Birkenstock Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 18, 2024

There are 15 speakers on the call.

Operator

Good morning, and welcome to the Birkenstock 4th Quarter and Fiscal Year 2023 Earnings Call. Please note that all participants are in a listen only mode and the call is being recorded. Following the presentation, we will conduct a Q and A session. The company has allocated 60 minutes in total to this conference call. At this time, I would like to turn the conference over to Alexander Hoff, Vice President of Global Finance.

Operator

Please go ahead.

Speaker 1

Open. Good morning, everyone, and thank you for joining us today for Bergstok's 4th quarter fiscal year 2023 earnings call, welcome to the review results. As a reminder, our fiscal year ends in September. Open. You may find a supplemental presentation connected to today's discussion on our IR website, bergensorgbalding.com.

Speaker 1

Open. Before we begin, we would like to remind you that some of the information provided during this call is forward looking open and accordingly is subject to the Safe Harbor provisions of the Federal Securities Force. These statements are subject to various risks, These risks, uncertainties and assumptions are detailed in the morning's press release as well as our SEC filings, which can be found on our website at wittendstockbindershotlink.com. We undertake no obligation to revise or update any forward looking statements or information recorded on a currency basis unless otherwise stated. We will also reference certain non IFRS financial information.

Speaker 1

We use non IFRS measures as we believe that we present the operational performance and underlying results of the business more accurately. The presentation of this non IFRS financial information is not intended to be considered by itself recorded. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 2

Thank you.

Speaker 1

Thank you. Thank you. Thank you. Thank you. Our next question comes from Reconciliations of IFRS to non IFRS measures can be found in the morning's press release and in our SEC filings.

Speaker 1

Open. Joining us on the call today are Oliver Eichard, Chief Executive Officer Erik Masman, Chief Financial Officer David Kahane, President, Americas Nico Huya, President, Hero answered. And Claude Baumann, Chief Sales Officer. Following our prepared remarks, we'll open the call for your questions. Open.

Speaker 1

With that, I'm very happy to hand over the call to Oliver.

Speaker 3

I would like to welcome everyone to the call today, open. And I'm happy to discuss fiscal 2023 and 4th quarter results. On today's call, I will share a quick recap of the business stock equity Sorry, we presented during the IPO and some highlights regarding our fiscal 2023 performance. Next, David, Nico and Claus will give you an overview about their respective regions. Then you will hear from Erik and Alexander open.

Speaker 3

So let me begin with a brief overview of our equity story. We are aware that it's not easy to compare Wittgenstock to any other listed company. Our business model is unique in many ways. We are the inventor of the footbed. We are in the footbed business, offering a functional benefit to consumers that never goes out of style.

Speaker 3

We are guided by a simple yet fundamental insight. Human beings are intended to walk barefoot on natural yielding ground, a concept we refer to as naturgevoise skin. Our purpose is to empower all people to walk as intended by nature. We are a brand backed by a family tradition of a quarter of a millennium with the resilience, timeless relevance and credibility of a multigenerational business, which supports a strong heritage and drives the premium feeling of the brand. For us, 2024 is a very special year in which we celebrate our 250th tradition anniversary.

Speaker 3

We are a universal brand, catering to all people regardless of age, gender and geography. We have a growing global following, exhibiting high engagement and brand loyalty. For instance, U. S. Consumers own 3.6 pairs on average Our total addressable market is the global population.

Speaker 3

Our products cover a broad range of price points. We have a significant addressable white space across geography, category extension and user occasion. Additionally, we also have wide space with our own store openings and expansion of our DTC penetration. We are made in Germany. Over 95% of our products and 100% Our footbeds are produced in 1 of our 6 owned factories in Germany.

Speaker 3

100% of our footwear is produced in the EU, one of the safest and most regulated markets in the world. Most raw materials are sourced from Europe, which ensures supply chain reliability and the materials also adhere to strict quality We are committed to uncompromising premium quality. Our products are made to last. We are a unique business. We are neither luxury nor fashion or footwear, But our business model has elements that are typical of the luxury industry that is a premium quality product.

Speaker 3

Market capacity and the high desirability of the brand, which altogether translate into a premium margin. Other than the luxury industry, which is primarily built on price and social status, Burtgenstock is a true purpose and zeitgeist brand. As such, we are beyond fashion. Our disciplined engineered distribution model to maximize profitability and to balance demand and supply to create scarcity in the market. We delivered a strong financial profile, 20% revenue CAGR over a decade, 60% plus gross profit margin, 30% plus adjusted EBITDA margin.

