Birkenstock Holding Plc Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Key Messages: Oliver Reichert highlighted Q2 record revenue of €574M, up 19% Y/Y, driven by double-digit volume and ASP growth. 95% of products made in Germany/Europe, 96% raw materials sourced in Europe. Retail expansion with 77 owned stores, aiming for 100 by year-end. Ivica Krolo discussed financials: revenue €574M, 19% Y/Y growth; gross margin 57.7%, up 140 basis points Y/Y; adjusted EBITDA €200M, up 23% Y/Y; net leverage 1.8x as of March 31, 2025. CapEx on track to meet €80M target for the year.
• Operational Highlights: Strong consumer demand across segments, continued retail expansion, focus on closed-toe silhouettes growing twice as fast as overall group, and proactive working capital management.

Segment Performance

• Americas: Revenue up 23% in reported currency and 20% in constant currency compared to Q2 2024. Both B2B and DTC channels grew double digits. Opened a new store in Nashville, bringing the own store count in the region to 10.
• EMEA: Delivered double-digit growth of 12%. DTC outpaced B2B growth by 1.5x. Opened new stores in London and Paris, bringing store count in EMEA to 37. Hosted an experimental pop-up store in Les Deux Alpes, France.
• APAC: Fastest-growing segment with 30% growth, driven by strong DTC channel growth. Opened three new owned retail stores in India, Japan, and China, bringing total stores in the region to 30. Increased strategic partnerships by 20%, with China's revenue more than doubling year-over-year. Closed-toe and higher-priced premium leather executions growing faster than the regional average.

Guidance

• Birkenstock now expects constant currency revenue growth at the high end of the 15%-17% target for the full year.
• Adjusted EBITDA margin is now expected to be 31.3%-31.8%, 50 basis points above previous guidance.
• Adjusted EBITDA target ranges from €660M to €670M, up 19%-21% Y/Y.

Risks

• Tariffs: Exposure to tariffs, but the company expects to fully offset tariff impacts through pricing, efficiencies in production, vendor negotiations, and product mix optimization.
• Foreign Exchange: Recent depreciation of the dollar creates a headwind to reported growth and margins in Q3 and Q4, though FX was a benefit in the first half of the year.

Question and Answer

• Q: Congrats on another really nice quarter. Could you speak to your confidence in your outlook for the rest of the year and your raised EBITDA margin guidance despite the elevated macro uncertainty with tariffs and foreign exchange? A: Oliver Reichert stated the situation is an opportunity, with full offset of tariff effects expected, and no change in consumer behavior or demand. Ivica Krolo added EBITDA margin improvement from gross margin growth and pricing net of inflation.
• Q: Just among everything else, the DTC and Americas strength is really great, rightly encouraging to many investors. Could you just speak to the implied top line deceleration in the back half, which I think looks a little bit below the 1H performance? And then gross margin was nicely better and really great to see ongoing improvement from the Pasewalk ramp. How should we think about the progression of gross margin going forward? A: Ivica Krolo mentioned B2B order book provides visibility, but second half is more DTC heavy with reduced visibility. Gross margin expected to have 75 basis points benefit for 2025, with remainder in 2026 from Pasewalk absorption.
• Q: Could you expand more on your plans for tariff mitigation and the impact for demand for Birkenstock? And relatedly, could you just speak to the timing, any call-outs on the timing of when you expect the costs and the offsets to flow through the P&L? A: Ivica Krolo said they will fully offset tariff impact via global pricing, vertical integration, and efficiencies, with no change in consumer demand. Costs and offsets expected to flow through as planned with full visibility.
• Q: How are you thinking about cash flow and cash flow uses in the back half of the year? And then as you get into the year, obviously, the Company has a lot of cash in the balance sheet. What -- how do you feel about the plans for that cash? A: Ivica Krolo said first priority is investing in the business, including CapEx for production and retail, with plans to reduce debt and evaluate share repurchases.