Birkenstock Holding PLC

NYSE:BIRK

Earnings Call Analysis

Birkenstock Reports Record-Breaking Q2 with Revenue and Profit Growth

In the second quarter of fiscal 2024, Birkenstock achieved record revenue of EUR 481 million, a 23% increase from last year, driven by double-digit growth across all segments and channels. Despite a decline in gross profit margin to 56.3%, the company saw robust growth in both DTC and B2B channels. Given the strong performance, Birkenstock has raised its fiscal 2024 revenue growth forecast to 20% and expects an adjusted EBITDA margin of 30% to 30.5%. Cash and cash equivalents improved to EUR 176 million, and the company continues to invest in increased production capacity and new store openings.

Introduction of Record-Setting Results

Birkenstock reported an exceptional second quarter for fiscal year 2024, showcasing the highest revenue in the company's history. Their revenue reached €481 million, marking a 23% increase from the previous year. This growth was driven by burgeoning demand for Birkenstock's products across all segments, channels, and regions.

Digital and Direct-to-Consumer Channels

The company's direct-to-consumer (DTC) segment was a standout performer, growing by 32% compared to the previous year. Online demand played a significant role, with the digital business seeing a 29% year-over-year increase. Birkenstock opened six new owned retail stores during the quarter, bringing the total to 57, indicating robust expansion in physical retail presence as well.

Gross Profit and Margins

Despite strong revenue growth, the gross profit margin for the quarter was 56.3%, down by 320 basis points from the previous year. This decline was primarily due to ongoing capacity expansion, which accounted for 220 basis points of the margin decrease. Additionally, government-incentivized inflation-related bonuses and wage increases for production staff contributed to the margin contraction.

Investment in Future Growth

Birkenstock invested €17 million in capital expenditures during the second quarter, focusing on production capacity expansion and new store openings. Year-to-date capital investment has reached €35 million. These investments are expected to support future revenue growth and enhance operational flexibility.

Raising Full-Year Guidance

Given the strong performance and continued demand, Birkenstock raised its fiscal year 2024 revenue growth forecast to 20% on a constant currency basis, up from the previous guidance of 17% to 18%. The company now expects adjusted EBITDA margins in the range of 30% to 30.5%, reflecting efficiencies from higher revenue and better fixed cost leverage.

Segment Performance

Birkenstock's performance varied across different regions and segments. The Americas' segment saw a revenue increase of 21%, driven by strong consumer demand. The European market also showed substantial growth, outperforming local competitors with a 21% increase, attributed to strategic distribution efforts. The APMA region (Asia Pacific, Middle East, and Africa) was the fastest-growing segment, with a 42% revenue increase, supported by both volume and ASP growth.

B2B Channel Performance

The B2B channel, representing 76% of Birkenstock's revenue for the quarter, grew by 20% year-over-year. High sell-through rates highlighted strong brand strength, despite a challenging wholesale environment. Strategic efforts to increase shelf space and enhance product offerings helped secure this growth.

Membership and Customer Loyalty

Birkenstock's growing membership program was another highlight, with membership more than doubling compared to the previous year. Members showed a higher average order value by 25% compared to non-members, indicating high engagement and loyalty towards the brand.

Future Outlook and Strategic Focus

Looking ahead, Birkenstock remains committed to its long-term targets of mid-to-high teens revenue growth, around a 60% gross profit margin, and over 30% adjusted EBITDA margin. The company plans to continue strategic investments in capacity, distribution, and new product development to sustain its growth momentum and market leadership.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, and thank you for standing by. Welcome to BIRKENSTOCK's Second Quarter Fiscal 2024 Earnings Conference Call. [Operator Instructions] The company has allocated [indiscernible] 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 Kulick, Director of Investor Relations.

[Megan Kulick, executive]

Hello, and thank you, everyone, for joining us today. On our call are Oliver Reichert, Director of Birkenstock Holdings plc and Chief Executive Officer of the BIRKENSTOCK Group; and Erik Massmann, Chief Financial Officer of BIRKENSTOCK Group. David Kahan, President of the Americas; Nico Bouyakhf, President Europe; Klaus Baumann, Chief Sales Officer; and Alexander Hoff, VP of Finance, will join us for the Q&A section.