Speaker 3

And our fiscal 'twenty three figures underscore this once again. Erik and Alexander will review our financial performance in more detail shortly. But here are a few highlights from fiscal 2023. We are very pleased to announce that we delivered extraordinary revenue growth of 20% in fiscal 2023, marking the best year in Bilsenstock's history with revenues of €1,490,000,000 Our 4th quarter contributed to that development with 22% growth. These numbers tie in with our great performance in the last decade with a revenue CAGR of 20% and demonstrate We are delivering all that in uncertain times and macroeconomic backdrop, which reflects our optimism in the future growth trajectory of the business.

Speaker 3

Our revenue development in fiscal 2023 is driven by both, unit growth of 6% and ASP increase of 14%. Compared to fiscal 2022, our unit growth doubled from 3% to 6%. Our ASP growth was primarily driven by steering consumers to premium products with higher price points. This effect accounts for 50% of the ASP growth. The ASP is further driven by a favorable channel mix towards DTC and RSP increase.

Speaker 3

Both effects accounted for 25 We achieved strong full price realization, which demonstrates our unique outlier Within each of our geographies, we saw a high consumer demand for bookings stock, resulting in a double digit revenue growth in all three segments in fiscal 2023. Our 2 channels, B2B and D2C grew double digit with D2C especially outperforming and achieving a penetration of 40%. This demonstrates how growth base our revenue growth is. The same applies to the product perspective, where most of our categories grew double digits. Fiscal 2023 marked another year with industry leading margins.

Speaker 3

We achieved a gross profit margin of 62.1 percent and an adjusted EBITDA margin of 32.4 percent. Open. At this time, I will hand the call over to David and his team for reviewing the Americas' performance. Open.

Speaker 4

Thank you. In the Americas, we achieved a revenue growth of 20% in fiscal 2023, making the region the largest contributor to overall revenue growth in 2023. Due to our brand strength, Birkenstock outperformed a generally flat market with retail partners We have seen overall challenges in both traffic and conversion. We know retailers are seeking to shift investments to the highest performing brands. This is an opportunity for us to increase our share and drive top line as we are one of the true must have brands.

Speaker 4

And while we will take this opportunity to grow with partners, We will do so without compromising on our profit led product allocation strategy. We chose to remain very disciplined in B2B channels so that we leave a significant unrequited demand This approach led to B2B revenue growth of 16% in fiscal 2023. Using our engineered distribution strategy, we have steered greater inventory to capture more of this consumer demand in our own D2C channels, where the profit per pair sold is the highest. D2C revenues grew in fiscal 2023 by 26% on a level far above B2B, which leads to a further expansion of D2C penetration. During fiscal 2023, We have also gained significant penetration in our closed toe shoe silhouettes, which supported the ASP increase.

Speaker 4

Close total performance is approximately 3 times higher in our own channels compared to B2B, We shines a light on the growth potential, not only in B2C, but also in B2B. In our Q4, revenues increased by 40%, primarily driven by a strong B2B quarter with 73% growth. We experienced strong consumer demand in spring summer, which even gained further momentum in the back to school retail season. In Q4, we took advantage of the macroeconomic to execute what we term land grabs in white spaces, particularly shoes based on our heightened leverage in sandals and clogs, maintaining strong sell through and healthy inventory at retail. In addition, we made significant inroads in expanding our distribution so that the benefits of our footprint may be front and center in running specialty shops.

Speaker 4

This is a new initiative and brings the benefits of our footprint directly where the most discerning consumers purchase their performance sports products and whereby this consumer can benefit from Bergens Stock as a recovery item as part of their athletic lifestyle. The mantra we use is run, work and stop, repeat. And this helps us ensure the benefit of our footbed leads a growing revenue base Please note that by and large, we do not expand distribution other than in some specific doors, Well, we believe an end user may be underserved. Here, Run Specialty Sport Recovery is a good example. Let me now hand over the call to Nico to discuss Europe's performance.

