APAC Expansion And Closed-Toe Shoes Will Drive Future Success

Key Takeaways

• The expansion into APAC and closed-toe shoes is expected to boost revenue and net margins through new market opportunities and higher selling prices.
  
• Growth in direct-to-consumer sales, operational efficiencies, and a growing loyalty program are anticipated to enhance gross margins and customer lifetime value.
  
• Birkenstock faces challenges from economic uncertainties and execution risks in new markets that could impact revenue stability and profit margins.

Catalysts

Engages in the manufacture and sale of footwear products.

• Strong growth from the APAC region, which increased 47% and is now speeding up store openings and expanding partnerships, is expected to continue driving revenue growth by tapping into a significant white space for Birkenstock.
  
• Expansion in closed-toe shoes, including clogs, is leading to an increase in average selling prices due to higher price points, which is expected to boost net margins as closed-toe silhouettes are becoming a larger part of the business.
  
• Continued growth and investment in owned retail and digital channels globally suggests an increase in direct-to-consumer business, potentially driving higher gross margins due to more favorable economics compared to wholesale.
  
• Increased efficiency and utilization at production facilities are projected to improve gross margins over time, moving closer to a 60% margin target, due to the operational efficiencies gained at facilities like Pasewalk.
  
• The loyalty program expansion with a 30% year-over-year increase to 8.8 million members is likely to increase repeat purchases and customer lifetime value, positively impacting both revenue and earnings.

Birkenstock Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Birkenstock Holding's revenue will grow by 17.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.7% today to 18.5% in 3 years time.
• Analysts expect earnings to reach €554.6 million (and earnings per share of €2.59) by about April 2028, up from €218.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.3x on those 2028 earnings, down from 36.8x today. This future PE is greater than the current PE for the US Luxury industry at 15.6x.
• 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 8.88%, as per the Simply Wall St company report.

Birkenstock Holding Future Earnings Per Share Growth

Risks

• Macro-economic uncertainties, including interest rates, currency movement, tariffs, and inflation, could impact consumer spending and overall economic confidence, potentially negatively affecting Birkenstock's revenue and earnings.
  
• The strong B2B growth seen in the first quarter may not continue at the same pace throughout the year, as Birkenstock anticipates more balanced growth with D2C, which could lead to fluctuations in revenue growth and possibly impacting profit margins.
  
• Despite the strong holiday demand, there is caution from management regarding raising full-year guidance due to the high level of unpredictability in the remaining quarters, especially with increased D2C exposure likely needing more robust forecasting and execution, impacting revenue stability.
  
• The potential impact of tariffs on imports from Germany and overall inflationary pressure could lead to increased costs that might not be fully offset by pricing actions, putting pressure on net margins.
  
• Birkenstock's expansion into new markets and segments, such as APAC and closed-toe shoes, while promising, carry execution risks which can impact the realization of forecasted revenue growth and operating margins if not managed effectively.

Valuation

• The analysts have a consensus price target of $72.687 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 $99.24, and the most bearish reporting a price target of just $57.06.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.0 billion, earnings will come to €554.6 million, and it would be trading on a PE ratio of 29.3x, assuming you use a discount rate of 8.9%.
• Given the current share price of $46.32, the analyst price target of $72.69 is 36.3% 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.