Birkenstock Holding plc (BIRK) Q3 2025 Earnings Call Transcript

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Overview

Birkenstock's earnings call reveals strong financial performance with record revenue growth, optimistic guidance, and successful product expansion. Although there are capacity constraints and tariff impacts, the company is mitigating these through strategic investments and strong inventory management. The positive market response to price adjustments and expansion plans further supports a positive sentiment. Despite some management evasiveness on specifics, the overall outlook, including strong DTC and B2B growth, suggests a positive stock price movement in the near term.

Key Financial Performance

Revenue Growth 16% in constant currency year-over-year. Reasons: Double-digit growth in every segment and channel, strong B2B performance, and a shift to in-person shopping.

Gross Margin 60.5%, up 100 basis points year-over-year. Reasons: Pricing net of inflation, better absorption of costs related to the Pasewalk facility, partially offset by channel mix and unfavorable currency impact.

EBITDA Margin 34.4%, up 140 basis points year-over-year. Reasons: Improved profitability despite a 70 basis point impact from unfavorable currency translation.

Retail Revenue at Top 10 Wholesale Partners (U.S.) Up 25% year-over-year. Reasons: Strong sellout and fast inventory turns.

Retail Revenue at Top 10 Partners (EMEA) Up 20% year-over-year. Reasons: Strong sell-through at retail partners.

Closed-Toe Share of Revenue Increased by 400 basis points year-over-year. Reasons: Growth in expansionary categories such as laced-up shoes.

Revenue in Americas Up 16% in constant currency year-over-year. Reasons: Double-digit growth in both B2B and DTC channels, no pushback from price increases.

Revenue in EMEA Up 13% in constant currency year-over-year. Reasons: Double-digit growth in both channels, strong sell-through at retail partners, and mid-teens growth in same-store sales.

Revenue in APAC Up 24% in constant currency year-over-year. Reasons: Timing of goods in transit shifted revenue, strong business in China accounting for 20% of APAC revenue.

Adjusted EBITDA EUR 218 million, up 17% year-over-year. Reasons: Improved profitability despite currency translation impact.

Adjusted Net Profit EUR 116 million, up 26% year-over-year. Reasons: Strong operational performance.

Adjusted EPS EUR 0.62, up 27% year-over-year. Reasons: Strong operational performance.

Cash Flows from Operating Activities EUR 261 million, down EUR 21 million year-over-year. Reasons: Timing of tax payments and lower working capital release.

Inventory to Sales Ratio 33%, down from 36% year-over-year. Reasons: Continuous improvement in inventory efficiency.

CapEx EUR 22 million in the quarter. Reasons: Investments in production capacity, retail, and IT.

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Operating Highlights

New store openings: 13 new stores opened in Q3, with a goal to reach 100 stores by fiscal year-end. New stores deliver higher ASP and units per transaction from day 1.

Product demand: Strong demand across all product categories, especially among younger demographics. Sales of classic leather silhouettes grew double digits, and closed-toe shoes' revenue share increased by 400 basis points year-over-year.

Regional performance - Americas: Revenue up 16% in constant currency, with both B2B and DTC channels growing double digits. No pushback on price increases due to tariffs.

Regional performance - EMEA: Revenue grew 13% in constant currency. Strong sell-through at retail partners and mid-teen growth in same-store sales. Opened new stores in the Netherlands and Spain.

Regional performance - APAC: Revenue up 24% in constant currency. Strong growth in China, accounting for 20% of APAC revenue. Opened 8 new stores and expanded mono-brand partner stores by 20%.

Profitability improvements: Gross margin increased by 100 basis points to 60.5%, and EBITDA margin rose by 140 basis points to 34.4%, the best Q3 margin ever.

Inventory efficiency: Inventory-to-sales ratio declined to 33% from 36% in Q3 2024, reflecting improved inventory management.

B2B channel focus: B2B growth outpaced DTC, driven by a shift to in-person shopping. Over 90% of B2B growth came from existing doors, emphasizing controlled distribution.

Expansion in China: China accounted for 20% of APAC revenue, highlighting strategic focus on this market.

