ADMP Investment Proposal Final Draft

ADMP Investment Proposal

TO: Clark Hansen, CEO AMDP

FROM: Sofia Durán, Research and Development Department

DATE: March 8, 2024

SUBJECT: Allbirds Inc. Investment Proposal 

Based on my extensive research and analysis, I recommend AMDP to invest in the company Allbirds Inc. The company operates in line with AMDP’s standards while being financially stable and thriving. It demonstrates a commitment to ongoing sustainability and supports all its claims with clear and transparent data evaluations. The growing consumer preference for environmentally friendly business has given Allbirds a big advantage even though the industry is dominated by big competitors like Nike and Adidas. 

The memo will include the following components:

1. Essential AMDP guiding concepts

2. The company’s background

3. The company’s financial track record

4. The company’s claims related to AMDP’s values

5. Expert’s opinions

6. Final conclusion 

Essential Basic Concepts

In AMDP we support companies who conduct business in a socially responsible, environmentally sustainable, and financially viable way. These are 4 essential basic concepts that have to be taken into account in the research: 

Triple Bottom Line: A concept that states companies should commit to measuring not only their financial performance but also their social and environmental impact. The Triple Bottom Line is composed of three P’s: profit, people, and the planet. Profit is the financial return an organization generates for its shareholders. In our capitalist economy, a company’s success heavily depends on it. People highlight an organization’s commitment to positively impact society. Planet is the final component that evaluates the organization’s effect on the environment. These three categories are used by companies to evaluate their environmental and social responsibility, and determine positive contributions or negative impacts, without leaving aside the organization’s financial success (Miller, 2020). Corporate Social Responsibility: The principle that advocates businesses have a responsibility to the society in which they exist. CSR is broken down into 4 categories: environmental, philanthropic, ethical, and economic responsibility. Companies have an environmental responsibility, reducing harmful practices, regulating energy consumption, and offsetting negative environmental impacts. An ethical responsibility ensuring fair and ethical operations to all members. A philanthropic responsibility aiming to actively making the world a better place. Finally, an economic responsibility making financial decisions that do good, not only to maximize profits (Stobierski, 2021).  Social Enterprise: A business with social objectives as its primary purpose. This business aims to optimize profits and at the same time maximize benefits to society and the environment. The profits generated by the enterprise are primarily to fund social programs (The Investopedia Team, 2022). Carbon Footprint: The amount of carbon dioxide (CO2) emissions attributed to all activities of an individual or entity. A variety of different tools, like the Greenhouse Gas Protocol and ISO 14064, are utilized to calculate carbon footprints for individuals, businesses, and organizations. Online carbon calculators provided by entities like the U.S. Environmental Protection Agency, the Nature Conservancy, and British Petroleum are also available for. Understanding and reducing carbon footprints are crucial for mitigating climate change and minimizing  our impact on the environment (Encyclopedia Britannica, n.d.). Allbirds Inc. Background Allbirds Inc. is a global lifestyle brand founded in 2014 that makes footwear and apparel products with naturally derived materials. The company’s journey began when Tim Brown, a native of New Zealand, began asking himself why the remarkable sustainable resource merino wool was absent in the footwear industry. He saw a big opportunity in the market: to craft a revolutionary wool fabric made specifically for footwear. Tim teamed up with Joey Zwillinger, an engineer and renewables expert, to make this vision come true. The outcome of their work was an innovative type of shoe inspired by natural materials and a strong mindset mantra to create better things in a better way (Allbirds, n.d.). Allbirds launched in 2016 with a single shoe: the now iconic Wool Runner. Since then, it has sold millions of pairs of shoes and today is successfully recognized for its simplicity in design, comfortable construction, and its emphasis on sustainability. The shoes are based on the “wear- all-day comfort” concept, characterized by a lightweight, bouncy, and effortless feeling. The company is currently based in San Francisco and serves customers across more than 35 countries in over 50 stores and its e-commerce website (Allbirds, n.d.). Financial Track Record The financial track record analysis is based on the year 2022 report because it is the most recent one that has been made available to the public. All of the following information can be found in Allbirds’s public Fourth Quarter and Full Year 2022 Financial Results Report on their webpage. The full year 2022 net revenue increased by 7% to $297.8 million compared to 2021 and increased 36% compared to 2020. This consistent growth is a positive indicator of the company’s financial health and success.  The company states the increase in net revenue is attributable to an increase in the number of orders and third-party sales. But it was partially offset by external and macro challenges including unfavorable FX rates, continuing COVID-19 restrictions in China, a decrease in consumer spending due to inflation, and the impact of the Ukraine crisis in Europe.  The full year 2022 net loss was $101.4 million compared to $45.5 million in 2021. The net loss margin was 34% compared to 16.4% in 2021. The net loss marked a significant increase of 222% from the past year. The gross profit for the year 2022 decreased by 12%, totaling $129.6 million compared to 146.7% million for the year 2021. The gross margin declined to 43.5% in 2022 compared to 52.9% in 2021. The company stated the decrease in gross margin is due to the previously announced discontinuation of certain first-generation apparel, the impact of promotions, higher logistics costs, lower international sales, and unfavorable foreign exchange rates. The company's loss from operations increased significantly from $32,876 in 2021 to $100,285 in 2022, indicating a substantial decline in operational performance over the year. In the year 2022, the United States physical retail channel sales grew 60% compared to 2021. 