Birkenstock Holding plc Q3 FY2025 earnings call

• Delivered 16% revenue growth in constant currency, growing double digit in every segment and channel. • Gross margin up 100 basis points to 60.5% and EBITDA margin up 140 basis points to 34.4%. • Shift to in-person shopping favors B2B channel over DTC. B2B growth outpaced DTC in the quarter. • Accelerated pace of own retail store openings, adding 13 new doors, new stores deliver higher ASP and units per transaction. • Brand heat strong across all product categories and target groups, classic leather silhouettes and iconic styles like Arizona and Boston in demand, closed-toe share of revenue increased by 400 basis points year-over-year.

In the Americas, revenue was up 16% in constant currency with both B2B and DTC channels growing double digit. 3 additional stores were opened, bringing the total number of stores to 13. In EMEA, revenue grew 13% in constant currency with double-digit growth in both channels. B2B outpaced D2C, online business was slower in April and May but reaccelerated in June, same-store sales in own retail were up mid-teens, and store count reached 39. In APAC, revenue was up 24% in constant currency. Timing of goods in transit shifted revenue to the fourth quarter, with an expected acceleration in Q4 and APAC forecasted to grow twice as fast as other segments for the full year. 8 new owned retail stores were opened in APAC, and strategic partnerships were expanded.

• Fourth quarter expected to be impacted by weaker U.S. dollar with reported revenue growth ~400 basis points below constant revenue growth and margins negatively impacted by ~100 basis points. • Expect to be at the high end of constant currency revenue growth guidance of 15% to 17%. • Adjusted EBITDA margin still expected in the range of 31.3% to 31.8% despite drag from weaker U.S. dollar.

• Pressure from tariffs and currency volatility could impact actual results. • Production capacity limitations in some regions can restrict ability to meet demand. • Currency headwinds in the fourth quarter from weaker U.S. dollar pose risks to reported revenue growth and margins.

Q: Congrats on another nice quarter. So Oliver, 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: Thank you for the question, Matt. You're correct. Without the FX headwind, the EBITDA margin would have been 35.1% even. So this is the best margin in the Q3 we ever had. All things being equal, our goal is to constantly drive margin improvement, as we scale and grow the business. The demand we saw in Q3 was exceptional, but we simply don't always have the capacity to meet the demand. This was especially true for the third quarter for Europe and APAC. And growing at this pace requires also constant improvements in efficiency, and this is where I'm spending a lot of my time right now, to find ways to increase production capacity and create long-term efficiency. So within our own supply chain, we want to meet our strongly growing demand by doing both of these things, improvement in efficiency and building the capacity. And as you know, we strive to drive our margin improvement over long term, of course, and also need to invest in the business to sustain this growth. We are adding automation in manufacturing, investing in IT and infrastructure, and we hope to streamline our processes throughout the organization. But what we saw in demand in the market, especially in the third quarter and in the back-to-school, but David will have a conversation about this later on was -- or is tremendously strong. So from our perspective, we don't see any slowdown in consumer demand or anything. We are -- at the moment, we're struggling with capacity. That's our biggest issue.

Q: Congrats on another nice quarter. So Oliver, 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: Thank you for the question, Matt. You're correct. Without the FX headwind, the EBITDA margin would have been 35.1% even. So this is the best margin in the Q3 we ever had. All things being equal, our goal is to constantly drive margin improvement, as we scale and grow the business. The demand we saw in Q3 was exceptional, but we simply don't always have the capacity to meet the demand. This was especially true for the third quarter for Europe and APAC. And growing at this pace requires also constant improvements in efficiency, and this is where I'm spending a lot of my time right now, to find ways to increase production capacity and create long-term efficiency. So within our own supply chain, we want to meet our strongly growing demand by doing both of these things, improvement in efficiency and building the capacity. And as you know, we strive to drive our margin improvement over long term, of course, and also need to invest in the business to sustain this growth. We are adding automation in manufacturing, investing in IT and infrastructure, and we hope to streamline our processes throughout the organization. But what we saw in demand in the market, especially in the third quarter and in the back-to-school, but David will have a conversation about this later on was -- or is tremendously strong. So from our perspective, we don't see any slowdown in consumer demand or anything. We are -- at the moment, we're struggling with capacity. That's our biggest issue.

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: Dana, this is David. Thanks for the question. As many in the industry know, we anticipated the potential tariffs as best we could, and we were very proactive. We shared with our retail partners our specific plan as far back as May. And on July 1, the price adjustments became effective. I will say the adjustments we made were surgical by nature versus broad strokes. And while they're a bit off of our historic pricing cycle, it's no different than how we have managed this in past years irregardless of tariffs. So now here we are, we're 6 weeks past the price actions. And as I'm sure, everyone's recent channel checks indicate, our velocity and sell-through from July and into week 2 of August, the period that includes a significant chunk of the important U.S. back-to-school season, has been exceptional, and it's escalated even beyond the selling results we had in Q3, which historically was when we would have high spring peak sell-throughs. So we're very encouraged and we've seen no impact whatsoever since we took our pricing increases.

Q: Regarding the tariffs. 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, a historical seasonality of the business is such that DTC is a little slower in 3Q, but then accelerates in the fourth quarter. Should we expect a similar dynamic this 4Q?

A: Thank you, Anna. It's Ivica. So we went into 2025 with an effective tariff rate of around 11%. So we have been exposed to U.S. tariffs before as you all know. This went up in April to 21% even. And this is the additional 10% you mentioned before. So following the EU U.S. trade deal, we now face a 15% baseline tariff on EU imports, which we believe is very manageable. Our effective tariff will land somewhere just above 15%, depending largely on the product mix. So as you also know, we have some items that are already tariffed at over 15%, and those higher tariffs, historical tariffs will remain in place. So what's really important is, first, we have pricing flexibility. As David said, on July 1, we implemented pricing actions in the U.S. to offset some of the expected impact with no negative market response. Second, price is not the only lever we have. With a vertically integrated supply chain, we have additional ways to offset through vendor negotiations, manufacturing efficiency and optimization of our product mix. So all in, for 2025, we will fully offset the absolute dollar impact of the tariffs, but see a very small negative on gross margin and EBITDA margin, which, however, is already factored into our full year guidance. So taking the second question as well, Anna, on DTC and B2B, so we expect an acceleration in DTC in Q4 of fiscal '25; however, as mentioned before, B2B growth will outpace B2B in both, so Q4 and for the full year. And what's driving -- so the channel mix and what we've seen in Q3 was mostly driven by the continued trend towards in-person shopping, so which naturally favors B2B channel over DTC. And our brand is a brand that benefits from physical shopping. So where consumers can touch, feel, experience the footbed. So it's a haptic product and especially for those who are new to the brand and new to the footbed. So our DTC business is still very much a digital platform. And with 90 doors globally, we are not able to capture all the in-person demand within our own DTC business. So the good news here is that both channels are very profitable, so we are very happy to go wherever the demand is actually. However, it's very important, we are not compromising high-quality distribution and full price realization. So we manage inventory in the B2B channel very tightly through our engineered distribution model. Price realization is at over 90%. Stock-to-sales ratios in the channel are very healthy, and our order book is very strong. We are also accelerating the pace of our own store openings, so that is why we can capture more of this in-person shopping demand in our own DTC channel. There is no change in our strategy, which includes leaning in both channels. And naturally, a higher mix of B2B means lower gross margin and a higher EBITDA margin. The opposite is true via D2C mix, but both are very profitable. And finally, one important fact, as you know, we own our own supply chain. So the B2B order books provides for great predictability and certainly derisks our planning.