Birkenstock Holding Plc has not met the expectations of investors as it recently maintained its unchanged financial targets for the fiscal year ending September 30, 2024. This decision was met with a sharp decline in share prices, dropping approximately 12% during morning trading in New York. Despite a generally positive performance and increased consumer demand for its signature sandals and clogs, the company’s refusal to revise its profit and sales targets has raised concerns among shareholders.
As of late August, Birkenstock’s stock had demonstrated a growth of about 32% since its listing last October, slightly outperforming the S&P 500 index. However, investors had hoped for more decisive action in light of improving sales metrics. Chief Executive Officer Oliver Reichert appears determined to maintain the brand’s momentum while positioning it as a fashionable, high-end footwear choice. This approach includes expanding production capabilities in both Germany and Portugal, as well as exploring new markets in countries such as China and India.
Financially, Birkenstock reported an adjusted earnings figure of €186 million (around $206 million) for the quarter ending June 30, marking a 15% rise year-on-year and aligning with market expectations. This uptick in earnings reflects the growing popularity of the company’s closed-toed sneakers, boots, clogs, and slippers, which tend to command higher prices than traditional sandals.
Despite positive growth in various regions and sales channels, one notable area of concern was the direct-to-consumer sales channel, which fell about 9% short of analyst estimates. According to Luca Solca, an analyst at Bernstein, this aspect of Birkenstock’s business warrants further scrutiny. Nevertheless, the brand has been successful in capitalizing on the rising demand for its versatile footwear options, especially as it introduces less expensive plastic shoes aimed at attracting new customers and encouraging repeat purchases.
To sustain its growth trajectory, Birkenstock has allocated an additional €15 million this quarter for expanding factory capacity, and in total, the company has invested €50 million this year towards this goal. These efforts are not only aimed at meeting the rising demand but are also part of a broader strategy to double production capacity in the coming years, particularly in emerging markets like China. Furthermore, the recent opening of seven new stores in the third quarter has increased Birkenstock’s owned retail locations to 64.
The company remains optimistic about long-term profitability, reiterating its medium and long-term goals of achieving a gross profit margin of around 60%, along with an adjusted EBITDA margin exceeding 30%. Despite the recent dip in stock prices due to the unchanged outlook, Birkenstock continues to project growth strategies while affirming its luxury positioning in the market.
Investors will undoubtedly keep a close eye on Birkenstock’s direct-to-consumer efforts as well as how effectively the company can adapt and innovate to maintain its market position and drive sustainable growth. The future of Birkenstock, while currently met with uncertainty, focuses on an ambitious plan that aims to sustain its trajectory of success in the luxury footwear space.
