Q2 2025 Birkenstock Holding PLC Earnings Call
Good morning, and thank you for standing by welcome to Berkinstocks second quarter 2025 earnings Conference call. At this time all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session.
Company has asked that you please limit yourself to one question and return to the queue for any follow up.
The company is allocated 60 minutes in total to this conference call I would like to remind everyone that this conference call is being recorded.
Speaker Change: I will now turn over the call to Meghan Kulik director of Investor Relations.
Oliver writer: Hello, and thank you everyone for joining us today on the call are Oliver writer director of Birkenstocks, holding plc, and Chief Executive Officer of the Birkenstocks and Lisa <unk>, Chief Financial Officer, J Burke in stock right.
David Kahn: David Kahn, President of Americas, Nico buoy us president of EMEA.
David Kahn: And Alexander Hall, Vice President of Global Finance will join us for the Q&A.
David Kahn: Today, we are reporting the financial results for our fiscal second quarter of 2025, ending March 31, 2025, you may find the press release and supplemental presentation connected to today's discussion on our Investor Relations website at Birkenstocks cash holding dot com, we would like to remind you that some of the information during this call.
David Kahn: As forward looking and accordingly is subject to the safe Harbor provision of the federal Securities Law.
David Kahn: These statements are subject to various risks uncertainties and assumptions, which could cause our actual results to differ materially from these statements. These risks uncertainties and assumptions are detailed in this morning's press release as well as in our filings with the SEC, which can be found on our website at birkenstock dash holding dotcom.
David Kahn: We undertake no obligation to revise or update any forward looking statements or information, except as required by law, we will reference certain non <unk> financial information, we use non I FRS measures as we believe they represent the operational performance and underlying results of our business more accurately.
David Kahn: The presentation of this non I FRS financial information is not intended to be considered by itself or as a substitute for the financial information prepared and presented in accordance with Ifr S. Reconciliation of Ifr S. Two non I FRS measures can be found in this morning's press release and in our SEC.
Oliver writer: With that I'll turn the call over to Oliver.
Oliver writer: Good morning, everybody and thank you for joining us.
Speaker Change: We're meeting today at the moment when the world.
David Kahn: Predictably the current context as a stress test for the resilience of business needs.
Oliver writer: As our results for the second quarter. So we have to pass this test very bad.
Oliver writer: Our company is in a good shape and we are confident about our future.
Oliver writer: Our performance is rooted in the power of what you need Russell purpose driven brand that has stood the test of time.
Oliver writer: We control our own supply chain with 95% of all products made in Germany, and 100% made in Europe.
Oliver writer: And 96% of our raw materials sourced in Europe.
Oliver writer: This helps shield our business from the current disruptions.
Oliver writer: Once again, we are delivering on the promises we made during our IPO in the second quarter, we delivered a record 574 million euros in revenues.
Oliver writer: On a reported basis this was up 19% year over year.
Oliver writer: In constant currency revenue grew by 18% above the high end of our 15% to 17% target for the full year.
Oliver writer: Revenue growth was driven by double digit volume increase supported by continued ASP growth.
Oliver writer: The manufacturing capacity, we have added over the past two years has allowed us to increase our production to meet the increasing demands of the stroke.
Oliver writer: Number four our five iconic silhouettes grew double digits contributing to both volume and ASP growth.
Oliver writer: At the same time, we continue to tap into the white spaces, which are as you know close to our own retail stores and the APAC region.
Oliver writer: All of which contributed to our strong growth.
Oliver writer: As expected growth in the second quarter was balanced between our b to B and DTC channels with <unk> coming in at 18% and D Z at 17%.
Oliver writer: The DTC growth was driven by our investments in our online and owned retail stores.
Oliver writer: Our membership base reached over 10 million members up over 25% year over year.
Oliver writer: We are on track with our retail expansion with now 77 owned stores, adding six new doors during the second quarter.
Chad: As Chad we are heading towards 100 owned stores by the end of this fiscal year and we are confident we will get there.
Oliver writer: During the quarter revenue from close toe silhouette grew at twice the rate of the overall group and increased share of business by 400 basis points.
Oliver writer: Demand for clothes toe silhouette for spring Summer 25 was up strong double digits and we see continued strength as we build our order book for spring Summer 2006.
Oliver writer: Almost half of our top 20, selling silhouette in the quarter at work close to.
Speaker Change: That does not have a brief look at the segment performance.
Speaker Change: Within our largest segment the Americas, we experienced continued strong consumer demand for our brand revenue in the region was up 23% in reported currency and 20% in constant currency.
Speaker Change: Third to the second quarter of 'twenty for both the B to B and D to C channel grew double digits within the <unk> channel the fastest growth came from our youth sporting goods outdoor and department store partners.
Speaker Change: Americas DTC strengthened in the quarter from investments, we made in the digital channel and from our expanded physical retail presence, we opened one new door in Nashville, bringing our own store count in the region to 10.
Speaker Change: In EMEA, we delivered double digit growth of 12% in the recently integrated Middle East Africa area, we have been taking further actions to be more focused in our growth.
Speaker Change: <unk> remained very strong outpacing beat to be growth by one and a half times.
Speaker Change: Within our DTC channel shoes are the second biggest category behind classics level.
Speaker Change: Okay seeing the continued momentum in this important area.
Speaker Change: We increased our brand presence and awareness with the opening of new stores in London and Paris.
Speaker Change: Our store count in EMEA up to 37.
Speaker Change: We created some strong Brent moments, bringing our mission to life across the region.
Speaker Change: One highlight was an experimental pop up store in lithium.
