German sandal company Birkenstock has exceeded revenue expectations in its fiscal first quarter, reporting a 22% year-on-year increase. This success can be attributed to higher pricing and strong demand in the U.S. market. As a newly public company, Birkenstock recently released its fiscal 2023 results and 2024 guidance, confirming its sales growth expectations of 17% to 18%. Despite a muted debut on the New York Stock Exchange, Birkenstock’s stock has rebounded and is up more than 5% this year.
In terms of financial performance, Birkenstock reported earnings per share of 9 euro cents, meeting Wall Street estimates. Revenue reached 302.9 million euros, surpassing expectations of 288.7 million euros. The company’s net loss for the quarter was 7.15 million euros, an improvement from the previous year’s loss of 9.19 million euros. Excluding one-time items, Birkenstock reported a profit of 17 million euros.
Birkenstock has been focusing on growing its direct-to-consumer (DTC) business, which offers better profits and customer insights compared to wholesale partnerships. CEO Oliver Reichert stated that the company deliberately engineers its distribution strategy to create higher demand than supply. However, Birkenstock plans to double its production capabilities over the next three years to narrow the gap between demand and supply.
The company’s gross profit margin dipped slightly to 61% due to unfavorable currency translation and under-absorption from ongoing capacity expansion. To mitigate inflationary pressures, Birkenstock has implemented selective price increases.
One significant development noted by executives is the increased demand for closed-toe shoes, which accounted for a larger percentage of sales than sandals for the first time. This trend has diversified Birkenstock’s product offering and opened up new growth opportunities during fall and winter months.
Birkenstock’s direct channels have seen significant growth, with DTC sales contributing 53% of overall revenue. The company continues to experience strong demand from wholesale channels as well, with wholesalers increasing their orders and opting for early delivery to keep up with consumer demand.
While other retailers like Nike and Under Armour are facing soft demand in North America, Birkenstock reported strong sales growth of 21% during fiscal 2023. This momentum continued in the fiscal first quarter, with sales up 14% in the region. In Europe, where demand has been softer, sales grew by 32%, and in the Asia-Pacific, Middle East, and Africa region, revenue jumped by 47%.
Birkenstock’s success comes after private equity firm L Catterton acquired a majority stake in the company in 2021. L Catterton implemented an aggressive growth strategy that focused on DTC sales, exiting certain wholesale partnerships, and promoting higher-priced items. As a result, Birkenstock’s sales nearly doubled within a few years, and its market cap has reached $9.7 billion.
Since going public, Birkenstock has used some of its proceeds to pay down debt and reduce its net leverage. As of December, the company’s leverage stood at 2.6 times EBITDA.
Overall, Birkenstock’s strong performance in its fiscal first quarter can be attributed to increased prices, robust demand in the U.S., and successful growth strategies focused on DTC sales and product diversification. With its ongoing expansion plans and favorable market conditions, Birkenstock is well-positioned for continued success in the future.
