Thank you for standing by and welcome to the Allbirds' First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today Kyle Khasigian. Please go ahead.

Good afternoon everyone and thank you for joining us. With me on the call today are Joey Zwillinger and Tim Brown, Allbirds' Co-Founders and Co-CEOs and Mike Bufano, Allbirds' Chief Financial Officer. Before we start, I would 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, medium-term targets, time line for achievement of lifetime sales milestones, duration of external headwinds, 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 as well as our earnings release and annual report on Form 10-K for the year ended December 31st, 2021 for a more detailed description of the risk factors that may affect our results. Also during this call we will discuss adjusted EBITDA and adjusted EBITDA margin which are 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 financial measures to their most directly comparable GAAP measures in today's earnings release. Now, I'll turn the call over to Joey to begin the formal remarks.

Thanks Kyle and good afternoon everyone. We are pleased to deliver strong first quarter results which includes robust net revenue growth of 26% compared to 2021 and 49% versus 2020 along with adjusted EBITDA in line with our expectations. The topline accelerated on both a one and two-year basis as we focused on controlling the controllables against a volatile backdrop. Macro trends are creating both headwinds and tailwinds right now. Our US business continues to show strength in both digital and physical retail. And as people go back to work demand for our core lifestyle offering is increasing. As we have mentioned previously, we believe our brand is more resonant to further COVID receipts in the rearview mirror. At the same time, certain international regions have run into demand headwinds towards the end of the first quarter and have extended into Q2, particularly in China and the EU. The quarter was highlighted by 35% sales growth in our US business, demonstrating the power of our digital-savvy omnichannel model which is further buoyed by a post-pandemic retail recovery improved pricing and resonant new product. International sales grew 3% in the quarter, reflecting headwinds in consumer spending in the EU due to Russia's invasion of Ukraine and in China due to COVID restrictions. Coupling the slowdowns in Europe and China with a strengthening dollar in some of our international markets most notably in Europe and Japan. These headwinds created a drag on revenue estimated to be approximately $2 million in the quarter, which would have represented an additional 15% % year-over-year growth in our international business. As we look at the balance of 2022, we are managing to a more conservative outlook to reflect what we believe are transitory factors affecting our international business. We believe that, the impact of full year revenue will be approximately $15 million to $20 million, which is reflected in the guidance we're providing today. More on this from Mike, but in short despite the external pressures that have changed our sales outlook for the year in our international business, we expect to deliver strong top line growth of 21% to 24% in 2022, well within our range of our medium-term revenue growth target of 20% to 30%. Underpinning this outlook is our confidence in the purpose-driven lifestyle brand and durable operating model we have built, setting us up for decades of strong growth and profitability, despite these short-term factors. As a reminder, our three growth pillars are to deliver product innovation, grow our store portfolio and scale our international business. I'm going to turn things over to Tim to speak to product innovation, and I'll jump back to provide color on the other two.

Thanks, Joey, and hello to everyone. I'm excited to share with you today, our progress across product, brand and sustainability. On our last earnings call, we told you we were entering 2022 on a trajectory towards what we believe is the most compelling product road map in our history. And we're already starting to see that unfold across our lifestyle and performance portfolios. There are several highlights thus far in 2022. First, our latest collaboration with Adidas dropped in early April to a phenomenal consumer response. We sold through more than 90% of our inventory in three days' time. We're extremely proud of this ultra-light running shoe, which carries our lowest carbon footprint yet, and includes sustainable performance innovations from heel-to-toe. In lifestyle, our core tree franchises have shown great performance heading into the spring and summer months. We've also launched a new summer collection headlined by the Sugar Sliders and Zeffers, two seasonal product offerings that leverage our SweetFoam material platform and reinforce our strategy to deliver super natural comfort rain or shine. We also continued our strategy to use apparel as a compelling reengagement tactic celebrating our unique material innovations. A great example of this was our recent extension of our successful switch franchise into a switch shore, leveraging the same material platform. We continue to build out our performance offering with the rollout of the Tree Dash two to positive consumer response. In our trial run of franchise, we're building heat through bold new colors and limited editions. And finally, the headline this week is the launch of the Tree Flyer, our third performance shoe and our latest best performing and most visually bold design yet. We are currently in the midst of a comprehensive launch in conjunction with our all good collective run community. This is…

