Since peaking at $26 a share in November 2021, San Francisco-based shoe and apparel retailer Allbirds has suffered a 97% drop in its stock price.
Allbirds — which describes itself as a “global lifestyle brand that innovates with naturally derived materials to make footwear and apparel products in a better way, while treading lighter on the planet,” according to the Wall Street Journal — has definitely lightened the net worth of its investors.
That wealth evaporation process surged forward earlier this month when Allbirds reported disappointing 2023 fourth quarter results. Allbirds’ Q4 and full year revenue for 2023 both fell about 14% to $72 million and $254 million, respectively, according to company’s earnings report noted Retail Dive.
This year looks to be worse than 2023. Allbirds will close 10 to 15 under-performing stores in the U.S. and projects a 2024 revenue decline of “as much as 25%,” Retail Dive reported.
Some investors are betting the company’s current 71 cents per share price is too high. How so? In the month ending February 2024, short interest — a bet on a further decline in Allbirds stock — rose 13% to 8.8% of the company’s float, according to the Journal.
Is Allbirds stock a bargain? Here are four reasons to avoid it:
- Plunging revenue;
- Revolving door management;
- Burning cash flow; and
- Possible stock delisting.
To be fair, after replacing CEO Joey Zwillinger on March 12 with Joe Vernachio — Allbirds’ COO since 2021 — the company sees better days ahead. Allbirds’ Lead Independent Director Dick Boyce praised Zwillinger for his “enormous contributions” and said the company is “delighted” for Vernachio to take over, Retail Dive reported.
Outgoing CEO Zwillinger praised Vernachio. As president of Mountain Hardwear, Vernachio led the company from “declining sales and losses to robust growth and profitability,” Zwillinger said in a statement. “I have every confidence that we have built the foundation for an enduring, multi-generation brand that will thrive in the years to come.”
Plunging Revenue
Allbirds has suffered a major growth reversal between 2020 and 2024. Here are the company’s revenues and annual percent change between 2020 and 2024 (as forecast):
- 2020 revenue: $219 million — up 13.2%, according to the Journal.
- 2021 revenue: $277 million — up 26.5%, reported the Journal.
- 2022 revenue: $298 million — up 7.3%, noted the Journal.
- 2023 revenue: $254 million — down 14%, per Retail Dive.
- 2024 revenue forecast: $191 million — down 25%, per Retail Dive.
In my view, there are two forces that may have contributed to this sharp revenue reversal.
Zwillinger’s Sustainability Focus Is Not Connecting With Consumers
Allbirds’ focus on sustainability is a “broken proposition,” GlobalData Managing Director Neil Saunders told Retail Dive. “Allbirds has pushed the sustainability message because it is a passion of its founder. That’s fine, but the passions of individuals are not selling strengths if they are misaligned with the market.”
Vernachio could be good for the company. “We believe that Vernachio will be able to guide the company in a way that is focused on consumers and is dispassionate about internal beliefs and viewpoints,” Saunders said. “However, as good as a fresh hand at the tiller is, Vernachio has a lot of steering to do to get Allbirds back on the right track.”
Allbirds Was Popular On Amazon. So, The Online Giant Made A Cheaper Knockoff
As I wrote on Forbes two years ago, Amazon noticed consumers snapping up Allbirds’ sustainable shoes on the online giant’s e-commerce platform. To take advantage of the growth, in 2019, Amazon launched Galen — a cheap knock-off of Allbirds footwear.
Galen looked the same as the Allbirds’ bestseller, lacked the environmentally friendly materials, and was priced at $45 — 53% below the Allbirds shoe, which retailed for $95 a pair.
An Amazon spokesperson told the Journal that its Galen shoe “didn’t infringe on Allbirds’ design” and that “offering products inspired by the trends to which customers are responding is a common practice across the retail industry.”
Zwillinger said he did not mind Amazon copying Allbirds’ products. He did regret Amazon’s failure to replicate his company’s sustainable supply chain, according to The New York Times
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While Allbirds survived the Galen battle, Amazon has continued to gain market share while Allbirds has gotten smaller. By 2023, Amazon had taken over the lead from Walmart
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A Revolving Door In Management
Allbirds has suffered from considerable turnover at the top.
Timothy Brown served from March 2015 to August 2015 as a manager in the innovation strategy and business development department at brand consultant Redscout. Brown also was CEO of Allbirds between May 2015 and October 2015 when he took Zwillinger as co-CEO, I wrote in 2022.
From 2009 to 2015, Zwillinger was vice president of industrial products at biotech company TerraVia Holdings and joined the board of Big Sky Growth Partners, a SPAC, in April 2021. In May 2023, Zwillinger became the company’s lone chief executive. according to Fast Company, until being replaced by Vernachio.
Allbirds has changed other members of its leadership team over the past year. The retailer installed a new CFO
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“Allbirds will need to take quite a few steps back before it can move forward,” Saunders said. “The only short term relief will come from the brand finding a buyer willing to snap it up,” he told Retail Dive.
Burning Cash Flow
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Allbirds has been burning through cash fairly rapidly. For example, in 2022 the company consumed $121 million in free cash — trimming its cash burn rate to $37 million in 2023, according to Allbirds’ 2023 10K filing.
The retailer ended 2023 with $130 million in cash. “We believe our existing cash and cash equivalent balances, cash flow from operations, and amounts available for borrowing under the Credit Agreement will be sufficient to meet our cash requirements over the next 12 months,” noted the company’s 2023 10K.
Possible Stock Delisting
If Allbirds loses its Nasdaq listing, the company could have trouble replenishing its coffers. To maintain the listing, the company must maintain a minimum bid price of $1. If the price stays below $1 for 30 days in a row, Nasdaq will grant Allbirds 180 days to get its stock price above $1 for 10 days in a row, according to the company’s 10K.
On February 15, Allbirds stock fell below $1 and has continued falling for the last three weeks. To maintain its listing, the company could try a reverse stock split. Another possibility could be a takeover of the company — which sports a stock market capitalization of $110 million.
Where Will Allbirds Stock Go From Here?
Eight analysts who cover Allbirds have a hold rating on the stock and set a 12-month price target of $1 a share, according to MarketWatch.
Nearly two years ago, Allbirds stock traded at about $6.20 a share and the average analyst price target was $15.73. In 2022 I wrote that unless Allbirds achieved 30% or faster growth in 2o22, the short sellers — who controlled 14% of the company’s float — would win.
Last month, I was walking past a retail space in Boston’s Prudential Center. The 3,700-square-foot store had previously hosted Tesla
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As I passed the store, I noticed very little activity and wondered how much money the company was burning.
I will give the last word to Zwillinger who recently touted the massive growth opportunity ahead for Allbirds.
In a March 12 conference call, he told investors the company targets 68 million potential customers in the U.S., including 20 million so-called Changemakers. “Only about 5% of that 68 million target have purchased our products since our inception,” Zwillinger said according to the company’s Q4 2023 Earnings Call Transcript.
To win over more of the other 95%, all that will be needed is “to raise awareness of the brand and compel this group to buy with delivery of great product and storytelling,” Zwillinger told investors before announcing Vernachio was replacing him as CEO.
This made me wonder: After all these years, is 5% of Zwillinger’s target market actually the upper limit for Allbirds?
Unless Saunders is right that Vernachio has a shot at turning around Allbirds, I think short sellers could keep winning.
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