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spk02: Tim, and the board for the opportunity to join the company during this watershed moment. I'd also like to thank Mike for helping to ensure a smooth transition and the finance team for their support. I've long admired and been a big fan of the Auburn's brand and mission, and I firmly believe that the strategic transformation plan the team has put into motion is the best path forward for the company and to maximize shareholder value. I look forward to meeting and working with you all in the future. With that, I'll pass it over to Tim.
spk08: Thanks, Annie, and welcome to the flock. We are thrilled to have you on the team. As I covered in the last call, I've been focused on four key areas as part of our strategic transformation plan. One, evangelizing the Allbirds brand. Two, helping to establish key strategic partnerships to grow our awareness. Three, working to define our future approach to sustainable innovation and footwear. And lastly, continuing to work closely on an area of deep importance to both me and the business, culture. I'm energized and excited by this work and the potential it has to support the growth of the business and the long-term expansion of the brand's audience. One example of the early fruits of this focus is our Moonshot project. As Joey mentioned, this project to create the world's first net zero shoe to market is a category first with the potential to become a long-term commercial franchise for the brand. I will continue to work to champion this spirit of innovation that has been with us since our founding. To support this focus, Joey and I, together with the board, have made the decision to transition my title from co-founder and co-CEO to co-founder and chief innovation officer. I'm looking forward to supporting Joey as he continues to lead the business as our CEO on a day-to-day basis. While my role has changed, one thing hasn't, and that's my long-term focus and belief in the potential of this brand and business. I know both how far we have come and how much further we can go. From the original Kickstarter campaign, to the launch of Allbirds and the world's most comfortable shoe, and to the recent launch of innovations like the Moonshot project, we have significant opportunities ahead. With a focus on design, innovation, and a clear vision for the role that brands will play in a new sustainable economy, we have significant potential through the strategic transformation underway. Finally, a note of thanks to our flock. Through the seven years Allbirds has been in existence, I have seen you meet every challenge with an unrelenting belief in the long-term potential of our work. At each stage of our evolution, we have been met with new challenges and new opportunities. This moment is no different. I know we will work together as one team to continue executing on our plan together with a focus on innovation, execution, and staying true to what makes our company great. Thank you.
spk06: Thank you. And at this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by as we queue our question roster. Our first question comes from Lorraine Hutchinson with Bank of America.
spk15: Thanks. Good afternoon. I wanted to follow up on your comments around inventory. How would you characterize the health of your inventory positioning exiting 1Q and then what's the outlook on the promotional cadence from here?
spk03: Tina, Tim, are you there?
spk02: Operator, can you hear us?
spk07: Yes, now I can hear you. Okay. Well, not sure where I left off there.
spk15: I don't think we heard any of the answer. This is Lorraine. I just asked the question and then it went silent.
spk07: Oh, got it. All right. I did a great job, so that's unfortunate. Here you go. I'll start over. So I guess in terms of inventory, I'll start it off with just kind of a shape of the inventory and then pass it over to Annie for a little bit more detail. On the shape, I just described the inventory, maybe cutting it into two buckets. First buckets being prior season obsolete styles that we plan to sunset and colorways that we also plan to sunset. So in that bucket, that's where you see the predominance of our markdown. And that's where we're working through inventory quite quickly. And as we take price action, we're very encouraged by the movement and sales velocity we're seeing there. which gives a lot of confidence in our statement around making sure we get clean by 24. The other bucket is in the core franchises and really... mostly a majority in the classic colorways there. And in that bucket, we are maintaining a fairly high full price yield. And we're really working that from just managing down future receipts that we're buying from the factory. And that you can see reflected in the really improved cash usage quarter over, or year over year, I should say, for the first quarter.
spk02: A couple of notes I would add on top of that. First is that we do feel like our inventory is also clean with our partners as well, which is an improvement compared to last year. As we look forward, we're really focusing on the idea about tight buys. And so, as Joey said, we've done a good job of segmenting these buckets, and now it's really about the focus and execution. Overall, we feel good about our inventory. We have our plan, and this year is going to be about executing that plan.
spk15: And as we look at your domestic third-party relationships, are you happy with the number of relationships you have right now? Are you looking for more, or would you just like to get bigger within those existing third parties?
