Considered one of the largest IPOs of 2023, Birkenstock Holding (NYSE:BIRK), reported solid fiscal first-quarter results for its initial quarter as a public company. Nevertheless, its share price immediately began dropping within the aftermath.
Founded in Germany in 1774 and now based in London, the over-200-year-old sandal maker saw its stock price plummet as much as 11% in pre-market trading on Thursday, tumbling to around $45 per share.
By mid-afternoon Eastern time, the share price was still down by about 8% on the day to $47 per share, but did that earnings report warrant such a drop? Let’s take a have a look at Birkenstock’s results to see if the decline in price represents a buying opportunity.
Record revenue in Q1
Birkenstock posted solid results for its fiscal first quarter, which ended on Dec. 31. The enduring sandal maker, which had been family-owned until 2021, saw its revenue increase 26% 12 months over 12 months to €303 million — a latest record.
In reality, Birkenstock’s sales were up across the board, jumping 19% within the Americas, 33% in Europe, and 51% within the APMA (Asia Pacific, Middle East, and Africa) region. These numbers topped analysts’ estimates, which called for €287 million in revenue.
The corporate’s revenue rose on increased capability, higher demand and sales at higher prices because of inflation. Considered one of the more promising developments within the quarter was the continued growth of Birkenstock’s direct-to-consumer (DTC) sales, which it has been focused on expanding.
DTC sales seek advice from online sales through its website or sales at one in all its 45 Birkenstock stores around the globe. DTC sales were up 30% within the quarter on a relentless currency basis, and DTC penetration rose 100 basis points to 53%. B2B sales, referring to sales through other retailers, also rose 22% within the quarter.
The corporate’s stock price can have dropped on earnings numbers that met but didn’t exceed expectations. Birkenstock actually notched a net lack of $7.1 million within the quarter, even though it was higher than the $9.2 million net loss in the identical quarter a 12 months ago.
On an adjusted basis excluding costs related to the IPO, certain transactions, relocation, and unrealized gains and losses, the firm had $16.7 million in net income, or 9 cents per share. This was down from $26.5 million the identical quarter a 12 months ago but in step with what analysts had expected.
Perhaps investors were anticipating an earnings beat, or possibly they were concerned about higher expenses or the decrease within the EBITDA (earnings before interest, taxes, depreciation, and amortization) margin to 26.9% from 29.1%.
Should they be?
Must you buy the dip?
The swift and somewhat severe response to Birkenstockʻs earnings report seems a bit overdone and maybe even nothing greater than a knee-jerk response to an overall solid report.
As CEO Oliver Reichert explained, the upper expenses stem from Birkenstock’s move to extend its capability to handle rising sales and demand because it looks to expand with latest stores in additional markets.
“Given our engineered distribution model, demand continues to outpace supply in all regions, channels, and categories,” Reichert said within the earnings release. “As previously communicated, our strategic investments into future growth are having a planned, temporary impact on our profitability. Nevertheless, within the medium-term, we’re confident we are going to proceed to deliver on our objectives of a gross profit margin over 60% and an adjusted EBITDA margin within the low thirties percent.”
Birkenstock reiterated its outlook for fiscal 2024, guiding for a gross profit margin of over 60% in 2024 and an adjusted EBITDA margin within the low-30% range. Perhaps investors were hoping for an improved outlook over past projections, though this guidance would indicate improvement in adjusted EBITDA, which is currently at a margin of 26.7%. The gross profit margin is currently at 61%, roughly in step with 2024 guidance.
Birkenstock management appears to be taking the obligatory steps to grow this iconic brand, and sales have been robust. Nevertheless, it could take a while to grow to be consistently profitable, so investors will probably want to monitor the corporate’s progress.
While Thursdayʻs sharp dip does bring down the entry price for interested investors, they will probably want to look ahead to more guidance or results related to expenses, capability expansion and earnings to realize greater visibility.
Disclaimer: All investments involve risk. Under no circumstances should this text be taken as investment advice or constitute responsibility for investment gains or losses. The data on this report shouldn’t be relied upon for investment decisions. All investors must conduct their very own due diligence and seek the advice of their very own investment advisors in making trading decisions.