Please keep in mind that our fiscal year ends on September 30. Thus, our second quarter of fiscal 2024 ended on March 31, 2024. You may find the press release and a supplemental presentation connected to today's discussion on our Investor Relations website, birkenstockholding.com. Additionally, we have included in the press release tables and presentation the quarterly for fiscal year 2023 in order to aid in year-over-year comparisons.

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 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 birkenstockholding.com. We undertake no obligation to revise or update any forward-looking statements or information, except as required by law.

During the call, all revenue growth rates will be cited on a constant currency basis unless otherwise stated. We will also reference certain non-IFRS financial information. We use non-IFRS measures as we believe they represent 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.

[Oliver Reichert, executive]

Thanks, Megan, and welcome to the BIRKENSTOCK team. We are very happy to have you with us, bringing the BIRKENSTOCK language to capital markets and helping us further develop this super brand.

Good morning, everybody, and thank you for joining today's call. We are happy to be here with you to discuss another exceptional quarter. Once again, we achieved the highest revenue level for the second quarter in our company's history, driven by growing demand for our products across all segments, all channels and categories. Accordingly, revenue grew by 23% versus our second quarter last year.

We continue to see strong demand growth in our core markets and in the largely untapped white space areas we identified across segments, channels, categories and usage occasions. Given the strong results achieved in the first half of fiscal 2024 and the continued demand growth we are seeing, we are pleased to be raising our fiscal 2024 guidance, continuing the 10-year 20% growth trend we highlighted during our IPO.

We are increasing our fiscal 2024 revenue growth forecast to 20% on a constant currency basis, up from our prior guidance of 17% to 18% and an adjusted EBITDA margin in the range of 30% to 30.5%. Our second quarter revenue growth was driven equally by an increase in ASP and units. ASP benefited from the continued shift to premium products, a favorable channel mix towards DTC and the targeted sales price increase. Unit growth was strong across all segments, but especially strong in APMA, one of the key white space markets we have been highlighting.

The additional production capacity we have brought online over the past 6 months in Germany and Portugal to fuel our supply capabilities is allowing us to meet growing global demand for our products. While the overall global consumer market remains weak, BIRKENSTOCK achieved 23% growth, beating the market soundly as we continue to take share and become a must-have brand for key -- partners.

As we and others have observed, consumers are increasingly becoming more selective and intentional in their spending. Consumer across all ages, segments and price points are seeking brands they love, and BIRKENSTOCK is definitely one of these global super brands.

The strength of the BIRKENSTOCK brand is evidenced by continued full price realization of over 90% at key distribution partners in our DTC business. Our DTC channel was once again, our fastest-growing channel in the second quarter of fiscal 2024, with 32% growth against the same period last year. We opened six new owned retail stores, bringing the total to 57.

Our digital business also continues to perform very well, increasing 29% from the prior year quarter. Members of our fast-growing membership program are highly engaged and most -- to expand their purchases of our brands spending more per transaction than nonmembers. Growing the membership base of loyal fans through priority access to new products and limited editions is proving successful and remains a key focus for us in fiscal year 2024.

Our B2B business, which represented 76% of our revenue in the second quarter achieved healthy revenue growth of 20% against the same period last year, supported by a high sell-through rate. This growth came despite a challenging wholesale market you've heard discussed by many of our peers. As a reminder, the second quarter is seasonally the higher B2B quarter due to sell-in for the spring and summer seasons.

We saw a continued shift towards closed-toe silhouettes including clogs and premium products during the quarter. Closed-toe penetration was over 25%, up 900 basis points from the prior year period.

The premium offering across our range continues to resonate with the consumers, driving ASP up double digits in the quarter. As an example of this, our big buckle line grew over 28% and sales of our newer braided styles have almost doubled year-over-year.