Thanks Tim. I'll start with international where our rate of growth in Q1 was slowed by the macro factors, I discussed earlier. In Europe, Russia's envision of Ukraine and the resulting humanitarian crisis has had an indirect influence on our business via the impact of inflation on the psyche of the European consumer and petroleum prices. Despite this, we believe our store and digital model of vertical retail is working there particularly in our two focus regions in Europe being the U.K. and Germany. As I'll mention later. we are bolstering this approach through third-party partnerships. In China, COVID restrictions have slowed sales in stores via four shutdowns and slowed overall demand in the region. We believe these to be transitory impacts on our business in China, but we are preparing for extended restrictions of varying severity through the remainder of 2022. We continue to view the scale-up of our international business as an important element of our growth algorithm. Having invested early in regions like Europe and Asia, we believe we have established a broad foundation from which to grow as we strive to elevate our brand awareness into a consumer set that is at least as large as the opportunity in the U.S. Now I'll turn to our third growth pillar, the store portfolio and our broader distribution strategy. Our retail footprint is highly productive and serves as an efficient means to acquire new customers. Opening new stores drive increased brand awareness and provides a halo effect on the overall business, including an increase in the absolute number and mix of repeat customers who shop with us both digitally and in stores. This journey tends to produce our most profitable customer our multichannel repeat customer, who from our company's inception through this past quarter now averages spend of…

Thanks, Joey. We're pleased to deliver strong Q1 performance, especially given the external headwinds, which picked up after our last call on February 23. Joey discussed the regions and channels, so I'll just add some color on the other drivers of the 26% net revenue growth in the quarter. In Q1, orders increased 10% and average order value was up 17%. This strength is primarily attributable to new product launches and refreshes as well as price increases We executed a price increase in March, which we use as an opportunity to establish a pricing structure that signals value to consumers along both materials and new occasions with advanced technologies and our performance products generally commanding a premium. This is our second price increase in the past several months with effectively no observable impact on overall demand. We believe our premium brand positioning and product quality enable us to maintain this pricing architecture that premium brands like Allbirds will come out of this period much stronger by taking stock of the current inflationary environment and thoughtfully revising their pricing architectures. Before wrapping up on pricing, I would also like to note that as we've done in the past, in Q1 we utilized promotion surgically. You will continue to see us do this in the future to drive growth and effectively manage inventory. In 2021, this approach helped us realize 97% full price yield. Turning now to Q1 gross profit, which was up 26% to $33 million with gross margin at 51.9%, down 10 basis points to last year. Positive drivers of gross margin were mix shift to physical retail and higher-margin products as well as pricing. These positives were more than offset by the impact of the external headwinds which intensified as we moved through the quarter. Specifically, we estimate a…

Thank you. [Operator Instructions] Your first question is from Matthew Boss with JPMorgan. Please go ahead.

Great. Thanks. So as we think about the new fiscal year guidance, relative to the past. It implies second half sales growth and acceleration, I think up to the mid-20s or low 20s CAGR. So I guess, what gives you confidence in the second half reacceleration? What are the drivers that you think remain in the back half of the year in terms of your confidence as we move forward?

Hi, Matt thanks for the question. Yes, going back to what we said on the script, there's really a few things there. One, we do have a strong product pipeline some of, which is rolling out now. We'll continue to roll out through the balance of the year. So we feel good about having that tailwind behind us. In addition, we are going to have more stores, which is certainly going to help the growth on a year-over-year basis. Coming along with more stores then, is that increased velocity in the omnichannel flywheel, that we're seeing and you saw that even show up in our US business results in Q1. And then lastly, we are going to continue to have a little bit more on the third-party side. So while it's still a relatively small, overall sales volume it does help on a year-over-year basis in the back half of the year.

Great. And then maybe just one follow-up on the margin front. From a promotional or pricing perspective, you noted that you'll continue to utilize promotions. Is -- are you seeing anything from the competitive backdrop, from the promotional landscape, any pushback from your customer base on pricing? Just any larger picture thoughts on pricing and promotional activity would be helpful.

