Allbirds stumbled in its first year as a public company, falling short of full-year sales and profit targets. But management believes that by making some dramatic changes in its business the sustainable footwear and apparel brand can rise again.
In reporting its fiscal 2022 results after the market closed on Thursday, the San Francisco-based company reported net revenue for the full year of 2022 increased 7.3 percent to $297.8 million, short of projections of between $305 million and $315 million. Gross profit was $129.6 million, also short of projections made in the third quarter. The net loss widened significantly to $101.4 million compared to $45.4 million in 2021.
An increase in orders and third-party sales were behind the revenue bump, which was partially offset by foreign exchange headwinds that accounted for a nearly $8 million negative hit to revenue. International sales were flat in 2022 as the business grappled with ongoing COVID-19 restrictions in China, foreign exchange headwinds, a reduction in demand due to inflation and the impact of the conflict in Ukraine.
In an interview on Thursday, Joey Zwillinger, cofounder and co-chief executive officer, told WWD the company takes full responsibility for the misstep, acknowledging that not only were sales below Wall Street expectations, they were also not as robust as management had hoped.
The “biggest miss” came at the end of December, he said, “due to execution and macro challenges.”
In the fourth quarter, revenues were down 13.4 percent to $84.2 million and the net loss was $24.9 million.
Zwillinger said that when Allbirds launched in 2016, it experienced significant growth by establishing a relationship with customers, who embraced its mission and its core product offering. But last year the company took its eye off the ball, putting too much emphasis on products outside its core competency — issues that “peaked in the fourth quarter,” resulting in poor sales and a highly promotional environment that “led to the disappointing financial results.”
Two years ago, he said, the company set out to attract a younger, more fashion-forward shopper, but this resulted in alienating the longtime customers who were looking to Allbirds to update its core products. “We haven’t had the selection, color or style enhancement on our core products,” he said.
The good news, however, said cofounder and co-CEO Tim Brown, is that in a recent survey, 96 percent of shoppers who purchased from Allbirds over the past year said they would buy from the company again.
In order not to repeat the mistakes of the past, Zwillinger outlined a transformation plan to “reenergize the business with an emphasis on profitable growth.”
At the end of last year, Allbirds hired Jared Fix in the new role of chief transformation officer. A veteran of the consumer products industry who has worked for Constellation Brands, Juul Labs and Alto Pharmacy, Fix has taken on a “multi-faceted role” to reignite the product line, fully transition the company’s footwear production to a new manufacturing partner in Vietnam, move toward a distributorship model in international markets, and put the brakes on the brand’s retail rollout.
Allbirds, which started as strictly a direct-to-consumer brand, now operates more than 50 brick-and-mortar stores. Nineteen stores opened in 2022, but this year only three stores will be added, Zwillinger said.
“We always thought of ourselves as a brand and not a distribution channel,” he continued, adding that an omnichannel approach is still seen as the best approach as slower traffic in this “nascent fleet” of retail stores prompts the slowdown in adding more units.
To allow its customers to find Allbirds products in a variety of locations, the company began wholesaling its footwear last year and currently the line is carried in Nordstrom, Dick’s Sporting Goods, REI and Scheels.
Zwillinger said the response has been good through this channel and Allbirds will continue to evaluate whether to add more stores. “We’re happy with our partners and still have a lot of doors to expand with them, so there’s no huge urgency to add more.”
Also not on the front burner is apparel, which represents less than 10 percent of the company’s business. “We look at our apparel as elevated essentials that piggyback off of what we use in shoes,” he said. The clothing helps to better showcase the brand and helps “liven up our stores, but it’s outside our core focus of active lifestyle footwear.”
Other changes that have been made at the company include the departure of chief financial officer Mike Bufano, who will be succeeded by Annie Mitchell, who will join the company on April 24. Bufano will remain with Allbirds through May to aid in the transition. Mitchell was most recently vice president of finance for Gymshark and also spent 10 years at Adidas.
Although the waters have been choppy for Allbirds for the past year, Zwillinger believes the company can return to growth by 2024.
“We are really optimistic,” Zwillinger said, adding that “2023 will be a bit of a transition year” and the situation is not expected to turn around immediately. But by “recalibrating” its assortment to once again attract its core consumer, cleaning up the inventory and introducing some new marketing initiatives and partnerships later this year, the future looks much brighter.
But not everyone is convinced, especially when judging the company against some of its competitors.
In a Monday note to investors, Wedbush analyst Tom Nikic noted Allbirds’ “relative underperformance versus other emerging footwear brands” such as On, Hoka and Hey Dude.
Net sales for the Deckers-owned Hoka jumped 90.8 percent in the third quarter to $352.1 million, another quarterly record for the brand. And On in November reported its strongest quarter yet as it aims to become a $1 billion brand. Revenues last year for the Crocs-owned Hey Dude brand exceeded initial expectations and reached nearly $1 billion on a pro forma basis, Crocs reported last month.
Looking ahead to the first quarter of fiscal 2023, Allbirds is now projecting net sales of $45 million to $50 million, a decrease of 20 percent to 28 percent versus the first quarter of 2022 and an adjusted EBITDA loss of $29 million to $26 million.