- Allbirds beat its earnings expectations and grew revenue by 16% in Q3, reaching $72.7 million. At the same time, net loss nearly doubled to $25.2 million, according to a company press release.
- The direct-to-consumer brand is continuing to work through its “simplification initiatives” to cut costs and streamline operations. Those efforts include laying off 8% of its corporate workforce, reducing logistics costs by moving to automated distribution centers and liquidating excess inventory.
- Co-CEO Joey Zwillinger expects some of the company’s headwinds to get worse before they get better, predicting “persistent inflation and high levels of promotional activity” in Q4. Despite those headwinds, Allbirds kept its outlook for the year the same.
Allbirds is suffering, like many in retail, from a consumer dogged by inflation and fears of a recession. That’s hurting the retailer’s sales, particularly in North America where growth slowed “significantly,” GlobalData Managing Director Neil Saunders noted.
“While Allbirds is not to blame for these dynamics, such a step down in growth is disappointing given that physical store numbers have doubled since last year – which gives Allbirds more customer exposure,” Saunders said in emailed comments. “Store sales have grown by 53% since the prior year but this level of increase relative to the growth in the store count suggests that many of the newer outlets are still maturing and not delivering to their full potential.”
Allbirds opened 22 net new stores in the quarter and will end the year with 57 locations, the vast majority of which (42) are in the U.S. Zwillinger said many of the company’s stores are still ramping up in terms of sales, which generally takes a full year but is taking longer in the current environment. The stores that were open pre-pandemic have not returned to 2019 levels and the company is still suffering from lower traffic.
In addition to its own fleet, Allbirds is continuing to commit to wholesale, touting its deal with REI and an expansion of its partnership with Dick’s Sporting Goods. Allbirds will add its products to three of Dick’s House of Sport concepts and is planning an entry at the core Dick’s banner in Q1. The company is now in just over 100 wholesale doors.
“I think all of this needs to be thought of as a system. And we're building a very smart marketplace with distribution to fuel what is increasingly a fantastic product engine,” Zwillinger said. He noted that wholesale will drive brand awareness, even if shoppers end up buying through one of its wholesale partners instead of direct. “Even if they're buying in our retail partners’ four walls, that is going to translate to great — what we would consider — new customer acquisition inside of our direct channel. And that's going to buoy not just our digital but also our physical doors.”
While it may not impact this year much, the company’s cost cutting initiatives should help margins in 2023 and 2024, Wedbush analyst Tom Nikic said in emailed comments, as will a strategy to tighten inventory buying.
“They're facing a tough macro environment, but they seem committed to bringing margins up and narrowing losses next year, and we think the brand will benefit from the exposure created by high-quality wholesale distribution and growth of brick-and-mortar stores,” Nikic said. “And with $180 million of net cash, we think they have adequate liquidity to get through the currently challenging macro environment. We concede that money-losing businesses aren't very attractive to investors right now, but we think long-term risk/reward is skewed positively here.”