Birkenstock Holding plc Ordinary Shares

Good morning and thank you for standing by. Welcome to Birkenstocks 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. The company has asked that you please limit yourself to one question and return to the queue for any follow-up. 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.

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 of Americas, Niko Bujov, President of EMEA, and Alexander Hoff, Vice President of Global Finance, will join us for the Q&A. Today, we are reporting the financial results for our fiscal second quarter of 2025, ending March 31st, 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 during this call is forward-looking and accordingly is subject to the safe harbor provision of the federal securities 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, which 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. With that, I'll turn the call over to Oliver.

Good morning, everybody, and thank you for joining us. We are meeting today at a moment when the world seems unpredictable. The current context is a stress test for the resilience of business models. As our results for the second quarter show, we have passed this test very well. Our company is in a good shape and we are confident about our future. Our performance is rooted in the power of a universal purpose-driven brand that stood the test of time. We control our own supply chain with 95% of our products made in Germany and 100% made in Europe and 96% of our raw materials sourced in Europe. This helps shield our business from the current disruptions. Once again, we're delivering on the promises we made during our IPO. In the second quarter, we delivered a record 574 million euros in revenues. On a reported basis, this was up 19% year over year. In constant currency, revenue grew by 18% above the high end of our 15% to 17% target for the full year. Revenue growth was driven by a double-digit volume increase, supported by continued ASP growth. The manufacturing capacity we have added over the past two years has allowed us to increase our production to meet the increasing demand for Wittgenstock. Sales numbers for our five iconic silhouettes grew double-digit, contributing to both volume and ASP growth. At the same time, we continued to tap into the white spaces, which are, as you know, closed-toe shoes, our own retail stores, and the APEC region, all of which contributed to our strong growth. As expected, growth in the second quarter was balanced between our B2B and D2C channels, with B2B coming in at 18% and D2C at 17%. The D2C growth was driven by our investments in our online and own retail stores. Our membership base reached over 10 million loyal members, up over 25% year over year. We are on track with our retail expansion with now 77 owned stores, adding six new doors during the second quarter. As shared, we are heading towards 100 owned stores by the end of this fiscal year, and we are confident we will get there. During the quarter, revenue from closed-door silhouettes grew at twice the rate of the overall group and increased share of business by 400 basis points. Demand for closed-toe silhouettes for spring-summer 25 was up strong double digits, and we see continued strength as we build our order book for spring-summer 26. Almost half of our top 20 selling silhouettes in the quarter were closed-toe. Let us now have a brief look at the segment performance. 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. Compared to the second quarter of 24, both the B2B and the DTC channel grew double digit. Within the B2B channel, the fastest growth came from our youth, sporting goods, outdoor and department store partners. America's 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. 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. DTC remained very strong, outpacing B2B growth by one and a half times. Within our DTC channel, shoes are the second biggest category behind classics leather, showcasing the continued momentum in this important area. We increased our brand presence and awareness with the opening of new stores in London and Paris, bringing our store count in EMEA to 37. we created some strong brand moments, bringing our mission to life across the region. One highlight was an experimental pop-up store in Les Deux Alpes in France, where we hosted over 3,000 brand fans and members in a month. The APEC region was again the fastest growing segment in the quarter. Our largest wide space region grew by 30%, driven by very strong growth in our DTC channels. We opened three new owned retail stores in India, Japan and China, bringing the total number of stores in the region to 30. We also expanded our strategic partnerships, increasing our monobrand partner doors by 20%, driving very strong double-digit growth in our B2B channel. Consistent with the other segments, Closed-toe and higher-priced premium leather executions are growing faster than the regional average and contributing to positive ASP growth in the region. Our three top markets in terms of revenue were Australia, China, and Japan. All grew significantly above segment average, with China more than doubling in revenue year over year. As a reminder, we're just beginning to enter Greater China in a meaningful way and see the opportunity for continued strong growth in this market. The strong results make us confident for our important spring-summer selling season, as we are seeing great momentum across all product channels, categories, and segments. I will now turn it over to Ibiza to discuss our financial results in more detail.