Yes. I'll touch on the price piece of it, then Joey, if you want to add anything on the sort of broader competitive landscape. Like I said in the comments on the call Matt, this is now the second price increase we took we took a more modest one last year in August. The one was a little bit more substantial. We haven't really been able to observe any overall drop off in demand. It's pretty early. That went in obviously, in like early March. And I think, that just speaks to the power of the brand the quality, of the products things like the high Net Promoter Score, tell you that people really value overall, what you're giving them. So we're not seeing a ton of pushback in that regard on the price increase. Again, early days. But that’s how we're holding that. Joey, I don't know, if there's anything you'd want to add on the broader landscape when it comes to markdown or promote.

Yes, I do think -- I mean, we've seen some increase in promotional activity across the industry. And maybe there's a little bit of impact on our business. But by and large we're -- what we see with -- when we've used, selectively used promotions in the past customers that we acquire have been fantastic and really match the LTV curves, for everything that we've seen from our full price customers. And so we do think that it's a really interesting lever, as we scale to make sure that we can selectively continue to selectively use them and do it in a way that's brand accretive. So, we're really just heads down and focused on our business and making sure, we manage our inventory to a really clean position and keep using that as a great lever.

Helpful…

Thanks, Matt.

Your next question comes from Alex Straton with Morgan Stanley. Please go ahead.

Hi, guys. Thanks for taking the question. I just got a couple for you. The first, is on how you guys talked about the second quarter guidance in the press release, it says that you expect the majority of the kind of downward vision from the full year to be in the second quarter. Can you just walk me through, what exactly that means? Does that mean, what happens are you assuming in the second quarter that kind of fall off in the back half?

Yes. I think, most of that commentary is related to where we're seeing the biggest impact to our business, which is in the International segment. And if you look at the impact on the invasion in Ukraine we saw that happen kind of for the bulk of it in March so far and that continued to extend into April and to today. But we already see signs of that impact on consumer demand receding to a certain degree. So I think relative to the status of that conflict, we do see trends already returning to somewhat of a positive direction. And in China, the restrictions from COVID, people have been in their homes locked up inside for 45 days now. And so, this is -- that's in Shanghai specifically. Obviously, that's starting to extend to different locations. And we've modeled in some impact of that continuing for the remainder of the year, but not to the severity that we have, that we've seen and we think that that's going to be -- a bulk of that is going to impact in Q2, just because of the timing of when those occurred.

And then the last piece, Alex, is just the FX rates. So we're using the latest forecast we have from all of your peers on the banking side and factor that into the guidance that we provided as well.

Great. That makes sense. Maybe one more quick one is, just on your inventory composition. How are you guys feeling about where it stands? Are you being impacted by any of the lockdowns in China or in other regions right now?

So, yes, I'll kick that. This is Joey. The supply chain impact for Upstream is we've continued to navigate this really well. And this has been a strength for us over the past year, navigating through a really tumultuous environment in Asia in particular with varying degrees of shutdowns. We've effectively moved out all of our footwear production from China. So we have really no Tier 1 facilities operating in that country to manufacture footwear. And so, as a result of that, we don't see much impact to our supply chain in terms of these recent restrictions in that region. So most of our production is now split between Vietnam and Korea, which are faring really well and the government has responded effectively in terms of combating COVID and applying much less stringent restrictions there. So really good there. The story is really on the demand side in China from an upstream perspective and what's happening in that conflict.

Great. That’s very helpful color. Thanks.

All. Thanks, Alex. Yes. We’ll talk to you later.

I’m sorry. Your next question comes from Lorraine Hutchinson with Bank of America. Your line is open.

Hey, guys. This is Chris Nardone on for Lorraine. So a couple of quick questions. So it sounds like you're expecting roughly breakeven EBITDA during the back half of this year. So given what you know today, do you still remain confident reaching breakeven or better adjusted EBITDA on a full year basis next year? And can you just talk through how your partnerships with Zalando and public lands will contribute to this outlook?

