Allbirds, Inc., in its first earnings report since completing its initial public offering, widened its loss in the third quarter, but sales rose 33 percent, led by a 42.0 percent hike in the U.S. and new product introductions.
Results were slightly above forecasts.
“Revenue is strong across channels and geographies, with strength in U.S. retail as consumers return to in-store shopping,” said Joey Zwillinger, co-founder and co-CEO, on a conference call with analysts.
In the quarter ended September 30, sales rose 32.7 percent to $62.7 million. In its IPO filing, Allbirds had forecast sales in the range of $61 million and $62.5 million. On a pre-pandemic, two-year stack basis compared to Q319, sales grew 40 percent.
The year-over-year revenue gain reflected a healthy 13 percent increase in average order value. The 42 percent revenue gain in the U.S. reflected strength in both physical retail and digital. Said Mike Bufano, CFO, “We continue to see a notable uptick in the retail channel as consumers continue to return to stores.”
Net revenue in international markets grew 10 percent. In some regions, particularly in China, Japan and New Zealand, momentum was slowed somewhat by the COVID resurgence.
The net loss in the quarter came to $13.8 million, or 25 cents a share, compared to a loss of $7.0 million, or 13 cents, a year ago. Allbirds had forecast a loss between $15 million and $18 million.
Gross margins in the period improved 120 basis points to 54.1 percent. The biggest drivers of gross margin expansion in Q3 were improvements in product costs and a favorable year-over-year mix of higher gross margin products, including its newly launched performance apparel. Those positives were partially offset by higher warehouse costs and supply chain pressures.
Bufano said,” This improvement reflects our ability to make steady progress toward our medium-term target of 60 percent or greater gross margin.”
SG&A expense jumped 64.2 percent to $33.0 million from $20.1 million, increasing to 52.6 percent of revenue from 42.5 percent. The lift was primarily driven by expenses for opening four new stores during the period and operational expenses for ten additional stores opened since the third quarter of 2020, increased headcount, and public company preparation costs. Marketing expenses totaled $12.8 million versus $12.1 million compared to the third quarter of 2020 and improved as a percentage of revenue to 20.4 percent from 25.7 percent a year ago.
Allbirds Beginnings
In his company’s first quarterly call, Zwillinger spent considerable time discussing the Allbirds business model.
He said, “When Tim and I started this business in 2015, we held the view that climate change was our most formidable and existential crisis. And as a result, we believe that consumers would eventually connect their purchase decisions with their values on the environment. Yet, most in the footwear and apparel industries continued to rely on synthetics. Within that tension, we saw opportunity.”
Zwillinger said that led to a focus on sustainability within its product range and R&D investments as well as a focus on a vertical distribution that “have helped to create important and structural advantages that we believe will allow us to outmaneuver competitors well into the future.”
Zwillinger added, “When we innovate, we harness some of nature’s most abundant and high-quality materials to make products that feel different and perform better than synthetics and leathers that the industry has historically relied on. We then connect this product engine to a vertical distribution model that allows us to reach consumers effectively while shrinking go-to-market timelines and enabling us to deliver fantastic value and a great shopping experience to consumers, all while preserving our advantage gross margins.”
He said Allbirds has served over 4 million customers since selling its first shoe, the Wool Runner, in 2016 and has maintained a Net Promoter Score (NPS) greater than 80 in each quarter since Q119. The global cross-channel NPS reached 86 in the first half of 2021. Allbirds is seeing customers return for a second purchase at a rate of 43 percent.
However, brand awareness was only 11 percent in the U.S. as of Q121. Zwillinger said, “We simply need to reach more customers.”
Zwillinger said Allbirds plans to expand its top line primarily through three areas:
- Growing store portfolio: Allbirds operates 35 stores globally, with 23 in the U.S. Each store has a “strong stand-alone four-wall economics” and an advantage of stores tapping omnichannel customers, who spend 1.5 times compared to digital-only repeat customers. The stores also increase brand awareness. Said Zwillinger, “These impacts, along with lower return rates and more efficient transportation, means that growth in physical retail also drives margin expansion. We have a strong pipeline of new stores ahead, and ultimately, we see white space for hundreds of stores over time.”
- International expansion: Allbirds has “planted flags early” in key markets across Europe and Asia, and that’s driving some early success overseas, particularly in digital. Said Zwillinger, “As is true as we shift the channel mix as we grow international, we expect to expand gross margins due to our pricing architecture and an efficient logistics network.”
- Product innovation:Strong responses in the third quarter were seen to the Wool Pipers and Sugar Rover footwear models and its performance apparel launch in August. Apparel remains just under 10 percent of the business. Allbirds’ community marketing program, Allgood Collective (AGC), is helping drive brand engagement and awareness. Product-specific partnerships with Braulio Amado and continuing work with Adidas and Jeff Staple are helping amplify existing franchises and spreading Allbirds’ sustainability message. A Marshawn Lynch content collaboration around sustainability will arrive in the fourth quarter.
Inventory totaled $99 million at the quarter’s end, up 55% from Q3 last year due to aggressive buys to overcome supply chain challenges.
Bufano said, “Given the macro supply chain and logistics environment, we felt it was prudent to take advantage of our strong balance sheet and increase our inventory positions. We were well-inventoried in Q3 and continue to be so in Q4 and into the first half of 2022.”
Elaborating on the supply chain risks, Bufano said Vietnam accounts for only about 50 percent of Allbirds’ manufacturing, with more production in the north than the south. The has not experienced any government-mandated manufacturing shutdowns in Vietnam. Bufano added, “Through careful planning, secondary sourcing, and regional diversification, our teams have definitely navigated the challenging environment, positioning us to meet demand throughout the holiday season and over the coming quarters. Huge kudos to our supply chain team.
Zwillinger said Allbirds’ medium-term targets include growth of 20 percent to 30 percent annually, gross margin of over 60 percent, and adjusted EBITDA margin in the mid to high teens, rising to north of 20 percent over the long term. Simultaneously, Allbirds intends to reduce CO2 emissions by 95 percent by 2030.
Zwillinger said, “We’re pleased with our year-to-date performance in 2021 and feel great about our positioning as we wrap up the year and look ahead to 2022 and beyond.”
Allbirds provided the following outlook for fiscal year 2021:
- Net revenue of $270 million to $272 million, representing growth in the range of 23 percent to 24 percent versus fiscal 2020 and 39 percent to 40 percent versus fiscal 2019; and
- Adjusted EBITDA of negative $17 million to $15 million, including an estimated $5 million of public company costs.
Photo courtesy Allbirds