Speaker Change: Enforce where we hosted over 3000 brands hens and members in the month.
Speaker Change: The APAC region was again, the fastest growing segment in the quarter, our largest wide space reach and grew by 30% driven by very strong growth in our DTC channel.
Speaker Change: We opened three new one retail stores in India, Japan, and China, bringing the total number of stores in the region to 13.
Speaker Change: We also expanded our strategic partnerships, increasing our mono brand partner doors by 20% driving very strong double digit growth in our b to B channel.
Speaker Change: Consistent with the other segments close toe in higher priced premium leather executions are growing faster than the regional efforts in contributing to positive ASP growth in the region.
Speaker Change: Our three top market in terms of revenue, well, Australia, China and Japan.
Speaker Change: All grew significantly above segment average with China more than doubling in revenue year over year.
Speaker Change: As a reminder, we are just beginning to enter greater China in a meaningful way and see the opportunity for continued strong growth in this market.
Speaker Change: The strong results make us confident for important spring summer selling season.
Speaker Change: S. We are seeing great momentum across all product channels categories and segments.
Speaker Change: Now I'll turn it over to EBITA to discuss our financial results in more detail.
Speaker Change: Thanks, Oliver I'm happy to share with you Britain stocks performance for the second quarter of 2025, which came in ahead of our expectations.
Speaker Change: Second quarter revenues were 574 million euros with growth of 19% on a reported and 18 in constant currency above the high end of our 15% to 17% annual guidance for the year.
Speaker Change: As expected growth in B to B and D to C were balanced in the quarter with B to B up 1918 in constant currency and D to C up 1917 in constant currency.
Speaker Change: Did you see share of business was 24% equal to the prior year as a reminder, the second quarter is seasonally or heaviest in terms of beta be mix given the timing of the sale into our partners for the spring summer season.
Speaker Change: Gross margin for the quarter was 57, 7% up 140 basis points year over year.
Speaker Change: Better absorption of costs related to our new manufacturing facility contributed about 50 basis points.
Speaker Change: The remainder is made up by selective price adjustments net of higher input costs and favorable currency translation.
Speaker Change: Selling and distribution expenditures.
Speaker Change: 127 million Euro in the second quarter, representing 22% of revenue down 150 basis points from the prior year, mainly due to the reclassification of expenses into G&A previously recorded in SMB.
Speaker Change: General Administration expenses were 32 million euros, or five 6% of revenue in the quarter up 150 basis points year over year due to the reclassification as well as higher <unk> expenses, primarily related to the ERP conversion in the Americas.
Speaker Change: Adjusted EBITDA in the second quarter of 200 million euros was up 23% year over year and margin of 34, 8% was up 110 basis points year over year.
Speaker Change: This was primarily due to the improvement of gross profit margin and the favorable currency translation, partially offset by the higher G&A.
Speaker Change: Adjusted net profit of 103 million euros in the second quarter was up 33% year over year and adjusted EPS was <unk> 55 Euro cents up from 41 zero cent from a year ago.
Speaker Change: Cash flows used in operating activities. During the second quarter were 18 million euros down from $68 million compared to last year due to the timing of tax payments relating to prior years we.
Speaker Change: We ended the quarter with cash and cash equivalents of 235 million euros.
Speaker Change: We continued to proactively manage working capital.
Speaker Change: And we improved our inventory to sales ratio to 36% down from 40% in Q2, 2024 and odious all for the quarter were 46 in line with 44 a year ago.
Speaker Change: During the quarter, we spent approximately 21 million euros in capital expenditures, adding to our production capacity and puzzle book, <unk> and <unk> and continuing our investments in retail and <unk>.
Speaker Change: We are on track to meet our capex targets of around $80 million for the year.
Speaker Change: Our net leverage was one eight times as of March 31, 2025 down slightly from $1 nine at the end of Q1.
Speaker Change: As is typical we expect to see positive operating cash flow contribution in Q3, and Q4 due to the seasonality of our working capital.
Speaker Change: As we look forward to the remainder of fiscal 2025, we believe we are well positioned to meet or exceed our stated growth and profitability objectives didn't stop is less exposed to tariffs with 100% of oil production and 96% of our material sourced from Europe and no contract matter.
Picturing from Asia.
Speaker Change: We already have taken appropriate actions to mitigate the impact on tariffs both near term and long term, we have multiple levers to pull and are in a strong position with experience in managing inflationary pressures, including tariffs.
Speaker Change: First the consistency in demand together with our engineered distributions constantly model allows for pricing flexibility.
Speaker Change: For a full offset of tariff impact we would need only a low single digit price increase globally, which was consistent with our historical level of pricing actions.
Speaker Change: <unk> is not the only lever we have though given our vertical integration additional levers include efficiencies in production vendor negotiations the optimization of product mix and the allocation of products between the different regions.
Speaker Change: This together with our strong inventory position gives us the confidence that we can mitigate the fiscal 2025 tariff impacts.
Speaker Change: While FX was a benefit to us in the first half of the year. The recent depreciation of the dollar will create a headwind to our reported growth and margins in the third and fourth quarter.
Speaker Change: But despite the tariff and FX headwinds we faced in the second half we are confident that we will be able to meet or beat our financial targets for fiscal year 2025.
Speaker Change: Based on the results to date and the current trends we are seeing in the business. We now expect to be at the high end of our constant currency revenue growth guidance of 15% to 17% more.
Speaker Change: More importantly provided we do not see any further weakening of the dollar and no additional tariffs on imports from the U two U S. We now expect adjusted EBITDA margin of $31 three to 31, 8% 50 basis points above our previous guidance.