Thanks, Oliver. I'm happy to share with you Birkenstock's performance for the second quarter of 2025, which came in ahead of our expectations. 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. As expected, growth in B2B and B2C were balanced in the quarter, with B2B up 19, 18 in constant currency, and B2C up 19, 17 in constant currency. B2C share of business was 24%, equal to the prior year. As a reminder, the second quarter is seasonally our heaviest in terms of B2B mix, given the timing of the sell-in to our partners for the spring-summer seasons. Gross margin for the quarter was 57.7%, up 140 basis points year over year. Better absorption of costs related to a new manufacturing facility contributed about 50 basis points. The remainder is made up by selected price adjustments, net of higher input costs, and favorable currency translations. Selling and distribution expenditures were 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 S&D. General administration expenses were 32 million euros, or 5.6% of revenue in the quarter, up 150 basis points year over year due to the reclassification, as well as higher IT expenses, primarily related to the ERP conversion in the Americas. 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. This was primarily due to the improvement of gross profit margin and the favorable currency translation partially offset by the higher G&A. Adjusted net profit of 103 million euros in the second quarter was up 33% year over year and adjusted EPS was 55 euro cent up from 41 euro cent from a year ago. 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 ended the quarter with cash and cash equivalents of 235 million euros. We continued to proactively manage working capital and we improved our inventory to sales ratio to 36% down from 40% in Q2 2024 and our DSO for the quarter were 46 in line with 44 a year ago. During the quarter, we spent approximately 21 million euros in capital expenditures, adding to our production capacity in Pasewalk, Görlitz, and Eruka, and continuing our investments in retail and IT. We are on track to meet our CapEx targets of around 80 million for the year. Our net leverage was 1.8 times as of March 31, 2025, down slightly from 1.9 at the end of Q1. As is typical, we expect to see positive operating cash flow contribution in Q3 and Q4 due to the seasonality of all working capital. 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. Birkenstock is less exposed to tariffs, with 100% of all production and 96% of all materials sourced from Europe and no contract manufacturing from Asia. 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. First, the consistency in demand together with our engineered distribution and scarcity model allows for pricing flexibility. For a full offset of tariff impact, we would need only a low single-digit price increase globally, which is consistent with our historical level of pricing actions. Pricing 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. This, together with our strong inventory position, gives us the confidence that we can mitigate the fiscal 2025 tariff impact. While FX was a benefit to us in the first half of the year, the recent depreciation in the dollar will create a headwind to our reported growth and margins in the third and fourth quarter. 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. 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 importantly, provided we do not see any further weakening of the dollar and no additional tariffs on imports from the EU to US, we now expect adjusted EBITDA margin of 31.3% to 31.8%. 50 basis points above our previous guidance. This implies an adjusted EBITDA target in the range of 660 to 670 million euros, up 19 to 21% year over year. And now I'll be handing back to Oliver.

Thanks, Ibiza. The first half results of our fiscal 2025 demonstrate the strength of our brand with strong double-digit revenue growth, excellent margins, and significant progress in our widespread growth initiatives. We expect that the tariff situation may create a unique shift in consumer behavior in the footwear category, with a split between the few brands, like Birkenstock, who manage strong brand equity through relative scarcity, and those who distribute their products with less discipline and pricing integrity. We will navigate through these uncertain times from a position of strength, as we have successfully done in the past. Think about COVID, where we came through the challenge stronger than before. And don't forget about the import tariffs previously imposed by the US administration, which we completely absolved without any loss of sales. That's why I'm confident today. Our decades-long track record of managing our brand through a consistent engineered distribution strategy puts Birkenstock in a strong position to take additional shelf space and gain share. We are a brand with industry-leading growth, pricing power, clean inventories, strong profitability, global reach, a very healthy balance sheet, and cash generation. We believe there are few consumer companies better positioned today to drive steady long-term growth and shareholder returns. I would now kindly ask the operator to open our Q&A session. Thank you.

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. The company has allocated 60 minutes in total to this conference call. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. And the first question today is coming from Matthew Boss from J.P. Morgan. Matthew, your line is live.

Great, thanks, and congrats on another really nice quarter. Thanks, Matt. So, Oliver, could you speak to your confidence in your outlook for the rest of the year and your raised EBITDA margin guidance? despite the elevated macro uncertainty with tariffs and foreign exchange? Or really, what are you seeing in your current business to give you this confidence?