Speaker 1

In our Europe We have cemented our strong position in a challenging market environment, which is driven by consumer caution and increasing sales promotions due to material inventory levels. This strength is built on our disciplined engineered distribution model For Europe, fiscal 2023 was a successful year in terms of business transformation with a significant volume shift from lower quality distribution to higher ASPs and higher profitability. We increased revenues by 18% with revenues significantly outgrowing units. Our B2B transformation in Europe is now completed. We have significantly increased our distribution control by converting further distributor markets Belgium, Netherlands and Luxembourg to own distribution and by further rationalizing our wholesale partner portfolio with a stronger focus on strategic partners and new distribution in the premium sneaker segment, both supporting our premium brand positioning.

Speaker 1

Our recently taken back markets France and Scandinavia both operating as own distribution markets since fiscal 2022 are well set up both delivering over proportionate growth. These transformational efforts resulted in 15% revenue growth for B2B. Simultaneously, we saw great progress in our DTC transformation towards higher quality and stronger member centricity. In fiscal 2023, we closed a substantial part of our legacy retail stores and took strategic investments in our membership and analytics capabilities. We experienced consistently strong consumer demand in our own channels with record breaking sales in both retail and online throughout the summer.

Speaker 1

Fiscal 2023 DTC revenues increased by 24%, significantly outperforming B2B and thus resulting in further DTC penetration. 4th quarter revenues in Europe were up 5%. The single digit increase was impacted by shipment timing effects and B2B partner termination effects following our wholesale cleanup. In fiscal 'twenty two, we experienced shipment delays in the first half of the year leading to an exceptional revenue level in the second half. This elevated sales level in Q4 of fiscal 2022 which impacted Q4 'twenty three results.

Speaker 1

By taking out these timing effects, revenues double digit in Q4 of fiscal 2023. DTC revenue growth in Q4 was 20%, slightly impacted by store closures in Europe following our transformation. And our close to a shoe penetration in Q4 increased significantly. Now open. I will hand it over to Claus for ABNA discussion.

Speaker 5

Our ABNA segment showed the highest growth rates of all segments in the fiscal year 2023 with 27%. APMA entered into the acceleration mode after a successful distribution cleanup. All over the region, we are with teams on grounds to drive future revenues. Within the channels, D2C is the growth backbone in ADMA. We managed to double The DTC revenues in fiscal year 2023 by capitalizing the growing demand, adding web shops in different countries open and opening own retail stores in India and Japan.

Speaker 5

We managed to implement premium distribution through partner stores all over the region. We grew in underpenetrated countries like Greater China marketplaces more than 60% India Digital grew more than 70% and Japan Digital more than 50%. So let me remind you at this stage that our D2C expansion is not at the expense of It is all incremental. Despite distribution cleanup, B2B grew double digits at 12%. We focus on mono branded partner store openings and upscale customers to more premium products by following our global segmentation strategy In Greater China, we recently appointed Tiffany Wu as the Managing Director to drive brand equity and sales in the region.

Speaker 5

With this new appointment, we aim to further strengthen our expanding footprint in the most dynamic APMA region. In the growth region with the largest untapped white space potential for the company alongside with India and Japan. Open. So having said that, let me hand over to Erik, who will review the financial figures in detail.

Speaker 1

As outlined earlier, we achieved remarkable revenue growth of 20% in fiscal 2023. Our 4th quarter tied in with this performance and came in with growth of 22%. Gross profit margin for fiscal 2023 was 62.1%, up 180 basis points compared to fiscal 2022. Let me remind you The last year's number was unfavorably impacted by €24,400,000 of expense, reflecting the effect of applying the acquisition methods of accounting for the transaction in 2021 to inventory valuation subsequent impact on cost of sales. When adjusting this fiscal 2022 effect, Gross profit margin slightly decreased 20 basis points from 62.3% to 62.1%.

Speaker 1

The decrease was driven by inflationary costs for raw materials and labor. In fiscal 2022, we took an early sales price increase ahead of the anticipated cost inflation, While cost of sales inflation mainly hit us in fiscal 2023. However, The unfavorable cost of sales inflation effect in gross margin was largely offset by favorable effects from an increased DTC penetration and further sales price increases. Gross profit margin in the 4th quarter increased by 140 basis points from 64% 65.4 percent due to a strong ASP increase following an improved product mix currently subject to slightly higher D2C penetration. Adjusted selling and distribution expenses represented 29.8 percent of revenues in fiscal 2023, up 190 basis points compared to prior year.