Speaker Change: This implies an adjusted EBITDA target in the range of 662 670 million euros up 19% to 21% year over year.
Oliver writer: And now I'll be handing back to Oliver.
Oliver writer: Thanks EBITDA.
Oliver writer: The first half results of our fiscal 2025 demonstrates the strength of our brands with strong double digit revenue growth excellent margins and significant progress in our white space growth initiatives.
Oliver writer: We expect that the tariff situation may create a unique shifts in consumer behavior in the footwear category.
Oliver writer: With the split between the few brands like they can stock.
Oliver writer: <unk> strong brand equity through relative scarcity and dose.
Oliver writer: Who distribute our products with less discipline and pricing integrity.
Oliver writer: We will navigate through these uncertain times from a position of strength.
Oliver writer: We have successfully done in the past things.
Oliver writer: Think about Covid, where we came through the challenge stronger than before and don't forget about the import tariffs previously imposed by the U S administration.
Oliver writer: Which we completely absolved without any loss of sales.
Oliver writer: That's why I'm confident today.
Oliver writer: Our decade long track record of managing our brand through a closed system engineered distribution strategy puts burden stock in a strong position to take that.
Oliver writer: This new shelf space and gain share.
Oliver writer: We are a brand with industry, leading growth pricing power clean inventories strong profitability global reach a very healthy balance sheet and cash generation.
Oliver writer: We believe there are a few consumer companies better positioned today to drive steady long term growth and shareholder returns.
Oliver writer: I would now kindly ask the operator to open our Q&A session. Thank you.
Oliver writer: Thank you at this time, we will be conducting a question and answer session. As a reminder, the company has asked that you. Please limit yourself to one question and return to the queue for any follow up.
Oliver writer: The company is allocated 60 minutes in total for this conference call.
Oliver writer: If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
Oliver writer: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Oliver writer: One moment, please while we poll for questions.
Speaker Change: And our first question today is coming from Matthew boss from J P. Morgan Matthew Your line is live.
Matthew: Great. Thanks, and congrats on another really nice quarter.
Speaker Change: Thanks, Matt so.
Speaker Change: So Oliver could you speak to your confidence in your outlook for the rest of the year and you raised EBITDA margin guidance. Despite the elevated macro uncertainty with tariffs and foreign exchange or are really what are you seeing in your current business to give you that confidence.
Speaker Change: Good morning, Matt. Thank you for your question.
Speaker Change: You know, let me tell you one thing for us the whole situation is an opportunity and not a risk.
Speaker Change: Be assured we will fully offset the effect of the existing tariffs.
Speaker Change: We are aware of the currencies moving around quite a bit but as always we will share FX impact with full visibility.
Speaker Change: Of course, we effect.
Speaker Change: The current FX level into our margin outlook.
Speaker Change: But most importantly, we and our partners are not seeing any changes to consumer behavior and demand out there.
Speaker Change: When it comes to product into our product there is no no change at all.
Speaker Change: Full price realization remains at 90 plus percent and our order book from wholesalers remains very very strong without any cancellations.
Speaker Change: That's the you know the ultimate test of truth through two to undermine the strength of the brand and pricing power.
Speaker Change: We are well positioned to take shelf space.
Speaker Change: And we could speed up of course, our retail expansion, if we have an opportunity.
Speaker Change: Wow Thats, great color best of luck.
Speaker Change: Yeah.
Speaker Change: Thanks, Oliver and Matt maybe to add.
Speaker Change: Your question with regards to EBITDA margin.
Speaker Change: As compared to our original guidance. It's two drivers for that mostly it is coming from gross margin improvement from first better absorption and then second pricing net of inflation.
Speaker Change: Which are the two key drivers for improved EBITDA margin over the course of this year.
Speaker Change: Great. Thanks for the color.
Simeon Siegel: Thank you. The next question will be from Simeon Siegel from BMO Simeon Your line is life.
Thanks, Hey, everybody really nice ongoing broad based strength, so nice to see.
Simeon Siegel: To follow up a little bit so just among everything else. The D to C and America strength is really great frankly, encouraging to many investors could you just speak to the implied top line deceleration in the back half, which I think looks a little bit below the one H performance and then gross margin was nicely better and really great to see ongoing improvement from the past rock ramp how should we.
Simeon Siegel: About the progression of gross margin going forward, maybe add any color. There from just again stripping out effects to your point or any remaining cash stock implications versus just the underlying gross margin dynamics. Thanks guys.
Simeon Siegel: Thanks for me on the theory.
Simeon Siegel: So as you know with our B to B, we'd have an order book, which provides us with great visibility in terms of growth, but as you also know the second half was more due to see heavily compared to the first half of the fiscal year. So we have naturally less visibility as a result of that.
Simeon Siegel: And given the current macro conditions.
Simeon Siegel: As you are well.
Simeon Siegel: We are prudent in our planning.
Simeon Siegel: This reduced visibility in the second half.
Simeon Siegel: In terms of cadence or seasonality.
Simeon Siegel: Third quarter has this typical will be the slowest growth quarter for the year.
Simeon Siegel: The first reason is just simple mathematics, the sandals fair is the heaviest in the third quarter and samples are growing double digit close to shoes grow two times as fast so the weighted growth the slowest.
Simeon Siegel: In the third quarter.
Simeon Siegel: The fiscal year.
Simeon Siegel: So this covers the first part of your question.
Simeon Siegel: Question on gross margin comes back to my initial statement. So we have expected about 50 basis points tailwind to gross margin for the full fiscal year 2005 through better absorption, primarily however in the second quarter of the year now, we're seeing 50 basis points.