Good morning, Matt. Thank you for your question. You know, let me tell you one thing. For us, the whole situation is an opportunity and not a risk. Be assured we will fully offset the effect of the existing tariffs we are aware that currency is moving around quite a bit, but as always, we will share FX impact with full visibility. So, of course, we have factored the current FX level into our margin outlook. But most importantly, we and our partners are not seeing any changes to consumer behavior and demand out there. When it comes to product and to our product, there's no change at all. Full price realization remains at 90 plus percent and our order book from wholesalers remains very, very strong without any cancellations. So I think that's the, you know, the ultimate test of truth to undermine, you know, the strength of the brand and pricing power. We are well positioned to take shelf space and we could speed up, of course, our retail expansion if we have an opportunity. Wow, it's a great color.

Best of luck.

Thanks, Oliver. And Matt, maybe to add on your question with regards to EVDA margin, 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 inflations, which are the two key drivers for improved EVDA margin over the course of this year.

Great. Thanks for the caller.

Thank you. The next question will be from Simeon Siegel from BMO. Simeon, your line is live.

Thanks. Hey, everyone. Really nice ongoing broad-brace strength. Nice to see. To follow up a little bit, so just among everything else, the D2C in America's strength is really great, likely 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 1H trend? performance. And then gross margin was nicely better and really great to see the ongoing improvement from the Passivok ramp. How should we think 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 Passivok implications versus just the underlying gross margin dynamics. Thanks, guys.

Thanks, Samir.

So as you know, with our B2B, we have an order book which provides us with great visibility in terms of growth. But as you also know, the second half is more B2C heavy compared to the first half of the fiscal year. So we have naturally less visibility as a result of that. And given the current macro conditions, we are, as you are aware, prudent in our planning, given this reduced visibility in the second half. In terms of cadence or seasonality, the third quarter, as is typical, will be the slowest growth quarter for the year. The first reason is just simple mathematics. The sandal share is the heaviest in the third quarter, and while sandals are growing double-digit, closed-toe shoes grow two times as fast. So the weighted growth is slowest in the third quarter in the fiscal year. So this covers the first part of your question. The second question on gross margin comes back to my initial statement. So we had expected about 50 basis points tailwind to gross margin for the full fiscal year 25 through better absorption, primarily, however, in the second quarter of the year. Now we're seeing 50 basis points into 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, with the remainder coming in in the fiscal year 26. So, as mentioned earlier, this will be driving the improved gross margin.

That's great. Thanks, guys. Best of luck for the year ahead.

The next question will be from Mark Altschwarger from Baird. Mark, your line is live.

Thanks for taking my question and great results. Could you expand more on your plans for tariff mitigation and the impact on demand for Birkenstock? And relatedly, could you just speak to the timing, any call-outs on the timing of when you expect the costs and the offsets to flow through the P&L?

Thank you.

Thank you, Mark. Yes, sure.

So most importantly, and as Oliver already mentioned, we will fully offset the existing 2025 tariff impact. As you know, we are a brand with a proud heritage being made in Europe. As such, we are less exposed than most. So 96% of our raw materials are sourced from within Europe and 100% of our manufacturing and final assembly is from the EU. So that said, we will offset the tariff impact. First, we will look at global pricing. So as you know, 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 full price realization, given the brand equity that we've not only built in the US, but also beyond. And second, unlike our competitors, we are vertically integrated. So we have other levers to pull, mainly the ability to gain efficiencies across our value chain. And so overall, in an environment where consumers face pressure from inflation in many areas, we expect to see even more intentional purchasing and a shift between the brands in high demand, like we are, and those brands that are struggling really to gain consumer attention. And as such, referring back to what Oliver has said, we do see this, indeed, as an opportunity to take additional self-space and gain share eventually.

That's a look. Thank you.

Thank you. The next question will be from Dana Telsey from Telsey Group. Dana, your line is live.

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 in September 23. Where are we on that journey? When does it get fully absorbed? And when you talk about the sales price adjustments, between closed-toe sandals, what are you doing in terms of pricing to continue to generate this solid gross margin?

Thank you.

On the first part of your question with regards to better absorption and as initially mentioned, so we had expected about 50 basis points tailwinds to gross margin for this full year. We're now seeing that materializing ahead of schedule. So we now think it will be 75 basis points for this fiscal year. And the overall effect for next year will be additional 75 basis points. So that will be clearly a driver for gross margin improvement.

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 still the same around the world for your own stores? And any learnings of closed-toe versus sandals from the stores? Thank you.

