, adjusted for a loss that's expected to be in the range of $20 to $17 million. We're pleased with our solid start to the year and proud of the way our teams are executing as we continue on our path to transform the business and deliver long-term shareholder value. With that, I'll ask the operator to open the call to questions.
Speaker Change: With that I'll ask the operator to open the call to questions.
Operator: Thank you. We will now begin our question and answer session. At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. As a reminder, please limit yourselves to one question and one follow-up. We'll pause for a moment to compile the Q&A roster. Thank you. The first question comes from the line of Janine Stichter from BTIG. Please go ahead.
Speaker Change: Thank you we will now begin our question and answer session. At this time, if you would like to ask a question. These spreads are followed by the number one on your telephone keypad.
Janine Marie Hoffman Stichter: You would like to withdraw your question and purpose are when again.
Operator: As a reminder, please limit yourselves to one question and one follow up with plus for a moment to compile the Q&A roster. Thank you.
Operator: The first question comes from the line of Janine Stichter from BPI. Please go ahead.
Janine Marie Hoffman Stichter: Hi everyone, good afternoon. I wanted to ask first off about Wool Runner 2 and Tree Runner Go. It sounds like you've had two kind of early successful relaunches of prior products, so any learnings from that maybe help us contextualize how important those were in terms of overall volume and then anything you've learned from those two launches that you'll be carrying forward into your strategy. Thank you.
Janine Marie Hoffman Stichter: Hi, everyone and good afternoon, I wanted to ask first off about the will run or two in the cirenaica. It sounds like you've had to kind of early successful re launches of prior product. So any learnings from that and maybe help us contextualize how important those were.
Janine Marie Hoffman Stichter: In terms of overall volume and then anything you learned from those two lines that you'll be carrying forward into your strategy. Thank you.
Joe Vernachio: Yeah, hi. Thanks for joining the call.
Speaker Change: Yes, hi.
Speaker Change: Thanks for joining the call and your question.
Joe Vernachio: Okay.
Joe Vernachio: And your question. The Tree Runner Go represents a really important step in our icon strategy. It's an example of how we're leaning into the runner franchise and just designing a different version of the shoe with a slightly different use occasion.
Speaker Change: The the.
Speaker Change: The true runner go represents a really important step in our.
Speaker Change: Icon strategy.
Speaker Change: It's an example of.
Speaker Change: How we're leaning into the runner franchise and just designed a different version of the shoe with a slightly different use occasions.
Joe Vernachio: Not only is it attracting new customers, but it's also really important for us to prove to ourselves that we can add to these franchises and lift the entire franchise and that we have not seen any cannibalization within the franchise or across the line. So this is a very early sign that our long-term icon strategy is the right one and is one that will lift our entire business. Now we just need to bring through all the rest of the products that we have in our pipeline.
Speaker Change: Not only is it attracting new customers.
Joe Vernachio: But it's also really important for us.
Joe Vernachio: Proved to ourselves that we can add to these franchises.
Joe Vernachio: And lifts the entire franchise and that we have not seen any cannibalization within the franchise or across the line.
Joe Vernachio: Yes.
Joe Vernachio: So this is the very early sign that our long term icon strategy is the right one and is one that will lift our entire business.
Joe Vernachio: Now, we just need to bring through all the rest of the product that we have in our pipeline.
Annie Mitchell: Great, and then as you think about marketing support for some of that newer product in the back half of the year, just wanted to clarify. I think you talked about building expenses in the U.S. Should we still expect them to be down year over year, just to a lesser degree, or would you expect them to start increasing on a year over year basis?
Speaker Change: Great and then as you think about marketing support for some of that newer product in the back half of the year. Just wanted to clarify I think you have talked about building expense and the U S should we still expect to be down year over year, just to a lesser degree or where do you expect it to start increasing on a year over year basis.
Annie Mitchell: Hi Janine. When thinking about marketing spend and timing, yes, we do anticipate overall marketing spend to be down each quarter and for the full year. What will happen in the back half of the year is we'll start to get some of the savings from the next set of international transitions, but that will be offset by the incremental investment that we plan to make, really putting that towards the upper funnel, driving awareness, especially as we bring some of these new products to market later this year and into 2025. Great! It's very helpful.
Speaker Change: Hi, Janine when thinking about marketing spend and timing, yes, we do anticipate overall marketing spend to be down.