Yes. So just to clarify on your first question, Chris, I don't know that we’ve given 2023 guidance on EBITDA. So I think that's probably what’s in some of the analyst models and the consensus models. I think if you do look at the back half of the year, though, getting to breakeven on adjusted EBITDA is a big milestone for us in the back half of 2022. And I'd say, we'll continue to update investors on the path forward from there. I think, overall, the message that I do want people to kind of really understand. I touched on this a bit in my 2022 guidance is. We're looking at this as a path of like responsible growth, balancing the top line and the bottom line of the P&L. That means there these external headwinds are facing we are being a bit more cautious on some of the spend that we're doing on the SG&A side and we'll continue to balance across those. I just want to make sure that message kind of lands loud and clear. In terms of the impact on third-party, I think Joe and I both touched on this, but we really view party as a profitable marketing channel for us. It should have good flow through as the business continues to ramp up. So I think that both helps the back half story, the overall impact on the business is pretty small. But if that business accelerates, we do really expect it to have a positive impact on the overall financial profile in 2023 and beyond.

All right, thank you, guys.

Thanks Chris.

Your next comes from Bob Drbul with Guggenheim. Your line is open.

Hi. Good evening. Two questions for me. I think the first one is, can you talk a little bit on sort of brand awareness and any progress that you think you're making? And I think the second one is similar around. Can you just talk to, interest levels in sustainable fashion, sustainable footwear in terms of changes that you're seeing or any data around that level in the category would be pretty helpful to us? Thanks.

Sure. So yeah, I think awareness is not a figure that we would recommend looking at on a month-to-month or a quarterly basis. But kind of directionally overtime what we're looking to do is increase from low double-digits which we kind of suggested we grew from 2020 to 2021 got up into low-double digits. We're continuing to see that trend really positively. And this is all about using that flywheel of distribution and then, great brand great brand building techniques around partnerships and other campaigns that we're running. So it's all about methodically building that with stores with great marketing. And as we're doing that we're seeing not only good awareness lift, but also good awareness lift in the right factors. So that means that, people think that we're aligned to what we're positioning the brand around supernatural comfort as well as our leadership position in sustainability. And so all that's trending really well, of course, if you look at specific geographies there is variance across those and often where you see the highest the highest concentration of stores you'll see the highest concentration or the highest level of aided awareness. And that speaks to that third-party strategy, where when we selectively layer in those partnerships not only is that just great for top line and bottom-line growth because of the great EBITDA flow through, but it also just lifts awareness. And we expect that to really catalyze better efficiency on our marketing for our direct channel. So that's kind of the overall picture on awareness. And then, I would just say, maybe I'll hand it over to Tim, in a minute for some highlights on what we've done in the past quarter or past few months in terms of brand awareness. But continue to see that consumers are gravitating towards brands that speak environmental values. We do not believe that they will buy products just because of that. They have to be phenomenal products. And every bit of our energy is focused on making great products, not just sustainable ones, but we do increasingly believe that, that fantastic products do also have to be sustainable. And we see that in the consumer data and that has continued to grow as we build this business frankly faster than we've even expected. So you'll see us double down on marketing campaigns that speak to this and really emphasize that through every kind of touch point whether it's in-store, in third party or on our digital platform.

Yeah. I'll just add reinforcing the point that the, Tree Flyer a recent product release from last week is powered by a sustainable material innovation, but it is better. So I think all that consumer research is saying, yes sustainability matters, but it's only in service of better product experiences. And that's our focus. And I think in performance and in the flyer I think is a great example of us executing that at a very high level.

All right. Thanks Bob. We’ll chat with you in a little bit.

Thank you. Your next question comes from Mark Altschwager with Baird. Your line is open.

Good afternoon. Thanks for all the detail this afternoon. So the midpoint of the revenue guidance was reduced $20 million. I think you estimated the impact of international as $15 million to $20 million. So could you just clarify I mean has there been any change to your underlying revenue outlook for the US? It seems like you saw some really nice momentum in the quarter. I guess I'm wondering if you're seeing any signs that rising energy prices, stock market volatility, et cetera is impacting demand for the brand domestically?

I'll start on that Mark and then turn it to Joey to talk a little about the consumer, because the short answer is No we haven't seen any sort of drop off in our expectation in the US. We feel really great about that 35% growth that we saw in to us. That tells us this long-term thesis is intact. That's what gives us confidence around the medium-term targets. Your question on we lowered the midpoint by $20 million. Like I said in the script, we estimate the impact of $15 million to $20 million and we are taking a cautious outlook because we're dealing with just some like open-ended situations here with these external headwinds. So that hopefully marries up kind of the model on the math question there if you but I'll turn it to Joey to talk a little bit about the consumer landscape in the US.