Hi, Dana. This is Nico. I'm going to take this question. So as you know, retail is a massive growth pillar for us, and we are very pleased to see that we are currently operating 77 stores. We added six stores in this quarter. We opened in less than a year Paris No. 2, which is doing really well. We opened London No. 3. We opened in Nashville, and we opened also in Shanghai. 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 ten stores from a performance perspective. We remain very disciplined in choosing the right locations. So for us, the locations are really mattering the most. So we really want 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 well on track with the store expansion around the new stores. I think it's worth mentioning, while we open stores, the retail growth is not just driven by store expansion. We have a very solid and healthy comp growth in our longer-standing stores.

Thank you.

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 call. The next question is coming from Laurent Vasilescu from BNP Paribas.

Oh, good morning. Thank you very much. Good morning. Thank you very much for taking my question. Closed-toed increased its mix rate by 500 basis points in 1H. Is that driven by the Boston as well as other closed-toed offerings? Should we assume a similar rate increase of 500 basis points for the second half? And separately by my math, it looks like the standard assortment grew low teens in 2Q. Should we assume the standalone business grows low double digits for FY25 similar to last year? Thank you.

Hi, this is Nico. Thank you for your question. I'm going to take it. So, closed-toe, as I just mentioned, continues to outpace our open-toe in this quarter by 2x. And it's worth mentioning why this is an outpacing of our open-toe. Our open-toe business grows double-digit. We are really pleased to see that this is not only driven by Boston. Boston continues to show a very strong performance, while all non-Boston clogs are growing at the same pace. So we are really diversifying our clogs business and taking also off some pressure off the Boston. When it comes to laced-up shoes, like really shoes shoes, this category delivered another record quarter, significantly outgrowing our clogs business. So again, we are diversifying our closed-toe business beyond Boston and beyond clogs. In EMEA, just to reference one thing from EMEA, it is already the second biggest category in our online channel. Seven out of top 20 are laced-up shoes. And that all, again, while sandals are growing double-digit.

Thank you very much. Best of luck. Thank you. The next question will be from Paul LeJuez from Citi. Paul, your line is live.

Hi, this is Kelly on for Paul. Thanks for taking our question. Just want to follow up on some of the gross margin post-intakes. I think last quarter you said gross margin would approach 60% this year. I guess with the raise in the PASA Walks, ramp contribution, but, you know, maybe some effects. I was just curious if you're sort of reiterating that side, if you're raising it. So any color there. And then just secondly on the pricing strategy, you took around the price increases in the second quarter. Is that to offset the tariffs or should we expect more from here? And just any regional color on where those price increases are focused. Thank you.

Hi, it's Udo speaking. Thank you for your question.

So on gross margin, there will be two drivers. We will have and we will see better absorption in our facility in Pasewalk. This is the one factor driving that. which is 50 basis points in Q2, but also we experienced favorable FX and pricing effects net of inflation, which also contributed to the increase to 140 basis points in Q2. Generally, on pricing, and as mentioned, we're taking a global approach here. As we have done in the past, frankly. So every season, we are reviewing prices on a style-by-style basis. We are very surgical when it comes to pricing. However, always maintaining a globally aligned pricing architecture.

Thank you. Thank you. The next question will be from Jay Sol from UBS.

Jay, your line is live.

Great. Thank you so much. Just a question. How are you thinking about cash flow and cash flow uses in the back half of the year and as you get into the year? Obviously, the company has a lot of cash in the balance sheet. How do you feel about the plans for that cash? Thank you.

Hi, Jay. It's Ivito again. We've always said that our first priority for use of cash is to invest in in the business and especially in the white space opportunities that we have identified and Oliver has already 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 and this is predominantly in our production facilities in Görlitz, Parzival, but also in Aruka and also to support our retail expansion. We've also said that we would like to continue to reduce our debt and we will continue to do that. And we are fortunate that even after these two priorities, we have additional optionality and 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.

Okay. Thank you so much.

Thank you. The next question will be from Lorraine Hutchinson from Bank of America. Lorraine, your line is live.

Thank you. Good morning. You've called out a trend over the past few quarters of a younger customer trending more toward in-person shopping. Have you seen that build, continue, and is that a global phenomenon or more focused on North America?

