BIRD - NASDAQ

Good afternoon, ladies and gentlemen, and welcome to Allbirds' Third Quarter 2025 Conference Call. [Operator Instructions] Now I would like to turn the call over to Christine Greany of The Blueshirt Group. Please go ahead.

Good afternoon, everyone, and thank you for joining us today. With me on the call are Joe Vernachio, CEO; and Annie Mitchell, CFO. During this call, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about these risks, please review the company's SEC filings, including the section titled Risk Factors in our report on Form 10-Q for the quarter ending June 30, 2025, for a more detailed description of the risk factors that may affect our results. These forward-looking statements are based on information as of November 6, 2025. And except as required by law, we assume no obligation to publicly update or revise our forward-looking statements. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of our non-GAAP measures to the most directly comparable GAAP measure can be found to the extent reasonably available in today's earnings release. Now I would like to turn the call over to Joe to begin the formal remarks. Joe?

Good afternoon, everyone. Thanks for joining us today. In the third quarter, we demonstrated continued progress and delivered results consistent with our expectations. We believe that great product is the foundation for revitalizing the brand and rebuilding Allbirds place in the hearts and minds of consumers. Allbirds holds a truly distinctive position in the market, one we are uniquely positioned to serve through our core principles of Comfort, Style and Sustainability. It is through this lens that we are laser-focused on returning the brand to growth and driving the business toward profitability. Since we last spoke in August, we delivered a steady stream of compelling products that consumers are clearly responding to. Enthusiasm for our new styles continues to build, and I'll share a few examples in a moment. While the majority of the new products are elevating the brand and performing well, some of our foundational franchises such as the original runner have been slower to rebuild. This underscores that rebuilding our brand perception is a process that will require sustained execution across multiple product cycles. Importantly, the positive momentum we're seeing for new products affirms that we're on the right path. It's undeniable that the products we've introduced over the past several quarters are the strongest we've delivered since the early days of the brand. The team has done an outstanding job creating a line that will serve as the foundation for years to come. One of our most successful launches this quarter has been the debut of the Wool Cruiser in September, a court-inspired silhouette introduced in a spectrum of 19 colors. To mark the moment, we teamed up with the Pantone Color Institute to launch 5 exclusive shades celebrating self-expression. What's interesting is that the most vibrant colors are selling out first. Normally, our natural tones lead in sales. But with the cruiser, it's shades like blossom and citron that are leading the pack. These distinctive colors are becoming a form of branding in their own way, instantly signaling Allbirds. Paired with a comfortable easy-to-wear silhouette and the right price point, the Wool Cruiser is clearly hitting the mark and is poised to become a key franchise for the future. Later in September, we launched our first 100% waterproof collection in 3 silhouettes. And it has quickly become another standout performer. The collection is redefining what waterproof can be, comfortable and stylish while still delivering true performance. In its first month on the market, it is exceeding expectations and proving that Allbirds can offer full waterproof functionality without sacrificing the comfort, style and sustainability people have come to expect from us. In our new Relaxed category designed for life in and around the house, we introduced a slipper collection that is a top seller today. To round out the season, we introduced the Kiwi collection this week, indoor/outdoor styles, including a mule, a clog and a low boot. They're cozy, easy to slip on and intentionally casual, exactly how people dress today. This is an additive collection that builds on our core and shows how much opportunity there is for future growth in this category for us. In the back half of the year, we aligned our marketing efforts to directly support our evolving product engine. We shifted to a steady rhythm of mid- and lower funnel marketing focused not just on driving traffic and conversion, but also on building long-term brand equity. Our program centers on 3 priorities: partnering with the right influencers and collaborators to spark awareness, highlighting product utility to drive conversion and increasing both the volume and variety of the content to accelerate growth. We are deploying a deliberate mix of traditional media, performance marketing, PR moments and brand activations, each reinforcing the other. Notable examples this quarter include our Wool Cruiser launch event with Pantone, a significant increase in influencer activation and strategic celebrity seating, all helping to create a cultural relevance and expand our organic reach. As we deliver on our product and marketing work streams, we are also focused on creating a standout experience for our customers, both online and in-store. We continue to deliver fresh new floor sets to our retail stores. And importantly, we relaunched our website in July, which transformed the look and feel of the site. Our goal is to refine the customer experience at every moment of the shopping and purchasing journey from richer storytelling on the home and landing pages to more utility and clarity on our PDPs. We're also redesigning every communication and touch point in the post-purchase experience to ensure it feels thoughtful, seamless and brand-centric. We are delivering a clearer expression of our values and a greater sense of care with every interaction. In short, we're making it easier and more enjoyable for customers to discover products and complete their purchases. With our product flywheel in motion, we are now positioned to begin executing against a renewed wholesale strategy. For spring 2026, we anticipate the brand will be available in approximately 150 specialty retail stores across the United States. And just last month, we hosted our sales meeting for the fall 2026 season, welcoming both international distributors and U.S. sales agencies to experience the new line firsthand. The collection was very well received and reinforce confidence that both domestic and international channels will contribute to growth as we move into next year. We see this expanded presence in specialty retailer as a powerful tool for increasing overall brand awareness, setting the stage for long-term growth. We see meaningful opportunity ahead. New collections like Kiwi, standout style introductions like the Cruiser are expanding our product footprint, while utility-driven offerings such as waterproof styles help us meet more of our customers' everyday needs. In the near term, we believe we are well positioned to drive improved top line trends in the fourth quarter. The updated guidance we're providing today reflects sales ranging from flat to high single-digit growth versus prior year. This outlook takes into account current business trends, an uncertain macro backdrop and our expectations for a highly competitive holiday shopping period. Throughout the season, we plan to participate in key promotional moments while delivering creative attention-grabbing messaging to engage consumers and keep Allbirds top of mind. Our teams are working with urgency and discipline to accelerate progress on the turnaround in the quarters ahead. In parallel, we are taking steps to reduce costs and recognize the need to enhance liquidity, which could include raising capital. We will consider all opportunities to maximize shareholder value. We deeply appreciate the dedication and commitment our employees have shown throughout our transformation. Thank you for the important work you're doing to reignite the Allbirds brand. We are also grateful for the continued support of shareholders. We remain focused on value creation and look forward to keeping you updated on our progress as we move forward. Now I'll ask Annie to review the financials and discuss our guidance.