Yeah. Just supporting the statements that Mike just made, the US consumer has already taken a little bit of a hit in terms of consumer confidence that we just see and not in our business necessarily but in the macro numbers. And so when we look at our business internally, we actually see much more tailwinds than we see impact from inflation or anything that we're reading about in the newspapers. People are coming back to stores. We're seeing that traffic pick up markedly and that gives us the confidence to kind of reaffirm and restate that we can hit those near-term unit economics that we mentioned in the formal remarks. And lastly I'd say as people get out and about and activity picks up as travel picks up, we have the product that people want. We are this perfect blend of performance comfort versatility and style and we are meeting the moment. And that's to the point that I made earlier, the fact that as COVID receives in the rearview mirror. This is -- we're much better of a choice. So, whereas, COVID restrictions create some headwinds when we come out of it we see just significant tailwinds that give us a lot of confidence in the US consumer today. And we've seen this historically in international markets. When restrictions get lifted the business picks up significantly and in a sustained fashion. And again that speaks to some of our confidence despite ongoing restrictions in international markets that we think there's going to be some pickup the past half.

Thank you. And as a follow-up, a lot of product introductions in recent months with the Trail and the Dasher 2 and the apparel which you spoke to. Can you give us some color on new versus repeat customers that are purchasing those new innovations? What does that mix look like relative to historical product introductions? Thank you.

Yeah. Mark we don't give that out on a quarterly basis. I would just member we're only a six-year-old brand here. So we're still acquiring a bunch of new customers doing that at a very healthy and very profitable clip. But just by the nature of things over time sales. We're going to get to come from repeat customers. And I think Tim and the team do a really nice job on the product side of balancing new products that bring in new customers that launches into some of those new categories like you referenced but also bringing excitement and news and energy into the core of the product pipeline. And that's always our -- how we think about the balance on the product pipeline.

Best of luck.

All right. We shall, Mark. Thanks.

Your next question comes from Dana Telsey with Telsey Advisory Group. Your line is open.

Hi. Good afternoon, everyone. As you think about the price increases that you've taken so far are you anticipating any additional price increases as we go through the balance of the year? And does it differ by category? And then secondly with the new gross margin guide for the year of 51%, how much of an international gross margin headwind is built in given I believe that the first quarter was only around 20 basis points? Thank you.

Thanks, Dan. I'll take the first one and pass it over to Mike on margins. For pricing by and large the action that we took in March is what we anticipate for the full year, but that's really an architecture that we set up. And if you kind of parse through what we did there there's varying levels of price across materials. So we are differentiating to the consumer specifically on the quality and price value that consumers should expect by material. And then similarly on the performance versus lifestyle set when we add in technical features on our performance product those are going to have an elevated price as we're packing a lot more technology and cost into the build. So that architecture has now been established as we layer in new like the flyer as we're doing that will fit into that architecture. So some of that impact and that pricing change will flow through new products as well. And you can see that the flyer at $160 is the most expensive product that's kind of a core offering that we've ever introduced in the line.

Yes. So there's no plan further price increase in 2022. And then on your gross margin question Dana -- I kind of walk through and unpack the two factors versus our prior gross margin guidance. The bigger driver here is less demand from international. And when I talked about the other external headwinds that up was 200 basis points in our prior guidance. Now it's 250 basis points to 300 basis points. So if the gross margin is now about 200 basis points lower. You can kind of hold in your head that roughly kind of one-third of it comes from the stuff that's on the logistics and distribution center side and the rest of it is coming from the international demand being than what we would have been thinking in the last guidance target.

Got it. And then just on the third-party distribution cost to get that up and running any way that we should think about how we should think about that? And should we expect more third-party partners to be added this year, or is it the two this year?

No. You'll hear more from us in the subsequent months. We are going to be selective and really methodical about how we grow this and we don't expect a particularly material impact to 2022. But we do think that that will start to really provide a catalyst in and of itself and then also haloing into the direct business starting in 2023. So these partners that you'll hear us announce in the coming months are really important partners that we're going deep and we think they're all strategic brand-building partners for us. So that is -- so that's kind of like that's the high level. And again Mike touched on earlier that these are just really nice awareness boost and great catalysts for growth in this another consumer touch point. And in terms of the cost to stand it up look we've built this business into multi-hundreds of millions of dollars of sales from just a direct channel and we've created a product engine that could support much more than that. And so the cost to layer on a third-party partnership like this is really just a very small sales organization and the operations behind that to make that work. So we've largely laid the groundwork from an infrastructure perspective, whether that be finance or technology. And there's just a really thin layer to add. And that's why we're quite confident in the flow-through to EBITDA is going to be very attractive and provide really nice bottom line growth for us as well.

