Birkenstock achieves 16% revenue growth in Q3, with record margins and strong B2B performance, despite FX headwinds affecting reported results.

OPERATOR - (00:00:53)

Good morning. Thank you for standing by. Welcome to Birkenstock Holding's third 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. The company has allocated 60 minutes in total to this conference call. I would like to remind everyone that this conference call is being recorded. I will now turn over the call to Megan Kulik, Director of Investor Relations.

Megan Kulik - Director of Investor Relations - (00:01:23)

Hello and thank you everyone for joining us today. On the call are Oliver Reichert, Director of Birkenstock Holding PLC and Chief Executive Officer of the Birkenstock Group and Ivica Krolo, Chief Financial Officer of the Birkenstock Group. David Kahn, President Americas, Nico Buyoff, President of EMEA, Klaus Baumann, Chief Sales Officer and Alexander Hoff, Vice President, Global Finance, will join us for the Q and A. Today we are reporting the financial results for our fiscal third quarter of 2025 ended June 30, 2025. You may find the press release and supplemental presentation connected to today's discussion on our investor relations website at birkenstock-holding.com we would like to remind you that some of the information provided during this call is forward looking and accordingly is subject to the safe harbor provisions of federal security laws. 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 and can be found on our website at birkenstock-holding.com we undertake no obligation to revise or update any forward looking statements or information except as required by law. We will reference certain non IFRS financial information. We use non IFRS measures as we believe they represent the operational performance and underlying results of our business. More accurately, the presentation of this non IFRS financial information is not intended to be considered by itself or as a substitute for the financial information prepared and presented in accordance with IFRS. Reconciliations of IFRS to non IFRS measures can be found in this morning's press release and in our SEC filings. Now I'll turn the call over to Oliver.

Oliver Reichert - Chief Executive Officer - (00:03:24)

Good morning everybody and thank you for joining us today for our third quarter results. Once again we delivered against our guidance. With 16% revenue growth in constant currency. We continue to grow double digit in every segment and channel. At the same time we significantly improved profitability. Gross margin was up 100 basis points to 60.5% and EBITDA margin was up 140 basis points to 34.4%, our best third quarter margin ever. And we did this in a global environment with pressure from tariffs and currency volatility. We continue to see the shift to in person shopping which amplifies our brand. We are a touch and feel product, especially for consumers who are new to the brand. We have over 12,000 high quality touch points through our B2B partners compared to our own fleet of 90 doors. That is why this shift in consumer behavior favors our B2B channel over D2C. We are winning at retail, gaining shelf space and taking share in a flat US market. Retail revenue at our top 10 wholesale partners was up 25%. As you do your channel checks for back to school, you will hear that Birkenstock is the winner with very strong sellout and fast inventory turns. Same for EMEA. Retail revenue at our top 10 partners was up 20% within our B2B channel. Over 90% of the growth came from within existing doors. We are committed to maintaining relative scarcity and managing tightly our distribution growth in own retail. We accelerated the pace of openings adding 13 new doors. Our new stores generally deliver a higher ASP and higher units per transaction from day one and we see a return of CAPEX within 12 to 18 months. We are on track to reach our goal of around 100 stores by the end of this fiscal year. This will allow us to capture more in person shopping demand within our own D2C business and allows us to showcase the full breadth of our product assortment. Our brand is stronger than ever no matter if you look at sell through full price realization or our strong order book. This is especially true in the emerging youth market. Our demand is strong across all product categories and target groups. Sales of our classic leather silhouettes grew double digits. Demand for our iconic styles such as the Arizona and Boston remains strong and is accelerating within the younger demographic. At the same time, we are growing in expansionary categories such as lace up shoes. Closed-toe share of revenue increased by 400 basis points year over year. Now let's briefly review our segment performance in the Americas. Revenue was up 16% in constant currency with both the B2B and D2C channels growing double digit. Our B2B business was especially strong. Importantly, we saw no pushback or cancellations following the July 1 price increases implemented in response to tariffs. We opened three additional stores bringing the total number of stores to 13. In EMEA, we delivered double digit growth of 13% while both channels grew double digit, B2B outpaced D2C driven by strong sell through at our retail partners. Our online business started off slower than planned in April and May. However, in June online growth re accelerated. We saw healthy growth in our own retail with same store sales up in the mid teens. We further expanded our brand presence with the opening of new stores in the Netherlands in Spain bringing our store count to 39. The APEC region was up 24% in constant currency. Timing of goods in transit shifted revenue from third quarter into the fourth quarter. We forecast an acceleration in the fourth quarter in line with our expectation that APEC will grow twice as fast as our other two segments. For the full year we opened eight new owned retail stores bringing the total number of stores in the region to 38. We also expanded our strategic partnerships, increasing our mono brand partner stores by around 20% compared to last year. Our business in China was particularly strong and accounted for 20% of APAC revenue in the quarter. I will now turn it over to IVICA to discuss our financial results in more detail.

