Allbirds, Inc. Q1 FY2023 Earnings Call

Good afternoon, everyone, and welcome to the Allbirds First Quarter 2023 Conference Call. Now, I'd like to hand the call over to Katina Metzidakis, Vice President of Investor Relations and Business Development at Allbirds.

Good afternoon, everyone, and thank you for joining us. With me on the call today are Joe Zwillinger and Tim Brown, Allbirds's Co-Founder; and Andy Mitchell, Allbirds's Chief Financial Officer. Before we start, I'd like to remind you that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about our financial outlook, including cash flow and adjusted EBITDA expectations, Q2 guidance targets, impact and duration of external headwinds that we at initiative strategic transformation plan and related to sand efforts, go-to-market strategy, expected profitability, cost savings targets, product plans and expectations, third-party partnership strategy, marketing strategy and other matters referenced in our earnings release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please also note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise any statements to reflect changes that occur after this call. Please refer to our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2022, 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 the most directly comparable GAAP measures to the extent reasonably available in today's earnings release. A supplemental slide presentation is also available on the Investors section of our official website. Now, I'll turn the call over to Joe to begin the formal remarks.

Thank you, Katina, and welcome, everyone. We started the year with top and bottom line results above our expectations as our teams are executing the plan despite a difficult macro backdrop. The footwear industry saw a heavy promotional cadence in January, followed by a slowdown in spending in February, which was exacerbated during the background in March. Despite the industry headwinds and a leaner product launch calendar this quarter versus Q1 '22, demand for Allbirds products exceeded our plans, particularly in March. This top line performance, coupled with tight expense control, enabled us to deliver bottom line results and cash flows that were better than expected. On the strategic transformation initiatives we announced on our last earnings call, we are making solid progress against our plan to drive growth with expanded margins. As a reminder, our four initiatives include: one, reigniting our products and brands; two, optimizing U.S. distribution for four-wall profitability in our stores; three, evaluating a transition of the international direct go-to-market strategy towards a distributor model to reduce OpEx and overall complexity; and four, improving overall gross margin and managing operating expenses. Let's go through each of these now. Starting with reigniting our products and brand, our teams are hard at work connecting insights to a recalibrated product line and refined marketing approach, which we expect to begin to bear fruit in early 2024. That said, I'd like to highlight some recent product launches that speak to our dual-pronged strategy focused on both surprising and delighting our core consumer while reinvigorating our core franchises to drive growth and assortment productivity. During Q1, we announced Moonshot, a purpose-led project to create the world's first net zero carbon shoe. This net zero carbon footprint compares to our estimate of the industry average of 14 kilograms of carbon dioxide equivalent emissions for a typical sneaker and speaks to our core consumer, who cares deeply for the environment as to the next generation of consumers. This announcement was designed to drive brand awareness and was successful in garnering north of 2 billion media impressions. Social sentiment was extremely positive with video views more than double our average organic social posts and engagement rates up almost 200%. We also just launched an extension to our consumer favorite Breeze Vale flat with the new Breezer Point for women. The Breezer Point is a great example of reinvigorating and extending one of our core franchises by adding an elevated aesthetic appropriate for the casualized workspace. As we mentioned last call, our core consumer skews female relative to industry peers, and we believe we have an opportunity to improve conversion with women through a dedicated product offering focused on meeting her needs. We intend to continue our investment in similar extensions. Overall, the Allbirds brand remains strong. Last quarter, we spoke about the results from a company-sponsored BCG study. There are a few notable takeaways: First, Allbirds has the second highest Net Promoter Score in our peer group. Next, our consumers have a strong level of brand loyalty and satisfaction, with 96% of shoppers in the past year saying they would consider purchasing from us again, with quality, comfort, and design as the three main reasons why our consumers recommend us. More recently, in March 2023, LEK published its 2023 U.S. footwear and apparel brand heat index, which ranks Allbirds as a top 10 casual footwear brand for both men and women. To amplify our product focus on core franchise innovation, we are emphasizing a social-first influencer-led marketing approach, which we expect to drive