Allbirds’ ambitious expansion plan is facing significant challenges, leading the New Zealand-founded, US-listed sustainable footwear brand to start streamlining its business model to cut losses.
Despite reporting a 15.1 per cent increase in net revenue for the second quarter, the company has axed 23 employees and is implementing a company-wide cost-cutting plan as it aims to reduce widening losses. Sales reached US$78.2 million in the quarter, but the company reported a loss of $29.4 million for the period.
Allbirds said it expects its planned cuts to achieve annual savings of up to $15 million next year, including a reduced payroll, lower supply-chain overheads and reduced office space requirements as it shifts to a hybrid work-from-home model. These changes will incur a likely one-off cost of between $18 million and $24 million.
Disturbingly, Allbirds’ gross margin has plunged from 56.1 per cent to 36.1 per cent, but the company explains this in part as the result of a write-down of $11.6 million for “end-of-life inventory”.
Meanwhile, co-founder and co-CEO Tim Brown said while the company is focusing on its core footwear offer, it is also looking at apparel opportunities, in response to customer demand.
“Apparel accounts for about 10 per cent of current sales and we don’t see that materially changing,” he said. “The innovation and product focus remains vastly on footwear. We’ve got some really exciting sort of stuff coming with the new material platform in the next short period of time, a new lifestyle franchise that we’re really, really excited about.
“But apparel has got a really important role to play. We know that consumers want from us socks, underwear, classic T-shirts, all articulations of our supernatural comfort.”
A ‘pause for breath’
At least one analyst has expressed concerns about Allbirds’ performance. Neil Saunders, MD at GlobalData, said that Allbirds’ growth rate of 15.1 per cent represented “a pause for breath” after a long stretch of strong revenue growth.
“This is certainly market-beating, but it is also well below the young firm’s average run rate over the past year,” he said.
Allbirds’ slowdown was driven by the company’s international business (defined as outside the US) with lockdowns in China and falling consumer confidence in Europe significant factors, along with the strengthening US dollar.
“While the international business is not delivering as it should, the US business is in a stronger place,” said Saunders. “Here revenue increased by a more solid 21 per cent – although this is also now trending well below the growth of prior quarters.
“This slowdown is somewhat disappointing given the efforts Allbirds has put into increasing the visibility of the brand alongside its robust launch of new products. The new retail stores seem to be doing an excellent job of generating interest and taking revenue; indeed, they were the primary driver of sales growth during the quarter,” he said.
“Online sales growth has slowed, and we put this down to a more cautious, less impulse-driven consumer as well as to the difficulties of new online customer acquisition in a very crowded marketplace.”
Following the release of its quarterly results, Allbirds downgraded its full-year outlook from $335 million to $345 million to between $305 million and $315 million. The gross profit outlook has also been reduced – from between $170 million and $177.5 million to between $150 million and $157.5 million, with an adjusted EBITDA loss of $42.5 million to $37.5 million projected for the full year.
Saunders described the downgrade as “worrying” saying it shows that Allbirds is “a lot less optimistic about its prospects due to the deteriorating external environment”.
Despite the brand’s current challenges, he remains impressed by Allbirds’ products and its marketing. “It has a clear positioning – although, with more firms focused on sustainability, it needs to work increasingly hard to keep itself ahead of the pack.
“However, it is also clear that with external conditions becoming less favourable, Allbirds needs to look at how it can shift its business model to maximise sales and minimise costs. Some layoffs have already been made, but we suspect more action is needed on the sales front to both keep investors satisfied and the bottom line from plunging any further into the red.”