spk07: I think we really, our focus is on showing up fantastically for those consumers that are walking through those doors. So, you know, we have great partners in different channels, that reach our core consumer in a really effective way. So we're quite happy there. We're in about 100 doors and there's a lot of room to run within those four accounts before we start looking outside that. And I also want to say that I think our focus is not in big growth in the wholesale channel in 2023. We really want to make sure that we come with the recalibrated product line That will start to come in towards the end of this year, but really the most material impact of that is in the first half of 24 and beyond. And when we do that, that's when we really expect to be able to push the gas down. And fortunately, we've started that sell-in process with some of these accounts, and the feedback on the new product line is really warm. So very encouraging, but early signs there.
spk15: Thank you.
spk06: One moment as we bring up our next question. And our next question comes from Alex Stratton with Morgan Stanley.
spk01: Great. Thanks so much for taking my question here. I just wanted to make sure I understood the commentary you gave on the January to March cadence in terms of demand. It sounds like you guys actually saw an acceleration. Is that right? Or how would you talk about the cadence in terms of the top line throughout the quarter?
spk04: Yeah, we so I think.
spk07: Just to be clear, I made a couple comments about the industry overall. And so I think what we saw was actually generally worsening trends in the industry overall, sequentially, particularly from January to the second two months of the quarter. We outperformed that in terms of our own trends. So relative to that, we did see a continuation of Q4 early on and a little bit of an uptick with good, solid performance in March. And so that was... Got it.
spk01: That's super clear. Maybe one other quick question for you. I just wanted to understand the adjusted EBITDA guidance for the second quarter. It does look like, you know, dollars are most of the same, but there is a slight improvement in margin. I think that's seasonally kind of how your business typically runs. But I'm just trying to understand how you guys kind of thought about that guide and what's changing quarter over quarter on that metric. Thank you.
spk04: I'll just say largely a continuation of the trend.
spk07: And we're expecting for really the remainder of the year that the backdrop is not going to improve this year really. And we're really surgically working through inventory this year. And we're going to take the opportunities where we can to move through that efficiently so that we set ourselves up to reignite growth in 24 while we're really effectively managing cash this year. And I can say that that is That is the laser focus of how we're guiding the business. And maybe, Annie, if you want to add some specifics on for the guide.
spk02: Sure. Yes, it's going to be relatively similar in Q2 compared to what we saw in Q1. We're still seeing, again, that consumer backdrop is weak. It's a volatile margin environment. And so we really are maintaining our focus on executing our strategic plan, managing our inventory, and our cash. And we do expect, again in Q2, to see significant cash improvement year over year. That's really going to be the highlight, while the P&L will stay roughly the same.
spk01: Great. Thanks and good luck.
spk02: Thank you.
spk06: One moment as we bring up our next question. And our next question comes from Bob Durble with Guggenheim.
spk11: Hi. Good evening. Annie, welcome. Best of luck. And I have a couple of questions if I could. I think the first one is, you know, there's a lot of launches that you've done over the last few weeks and few months. I think even the golf shoe launched maybe today or yesterday. Just, you know, would love to hear any feedback that you've gotten on, you know, some of the newer launches that you've had. you know, pricing perspective on, you know, where you placed them and how you feel about, you know, the pricing opportunity that you have. And then I guess just take it up higher level. Um, you know, can you talk a little bit more around what, where you feel the brand is today? You know, the, the brand equity, the brand heat, you know, the brand recognition. And if you're making progress there, um, thanks very much.