improved organic traffic and relevance for our recalibrated product line. Expanding upon our Supernatural North Star, our message of supernatural exploration celebrates the fact that our consumers leading active lifestyles are adventurous and aspire to travel the world. We have delivered strong and aligned creative, coupled with integrated influencer activation to reinforce the amazing qualities of our core products for travel. This is just a taste of what's to come in the next quarters. Moving now to U.S. distribution. As a reminder, we have slowed the pace of our new store openings to focus on driving four-wall profitability. We are pleased with our real estate portfolio of 40 full-price stores and three outlets in the U.S. In Q2, we opened one new store in the U.S. with two more to follow later this year. We continue to focus on driving traffic and conversion and are making inroads as several store pilots under the leadership of our new head of stores. Turning to third-party partnerships; we continue to make steady progress with our marquee partners, including Dick's Sporting Goods, Nordstrom, REI, and Shields. Initial feedback regarding our recalibrated 2024 product pipeline has been positive with great alignment of the insights they have on their shoppers' perception of our brand. After working through some slower-moving inventory from Q4 '22, we believe this channel is clean from an inventory perspective. For now, we are targeting our wholesale marketing investments towards in-store communications and staff training to increase sell-through and drive margins. We intend to invest alongside our retail partners to help ensure that our brand and product truly stand out. Moving now to our third initiative of evaluating a transition away from the direct go-to-market strategy in certain international regions. We continue to explore alternatives with the goal of driving unit sales growth and near-term profitability. We have made meaningful progress in discussions with a number of strong potential distribution partners with embedded distribution in addition to our current footprint in these international regions. In summary, we are pleased with both the level of interest we have generated and the pace of discussions, and we'll update you on our regular quarterly calls as we make additional headway. Overall, demand and brand health remains solid in our international business, with revenue growth of 6.5% in local currency. Similar to last quarter, we are seeing strong momentum in our Asia business with more than 50% organic revenue growth in Japan, which is a key trend market in footwear. We are seeing similarly strong trends in China with accelerating growth since January. Finally, our fourth initiative on cost management is progressing very well. We are on track to deliver on our $35 million to $45 million of annualized cost savings target as compared to our run rate at the end of 2022, made up of COGS savings of $20 million to $25 million and SG&A savings of $15 million to $20 million. Starting with actions we are taking to manage costs. We are already seeing meaningful cost benefits from our manufacturing transition. Though it is still early days, we are starting to see significant improvements in costs for products coming off the line from our new factory partner in Vietnam. We expect to see an acceleration in savings throughout the remainder of 2023 as we finalize the factory transition this year. We expect savings from raw materials optimization to begin to impact production later in '23, with results expected to positively affect comps in 2024. Early results lend confidence that we will achieve the $20 million to $25 million of annualized COGS cost savings target on a volume-neutral basis to 2022. Moving to SG&A; we recently undertook a workforce reduction to reflect the reduced complexity created by these strategic initiatives. These moments are difficult, and we have taken steps to provide our departing colleagues with a smooth transition. For those who remain, our strategy allows us to streamline operations, leaving a highly talented workforce well-positioned to ignite growth for the brand. We estimate that this recent action will deliver approximately $7 million in annualized SG&A savings, with full-year impact to be reflected beginning in 2024, lending confidence that we will achieve our $15 million to $20 million of annualized SG&A cost savings target as compared to our run rate at the end of '22. Andy will provide a little more detail on our cash management efforts, but I'll share a couple of high-level points. We ended Q1 with $143 million of cash, reflecting a significant improvement in cash usage in the first quarter versus Q1 of last year. With tightened inventory buys, streamlined expenses, and solid demand capture, we expect that cash flow trends will continue to improve throughout the year, and we remain focused on ensuring that we maintain an ample cash cushion to support investments needed to reignite growth and drive sustained profitability. I'm now thrilled to hand the call over to Andy Mitchell. Andy began her tenure as our CFO just a few weeks ago, and she's already making a major impact, and I couldn't be happier to have Andy rounding out our executive team with a great depth of industry expertise. Welcome, Andy. Over to you.

