Allbirds, Inc. (NASDAQ:BIRD): A Sustainable Footprint in the Footwear Market

Published on September 24, 2024 | Ticker: BIRD

Allbirds, Inc. (NASDAQ:BIRD) is a global lifestyle brand that innovates with naturally derived materials to make better footwear and apparel products in a better way, while treading lighter on the planet. The company has faced some challenges in recent years, but its commitment to sustainability and product innovation continues to set it apart in the highly competitive footwear and apparel industry.

Financial Overview

Allbirds reported annual net revenue of $254.1 million in 2023, down from $268.3 million in 2022. The company's net loss widened to $152.5 million in 2023 from $101.4 million in the prior year. Operating cash flow was -$32.8 million, and free cash flow was -$43.6 million in 2023.

In the first quarter of 2024, Allbirds generated net revenue of $39.3 million, down 27.6% from $54.4 million in the same period of 2023. Gross margin improved to 46.9% from 40.1% a year earlier, while the company's adjusted EBITDA loss narrowed to $20.9 million from $21.7 million.

Liquidity

Allbirds ended the quarter with $102.1 million in cash and cash equivalents and no outstanding borrowings under its $50 million revolving credit facility.

Business Overview

Allbirds was founded in 2015 and launched its first product, the Wool Runner, in 2016. Since then, the company has expanded its product offerings to include a range of sustainable footwear and apparel made from materials like merino wool, tree fibers, and sugarcane. Allbirds' mission is to create better products in a better way, with a focus on environmental conservation and sustainability.

The company generates the majority of its revenue through direct-to-consumer sales, both online and in its network of retail stores. Allbirds also partners with select third-party retailers and distributors to sell its products. As of March 31, 2024, the company operated 57 retail stores across seven countries.

Strategic Transformation Plan

In March 2023, Allbirds announced a strategic transformation plan designed to reignite growth, improve capital efficiency, and drive profitability. The plan focuses on four key areas:

1. Product and brand initiatives: Increasing focus on Allbirds' core product franchises, such as the Wool Runner and Tree Runner, and implementing a more focused brand strategy.

2. U.S. store optimization: Slowing the pace of new store openings, closing underperforming stores, and investing in corporate and retail talent and store marketing.

3. International go-to-market strategy: Transitioning from a direct model to a distributor model in certain international markets, such as Canada, South Korea, Japan, and Australia/New Zealand.

4. Cost savings and capital efficiency: Reducing the global corporate workforce by approximately 9% and transitioning to a new footwear manufacturing partner.

Allbirds has made significant progress on its strategic transformation plan in the first quarter of 2024. The company closed three U.S. stores and expects to close an additional 10-15 stores this year. It has also completed the transition to a distributor model in Canada and South Korea, with plans to transition Japan and Australia/New Zealand in the coming months.

Operational and Financial Performance

Allbirds' first-quarter 2024 results reflect the company's execution against its strategic transformation plan. Revenue declined 27.6% year-over-year to $39.3 million, primarily due to lower overall demand, the company's decision to return to full-price selling, and the impact of international distributor transitions and retail store closures.

However, Allbirds' gross margin expanded significantly, reaching 46.9% in the first quarter, up from 40.1% a year earlier. This improvement was driven by initial product cost savings from the company's factory shifts and materials innovation, a healthier inventory position, and the return to full-price selling.

Operating expenses, excluding stock-based compensation and depreciation and amortization, decreased 1% year-over-year to $32 million, reflecting lower payroll and occupancy costs, as well as ongoing cost discipline. The company incurred $2 million in one-time cash charges related to store closures during the quarter and expects to incur additional charges this year.

Allbirds ended the first quarter with $102.1 million in cash and cash equivalents and no outstanding borrowings under its credit facility. The company's inventory levels were down 45% year-over-year, reflecting a healthier position following the inventory reset in 2023.

Outlook

For the full year 2024, Allbirds expects revenue to be in the range of $190 million to $210 million. This guidance reflects a headwind of $32 million to $37 million related to the company's strategic actions, including store closures and international distributor transitions.

Geographically, Allbirds expects full-year U.S. revenue to be $150 million to $165 million, including a $7 million to $9 million impact from store closures. International revenue is expected to be $40 million to $45 million, including a $25 million to $28 million impact from the international distributor transitions.

Gross margin is expected to be in the range of 42% to 45% for the full year, reflecting reduced promotional intensity, lower inbound and outbound freight, and initial savings from the company's factory shift and material innovation efforts. These benefits are expected to be partially offset by lower gross margins from international regions that have transitioned or are planned to transition to a distributor model.

Allbirds expects its full-year adjusted EBITDA loss to be in the range of $78 million to $63 million.

For the second quarter of 2024, the company expects revenue to be between $48 million and $53 million, with an adjusted EBITDA loss of $20 million to $17 million.

Risks and Challenges

Allbirds operates in a highly competitive footwear and apparel market, facing competition from both established players and new market entrants. The company's focus on sustainable materials and manufacturing processes may increase its cost of revenue and hinder its revenue growth, as it may be challenging to source enough sustainably sourced high-quality materials to support the company's growth and achieve its sustainability goals.

Additionally, Allbirds' transition to a distributor model in certain international markets may not be successful, and the company may be unable to effectively manage the profitability of its existing fleet of retail stores or efficiently manage any retail store closure process.

The company's ability to attract and retain key personnel, particularly in the areas of design, innovation, and sustainability, is also critical to its success. Allbirds' status as a public benefit corporation and a certified B Corporation may also present unique risks and challenges, as the company must balance the interests of its stockholders, other stakeholders, and its public benefit purpose.

Conclusion

Allbirds is navigating a challenging period as it executes its strategic transformation plan, but the company's commitment to sustainability and product innovation remains a key differentiator in the footwear and apparel market. While the company faces near-term headwinds, its focus on reigniting its product and brand, optimizing its distribution, and improving cost and capital efficiency could position it for long-term success. Investors will want to closely monitor Allbirds' progress in implementing its strategic initiatives and its ability to return to topline growth and profitability in the coming years.

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