German sandal and clog maker Birkenstock (BIRK, Financial) reported impressive Q4 results, surpassing EPS and revenue expectations due to strong demand across all regions and channels. Revenue increased by 22% on a constant currency basis, highlighting the brand's strength amid a sluggish consumer spending environment. Despite a 640 bps year-over-year decline in gross margin to 59.0% in Q4, adjusted net profit surged by 118% year-over-year, driven by tight cost controls.

Looking forward, Birkenstock anticipates margin improvements due to increased utilization of new production facilities. The company expects to reach a gross margin closer to its long-term target of 60% by FY25, with adjusted EBITDA margin projected to expand by up to 50 bps year-over-year to 30.8-31.3%.

• In FY24, Birkenstock invested €74 million to expand production capacity, a strategic move amid macroeconomic challenges. This investment supports growth initiatives and meets demand, as evidenced by an 18% sales increase in the DTC channel and a 26% rise in wholesale sales.
• For FY25, Birkenstock forecasts a slight slowdown in growth, with revenue expected to increase by 15-17% on a constant currency basis, compared to 22% in FY24. Despite this deceleration, investors are optimistic due to anticipated stronger margins. The company expects robust contributions across all segments and geographies, having achieved double-digit revenue growth in major regions during Q4, including 21% in the Americas, 19% in Europe, and 38% in APMA.
• In Europe, Birkenstock is gaining market share, while in the rapidly growing APMA region, enhanced brand awareness and new online stores in Singapore, Malaysia, and the Philippines have driven performance. As Birkenstock expands into orthopedics, professional, and outdoor categories, it aims to capture more market share and expand its footprint.

The key takeaway is that Birkenstock is thriving in a challenging business environment, with Q4 results underscoring the brand's resilience. Strong demand and economies of scale from increased production capacity are expected to drive a successful FY25.