During the quarter, two of our new premium styles, our new sandal, the Catalina, and the closed-toe [ looped tree ], ranked in our top 20. While we have generated significant momentum and compelling top line performance from our new styles, our momentum by our core silhouettes remains strong. Revenue from our top 5 core silhouettes, most of which have been around for close to 50 years, was up over 20% in the quarter, highlighting the commercial relevance of these iconic models and most recognizable styles.

Now let's move to our discussion of segment performance. Within our largest segment, the Americas, strong consumer momentum and demand for our brands continued in the second quarter. Revenue in the region was up 21% compared to the same period a year ago.

DTC channel growth continued to outpace B2B growth, increasing our DTC share by over 200 basis points. Notably, 46% of digital DTC sales were from styles other than sandals as our brand fans continue to -- products for different usage occasions.

Over half of our digital revenue was generated from members of our membership program, who, on average, spend 15% more than nonmembers. And while our DTC revenue in the Americas continues to be driven by our strong digital presence, revenue from our own retail doors continues to grow above average.

Our new flagship store in the Miami Design District has performed ahead of expectations with average order value 13% higher than other stores in the U.S., driven by a strong penetration of our premium [ 774 ] collection.

The second quarter was another strong one for the Americas B2B [ Gen ]. Our key wholesale partners recognize the strength of the brand and appreciated turnover of our products. Accordingly, we have allocated more space to BIRKENSTOCK and increased purchases by over 30% compared to last year, driven by expansion of categories like closed-toe silhouettes. New points of distribution in the Americas accounted for a single-digit percentage of revenue with a heightened focus on -- retailers, including sports-specific running retailers where the benefit of our footpad as a recovery from sport is finding strong end use demand.

In Europe, we delivered exceptional broad-based growth in the second quarter of fiscal 2024, underpinned by strong -- demand. While the European retail market remains soft, BIRKENSTOCK continues to perform strongly, up by 21%, far outpacing any brands. We saw strength in both the DTC and B2B channels. The strong growth in Europe is directly related to the distribution transformation efforts we have made in the region designed to grow ASPs through more strategic plans that drives more premium-priced products. We saw ASP increase double digits as demand for styles price at over EUR 100 grew by over 60% and reached over 50% of total sales.

Closed-toe silhouettes grew by over 80% in the second quarter with some of our fastest-growing models like the Bostons, up over [ 100% ]. DTC growth outperformed B2B growth due to the continued strong online demand, led by over 100% growth in France. Online demand for closed-toe premium leather, big buckle and other premium products was up over 40% in the quarter. Our membership program more than doubled in the quarter versus last year and average order value was 25% higher than nonmembers.

In B2B, we are increasing our shelf space and continue to be one of the top-performing brands for our wholesale partners in Europe. The Spring/Summer order book was the highest ever with double the order book for closed toe from a year ago. Key retailers are increasing their presence and shifting their volumes towards earlier delivery days and like the America, the majority of the growth is coming from existing distribution partners.

It is indicative of the strength of our brands that our fully implemented Spring/Summer 2024 price increases had no adverse impact on demand, and our full price realization in Europe remains very strong.

APMA was again our fastest-growing segment in the second quarter of fiscal 2024 with revenue growth of [ 42% ], driven almost equally by volume and ASP. Growth in the region was largely driven by our DTC channel with the digital portion of channel nearly doubling compared to last year.

In addition, we added five new owned retail stores, including four in India and one in Japan, bringing the total to 19. We also saw a healthy increase in B2B in the second quarter of fiscal 2024, which was driven by an expansion of our mono brand partner stores with 11 newly opened stores.

Demand in APMA is broad-based, and like other regions, has benefited from closed-toe silhouettes, including clogs, which more than doubled compared to the [ year-ago ] quarter.

I will now turn it over to Erik to discuss our financial results in more detail.

[Erik Massmann, executive]

Thanks, Oliver, and good morning, everyone. We're very pleased with BIRKENSTOCK's perspective in the second quarter of fiscal 2024. While the broader consumer environment continues to be challenging, the health and strength of our brands are clearly reflected in our results. BIRKENSTOCK has become one of the few must-have brands in the wholesale channel to drive traffic to the stores, and our D2C channels continue to grow as consumers become more intentional in their purchases.