Thank you for the warm welcome, Joe. I'm very excited to join at such a pivotal moment for this company and brand that I admire so much. Let's get right to it with an overview of our financial results for the first quarter. Q1 revenue of $54.4 million declined 13% year-over-year, which was better than we expected, driven by improved performance into March, including a $1.2 million impact from FX; revenue would have declined by 9%. Our gross margin was 40.1%, down versus 51.9% in Q1 '22 and was impacted by several factors, including: first, a higher level of promotional activity due to both the ongoing industry-wide promotional environment and elevated markdowns as we work to clear our inventory of colors and styles that are being sunsetted. Second, inventory write-downs related to prior generation products, third, costs associated with our manufacturing transition, and fourth, a year-over-year shift in channel. We continue to be thoughtful with our discounting while protecting our core franchises. To that end, core franchises such as the Wool Runner, Tree Runner, and Tree Dasher continue to have 85% or higher full-price sell-through in the quarter. Moving down the P&L, it is worth highlighting that SG&A, excluding depreciation and stock compensation, grew just 3% in the quarter. This represents a meaningful improvement compared to Q1 of 2022 despite 20 additional regional stores and reflects the actions we are taking to control costs in the middle of the P&L, including slowing new store growth and tightening discretionary spending. Similar to last quarter, we chose to pull back on overall marketing spend on a year-over-year basis given the promotional environment. We continue to look for ways to best manage our costs and have made the choice to update our marketing strategy to prioritize marketing spend to align with the recalibrated product line expected to come to market slightly later in the year. In Q1, we incurred $3.2 million in restructuring charges associated with our strategic transformation. Taken together, adjusted EBITDA came in at a loss of $21.7 million, ahead of our guidance of negative $29 million to negative $26 million. Turning now to the balance sheet. I am pleased to report that inventory was down 8% compared to Q1 of 2022 and down 6% sequentially versus year-end. The decrease from the end of 2022 is attributable to less on-hand inventory as we continue to buy tighter, particularly for non-core products. A good example of this is our recent riser launch, where we pivoted quickly to buy more tightly. As a result, this more fashion-forward product is trending ahead of our annual sales forecast with room to potentially capture additional upside later in the year as we get more consumer feedback. Overall, we continue to work towards entering 2024 clean from an inventory perspective. With regards to cash, we ended the quarter with approximately $143 million on our balance sheet. Importantly, and as Joe mentioned earlier, our Q1 cash usage was cut in half on a year-over-year basis from $48 million in Q1 2022 to $24 million in Q1 '23. As a reminder, Q1 is typically our highest cash usage quarter. The improvement we saw versus last year's results was driven by lower inventory that I just mentioned, lower CapEx spend primarily related to slowing the pace of new store openings, a reduction in corporate headcount, tighter discretionary spending, and significantly lower inbound shipping costs, which should prove a positive offset to gross margin pressure in coming quarters. Looking ahead, we expect Q2's cash usage trends to improve versus Q2 2022. Lastly, I'm pleased to announce that we finalized the extension and upsizing of our undrawn revolver with JPMorgan, which extends the maturity through 2026 and provides us with $50 million of committed liquidity, which is $10 million above our prior facility and $50 million of uncommitted incremental liquidity, $15 million above our prior facility. Regarding Q2 guidance, we expect Q2 revenue in the range of $64 million to $69 million, which represents a range of negative 18% to negative 12% year-over-year growth. We expect adjusted EBITDA to be in the range of negative $20 million to negative $23 million. We will not be providing annual guidance this time, primarily due to the uncertainty surrounding the timing of our strategic transformation and most notably, the international go-to-market transitions that we are evaluating. From a directional perspective, similar to what we said in Q4, excluding the impact of any potential change in our international go-to-market, we are not anticipating any significant improvement in demand trends. We are maintaining a cautious outlook for the rest of the year given the uncertain macro backdrop and the nature of our transformation plan, including the fact that many of our products and brand initiatives won't hold until 2024. As we work towards a clean inventory balance and mix in 2024, we continue to expect gross margin to be pressured as we use markdowns at a more elevated level than is typical for our company. Before handing it over, I'd like to thank Joe, 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 in the finance team and for his support. I've long admired and been a big fan of the Allbirds 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.