Thank you.

Thanks, Dana. We’ll talk to you in a little bit.

Your next question comes from Jim Duffy with Stifel. Please go ahead.

Thanks. Good afternoon. Thanks for taking my question. I wanted to ask a little bit more about store performance versus 2019. I recognize, there's a lot of newness in the store fleet, but can you speak to trends you're seeing in urban versus more suburban or smaller market locations? And then specific to the European business, was the March pressure that you saw in retail productivity digital, or did it really come through in both channels? Thanks.

Hey, Jim. So on stores, there is really a lot of noise to compare all the way back to 2019. I think, we had probably just a handful of stores all in dense urban environments at that point. And so as I think everyone can attest to now that's in retail the densest urban environments high street locations, have had the slowest recovery in general as a result of COVID and restrictions and people's changing locations and behaviors. And we were – we adapted to that pretty quickly. So during COVID we started signing leases in lifestyle centers in suburban malls and whatnot. Those have performed really, really well. And those have proven to be much more resilient regardless of the consumer behaviors, or restrictions in the regions and whatnot. So we are continuing to – we are continuing to focus on those types of real estate transactions when we're signing leases and we're seeing quite a bit of positive uplift in those as we start up new stores as well. But that said, looking at the Flatiron launch that we just did about a month ago it's been a really, really fantastic launch for us for a new store and gives us a lot of confidence in the comeback for Manhattan, which is I think a really nice bellwether for a lot of urban environments. And if you couple that with our store in SoHo we're just seeing a nice trend and that gives us a lot of confidence to hit on those targets we mentioned.

And the Europe impact, if it's retail or e-comm and...

Yeah, the mix is really heavily slanted to digital in Europe at the moment. And so it's hard to parse it out completely. There was also quite a bit of heavy restrictions on some of the stores during periods. But that said, I would say, it's kind of broad-based just an impact of the consumer based on incredibly high gas prices what that does to the psyche of the consumer. And we've seen that really peak and then start to show some resilience again.

Helpful. Thanks. I leave it that.

Thanks, Jim.

Your next question comes from Dylan Carden with William Blair. Please go ahead.

Yeah. Thanks a lot. Just curious Mike in thinking about sort of back half breakeven on the EBITDA level, a lot here is sort of beyond your control as it relates to international outlook and status quo. What levers do you have that you feel are within your reach? I mean, is that a factor of third-party acceleration retail maturity marketing leverage more broadly? I guess, what control do you have in your confidence level there?

Yeah. I'd go back to the comments you gave about the top line kind of basically getting into the media – the middle part of our medium-term range of 20% to 30% and the drivers behind that again are the product portfolio we have in place there, the retail -- having more retail stores on a year-over-year basis, that's going to certainly help the increase in the velocity of that omnichannel flywheel that we continue to see. And then, the fact that third party will certainly kind of help with that as well as we go through back half of the year. So I think all of that is the biggest thing that kind of gives us factor or gives us confidence. I think the next factor than Dylan is also the fact that, like, if things were going to accelerate beyond this cautious outlook that we're talking about on this call. I think you hit on a couple of the Q1, especially like if the retail recovery in the US is an even faster pace more broadly than what we're starting to see now. That obviously has a lot of benefits for Allbirds. You know our model well. So I think we have some confidence if that got there. The other thing I would just tell you when we think about -- you started out with breakeven. It's not solely just a sales growth story for EBITDA breakeven. I referenced again in the year EBITDA guidance. We have trimmed back a little bit on our SG&A spend, which I think is a responsible thing to do in an environment like this. I do think if necessary, there's more we would revisit there and it's not a pullback in marketing at feel really good our marketing efficiency and our marketing spend and what we're doing brand building wise. But I think a business even our size, there are levers we can certainly pull as we balance that top and bottom line and get to the responsible growth we've talked about.