Simeon Siegel: Q. So we are already slightly ahead of schedule. We now think that we will be about 75 basis points, which will be the benefit for 25.
Simeon Siegel: With the remainder coming in in the fiscal year 2006, So as I mentioned earlier this will be driving the improved gross margin.
Simeon Siegel: That's great. Thanks, guys best of luck for the year ahead.
Mark: The next question will be from Mark <unk> from Baird Mark Your line is live.
Mark: Thanks for taking my question and great results.
Speaker Change: Could you expand.
Speaker Change: And more on your plans for tariff mitigation and the impact for demand and the impact on demand for birkenstock.
Speaker Change: And Relatedly could you just speak to the timing any callouts on the timing of when you expect the costs and the offsets to flow through the P&L. Thank you.
Speaker Change: Thank you Mark.
Speaker Change: Speaking, yes, sure. So also importantly, and as Oliver already mentioned, we will fully offset the existing 2025 Caribbean tariff impact as you know we are a brand with a proud heritage being made in Europe.
Speaker Change: As such we are less exposed than most so 96 of our raw materials. Another 6% of our raw materials are sourced from within Europe, and 100% of our manufacturing and final Assembly is from the EU, So that will offset the tariff impact.
Speaker Change: First we will look at global pricing.
Speaker Change: No we have a goal to maintain global pricing architecture and the tariffs in the U S will not change that we are in a position, where we have pricing flexibility without impact on consumer demand, which is very consistent and as we have also a 90% plus.
Speaker Change: Full price realization given the brand equity that we've not only building U S. But also beyond.
Speaker Change: Second unlike our competitors we are virtually vertically integrated so we have also leave us to pool, mainly the ability to gain efficiencies across our value chain.
Speaker Change: So overall in an environment, where consumers face pressure from inflation in many areas, we expect to see even more intentional per trailing and a shift between the brands and high demand like we are and those brands that are struggling would lead to gain consumer.
Speaker Change: And as such referring back to what all of US that we do see this indeed, there is an opportunity to take additional shelf space and gain share eventually.
Speaker Change: Best of luck. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question will be from Dana Telsey from Telsey group for any airline of lives.
Speaker Change: Hi, good morning, everyone and nice to see the progress as you think of some of the gross margin drivers, particularly on the fact of the ability to better absorb the new manufacturing capacity added on September 23, where are we on that journey when does it get fully absorbed and when you talk about the <unk>.
Speaker Change: Price adjustments.
Between closed toe sandals, what are you doing in terms of Python kick into the general the salt.
Speaker Change: Would gross Michael Thank you.
Speaker Change: Hi, there.
Speaker Change: Tom on the first part of your question with regards to better absorption and is initially mentioned so we had expected about 50 basis points tailwind.
Speaker Change: <unk> to gross margin for this full year.
Speaker Change: We are now seeing that materializing.
Speaker Change: So we now think it will be 75 basis points for this.
Speaker Change: Fiscal year and the overall effect for next year will be additional 75 basis points. So that will be clearly the driver for gross margin improvement.
Speaker Change: Got it and then just on the retail store rollout I think Nashville opened this past quarter, how are the new stores rolling out is the number of new store openings.
Speaker Change: Some of them around the world for your own stores.
Speaker Change: Those have closed toe versus standouts from the stores. Thank you.
Nicole: Hi, Dana this is Nicole I'm going to take this question.
Nicole: So as you know retailers are massive growth pillar for us and we are very pleased to see that we are currently operating 677 stores. We added six stores in this quarter.
Nicole: <unk> opened in less than a year of Paris number two which is doing really well we opened London number three we opened in Nashville, and we opened also in Shanghai and.
Nicole: It's worth mentioning that we don't need that long ramp up period for those stores. It takes a couple of weeks and then they are top five top seven top eight or top 10 stores.
Nicole: From a performance perspective.
Nicole: We remain very disciplined in choosing the right locations.
Nicole: So for US the locations are really mattered. The most so really wanted to be sure that the financials are right that the economics is right and the location is also providing the best consumer experience. We said that we're going to come closer to 100 stores at the end of this fiscal year and closer to 150 stores at the end of 2027 and we are <unk>.
Nicole: All on track with the store expansion around the new stores I think it's worth mentioning while we opened stores. The retail growth is not just driven by store expansion, we have a very solid and healthy comp growth in our longest standing stores.
Nicole: Yeah.
Nicole: Thank you.
Speaker Change: Thank you and as a reminder, the company has asked that you limit yourself to one question and return to the queue for any follow up on today's calls. The next question is coming from Laurence <unk> from BNP Paribas.
Speaker Change: Good morning, and thank you very much good morning. Thank you very much for taking my question.
Speaker Change: Close towards increased its mix rate by 500 basis points and one H is that driven by the Boston as well as other closed toward offering should we assume a similar rate increase of 500 basis points for the second half and separately by my math it looks like the sandal assortment grew low teens in <unk> should we assume.
Speaker Change: The standby business grows low double low double digit for FY 'twenty five similar to last year. Thank you.
Speaker Change: Hi, This is Nicole Thank you for your question I'm going to take it.
Speaker Change: So close though as it just mentioned continues to outpace our open to buy and this quarter by two X and it's worth mentioning why because it's an outpacing of I'll open until our open until business growth double digit we're really pleased to see that this is not only driven by Boston Boston continues to show a very strong performance.
Speaker Change: While our non Boston clogs are growing at the same pace. So we are really diversifying our clubs business and they can also ask some pressure off the Boston.