Now let's look into the details of second quarter results. Second quarter fiscal 2024 revenue was EUR 481 million, growing 23% versus prior year. We generated double-digit growth across all segments and channels, demonstrating the desirability and resilience of our brand. Again, our DTC performance was strong, up by 32% versus prior year, driving DTC penetration up 200 basis points compared to last year. At the same time, we increased B2B revenue by 20%.

Gross profit margin for second quarter fiscal 2024 was 56.3%, down 320 basis points compared to prior year. Our ongoing capacity expansion, which will give us the bandwidth and the flexibility that will allow us to expand our footprint in underpenetrated segments and categories was the primary driver of the decline in gross profit margin, representing 220 basis points of the year-over-year decline. Margin was also impacted by the planned onetime government incentivized inflation-related bonuses and wage increases for our production workforce implemented in the second quarter.

Selling and distribution -- were EUR 113 million, representing 23.5% of revenue in the second quarter of fiscal 2024, up 220 basis points year-over-year due to increased DTC penetration and retail store investment. G&A expenses were EUR 20 million, down from EUR 23 million the prior year despite incremental public company costs as the year-ago quarter was impacted by onetime corporate event expenses and accruals that did not repeat this year. The G&A declined as a percentage of revenue by 180 basis points.

Second quarter adjusted EBITDA of EUR 162 million was the strongest in company history and up 7% versus the second quarter of fiscal 2023. Adjusted EBITDA margin was 33.7%, down 470 basis points from the prior year, negatively impacted from the same temporary and -- time items we discussed in gross profit margin as well as the additional cost of expanding our retail and DTC -- and incremental public company administrative costs.

Adjusted net profit of EUR 77 million was up 3% and adjusted EPS, EUR 0.41, flat with the year ago due to higher D&A mainly related to capacity expansion and the IPO-related share increase.

Let's now have a closer look at our balance sheet as of March 31, 2024. Cash and cash equivalents were EUR 176 million as of March 31, up from EUR 169 million at the end of the first quarter. In the second quarter of fiscal 2024, inventory was EUR 651 million or about 40% of revenue, down from 44% in the year ago second quarter. The seasonal increase in trade receivables to EUR 200 million is in line with our expectations given our sizable [ Q2 ] wholesale events. With general payment terms in the range of [indiscernible] to 60 days, monetization will largely be recognized in the next quarter.

We will continue to deliver using cash generated from operations. Our net leverage was 2.6x as of March 31. Earlier this week, we announced the refinancing of our loans and credit facilities, including the early paydown of approximately USD 50 million of loans.

We continue to invest for future growth. Capital expenditures totaled EUR 17 million in the second quarter, bringing the total amount invested year-to-date to EUR 35 million, mainly related to our production capacity expansion and new store openings.

With that, I'll hand over back to Oliver.

[Oliver Reichert, executive]

Thanks, Erik, and let me summarize our discussion. The exceptional results during the first half of fiscal 2024 demonstrate the resilience of our business and our ability to achieve strong double-digit revenue growth. We are executing on our proven engineered distribution strategy to drive both volume and ASP growth and meet the growing consumer demand for our products, both classics and new, emerging products and across all segments and channels.

We continue to significantly outpace our peers in America and Europe, with strong growth momentum in our DTC footprint and increasing demand from our loyal and steady B2B partners. At the same time, we are entering the next sector of our growth trajectory as we tap into our largest white space market, the APMA region, increasing brand awareness and taking market share while following our playbook of disciplined engineered distribution to support ASP.

Given the strong first half and the continued strong growth in demand we are seeing, we are raising our guidance for fiscal 2024. We now forecast total revenue of EUR 1.77 billion to EUR 1.78 billion, equals 20% constant currency growth in line with the compound annual growth we have achieved over the past decade, demonstrating the sustainability of our strong growth trends. We expect adjusted EBITDA margin of 30% to 30.5%, and adjusted EBITDA of EUR 535 million to EUR 545 million. We remain fully committed to our medium- and long-term targets of mid- to high teens revenue growth, gross profit margin around 60% and adjusted EBITDA margin over 30%.