spk07: Thanks, Bob. Um, so on the, uh, on the product launches, Specifically, I can give you a couple examples to kind of color it in. All of them are really bought, and I think we reflected this in the last quarter. All of them are bought pretty tight. So when we're looking at a situation where we have elevated inventory that we're trying to work through significantly, we're not betting on any big home runs or huge upticks in demand from new product launches throughout the remainder of this year. And when we have opportunities that really we can see we put into the marketplace and they resonate really strongly, we have ample time to chase, and we have a fairly agile supply chain partner with our manufacturing group in Vietnam. So opportunities to chase when demand presents itself. And the thing I'll highlight, the Gulf Dasher was today, and that's an example where our customers – have just consistently, since we started the company, frankly, said that they play golf and all birds and wear it around the clubhouse and that they would love to have one. The Dasher is the perfect franchise to do that. It is a core franchise product for us, and it just gave us an opportunity to delight a consumer group who really has been asking for it. You know, we're only six hours into the launch, but so far tracking really well. And similarly with the breezer point and the super light versions of the tree runner and kind of an extension of that on the trainer, those have all performed to expectations and show really good signs. We learn a lot, and then we can chase that in the back part of the year and into 24 when it makes sense. So, yeah. So I'd say that's sort of how I would calibrate you on the product launches specifically. Overall brand health, I'd say the brand health, the fundamentals are quite strong. I would say that the awareness growth is not picking up to the pace that we would have expected. And so I think when you think about some of the points I gave you around what the brand is showing up like for customers who do know about us, incredibly high NPS, lots of repeat purchase intent, and good sell-through at high yields on our core franchises. All that speaks to a really good experience. The trick now is really we've just got to focus on growing brand awareness and saying all the hellos to our core consumer customers. And when I look at what we've outlined in terms of the way we expect to show up, there's a couple elements I'd point you to that I think should lend some good confidence into how we're headed here. The first is the consumer, who they are, they're quite young, digital-first people, pretty high household income, about two-thirds of our customer base is is north of 100,000 household income, really geographically dispersed across the U.S., and skew quite significantly female relative to others in our industry. So that's sort of the backdrop. Less than 15% of the U.S. population has yet to find out about the greatness of Allbirds, so that's now what we've got to work on. So we're tightly integrating our creative and marketing approach around core franchises, And we're showing up with this social first and influencer-led approach, which is helping to amplify the message and keep that focus on the core franchise. I gave the example around supernatural exploration, but that's one taste of it, and you should expect a whole bunch more of that. And we'll give you updates on how that progresses in terms of increasing brand awareness as we go. Great.
spk11: Thank you very much.
spk06: Thanks, Bob. And one moment for our next question. And our next question comes from Janine Stickter with BTIG.
spk13: Hi, thanks for taking my question. Would that be a little bit more color on some of the strategies you're using to move through the product that you're sunsetting? And I'm curious if you think you're getting a new customer through this promotional product and if ultimately that's somebody who you can transition to full price. Thank you.
spk07: Yeah, thanks for the question, Jane. Yeah, we are seeing, you know, pretty good balance where we are getting a lot of new customer acquisition when we do that, when we do surgical markdowns and they're accessing the brand at a lower price point. And frankly, they're performing as well or better as our full price entry customers. And that's been pretty consistent for us over the last 12, 18 months. And that's really encouraging for us because I think promotion is really important to give access to new people who may be on the fence. And as I mentioned earlier, the sales velocity when we do move some of those products that we're going to sunset in the future in terms of taking them out of the assortment, The velocity is good, and the pickup on that is good. And when you match that with a consistent long-term customer value of those people entering through that entry point, it's an encouraging sign for us.
spk13: Great. And then maybe just kind of on the flip side, you know, historically you haven't been a very promotional brand. So as you clear through some of this product, how do you make sure that your existing customer who thinks of you as a full-price brand doesn't become accustomed to the promotions?
spk07: Yeah, great question. And we are trying to be very thoughtful about that. You know, first of all, I'll tip my hat to our factory partner here who has made tremendous efforts of making a lot of late additions for our spring-summer line for 24. So they're working truly around the clock to make sure we recalibrate that product line. And I say that because The large majority of impact of when we really get the new assortment in front of consumers isn't until 24. So we want to pace this out as we work through the inventory, and that allows us to be quite surgical there. And when I say surgical, what I mean is we want to really only focus to the extent we can on products that we will sunset in the future and keep our classic colors and our core franchises really intact at full price. So that's sort of the balance that we're trying to strike and exceptions to that might be on select windows when we run assortment wide promotion or targeted promotions around different items and that's really just a tactic to get new consumers into the brand.
spk13: Great, thanks for the caller and best of luck.
spk06: And stand by as we bring up our next question. And our next question comes from Tim Duffy with Stifel.
