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Allbirds Losses Mount in Brick-and-Mortar Expansion

Allbirds saw its losses grow in the third quarter even as revenue climbed 33 percent year over year, according to its first-ever earnings report as a public company.

In a Nutshell: Increases in selling, general and administrative expenses—52.6 percent of revenue this past quarter versus 42.5 percent a year ago—were primarily driven by costs associated with the digitally native sneaker brand’s ongoing brick-and-mortar expansion, it said. The company added four new stores in the third quarter, ending the period with 31 locations.  In the past year, its footprint has grown more than 50 percent.

Though store openings may be costing Allbirds now, co-founder and co-CEO Joey Zwillinger identified the brand’s expanding real estate portfolio as a key “pillar” in its plans to drive top-line growth. Over time, the company ultimately sees “white space for hundreds of stores,” he said.

The model that we’re working on and the reason why we think this is so powerful is that when we go into these markets, it’s the store halo that creates something so powerful,” Zwillinger said. “When we get in there, the marketing efficiency improves. We often find that customers come in for the first time, they have lower return rates because they get to try it on the store and make sure it fits right there. And then they often go home and because that experience is so good, they buy a second time on digital. And those omnichannel repeat customers are spending one and a half times what our digital-only repeat customers are.”

Though Vietnam accounts for about half of Allbirds’ manufacturing, it does not appear to have experienced nearly as hard a hit to its product pipeline as companies like Nike and Adidas. In fact, according to chief financial officer Mike Bufano, the company did not experience “any government-mandated manufacturing shutdowns in Vietnam.”

“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,” Bufano said.

Allbirds ended the quarter with $99 million in inventory, an increase of 55 percent compared to the third quarter of 2020, reflective of longer ocean shipping lead times and a “strategic decision” to build inventories ahead of the holiday season, it said.

Net Sales: Allbirds recorded revenue of $62.7 million in the third quarter, a 33 percent increase from the prior-year period and a 40 percent jump versus 2019. According to Bufano, this growth was primarily driven by strong U.S. performance—sales increased 42 percent to $47.7 million domestically—and new product introductions. Internationally, net revenue grew 10 percent to $15 million as Covid hampered momentum in countries like China, Japan and New Zealand.

Year-to-date, Allbirds’ net revenue is up 29 percent at $180.3 million. The company anticipates hitting $270 million to $272 million by the end of the fiscal year, an increase of 23 percent to 24 percent versus 2020. Though the company did not offer any formal projections, Bufano said its preliminary net revenue expectation for 2022 is approximately $350 million.

Allbirds’ third-quarter gross profit totaled $33.9 million, up from $25 million a year ago. Its gross margin inched up 120 basis points from 52.9 percent to 54.1 percent. This increase primarily reflected a favorable product mix, sales of higher gross margin products such as apparel and a decrease in product costs, partially offset by higher warehouse and logistics costs, the company said. In the medium-term, Allbirds is aiming to reach a gross margin above 60 percent, Zwillinger said.

Selling, general and administrative expenses totaled $33 million, or 52.6 percent of revenue, up from $20.1 million, or 42.5 percent of revenue, in the third quarter of 2020. In addition to expenses related to opening and operating new stores, the increase reflected $2 million of incremental costs from preparing to go public, Bufano said. Allbirds expects to see another $3 million of public company costs in the fourth quarter, he added.

Net Earnings: Allbirds reported a GAAP net loss of $13.8 million for the quarter compared to a net loss of $7 million a year earlier. The company’s net loss margin grew from 14.8 percent to 22 percent.

Before interest, taxes, depreciation and amortization, its adjusted losses totaled $6.3 million, up from $3.8 million in the prior-year period. Allbirds’ adjusted EBITDA margin decreased by 200 basis points from negative 8.1 percent to negative 10.1 percent.

Year-to-date, Allbirds has recorded an adjusted EBITDA loss of $12.1 million. Looking at the full fiscal year, it expects to post an adjusted EBITDA of negative $17 million to negative $15 million, including roughly $5 million of public company costs.

CEO’s Take: “When people come and meet the product, meet the company, they love us,” Zwillinger said. “And we just need to meet more people. So, that’s the journey that we’re on… that’s why the future is so bright, why we’re really optimistic about [2022] and beyond.”

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