Thank you, Joe, and good afternoon, everyone. We delivered strong third quarter performance with bottom line results just ahead of our expectations. Third quarter net revenue totaled $33 million, coming in at the low end of our guidance range. The results reflect strong customer response to many of our new product introductions such as the Wool Cruiser and waterproof collections as well as mixed performance from our original icons, all against the backdrop of a challenging macro environment. Gross margin in Q3 came in at 43.2% compared to 44.4% in Q3 of 2024. The year-over-year decline primarily reflects a higher mix of digital and international distributor sales as well as increased duties in our U.S. business, which partially offset higher average selling prices. For the full year, we anticipate that channel mix and tariff impacts will result in full year margin profile similar to Q3 in the low 40s. Looking at expenses, we continue to demonstrate exceptional cost management during the quarter. Q3 SG&A totaled $22 million, down $9 million or 30% on a year-over-year basis. This improvement was primarily driven by lower personnel expenses, occupancy costs, stock-based compensation expenses and depreciation and amortization. Q3 marketing expense came in at $12 million, up 19% to last year as we invested behind our new product launches. We continue to expect that full year marketing expense on both a dollar basis and as a percentage of sales will increase compared to 2024. Our strong gross margin profile and strict cost control enabled us to deliver bottom line performance slightly above the high end of our guidance range despite top line results that came in at the low end of our expectations. Q3 adjusted EBITDA loss totaled $15.7 million compared to a loss of $16.2 million a year ago. Looking at the balance sheet, we ended the quarter with $24 million of cash and cash equivalents and $12 million of outstanding borrowings under our $50 million asset-backed revolving credit facility. Inventories totaled $43 million at quarter end, down 25% year-over-year. Operating cash use totaled $15.2 million. That's up sequentially from Q2 as planned, reflecting higher marketing spend to support our new product launches as well as our seasonal working capital needs. While the financing steps we took midyear provided us with added flexibility, we are exploring options to improve our liquidity position in the quarters ahead. We are diligently managing costs and taking immediate actions to capture incremental expense savings across such areas as headcount, occupancy and technology. Moving now to guidance. We are updating our top line outlook and reiterating the midpoint of our full year guidance range on the bottom line. Full year net revenue is expected to be between $161 million and $166 million. This compares to our prior guidance range of $165 million to $180 million and includes approximately $23 million to $25 million of impact associated with our international distributor transitions and retail store closures. We're also introducing fourth quarter net revenue guidance of $56 million to $61 million, flat to up 9% versus a year ago. Looking at adjusted EBITDA, we are tightening our full year guidance range to negative $63 million to $57 million, which compares to our prior range of $65 million to $55 million. For the fourth quarter, we expect adjusted EBITDA loss to be in the range of $16 million to $10 million, a significant improvement compared to $19 million a year ago. We appreciate your time this afternoon. Now I'll ask the operator to open the call for Q&A.

[Operator Instructions] The first question comes from Alex Straton with Morgan Stanley.

Perfect. Can we just focus on the third quarter sales results came in on the low end of what you were expecting. So maybe what kind of disappointed or came in lower than you thought? And then also just with the inflection in the fourth quarter that you're assuming, is that reflective of quarter-to-date trends? Or how do you get there? And then maybe even going forward, just initial thoughts on '26, -- like should we carry forward that sales growth into that year or any initial thoughts there?

