Birkenstock Holding plc Q2 FY2026 earnings call

Overall Business Resilience

• Birkenstock management frames the brand as an affordable luxury with high resilience amid macroeconomic headwinds, supported by a broad pricing range ($50 to $2,000 USD) that serves consumers across all demographics, geographies, and income levels.
• Full-price sell-through remains very strong at over 90%, demonstrating healthy brand momentum.
• The company owns most of its supply chain, which insulates it from global supply chain disruptions and shipment delay risks relative to industry peers.

Closed-Toe and Product Portfolio Expansion

• Closed-toe penetration increased 300 basis points year-over-year, driven by strong category growth.
• The Boston clog silhouette remains a major part of the closed-toe segment, but non-Boston closed-toe silhouettes are growing at a much faster pace, diversifying the product portfolio. 11 of the company's 20 top-selling styles are now closed-toe, and new archive re-releases are quickly gaining market share.

Retail and Digital Investment

• New owned retail stores consistently outperform the existing store fleet, with higher ASP and higher transaction value, while meeting return on capital expenditure targets of 12 to 18 months. Same-store sales are growing double digits, with no cannibalization from new openings.
• Digital investments are focused on expanding mid/upper funnel marketing (especially social media in the U.S.) and improving retention for the global 13 million member membership base. Mature regions are executing a four-pillar online transformation focused on distinctive offerings, brand storytelling, personalization, and new business models, while APAC's younger online business benefits from strong organic growth.

Supply Chain and Inventory Strategy

• The company intentionally increased pre-production of semi-finished goods (particularly uppers at its Portugal facility) to resolve a final assembly bottleneck, driving a small intentional increase in inventory levels.
• The flexible distribution model allows the company to redirect inventory originally intended for impacted regions (like the Middle East) to high-demand regions like APAC to mitigate revenue loss.

Financial Performance

• Reported adjusted EBITDA was 198 million euros, down 1% year-over-year due to FX and tariff impacts; excluding these headwinds, adjusted EBITDA grew 13% year-over-year. Adjusted EBITDA margin was 32.1%, and 35.4% (up 60 basis points) excluding FX and tariff impacts.
• Operating cash flow was 29 million euros, compared to a cash use of 18 million euros in the year-ago quarter. Ending cash and cash equivalents totaled 201 million euros, with net leverage of 1.7x, in line with normal seasonality.

Total Q2 2026 reported revenue was 618 million euros, an 8% increase year-over-year, with 14% constant currency growth. By geographic segment:

• Americas: 14% constant currency revenue growth, representing 41.9% of total Q2 revenue. Growth was driven by strong B2B sell-through, which was up over 30% at key partners, led by youth retailers and sporting specialty.
• EMEA (Europe, Middle East, Africa): 11% constant currency revenue growth, representing roughly 39% of total Q2 revenue. The Middle East conflict reduced segment revenue by approximately 6 million euros and cut growth by 300 basis points; 50% of the impact came from disrupted shipments, and 50% from muted European consumer sentiment.
• APAC (Asia-Pacific): 30% constant currency revenue growth, representing 19.1% of total Q2 revenue. This was more than twice the growth pace of other segments, with the strongest growth in India, China, and Japan. APAC had the highest closed-toe penetration and highest average selling price (ASP) among segments in the quarter.

By channel:

• B2B: 15% constant currency year-over-year growth, outpacing D2C growth as younger consumers prefer in-store shopping.
• D2C (Direct-to-Consumer): 12% constant currency year-over-year double-digit growth. Owned retail grew over 60% constant currency, with double-digit same-store sales that accelerated from Q1. Five new owned stores were opened, bringing the global total to 111, on track to hit 140 stores by end of fiscal 2026.

Management maintained all prior fiscal 2026 guidance, with no upward or downward revisions:

• Constant currency full-year revenue growth is guided to 13% to 15%, matching the prior target. Reported revenue growth is expected to be 10% to 12%, resulting in full-year revenue of 2.3 to 2.35 billion euros, reflecting a 350 basis point full-year FX headwind based on an average EUR/USD exchange rate of 117.
• Adjusted gross margin is guided to 57% to 57.5%, which includes 200 basis points of combined pressure from FX and U.S. tariffs.
• Adjusted EBITDA is guided to at least 700 billion euros, with an adjusted EBITDA margin of 30% to 30.5%, inclusive of 200 basis points of combined FX and tariff pressure.
• The effective tax rate is expected to be 26% to 28%, and adjusted EPS is guided to €1.90 to €2.05, including €0.15 to €0.20 of pressure from FX, excluding any impact from additional share repurchases.
• Capital expenditures are expected to range from 110 million to 130 million euros.
• End-of-fiscal 2026 net leverage is targeted at 1.3x to 1.4x, excluding the impact of additional share repurchases.
• For H2 2026, the company expects constant currency revenue growth to remain within the 13% to 15% annual range. FX headwinds will ease to 200 basis points in Q3 and be roughly neutral in Q4. Tariffs will pressure gross/EBITDA margin by 100 basis points in Q3 and 50 basis points in Q4, with FX pressure of 60 basis points in Q3 and neutral in Q4. The full-year 140 owned store target is maintained.