Yeah, hi, it's David. Certainly the phenomenon seems to be global. I just think that youth tend to shop more live, and I also think that our brand, because of the tactile shopping experience of coming into contact with Birkenstock, especially for new consumers the first time, it's a very real experience in our own retail, and I think that's going to continue.

Thank you.

The next question will be from Sam Poser from Williams Trading. Sam, your line is live.

Thank you for taking my questions. I'm wondering on the demand side in the back half of the year, once the impact of the tariff kicks in on other things, how much of it from a demand perspective may you have tempered your outlook from a unit perspective or something given Given that, and since you run, like, what percent is your scarcity of the demand right now? And is that what gives you the comfort that you're scarce enough that it won't impact the sales? Or are you going to say that you're running at 75% of the demand? Is that going to just leak up to 80, but you'll still be scarce, and that's why you're not concerned with the top line?

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 find that every time our sales increase and we put a little bit more stock into the market, we see the top line demand continue to increase. So I think we're not being cavalier about the fact that consumers might be a little pinched in the wallet, but we see this 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. 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.

Thanks. And then, Avita, can you just break out, can you give us just some, like... general thoughts on what the gross margin for the full year is going to be and, you know, how you're thinking about SG&A in total for the full year?

Yes, sure. It's Ivica speaking. So on gross margin, as mentioned, the key driver will be the additional absorption that we are seeing. Also pricing, net of inflationary effects, and this will drive the increased gross margin. So we said that we will be moving closer to the 60% gross margin target, and this is what we are reiterating on the SG&A side. So we are going to continuously invest in infrastructure in IT. And as such, we want to have leg space here to continue and to make the organization future-proof to cope with the growth that we are experiencing and demand that we are seeing outside. And also be aware in terms of selling and distribution expenses that we are continuing to invest in retail, and this is certainly also driving additional selling and distribution expenses.

I guess just real quick, I mean, for the first half of the year, you grew your... It's Megan.

That's three questions. We're going to have to move on. I'm sorry. All right. Goodbye.

All right.

Thank you. And the next question is coming from Michael Benetti from Evercore. Michael, your line is live.

Thanks, guys, for taking our question. This is Jesslyn on behalf of Michael. Congrats on a good set of results. Maybe just a little bit on the other markets. Oliver caught out white space in APEC growth and, you know, China more than double in the quarter. Maybe talk about the opportunity there and what is the long-term store growth plan for the region. And on EMEA, there was a little bit of float on second quarter. So how should we think about second half growth? Any color there will be helpful. Thank you.

Hey, Jocelyn, this is Mikko. I'm going to touch on the EMEA question. So in EMEA, please let me share that Q2 this year is built on a very strong quarter in last year. We did some land grab in B2B last year, and simultaneously we had a very, very strong DTC performance. We saw across our EMEA countries a broad-based growth, specifically in our DTC channel, which grew 1.5x faster than our B2B 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 Middle East and Africa together with Europe into one EMEA segment. And we took the opportunity to visit the Middle East and Africa markets 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 in 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 B2B shipping quarter. So you really face, with a full order book, you just sometimes face operational limitations in getting the product out across the quarter. That's a bit of more color for EMEA.

Hello, and this is Klaus talking about the APAC region. So we had another very strong season in APAC. D2C was strongly outpacing the B2B part. We are seeing a very strong increase in our traffic, not only online, also in the stores. And by keeping also our conversion rate, So there's a very positive feedback coming also on the sellout on our new stores. Same on the like-for-like business. We've seen a double-digit growth in the comparable stores. And in the product sellouts and development, we see similarities to the other markets. We are selling more high-priced products and getting all our ICANN products also running Same for the closed-toe shoe business, also slowly growing in the APEC region. So we are very confident for what is coming.

Great. Thanks, guys.

Thank you. The next question will be from Edward Alban from Morgan Stanley. Edward, your line is live.

Hi, guys. If you could just do a clarification. Are we right in thinking that most of the inventory you're going to be selling in the U.S. in fiscal 25 was kind of shipped before the tariff announcement? And therefore, the tariff news and also the effects from a transactional standpoint should have kind of little impact on your fiscal 25. 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 impact on the effects? So let's say, you know, the U.S. depreciate 10% versus Euro. You know, what's kind of the impact on your EBIT hypothetically? Thank you so much.

Hi everyone, it's Ivica speaking.