So in short, we are very pleased to report that we have never been in better position to grow our business. BIRKENSTOCK is 250 years strong, and we have a long runway of growth ahead.

I would now kindly ask the operator to open our Q&A. Thank you.

[Operator]

[Operator Instructions] And the first question today is coming from Matthew Boss from JPMorgan.

[Matthew Boss, analyst]

Congrats on a great quarter. So Oliver, could you elaborate on the brand's continued global momentum? And have you seen any change in business so far in the third quarter relative to the -- embedded second half outlook?

And then just from a cost perspective, what is supporting the raise to your full year EBITDA margin outlook relative to 3 months ago?

[Oliver Reichert, executive]

Okay. Thank you for the question, Matt. We're seeing nothing in the current trading that would cause us to be more cautious on revenue growth in the second half of the year. As you know, we don't guide quarter-to-quarter, only for the full year and long term. And we are very comfortable with our forecasted revenue growth of around 20% for '24 on a constant currency, by the way, which is consistent with our 10-year track record, as you know, from our IPO road shows.

Quarters can fluctuate. Shipments can shift, but there can be some [ noise ] from quarter-to-quarter. Also the second half is more DTC heavy. We have less visibility in the channel than we do in the B2B channel where we have excellent order book visibility.

We continue to hear about, as you put it, so perfectly met selective recession. So we're approaching our outlook for, especially D2C, with that in mind. Also, as you can see from our results, we are not seeing any current impact from that.

And now like the margin question -- part of the question is we are very pleased with our current outlook margin, particularly given the investments we've made to support growth in [indiscernible]. The main driver of the improved margin outlook is stronger revenue growth, driving better fixed cost leverage and utilization. So halfway through the year, we are very comfortable we can hit that 30% to 30.5% range.

[Operator]

The next question is coming from Randy Konik from Jefferies.

[Randal Konik, analyst]

Yes. I guess, Erik, maybe for you. I wanted to just unpack gross margin a little bit and maybe kind of give us some perspective on additional drivers in the quarter. And then looking ahead, how we should be thinking about the various fluctuations around gross margins in coming quarters? Give us some perspective there.

[Erik Massmann, executive]

Randy, thanks. Yes, it's Erik. So overall, I have to say that the gross margin will always vary from quarter-to-quarter due to the shift in channels and mix of business. So high B2B revenue, as we saw in Q2 now leads to lower ASP and therefore, lower gross margin. And obviously, other way around with higher DTC share. On the other side, high B2B share does lead to lower selling and distribution costs. So that's always a balance. And that's why we don't give guidance on quarterly margins. It can always shift a bit on timing of orders and shipments.

So we only look -- or I mainly look at margins on the annual basis, and I feel very comfortable with our mid- to long-term guidance of around 60% gross margin and the EBITDA margin of 30% plus.

So in terms of the year-over-year decline that was discussed before, certainly is a transition year as we did significant investments into our production to support the demand we see and loan growth. So this was a temporary dilute -- be diluted and will continue until we reach greater utilization, but be aware and reminded, we are exercising discipline in our distribution and control closely our growth to avoid the dilution of brand exit here.

So both reasons obviously lead to the margin we see this year and long term, as said, the guidance of around 60% gross margin, EBITDA of 30% plus, we feel very comfortable.

[Operator]

The next question is coming from Dana Telsey from Telsey Group.

[Dana Telsey, analyst]

Nice to see the progress. Two things. On the retail store performance, anything different that you're seeing by region is the -- and the new locations that you're going to, whether the store size and how you're thinking of the contribution to DTC of retail sales?

And lastly, the category expansions that you're doing, any updates given the close to performance of getting into some of those other occupational uses that you're footwear can be used for?