Speaker Change: When it comes to lay step shoes, like really shoes shoes. This category delivered another record quarter significantly outgrowing our clubs business. So again, you are diversifying our close till business beyond Boston and beyond clubs.
Speaker Change: In EMEA just referenced one thing for me on it is already the second biggest category in our online channel seven out of top 20 are laced up shoes.
Speaker Change: And that all again, why sandals are growing double digit.
Speaker Change: Thank you very much best of luck.
Speaker Change: Thank you. The next question will be from Paul <unk> from Citi. Paul Your line of size.
Speaker Change: Hi, This is Kelly on for Paul Thanks for taking our questions. Just wanted to follow up on some of the gross margin puts and takes I think last quarter. You you think gross margin would approach.
60% this year I guess with the raise in the past a walk.
Speaker Change: Brand contribution.
Speaker Change: But you know maybe some FX I would just just curious if you're sort of reiterating that I think you're.
Speaker Change: Raising it to any any color there and then just secondly on the pricing strategy you took a random price increases in the second quarter is that right.
Speaker Change: The terrorists or should we expect more from here and just any regional color on where and why those price increases are okay. Thank you.
Speaker Change: Hi, It's bill speaking thank you for your question so on gross margin.
Speaker Change: There will be two drivers.
Speaker Change: We will have and we will see better absorption.
Speaker Change: Facility and part of the work. This is the one factor driving that which was 50 basis points in Q2, but also we experienced favorable FX and pricing effect net of inflation, which also contributed.
Speaker Change: Two the increase of 100 to 150 140 basis points in Q2 generally on pricing and.
And as mentioned, we're taking a global approach here.
Speaker Change: We have done in the past frankly, so every season, we are reviewing prices on a style by style basis, we are very surgical.
Speaker Change: When it comes to pricing.
Speaker Change: However, always maintaining a global globally aligned pricing architecture.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question will be from Jay sole from UBS J. Your line is nice.
Speaker Change: Great. Thank you so much just a question.
Speaker Change: How are you thinking about cash flow and cash flow uses.
Speaker Change: Back half of the year and then as you get into the year. Obviously compares a lot of cash in the balance sheet.
Speaker Change: Do you feel about the plans for that cash thank you.
Speaker Change: So again.
Speaker Change: We've always said that our first priority for use of cash is to invest in the business and especially in the white space opportunities.
Speaker Change: We have identified in all of those already.
Speaker Change: Touched on it so we expect to invest about $80 million in Capex for this year.
And that will continue in future years. So this quarter, we invested $21 million in business predominantly in.
Speaker Change: Production facilities and go lives plausible, but also in our Rocco and also to support our retail expansion. We've also said that we would like to continue to reduce our debt. We will continue to do that.
Speaker Change: And we are fortunate that even after these two priorities we have additional optionality in discretionary cash available as such we are always evaluating the options for the use of cash and of course, including the possibility of share repurchases.
Speaker Change: Okay. Thank you so much.
Speaker Change: Thank you. The next question will be from a rain Hutchinson from Bank of America. Lauren Your line is live.
Lauren Hutchinson: Thank you good morning, Com, you've called out a trend over the past few quarters have a younger customer trending more toward in person shopping have you seen that bill continue and is that a global phenomenon or more focused on North America.
Lauren Hutchinson: Yeah, Hi, it's David certainly the phenomenon seems to be global I, just think that youth tend to shop.
Lauren Hutchinson: More alive and I also think that our brand because of the tactile shopping experience of coming into contact with broken stock, especially for new consumers. The first time.
Lauren Hutchinson: It's a very real experience in our own retail and I think that's going to continue.
Lauren Hutchinson: Thank you for that.
Speaker Change: Question will be from Sam Poser from Williams trading Sam Your line is live.
Sam Poser: Thank you for taking my questions.
Sam Poser: Wondering on the demand side in the in the back half of the year once the impact of the tariff kicks in on other things are you.
Sam Poser: How much of it from a demand perspective have you may you have tempered your outlook.
Sam Poser: From a unit perspective or something.
Sam Poser: Given given that and.
Sam Poser: Since you run.
Sam Poser: Like like.
Sam Poser: What percentage of your scarcity of the demand right now and well and is that what gives you. The comfort that you are scarce enough that it won't impact the sales.
Sam Poser: Or are you going to stay where youre running at 75% of the demand is there.
Sam Poser: That kind of just leapt up to 80, but you'll still be scarce, that's why you're not sure on the top line.
Sam Poser: Sam Hey, it's David Great question as you know, we always manage with what we call relative scarcity. It would be a little hard to say, what we think the percentage of relative scarcity is having said that based on the demand based on the momentum we file.
And that every time, our sales increase and we put a little bit more stock into the market. We see the topline demand continue to increase.
Sam Poser: So I think we are not being cavalier about the fact that consumers might be a little pinched in the wallet, but we see the shift to the products and the brands that are most in demand. So we don't see any impact to the demand. We currently see.
Sam Poser: And I think that's a strong statement that we're not going to ever compromise that balance of stock to sales in the marketplaces around the world.
Sam Poser: Thanks, and then if it's okay.
Sam Poser: You just break out can you give us just some like.
Sam Poser: General thoughts on what the gross margin for the full year, it's gonna be and how you're thinking about SG&A in total.
Sam Poser: For the full year.
Sam Poser: Yes sure.
Sam Poser: Speaking so on gross margin.
Sam Poser: As mentioned the key driver will be the additional absorption.
Sam Poser: We have.
Sam Poser: Also pricing net of inflationary effects from this.
Sam Poser: Drive the increased.
Sam Poser: The gross margin. So we said that we will be moving closer to him.