spk10: Thank you, Tim Duffy with Stifel. So I want to start on the international business model transition. I know it's a complex process. You say this is something that could influence the annual numbers. Does that suggest you expect some changes could be in place before year end, or are we looking at a much longer process?
spk07: No, we would expect at least one, if not more, to be done this year and hope to update you on that soon.
spk10: Okay, great. Maybe that in part answers my next question. Do you expect announcements on a piecemeal, you know, kind of country-by-country basis, or is there certain regions where you'd expect to bundle relationships? How do you foresee that playing out?
spk07: I think what we would like to do is just kind of collect them, and when they happen, we'll announce them on these quarterly calls, Jim.
spk10: Okay. That's helpful. Thank you.
spk06: One moment for our next question. And our next question comes from Dana Telsey with the Telsey Advisory Group.
spk14: Hi, good afternoon, everyone. On the differentiation between the performance in stores and the performance online, what is the biggest difference you're seeing, whether it's in terms of Traffic, price point, how you're managing each. And as you think about optimizing the stores, where are you seeing the most success lately? Whether it's in region, box size, or open air and closed malls, how are you thinking about it? And then in terms of on the product side with promotions, is there a channel where you're using promotions more than another? And with the core franchise that will be expanded by early 2024, What percent do you want that to be of the assortment? Thank you.
spk04: Thanks, Dana. All right, I'll try to work through those.
spk07: Kind of store versus digital on a direct channel, we see generally a consistent customer. It does, in our store business, it skews a little younger of a consumer, and they tend to be less price sensitive, and we drive, kind of one of your later questions there, we drive a higher full price sell-through inside of our brick and mortar. That is really the best expression for the brand. We have the highest NPS in our four walls. And we do drive higher full-price sell-through, and then that translates to a great kind of omni-experience where those customers cross over, and those dual-channel customers tend to spend quite a bit more than just single-channel customers, even if they're repeat customers. I'd say those are the biggest differences. Then in terms of how we're going about improving productivity in the stores, we're here to sell shoes in the stores. focusing on what we can control on the floor wall is probably the most important. So our new store leadership team has put a new regional structure in place, really driving good incentive management, good labor productivity, and then, of course, focused on making sure everyone walks out with a pair of shoes or more. And so those initiatives have been focused on merchandising, in-store visuals, and also just general kind of brass tacks incentivizing our store fleet of great ambassadors in the store. So I'd say those are largely. And then lastly, I guess I'll close out with your question on Generally, we do that cross-channel, albeit in terms of managing margin inside of those stores, which does tend to have a higher gross margin in terms of relative shape of business. We do like to minimize sendbacks, and sometimes we offer local deals to people who are within our community and make sure they get the best experience there and get access to things that might be a little unique versus other consumers.
spk14: Thank you.
spk04: One moment for our next question.
spk06: And our next question comes from Tom Nickage with Wedbush Securities.
spk05: Hey, everybody. Thanks for taking my question. The marketing expense declined quite a bit year over year, and I'm assuming that that's a function of not having the right product at the moment and not trying to put marketing dollars when you don't exactly have your product where you want it to be. Should we think that marketing continues to decline on a year-over-year basis, kind of, you know, through year-end and then in 2024 when you have the new product lines that you're excited about, then we would see a reinvestment in marketing to reignite growth?
spk02: Yes, that is exactly how you should look at about marketing. We absolutely plan to align and prioritize our marketing spend this year with the recalibrated product launch that we expect to come at the end of the year. We do expect that our marketing spend will be planned down year over year, both in absolute and as a percentage of sales. We really want to make sure that we are matching our investment with the product. And we will be, as a result, this is why we've made the decision to hold further spend until we have the product recalibration to justify that higher investment. And everything that we've seen so far confirms for us that will be the case in 2024. Great.
spk05: Thanks very much.
spk06: One moment for our next question. And our next question comes from Edward Ruma with Piper Sandler.
spk12: Hi, it's Abby on for Ed. So just in terms of the product recalibration, you talked about the golf shoe launch, but can you talk about your thoughts on Allbirds' position within the performance category after some of the missteps on running and what your plan is for the performance product going forward?