Thanks, Andy, and welcome to the flock. I am thrilled to have you on the team. As I covered in the last call, I have 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 in 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 Joe 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, Joe 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 Joe 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 understand 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 team. 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 faced 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 with a focus on innovation, execution, and staying true to what makes our company great. Thank you.

Thank you. We will now begin the question-and-answer session. Our first question comes from Lorraine Hutchinson with Bank of America.

I wanted to follow up on your comments around inventory. How would you characterize the health of your inventory positioning exiting Q1? And then what's the outlook on the promotional cadence from here?

Operator, can you hear us?

Yes. Now I can hear you.

Okay, well, I'm not sure where I left off. So I guess in terms of inventory, I'll start it off by breaking it into two buckets. The first bucket being prior season, obsolete styles that we plan to sunset and colorways that we also plan to sunset. In that bucket, that's where you see the predominance of our markdowns, and that's where we're working through inventory quite quickly. As we take price action, we're very encouraged by the movement in sales velocity we're seeing there, which gives us a lot of confidence in our statement around making sure we get clean by 2024. The other bucket is in the core franchises, really mostly a majority in the classic colorways there, where we are maintaining a fairly high full-price yield, and we're working that from managing down future receipts that we're buying from the factory. You can see that reflected in the really improved cash usage year-over-year for the first quarter.

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 types. And so as Joe 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.

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?

Yes, our focus is on providing an excellent experience for the consumers that visit our locations. We have strong partnerships across various channels that effectively connect with our core audience, which is encouraging. We are currently present in around 100 locations and have significant opportunities to grow within these four accounts before considering expansion. Additionally, we are not prioritizing significant growth in the wholesale channel for 2023. Our goal is to ensure that we introduce a revised product line by the end of this year, with the most significant impact expected in the first half of 2024 and beyond. At that point, we plan to accelerate our efforts. We have already begun the sell-in process with some of these accounts, and initial feedback on the new product line has been very positive, which is promising, albeit still in the early stages.

One moment as we bring up our next question. Our next question comes from Alex Stratton with Morgan Stanley.

Great. 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?

Yes. So I think just to be clear, I made a couple of comments about the industry overall. What we saw was actually generally worsening trends in the industry overall 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.

Got it. 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 dollars are mostly 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.

I'd just say that it's largely a continuation of the trend, and we're expecting for really the remainder of the year that the backdrop improves materially. 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 effectively managing cash this year. I can say that is the laser focus of how we're guiding the business. And maybe, Andy, if you want to add some specifics for the guidance?

Sure. Yes, it's going to be relatively similar in Q2 compared to what we saw in Q1. We are still seeing, again, that consumer backdrop is weak. It's a volatile margin environment. So we really are maintaining our focus on executing our strategic plan, managing our inventory, and our cash. We do expect significant cash improvement year-over-year in Q2, and that's really going to be the highlight while the P&L will stay roughly the same.

Thank you.

And our next question comes from Bob Drbul with Guggenheim.

Andy, welcome. Best of luck. And I have a couple of questions, if I could. I think the first one is 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 would love to hear any feedback that you've gotten on some of the newer launches that you've had and pricing perspective on where you place them and how you feel about the pricing opportunity that you have? And then I guess just take it up higher level. Can you talk a little bit more around where you feel the brand is today, the brand equity, the brand heat, the brand recognition and if you're making progress there?

