Top Analyst on Why Allbirds Is Not Replicating the Success of Other Emerging Brands Like On and Hoka

In contrast to some of its emerging footwear competitors, Allbirds is facing some strong headwinds, according to one market watcher.

In a Monday note to investors, Wedbush analyst Tom Nikic downgraded shares of Allbirds to “Neutral” and lowered his full year 2023 sales growth target to 10% versus a prior forecast of 13%.

“While the company has a long potential runway for growth, we’re concerned about Allbirds’ relative underperformance versus other emerging footwear brands in our coverage,” Nikic said, comparing the sustainability-focused brand’s struggles to the upward trajectories of On, Hoka and Hey Dude.

According to Nikic, Allbirds has faced more headwinds from macro-economic challenges than other brands throughout 2022. The brand’s growth has been challenged by elevated promotional activity, despite its expansion of new stores and wholesale partnerships, and Google searches for the brand have dropped for six months straight compared to the same months last year, Nikic said.

In Q3, Allbirds brand reported that net revenue increased 16% to $72.7 million over the same time last year. Net loss was $25.2 million compared to $13.8 million in the third quarter of 2021, and net loss margin was 35% compared to 22% in the third quarter of 2021.

In August, Allbirds announced measures to alleviate headwinds after reporting results for its second quarter. These measures include “dramatically” slowing the pace of corporate new hires and replacements for employees who left as well as reducing its global corporate workforce by 8%, which the company carried out via layoffs. Allbirds also said it would reduce corporate office space to support a hybrid work model, transition to automated distribution centers, optimize inventory and scale manufacturing to reduce costs and product carbon footprints.

On the other hand, net sales for the Deckers-owned Hoka jumped 90.8% in the third quarter to $352.1 million, another quarterly record for the brand. And On in November reported its strongest quarter yet as it aims to become a $1 billion brand. 2022 revenues for the Crocs-owned Hey Dude brand exceeded initial expectations and reached nearly $1 billion on a pro forma basis, Crocs reported last month.

“On Running, Hoka, and Hey Dude all grew revenues in the 55% to 70% range in 2022 (with multiple guidance raises for each),” Nikic pointed out. “So we’re seeing a stark difference in performance between Allbirds and other ‘high growth’ footwear brands.”

Allbirds is also suffering from a lack of solid consumer demand, according to Wedbush’s U.S. consumer survey. 47% of people who said they purchased an Allbirds product in 2022 said they plan to buy something again in 2023, which Nikic said is the “lowest repurchase rate of any brand” that Wedbush covers.

Allbirds is also encountering challenges with its sustainability messaging not translating with consumers.

“While Allbirds admirably aims to be one of the most environmentally-friendly brands out there, our survey suggests ESG doesn’t really move the needle for most consumers,” Nikic said, citing that 30% of respondents said ESG is the least-important factor when making a purchase decision, from eight potential factors.

Allbirds reports earnings for the fourth quarter and full year 2022 on March 9. The company previously said it expects adjusted net revenue of $305 million to $315 million for the full year, representing growth in the range of 10% to 14%.