• Ongoing conflicts in the Middle East have disrupted supply chains, increased energy costs, and driven broader inflation that pressures consumer disposable income. The conflict has already reduced EMEA revenue by 6 million euros, with an estimated 10 million to 12 million euros in remaining revenue risk for the full fiscal year, though management expects to offset this with growth in other regions.
• Elevated inflation in the U.S. and Eurozone, driven by sharp increases in energy costs, is expected to remain elevated through the end of 2026, further pressuring consumer sentiment, especially in Europe.
• The U.S. Supreme Court ruling that struck down prior IEPA tariffs increased Birkenstock's U.S. tariff rate to ~20% (10 percentage points higher than pre-ruling levels), creating incremental margin pressure, with uncertainty around future tariff levels.
• FX volatility from depreciation of the U.S. dollar, Canadian dollar, and most Asian currencies against the euro created a 640 basis point headwind to Q2 reported revenue growth, and is expected to create a 350 basis point full-year headwind.
• Uncertainty around the valuation of the embedded derivative tied to the early redemption option on the company's senior notes will continue to drive non-cash quarterly volatility through the call date.
• Inventory-to-sales ratio increased to 39% from 36% year-over-year, partially due to FX translation, intentional pre-production expansion, and capitalized tariffs, though the increase is largely expected and manageable.

Q: First half revenue averaged 15% constant currency growth, but full-year guidance implies slower 13% growth in the second half. What factors drive this, and what is the current impact of muted European consumer sentiment? / A: Management states there is no actual slowdown in underlying demand, which remains strong despite all external headwinds. Guidance is set conservatively because the second half is the largest two quarters, is DTC-heavy, and EMEA (which faces the most uncertainty from the Middle East conflict and inflation) is the largest exposure in these quarters. The company's vertically integrated supply chain and broad product/price portfolio support resilience through uncertain conditions, and management remains confident it will deliver the full 13% to 15% growth range.

Q: What is the ongoing Middle East conflict risk to EMEA growth in H2, should we lower our EMEA growth forecasts, and what is current consumer sentiment in the region? / A: 11% constant currency Q2 EMEA growth is a strong result in a flat overall market, with the company still gaining share and holding 90%+ full-price sell-through. Management estimates 10 million to 12 million euros in total remaining EMEA revenue risk from the conflict, with ongoing direct disruption to shipments in impacted regions and uncertain indirect risk from persistent inflation-driven consumer pressure. The company is mitigating impact by shifting focus to more resilient Saudi Arabian demand, using alternative shipping routes, and offsetting lost revenue with growth in other regions, so no change to overall company guidance is needed.

Q: With the new higher 20% U.S. tariff structure, what is the impact on full-year margin guidance, and how quickly can price increases offset the impact? / A: If the current tariff structure holds, there may be modest additional margin pressure in Q4, but the company's strong U.S. inventory position (with inventory already taxed at a mix of rates) means it will not move full-year margins outside the current guided range. The company will continue its longstanding granular pricing approach, adjusting prices seasonally and by style to protect margin and pass through higher costs. Management will wait for clarity on ongoing trade negotiations between the U.S. and EU before making any broader changes.

Q: Why is inventory growing faster than revenue, what drives the increase in DSO, and will DSO move back to historical levels? / A: Most of the inventory-to-sales ratio increase is due to FX translation (inventory is euro-denominated while sales are split across multiple depreciating currencies); on a constant currency basis, the ratio only increased 100 basis points to 37%. The small underlying increase is intentional, driven by higher pre-production of semi-finished goods to resolve a final assembly bottleneck, plus higher capitalized tariffs from the new tariff structure. DSO increased slightly due to higher B2B revenue mix and late-quarter timing of large shipments; receivables remain healthy, credit losses are minimal, and the company maintains rigorous credit standards.

Q: Can you comment on the consumer environment in the U.S. and APAC, and what is APAC's path to doubling revenue? / A: APAC growth of 30% (twice the pace of other segments) is in line with expectations, with strong, high-quality demand led by DTC retail, double-digit ASP growth as consumers shift to higher-priced products including the 7074 premium collection. The U.S. business remains very strong with no growth slowdown and 30%+ sell-through growth at key B2B partners. As an affordable luxury brand with a broad price point range, Birkenstock can flexibly reallocate product to strong, high-demand markets and channels to offset softness elsewhere, supporting long-term APAC growth.