There were puts and takes on BIRD’s first print out of the gate, but overall, we definitely liked what we saw out the company. The market is wigging out over the headline EPS miss, but operating results were in line with the company’s preannounced range. The biggest bear case we’ve heard is that revenue growth in the core US market is tapped out – as evidenced by the flattish growth in the region in 2020. But our strong view is that the flat growth in 2020 was a function of the innovation cycle and the lack of new platform launches. This year we saw the launch of no fewer than 5 new platforms (performance running, trail running, high tops, slippers, and ‘lounge wear’ shoes) – which accelerated growth in the US meaningfully to 42%. On the flip side, International growth came in at an anemic 10%, which the company chalked up to covid impact in Asia (China, Japan, Australia, Korea, and New Zealand). We won’t argue with that. The other knock that the consensus/market doesn’t like is the elevated SG&A – but that’s a part of the model that we think is critical. With an accelerating innovation pipe and a continued rollout of new stores (the company added 13 this year), the company needs to get in front of the consumer to improve its 11% brand awareness – the only way to do that is to spend money. If SG&A was NOT elevated, we’d be massively concerned. Lastly, the Q&A was largely focused on an implied 52% GM in 4Q vs the Street at 53%. We think the company is being conservative, as it seemed hell-bent on straddling the consensus annual estimates to keep expectations in line. But even if there is some 4Q GM pressure – albeit still above last year – that makes all the sense in the world due to freight/logistics costs. In the end, the US revenue acceleration was paramount for us to see given that it coincided perfectly with the new platform launches. We think this brand is on track to put up 30%+ top line growth at mid-high teens EBIT margins over a TAIL duration, which we think puts $0.75-$1.00 in EPS power in play. We think that’s good for a $30 stock, or about 50% above current levels.
Importantly, we’re hosting a Black Book on our BIRD thesis on Monday Dec 13th at 10am. Details to follow.