Sam Poser: The 60% gross margin targets and this is what we are.
Sam Poser: Iterating on the SG&A side, so we are going to continuously invest in infrastructure.
Sam Poser: And as such we want to have.
Sam Poser: Like space here to continue and to make sure your organization future proof to cope with the growth that we are experiencing and demand that we're seeing outside.
Sam Poser: So be aware.
Sam Poser: Selling and distribution expenses that we are continuing to invest in retail and this is certainly also driving additional.
Sam Poser: Selling and distribution expenses.
Sam Poser: I guess, just real quick I mean for.
Sam Poser: For the first half of the year you grew your.
Megan: It's Megan that's any question forget you have to move on I'm, sorry, Alright Goodbye alright.
Sam Poser: Yeah.
Speaker Change: Thank you and the next question is coming from Michael Benetti from Evercore, Michael Your line is live.
Jocelyn: Thanks, guys for taking our question. This is jocelyn on behalf of Michael Congrats on a good set of results.
Speaker Change: Maybe just a little bit on the other market Oliver caught out like sneak in APAC and China market in Dubai in the quarter, maybe talk about that a portion of it and why it has been long term stock of plan for the region.
Speaker Change: EMEA there was no record of slowdown in second quarter. So how should we think about second half growth any color that would be helpful. Thank you.
Speaker Change: Hi, Joseph this is Nicole I'm going to touch on the EMEA question. So.
Speaker Change: In EMEA and.
Speaker Change: Please let me share the acute Q2 of this year is built on a very strong quarter and last year, we did some land grab and need to be last year.
Speaker Change: And simultaneously, we had a very very strong DTC performance we.
Speaker Change: We saw across our EMEA countries abroad based growth specifically in our DTC channel, which grew one five X faster than our B to B channel and our overall sell through rate at strategic wholesale partners is very healthy and we have a very healthy inventory to sales ratio as you know we integrated Midland.
Speaker Change: In Africa, together with Europe into one EMEA segment.
Speaker Change: It took the opportunity to visit the middle East and Africa markets.
Speaker Change: And have started to take some right sizing actions of the business specifically in the North African business with our distributors. These actions will ensure a focused and also high quality growth into the future. So we are really protecting the quality of our distribution. There and then let me also share that Q2 is really the highest speed to be shipping quarter.
Speaker Change: So you really faced with a full order book it just sometimes face operational limitations in getting the product out across the quarter, that's a bit of more color for EMEA.
Speaker Change: Hello, Andrew as Klaus told me about the APAC region. So we had another very strong seasoned in APAC DTC was strongly outpacing the <unk> part we are seeing a very strong increase in our traffic not only online also in the stores.
Speaker Change: By keeping also our conversion rate. So this is very positive.
Speaker Change: Feedback coming also on the sell out on our new stores same on the like for like business, we've seen a.
Speaker Change: Double digit growth in comparable stores.
Speaker Change: And in the product allowance in development, we see similarities to the other markets, we are selling more high priced products.
Speaker Change: <unk>.
Speaker Change: Getting all our icon products.
Speaker Change: Also running.
Speaker Change: Same for the close Toeshoe business also slowly growing in the APAC region. So we are very confident for what is coming.
Speaker Change: Great. Thanks, guys.
Speaker Change: Thank you. The next question will be from Edward <unk> from Morgan Stanley Edward Your line is live.
Speaker Change: Yeah, Hi, guys.
Speaker Change: Is it kind of just a clarification.
Speaker Change: Right in thinking that most of the inventory youre going to be selling in the U S. In fiscal 'twenty five was kind of ship before you know the.
Speaker Change: The tariffs are announced.
Speaker Change: Announcements and therefore, you know the tariff news and also the effects from a transactional standpoint should have kind of little impact on your fiscal 2005. So just wanted to have some clarification and kind of related to that can you just give us a hypothetical growth I know you have mitigating factor, but can you give us a growth.
Speaker Change: In fact on the FX. So, let's say you know the U S depreciate, 10% versus the euro.
You know, what what's kind of the impact on your EBIT hypothetically. Thank you so much.
Hi.
Speaker Change: Yeah.
<unk> speaking so to your first question on on the inventory.
Speaker Change: So we have a strong inventory position not only in the U S. But also globally and certainly this inventory position in U S is helping us to fully offset the 2025.
Speaker Change:
Speaker Change: Adverse.
Speaker Change: Effects from increased.
Speaker Change: Tariffs.
Speaker Change: So we should if it got so we've shown that understanding smoky ethics, that's why you're twenty-six event rather than FY 'twenty five event basically in terms of impact.
Speaker Change: Hey, do our business and extend those peaking.
Speaker Change: Well, there's always some fluctuation in currency.
Speaker Change: So commenting about that earlier.
Speaker Change: Clearly we saw some tailwind in the first half of the year with the Covenant FX rate you see a little bit of a headwind for the remainder of the year, if the FX rate stays where it is.
Speaker Change: Simulating this with the current rates, we will at the full year be exactly on 'twenty fall rates. So this shouldnt be at a full year impact to us.
Speaker Change: To stimulate it a little bit so.
Speaker Change: Yeah, approximately five cent change in the.
Speaker Change: U S dollar exchange rate will give you a 30.
Speaker Change: Revenue impact and 26 million of EBITDA impact there should.
Speaker Change: B a good match.
Speaker Change: To bottle out.
Speaker Change: Okay understood. Thank you.
Speaker Change: Thank you. The next question will be from Ana <unk> from Piper Sandler Your line is life.
Speaker Change: Great. Thank you Mike Good morning, and let me add my congrats as well.
