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Allbirds Eyes New Channel for Growth

Allbirds will expand into wholesale next quarter.

The sustainable footwear brand plans to “selectively enter third-party retail relationships” starting in the second quarter, co-CEO Joey Zwillinger said Wednesday. The co-founder, discussing the company’s fourth-quarter earnings with investors, framed the move as a way to build brand awareness and establish credibility—particularly in the performance category.

“This can be really important when a consumer is walking into a store and thinking about running for the first time in a long time and asking what’s going to be a great entry-level running shoe that’s going to be safe for the body and not create any injuries,” Zwillinger said. “They rely on the sales associates at select retailers to inform them of what’s the best in the market, what’s new and where the best technology is.”

For now, he noted, the company plans to move slowly and methodically, seeking out “premium locations even within premium retailers.” And though much of the focus will be on highlighting Allbirds’ performance running selection—the company introduced the second iteration of its Dasher silhouette this week—he said the brand will push to also establish more credibility “on the style side” as well.

“Of course, with an expanded assortment, we’re not going to give our entire breadth of product line to every retailer,” he added. “We need to show up at the right mix in the right retailer for the consumer who’s walking through those doors.”

Allbirds believes that sales from these partnerships will be “modestly accretive” in 2022 and ultimately accelerate its ability to capture demand in its core channels, Zwillinger said. In terms of profitability, the company anticipates a “slightly dilutive” impact on overall gross margin, with cash flow “neutral to positive.” The company has previously worked with Nordstrom on two separate occasions. These popups, Zwillinger said, resulted in “excellent uplift” in brand awareness and created “a positive halo” on Allbirds’ direct sales channel.

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The company did not offer any specific details on who its future wholesale partners might be or the scope these partnerships might have.

“Consider this like a very early heads-up,” chief financial officer Mike Bufano said. “We’ll share more as this unfolds.”

In a Nutshell: Though Allbirds’ manufacturing partners avoided the government-mandated shutdowns that plagued some of footwear’s biggest names last summer, the company is still contending with the same transportation bottlenecks as everyone else.

At the end of the year, it had $107 million of inventory on its balance sheet, an 8 percent increase from the third quarter. The inventory on hand at Allbirds’ distribution centers and stores, however, decreased “meaningfully,” as in-transit inventory grew to “almost one-third” of all finished goods inventory, Bufano said. In 2020, by comparison, it was about 20 percent.

“All of the sequential increase in inventory was attributable to a combination of higher in-transit inventory given the extended lead times, as well as the impact of higher inbound freight costs,” the executive said.

All told, logistics costs, both inbound and outbound, and distribution center costs created a 200-basis-point year-over-year drag on gross margin in the fourth quarter and full year, according to Bufano. Looking to 2022, he added, Allbirds is not counting on “any sort of normalization” in logistics or distribution center costs. Instead, its guidance target assumes another 200 basis points of gross margin headwind compared to 2021. This figure, he said, is “a little bit more front-loaded than back-loaded across the year.”

Like many companies, Allbirds will raise its prices this year—in part because of these supply chain headwinds, Bufano said. The increases are expected to add approximately 1 percent to 3 percent to the company’s net revenue growth depending on timing and elasticity.

“Despite the fact that some of the cost headwinds our industry is facing may prove to be transitory, we believe taking deliberate pricing actions in 2022 is prudent,” Bufano said. “After experiencing effectively no drop-off in demand after taking a small price increase last year, we have confidence that our premium brand positioning and quality products will allow us to take price [increases] in the coming months.”

To mitigate possible impacts from the elongated supply chain, Allbirds is deliberately increasing its inventory, Zwillinger said. The company did the same last year, pulling forward critical inventory in Q2 and Q3 that it was then “able to weaponize during the holidays,” he noted.

