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German sandal and clog maker Birkenstock (BIRK) is strapped in for some big gains after reporting solid Q4 results that exceeded EPS and revenue expectations as the company experienced healthy demand across all geographies, channels, and categories. With revenue growing by 22% on a constant currency basis amid a sluggish consumer spending environment, the resiliency and strength of BIRK's brand is on display. That strong growth, coupled with tight cost controls, fueled a 118% yr/yr surge in adjusted net profit, even as gross margin contracted by 640 bps yr/yr in Q4 to 59.0%.

Looking ahead, though, BIRK expects margins to improve due to increased utilization of its new production facilities. More specifically, the company said that it expects gross margin to move closer to its long-term target of 60% in FY25, while adjusted EBITDA margin expands by as much as 50 bps yr/yr to 30.8-31.3%.

• In FY24, BIRK invested €74 mln to expand its production capacity in order to meet demand and to support its growth initiatives. Considering the macroeconomic headwinds, that was a bold move, but it's also one that is paying off as BIRK continues to benefit from a loyal and growing customer base. The blend of comfort and casual fashion is clearly resonating with consumers as illustrated by the 18% sales growth in the DTC channel and 26% jump on the wholesale side.
• The company is anticipating growth to slow a bit in FY25, forecasting revenue growth of 15-17% on a constant currency basis, compared to growth of 22% in FY24. However, investors are taking the deceleration in stride given that BIRK is also expecting stronger margins in FY25. Furthermore, the company doesn't foresee any weak spots emerging in FY25, forecasting strong contributions across all segments and geographies. On that note, BIRK achieved double-digit revenue growth in each major geography in Q4, including growth of 21% in the Americas, 19% in Europe, and 38% in APMA.
• In Europe, BIRK's second largest market after the Americas, the company is gaining market share across the region. Meanwhile, in the much smaller, but faster growing APMA region, BIRK credited improved brand awareness and the launch of new online stores in Singapore, Malaysia, and the Philippines for the impressive performance. As BIRK expands into the orthopedics, professional, and outdoor categories, it will have another opportunity lined up to gain more share and further expand its footprint.

The main takeaway is that BIRK is bucking a very challenging business climate as its better-than-expected Q4 results showcased the staying power of its brand. Sturdy demand, along with economies of scale resulting from higher production at its new facilities, should set BIRK up for a strong FY25.