Allbirds Slashes Guidance For Year On Softening Consumer Spending

11 Aug Allbirds Slashes Guidance For Year On Softening Consumer Spending

Allbirds reported both sales and earnings exceeded guidance in the second quarter but the footwear maker reduced its guidance for the year due to weakening consumer trends in the U.S. It also announced a series of Simplification Initiatives focused on automating and expanding its supply chain and streamlining its operating structure.

Second Quarter Highlights

• Net revenue increased 15 percent to $78.2 million compared to 2021 and increased 55 percent compared to 2020′
• Net revenue in the U.S.. grew 21 percent to $59.3M compared to 2021;
• U.S. physical retail channel sales grew nearly 120 percent compared to 2021—opened five stores in the U.S. during the quarter and nine since the end of 2021, ending the period with 32 stores in the U.S. Opened two stores outside of the U.S. during the quarter, ending the period with 14 locations internationally and 46 stores overall;
• Gross profit decreased 26.1 percent to $28.2 million compared to 2021 and gross margin was 36.1 percent compared to 56.1 percent in 2021;
• Adjusted gross profit, which excludes a non-cash charge of $11.6 million primarily related to the non-recurring write-down of certain first-generation apparel inventory, increased 4.5 percent to $39.8 million compared to 2021 and adjusted gross margin was 51.0 percent compared to 56.1 percent in 2021;
• GAAP net loss of $29.4 million, or $0.20 per basic and diluted share;
• Adjusted net loss of $18.1 million, or $0.12 per basic and diluted share;
• Adjusted EBITDA loss of $9.2 million, ahead of financial guidance targets;
• Announces Simplification Initiatives expected to generate annualized SG&A expense savings of $13 million to $15 million beginning in 2023 and future cost of revenue savings. As part of these initiatives, the company expects to incur non-recurring costs of $18 million to $24 million;
• Successfully launched the Tree Flyer, its  third performance running shoe. Performance footwear sales now represent 24 percent of net revenue; and
• Introduced a SwiftFoamTM, a bio-based Pebax made with castor beans featuring a 20 percent lower carbon footprint than petroleum-based synthetic alternatives.

Net revenue of $78.2 million topped guidance in the range of $75 million to $79 million. Adjusted EBITDA loss of $9.2 million topped guidance projecting adjusted EBITDA of negative $14 million to negative $11 million.

“I am proud of our strong second quarter performance in which we achieved our revenue expectations and exceeded our adjusted EBITDA expectations while continuing to take market share,” said Joey Zwillinger, co-founder and co-CEO. “During the quarter, Allbirds surpassed $1 billion in lifetime net revenue, which is a significant achievement for a still young brand and testament to the incredibly hard work and unwavering commitment of our teams. This quarter also saw the successful launch of another Allbirds high-performance running shoe—the Tree Flyer—using our revolutionary new SwiftFoam technology. Our push into performance is paying off with performance footwear growing to 24 percent of our net revenue in the quarter and we see room for further growth ahead.”

“Our data-rich business model allows us to quickly identify changes in consumer behavior. Our teams were quick to detect the broader slowdown in U.S. consumer discretionary spending in the back half of June, and responded with agility. As we continue to navigate this difficult environment, we have implemented Simplification Initiatives designed to generate cost of goods savings, streamline workflows, and lower operating costs. The savings generated from these initiatives will allow us to continue to invest in our brand, our products, our customers, and our Flock, setting us up to continue to take share and keeping us on track to achieve our medium-term targets.”

Q2 2022 Financial and Operating Highlights
Strong Year-Over-Year Growth in the United States | Second Quarter Operating Results
Net revenue in the second quarter of 2022 increased 15 percent to $78.2 million compared to $67.9 million in the second quarter of 2021 and increased 55 percent compared to the second quarter of 2020. This increase is equally attributable to an increase in the number of orders and average order value, which was in turn driven by higher average units per order and price increases on existing products. This was partially offset by unfavorable foreign exchange rates that had an estimated 265 bps negative impact on net revenue. In the United States, where net revenue increased 21 percent to $59.3 million compared to the second quarter of 2021, retail store performance was the primary driver. International net revenue was flat at $18.9 million compared to the second quarter of 2021, as the business was negatively impacted by external headwinds, including COVID-19 restrictions in China, the war in Ukraine, and unfavorable foreign exchange rates that had an estimated 945 bps negative impact.