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Risk or Challenges

Tariffs and Currency Volatility: The company faces pressure from tariffs and currency volatility, which could impact profitability and revenue growth. For example, the weaker U.S. dollar caused a 330 basis points drag on revenue growth and negatively impacted margins.

Shift in Consumer Behavior: The shift to in-person shopping favors the B2B channel over DTC, which could limit growth in the DTC segment. DTC share of business decreased by 110 basis points year-over-year.

Online Business Performance in EMEA: The online business in EMEA started slower than planned in April and May, which could indicate challenges in maintaining consistent online growth.

Economic and Regulatory Risks: The company is managing the impact of a baseline 15% EU tariff through price increases and other measures, but this could affect consumer demand and profitability.

FX Headwinds: Currency fluctuations, particularly the weaker U.S. dollar, are expected to continue impacting reported revenue growth and margins in the fourth quarter.

IT and ERP Conversion Costs: Higher IT expenses related to ERP conversion in the Americas increased general and administrative costs by 40 basis points year-over-year.

Inventory and Supply Chain Management: While inventory efficiency improved, the company is still investing heavily in production capacity and supply chain optimization, which could strain resources if not managed effectively.

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Guidance & Outlook

Revenue Growth: The company expects to be at the high end of its constant currency revenue growth guidance of 15% to 17% for the year.

Adjusted EBITDA Margin: The company anticipates an adjusted EBITDA margin in the range of 31.3% to 31.8%, despite the drag from a significantly weaker U.S. dollar.

APAC Region Growth: The company forecasts an acceleration in the fourth quarter, expecting APAC to grow twice as fast as the Americas and EMEA segments for the full year.

Store Expansion: The company is on track to reach its goal of around 100 stores by the end of the fiscal year, with new stores delivering higher ASP and higher units per transaction from day 1.

B2B Channel Growth: B2B growth is expected to outpace DTC in both the fourth quarter and for the full year, driven by the shift to in-person shopping and strategic allocation of products.

FX Impact: In the fourth quarter, currency headwinds from the weaker U.S. dollar are expected to impact reported revenue growth by about 400 basis points below constant revenue growth and margins by about 100 basis points.

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Shareholder Return Plan

Share Buyback: During the quarter, the company repurchased 3.9 million shares totaling EUR 176 million. The capital allocation priorities include opportunistic share buybacks, alongside investing in the business and reducing debt.

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Key Q&A

Q:Could you speak to current demand trends and visibility today to the acceleration that you've embedded back to high teens constant currency in the fourth quarter? And on the bottom line, excluding foreign exchange, maybe if you could just provide some perspective on the more than 61% gross margin and 35% EBITDA this quarter or just sustainability of this pace of improvement?

A:Oliver Reichert stated that without the FX headwind, the EBITDA margin would have been 35.1%, the best Q3 margin ever. He emphasized the exceptional demand in Q3, particularly in Europe and APAC, but noted capacity constraints. The company is focusing on increasing production capacity and efficiency to meet growing demand. Investments in automation, IT, and infrastructure are being made to sustain growth. Despite capacity struggles, there is no slowdown in consumer demand.

Q:Since implementing the price increases on July 1, can you expand on what the market response has been? What are you seeing in demand given the back-to-school season we're in, maybe the Nordstrom anniversary sale in the Americas?

A:David Kahan explained that the price adjustments were surgical and proactive, with no negative market response. Velocity and sell-through during the back-to-school season were exceptional, surpassing Q3 results. The company has seen no impact from the price increases.

Q:With the EU tariff now at 15% compared to 10% before August 7, do you see any incremental impact on revenue and on margin? And then as a follow-up on DTC versus B2B, should we expect a similar dynamic this 4Q?

A:Ivica Krolo stated that the effective tariff rate is now just above 15%, depending on the product mix. Pricing flexibility, vendor negotiations, and manufacturing efficiency will offset the impact, with a small negative effect on gross and EBITDA margins already factored into guidance. DTC is expected to accelerate in Q4, but B2B growth will outpace DTC. The channel mix favors B2B due to in-person shopping trends, but both channels remain profitable.

Q:Can I ask about EMEA growth? It was a bit lower than the mid-teens expectation. Are there any reasons why there were one-time factors for 3Q? And should we expect a low-teens growth rate for this region as an algorithm going forward?

