APAC Expansion And Closed-Toe Product Surge To Propel Revenue And Margins

Key Takeaways

• Aggressive expansion in APAC and increased DTC sales boost revenue, with new store openings enhancing global retail presence.
  
• Strong closed-toe product growth and strategic partnerships elevate ASP and margins, supported by expanded production capacity.
  
• Reliance on retail expansion and DTC channels, coupled with geopolitical risks and cost reclassification, may threaten margins and steady revenue growth.

Catalysts

Engages in the manufacture and sale of footwear products.

• Birkenstock plans to increase its global retail presence by opening 50% more stores in fiscal 2025, which should boost Direct-to-Consumer (DTC) sales and enhance overall revenue growth.
  
• The company is aggressively expanding in the APAC region, which is growing at double the pace of the overall business, suggesting strong future revenue growth as this region becomes a larger portion of the sales mix.
  
• The continued strong performance in the closed-toe product category, growing at more than twice the rate of the overall business, could drive higher Average Selling Prices (ASP) and revenue growth.
  
• The increased production capacity from new and expanded factories is expected to support growing global demand and improve gross margins by reducing under-absorption costs.
  
• Birkenstock's strategic partnerships and wider assortment offerings with existing wholesale partners, along with the growing membership base, are anticipated to fuel both volume growth and higher ASPs, contributing positively to revenue and margin expansion.

Birkenstock Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Birkenstock Holding's revenue will grow by 16.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.6% today to 16.6% in 3 years time.
• Analysts expect earnings to reach €479.0 million (and earnings per share of €2.55) by about December 2027, up from €191.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.6x on those 2027 earnings, down from 56.7x today. This future PE is greater than the current PE for the US Luxury industry at 18.5x.
• 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 8.3%, as per the Simply Wall St company report.

Birkenstock Holding Future Earnings Per Share Growth

Risks

• The reclassification of internal logistics costs could create confusion about gross margins and may impact investor confidence in financial reporting, potentially affecting earnings.
  
• While the expansion into the APMA region presents opportunities, the focus on China, amid uncertain political conditions, may pose geopolitical risks that could affect revenue growth forecasts.
  
• The reliance on rapid retail expansion, especially in untested markets, may pose operational challenges and inflate capital expenditures, impacting net margins.
  
• The transition and integration of the production facilities to new capacities may lead to unforeseen under-absorption costs, which could affect gross margins.
  
• Heavy reliance on DTC (Direct-to-Consumer) and digital channels, with potential market saturation, could risk overexposure and impact balanced revenue growth across channels.

Valuation

• The analysts have a consensus price target of €67.8 for Birkenstock Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €81.72, and the most bearish reporting a price target of just €51.45.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €2.9 billion, earnings will come to €479.0 million, and it would be trading on a PE ratio of 33.6x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of €60.4, the analyst's price target of €67.8 is 10.9% higher.
  
• 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.