[Nico Bouyakhf, executive]

Dana, this is Nico. Thanks a lot for asking the question. I'm going to cover the retail part of your question, and then Oliver's going to take over with the closed-toe part of the question. So first of all, we are very pleased to be able to share with you that we are well on track with our global retail expansion. In Q2, we opened six new stores. From last year's Q2, we opened 13 new stores. Amongst others, Miami, as you know, in the Design District, Tokyo, two stores, and Mumbai also a new store.

Every store that we open is performing currently above clients. That's very, very pleasant to see. And that's also a testament of the great magnetism that we have as a brand when we open a store.

Every store basically, our average payback on CapEx is 12 to 18 months. So that shows you, it's not a big investment case that we're having here. It's really something that adds to our top line, and that adds also to our profitability.

What we do see in our stores as well is that we have an over-indexed growth of premium priced product and an over-index growth of closed toe. So wherever we open a physical connection to our consumers, the categories will benefit.

For the remainder of this fiscal year, we plan to open a similar amount of new stores in cities such as Paris, in cities such as Shanghai. So again, we are very confident with the outlook on our store expansion plan.

[Oliver Reichert, executive]

So I'm taking the closed toe part of your question, Dana. The last quarter was predominantly a sell-through quarter and it was winter. So we saw more demand for closed-toe silhouettes. It was over 50% of the sales are coming from closed-toe silhouette. So the growth in this segment was, compared to last year, first 2 quarters, 77%. So there, you can really see this is a rocket, okay?

So the closed-toe shoe segment, which we -- a few months ago, when we prioritized IPO, we talked about it as a white space opportunity. And now you see compared to the last year, the first half of the year, we grew by 77%. So that's really massive.

The second quarter is a big B2B sell quarter for our spring/summer season. So naturally, we will see more open-toe silhouettes in that mix in the second quarter. And the key here is that we are now a full year nonseasonal brand with strength in closed toe, including clogs and sneakers and sandals.

AP increases through closed toe, as you know, and it opens up new usage occasions. Our nonsandal sell-through was over 40% in the quarter, which is super strong, okay?

[Operator]

The next question is coming from Sam Poser from Williams Trading.

[Samuel Poser, analyst]

I have two. Number one, can you talk a little bit about the -- how -- has the sandal business inflected more since the end of the quarter?

And then secondly, not related, following up on the gross margin question, how long will it take for the new production facilities to be optimized so you don't -- so they are no longer a drag on the margins away that -- like when will that 220 basis points go away and be offset by the productivity of those factors in the sales that relate to them?

[Alexander Hoff, executive]

Thanks for the question. This is Alexander, and I will take the gross margin piece. What we communicated through the IPO, and referring to Erik's statement, clearly, '24 is a transitionary year. We took the strategic decision to go with further capacity to reach future demand. We also indicated that we see, in '25, a better absorption, but '24 is 1 year where we will bring over volumes from [ Gerlis to Pasar ] mainly. Pasar is the only factory out of our expansion program with [ Gale ] and Portugal, which is a complete new factory where we would bring in initially under-absorbed and overhead and so on. So that will be the heaviest impact in '24. And we expect 25 onwards to see a better absorption and a better impact on the margin side.

[David Kahan, executive]

This is David, Sam. Thanks for the question. Just a little color on the breakdown with the sandal business. The momentum in sandals has been incredibly strong, both DTC and at wholesale. As a matter of fact, what we're seeing in our core sandal business is not only strong sell-throughs, but a transition in penetration leather versus synthetic. Leather sandals are trending about 68% above last year, while synthetic is 22%.

So we're not only seeing the consumers still choose our icons across all the different styles, we're seeing them trade up to more premium versions.

[Operator]

The next question is coming from Simeon Siegel from BMO.

[Simeon Siegel, analyst]

Really nice job guys. Oliver or David or Nico, maybe all of you, just the increase you're seeing with those key retailers that you talked about prepared remarks, the earlier visibility, it's really all great to see. Can you speak to any changes you're seeing in maybe discussions with them about the assortment that they're asking for versus your ability to suggest what they should take? I guess I'm just wondering, as you continue to innovate your products do you think you're getting more stronger trust and ability to suggest to them as opposed to them specifically asking for maybe more limited SKUs that have been your -- products historically?