A:Nico Bouyakhf explained that EMEA grew 13% in Q3, with double-digit growth in both B2B and DTC. The region faced capacity constraints, limiting the ability to meet demand. Strong sell-through and reorders were observed, and Q4 is expected to return to mid-high teens growth. Despite market uncertainty, brand health remains strong.

Q:Am I right to assume that most of the goods that you're selling in fiscal '25 in the U.S. have already been shipped prior to kind of Liberation Day, and therefore, you have very limited? If no tariff impact, then that it will come in '26?

A:Ivica Krolo confirmed that the company had a strong inventory position, which helped mitigate tariff impacts for fiscal '25. Most goods were shipped prior to Liberation Day, limiting the tariff impact to fiscal '26.

Q:Could you please comment on the factory expansion plans and how they are progressing versus your expectations? And how would you expect the additional supply to evolve over the next few years, particularly given the context you've given today, where supply seems to be the main constraint in the business?

A:Ivica Krolo stated that the Pasewalk facility is on track for full absorption by Q3 '26, possibly ahead of schedule. Investments in production capacity, logistics, and cork-latex are being made to support mid- to high-teens growth, doubling the business every five years. Capital allocation remains a top priority, with EUR 80 million in CapEx planned for the year.

Q:Can you give us a breakout of what the -- in the U.S., what store comps of the comp stores were versus -- as compared to the total?

A:David Kahan reported that comps in U.S. retail stores were up high teens, driven by higher transaction values, ASPs, and velocity. New stores performed well, showcasing a broader product range.

Q:Can you help us think about the closed-toe rate of growth in the September quarter? And how this builds as we look into fiscal '26?

A:Nico Bouyakhf stated that closed-toe styles outpaced open-toe growth, with non-Boston styles growing at the same rate as Boston. Closed-toe penetration increased by 400 basis points in Q3, and the category is expected to grow further, especially in the autumn season.

Q:What have you been doing and what are you planning to do in order to maintain or increase brand momentum? And how are you planning to support brand equity in terms of marketing initiatives, collaborations, communication, social media events, activations, anything that is planned on the marketing side?

A:Oliver Reichert emphasized the brand's focus on functionality and purpose, introducing the footbed to new audiences through in-person shopping and digital platforms. The 1774 luxury line and collaborations with artists are part of the strategy, but the core focus remains on educating consumers about the footbed's benefits.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the specific revenue impact of tariffs and FX on fiscal '25 guidance, citing volatility and inventory mitigation efforts. Additionally, while they discussed capacity constraints and investments, they did not provide detailed timelines or quantitative metrics for resolving these issues.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

BIRK Transcript

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The earnings call reveals strong financial performance with high revenue growth expectations and robust demand across regions. Positive indicators include a strong APAC growth forecast, strategic store expansion, and B2B outpacing DTC growth. Despite some FX and tariff challenges, the company is mitigating these through strategic pricing and production efficiencies. The Q&A session supports these positives, highlighting strong consumer demand and confidence in sustaining growth. Although there are some uncertainties in production capacity, the overall sentiment remains positive, suggesting a likely 2% to 8% stock price increase.

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The earnings call presented strong financial performance with a 23% increase in adjusted EBITDA and a 33% rise in net profit. Despite macroeconomic uncertainties, management expressed confidence in offsetting tariff impacts and maintaining strong demand. The Q&A highlighted positive trends in consumer demand and store expansion. The company is on track to meet CapEx targets and reduce debt. While there was some ambiguity in responses about demand management, overall financial health and strategic plans suggest a positive outlook for stock price movement.

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Birkenstock's earnings call highlights strong financial performance with 22% revenue growth and improved EBITDA, despite some margin decline due to expansion. The company maintains optimistic guidance and strategic growth plans, including market penetration in APMA and expansion in the closed-toe category. The Q&A section supports positive sentiment with balanced growth expectations and strong momentum in specific segments. The focus on debt reduction and shareholder value further enhances the outlook. Despite competitive pressures and regulatory challenges, the overall sentiment is positive, likely leading to a stock price increase of 2% to 8%.

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