Sports Fashion Expansion And Brand Strength Will Support Long Term Everyday Training Demand

Catalysts

About Björn Borg

Björn Borg designs and sells sports fashion, underwear, footwear and related apparel aimed at everyday athletes and active lifestyles.

What are the underlying business or industry changes driving this perspective?

• The ongoing shift from pure underwear to a broader sports fashion proposition, with sports apparel growing more than 20 percent annually, supports sustained top line expansion and operating leverage that can lift earnings over time.
• Rising consumer focus on health, everyday training and enjoyable movement, exemplified by events such as the Midnight Run, underpins durable demand for accessible performance apparel and supports stable revenue growth at healthy gross margins.
• Strong and improving brand consideration, now ranking ahead of larger global peers in customer surveys, increases pricing power and lowers required discounting, which supports gross margin and net margin resilience over time.
• A digital first and multichannel strategy, with a high share of online sales and deep partnerships with leading wholesale platforms, positions the company to capture shifts in where consumers shop and can enhance revenue scalability with limited incremental fixed costs.
• Geographic expansion in core European markets, particularly the ambition to win Germany where direct consumer sales are already growing more than 20 percent, creates room for multi year market share gains that can lift revenue and EBIT.
• Category expansion into loungewear and improved footwear, building on an existing loyal underwear customer base, broadens the average basket size per consumer and can contribute to higher revenue per customer and improved earnings growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Björn Borg's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.3% today to 8.4% in 3 years time.
• Analysts expect earnings to reach SEK 104.2 million (and earnings per share of SEK 4.15) by about December 2028, up from SEK 86.7 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as SEK119.7 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 18.5x on those 2028 earnings, up from 17.9x today. This future PE is greater than the current PE for the GB Luxury industry at 17.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.85%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The strong, secular shift toward everyday training and sports apparel, combined with Björn Borg growing sports apparel at roughly four times the market and repeatedly breaking quarterly sales records, could support structurally higher revenue and earnings growth than implied by a flat share price assumption. This could put upward pressure on the valuation through rising earnings and potentially expanding price to earnings multiples over time.
• The company is successfully repositioning from an underwear brand toward a broader sports fashion brand, with sports apparel, loungewear and bags all showing high double digit growth and brand consideration already ranking ahead of major global competitors. This can drive sustained market share gains, higher pricing power and improved net margins that the current share price may not fully discount.
• Management is targeting Germany as a key growth market, with sales to German consumers already up more than 20 percent despite current weaknesses at partners such as Zalando. If they succeed in winning this market as planned, it could be a step change for group scale, lifting long term revenue and EBIT above what a stable share price would suggest.
• The digital first multichannel strategy, with a high and still structurally important share of online sales plus deep wholesale partnerships, positions Björn Borg to capture the ongoing consumer shift toward e commerce. Together with disciplined discounting and a focus on strong key accounts, this may support resilient gross margins and earnings growth in a way that contradicts the idea of a stagnant share price.
• Brand strength is building around iconic hero products such as the Borg tee and new categories like loungewear, while management continues to invest in brand elevation in major cities and explore margin accretive footwear. This combination of brand equity and product expansion can underpin long term growth in revenue per customer and overall earnings, challenging the assumption that the equity value will remain broadly unchanged.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of SEK62.75 for Björn Borg based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be SEK1.2 billion, earnings will come to SEK104.2 million, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of SEK61.8, the analyst price target of SEK62.75 is 1.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.