Janine Marie Hoffman Stichter: Great. That's helpful, Collar. Thanks very much and best of luck.
Janine: ETE each quarter and for the full year.
Janine Marie Hoffman Stichter: What's happened in the back half of the year, we'll start to get some of the savings from the next set of international transition, but that will be offset by the incremental investment that we plan to make.
Janine: Really putting that towards upper funnel driving awareness, especially as we bring some of these new products to market later this year.
Janine Marie Hoffman Stichter: And in 2025.
Speaker Change: Great. That's helpful color, thanks, very much and best of luck.
Speaker Change: Thank you.
Janine Marie Hoffman Stichter: Next question comes from the line of Alex <unk> from Morgan Stanley. Please go ahead.
Operator: The next question comes from the line of Alex Straton from Morgan Stanley. Please go ahead.
Alexandra Ann Straton: Great. Thanks for taking my questions I've got one for Joe and then one for Andy So Joe Welcome I know Youre, Northern CEO role, maybe talk to us about what Kpis, you're monitoring to measure success at the organization right now and as you execute this turnaround and then.
Alexandra Ann Straton: Great, thanks for taking my questions. I've got one for Joe and then one for Annie.
Joe Vernachio: So Joe, welcome, I know you're newer to the CEO role. Maybe talk to us about what KPIs you're monitoring to measure success at the organization right now and as you execute this turnaround. And then for Annie, maybe just on the full year guidance, which looks like it embeds an improvement in the revenue trend from the first quarter level. Can you just talk to us about what gives you confidence there and whether you leave the first quarter with more or less or maybe the same confidence in your ability for Allbirds to return to top line growth next year? Thanks a lot. Yeah.
Joe Vernachio: Maybe it was on a full year guidance looks like it embeds an improvement in the revenue trend from the first quarter level can you just talk to us about what gives you confidence there and whether you leave the fourth quarter was more or less or maybe the same competence and your ability for all burns to return to top line growth next year. Thanks a lot.
Joe Vernachio: Yeah, I'll take that first part. Thank you.
Joe Vernachio: Yeah I'll take the first part thank you.
Speaker Change: All birds DNA is to be a full price brand.
Joe Vernachio: You know, Allbirds' DNA is to be a full-price brand, and I would say one of our number one KPIs is our full-price sales. And starting in January, coming off of liquidating our inventory and getting our inventory healthy last year, I'm really happy with the results that we've seen returning back to full-price and bringing back our customers as full-price customers, especially against some of these new products like we just saw with the TreeRunner Go. I would say that it's one of our key indicators that we're watching closely. Great, and I'll go
Joe Vernachio: <unk>.
Joe Vernachio: I would say one of our number one kpis is as our full price selling.
Joe Vernachio: Starting in January coming off of liquidating, our inventory and getting our inventory healthy last year.
Joe Vernachio: I'm really happy with the results that we've seen returning back to full price and bringing back our customer.
Joe Vernachio: As a full price customer and especially against some of these new products like we just saw with the true runner go I would say that that's.
Joe Vernachio: One of our key full.
Joe Vernachio: Indicators that we're watching closely.
Annie Mitchell: Great. And Alex, to your question about sort of the cadence of quarterly sales year over year, we anticipate that Q2 and Q3 will be relatively similar to Q1 in terms of year over year growth. As we get into Q4, we do expect an uptick, and there are a few reasons or a few puts and takes across each quarter between now and the end of the year. We will continue to close doors largely in Q2 and in early Q3, and then at mid-year, we anticipate transitioning additional international geographies.
Speaker Change: Great and Alex to your question about sort of the cadence of quarterly sales year over year, but we anticipate that Q2 and Q3 will be relatively similar to Q1.
Annie Mitchell: In terms of year over year growth.
Annie Mitchell: As we get into Q4, we do expect an uptick and there's a few reasons are a few puts and takes across each quarter between now and the end of the year. We will continue to close stores largely in Q2 and in early Q3, and then mid year, we anticipate transitioning.
Annie Mitchell: The additional international geographies for both of those will be headwinds on the top line, but as we get farther into the year is when we will be bringing some of those additional products to market and then again, putting the marketing dollars behind them to support those launches. So it's a couple of things dampening the topline and.