Speaker Change: You mentioned strong trends in the business and QQ being seasonally the slowest growth quarter, just giving the sandal just curious any additional color you could share on what you are.
Speaker Change: In April and in May I'm curious, how the close till it performing and are you seeing any signs of pull forward in demand ahead of the traffic.
Speaker Change: In the U S.
Speaker Change: We see no change in demand it's sell through results.
Speaker Change: During the quarter that we're referencing.
Speaker Change: We also.
Speaker Change: Whether or not there is.
Speaker Change: Requests for a pull forward, we manage that ourselves. So we make the decisions and right now the flow of inventory has always managed by us relative to stock to sales ratios. So we don't do anything from an inventory standpoint in shipments based on.
Speaker Change: Anything that has to do with any tariffs impact whatsoever.
Speaker Change: And and as Meghan can you just repeat the first part of your question I think you said, we said the second quarter is the slowest quarter.
Speaker Change: No that's not what we said is that the third our fiscal third quarter seasonally is our slowest growth quarter, because its the highest mix of sandals and closed toe grows at <unk> the rate of sandals.
Speaker Change: So is there any additional color on what you're seeing in demand that's just.
Speaker Change: Just curious any additional kind of a category. Some franchises that you guys could go up.
Speaker Change: Well I mean, the Sandoz business continues to grow very nicely at double digits I think.
Speaker Change: We're not seeing slow down there.
Speaker Change: It's really just post hopeless grows faster.
Speaker Change: Alright fair enough. Thanks, so much and best of luck.
Speaker Change: Yes.
Speaker Change: Thank you. The next question will be from Janine Stichter from BTG Jeanine Your line is live.
Janine Stichter: Hi, Thanks for taking my question, so nice to see the DTC improvement I think you mentioned, some investment and online or E Commerce and I was hoping you could elaborate on that and then maybe just share how you're thinking about investments in that channel for the rest of the year. Thank you.
Speaker Change: Okay.
Jeanine: Yes, Thanks Jeanine.
Do you see the biggest growth has come from our membership base as Oliver said in the opening comments, our membership base, we like to call. It a fan base is over $10 million right now that's up 25% versus a year ago and as we market more specifically to that database.
Jeanine: As to our fan base. The average purchase is 20% higher so when you look at allocation of dollars against.
Jeanine: Against the D to C space, it's more laser rather than shotguns. So the return on investment is is higher there.
Jeanine: Happy with the growth in our membership and we think this is just going to continue and again the return on investment from those members is significant.
Jeanine: Thank you.
Jeanine: Thank you. The next question will be from <unk> Rambourg from HSBC.
Speaker Change: Irwin your line is nice.
Irwin Rambourg: Hi, Thanks, a lot for taking my question and congratulations it's pretty rare to see consumer companies increasing guidance, maybe a bit of a philosophical question for Oliver at the time of the IPO. There was this rule of 2016 30, so 20% top line growth, 60% gross margin 30% margin.
Speaker Change: I'm wondering how you think about the arbitrage between margin and sales.
Speaker Change: You did reference during the IPO process Atmos for example.
Speaker Change: Which is the company that refuses to increase its margin.
Speaker Change: Because every time to have excess.
Speaker Change: Contribution they reinvest everything to continue to feed the topline and brand desirability brand equity.
Speaker Change: You're sort of above the 30% margin today.
Speaker Change: And I'm wondering if there would be a possibility to reinvest some of that to.
Speaker Change: It grew at a faster pace I don't know if it's possible actually to grow at a faster pace, but.
Speaker Change: Theoretically Asia growing at 15 out of 30 are you reinvesting quite a bit too.
Speaker Change: To move closer to that $26 30.
Speaker Change: And maybe related to that.
Speaker Change: Your margins at a higher level than expected. This year is that sustainable or are there reasons to believe that.
Speaker Change: <unk>.
Speaker Change: There is a particular boost for the current fiscal year that will be nonrecurring and be in the outer years. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you for your question be assured I tried to manage the margin down as good as possible. So I don't want a basket size.
Speaker Change: Size Youll know that you will start crying, because we delivering I don't know 34%, 35% no.
Speaker Change: The jokes aside.
Speaker Change: We prepare ourselves that's a sad because we as a team and as a company. We see this whole situation as a big opportunity for us So I fully do that.
Speaker Change: There will be underway.
Speaker Change: Second half of the year, but also some time within 2006 with near term there will be opportunities for us to develop quicker and all retail two two rep. Some shelf space to do land grabs wherever and other.
Speaker Change: Other brands are collapsing or fading away so be assured.
Speaker Change: Should we are we are ready with it.
Speaker Change: For this and that.
Speaker Change: While we always keep some powder dry to move on quickly and to have enough ammunition to develop the brand breaker and with more focus on quality and.
Speaker Change: Quality for us means not only growth. It also means our margin and the gross profit margin and EBITDA margin of course.
Speaker Change: One comment allow me one comment to you or to your question about Asia in the APAC region.
Speaker Change: It is it is why though from my perspective and from our perspective to keep the speed as it is we decided to roughly grow the double speed compared to the rest of the world within the APAC region.
Speaker Change: It seems like this is exactly the right tools.
Speaker Change: Tuning.
Speaker Change: <unk> set up to move on.
Speaker Change: Yes.
Speaker Change: Seem partners and possibilities to be quicker.
Speaker Change: But honestly you know.
Speaker Change: Creating more unit growth in this region, creating more.
Speaker Change: Logistic issues in this region.
Speaker Change: We need to prepare our whole organization keep in mind, we are fully.
