Earnings   //   November 11, 2022

A tale of two DTC pioneers: How Allbirds and Warby Parker’s earnings diverge

With slumping demand, supply chain snags and decades-high inflation, it’s been a challenging year to jump into the markets. Many companies, from Chime to Instacart, have chosen to delay their IPOs amid economic uncertainty. For those that filed in 2021, their first years as public companies required some adaptation and recalculation.

In a vote of confidence for direct-to-consumer channels, Allbirds and Warby Parker went public last fall within weeks of each other. Despite challenges, both companies have managed to grow their revenue, open new stores and increase their customer bases over the last 12 months, they reported this week. Allbirds’ revenue jumped 16% year-over-year to hit $72.7 million, while Warby Parker’s rose 8.6% year-over-year to hit $148.8 million. While other retailers have shifted their remaining outlooks for 2022, Allbirds maintained its guidance and Warby Parker upped its expectations for the rest of the fiscal year.

Modern Retail took a closer look at each company’s earnings, below. Warby Parker went public on Sept. 29, 2021, while Allbirds went public on Nov. 3, 2021.

Allbirds highlights

  • Footprint: Allbirds’ U.S. physical retail channel grew 53% compared to 2021. It opened six stores in the U.S. during the third quarter and ended the period with 38 locations in the U.S. Its new store openings for the year are at a “record” high, the company said.
  • Standout products: Allbirds launched its first plant-based sneaker, the Plant Pacer, in September. It says its vegan leather produces “approximately 88% less carbon than traditional bovine leather.”
  • Inventory: Allbirds’ inventories jumped 27.4% from Sept. 30, 2021 ($99.3 million) to Sept. 30, 2022 ($126.5 million).
  • Layoffs: Allbirds laid off 8% of its workforce (or 23 jobs) in August 2022.
  • Outlook: “Looking ahead to year end and 2023, we continue to expect macro headwinds to persist but believe that our brand, our growth strategy and simplification initiatives position us well to emerge strongly from this period,” Joey Zwillinger, co-founder and co-CEO, said in a press release. On the earnings call, he added that “looking ahead to [the] holiday season, we expect the external environment to be the most promotional we have experienced since launching the company in 2016. Despite that, we have prepared a great product road map alongside the right mix of inventory, and we’ve coupled that with a strong holiday marketing campaign.”

Warby Parker highlights

  • Footprint: Warby Parker opened 13 new stores in the third quarter and is on track to open 40 by the end of the year. The company added 14 eye exam rooms to stores during the last quarter. As of Sept. 30, 139 stores offered exams. Warby Parker aims to bring this number up to 150 by the end of the year.
  • Standout products: Warby Parker recently launched its fall core 2022 collection, in addition to two celebrity collaborations with actress Chloë Sevigny and Supreme’s former creative director Brendon Babenzien. Warby Parker also expanded its prescription range and is offering customers at select locations the ability to add retinal imaging to their eye exams for an added charge.
  • Inventory: Warby Parker’s inventories jumped 23.6% from Dec. 31, 2021 ($57.1 million) to Sept. 30, 2022 ($70.6 million).
  • Layoffs: Warby Parker laid off 15% of its workforce (or 63 jobs) in August 2022.
  • Outlook: “We continue to navigate the macro economic challenges in front of us and believe we will manage through this period of high inflation and a pressured consumer much in the way we managed and emerged from the pandemic: as a stronger company,” Dave Gilboa, co-CEO and co-founder, said on the earnings call. Warby Parker is also optimistic about e-commerce. Last week, it expanded its virtual try-on tool to work on web browsers, in addition to its iOS app.

What it means

Allbirds and Warby Parker are in different places in some key ways. While both have reported double-digit net losses, Warby Parker has made more progress on cutting the number down. Warby Parker’s net loss for the third quarter dropped nearly 74% year-on-year to hit $23.8 million. Meanwhile, Allbirds’ net loss for the third quarter nearly doubled, going from $13.8 million in 2021 to $25.2 million in 2022. Investors reacted strongly to the results within the first 24 hours. Shares in Allbirds dropped more than 10% on Wednesday, while shares in Warby Parker rose more than 15% on Thursday.

There’s a few reasons why Allbirds “has plunged deeper into the red,” Neil Saunders, managing director at GlobalData Retail, told Modern Retail. “Warby Parker’s is a more mature business,” he said. “It has quite a good fleet of retail stores, as well as a direct-to-consumer business. It’s not having to spend as much on marketing and initiatives to grow customers, as perhaps Allbirds — as a younger company — is.”

Allbirds was founded in 2014, while Warby Parker was founded in 2010. Allbirds also depends on foreign earnings more than Warby Parker does, Saunders pointed out. Today, Allbirds has retail stores in the U.S., U.K., Europe, New Zealand, China, Japan and South Korea. “Foreign earnings have really been depleted because of unfavorable exchange rates,” Saunders said.

From a cost standpoint, Allbirds is opening many new stores, which is “very expensive,” Saunders added.  “And, it doesn’t produce the immediate return. If anything, I’d say the return on those new stores opened is actually slowing… So, Allbirds is really seeing its bottom line become much worse, much shabbier as we have moved through this year, and I think there’s a lot of concerns about its profitability.”

There’s also room for growth for Warby Parker, Saunders said. Its numbers are “reasonable,” he said, but its sales growth has slowed down from the double digits to the single digits. “They’ve got to look very carefully about how they can get more from existing customers and how they can boost some service streams, like contact lenses and eye testing in stores,” he said.

On a positive note, Warby Parker and Allbirds do have a leg up on other DTC players such as Wayfair, whose operating losses hit $372 million last quarter, Saunders explained. “Both have fairly well-differentiated brands. There’s a role for both of them. Profitability is not great, but it’s also not absolutely disastrous… I think this is just about navigating a more difficult environment and sort of changing up, perhaps, how they do business a bit.”