- Revenue 3 per cent ahead of broker expectations
- Share price up 25 per cent this year
Birkenstock (US:BIRK) is seizing market share from rivals as it expands beyond its traditional sandals, which remain wildly popular after decades on sale.
The German company, which made its first shoe in 1774 and listed in the US last year, is investing in “closed-toe silhouettes” as it expands into the broader footwear market. In the three months to March, its revenue increased 22 per cent to €481mn (£407mn). This was 3.2 per cent ahead of the consensus broker forecast compiled by FactSet. Its sales volumes far outpaced the broader market in 2023, with a 20 per cent gain compared to 4 per cent overall. This year management increased the full-year sales growth forecast from 17 per cent to 20 per cent.
The growth in revenue was split roughly evenly between increased prices and volume. On the earnings call, management said the average price increase came from “the continued shift to premium products, a favourable channel mix towards direct to consumer, and the targeted sale price increases”.
More direct
In other words, Birkenstock is selling higher-quality products but also selling more of them direct to consumer (DTC) through its own retail stores rather than third parties (B2B). In the six months to 31 March, DTC grew 32 per cent, outpacing B2B which expanded 20 per cent. The benefit of selling DTC is Birkenstock can sell at a higher wholesale price because there is no middle party needing to take a cut.
It has been a conscious effort by management to invest in DTC to increase margins. In the second quarter, Birkenstock opened six new retail stores, bringing the total to 57 as of the end of March. This can be seen in the lease liabilities, which increased 33 per cent year on year to €173mn. From a balance sheet perspective, this isn’t an issue, as it accounts for just 4 per cent of Birkenstock’s $4.85bn (£3.8bn) in net assets, however it is indicative of the growing real estate footprint.
The quality of Birkenstock’s brand is represented in its margins. Its gross margin last quarter was 57 per cent, while it is forecasting that its adjusted cash profit (Ebitda) margin for the year will be between 30 and 30.5 per cent. “What resonates most is the brand’s purpose and quality and now moat,” said Jefferies analyst Randal Konik. “Put simply, the Birkenstock brand can’t be replicated."
Struggling fellow shoe brand Dr Martens (DOCS) has seen its Ebitda margin go from above 30 per cent in 2021 and 2022 to a forecast 17 per cent in the year ending April 2025, while Birkenstock has gone the other way, starting at 18 per cent in 2021 and climbing from there.
The challenge for Birkenstock is to maintain annual growth, but management is confident it can achieve this by taking market share. Currently, the shoemaker has just 1 per cent of the footwear market, according to the IPO prospectus, but it hopes to increase this share by competing in the more formal closed-toe shoes. “Product diversification has been a key pillar of our thesis and closed-toe expansion has been highly encouraging,” said Konik.
More than a toe-hold
Birkenstock’s closed-toe models include a clog and a new sneaker. In the past year, sales of these 'silhouettes' have climbed 80 per cent, while its ‘Boston’ clog grew more than 100 per cent. The issue now is manufacturing the shoes fast enough, with the closed-toe order book for its B2B customers more than double the same period last year. The growth in the Boston is even more impressive considering the craze for the clog has died down compared with 2022, when shoppers were willing to pay more than double the £130 retail price on resale platforms.
In the first quarter, sustainable Californian shoe company Allbirds (US:BIRD) saw its revenue drop 27.6 per cent year on year in the same period. “The overall global consumer market remains weak, [but] Birkenstock achieved 23 per cent growth, beating the market soundly as we continue to take market share,” said Birkenstock chief executive Oliver Reichert.
The qualities of Birkenstock’s brand haven’t gone unnoticed by the market. This year, its share price has risen 26 per cent to $59. It is currently trading on a 2025 price/earnings (PE) ratio of 33, according to broker estimates compiled by FactSet. However, Konik’s faith in Birkenstock’s uniqueness and its “further expansion into underpenetrated categories” means he has recently raised the price target to $75.
It is always hard to predict the direction of fashion trends, and at the current valuation the market is betting that a lot of things will go right. However, when a company has been around for 250 years it should provide some confidence. If Birkenstock keeps focusing on comfort, it is unlikely to go out of style.
