Identity crisis cited in ‘disastrous quarter’ for Allbirds

Allbirds sales have plunged by one-fifth to $57.2 million in what GlobalData MD Neil Saunders described as “nothing short of a disastrous quarter”.

The New Zealand-founded, US-based sustainable footwear company recorded a net loss of $31.6 million and an adjusted EBITDA loss of $19 million. On the positive side, inventory fell 37 per cent, suggesting the company might be able to restore more respectable margins in the coming quarters. 

Saunders, however, said that management’s assertion that the results reflect “another quarter of solid execution” was “both curious and jarring”.

“The only real excuse Allbirds can hide behind is this was a quarter during which the business was being reset. There has been a concerted effort to clear down excess inventory by increasing promotions and deals. This had an obvious impact on profitability, it also likely detracted from full-price sales which was unhelpful for growth. That said, we find it extremely worrying that during a time of elevated marketing and promotion, unit sales declined.”

‘Deep-rooted problems’ in the US

In its now core US market – where Allbirds has more than doubled its store count during the past year – sales fell 22.1 per cent, which Saunders said suggested signals “some deep-rooted problems with the brand”. 

“It also acts as a significant drag on productivity which is why Allbirds is sinking deeper into the red.

“The levels of erosion posted over this fiscal year … reflect a poor positioning of the brand and its inability to attract and retain customers.”

During the quarter, Allbirds said it completed new distribution agreements and transitioned to a new operating model in Canada and South Korea, as part of its Strategic Transformation Plan.

Joey Zwillinger, co-founder and CEO said the company is making “important progress” on key benchmarks of its transformation plan – especially in the areas of inventory reduction, its use of operating cash and cost controls. 

“We also meaningfully advanced our strategy to transition from a direct distribution model to third-party distributors in key international markets. Nearing the end of our first year of transformation, our path remains clear and we are operating with discipline to deliver profitable growth and build shareholder value over the long term.”

For the first nine months of the financial year, Allbirds reported a 14.8 per cent decline in net revenue to $182.1 million compared to $213.6 million in the previous corresponding period. 

Gross profit totalled $76.9 million (compared to $93.3 million last year) and gross margin declined to 42.2 per cent. The company said the gross profit and gross margin declines were primarily due to the decrease in average selling price and units sold, partially offset by the decrease in inventory write-downs, lower freight costs, and a higher mix of international sales.

Allbirds recorded a net loss in the first nine months of $95.7 million compared to $76.5 million the previous year, while adjusted EBITDA loss was $58.9 million ($47.9 million). 

A conflict in perception

Saunders cites a conflict between the vision of how Allbirds sees itself and what customers actually want from it as core to Allbirds’ challenges. 

“Allbirds is marketed, first and foremost, as a sustainable brand. Unfortunately, sustainability is not first nor foremost when it comes to most customer buying decisions. Far from it. Sustainability, while interesting to shoppers for footwear, is way down the batting order behind style, fit, comfort and price. What Allbirds needs to do, but has failed to do so far, is lead on other attributes and use sustainability as the icing on the cake.

“The other slightly odd thing about Allbirds is its customer position,” he continued. “The original target market for Allbirds was a younger, tech-savvy shopper. Sadly, this cohort is now far less interested in the brand and has moved on to other more exciting footwear labels like On and Hoka – against which, Allbirds’ newly launched Courier sneaker does not stack up too well. A more sensible audience would be a somewhat more mature customer with a strong desire for comfortable footwear – which is a genuine area of strength for Allbirds. Again, making this change is complex and comes with no guarantee of success, but it is nevertheless something Allbirds should strongly consider.”

He added the company was also harmed by a relatively narrow range offer which limits purchasing frequency. “Allbirds is trying to remedy this with some new launches, but it remains to be seen whether this creates a slew of new purchasing opportunities or simply falls on stony ground.”

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