Annie Mitchell: So both of those will be headwinds on the top line. But as we get farther into the year, that's when we will be bringing some of those additional products to market and then again, putting the marketing dollars behind them to support those launches. So there are a couple of things dampening the top line, but that will be offset by our overall commitment and strategy around product and brand.
Annie Mitchell: Then to be offset by our overall commitment to strategy around product and brand.
Annie Mitchell: Yes.
Speaker Change: Great. Thanks, a lot.
Annie Mitchell: Okay.
Operator: If you would like to ask a question, please press star followed by the number one on your telephone keypad. Thank you. The next question comes from the line of Dylan Carden from William Blair. Please go ahead.
Annie Mitchell: If you would like to ask a question. Please press star followed by the number one on your telephone keypad. Thank you.
Dylan Douglas Carden: The next question comes from the line of Steel then Carden from William Blair. Please go ahead.
Dylan Douglas Carden: Thanks. I guess some modeling. Thanks for all the color on the cash flow statement. Did you in that mention CapEx for the year?
Operator: Thanks.
Dylan Douglas Carden: I guess some modeling thanks for all the color on the cash flow statement did you mentioned capex for the year.
Annie Mitchell: I did not mention CapEx, and the main reason why I did not is that it's going to be extremely minimal. Since we've stopped opening tail doors, that was really the place where we used to spend CapEx, and so it will be almost immaterial for the rest of the year.
Dylan Douglas Carden: I did not mentioned Capex and the main reason why I did not is that it's going to be extremely minimal since we've stopped opening doors that was really the place where we used to spend capex.
Annie Mitchell: And so it will be.
Annie Mitchell: Almost immaterial for the rest of the year.
Dylan Douglas Carden: If you run the rate first quarter, is that the right way to kind of think about it, or would it be lower than that?
Annie Mitchell: If you run rate first quarter is that the right way to kind of think about it or would it be lower than that.
Annie Mitchell: If I were to look at Q1 in terms of OPEX, Excuse me, excuse me, CapEx, excuse me. I think that's fair to use that as a general run rate, yes.
Dylan Douglas Carden:
Dylan Douglas Carden: I were to look at Q1 in terms of Opex.
Annie Mitchell: Okay.
Annie Mitchell: Excuse me excuse me Capex excuse me.
Annie Mitchell: I think thats fair to use that as a general run rate yes.
Dylan Douglas Carden: Great. And do you anticipate, you kind of gave the store closures for the year, do you anticipate at the end of this having any international owned stores once you've kind of repositioned that business?
Annie Mitchell: Great.
Dylan Douglas Carden: And do you anticipate you kind of gave the store closures for the year do you anticipate at the end of this to have any international owned stores.
Dylan Douglas Carden: Once you kind of reposition that business.
Annie Mitchell: Yes, so when we look at our overall retail base internationally, we will continue to operate stores specifically in the UK, and we will continue to look at our overall European marketplace and evaluate the potential for stores in conjunction with our shift to a distributor model in some portions of the EU.
Speaker Change: Yes, so if we look at our overall retail base internationally.
Annie Mitchell:
Annie Mitchell: We need.
Annie Mitchell: And we will continue to operate stores specifically in the U K.
Annie Mitchell: And we will continue to look at our overall European marketplace and evaluate the potential for stores in conjunction with our shift to a distributor model in some portions of the EU.
Speaker Change: Got it.
Dylan Douglas Carden: And the last one, OPEX, this time, kind of taking the guidance 15 to 20 million. Steady state revenue kind of leaves you at 90% of revenue, $190 or so million in operating expense. I guess if you think of the model, there's probably some moving pieces there, but maybe to engage more of a wholesale model. You know, what's the right level of dollar amount potentially for the sort of business that you imagine as far as sort of how you're going to drive leverage?
Annie Mitchell: And then last one opex.
Dylan Douglas Carden: This time.
Dylan Douglas Carden: Taking the guidance 15 to 20 million.
Dylan Douglas Carden: State revenue kind of leaves you at 90% of revenue 190, or so million in operating expense.
Dylan Douglas Carden: I guess as you think of the model, there's probably some moving pieces there, but maybe as you engage more of a wholesale model.
Dylan Douglas Carden: I don't know if you're still sort of providing that 2026 or so positive margin target, but yeah, just trying to think about sort of your cost structure as you've kind of radically changed the business here a little bit just from a distribution capacity.