spk07: Yeah, thanks. Best way to characterize it is we saw some, I would say, perhaps more noise than signal in the midst of the pandemic. We saw our Dasher franchise come out and just be an absolute blockbuster for us. resonate really well. And we read some of those signals as permission from the consumer to get a little bit more technical in terms of performance running. And so we backed that up with some of the products that you saw at the end of last year, things like the flyer that really emphasized the technical running credibility. And as I think we've been pretty open and candid about that, that just didn't land as well with the consumer. So we really want to pull that back to this active lifestyle, this blend of where consumers fell in love with us and we became famous for with them around this blend of lifestyle and activity kind of in that athleisure space. If we focus on that as the way we show up, the way we message, and the products that we brief in, we know that that resonates much more strongly with our core consumer, and we see the same thing from feedback in our third parties. So you'll see a lot less in terms of kind of the hardcore technical running or technical sport. And I think even if you look at the way we've messaged the golf dasher today, you can see it's just as good on the 18th hole as it is in the 19th hole. And so that kind of language where we really talk about that versatility and that style element that layers into something that still delivers on good comfort and good performance. That's the sweet spot for us.
spk12: Got it. That makes sense. And then just one more. When you say you'll enter 24 in a clean inventory position, do you have, like, a dollar amount that you can give us that you consider a healthy position there?
spk07: Yeah, we won't give specific guidance on that, just kind of align with the overall change in terms of what's going on with the strategic transformation. And I can also tell you that... As we noted, the international changeovers are a big element of that, so it's difficult to put a pin in where that's going to land. But we'll give you updates, and as we do finalize our decision to move in one of those regions to a distributor model, I think we can give you a blueprint and really color that into more detail.
spk12: Great. Thank you.
spk06: One moment while we bring up the next question. While we're bringing up the next question, if you do have any questions, please remember to hit star 1-1 on your phone. And our next question comes from Mark Allswager with Baird.
spk09: Good afternoon. Thank you for taking my question. So, I mean, it, it sounds like 24 is really gonna be the bigger flow of, of new product. But, um, as it was mentioned a few times on this call, I mean, there has been quite a bit of newness in the last few months here with the, the super light and, um, tree runner and, and, and the golf. And it, I guess these seem like project products that are really aimed right at that core customer. So, I mean, what kind of marketing muscle are you, are you putting behind that over the spring summer or anything you're diff doing differently from a merchandising perspective in the stores? I know you're in early innings with the transformation here, but I'm curious if you're looking at some of these recent launches as a way to get an early read on the strategy to refocus on the core, or is it really just going to be more about a 24 product full story? Thanks.
spk07: Yeah, Mark, thanks for the question. It's a great one. These are really good examples of extensions off of core franchises. The reality is that we bought them quite tight, so we don't want to back up the truck with marketing dollars when we don't have the inventory. So in most of these cases... I should say in some of these cases, we'll see 100% sell through relatively quickly on some of these examples. And then you'll see things like the Breezer Point and its original kind of the tree breezer franchise. we will continue to run the integrated marketing campaign and flow that through, and we are seeing solid progress with that. So these are kind of like good tip of the iceberg examples of where we're headed and how we integrate the marketing against these, and the signs are positive there. That said, as we move through the inventory, we want to make sure that we don't overextend on marketing and make sure that as we use Markdown, particularly on some of these platforms, slower moving products from prior seasons that we let that do some of the heavy lifting for us instead of spending marketing dollars outside these walls.
spk09: Makes sense. Thanks for the color.
spk06: And at this time, I would like to turn it back over to Joey for closing remarks.
spk07: Great. Well, thanks, everyone. I just want to close a couple things. I want to say first that I'm really incredibly proud of our team's unwavering dedication to successfully executing this strategic transformation with a really unified set of goals around driving growth, particularly in 24 with expanded margins, and also focusing on the day-to-day business with a laser focus on cash. I think we all know these big changes don't happen overnight, but as we progress through the plan, the strategy is already demonstrating real tangible value and value creation for Allbirds and our stakeholders, and to all of our stakeholders here, we're grateful for your continued support, and our commitment to growing into a global and vital generational brand remains steadfast, and I could not be happier with the team of people I'm surrounded by to achieve these ambitions. Thanks very much, and we will look forward to sharing more with you in the next quarter.
spk06: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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