Allbirds, Inc. Q4 FY2023 earnings call

• Transformation first-year achievements: Cleaned up inventory by 51% year-over-year, entered 2024 with healthy product mix; improved full-year operating cash use and ended with strong cash position; achieved cost discipline to stay on track for 2025 cost reduction targets; secured international regions to transition to distributor model; optimized US marketplace by closing underperforming stores. - Product plans: Set to begin delivering refreshed product line in late Q2 2024, with Wool Runner 2 in November 2023 being the most successful launch in over a year, Tree Runner Go to launch in April 2024, and additional innovations for women Changemakers in Q3. - Marketing and team: Appointed Kelly Olmstead as Chief Marketing Officer and Adrian Nyman as Chief Design Officer; Joe Vernachio took over as CEO, assembling a strong executive team.

Fourth quarter revenue was $72 million, down 14.5%. Gross margin was 38.0% compared to 43.1% a year ago. Inventory was reduced by 51% year-over-year. The company achieved cost of goods and SG&A savings, with four international regions transitioning to a more profitable go-to-market strategy via distributors (Canada and South Korea in Q3, others expected later in 2024) and plans to close 10 to 15 underperforming stores in the US. Revenue contribution: Fourth quarter revenue breakdown shows impact from clearing non-core product and reduced marketing investments; international transitions and store closures are key factors affecting revenue contribution.

• 2024 revenue expected to be $190 million to $210 million, with $32 million to $37 million revenue impact from store closures and international transitions. - Q1 2024 revenue expected $37 million to $42 million. - SG&A expected down year-over-year in 2024 due to workforce reductions, store closures, and international transitions; marketing spend expected down largely due to international transitions, with incremental investments in US in back half. - International distributor model: Gross margin expected 15 to 20 percentage points below total company margin, in-region SG&A and marketing costs minimal, regions expected immediately profitable with average contribution margin ~20%, and new model to unlock inventory efficiencies and improve working capital.

• Uncertainty in international market distributor transitions not going as planned. - Potential negative impact on market coverage and revenue from closing 10 to 15 US stores. - Product innovation and marketing activities may not resonate with consumers as expected. - Consumer acceptance of new products and brand awareness building may face challenges.

Q: What's driving the sales decline even when adjusting for international transition and US store closures?

A: There are multiple factors including non-competitive impacts in the first half of the year, with growth expected to come from refreshed and compelling new product introductions starting in the back half of 2024 and ramping up in 2025, along with coinciding marketing investments with new product launches.

Q: On the US store closures, any specific demographic trend or driving behind them?

A: The ones closing are mostly newer stores with larger footprints designed for more robust apparel offering, and refocusing the product line sharply on iconic franchises and footwear, right-sizing the fleet for go-forward product and optimizing the US marketplace.

Q: What's needed to reaccelerate wholesale distribution?

A: Need to be great partners, ensure right product on shelves, show up fantastically for consumers, and reintroduce product strategy, icon strategy, communication strategy to retailers through a road show, with products starting to come online later in 2024 and early 2025.

Q: Can you talk about the decision to step down for Joey?

A: Been a year into transformation, with right leadership team in place, Joe being exceptionally capable leader, balance sheet healthy, and A-plus team in place, ready for next phase of return to growth.

Q: Have you seen green shoots on new products?

A: Wool Runner 2 was best launch in years with strong consumer reaction, Tree Runner Go and other upcoming products are expected to perform well, demonstrating icon strategy coming to life.

Q: Cadence of marketing?

A: Overall marketing spend down largely related to international transition, with incremental investment in US in back half, each quarter generally down but with potential changes in Q3 and Q4 to support product launches.

Q: Confidence in achieving adjusted EBITDA profitability?

A: Achieving adjusted EBITDA profitability is north star, may take longer than initially communicated, but transformation work positions business for top line growth in 2025, with 2024 having partial year impact from strategic actions and 2025 benefiting from full year profitability improvement.

Q: Right number of stores and impact of closing 10 - 15 stores?

A: Overall top line impact this year is 7 million to 9 million, cost savings range 3 million to 5 million; hard to put exact number on go-forward stores as it depends on market development and balance, with focus on omni-channel purchase.