Dive Brief:

• Amid the backdrop of declining sales, direct-to-consumer footwear brand Allbirds recently underwent a workforce reduction, co-founder and CEO Joey Zwillinger said on a call with analysts Tuesday. A company filing says that 21 employees globally were terminated in May and related expenses mostly realized in Q2 are expected to be immaterial.
• Allbirds’ co-founder Tim Brown said on the call that he will no longer act as CEO alongside Zwillinger, but has instead transitioned into the chief innovation officer role.
• The company on Tuesday also reported that its first-quarter net revenue dropped 13.4% year over year to $54.4 million. Allbirds’ net loss increased from $21.9 million to $35.2 million and gross margin declined from 51.9% to 40.1%. Additionally, the company’s selling, general, and administrative expenses increased 10.3% year over year to $42.8 million. For the second quarter, Allbirds expects net revenue will decline by 12% to 18% year over year.

Dive Insight:

Allbirds’ latest announcements are part of a larger effort to turn around the business.

“Our teams are executing well against our strategic transformation plan designed to reignite growth, improve capital efficiency and drive profitability,” Zwillinger said in a statement. “The dedication and hard work of our flock resulted in a quarter that demonstrated good progress on our strategic initiatives while exceeding our expectations.”

The company in March announced a strategic plan to reignite growth and drive profitability, which includes scaling back its store openings. The plan also focuses on reconnecting with core customers and improving cost savings and capital efficiency.

Allbirds’ decreased revenue and gross margin were mainly attributable to a decrease in average selling price that was driven by increased promotional activity and a higher mix of third-party sales. The jump in SG&A was attributable to higher stock-based compensation and operational costs from 20 stores opened since Q1 2022.

While the company is happy with its current third-party relationships, Zwillinger told analysts that Allbirds’ focus in 2023 is not entirely on wholesale growth.

Allbirds’ focus is on realigning its product assortment to better suit its core customer, which is just one part of the business that requires work, according to emailed comments from Wedbush analysts led by Tom Nikic.

“Q1 wasn't as bad as feared, but it was still a very tough quarter,” Nikic said. “There's a lot of heavy lifting to be done here (improve product, transition to international distributors, increase store productivity, grow brand awareness, etc.), and they're still losing a lot of money.”

Along with handling customer fatigue, Allbirds’ heavy focus on sustainability might be another dilemma for the brand, according to emailed comments from GlobalData Managing Director Neil Saunders.

“As much as it might be sacrilege to utter such a thing, we also wonder whether the focus on sustainability is the right message to grow the brand,” Saunders said. “The primary shoe buying considerations for consumers are price, style, comfort, fit, functionality, and brand. Sustainability is way down the batting order and is something of a secondary ‘nice to have’ factor. We are not suggesting that Allbirds ditch its principles. However, we think the company should showcase them alongside other more relevant factors that have more traction with shoppers.”