Dive Brief:
- Allbirds Q3 net revenue fell 23.3% year over year to $33 million, mostly due to store closures and other turnaround moves, the company reported Thursday. The performance missed analyst expectations.
- Tariffs helped drive down gross margin, which contracted by 120 basis points to 43.2%. Higher digital and international distributor sales added to the decline, offsetting higher average selling price.
- The quarter ended with inventory down 25%, and net loss narrowed slightly to $20.3 million.
Dive Insight:
Allbirds is focused on bringing new product to market, with innovations like waterproof sneakers and comfy slippers.
“Since we last spoke in August, we've delivered a steady stream of compelling products that consumers are clearly responding to,” CEO Joe Vernachio told analysts on a Thursday conference call. “Enthusiasm for our new styles continues to build.”
In September, Allbirds released a wool cruiser in 19 colors, and, unlike the muted colors associated with the brand, more vibrant hues sold out first, he said. Later that month, the company also released its first waterproof shoe, which he said is exceeding expectations. Its slipper collection has become a bestseller. And its Kiwi collection of indoor-outdoor comfort footwear, released earlier this week, is “intentionally casual — exactly how people dress today,” Vernachio said.
“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,” he said. “The team has done an outstanding job creating a line that will serve as the foundation for years to come.”
That success has come at a price, however. Marketing shifted away from legacy styles, which helped drive the sales miss. In Q3, Allbirds spent $11.7 million, or 35.5% of net revenue, on marketing, compared to $9.9 million, or 22.9% of net revenue, a year ago. The boost was “primarily driven by increased digital advertising spend in support of new product launches,” per the company’s press release.
“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,” Vernachio said. “This underscores that rebuilding our brand perception is a process that will require sustained execution across multiple product cycles.”
William Blair analysts led by Dylan Carden on Thursday also flagged how the marketing push favored fresh product at the expense of the core lines, but noted that “while gross margin and operating margin both declined, they were modestly ahead of expectations.”
There are other risks, too, though. It’s unclear how much the new designs will resonate or how far the legacy product could fall, and that clouds the company’s Q4, Carden warned. Allbirds expects Q4 net revenue to land between $56 million and $61 million, with $47 million to $51 million of that from U.S. sales and $9 million to $10 million from international.
“Much is riding on the fourth quarter, where we believe the assortment is well suited and can inject vigor in the brand, which should also support some of the legacy product,” Carden said in the research note. “This however has emerged as a new risk, if the core of the business decelerates faster than expected, having in our view likely been shut out of some marketing support in favor of newness.”