Speaker 1

The increase was primarily driven by higher cost in relation to the above average growth of DTC revenues and cost inflation. Adjusted general and administration expenses represented 5.4% of revenues in fiscal 2023, down 70 basis points compared to prior year, providing operational leverage. Our fiscal 2023 adjusted EBITDA of €483,000,000 was up 11% compared to fiscal 2022. With 32.4%, we again achieved The margin decline of 260 basis points compared to prior year was driven by inflationary headwinds, which impacted us in fiscal 2023, while the increased sales prices primarily in fiscal 2022. Thus, last year's margin was elevated by this favorable pricing effect.

Speaker 1

Our 4th quarter adjusted EBITDA was €96,000,000 slightly down by 6%. The moderate decline was primarily driven by cost inflation and negative FX effects from currency translation, new to the weaker U. S. Dollar compared to Q4 fiscal 2022. Our effective tax rate for fiscal 2023 was 51.2% compared to 25.3% for the prior year.

Speaker 1

This increase mainly relates to onetime non cash share based compensation expenses recorded and are treated as nondeductible. The increase also includes onetime IPO costs, resulting in tax losses for which no deferred taxes are recognized. Adjusting for the tax rate impacts Of the just mentioned extraordinary expenses of €65,000,000 resulting from noncash share based compensation and €34,000,000 resulting from IPO costs would lead to a normalized effective tax rate of 27.9%. These results cumulated in pro form a fully diluted adjusted earnings per share €1.10 in fiscal 2023 compared to €0.93 in prior year, representing growth of 19%. 4th quarter pro form a fully diluted adjusted earnings per share These earnings per share metrics are

Speaker 6

calculated based on a total number of outstanding shares of 187,800,000

Speaker 1

representing the post IPO number. Open. With that, I

Speaker 6

will hand over to Alexsson.

Speaker 1

GURTENSTORG is a cash flow generating business, which provides us optionality in terms of capital allocation. In fiscal 2023, we achieved Cash flow from operating activities of SEK 359,000,000 up 53% compared to pricing. The increase is primarily driven by a strong operational performance as well as lower inventory increase compared to fiscal 2022. Inventory increased 11%, which is approximately half of the revenue growth rate, providing us with an improved inventory to revenue ratio. We are extremely focused on inventory health, especially as we grow.

Speaker 1

Let me remind you at this stage Within Finnish goods, the largest part relates to core and non seasonal products, which we sell for many years or even decades. The majority of finished goods is already contracted While the inventory gives us flexibility to react fast to an increase in demand and to generate additional sales primarily driven by the production capacity expansion. Our strong cash flow generation allowed us to completely pay In addition, we repaid loans and borrowings of NOK53 1,000,000 in fiscal 2023, while increasing our cash position. Open. As announced in early November 2023, we continued our deleveraging process post IPO We already repaid $460,000,000 of the U.

Speaker 1

S. Dollar Terminal B €100,000,000 of the vendor in the Q1 of fiscal 2024, which reduced leverage to below 2.5% cost IPO. Now turning to the future. We will provide guidance on a full year basis rather than quarterly, reflecting the way we steer our business towards long term success. For fiscal 2024, we expect revenue to be in the range of €1,740,000,000

Speaker 7

€1,760,000,000

Speaker 1

on a constant currency basis. This range represents growth of 17% to 18% relative to fiscal 2023 with all segments and channels contributing to their growth. We continue to see strong consumer demand for the wholesale brand above the better range, We expect adjusted EBITDA margin to be approximately 30% in fiscal 2024, resulting in an adjusted EBITDA between €520,000,000 €530,000,000 on a constant currency basis Based on the earlier mentioned revenue guidance, with the production starts on refactoring in Parzival on September 23. We are very happy in taking an important step of our capacity expansion. We are on track with the project to build the factory on budget and in time.

Speaker 1

The added capacity will help us to fulfill future demand and we are off schedule to realize the benefits of this capacity expansion later in fiscal 2024 recorded and the upcoming years. In the current year, we expect modest headwinds to adjust the SA margins This impact is consistent with what we communicated through the IPO process. Long term, we expect an adjusted Our capital allocation priorities are first to invest in the business and second to balance deleveraging. We expect to invest approximately €150,000,000 of capital expenditure in fiscal 2024, primarily relating to our ongoing production capacity expansion, mainly in service in Portugal and our global retail store pitch. In addition, Dravenstock plans to continue its leveraging process

Operator

open. Certainly. At this time, we will be conducting a question and answer session. In if you wish to ask a question. Open.

Operator

First question today is coming from Edward Yruma from Piper Sandler. Edward, your line is live.