Dylan Douglas Carden: What's the right level of dollar amount potentially for the sort of business that you envision as far as sort of how youre going to drive leverage I don't know, if you're still sort of providing the 2026 or so.
Dylan Douglas Carden: Positive margin target, but.
Dylan Douglas Carden: Yeah, just trying to think about sort of your cost structure as you've kind of radically change the business here a little bit just about distribution capacity.
Dylan Douglas Carden: Sure we feel good about the work that we've done to right size, our overall cost structure.
Annie Mitchell: Sure. We feel good about the work that we've done to right-size our overall cost structure. You mentioned there's a little bit of timing impact there, and there is. For the full year of 2024, we expect SG&A dollars to be down versus the prior year. And the expected decline will come from the full year benefit of previous workforce reductions and partial year savings related to 2024 store closures and effectively zero OPEX in the international regions that have transitioned to the distributor model. So all of that will then have a full year impact as we go into 2025.
Annie Mitchell: You mentioned, there is a little bit of timing impact there than there is for the full year of 2024, we expect SG&A dollars to be down versus prior year.
Annie Mitchell: And the expected decline will come from the full year benefit of previous workforce reductions and.
Annie Mitchell: And partial year savings related to 2024 store closures and effectively zero opex in the international regions that have transitioned to a distributor model.
Annie Mitchell: So all of that will then have the full year impact as we go into 2025.
Annie Mitchell: We.
Speaker Change: Go ahead.
Annie Mitchell: No, I don't want to ruin your flow; this is great. And just as a quick reminder, this year, in the second half of the year, we will have more OPEC savings than we did in the first half due to the timing of those door closures and the international transition. If I kind of say it simply when I think about our OPEX, we've strengthened our operating model and lowered our cost structure, positioning the business to grow and achieve profitability at a smaller scale. And last one for me.
Annie Mitchell: No Don.
Annie Mitchell: Arun your flow this is Greg.
Annie Mitchell: And then just as a quick reminder, this year in the second half of the year, we will have more opex savings that we do in the first half due to the timing of those store closures in the international transition.
Annie Mitchell: I kind of say it simply when I think about our Opex, we have strengthen our operating model and lowered our cost structure positioning the business to grow and achieve profitability at a smaller scale.
Speaker Change: Got it and last one for me.
Dylan Douglas Carden: If I kind of map out the guide, you gave some sort of cadence there a little bit, but it looks like kind of a fourth quarter reflection on the United States business, and I guess does that just follow from Product Introduction, Marketing Span, kind of a, is that what you're thinking as far as what might drive those low double digit declines to maybe something closer to flat? I think you did a really good job of listing out exactly what the back half of the year looks like for us. It's product introductions, it's a little bit of an inflection in our marketing spend, and just gaining some base momentum in our business. Thanks a lot for all the detail.
Annie Mitchell: So if I kind of.
Operator: [inaudible]
Annie Mitchell: The guide you gave some sort of cadence there a little bit, but it looks like kind of a fourth quarter.
Operator: Inflexion in the United States business, and I guess does that just follow from <unk>.
Operator: Product introduction marketing spend.
Operator: I don't know what do you want to say sort of a reintroduction of on holidays.
Operator: What youre thinking as far as sort of what might drive that low double digit declines to maybe something closer to flat.
Operator: So on a stack basis.
Operator: I think you did I think you did a really good job of listing out exactly.
Operator: What the back half of the year it looks like for US is its product introductions, so a little bit of an inflection in our marketing spend.
Operator: And Ken just gaining some based momentum in our business.
Operator: Excellent.
Speaker Change: Thanks, a lot for all the detail.
Speaker Change: Okay. Thank you.
Operator: Tom.
Joe Vernachio: As there are no further questions in the queue this time, this concludes our Q&A session. I would like to turn the call over to Joe Vernachio, CEO, for a brief closing remark.
Speaker Change: As there are no further questions at the queue. At this time. This concludes our Q&A session I would like to turn the call over back to which over Nacho CEO for brief closing remarks.
Operator: Thank you everyone for joining us, and we'll look forward to seeing you next quarter. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Joe Vernachio: Thank you everyone for joining in.
Joe Vernachio: We look forward to seeing you next quarter.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Joe Vernachio: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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