Thanks, Bob. So on the product launches, specifically, I can give you a couple of examples to kind of color it in. All of them are really bought tight. So when we're looking at a situation where we have elevated inventory that we're trying to work through significantly, we are not betting on any big home runs or huge upticks in demand from new product launches throughout the remainder of this year. When we have opportunities that resonate strongly, we have ample time to chase, and we have a fairly agile supply chain partner in Vietnam; so we have opportunities to chase when demand presents itself. The thing I'll highlight is the Gulf Dasher, which was launched today, and that’s an example where our customers have consistently mentioned that they play golf and want to wear Allbirds product. The DASH is a core franchise for us, and this launch just gives us an opportunity to delight a customer group who has been asking for it. We are only six hours into the launch, but so far, it's tracking really well. 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, I'd say that's sort of how I would calibrate you on the product launches specifically overall brand health. I'd say the fundamentals are quite strong. The awareness growth is not picking up to the pace that we would have expected. The key indicators are strong NPS, high repeat purchase intent, and good sell-through at high yields on our core franchises. All of that speaks to a really good experience, but now we need to grow brand awareness further. Less than 15% of the U.S. population has yet to hear about Allbirds. So, that's the focus going forward. We are tightly integrating our creative and marketing approach around core franchises, and we are showing up with a social-first and influencer-led approach, which is helping to amplify the message while keeping the focus on the core franchise. I gave the example around supernatural exploration, but that's one case of it, and we will give you updates on how that progresses in terms of increasing brand awareness.

And one moment for our next question. Our next question comes from Janine Stichter with BTIG.

With a little bit more color on some of the strategies you're using to move through the product that you're sunseting. 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?

Yes, thanks for the question. Yes, we are seeing a pretty good balance where we are getting a lot of new customer acquisition when we do that, when we do surgical markdowns, and they are accessing the brand at a lower price point. Frankly, they are performing as well or better than our full price entry customers. That's been fairly consistent for us over the last 12 or 18 months, and that's really encouraging because promotion is important to give access to new people who may be on the fence. As I mentioned earlier, the sales velocity when we move some of those products that we're going to sunset in the future is good and the pickup on that is good. When you match that with the consistent long-term customer value of those new entering customers, it's an encouraging sign for us.

Great. And then maybe just kind of on the flip side. Historically, you haven't been a very promotional brand. So as you clear through some of those products, how do you make sure that your existing customer, who thinks of you as a full-price brand, doesn't become accustomed to the promotion?

Yes, great question. We are trying to be very thoughtful about that. First of all, I want to acknowledge our factory partner who has made tremendous efforts of making a lot of late additions for our spring/summer line for '24. They are working around the clock to ensure we recalibrate the product line. The significant impact of when we really present the new assortment to consumers won't come until '24. We want to pace this out as we clear through inventory, and that allows us to be quite surgical. When I say surgical, I mean we want to focus solely on products we will sunset in the future and keep our classic colors and our core franchises intact at full price. That is the balance we are trying to strike. Exceptions might be made on select windows where we run assortment-wide promotions or targeted promotions around specific items, and that's a tactic to get new consumers into the brand.

And our next question comes from Jim Duffy with Stifel.

Thank you. Jim Duffy with Stifel. So I want to start on the international business model transition. I know it's a complex process. You said 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?

No, we would expect at least one, if not more, to be done this year and hope to update you on that soon.

Okay, great. Maybe that in part answers my next question. Do you expect announcements on a piecemeal, country-by-country basis? Or are there certain regions where you'd expect to bundle relationships? How do you foresee that playing out?

I think what we would like to do is collect them, and when they happen, we'll announce them on these quarterly calls.

And our next question comes from Dana Telsey with Telsey Advisory Group.

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 a region, box size, or open air and closed malls? How are you thinking about it? And then in terms of 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?

Thanks, Dana. I'd say kind of store versus digital on our direct channel, we see generally a consistent customer. In our store business, it skews a little younger of a consumer, and they tend to be less price sensitive; we drive a higher full-price sell-through inside our brick-and-mortar, which is really the best expression for the brand. We have the highest NPS within our four walls, and we achieve higher full-price sell-through, which translates to a great omni experience where those customers cross over. Those dual-channel customers tend to spend quite a bit more than just single-channel customers, even if they're repeat customers. Those are kind of the biggest differences. In terms of how we're going about improving productivity in stores, it's really focused on sales. Our new store leadership team has put a new regional structure in place, effectively driving management, good labor productivity, and ensuring everyone walks out with their purchase. Those initiatives have focused on merchandising, in-store visuals, and general tasks for our store fleet of great brand ambassadors. Finally, I will mention that we do use promotions across channels, albeit managing margin inside those stores, which do tend to have a higher gross margin compared to other areas. We do like to minimize markdowns and sometimes offer local deals to consumers within our community to ensure they receive the best experience.

