Birkenstock, the German shoe company known for its sturdy two-strap sandals, is planning to expand its store presence and increase production despite the risks associated with changing fashion trends. The company is confident that the demand for its iconic sandals will remain strong, with sales expected to rise by more than 15% in its 2024 financial year. This comes after a surge of 20% in sales, reaching nearly €1.5 billion in 2023.
However, despite the optimistic outlook, investors were not impressed, causing Birkenstock’s shares to drop by more than 8%. This is the first financial report since the company listed its shares in the US, exposing it to scrutiny from the public market. The results showed a decline in profits last year, and margins are expected to shrink further in 2024 due to ongoing investments.
Birkenstock’s confidence in the future is met with skepticism from investors who question whether the strong consumer spending that has fueled its sales can be sustained. Economic growth slowdowns in key markets like the US and weakening luxury sales add to these concerns. Nevertheless, Birkenstock’s CEO, Oliver Reichert, remains undeterred, stating that the company is not heavily under pressure like desire-driven luxury brands. He believes that Birkenstock’s growth potential is evident across all markets.
Over the past decade, Birkenstock has undergone a reputation transformation. Once associated with a nature-loving, granola-eating image, the brand has now gained popularity through designer collaborations and appearances in films such as Barbie. However, its journey on the stock market has been turbulent, reflecting the challenge of valuing a company that straddles the line between luxury and mass-market footwear.
Although Birkenstock’s shares initially dropped when they started trading in October, they have since recovered. Currently trading at around $45 per share in New York, the company has a market value of approximately $9 billion. Reichert acknowledges that comparing Birkenstock to other listed companies is not easy, as they do not fit neatly into the luxury, fashion, or footwear categories.
In the three months leading up to September 30th, Birkenstock reported a loss of €28 million. This was attributed to a rise in administrative expenses ahead of the company’s listing. Analysts were disappointed, expecting a small profit following a summer sales surge driven by the Barbie film, where the main character swaps her heels for a pastel pink pair of Birkenstock sandals. Despite this setback, Birkenstock used the funds from the share sale to pay down debt and sees growth opportunities as more consumers choose to buy directly from the brand.
Reichert emphasized that there has been no significant slowdown in demand since the 22% sales growth in the three months ending in September. However, due to risks associated with inflation and the challenges of navigating financial markets, Birkenstock is taking a conservative approach when forecasting its full-year sales growth for 2024, expecting it to be around 17-18%.
In conclusion, Birkenstock remains confident in its future prospects despite the risks posed by shifting fashion trends. The company plans to expand its store presence and increase production to meet the continued demand for its iconic sandals. While investors may have been disappointed by the recent financial results, Birkenstock believes that its unique position in the market will drive growth and success in the years to come.