Ivica Krolo - Chief Financial Officer - (00:08:49)

Thanks Oliver. I am happy to share with you Birkenstock's performance for the third quarter of 2025. This is the first quarter since we have been a public company where we saw significant headwind from FX on our reported numbers. The dollar depreciated by about 5% against the euro in the quarter compared to last year. This impacted both our reported revenue growth and margins. FX caused a 330 basis points drag on revenue growth, lowered gross margin by 60 basis points and adjusted EBITDA margin by 70 basis points. Third quarter revenues were 635 million growth of 16% in constant currency within the range of our 15 to 17 annual guidance for the year. Reported revenue growth was 12%. B2B growth outpaced D2C in the quarter. B2B was up 18% in constant currency. D2C grew 12% in constant currency. D2c share of business was 38% down 110 basis points versus prior year. We see sustained strength in our B2B channel from the shift to more in person shopping. B2B has proven to be the most cost efficient way to target new consumer groups and usage occasions, both important white spaces for our brand. We now expect B2B growth to outpace D2C in both fourth quarter and for the full year. We are a demand driven brand. We strategically allocate our products to where the consumer is shopping and unlike our peers, we own our supply chain. The B2B order book provides predictability and de risks our planning Gross profit margin for the quarter was 60.5% up 100 basis points year over year. Pricing net of inflation and better absorption of cost related to the Paservalk facility contributed to margin expansion. This was partially offset by channel mix and the unfavorable currency impact of 60 basis points. Selling and distribution expenditures were 163 million in the third quarter representing 25.6% of revenue. This was down 80 basis points from the prior year mainly due to a higher B2B share. Adjusted general and administration expenses were 31 million or 4.9% of revenue in the quarter, up 40 basis points year over year due to higher IT expenses primarily related to the ERP conversion in the Americas. Adjusted EBITDA in the third quarter of 218 million Euro was up 17% year over year. Adjusted EBITDA margin of 34.4% was up 140 basis points year over year. This was even despite the 70 basis point impact from unfavorable currency translation. Adjusted net profit of 116 million euro in the third quarter was up 26% year over year. Adjusted EPS was 62 cents, up from 49 cents from a year ago, a 27% increase. Cash flows from operating activities during the quarter were 261 million, down 21 million Euro compared to the last year due to the timing of tax payments and lower working capital release. We ended the quarter with cash and cash equivalents of 262 million Euro. After the repurchase of 3.9 million shares totaling 176 million. As we continuously improve our inventory efficiency, our inventory to sales ratio declined to 33% from 36 in Q3.24. Our DSO for the quarter were 43 in line with the 42 a year ago. Even with a strong growth in our B2B business during the quarter we spent approximately 22 million euro in CapEx, adding to our production capacity in Paservalk, Goelitz and Aruca and continuing our investments in retail and IT, we are on track to meet our CapEx target of around 80 million for the year. Even with the share buyback we executed in May, our net leverage was 1.7 times as of 6-30-25 down from 1.8 at the end of Q2. Without the buyback, the net leverage would have been at 1.4 times. Our capital allocation priorities continue to be number one invest in our business, number two reduce debt and number three opportunistic share buybacks. Even with a buyback, we continue to expect net leverage of approximately 1.5 times. At the end of fiscal 25 we believe we are well positioned to meet our stated growth and profitability objectives. We believe we can manage the impact of the baseline 15% EU tariff through the actions we have already taken, including targeted price increases. Pricing is not the only lever we have given our vertical integration. Additional levers include efficiencies in production, vendor negotiations, the optimization of the product mix, and the allocation of products between the regions. Lastly, regarding FX in the fourth quarter, we expect the currency headwinds from the weaker US Dollar to impact reported revenue growth and margins. At today's Eurodollar exchange rate, reported revenue growth should be about 400 basis points below constant revenue growth in the fourth quarter and margins will be negatively impacted by about 100 basis points, which is reflected in our guidance for the year. Based on results to date.