19 stories were opened during the year, ending 2022 with 42 locations in total. The company reduced the carbon footprint of its top 10 products by 22% in 2022 compared to 2021.  The Company’s Claims Related to AMDP’s Values Allbirds: a company built upon a system that leveraged nature in a responsible way, fueling a thriving financial business. In 2016, the company became a public benefit corporation (BPC) under Delaware law and earned B Corporation (B Corp) certification. Their mindset: “The more sustainable we are, the better our products and business will be” (Allbirds, n.d.). Environmental Impact: All driven and measured data. Currently, Allbirds is a 100% carbon-neutral business. Allbirds plans to cut its carbon footprint in half by 2023, then reduce it to zero in 2030. Use of materials from the earth: For the manufacturing of the company’s products, they replace petroleum-based synthetics with natural alternatives like wool, tree fiber, and sugar cane. Each pair of laces uses one recycled plastic bottle (Allbirds, n.d.). Social Impact: Allbirds is committed to diversity, equity, inclusion, and belonging. Allbirds is committed by 2025 to have women represent 50% of their global workforce and people of color represent 50% of the U.S. workforce. The company maintains a small number of strategic suppliers that are audited and assessed to ensure high standards. Allbirds relies on third-party certifications such as NZM’s ZQ certified wool, and FSC- certified fiver, rubber, and paper to ensure responsible sourcing of materials (Allbirds, n.d.). Expert Opinions Ian Thomas, a CNBC journalist with more than a decade of experience editing and reporting, wrote an article analyzing Allbirds company as an ESG-branded stock and how customer decisions look for the future of the industry. “According to Bank of America, more money has flowed into funds and stocks that have an ESG focus (3$ out of every $10 going into global equities is being directed into ESG)”. “Allbirds focus on sustainability will be a key differentiator both from a consumer and investor perspective”. The biggest threat Allbirds faces is larger players such as Nike and Adidas which are currently investing in similar natural sustainable materials. The competition could end up affecting the company (Thomas, 2021). William J. Hubbard, a partner from the Thompson Hine LLP law firm, wrote an article in 2022 about the recent decision dismissing class action against Allbirds company, accusing them of deceptive business practices: Plaintiff filed a class action against Allbirds seeking damages and relief for deceptive business practice, false advertising, fraud, breach of express warranty, and unjust enrichment. Allbirds successfully moved to dismiss the complaint based upon the paintiff’s failure to plead any statement. “The court found that Allbirds stated the exact component to calculate the carbon footprint advertised, provided consumers with details regarding the methodology, and did not mislead with the data”. “Allbirds was able to defend against the deceptive claims because it had the calculations and data to back up its claim and provide the analysis they do” (Hubbard, 2022).  Conclusion: AMDP Should Invest After developing deep and insightful research I think AMDP should invest in Allbirds Inc. The reasons for me to state this are the following: The company conducts business in a socially responsible environmentally sustainable and financially viable way, following AMDP standards. The company is transparent about its work using numbers to back up its claims, and is constantly measuring their impact, aiming to have a more positive one globally. The company has an ongoing drive to become more sustainable and environmentally friendly, assuring AMDP that if money were to be invested, it would be used for good purposes. There are no alarming numbers from their financial performance. The company’s financial performance is increasing. The company has a big advantage because customers' buying decisions are starting to be directed to environmentally friendly companies guided by ESG principles, like Allbirds. Works Cited: “Carbon Footprint.” Encyclopedia Britannica, Encyclopedia Britannica, inc., 15 Feb. 2024, www.britannica.com/science/carbon-footprint. “ESG Overview” Allbirds, https://ir.allbirds.com/esg-overview. Hubbard, William J. “Allbirds’ Defeat of Consumer Class Action Offers Valuable Greenwashing-Avoidance Guideposts.” Washington Legal Foundation, 19 May 2022, www.wlf.org/2022/05/19/publishing/allbirds-defeat-of-consumer-class-action-offers- valuable-greenwashing-avoidance-guideposts/. Ike, Noelle. “Allbirds Review 2023: Shoes Tested for Comfort and Style .” CNN, Cable News Network, 17 Aug. 2023, www.cnn.com/cnn-underscored/reviews/allbirds-sneakers. Miller, Kelsey. “The Triple Bottom Line: What It Is & Why It’s Important.” Business Insights Blog, Harvard Business School Online , 8 Dec. 2020, online.hbs.edu/blog/post/what-is-the- triple-bottom-line. Leighton, Mara, and Amir Ismael. “Allbirds Review 2024: We Tested the ‘World’s Most Comfortable Shoes,’ and Can Confirm They’re Worth the Hype.” Business Insider, Business Insider, 31 Jan. 2024, www.businessinsider.com/guides/style/allbirds-review. “Our Story: Sustainable Shoes & Apparel.” Allbirds, www.allbirds.com/pages/our-story. Stobierski, Tim. “What Is Corporate Social Responsibility? 4 Types.” Business Insights Blog, Harvard Business School Online , 8 Apr. 2021, online.hbs.edu/blog/post/types-of- corporate-social-responsibility. The Investopedia Team. “Social Enterprise: What It Is, How It Works, and Examples.” Investopedia, Investopedia, 11 June 2022, www.investopedia.com/terms/s/social- enterprise.asp#:~:text=our%20editorial%20policies,What%20Is%20a%20Social%20Enterprise%3F,used%20to%20fund%20social%20progra ms. Thomas, Ian. “In Allbirds, Wall Street Begins to Build the Bull and Bear Case for an ESG- Branded Stock.” CNBC, CNBC, 30 Nov. 2021, www.cnbc.com/2021/11/30/what-wall- street-thinks-about-allbirds-and-buying-an-esg-branded-stock.html.