Speaker Change: Vertical integrated supply chain. So we have to organize by ourselves and if you speed up your organization and your growth then you'll have to make sure that your company is catching up with all this.
Speaker Change: It's not easy to organize everything.
Speaker Change: Simultaneously, so I think we feel pretty good with our growth algorithm for the APAC region.
Speaker Change: And again.
Speaker Change: We are ready to take overall shelf space, we are ready to take over.
Speaker Change: Owned retail space is much more aggressive like in the past and we believe that there will be a lot of opportunity out there. Thank you.
Speaker Change: Thanks, a lot very useful and maybe just on the second part around the margin being higher than expected. This year is that is that sustainable into the outer years.
Speaker Change: Hi, I wanted to Megan.
Speaker Change: We do not see anything Thats one off this year, that's a you know what.
Speaker Change: Our away next year in fact, we do expect some gross margin tailwind again further next year given the absorption the additional.
Speaker Change: Absorption of that facility.
Speaker Change: Okay Super useful. Thank you so much best of luck.
Speaker Change: Thank you. The next question will be from Sharon Zackfia from William Blair Sharon Your line is life.
Sharon Zackfia: Hi, Thanks for taking the question I was hoping you could comment on follow up on the comments on membership in the U S and kind of how that's trending now as a percent of your DTC.
Speaker Change: Sales and if you do.
Speaker Change: Sign ups as well and the 10 stores that you have in the U S and as a matter of ship program.
Speaker Change: And as a corollary to that how the membership is also stirring and Europe. Thank you.
Sharon Zackfia: Membership this is David Chang Sharon membership is growing in in.
Speaker Change: In the Europe region and in the end in the Americas.
Speaker Change: We will be fully omni capable very soon to do sign ups in stores, it's less about the sign ups and getting the information in your database. It's more about how you do personalization and segmentation and how you speak to these these customers. These brand fans and how you engage.
Speaker Change: With them, that's where the real long term benefit is and that's where I think we're seeing some of the continued momentum.
Speaker Change: And growing momentum in our direct to consumer business again, 25% more than a year ago and the members spend on average 20% more so that would tell you that any investment that we make from a technology standpoint from a resource standpoint, and focusing there will give us a.
Speaker Change: Very strong return on investment.
Speaker Change: Thank you. The next question will be from Adrienne <unk> from Goldman Sachs. Adrian Your line is live.
Adrienne: Okay. Thank you for taking my questions. So the question would be on the opportunity that you see.
Adrienne: From a price mix, particularly with the new products coming in the second half of 'twenty five.
Adrienne: And a follow up on this would be within each of our product categories. Both open and close to <unk> do you see a difference in the performance between the different price points of the products.
Speaker Change: Different from low end and high end products. Thank you very much.
Speaker Change: Hey, this is Nicole. Thank you for your question what we can generally see I think we stated that also earlier is the consumer is voting for higher price points within our categories. So what you see is that the leather share has been increasing constant.
Speaker Change: Also in Q2, the net of share increased.
Speaker Change: Our cluster business outpaced our sandals business, so again typically higher price points and within the close to a business. You also see consumers voting much much more for leased up shoes than they did a couple of quarters back. So again high priced executions within close to are also trending with our consumers.
Speaker Change: If it comes to our sandal business specifically would.
Speaker Change: What we definitely see is again consumers.
Speaker Change: In and buying a much much stronger premium embellishments, so revert execution flow executions, all those executions are doing pretty well with our consumers. Many times in our online sold out very quickly. So we are also fast replenishing on those execution. So generally you can see across the business.
Speaker Change: Across the categories, we definitely have a personalization of the business.
Speaker Change: Thank you. Thank you.
Speaker Change: The next question will be from.
Speaker Change: Peter Mcgoldrick from Stifel. Your line is live Peter.
Peter Mcgoldrick: Hey, Thanks for taking my question sorry.
Speaker Change: Could you talk about the scaling wholesale opportunity you called out progress in youth sporting goods outdoor in department stores can you help us think about the forward opportunity for increasing channel representation.
Peter Mcgoldrick: Okay.
Peter Mcgoldrick: This is David Thanks for the question.
Peter Mcgoldrick: <unk>.
Peter Mcgoldrick: There is limited expansion of our footprint other than current doors, it's very surgical and very strategic so the vast majority of the growth over 90% comes from existing.
Speaker Change: Retail accounts its more expansion of the Assortments.
Speaker Change: And in EMEA, just to add a bit more color from from our perspective. So there is.
Speaker Change: Quite a substantial number of doors and partners that are not yet penetrated and for a reason. So we acquired we haven't had a very close eye on the quality of the partners.
Speaker Change: We always give the example of foot locker in Europe.
Speaker Change: Don't serve them, we don't deliver to them because we don't think that they are currently adding something to be to be portfolio. So there are more partners in sport and outdoor also in.
Speaker Change: The lifestyle segment that we have a close eye on and then you decide to service when we believe is the right moment.
Speaker Change: And yes. Thank you just going to ask.
Speaker Change: Just want to add one thing because I mean, you've seen probably our new product categories and different usage occasions. So yes.
Speaker Change: On the mid to long term of course, we will have we will add new chains, and new doors and new channels because of simply to the fact that we will then developing the professional segment and other PD segment.
Speaker Change: Shoes for the for outdoor.
Speaker Change: Single use outdoor also in close so so all of this.
Speaker Change: And incremental usage occasions will definitely create also a broader and wider network of distribution. Thank you.
Speaker Change: Thank you and we are at the top of the ore and that does conclude today's Q&A session. And also concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.