Alex, thanks for your question. Yes. So it's really kind of a tale of 3 things. First, we've introduced a lot of new product this quarter, and I'm happy to say that all of that product is working and some of it is exceeding our expectations in the formal remarks, I outlined a few of those products. But we're really delighted with how the product is -- the new product is performing. Underneath that, we have some core franchises, particularly the runner, which has a significant amount of business against it that hasn't yet inflected yet. And there's more work to be done to reactivate that style and that model and/or to add -- make up some of those sales in these new products. Even though we -- it feels like these new products have been in the market for a while, it's really only been a handful of months at most. And some of these are literally just weeks. But again, they're performing as planned, if not better than planned. So we're very encouraged by the fact that we've been able to bring in a significant amount of new product that is hitting the mark with the consumer. But underneath that, the third component to it is that we can see that there are macro environment and macro events taking place that is distracting the consumer. 60% of our sales are through a telephone, on their mobile phones. And we know what the distractions are on the phones and trying to break through that with everything that's coming through to people right now is challenging. It is something that we have to continue to work towards. What we are seeing is that when we communicate to consumers either new products that are right on the mark or a promotion program that is advantageous for them, they are converting. It's in these in between times, especially when we see a macro event take place where we see the consumer get really quiet and very considered on the purchases that they're making. So those are the 3 dynamics that are going on that led us to the sales that we're at.

And looking forward, many of those trends continue over into Q4. But when we take a step back and look at how Q3 evolved, we were introducing more product each month. And so each month, results got a little bit better, and we're seeing that again as we go into Q4 and some of the early trends so far this quarter is that as we've been introducing this new product. Hopefully, you saw that Waterproof launched on September 30, and we had our Kiwi pack, that cozy at home just launched this week. So -- that is one of the main reasons behind the improvement that we are expecting in Q4 is the building as we continue to put more and more new product into the market. Another piece when we consider Q4 is the structural changes between international distributor transitions and retail door closures really impacted us in the first 3 quarters of this year. I think, Alex, we talked about this previously, the first quarter impacted us by about almost $7 million. Q2 was about $10 million. In Q3, it was about $5 million. And for the last quarter, we expect that to be about $2 million to $4 million. As we go into next year, we have 2 things in our favor. One is, again, the product momentum that we've been building this -- the back half of this year, plus all of the fantastic new product coming starting with spring/summer '26. And then those structural impacts that I just listed off for this year get smaller and smaller. And so that is why we are optimistic about 2026.

And the next question comes from Tom Forte with Maxim Group.

It's actually Francesco Marmo from Maxim. I was hoping you could add some color around your inventory composition. I mean, in absolute terms, it looks like -- it looks relatively lean. I was hoping you could give us some comments around what kind of products are in inventory, especially considering all the new product launches and as we head into the Black Friday period and the holiday season, especially because I was looking at your new website, and it feels very kind of new product focus and very brand story focused. So I was wondering what is your strategy for the Black Friday period.

Great. Francesco, thanks for joining us today. I'll start out by talking a little bit about big picture inventory, and then I'll turn it over to Joe to add some color for you. When you look at our inventory, we ended the quarter at $43 million. That's down 25% year-over-year and just up slightly from last quarter. Being down year-over-year, it's really driven by 2 things. First is the international transitions. We did our last international transition at the very end of Q2, and that was for the EU region. Now our international transitions are complete. And as you might recall, we talked about this previously, the international distributors, they pick up the product right at source versus before, for instance, like in the EU, we would be holding all of that inventory until it's sold to the end consumer. So one is a structural change. And the second is really just about continued very strong inventory management. It was a priority for us in '23 and '24 to clean up inventory, which we did successfully. And really, it was in service of all of this new product coming. We want to make sure we were as healthy as possible and had great process and rigor around inventory, knowing that we were excited to invest in all of the new product coming. So with that backdrop, Joe, do you want to add some color?

Yes. I'm glad that you asked about inventory. It is a big focus of ours. When you bring in a lot of new product, you have to be really cognizant of inventory and make sure you stay focused on that. So that's something that we are very rigorous about and keep our eye on for sure. You talked about the -- what the website looks like. I'm glad that you feel that it looks very brand-centric and is telling a story. That was our objective. We launched the new site in July. And part of it -- a big portion of this was to be able to get our story out there to be able to tell great stories about the product and have a lot more opportunity to share different aspects of the product on the PDP and the landing pages. You asked about what our strategy is going into Q4. We anticipate that it's going to be a competitive marketplace in Q4. We think people are going to be looking for promotions, and we have our normal preparation for all the different aspects of Black Friday, Cyber Monday that we will need. We will have different products that we'll put up and take down in order to create some rhythm to the promotion. We're not going to be precious. We know we need to compete, and we need to be in the market. Otherwise, we will lose our share. So we've got a very rigorous Black Friday, Cyber Monday plan queued up, and we are going to be executing against it.

I am showing no further questions at this time. I would now like to turn the call back over to Joe for closing remarks.

Thank you, everyone, for joining. We'll see you at the next quarterly review.