Russia’s war in Ukraine and China’s Covid-related lockdowns presented parallel challenges to Allbirds’ international business—one of its three “growth pillars”—in the first quarter, prompting the San Francisco company to lower its full-year forecast Tuesday by $20 million.
In a Nutshell: The sustainable footwear brand issued its original guidance three months ago, less than a day before Russia invaded Ukraine. According to co-CEO Joey Zwillinger, the war and the resulting humanitarian crisis have had an “indirect influence” “via the impact of inflation on the psyche of the European consumer and petroleum prices.”
In China, Covid restrictions have both affected sales from the shuttered stores themselves and slowed overall demand in the country, Zwillinger added. Though Allbirds believes these are “transitory” impacts, he said, the company is preparing for extended restrictions of “varying severity” for the remainder of the year.
The slowdowns in Europe and China and fluctuations in the foreign exchange rate produced a $2 million drag—the equivalent of about 15 percent year-over-year growth—on Allbirds’ first-quarter international sales. While domestic revenue soared 35 percent versus the first quarter of 2021, the brand’s smaller international business only improved 3 percent.
“We continue to view the scale-up of our international business as an important element of our growth algorithm,” Zwillinger said on a call with investors. “Having invested early in regions like Europe and Asia, we believe we have established a broad foundation from which to grow as we strive to elevate our brand awareness into a consumer set that is at least as large as the opportunity in the U.S.”
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Allbirds expects the full impact from international headwinds to be approximately $15 million to $20 million this year, Zwillinger said. In its revised forecast, the company projected revenue will increase 21 percent to 24 percent in 2022 to $335 million to $345 million. Three months ago, it had projected growth of 28 percent to 32 percent to $355 million to $365 million. “We are taking a cautious outlook because we’re dealing with just some open-ended situations here with these external headwinds,” chief financial officer Mike Bufano said.
Co-founder and co-CEO Tim Brown addressed Allbirds progress on one of its other growth pillars: product innovation. In April, he said, the company debuted its latest Adidas collaboration—the Adizero x Allbirds 2.94 kg CO2e—to “a phenomenal consumer response.” According to Brown, Allbirds sold through more than 90 percent of its inventory in three days.
Described by Brown as the brand’s “first high-performance product,” the Tree Flyer running shoe will launch next week. The sneaker will introduce a new midsole technology, SwiftFoam, that relies on plant-based oils—according to Brown, its carbon footprint is 20 percent less than petroleum-based synthetic alternatives—and requires less energy to manufacture than Allbirds’ existing SweetFoam.
“An increasing number of our core Allbirds customers are runners, and 29 percent of those runners are between 18 and 24, a demographic that index is high on their desire for sustainability,” Brown said. “In short, we believe that Allbirds’ brand ethos and purpose make us uniquely positioned to meet this growing consumer group where they are.”
Zwillinger provided an update on Allbirds’ recent move into wholesale. Popup partnerships with Nordstrom aside, the company launched its first two third-party partnerships in the second quarter with Zalando in Europe and Dick’s Sporting Good’s outdoor-centric Public Lands brand in the U.S. The co-founder said the company would announce additional partnerships “soon.”
“Early indicators on sell-through are positive,” he added. “With U.S. aided brand awareness in the low double digits, we view third-party as a highly effective way to build awareness and drive credibility while accelerating top and bottom-line growth.”
Zwillinger noted that though he thinks third-party partnerships will help in the back half of the year, its overall impact is still “pretty small.” If that business accelerates, however, he said the company expects it will “have a positive impact on the overall financial profile in 2023 and beyond.”
Net Sales: Allbirds recorded $62.8 million in sales during the first quarter, a 26 percent increase compared to the prior-year period’s $49.6 million and a 49 percent jump versus the first quarter of 2020.
In the first quarter, orders increased 10 percent and average order value grew 17 percent, Bufano said. “This strength is primarily attributable to new product launches and refreshes as well as price increases,” he noted. The most recent price hike came in March, several months after a smaller bump.
In the U.S., growth in digital and physical retail, new product launches and improved pricing drove sales to $48.9 million, a 35 percent year-over-year increase, Allbirds said. Internationally, Allbirds’ sales grew 3 percent to $13.8 million.
“As people go back to work, demand for our core lifestyle offering is increasing,” Zwillinger said. “As we have mentioned previously, we believe our brand is more resonant the further Covid recedes in the rearview mirror.”
Net Income: The company’s gross profit totaled $32.6 million in the first quarter, up from $25.8 million a year earlier. Despite seeing a positive impact from higher pricing, as well as a mix shift to physical retail and higher-margin products, gross margin declined 10 basis points to 51.9 percent. Higher distribution center and logistics costs had a 350 basis-point negative impact, while unfavorable foreign exchange rates and the lower mix of international sales produced 50 basis-point and 20 basis-point headwinds, respectively.
Allbirds recorded a GAAP net loss of $21.9 million compared to a net loss of $13.5 million a year ago. Its net loss margin came in at 34.9 percent versus last year’s 27.2 percent.
Its adjusted earnings before interest, taxes, depreciation and amortization was a loss of $12.2 million, “in line with our expectations,” Zwillinger said. A year ago, it recorded an adjusted EBITDA loss of $6.9 million. Its adjusted EBITDA margin fell 560 basis points to minus 19.5 percent from minus 13.8 percent.
CEO’s Take: Zwillinger noted that Allbirds should reach the milestone of $1 billion in lifetime sales this quarter.
“This is a remarkable accomplishment in just six years and we are grateful to our flock for their hard work and dedication in getting us to this point,” he said. “We are navigating a volatile environment, executing well and remain heads down on the growth strategies Tim [Brown]and I outlined today with a focus on staying on course against our profitability targets while building long-term shareholder value.”