[David Kahan, executive]

Simeon, great question. This is David. As we've said before, 95% of our growth is coming from existing retail partners. So clearly, the demand is there to expand not only deeper inventory, but also the spread of products.

As we've said, we allocate everything, every style, every quantity by door even in people that have chains with hundreds of doors. Everything is allocated to the door level. So the assortments are really vendor managed.

What we're seeing is the momentum in closed toe and nonsandal products is incredibly strong. So not only are they doubling down on the sandal business, but they're also supporting all of the nonsandal categories. As referenced, we know that the overall wholesale market might be described as being a little choppy. Our sell-through, and this is sell-through not sell-in, was up over 30% in the quarter.

So obviously, there's a lot of demand to expand our products. And if you've been out at retail, as I know many of you have, you're seeing some of the incredibly strong statements at retail like our 250-year anniversary brought to life in many of the major retail partners.

[Simeon Siegel, analyst]

That's great. And then just, David, your point about the synthetics, are you seeing -- I don't know if you guys have done -- have updated the 3.6 survey. But are you seeing greater frequency -- shop, like are you seeing anything different with the synthetic option versus how people shop your product before?

[David Kahan, executive]

I would say not at all, except a lot of our consumers seem to be trading up to leather almost as an investment type item. I would say in a lot of our consumers' closets, a pair of BIRKENSTOCKs might be the most expensive footwear item they have compared to some of the some of the sneakers and choosing a leather BIRKENSTOCK, it's not an either/or with synthetic because synthetic is also up.

I just think that the response to the leather products as people invest has been -- the penetration of leather growing. Synthetic is growing also. So it's not either/or. It's just reaching more consumers, I believe.

[Operator]

And the next question is coming from Mark Altschwager from Baird.

[Mark Altschwager, analyst]

Congrats on the progress and results here. First, just with Q3 being a bigger DTC quarter, I'm wondering if you can share any color on the momentum that you're seeing this spring relative to Q2?

And then separately, you mentioned with the spring price increases, you didn't see any impact on demand. Could you speak to how you're thinking about like-for-like price increases in future seasons to offset the inflationary cost pressures?

[Nico Bouyakhf, executive]

This is Nico speaking. Thank you for the question. So the first part of your question was to get a bit more color on the DTC performance in the current trading of Q3. So we see a continued strong demand in -- in our own stores. The new stores are performing really well, as I said. So there is definitely excitement around our physical touch point for the brand.

Online as well. So we see an increased traffic across the board to all the regions, yet we do have the big months still to come. So June, July and also August are big DTC months. And we're just very -- we are confident, but we're also looking at those months to come in the next couple of weeks.

The second question was on pricing. So to give a bit more color on the European pricing adjustments we had in Spring/Summer '24, two categories in mind for price execution. One was textile, a big part of the business. We elevated the prices by 20% RRP. And then we also touched Boston again with 15% RRP increase. Both of them were not -- were well accepted by the consumer. So there was no sort of negative -- no signs of rejection, negative effects on our sell-through.

We look at pricing as a strategic measure in the -- So every season, we go to the entire line and look at every model to see what's the input cost and how do we have to adjust pricing given inflation, but also what's our brand equity where we can ask for an increased price. That's how we approach pricing in the future.

[Alexander Hoff, executive]

Mark, this is Alexander. Just to add on the inflation piece and how it's impacting margin. Stand-alone Q2, you saw 100 basis points net inflation impact going forward. If I look into third and fourth quarter, but also '25, what we currently see is labor, mid-single digit, going down then in '25. Raw materials, low single digit percentage. So it's definitely the clear goal that we will offset any kind of inflation on COGS and selling and distribution expense.

[Operator]

The next question is coming from Sharon Zackfia from William Blair.

[Sharon Zackfia, analyst]

I'm curious, just given the strength that you continue to see in the U.S., and as you've been opening more stores, are you seeing any kind of changes in the demographic of the customers in the U.S., whether you look at kind of income levels, gender, region or age? And I'd also be similar -- we'd be interested in a similar answer for Europe given the transformation efforts that you've had in that region.

