Allbirds facing a steeper road ahead
Sneaker company trims growth expectations in the face of tougher economic conditions
Sneaker-maker Allbirds has partially bounced back after hitting a fresh low following the release of its first-quarter results. The Nasdaq-listed company was trading at US$6 a share on May 4 before tumbling to US$3.99 the day after it revealed a revenue rise of 26 per cent to US$62.8 million and a net loss of US$21.9m on May 10.
Allbirds — co-founded by ex-All White Tim Brown — dampened growth expectations by saying it had “adopted a more conservative nearterm outlook in light of the transitory external headwinds affecting its international business” and forecast revenue growth of 21-24 per cent in 2022 — a slowdown from the first quarter.
Allbirds chief financial officer Mike Bufano said the company expected those headwinds to keep affecting its international business, so it was reflecting a more cautious outlook in its updated 2022 guidance targets.
“Our expectation that these external headwinds are transitory, coupled with the underlying strength of our model and strong execution by our teams, makes us confident in our ability to achieve our medium term financial targets including 20 per cent to 30 per cent net revenue growth, gross margin of 60 per cent plus and mid to high teens adjusted ebitda (earnings before interest, tax, depreciation and amortisation) margin.”
There is no shortage of issues facing growth stocks like Allbirds, with rising interest rates and inflation expected to increase the cost of funding for continued growth and putting pressure on consumers as they battle rising costs.
Data from US website MarketWatch shows analysts are largely upbeat on the stock, with nine having “buy” ratings, one “overweight” and three having “hold” ratings.
But their target prices have a huge range — from a low of US$5 a share all the way up to US$16, showing just how varied views are on the company’s prospects.
Allbirds floated at US$15 a share in November last year at the height of the market, and its share price nearly doubled on its first day of trading. However, like the whole market, it has fallen a long way since then.
It last traded at US$4.59, far from last year’s record of US$27.76.
Air NZ’s next step
The next step of Air New Zealand’s $2.2 billion capital rebuild is under way, with the airline scoping the Australian debt capital markets.
Air NZ raised $1.2b in a recently completed rights issue and the Australian Financial Review reports that it has written to potential debt investors to gauge their interest in an upcoming Australian dollardenominated deal.
The airline is considering a new four-year and seven-year senior unsecured fixed-rate benchmark transaction.
The AFR reports ANZ, Citi, CBA and MUFG were the joint lead managers, and were expected to launch the raise soon subject to market conditions.
Air New Zealand will be joining the club of airlines whose debt has ballooned during the past two years.
The International Air Transport Association estimates that airline industry debt has increased by more than $US220b ($345b) to more than US$650b during the pandemic.
The debt raise comes as Air NZ faces what broker Forsyth Barr says will be the worst financial performance in its history despite the start of the post-pandemic recovery late in the current financial year.
The airline has forecast a pre-tax loss of less than $800m.
Analysts Andy Bowley and Matt Noland say the next financial year will be a transition year. They foresee a strong recovery in 2024 and into 2025 when they expect Air NZ to meet targets one year early, given the strong recovery in passenger demand.
They say the airline will be profitable in the 2023 financial year despite higher fuel costs, given the expected strong growth in demand which is benefiting revenue per available seat kilometre.
The Forsyth Barr analysts identify key drivers that influence expectations for Air New Zealand’s earnings:
● Pent-up demand: Partial reopenings during the past two years and feedback from other international airlines suggest postpandemic demand for flying is strong. Yields are recovering quickly and bookings are giving airlines greater confidence in releasing their capacity.
● Higher oil prices: Oil prices have been driven up significantly by Russia’s invasion of Ukraine. As hedging rolls off, the airline will be exposed to a jump in costs.
● Smaller fleet: Air NZ has said it plans to operate around 90 per cent of pre-Covid capacity in the 2025 financial year but has retired its Boeing 777-200 fleet and will gradually phase out its 777-300 aircraft as it receives new Dreamliners.
● More selective long-haul markets: Its smaller, yet more efficient wide-body fleet will focus on North America and key Asian routes. It will not return to low yielding markets like Argentina, instead focusing on increasing the frequency of all routes to at least daily services, Bowley and Noland say.
Jarden’s new hire
Broker Jarden has poached Silvana Schenone from law firm MinterEllisonRuddWatts to be cohead of its New Zealand investment banking team alongside Sam Ricketts.
Schenone grew up in Chile and migrated to New Zealand in 2007 with her husband Lloyd Kavanagh — a partner at MinterEllison and a financial services specialist.
Schenone is known for being involved in some of the biggest deals in New Zealand and was named New Zealand dealmaker of the year in 2021 at the Australasian Law Awards.
Jarden chief executive James Lee said Schenone was a high-calibre talent with leading expertise and deep market relationships. She will join Jarden in the fourth quarter.
NZSA farewells Gaynor
The NZ Shareholders’ Association (NZSA) has farewelled the popular columnist and fund manager Brian Gaynor, who died this week.
Gaynor was a staunch supporter of the NZSA, with a focus on “doing the right thing” as it related to the rights of shareholders — values that resonated with the NZSA, said the organisation’s chief executive Oliver Mander.
“Brian’s insight and mana will be missed by the investment community,” said Mander.
“His knowledge of New Zealand markets and their legacy was unparalleled.
“We have not just lost an NZSA member today, we have lost a staunch ally with a shared investment philosophy based on standing up for the rights of individual shareholders.”
Gaynor was second to none “as a provocateur against entrenched organisations and individuals,” said Mander.
“His informed, analytical, and logical views were not always universally popular, but usually absolutely correct.”
Past chair John Hawkins said New Zealand had lost a giant of the investing community.
“As a mentor, his advice that ‘sitting on the fence’ on an issue or a governance principle was never an option was an important lesson for me. Brian didn’t do wishy-washy, and it worked.
“More than anything, I admired Brian for his ability and willingness to treat both large corporate players and small retail shareholders as equally valuable to the financial ecosystem.
“He never lost that common touch even as he built Milford Asset into the hugely successful powerhouse it is today.”