Overall, Allbirds expects it will end 2022 with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the range of minus $13 million to minus $9 million, inclusive of $8 million in expected public company costs. It now anticipates revenues will land between $355 million to $365 million, up from a prior forecast of $350 million. Bufano attributed the higher forecast to the previously mentioned price increases, as well as upside from the fourth quarter carrying over into 2022.

Net Revenue: Allbirds recorded $97.2 million in net revenue during the fourth quarter, a 23 percent year-over-year increase and a 43 percent improvement on a two-year basis. The company attributed its growth to strong demand during the holiday season, as well as positive consumer reaction to Allbirds’ Fluff footwear collection, slippers, kids’ products and loungewear. Net revenue in the U.S. rose 25 percent to $76.9 million, while international net revenue grew 14 percent to $20.3 million.

Full-year revenue increased 27 percent year over year and 43 percent on a two-year basis to $277.5 million. Net revenue in the U.S. climbed 26 percent, while international net revenue rose 29 percent.

Digital sales, more than 80 percent of Allbirds’ business, grew 16 percent in 2021. Physical retail sales, though a smaller slice of the company’s total revenue, grew 112 percent as it added 13 new stores over the year. Zwillinger has described the company’s store openings as a key “pillar” in its plans to drive top-line growth. Allbirds on Friday opened its 37th store with a new location Carlsbad, Calif., its second in the San Diego area.

Allbirds on Feb. 18, 2022 opened its 37th store with a new location in Carlsbad, Calif.
Allbirds opened its 37th store this month with a new debut in Southern California. Courtesy

Net Earnings: Gross profit in the fourth quarter totaled $48.8 million, up from $39.4 million a year earlier. Gross margin grew 45 basis points to 50.2 percent. Allbirds said the increase reflected favorable channel and geographic mix, sales of higher gross margin products and cost savings.

Selling, general and administrative (SG&A) expense totaled $36.7 million, or 37.7 percent of revenue, in the final quarter of 2022, versus $25.5 million, or 32.1 percent of revenue, a year earlier. The company said the year-over-year rise was primarily attributable to expenses from the opening of four new stores, the operational costs of 13 additional stores since Q4 2020, increased corporate headcount and public company costs. Marketing expense as a percentage of revenue fell from 29.8 percent to 19.1 percent primarily due to increased marketing efficiency in digital channels and a greater mix of physical retail, Allbirds said.

Allbirds’ fourth-quarter adjusted EBITDA came in at $0.4 million in the quarter, up from a loss of $5.3 million in the final quarter of 2020.

The company recorded a GAAP net loss of $10.4 million in the fourth quarter, or 9 cents per basic and diluted share, compared to a loss of $9.4 million a year earlier. Net loss margin, however, improved to minus 10.7 percent from minus 11.8 percent.

In full-year 2021, gross profit grew to $146.7 million, a 30 percent improvement versus 2020. Gross margin climbed from 51.4 percent to 52.9 percent. SG&A costs totaled $122.2 million, or 44 percent of revenue. In 2020, they were 49.5 percent of revenue. Marketing expenses as a percentage of revenue fell from 25.2 percent to 20.7 percent.

Allbirds’ adjusted EBITDA improved from minus $15.4 million two years ago to minus $11.7 million last year. Adjusted EBITDA margin expanded 280 basis points.

Allbirds saw a GAAP net loss of $45.4 million in 2021. A year earlier, it recorded a net loss of $25.9 million. Its net loss margin worsened from minus 11.8 percent to minus 16.4 percent.

CEO’s Take: “Some companies enjoyed a significant bump during the peak of Covid. We were not one of those companies,” Zwillinger said. “We believe that in many cases, the significant help these tailwinds provided has been underestimated and, similarly, how quickly these tailwinds may recede as Covid dissipates. In contrast to this, we are seeing consumer demand shift in our favor as the world tires of restrictions related to the pandemic. This leaves us even more confident than ever that we will continue to accelerate our growth and profitability with notable progress expected in 2022.”