Speaker 8

Open. Hey, good afternoon guys. Thanks very much for taking my question. I guess, curious on how you feel about inventory on a SKU basis. It seems like you've had a lot of very popular SKUs like the Boston, particularly in the U.

Speaker 8

S. So kind of curious how you feel about some of your hotter Excuse right now and kind of inventory levels in the channel. Thank you.

Speaker 6

Hi, Ed. Thanks for your question. Yes, a topic we have been discussing before. Inventory compared to revenue came down in 23% from 36% 20% to 30%. So you see, we are constantly working on optimizing this.

Speaker 6

Still, as you know, more than 75% already allocated to customers. And most more than 75% is timeless and carryover products in Silves. So nothing I'm worried about, and I'm very positive with the inventory level we have. You know as a company that's producing our own goods, we always want to be in the position to deliver D2C, which we will grow. So We need inventory.

Speaker 6

We will increase inventory, but still we optimize it constantly.

Operator

Thank you. The next question is coming from Matthew Boss from JPMorgan. Matthew, you're in listen only?

Speaker 8

Great. Thanks.

Speaker 2

Open. Great. Thanks and congrats on a nice quarter. So Oliver, could you speak to maybe the broad based strength in demand that you continued to see across geographies. Have you seen any change in top line momentum through holiday or your December end Q1 relative to the more than 20% constant currency growth that you delivered in the Q4.

Speaker 2

And just how would you rank white space on category opportunities in 2024.

Speaker 3

Hi, Matthew. Open. I would say, you've seen the growth rate in Q4, which is 22%. So we can't see any kind of downside here for the Q1 And the full year. So as you know us, we are quite conservative.

Speaker 3

We try to be very realistic here. You may have heard about the inflation increases again in Germany. And so we are a bit very careful in this segment to be On the right side and not too, let's say, optimistic, but The demand for profit driven brands are unbroken. It's a bit of a different to the desire driven luxury brands. I think they're much heavier under pressure.

Speaker 3

We are not. We see growth everywhere. Your question about the upcoming territories like APMA, the white space. As we said before in the roadshows and in the testing the water sessions, We don't see any significant impact on our business in 2024 because we are just about to start this. And the investment in retail and the right partners and developed regions carefully is the leading guidance here for us at the moment.

Speaker 3

They will kick in later, you will see, and then they will generate much more growth and they will carry much more EBIT as they do today.

Operator

Open. Thank you. The next question is coming from Louise Singlehurst from Goldman Sachs. Louise, your line is live.

Speaker 9

Open. Hi, thank you. Hi, Oliver and Erik and team. Thanks for taking my question. If I could just ask about the factory and in terms of how that's gone, I think it opened in September.

Speaker 9

It's obviously very important And any learnings in September? Thank you.

Speaker 3

Hey, Louise. We open. As you know, the new factory in Parzival and the repitting in Golest and Some repeating in our factory in Portugal, in Aruca, will give us in the next years the The opportunity to double the capacity. So that's really a big moment for us to really grow the capacity. Open.

Speaker 3

And of course, as we said it before, you see some negative impact on our margin within the 24 numbers because of this Parzivalik one off effects. And to be super honest, we see also some pressure from inflation coming in 2024. As you know, we are very sensitive, but our customers are very And helping digesting the one off costs through this factory improvements and the further investment in our capacity. So we are on track here. And this will give us a completely different situation from 2025 onwards.

Speaker 3

So we expect that this growth preparation will be heavily digested within 2024, and then you will see a quick recovering of margins and efficiency and hopefully less inflation as well.

Operator

Open. Thank you. The next question is coming from Michael Binetti from Evercore ISI. Michael, your line is live.

Speaker 10

Open. Hey guys, good morning and congrats on your Q1 out of the gate here. I just wanted to clarify one comment from before on Fiscal 'twenty four, did you say, as we think about the cadence of the year a little bit, I know you're guiding on an annual basis, but did you say to look at the 22% constant currency growth rate And 4th quarter is a good way to think about how the revenues grow early in the year in the December quarter, and if I was right. And then To the question about the new factory coming online, could you speak to what you think we should how we should think about the pace of unit volume growth building as we move through the year into the comment you made about later in the year, you'll start to see some of the effects And then David, if you wouldn't mind for a second, tell us about maybe a little bit about what you referred to as the land grabs in Americas, please?

Speaker 3

Open. That's a lot of questions, Michael. I will start with the beginning. Open. I will start with the beginning.

