A Healthier Lifestyle Starts at the Feet: Birkenstock’s First Public Report
How does smart product placement work? References to Birkenstock across social media reached their peak last July, coinciding with the release of the blockbuster Barbie. The brand has evolved beyond being merely a footwear choice; it now embodies the essence of the contemporary lifestyle embraced by young people in a post-Covid era, characterized by a preference for casual and comfortable fashion. This trend is particularly pronounced among millennials and Gen Z, leading to increased sales of other casual-chic footwear options such as Ugg fur boots and Croc sandals. This shift in fashion preferences resonated not only with the younger demographic but also caught the attention of investors: on October 10, 2023, Birkenstock successfully raised $1.5 billion through an IPO on the NYSE, achieving a valuation of about $9 billion.
This week marked Birkenstock’s first earnings report after going public. Key takeaways: Sustained double-digit revenue expansion across various segments and channels, coupled with robust margins, position the fiscal year 2023 as the brand’s most formidable in nearly 250 years in terms of revenue. Over the past ten years, the company has consistently achieved an annual revenue growth rate of 20%, maintained an adjusted gross profit margin exceeding 60%, and sustained an adjusted EBITDA margin surpassing 30%. Looking ahead, Birkenstock anticipates maintaining its profitable growth trajectory across all products and regions throughout the fiscal year 2024.
Key financial highlights for the fiscal year ending on September 30, 2023 (YoY):
• Revenue: €1.492 billion (+20%) → The growth is attributed to a 6% increase in the number of units sold and a 14% rise in the average price (ASP).
• Revenue by regions → North and South America +20%; Europe +18%; APMA region (APAC, Middle East, and Africa) +27%.
• Key growth drivers → China and India.
• DTC coverage increased by 200 bps to 40% → This growth is fueled by a 29% increase in DTC revenue.
• Adjusted gross profit margin: 62.1% (-20 bps).
• Adjusted net profit: €207 million (vs €175 million).
• Adjusted EPS: based on post-IPO shares of 188 million, €1.10 (vs €0.93).
• Adjusted EBITDA: €483 million (+11%).
• Adjusted EBITDA margin: 32.4% (vs 35%).
• Cash flow from operating activities: €359 million (+53%) → Driven by strong operating performance and lower inventory accumulation compared to FY22.
• The company continued to deleverage post-IPO and utilized proceeds and existing cash to repay a substantial portion of debt after the end of its fiscal year 2023 → In October and November, Birkenstock repaid $450 million in USD Term Loan B and €100 million in Vendor Loan, reducing net leverage to below 2.5x.
Projections for the fiscal year 2024
• Revenue: €1.74–€1.76 billion (a YoY increase of 17–18%)
• Adjusted EBITDA: €520–€530 million (with an estimated EBITDA margin of around 30%)
• Investment of €150 million in the expansion and scaling of retail stores, coupled with a concurrent reduction of debt on the balance sheet
Talking about some not-so-great news for Birkenstock, even though they’ve got a strong brand, healthy sales growth, and are expanding. In Q4, they made €375.5 million (around $407 million), showing a solid 16% YoY growth and beating the forecast of €356 million. But their stock price for #BIRK took an 8% hit yesterday, wiping out the gains since their IPO. What gives? Two main things:
• Profits took a hit in the last quarter.
• Future predictions and changes in exchange rates are throwing a wrench into making solid estimates.
P.S. Let’s focus on the key points. Since Johann Adam Birkenstock began crafting shoes in 1774, the company has consistently maintained a significant portion of its production in Germany—currently at 95%, with only a small fraction involving the production of cork soles in the EU. The deliberate restriction of production volumes, creating a sense of scarcity, is a well-established strategy for luxury brands aiming to convey exclusivity. Affluent customers tend to be less responsive to price increases. To my mind, this needs to be considered.