Gross profit in the second quarter of 2022 totaled $28.2 million compared to $38.1 million in the second quarter of 2021, and gross margin declined to 36.1 percent compared to 56.1 percent in the second quarter of 2021. The decreases in gross profit and gross margin primarily reflect a non-cash write-down of inventory primarily related to certain first-generation apparel products, higher distribution center and logistics costs, lower mix of international sales and unfavorable foreign exchange rates, partially offset by a favorable mix shift to physical retail and higher margin products, as well as improved pricing. Excluding the impact of the non-recurring inventory write-down, adjusted gross profit in the second quarter of 2022 increased 4.5 percent to $39.8 million compared to the second quarter of 2021, and adjusted gross margin was 51.0 percent compared to 56.1 percent in the second quarter of 2021.

Selling, general, and administrative expense (SG&A) in the second quarter of 2022 was $41.7 million, or 53.4 percent of revenue, compared to $29.0 million, or 42.7 percent of revenue, in the second quarter of 2021. The year-over-year increase is primarily attributable to expenses for the opening of seven new stores during the period and operational expenses for 19 additional stores opened since the second quarter of 2021, increased headcount, and recurring public company operating costs.

Marketing expenses in the second quarter of 2022 totaled $15.8 million compared to $13.3 million and increased as a percentage of revenue to 20.2 percent from 19.6 percent a year ago. The increase in marketing expense as a percentage of revenue is primarily due to increased marketing spend in our digital channels.

GAAP net loss in the second quarter of 2022 was $29.4 million compared to $7.6 million in the second quarter of 2021, and net loss margin was 37.6 percent compared to 11.2 percent in the second quarter of 2021.

Adjusted EBITDA in the second quarter of 2022 was a loss of $9.2 million compared to earnings of $1.1 million in the second quarter of 2021, and an adjusted EBITDA margin declined to 11.8 percent compared to 1.6 percent in the second quarter of 2021.

Six-Month Operating Results
Net revenue in the first half of 2022 increased 20 percent to $140.9 million compared to $117.5 million in the first half of 2021 and increased 52 percent compared to the first half of 2020. This is equally attributable to an increase in the number of orders and an increase in average order value, which was in turn driven by increased average units per order and price increases of existing products. This was partially offset by unfavorable foreign exchange rates that had an estimated 200 bps negative impact on net revenue. In the United States, where net revenue increased 27 percent to $108.2 million compared to the first half of 2021, retail store performance was the primary driver. International net revenue was flat at $32.7 million compared to the first half of 2021, as the business was negatively impacted by external headwinds, including COVID-19 restrictions in China, the crisis in Ukraine in Europe, and unfavorable foreign exchange rates that had an estimated 730 bps negative impact.

Gross profit in the first half of 2022 totaled $60.8 million compared to $63.9 million in the first half of 2021, while gross margin declined to 43.1 percent in the first half of 2022 versus 54.4 percent in the same period in the prior year. The decreases in gross profit and gross margin primarily reflect a non-cash write-down of inventory, higher distribution center and logistics costs, lower mix of international sales, and unfavorable foreign exchange rates, partially offset by a favorable mix shift to physical retail and higher margin products, as well as improved pricing. Excluding the impact of the non-recurring inventory write-down, year-to-date adjusted gross profit increased 13.3 percent to $72.4 million compared to the same period in 2021, and an adjusted gross margin was 51.4 percent compared to 54.4 percent for the first half of 2021.

SG&A in the first half of 2022 was $80.5 million, or 57.1 percent of revenue, compared to $52.5 million, or 44.7 percent of revenue, in the first half of 2021, with the increase primarily driven by expenses for the opening of 11 new stores during the period and continued operational expenses for 19 additional stores opened since the second quarter of 2021, increased headcount, and recurring public company operating costs.

Marketing expenses in the first half of 2022 totaled $29.6 million versus $26.0 million compared to the first half of 2021 and improved as a percentage of revenue to 21.0 percent from 22.1 percent a year ago, due to improvements in marketing efficiency.

Net loss in the first half of 2022 was $51.2 million compared to $21.1 million in the first half of 2021, and a net loss margin was 36.4 percent compared to 18.0 percent in the first half of 2021.

