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Why Allbirds Stock Fell 10% at the Open Today

By Reuben Gregg Brewer – Updated Dec 1, 2021 at 4:52PM

Key Points

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Shares of the footwear maker fell as it reported earnings for the first time as a public company. Here's a quick look at why.

What happened

Shares of footwear maker and retailer Allbirds (BIRD 0.84%) fell sharply as soon as trading got underway on Dec. 1, losing as much as 10% of its value at one point in the first half hour of trading. The big news driving the decline was the company's third-quarter 2021 earnings update, which hit the market after the close on Nov. 30. Investors were not pleased with what they read.

So what

On the top line, Allbirds reported sales of $62.7 million in the third quarter of 2021. That's an impressive 33% gain compared to the same quarter in 2020 and 40% above its third-quarter 2019 tally. This is the good news, because it means that the company's products remain in demand and that its expansion efforts are working. Notably, Allbirds opened four new stores in the quarter. That may not sound like a lot, but it only ended the quarter with 31 stores, so percentage-wise it is a huge increase in the company's store footprint.

A soap bubble with a dollar sign in it about to be popped by a hand holding a pin.

Image source: Getty Images.

The problem here is the bottom line, with Allbirds reporting a loss of $13.8 million in the third quarter of 2021 versus a loss of just $7 million in the same quarter of 2020. (The company wasn't public a year ago, so there are no per-share figures for a year-over-year comparison.) It is a bigger company than it was a year ago, noting its store growth efforts, but its sales, general, and administrative expenses as a percent of revenue increased around 10 percentage points year over year and both its profit margin and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin notably worsened. Bigger but less profitable clearly isn't the trend Wall Street was hoping to see.

So what

To be fair, Allbirds is now facing the additional costs of being a public company, so higher expenses are not shocking. Moreover, it costs a lot of money to grow a business, so it may not be fair to expect Allbirds, which is still a very small company with just 31 stores, to start moving toward profitability so soon after its initial public offering (IPO). That said, Allbirds, which has fallen around 40% since its IPO, is playing into consumer trends both with its environmentally friendly products and with investor perceptions of the company that sells them.

Investors can be fickle, which is on clear display today. Still, most would probably be better off watching this young company from the sidelines until it proves that it can make money selling shoes -- or at least until the red ink starts to shrink instead of expand.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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