Dive Brief:
- As it executes on its transformation plan, Allbirds on Tuesday reported second-quarter net revenue fell 9.8% year over year to $70.5 million, ahead of the brand’s expectations.
- The footwear brand’s operating loss ticked up slightly to $29.6 million from $29.3 million last year, while its net loss improved 1.5% year over year to $28.9 million, according to a company press release.
- As part of its transformation plan, Allbirds announced steps to transition its international model. The company said it entered into agreements to shift operations in Canada and South Korea from a direct go-to-market model to a third-party distributor model.
Dive Insight:
While Allbirds faces ongoing challenges and works to turn around its business, the company reported revenue ahead of expectations, although still down nearly 10% from the year-ago period.
The company continues to execute against its transformation plan, which is intended to help the brand reach profitability and includes four main pillars: reignite its product and brand; optimize its U.S. stores and slow the pace of openings; transition its international go-to-market strategy; and improve cost savings and operational efficiency.
Aside from entering into non-binding letters of intent with distributors in Canada and South Korea — which should improve profitability and lower capital requirements — Allbirds has made progress in other areas of its plan, including reducing inventory levels by 24% year over year to reach $92.8 million, marking the lowest level since the second quarter of 2021. The company also reduced its operating cash use during the period and reported a positive operating cash flow of $0.8 million compared to negative operating cash flow of $24.1 million last year.
Allbirds has worked to cut costs in other areas as well, including marketing where expenses were $12.5 million in Q2, representing 17.8% of net revenue, versus $15.8 million in the year-ago period, which was 20.2% of revenue.
“We are spending every waking moment focused on driving sustained and durable profit for the future chapter of Allbirds,” Co-founder and CEO Joey Zwillinger said on a call with analysts Tuesday. “It is not going to happen overnight.”
While Allbirds is making progress on its plan, it comes as the footwear space becomes more saturated with competition. The brand hasn’t seen the success other footwear startups like On and Hoka have experienced, and other brands like Rothy’s are taking more share in the casual footwear market that Allbirds sits squarely in, GlobalData Managing Director Neil Saunders noted. The company’s heavy focus on sustainability may also be hindering its growth, he also noted.
The brand’s commitment to sustainability “neither excites nor entices consumers to make repeat purchases in a way that is required to drive superior growth,” Saunders said in emailed comments. “This is not to say that sustainability is unimportant, but it is a secondary factor for most consumers and needs to be accompanied by other clear and compelling messages.”
Allbirds in June introduced its first zero-carbon shoe — dubbed the “M0.0NSHOT” — while also releasing a toolkit to allow other brands to create their own versions.
“While the developments and innovations are interesting and, to some extent, impressive, they are not customer centric,” Saunders said. “What most shoppers want to see are shoes that are more comfortable, help them perform better in some way, or have new design which looks novel and appealing. They are not too bothered about how the shoes are made.”
Looking ahead, the brand expects third-quarter revenue to be between $56 million to $61 million, down 16% to 23% year over year, while adjusted EBITDA loss is targeted to be between $23 million to $20 million.