Speaker 3

We do see Unit growth, of course, within 2024. This will give us some movement to improve our engine distribution model. Coming back to your Q4 numbers and The outlook in Q1, I mean, it's really you know what, we are conservative, but we were not disconnected to the reality. I mean, our growth rate in Q4 is 22%, okay? So why should this Drop so dramatically.

Speaker 3

I mean the full year guidance is between 17% 18%, But the truth is we are kicking in on a level of 22% in Q4. And yes, This is not dramatically declining, and we are very positive about our Q1 already. But we're talking about full year guidance. So as you know, on the conservative side, being rookies in this segment Of IPO presentations and communications, we want to make sure that we're on the right side. And that's why we're sticking with our guidance of for the full year guidance of 17% to 18%.

Speaker 3

Okay. And then hand over to David to give you a bit of a color of the U. S. Market. And yes.

Speaker 4

Thanks, Oliver. Thanks, Michael, answered. Land grab is a term we use where we really aggressively take some share. I mean what we're seeing in the U. S.

Speaker 4

Right now is it's almost a little counterintuitive, but the more challenged the consumer spending power has been, really the better it's been for the brands that are really in high demand. And like Oliver said, what we're seeing is this incredible shift right now in experiences they really want. And obviously, Birkenstock is one of those few that's benefiting. And when we had an opportunity placed in the recent months to take some share and to provide especially our retail partners with a brand that is selling through at near record levels of full price realization. We took that opportunity to fill some more shelf space.

Operator

Thank next question is coming from Dana Telsey from Telsey Group. Dana, your line is live.

Speaker 11

Hi, good afternoon, everyone, and congratulations. Open. Oliver, David, Eric, as you think about ASP and units sold and even by region, How are you thinking about new categories and new products on the ASP side versus core in terms of Do you take price increase given the inflation? Do you not take price increase? Does it differ by channel and region?

Speaker 11

And with the new introductions of new items this year, What's the pace like compared to last year? Does it differ in terms of timing as to what we should see by quarter? Thank you.

Speaker 4

Thanks for the question, Dana. We have taken price increases over the past few years on an ongoing basis, on our core products. And what we're seeing is The consumer response to leather to more higher priced products has been far beyond our expectations. It's exactly what I spoke about. There's incredible intentional purchases where consumers, our brand fans are searching out products And it just so happens to be that some of those products, especially the closed toe ones are obviously at higher average selling prices.

Speaker 4

So the consumer who's come to our brand by way of our core products, as you know, we average 3.6 pairs per consumer. They might come to us from a core purchase and then their next purchase and their next purchase and their next 3.6 purchases maybe closed toe or clogged products that just happen to be higher average tickets. So we're seeing no price compression whatsoever And we're actually seeing a growing demand for our higher priced products, which are just resonating with the consumers. Hey, Dana, this is Nico. Maybe I can also add

Speaker 12

a bit color from the European perspective. So in Europe, over the course of the last 2 years, we have increased pricing weighted average around 25%, which is really significant. And for us, pricing just generally across the group is a seasonal exercise. So every season, We look at the entire portfolio, the entire collection and look at input cost, look at the COGS and then also look at what equity we have for each and individual product And what can we charge for that product? So we are currently selling in autumn winter 2024.

Speaker 12

We sold in springsummer 2024 For Europe, again, a significant price increase in that season, and that's going to continue. The price increases that we have done so far And that's quite special for us as a brand across the globe.

Operator

Thank you. The next question is coming from Paul Lejuez from Citi. Paul, your line is live.

Speaker 13

Thanks, guys. I'm curious what priced to anything on a regional basis both positive and negative and maybe how does that shape how you're thinking about growth recorded by region in F24. Maybe if you can talk about which regions will come on the at higher end of that 70% to 18% growth rate that you guided to versus the lower end or below, maybe you could provide by region? Thanks.

Speaker 3

Open. Thanks for your question. As you know, the Speak to geographies, Europe and Americas are more or less growing on the same speed, which is very encouraging because it shows that even in the traditional markets, we are growing very, very strong. You have to keep in mind that our capacity is still very limited. That's why we didn't have enough product going to further on the unit side, further push more into the APMA region.

Speaker 3

So that's why APMA as the region is only growing by 27%. But in the near future, once we have up and running and the improvements in the other factories in Golitz and in Aruca in Portugal, then we will be able to fulfill much better. There's very, very strong demand in China and the APMA region as a whole. Dauke can give you some color on this after my explanation. One thing and you asked for downsides, To be super, super honest, we underestimated the inflation effects.