So to your first question on the inventory. So we have a strong inventory position, not only in the US, but also globally. And certainly this inventory position in the US is helping us to fully offset the 2025 adverse effects from increased tariffs.

So we should understand it's mostly a FY26 event rather than a FY25 event, basically, in terms of impact.

Hey, Edouard. This is Alexander speaking. Yeah, well, there's always some fluctuation in currency. We also commented on that earlier. Clearly, we saw some tailwind in the first half of the year. With the current FX rate, we see a little bit of headwind for the remainder of the year if the FX rate stays where it is. Simulating this with the current rates, we will at a full year be exactly on 24 rates, so this shouldn't be at a full year an impact to us. And to simulate it a little bit, so full year approximately five cent change in the U.S. dollar exchange rate will give you 37 million of revenue impact and 26 million of EBITDA impact. This should be a good math to model out. Okay. Understood.

Thank you.

Thank you. The next question will be from Anna Andreeva from Piper Sandler. Anna, your line is live.

Great. Thank you so much. Good morning. And let me add my congrats as well. You mentioned a strong trend in the business and 2Q being seasonally the slowest growth quarter, just giving the sandals. Just curious, any additional color you could share on what you're seeing in April and in May? Curious how the closed show is performing, and are you seeing any signs of pull forward in demand ahead of the tariffs in the U.S.? ?

We see no change in demand.

It's sell-through results through the quarter that we're referencing. We also, whether or not there's requests for pull forward, we manage that ourselves. So we make the decisions and right now the flow of inventory is always managed by us relative to stock to sales ratios. So we don't do anything from an inventory standpoint in shipments based on anything that has to do with any tariff impact whatsoever.

Anna, it's Megan. Can you just repeat the first part of your question? I think you said we said the second quarter is the slowest quarter, and that's not what we said. We said that our fiscal third quarter seasonally is our slowest growth quarter because it's the highest mix of sandals, and closed toe grows at 2x the rate of sandals.

Right. Just any additional color on what you're seeing in the demand. Just curious, any additional kind of categories or franchises that you guys could call out?

Well, I mean, the sandals business continues to grow very nicely at double digits. I think, you know, we're not seeing any slowdown there. It's really just closed-toe growth grows faster.

All right. Fair enough. Well, thanks so much, and best of luck.

Thank you. The next question will be from Janine Stichter from BTIG. Janine, your line is live.

Hi. Thanks for taking my question. So nice to see the DTC improvement. I think you mentioned some investments in online or e-commerce initiatives. 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.

Yeah, thanks, Janine. D2C, 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, to our fan base, the average purchase is 20% higher. So when you look at allocation of dollars against the D2C space, it's more lasered rather than shotgun, so the return on investment is higher there. We're very 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.

Thank you.

Thank you. The next question will be from Erwin Ramberg from HSBC. Erwin, your line is live.

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 20, 60, 30, so 20% top line growth, 60% gross margin, 30% margin. I'm wondering how you think about the arbitrage between margin and sales. You did reference during the IPO process Hermes, for example, which is a company that refuses to increase its margin because every time they have excess contribution, they reinvest everything to continue to feed the top line and brand desirability, brand equity. You're sort of above the 30% margin today. And I'm wondering if there would be a possibility to reinvest some of that to grow at a faster pace. I don't know if it's possible actually to grow at a faster pace, but theoretically Asia growing at 50, not at 30, or you reinvesting quite a bit to move closer to that 20, 60, 30. And maybe related to that, your margins at a higher level than expected this year, is that sustainable or are there reasons to believe that there is a particular boost for the current fiscal year that will be non-recurring in the outer years? Thank you.

