Birkenstock's Q1 Beat: A Mixed Bag for Investors

Birkenstock Holding plc (BIRK) reported its fiscal first quarter 2025 results on February 20, 2025, beating revenue expectations and maintaining its 2025 guidance. However, the company's shares fell following the announcement, reflecting investors' concerns about profitability and production capacity expansion. Let's dive into the key takeaways and assess the implications for investors.



Birkenstock reported revenue of EUR 362 million, up 19% on a reported and constant currency basis, driven by strong holiday demand for its products across all segments, channels, and categories. The company also reported a net profit of EUR 20 million, up from a net loss of EUR 7 million in the same period last year, and adjusted net profit of EUR 33 million, up 99% from EUR 17 million. Adjusted EBITDA grew 25% year-over-year to EUR 102 million, with an adjusted EBITDA margin of 28.2%.

However, investors seemed unimpressed by the results, as Birkenstock's shares fell following the announcement. The company's gross profit margin inched down to 60.3% from 61.0% in the first quarter of 2024, primarily due to the increase in B2B share relative to a year ago. Additionally, the company's cash flows used in operating activities improved by EUR 34 million from a year ago, but the improvement was not enough to reassure investors.

Birkenstock's strategic investment in production capacity expansion is having a planned, temporary impact on its short-term profitability. The company is investing EUR 19 million in capital expenditures in the first quarter of 2025, primarily to expand production capacity. This investment is expected to enable the company to more effectively meet consumer demand for its products in the long term. However, in the short term, this investment is leading to higher costs and lower gross profit margins.

The company's engineered distribution model, which deliberately creates a supply-demand imbalance, contributes to its resilience and sustained demand for its products. By intentionally limiting supply, Birkenstock creates a sense of scarcity and exclusivity around its products, driving demand and making the brand more desirable. This model has been successful in driving demand and maintaining high sell-through rates, but it also leads to higher costs and lower gross profit margins in the short term.

Birkenstock's strong demand across all regions, channels, and categories is driven by several key factors, including its strong brand identity, product innovation and range, engineered distribution model, price increases, investment in production capacity, and growth in direct-to-consumer sales. This growth is expected to be sustainable, supported by the company's strategic investments and long-term approach to maintaining demand and profitability.

In conclusion, Birkenstock's Q1 results were a mixed bag for investors, with strong revenue growth and improved profitability offset by concerns about short-term profitability and production capacity expansion. The company's strategic investments in production capacity expansion and engineered distribution model are expected to support long-term growth, but investors may remain cautious in the short term. As always, it is essential to monitor the company's progress and assess the potential impact of its strategic initiatives on its financial performance.