One moment for our next question. And our next question comes from Tom Nikic with Wedbush Securities.

The marketing expense declined quite a bit year-over-year, and I'm assuming that's a function of not having the right product at the moment and not trying to allocate marketing dollars when you are not sure about your product offerings. Should we think that marketing continues to decline on a year-over-year basis, kind of through year-end? And then in 2024, when you have the new product lines that you're excited about, will we see a reinvestment in marketing to reignite growth?

Yes, that's exactly how you should look at it regarding marketing. We absolutely plan to align and prioritize our marketing spend this year with the recalibrated product launches that we expect toward the end of the year. We do expect our marketing spend to be planned down year-over-year, both in absolute terms and as a percentage of sales. We really want to ensure we are matching our investments with the product, and as a result, we have made the decision to hold further spending until we have the product recalibrated, justifying further investments, and everything we've seen thus far confirms that for us in 2024.

One moment for our next question. And our next question comes from Edward Yruma with Piper Sandler.

It's Avi 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's position within the performance category after some of the missteps on running? And what your plan is for the performance product going forward?

Yes, thanks. The 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 DASH franchise come out and resonate really well. We interpreted those signals as permission from the consumer to get a bit more technical in terms of performance running, and we backed that up with some products that you saw at the end of last year, such as the Flyer shoes that emphasized technical running credibility. As we've been candid about, that just didn’t land as well with consumers. We really want to pull back to this active lifestyle. This blend where consumers fell in love with us and how we became famous is around the seamless blend of lifestyle and active in the athleisure space. If we focus on that as the way we show up and as our messaging aligns with products briefed in, we believe that resonates strongly with our core consumers. We have similar feedback from our third parties. You will see significantly less in terms of hardcore technical running or performance sport. If you check how we’ve messaged the Gulf Dasher today, you can see it's as suitable on the 18th hole as on the 19th hole. So that kind of language, where we really articulate that versatility, along with a comforting performance, that's our sweet spot.

Got it. That makes sense. And then just one more. When you say you'll enter 2024 in a clean inventory position, do you have like a dollar amount that you can give us, or do you consider a healthy inventory position?

Yes, we won't provide a specific guidance on that, just aligned with overall changes regarding the strategic transformation. The international changeovers are a key element of that. So it’s challenging to pinpoint where it's going to land, but we'll provide updates. As we finalize our decision to move in one of those regions to a distributor model, I believe we can provide a clearer blueprint and detailed insights.

One moment for our next question. Our next question comes from Mark Altschwager with Baird.

It sounds like 2024 will be the substantial influx of new products. But you’ve mentioned quite a bit of newness in recent months with the Superlight and Tree Runner and the Gulf. What kind of marketing muscle are you putting behind that over the spring/summer? Are you doing anything different from a merchandising perspective in the stores? I know you're in the early stages of transformation, but do you see some of these recent launches as a way to get an early read on the strategy to refocus on the core, or is it primarily going to be a 2024 product flow story?

Yes, Mark, thanks for the question. These are excellent examples of extensions off of core franchises. In reality, we bought them quite tightly, so we do not want to overly invest marketing dollars without the inventory available. In most cases, we expect to see full sell-through quickly. You’ll see actions like the Breezer Point and its original Breezer franchise, continuing with integrated marketing campaigns and progress. While we see positive signs, we want to ensure that as we clear through inventory, we do not overcommit to marketing, allowing markdowns, especially for slower-moving products from prior seasons, to handle the majority of the work for us without additional marketing costs.

At this time, I would like to turn it back over to Joe for closing remarks.

Great. I want to close by expressing pride in our team's dedication to successfully executing this strategic transformation, with unified goals around driving growth, particularly in '24 with expanded margins while focusing on day-to-day business and cash management. We know these big changes don’t happen overnight, but as we navigate through the plan, the strategy is demonstrating tangible value for Allbirds and all our stakeholders. We are grateful for your continued support, and our commitment to growing into a global and vital generational brand remains steadfast. I couldn’t be happier with the team surrounding us to achieve our ambitions. Thank you very much, and we look forward to sharing more with you next quarter.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.