Birkenstock's stock slides 14.7% after profit falls short of estimates

By Ciara Linnane

German sandal maker says its customer is not showing any of the weakness other brands have described this earnings season

Birkenstock Holding PLC's stock (BIRK) fell 14.7% Thursday to put it on track for its biggest one-day percentage decline, after the iconic German sandal and clog maker's fiscal third-quarter profit fell short of estimates.

The stock has fallen for five of the past six days and is down for four straight days, shedding 18.6% in that time, according to Dow Jones Market Data. That's the worst four-day stretch on record, going back to the company's October 2023 initial public offering.

The company had net income of 74.6 million euros ($ 82.8 million), or 40 cents a share, for the quarter to June 30, up from 63.1 million euros, or 35 cents a share, in the year-earlier period. Adjusted for one-time items, EPS came to 49 cents, just below the 51-cent FactSet consensus.

Revenue rose 19% to 565 million euros, a whisker below the $566 million FactSet consensus.

Revenue grew 15% in the Americas, 19% in Europe and 41% in APMA on a constant currency basis. Direct-to-consumer revenue grew 14% and B2B revenue grew 23%.

Chief Executive Oliver Reichert said demand was strong across all segments, channels and categories.

"We are gaining the attention of our key retail partners and their consumers, who are becoming increasingly selective and more intentional in their spending," he said in prepared remarks.

On a call with analysts, Reichert and other executives described a surprisingly strong consumer with no signs of the weakness, trading down and caution that other brands and retailers have outlined this earnings season.

Average selling prices were up from a year ago and gross margins were 59.5%, up 320 basis points from the second quarter.

"Our brand remains very strong. We have full price realization, over 90% globally," said Reichert.

The B2B business was a bigger contributor than previously with revenue from key wholesale accounts showing growth and more than 90% of B2B coming from within existing doors.

"Put simply, the B2B business of a super brand like Birkenstock decreases risk with a very, very healthy margin," he said.

As promised during its IPO roadshow, Birkenstock has expanded into white space opportunities, including closed-toe silhouettes, orthopedics, professional, outdoor, the important APMA region, and owned retail.

The latter has benefited as consumers, and especially younger ones, increasingly seek to touch products before buying. The company's retail partners are buying more and adding categories, he said.

Consumers "are seeking brands they love, and Birkenstock is one of these global super brands," he said, according to a FactSet transcript.

The company added seven new stores in the quarter to bring the total to 64 and sales at owned stores rose more than 60%. But it is also continuing with its "engineered distribution" model, which seeks to boost brand value by creating scarcity.

"We are maintaining our disciplined approach to relative market capacity to keep supply comfortably under demand," said Reichert.

The company backed its fiscal 2024 guidance and said it still expects revenue to grow about 19% on a reported basis and 20% on a constant currency basis.

It also reiterated medium to long-term profitability goals for gross profit margin of about 60% and adjusted Ebitda margin over 30%. Ebitda is earnings before interest, taxes, depreciation and amortization.

Chief Financial Officer Erik Massmann said the company expects the full-year numbers to come in at the high end of guidance.

The stock has gained 7% in the year to date, while the S&P 500 has gained 18%.

From the archive: Birkenstock is going public: 5 things to know about the iconic German sandal maker's IPO designs

-Ciara Linnane

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08-29-24 1209ET

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