Allbirds, Inc. Q3 FY2025 Earnings Call

Good afternoon, everyone, and welcome to Allbirds' Third Quarter 2025 Conference Call. I will now hand the call over to Christine Greany from The Blueshirt Group. Please continue.

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 a 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. 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 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. 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 product detail pages. We're also redesigning every communication and touchpoint 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. 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 reinforces confidence that both domestic and international channels will contribute to growth as we move into next year. We see this expanded presence in specialty retail 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 a 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% compared 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 in 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 negative $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.

The first question comes from Alex Straton with Morgan Stanley.

Can we discuss the third quarter sales results, which fell on the low end of your expectations? What do you think contributed to this disappointment? Additionally, considering the anticipated improvement in the fourth quarter, does that align with the trends so far this quarter? Looking ahead to 2026, do you believe we should project that sales growth into that year, or do you have any preliminary thoughts on this?

Thank you for your question, Alex. It's really a combination of several factors. First, we launched numerous new products this quarter, and I'm pleased to report that many are performing well, with some even exceeding our expectations. In my formal remarks, I mentioned a few of these products, and we are thrilled with their performance. However, we still have some core franchises, particularly in the running category, that haven't yet turned around, and we need to focus on revitalizing that style and model, as well as boosting sales with our new products. While it might seem like these new offerings have been available for a while, it’s truly been just a few months, with some released only weeks ago. Nonetheless, they are performing as expected, if not better. We're very optimistic about the influx of new products resonating with consumers. However, we recognize that there are broader economic factors and events that can distract consumers. With 60% of our sales occurring through mobile phones, we are aware of the various distractions available. Breaking through to consumers amidst all this noise is a challenge we must continue to address. What we are observing is that when we effectively communicate either new products that resonate well or promotional offers beneficial to consumers, we see conversions. However, during periods marked by significant macro events, consumer activity tends to quiet down, leading to more cautious purchasing behavior. These are the three dynamics that influenced our current sales situation.

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. Some of the early trends so far this quarter are 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, which just launched this week. So that is one of the main reasons behind the improvement that we are expecting in Q4 is the building momentum as we continue to introduce more and more new products 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. 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 in 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. That is why we are optimistic about 2026.

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

It's Francesco Marmo from Maxim. Could you provide more details about your inventory composition? It appears to be relatively lean in absolute terms. I would appreciate your insights on the types of products in inventory, especially with the new product launches and as we approach the Black Friday period and the holiday season. I noticed your new website emphasizes new products and brand stories, so I'm curious about your strategy for Black Friday.

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. 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. 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. It was in service of all 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?

I'm glad you asked about inventory. It is a significant focus for us. When introducing a lot of new products, it's crucial to manage inventory carefully and stay attentive to it. We are very diligent in this area. Regarding the website, I'm pleased you feel it is brand-centric and successfully tells a story; that was our goal. We launched the new site in July primarily to communicate our story and showcase our products better, providing more opportunities to share various aspects of them on the product detail pages and landing pages. Concerning our strategy for Q4, we expect a competitive market. We believe consumers will be looking for promotions, and we are preparing for the various components of Black Friday and Cyber Monday. We will introduce and remove different products to create a dynamic promotional rhythm. We understand the need to compete effectively in the market, as failure to do so could compromise our market share. Therefore, we have a comprehensive plan in place for Black Friday and Cyber Monday, and we are committed to executing 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.

This concludes today's conference call. Thank you for participating, and you may now disconnect.