Distributor Shift And New Lineup Will Shape US Luxury Success

Key Takeaways

• Transitioning to a distributor model and strategic cost reductions aim to improve profitability and increase net margins.
  
• New product lineups and enhanced marketing strategies are expected to drive revenue growth and boost brand awareness starting late 2025.
  
• Strategic shifts, cost pressures, and macroeconomic challenges threaten Allbirds' sales, earnings, and profitability amid volatile market conditions.

Catalysts

Manufactures and sells footwear and apparel products for men and women in the United States and internationally.

• The transition to a distributor model in targeted international regions is expected to facilitate profitable and scalable growth, thereby potentially increasing net margins and boosting earnings.
  
• The introduction of a new product lineup, including a refreshed core product assortment and innovative designs, is anticipated to drive top-line revenue growth starting in the fourth quarter of 2025.
  
• Strategic cost reductions, including the closure of underperforming stores and a streamlined cost structure reducing SG&A by over $20 million, could improve net margins and overall profitability.
  
• Enhanced marketing strategies, including upper funnel brand campaigns and collaborations with high-profile personalities, aim to increase brand awareness and customer acquisition, which can positively impact revenue and earnings moving forward.
  
• Website and in-store experience enhancements are designed to improve customer engagement and conversion, likely leading to revenue growth as a result of a more seamless shopping experience.

Allbirds Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Allbirds's revenue will decrease by 0.7% annually over the next 3 years.
• Analysts are not forecasting that Allbirds will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Allbirds's profit margin will increase from -49.2% to the average US Luxury industry of 6.8% in 3 years.
• If Allbirds's profit margin were to converge on the industry average, you could expect earnings to reach $13.1 million (and earnings per share of $1.64) by about May 2028, up from $-93.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.3x on those 2028 earnings, up from -0.4x today. This future PE is lower than the current PE for the US Luxury industry at 14.8x.
• Analysts expect the number of shares outstanding to grow by 2.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.93%, as per the Simply Wall St company report.

Allbirds Future Earnings Per Share Growth

Risks

• The strategic transitions to a distributor model and the closure of international and U.S. retail locations are expected to negatively impact net revenue by approximately $18 to $23 million, which could affect overall sales growth.
  
• The company is forecasting an adjusted EBITDA loss between $65 million to $55 million for 2025, reflecting ongoing financial strain impacting overall earnings.
  
• Macroeconomic challenges and changing consumer behaviors are creating a volatile market environment, posing risks to future revenue stability and growth prospects.
  
• High levels of marketing spend planned in the first half of 2025 could pressure operating margins, potentially offsetting gains from increased brand visibility and customer acquisition efforts.
  
• Inventory adjustments and increased airfreight costs are pressuring gross margins, which, if persistent, could adversely affect net margins and profitability moving forward.

Valuation

• The analysts have a consensus price target of $10.0 for Allbirds based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $14.0, and the most bearish reporting a price target of just $6.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $194.0 million, earnings will come to $13.1 million, and it would be trading on a PE ratio of 8.3x, assuming you use a discount rate of 10.9%.
• Given the current share price of $4.9, the analyst price target of $10.0 is 51.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.