Understood. Thanks.

Your next question comes from John Kernan with Cowen. Please go ahead.

Excellent. Good afternoon, everybody. Thanks for taking my question. Mike, maybe you could talk to the flow of inventory as the year goes on. It's up 70%, year-over-year it was up 80% in the fourth quarter. As the comparison is kind of easier, how should we think about the growth of inventory on the balance sheet?

Yeah. I mean the big -- the two big X factors there are certainly the length of time of in-transit inventory. We have started to see that come down a little bit though obviously the different like news on China on a day-to-day basis could have some effect on overall ocean shipping pace. So that's certainly, something we're watching really closely. And then, if that has any impact then on the actual kind of shipping cost itself. I think those are the first two big factors. I think demand-wise, clearly, we're going to be in a position where we're going to continue to sell through the product we have balance that with the new product launches. So, we’re not giving sort of formal guidance on what we expect to happen with inventory over the course of the year. But I think those dynamics I just laid out, we should be in a position where as the laps do get easier to plan on the inventory side we should start to see that come down.

Got it. My next question is just a follow-up on the long-term gross margin outlook. There's been quite a bit of inflation since the IPO. There's a lot of product cost inflation, freight inflation, labor inflation in stores in D.C. I'm just curious, has the amount of inflation change that's changed has it changed the way you're thinking about long-term gross margin potential? Is there anything structural here that will prevent you from achieving the prior gross margin targets that you put out? Obviously I think investors across this sector right now are really concerned. You look at valuations across the group, they are at levels we haven't seen in a long time, and I think there's concerns about the structural margin expansion story across the whole sector. So maybe you can talk to how you're going to offset some of these inflationary headwinds as we go forward.

Yeah. I think there's two pieces in there John. So, the part where the question started, you're right. I do think there's more inflation than when we were on the road show last summer. I also think we've taken more price. And like I said earlier in the call, we've been able to pass that through successfully. We have a tremendously strong brand that commands the price and great products that people love and come back and repeat for. And that's an advantage a lot of others don't have. And I think people who believe in the long-term story for Allbirds to anchor it in those beliefs, right, the unique position of the brand and the quality of the products. And I think that helps us offset some of that. And then to Joey's point, the thoughtfulness with which we're launching new products, launching in different categories the higher margin we get from products. I think those are huge factors in all this. So even in like kind of new news from the time of the roadshow. The other thing, again, I tried to do a little bit of my mini gross margin walk probably, at the end of the call there. But if we think about the factors that will take us from where we are today in the direct channels to where we'll be over time. Again, the growth in the gross margin accretive retail and international businesses. That's a big one. The strong pricing power as I just referenced, that's certainly a significant factor. The introduction of these new higher-margin products. And then when we look at that overall inflation story, versus two years ago, announcing 450 to 500 basis points of these logistics cost headwinds over the past two years. I've said this repeatedly. We don't have to get all of that back, but we get part of that back over the next few years. That's another big step forward as well in our ability to hit that 60%-plus gross margin.

Got it. Thanks for all the detail, Mike

Yes. You got it, John. We’ll talk later.

Your next question comes from Tom Nikic with Wedbush. Please, go ahead.

Hey. Good afternoon, guys. Thanks for taking my question. Mike, I guess, some modeling minutia. When we think about the gross margins for the year, like, how do we kind of think of the quarterly cadence for the remainder of the year? Historically, you've kind of had this sort of, I guess, head and shoulders kind of thing where you saw seasonal spikes in Q2 and Q3. Should we assume that you're kind of more like in that 51% 52% range for the remainder of the year?

Yes. Well, first off Tom, welcome to the call. Welcome to the coverage group. We're happy to have you on. Looking forward to spending more time with you as we go forward. If you look at what our historical seasonality of gross margin has been, to your point, I think that's probably a pretty decent indicator though, I would tell you, there's certainly pressure in Q2 on gross margin, both because I think the external impacts on sales and then some of the ripple effects those have in the gross margin are most acute in Q2. So to your point, in the back part of the year we were at 51.9% in Q1. I think the back part of the year obviously is going to have to be below that to get to the 51.1%. And I think it probably looks fairly similar across the three quarters Q2, Q3 and Q4.