Thank you for your question. Be assured, I try to manage the margin down as good as possible. So I don't want to have bad surprises on your side, you know, that you will start crying because we're delivering, I don't know, 34%, 35%. No, the joke's aside, we prepare ourselves, as I said, because we as a team and as a company, we see this whole situation as a big opportunity for us. So I fully agree with you. that there will be on the way, second half of the year, but also some time within 2026, there will be opportunities for us to develop quicker and own retail, to grab some shelf space, to do land grabs wherever other brands are collapsing or fading away. Be assured, we are ready, we are prepared for this, and that's, you know, why we always keep some powder dry to move on quick and to have enough ammunition to develop the brand quicker and with a more focus on quality. And quality for us means not only growth, it also means margin in the cross-profit margin and AR margin, of course. Allow me one comment to your question about Asia and the APEC region. It is wiser 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 APEC region. It seems like this is exactly the right tuning and the right setup to move on. Yes, we've seen partners and possibilities to be quicker, but honestly, you know, creating more unit growth in this region, creating more logistic issues in this region. We need to prepare our whole organization. Keep in mind we are fully vertically integrated supply chain, so we have to organize by ourselves. And if you speed up your organization and your growth, then you have to make sure that your company is catching up with all this. And it's not easy to organize everything simultaneously. So I think we feel pretty good with our growth algorithm for the APEC region. And again, we are ready to take over shelf space. We are ready to take over our own retail spaces much more aggressive like in the past. And we believe that there will be a lot of opportunity out there. Thank you.

Thanks a lot. Very useful. And maybe just on the second part around the margin being higher than expected this year, is that sustainable into the outer year?

Hi, Erwan. It's Megan. We do not see anything that's one-off this year that would go away next year. In fact, we do expect some gross margins tailwind again further next year given the absorption, the additional absorption of the Pauselbach facility.

Okay, super useful. Thank you so much. Best of luck.

Thank you. The next question will be from Sharon Zacfia from William Blair. Sharon, your line is live.

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 sales. And if you do see signups as well in the 10 stores that you have in the U.S. into the membership program, and as a corollary to that, how the membership is also faring in Europe. Thank you.

Membership, this is David. Thanks, Sharon. Membership is growing in the Europe region and in the Americas. We will be fully Omni capable very soon to do signups in stores. It's less about the sign-ups and, you know, getting the information in your database. It's more about how you do personalization and segmentation and how you speak to these customers, these brand fans, and how you engage 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 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 very strong return on investment.

Thank you. The next question will be from Adrian Duverger from Goldman Sachs. Adrian, your line is live.

Hey, thank you for taking my questions. So the question would be on the opportunity that you see from price mix, particularly with new products coming in the second half of 25. And a follow-up on this would be that within each of your product categories, both open and close to shoes, do you see a difference in the performance between the different price points of the products? Any difference from low-end and high-end products? Thank you very much.

Hey, this is Nico. Thank you for your question. What we can generally see, I think we stated that also earlier, is the consumers voting for higher price points within our categories. So what you see is that the leather share has been increasing constantly. Also in Q2, the leather share increased. Our closed-door business outpaced our sandals business, so again, typically higher price points. And within the closed-door business, you also see consumers voting much, much more for laced-up shoes than they did a couple of quarters back. So again, high-priced executions within closed-door are also trending with our consumers. If it comes to our sandal business specifically, what we definitely see is, again, consumers coming in and buying much, much stronger premium embellishments. So, rivet executions, flower executions, all those executions are doing pretty well with our consumers. Many times, you know, online sold out very quickly, so we are also fast replenishing on those executions. So generally, you can see across the business, across the categories, we definitely have a primarization of the business.

Thank you. Thank you.

The next question will be from Peter McGoldrick from Stiefel. Your line is live, Peter.

Hey, thanks for taking my question. This will be the last question, sorry.

Can you talk about the scaling wholesale opportunity? You called out progress in youth sporting goods, outdoor, and department stores. Can you help us think about the forward opportunity for increasing channel representation?

This is David. Thanks for the question. There's 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 retail accounts. It's more expansion of the assortments.

And in EMEA, just to add a bit more color from our perspective, so there is quite a substantial number of doors and partners that are not yet penetrated and for a reason. So we have a very close eye on the quality of the partners. We always give the example of Foot Locker in Europe. We don't serve them. We don't deliver to them. because we don't think that they are currently adding something to our B2B portfolio. So there are more partners in sport and outdoor, also in lifestyle segment that we have a close eye on and that we decide to service when we believe is the right moment.

And, yeah, I just want to add one thing, because, I mean, you've seen probably our new product categories and different usage occasions, so, yes, um on the on the mid to long term of course we will add new chains and new doors and new channels um because of simply the the fact that we will then have developing a professional segment an orthopedic segment um and shoes for the for for outdoor um single use outdoor um also enclosed so so all this incremental usage occasions will definitely create also a broader and wider network of distribution. Thank you.

Thank you, and we are at the top of the hour, and that does conclude today's Q&A session, and it also concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.