Speaker 3

So if you try to understand the bridge from 22 numbers with the 35% margin. Going to our outlook, which is conservative, please have this in mind, our conservative outlook for 2024, We come to 30%. So the bridge from the 35% to the 30% is We didn't manage enough price increases in 2022. They were fully in our books in 2022. That's why we had this outstanding margins.

Speaker 3

Then the inflation on 23% kicked in and we are we lost more or less like 2.5 present due to this inflation impact and we cannot adjust the pricing in between the years. So we need at least like 10, 12 months in advance to prepare ourselves for price increases. That's what we're doing this year again. So the inflation will be and that's really like the question mark here for the 'twenty four numbers, how big will the inflation coming back again in 2024. We know that PASERWISE will digest some of this margin.

Speaker 3

So Just roughly from 22 to 23, we lost 2.5 due to inflation margin points or 2 50 basis points. And the inflation will further cost us our calculation at the moment, 120 basis point in 24, 120 basis points the idle cost of parcel value or the whole factory rearrangement setup, right? So Claus will follow-up with some Chinese

Speaker 5

news. Hello, Paul. Claus here. Just for your question about positive and surprising effects. The expansion in Greater China or in APMA gives us also a big trust because taking over the D2C and we are having more own stores running, which are really over performing and thriving not only the business also via ASP.

Speaker 5

And obviously, the rollout will continue. All the campaigns we are running in Greater China are doing very, very well. So With the growing capacities we have, I mean, we can constantly supporting that demand and delivering to the countries, That is very positive.

Operator

Thank you. The next question is coming from Randy Konik from Jefferies. Randy, your line is live.

Speaker 14

Can you hear me now?

Operator

Yes, go ahead, sir.

Speaker 14

All right. Sorry about that. Thank you. I guess question back to David. You talked about a flat market in 2023.

Speaker 14

Just want to get some perspective on your thought process on the market open. Overall for 2024, it sounds like you're thinking a little bit more challenging. So maybe just give us a little more specific there of how you're thinking about it. And then as you think about just the opportunity from a wholesale perspective, what's the opportunity during your thinking through from a door count expansion potential, if at all. And then how are you thinking about what's going on with order patterns?

Speaker 14

Are the accounts on the wholesale side kind of taking on more SKUs, more units Volume of existing SKUs, just give us a little bit more flavor of how you're seeing the overall market in the Americas this coming year as well as different opportunities for door count and order growth. Thanks.

Speaker 4

Sure. And just to start, just a reminder, It's not demand driven from the wholesale side. Everything we do is completely allocated from our side. So, it really becomes more of a self fulfilling prophecy. What I would say is, the U.

Speaker 4

S. Consumer, I've said before, is somewhat fragile, but is resilient. And it is a bit counterintuitive because the more the buying power of the consumers Has been constrained, the more it's been focused on those products that they most covet and demand. And we are one of the few real key intentional purchases that people are searching for. And I think they're searching with even more vigor a lot more of what you see at wholesale than you've ever seen before.

Speaker 4

Having said that, we're not going to compromise Except where we think we may have some underserved markets or underserved end users, but suffice to say everything we do We'll still be done with the highest level of maintaining relative scarcity and a bit of, what I would say, unrequited demand, Which becomes, quite frankly, a demand flywheel. I mean, the more that we do put into the market, The higher the demand keeps expanding. So, I'd say we're expanding, but with extreme discipline. And we're also, based on the incredible momentum we've had in direct to consumer, We're fluid. Even in the middle of a quarter, in the middle of a month, we're able to steer available product wherever we think that the highest return And the most benefit will be, if you look at some of the numbers from the past few quarters, that reflects real time movement of inventory to capture demand where we think we can best manifest it.

Operator

Thank you. The next question will come from Simeon Siegel from BMO Capital Markets. Simeon, your line is live.

Speaker 10

Open. Thanks. Hey, everyone.

Speaker 14

Happy New Year. So congrats on a really strong gross margin this quarter. Can you speak to maybe the drivers there a little bit more and how about that across the year ahead embedded within the guide. And then just if you can remind us, within B2B, what percent of Sales now are driven by distributor versus more traditional wholesale and any way to think about the distributor model going forward. Thanks everyone.