Got it. And I think -- thank you very much for the well wishes. I'm happy to be aboard. As far as store growth goes, I think, last call you said 16 to 17 stores is that still a plan for this year? And does some of the stuff that you're seeing in the international markets change your desire or willingness to open stores in international markets?

So I'll start on the guidance point. It's still 16 to 17 that is heavily weighted towards the US. And Joey and I think have beaten the drum loud on this call that we're happy with the results we've seen in the US overall in Q1 and we feel good about the balance of the and certainly feel good about retail. So it doesn't change our perspective on 2022 on the store target. Joey, maybe you want to touch a little bit more on international and the different levels of growth maybe reiterate some of what you shared earlier in the call.

I think we've continued to skew very heavily to the US store portfolio and we will do that for the foreseeable future. We do have opportunities in different regions. And sometimes that does require a different format in terms of a lower cost build-out just based on whether the lease structure is on the shorter term as it is in China typically those are three-year leases versus the five or 10 that we can do in Europe versus the 10 plus in the US with options to extend. So, it's all about how the lease dynamics play, how the halo across omnichannel impacts the go-to-market strategy in each region. And we're trying to be dynamic and be rightsized for each of the regions that we play in.

All right. Carmen, I think we have time for one more question.

We'll take our final question from Ashley Helgans at Jefferies. Please go ahead.

Hi, good afternoon. It's Blake [ph] on for Ashley. Thanks for taking our question. You've answered most of them. I just wanted to ask on -- one on international. I believe you said that, most of the top line impact was due to China versus Europe. Could you just confirm that and I didn't know if you could quantify any more?

Yes. First off, welcome to you Ashley and Blake as well. Happy to have you on the coverage group, happy to have you on the call as well. So looking forward to working with you and the team a little bit more going forward. Just to clarify the comment I made, I think what we're trying to convey there was that the bulk of the impact was from the combination of China and Ukraine. We didn't break out the difference between those two factors. And the other factor then was the impact of FX. So that was the other piece. So I think what I -- if I -- let me put my own script here just for a second. We had talked about the fact that -- let me find it. Yes. About two-thirds of the impact is due to Ukraine crisis and China COVID restrictions and one-third due to FX rates. So that was what we had shared in the recorded remarks and we're not breaking out any more between Ukraine and China.

Got it. Thanks for that. And then last one was just on marketing. I know you've talked about it already. But should we expect the ratio as a percentage of sales to stay around 22% for the rest of the year? And then, I don't know if you could also maybe talk about how much of that in terms of dollars is US versus international?

Yeah. We don't break out the dollar piece of that in US versus international. And on the leverage point, we have gotten leverage on marketing in the last couple of years and certainly did in Q1. We continue to expect to get leverage and the drivers of that leverage are increased marketing efficiency. I think our marketing teams have done a phenomenal job of driving marketing efficiency. Number two the channel mix certainly helps us raising awareness both through our own direct retail channels. And then as we ramp up on third-party that's certainly going to drive awareness for us with no incremental marketing spend. And then the last piece of it is just the pace of growth overall is going to be the big -- another big driver towards that. So we feel good that we'll continue to get leverage on that line.

Thanks so much. I appreciate it.

All right. Well thank you so much everybody.

Yeah. Thanks everyone.

…for closing remarks.

We'll just close out with a couple of comments. I think we've outlined really clearly that particularly in China as well as in Europe, the world and people in those regions are dealing with some really unfortunate circumstances, whether it be restrictions around COVID or the conflict in Ukraine. And we feel this internally as well. Our people in Shanghai are directly affected from this. And yet, we know that these things will pass. And we focus on what we can control right now. We have a beautiful product road map that's coming out encourage everyone to get their hands on the pair of flyers on May 17 when we launched those and that's just a good starting point for us and what we have on the road map coming forward. And I think that coupled with the strong distribution model and the strength we've shown in the US, gives us a ton of confidence in our long-term model and being able to hit all the financial outcomes that we said. And we pointed to you guys too, as well as just in general and the confidence that this is a brand that really stands for something meaningful that resonates with consumers and we're just excited to keep building this business. So thanks again and look forward to talk with you all in the next quarter.

And with that ladies and gentlemen, we conclude today's conference call. Thank you for participating. And you may now disconnect.