Adjusted EBITDA loss in the first half of 2022 was $21.4 million compared to a loss of $5.8 million in the first half of 2021, andthe  adjusted EBITDA margin declined to 15.2 percent compared to 4.9 percent for the first half of 2021.

Simplification Initiatives
Allbirds announces the implementation of Simplification Initiatives to generate a cost of revenue savings, streamline workflow and lower its operating costs.

Supply chain cost and carbon reduction:

• Reducing logistics costs in the U.S. by transitioning to automated distribution centers and a dedicated returns processor; optimizing inventory, accelerating logistics cost savings and scaling of manufacturing base to reduce carbon footprint and product costs.

Streamlined corporate operating structure:

• Slowed the pace of corporate new hires and backfills and reduced its global corporate workforce by approximately 8 percent and reduced corporate office space to reflect a hybrid working environment.

Balance Sheet Highlights
Allbirds ended the quarter with $207 million of cash and cash equivalents and $40 million available under its revolving credit agreement. Inventories totaled $122 million, an increase of 14.4 percent compared to $107 million at the end of 2021 and an increase of 3.2 percent compared to March 31, 2022. The increase is attributable to a combination of higher in-transit inventory as a result of extended lead times from ongoing supply chain disruptions as well as the impact of higher inbound freight costs, partially offset by a write-down of inventory primarily related to certain first-generation apparel products.

Updated 2022 Financial And Carbon Footprint Reduction Guidance Targets
Allbirds provided the following guidance targets for the full year 2022, which exclude any non-recurring revenue and costs associated with its newly announced Simplification Initiatives.

• Adjusted net revenue of $305 million to $315 million, representing growth in the range of 10 percent to 14 percent, including an estimated FX impact of 275-350 bps, versus fiscal 2021. Previously, sales were guided between the revenue of $335 million to $345 million, representing growth in the range of 21 percent to 24 percent.
• Adjusted gross profit of $150.0 million to $157.5 million, which, at the midpoint of its adjusted net revenue and adjusted gross profit targets, represents a gross margin of 49.6 percent. Previously, gross profit was expected between $170.0 million to $177.5 million, which, at the midpoint, represented a gross margin of 51.1 percent.
• Adjusted EBITDA loss of $42.5 million to $37.5 million, including an estimated $8 million of recurring public company costs. Previously, adjusted EBITDA was expected to be negative $25 million to negative $21 million.
• Carbon footprint reduction target of 6 percent against its 2021 baseline for its Top 10 products, aligned with its Allbirds Flight Plan to reduce by 50 percent by the end of 2025 and 95 percent by 2030.

Allbirds provided the following financial guidance targets for the third quarter of 2022, which excludes any non-recurring revenue and costs associated with its newly announced Simplification Initiatives.

• Adjusted net revenue of $65 million to $70 million, representing growth in the range of 4 percent to 12 percent versus the third quarter of fiscal 2021;
• Adjusted EBITDA loss of $17.5 million to $15.5 million, including an estimated $2 million of recurring public company costs.

Full Year 2022 Guidance
Updated Guidance Targets To Reflect External Headwinds
Mike Bufano, CFO, said, “We delivered a solid second quarter performance with net revenue growth of 15 percent, in line with our guidance targets, strong growth of 21 percent in the United States, and adjusted EBITDA above our guidance target range. Our ability to deliver those results against the backdrop of a dynamic operating environment shows us that our underlying competitive advantages remain intact. We anticipate that the external headwinds pressuring consumer spending in the United States will persist in the back half of 2022. As a result, we continue to take a cautious outlook on our updated 2022 guidance targets.

“In this operating environment, we are focused on controlling what we can control and have implemented a series of Simplification Initiatives focused on automating and expanding our supply chain and streamlining our operating structure. These Simplification Initiatives are expected to generate annualized SG&A expense savings of $13 million to $15 million beginning in 2023 and significant cost of revenue savings in future years. We will reinvest some of these savings into building brand momentum through product innovation, marketing, retail stores, and marquee third-party partnerships. We are confident that these investments in the customer, coupled with our Simplification Initiatives, will help us navigate this consumer slowdown and position us for accelerated profitable growth when the headwinds pass.”