Speaker 7

Thanks for the questions, Simeon. This is Alexander, and I will take that over. So our Q4 of this year is up a little bit and is influenced by positive as well as negative effects. We saw a really strong A and P. The colleagues from the sales had already touched on that.

Speaker 7

We see great performance in our higher price point products. DTC penetration is a little up. We took some pricing. We had some Americas share, which which was over proportional, especially in B2C and all that drives gross margin. Then we had some negative effects on the FX side Because last year, there was roughly parity, U.

Speaker 7

S. Dollar versus euro. That gave some headwind, but overall, an increase in gross margin. The €65,000,000 is clearly also coming from a strong DTC penetration this specific quarter. So this is nothing what we guide for the future.

Speaker 7

I think we also touched on that 24 number where we see some kicking in effects from the capacity expansion. So clearly, we will see that in combination with the inflation, which will bring some slight headwinds to gross margin.

Speaker 1

On the distributor piece,

Speaker 12

this is Nico. So for Europe, As you know, we traditionally we were pretty distributor heavy market. Along our transformation plan, We exited many distributors. In fact, we've come down from 10 distributors to 5 over the course of the last 2 years. The remaining distributors big distributors are Italy, Turkey and some smaller distributors around Greece.

Speaker 12

They will remain as we look forward into the next 2, 3 years. In Italy, it's worth mentioning that we do own our own DTC. So the DTC channel is owned by us and the distributor is serving the wholesale part simply Because we believe Italy is quite complex in regards of distribution, and we are very careful with entering a market. The recently transformed distributor markets for Europe are Benelux. We just opened our office in Amsterdam and are set up there.

Speaker 12

The recently taken back markets generally are over proportionally performing well, delivering over proportionate growth in regards of top line.

Speaker 5

Speaking for APMA, the remaining distributors we work with is Australia and Taiwan. Obviously, with Australia, we have a long relationship with a very good distributor. And But overall, the distributor share is also coming down.

Operator

Thank you. And the next question is coming from Sam Poser from Williams Trading. Sam, your line is live. Open. Thank you guys for taking my questions.

Operator

So I just want to clarify 2 things and then I have 3 things. 1, David, have you seen any have you what kind of change have you seen in the underlying U. S. Demand for your product? And then how are you managing that?

Speaker 4

Sam, thanks. I use the term the demand flywheel and It really makes a lot of sense. The more product we continually put into the market as long as we do it in a disciplined manner Leads to more demand. So demand is not a finite measure. Demand keeps going up.

Speaker 4

The higher we increase our top line revenue, the more demand keeps outstripping it. So we're learning more and more about how infinite That demand really is, especially as we start to connect with different end user groups. And that's why that example of like the same shoe just used in a recovery environment opens up a whole new end use for us. That's the perfect example we gave of how exponential the demand really is.

Operator

Open. Thank you. That does conclude today's Q and A session. I will now turn the call back to Oliver Reichirk for closing remarks.

Speaker 3

Open. Okay. Thank you for joining us on this call. Overall, we are very pleased with our fiscal 2023 results. Open.

Speaker 3

Thanks to the team. We have never been better positioned for the both near and long term financial performance. We believe that once we develop our capacity That we will continue our path also on the margin side. This will definitely be the case. So you shouldn't worry about this.

Speaker 3

Our outlook overall is very positive. Open. And hopefully, you will join us in our Q1 call, and then you will understand what I'm talking about. Open. So enjoy the day.

Speaker 3

Have a nice day and thanks to the team on both sides. Thank you very much. Bye bye.

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Key Takeaways

  • Record revenue growth: Fiscal 2023 sales rose 20% to €1.49 billion (22% in Q4), driven by 6% unit growth and a 14% average selling price increase.
  • Industry-leading profitability: The company delivered a 62.1% gross profit margin and a 32.4% adjusted EBITDA margin despite inflationary headwinds.
  • Direct-to-consumer expansion: DTC sales grew 26% to represent 40% of total revenue, outpacing B2B and enhancing margin and brand control.
  • Broad-based geographic strength: Americas grew 20%, Europe 18% after distribution transformation, and APMA 27% driven by DTC and new store openings in China, India and Japan.
  • 2024 outlook and investments: Management guides for 17–18% revenue growth to €1.74–1.76 billion, ~30% adjusted EBITDA margin, and €150 million capex for capacity expansion.
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Earnings Conference Call
Birkenstock Q4 2023
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