[David Kahan, executive]

Yes. Thanks for the question, Sharon. This is David. I think you have to just kind of wrap your arms around the fact that this brand has the broadest demographic of any brand on the face of the earth. When we talk about our addressable market, it really is, quite frankly, everybody.

We're just reaching new consumers everywhere we look. We're reaching athletes right now when they recover from sports, finding the benefits of the footbed. We're seeing a significant growth right now in the youth market who's basically maybe a little bit tired with athletic footwear over the last couple of seasons and has added BIRKENSTOCK to their closet.

And just remember, in a lot of those chains that have been predominantly athletic footwear driven, a pair of BIRKENSTOCKs is an incremental purchase in those stores. So those stores are very keen to add something like BIRKENSTOCK to their assortments. So I would say we're growing across all demographics, most quickly, probably the youth and more sport-oriented consumer, but it's been very, very broad. And the growth has been just as strong in some of our old-time heritage brown shoe comfort stores that go back to the early 1970s.

[Nico Bouyakhf, executive]

Thank you, David. And also, Sharon, thank you for your question. I would definitely echo David's point. The beauty of us is you don't lose all the customers while you win new customers and younger customers. And that's what we see also in Europe. We do see a broader-based growth among younger audiences that find us for many reasons, 1774, the Boston, some great PR execution in Europe.

But what happens is they stay with us and they stay with us until the very end. So you don't lose that older customer, while you win the younger customer audience.

[Oliver Reichert, executive]

And you can see some of it also in our membership program growth. Our membership program grew by 40%. So that's another sign or signal to see, okay, how vivid this brand is and how the more we collect, the broader the fan base will be, no matter age groups, races, social demographic. It's all in one basket. 70%, 80% of our collection is unisex. So we are the perfect brand to welcome them all and give them access to the footbed. And once they are in the footbed, they come back.

[Operator]

The next question is coming from Erwan Rambourg from HSBC.

[Erwan Rambourg, analyst]

I hope you can hear me okay. I just wanted to congratulate you on the quarter and the upgrade for the guidance. Two follow-ups. One on the Asian potential maybe for Klaus or Oliver, it seems that the consumer is under pressure in China for most consumer companies, but it's probably not the case for you. I'm wondering if this is a good time to find prime locations at preferential costs and to build awareness. Do you have a cost issue in terms of shipping to Asia and particularly China? And maybe can you remind us of what the setup is there in terms of working with a partner or going direct?

And then maybe secondly, if you could talk about ASPs. I think David was quite clear on consumers upgrading to leather, you've put through quite a few price increases. If I look at the 23% growth in the quarter, I remember you gave a reference point at the time of the IPO saying that the average pair was retailing at about $90 at the time. Where would we be on that metric today? And if you can maybe split the 23% growth between volume mix increases and price increases, that would be super useful?

[Oliver Reichert, executive]

So I'm taking the first part of your four parts of your one question. Thank you for the questions. Widely chosen. So overall, the APMA region is from a geographic point of view, one of our biggest white space opportunities, of course. And as you see in the numbers, we'll grow there by 42%. So that's quite a massive growth. And compared to a lot of other brands cooling down in this environment, we are very encouraged.

And please keep in mind that this 42% growth is coming with a full disciplined and highly engineered distribution model where we don't flood the market and we don't over push. It's always in a pull mode. We allocate the products and Klaus, who's responsible for the region, will give you more in detail about our distribution strategy there and how we execute the engineered distribution in this segment. Klaus?

[Klaus Baumann, executive]

Erwan, Klaus here. Thank you for the question. First of all, I want to point out that, obviously, we are aware of the problems in China and what's going on. I mean we're there in the market since a long time. The whole story is we're doing is an APMA story. So we are not only depending on China. And what we learned in expanding, I mean, the strategy following our learnings from the EU and the U.S. So it's a qualitative distribution, and it's a mixed model. So obviously, we are going with the DTC focus, but we also are signing in a partner to balance out also the size of the territories.

So this is -- and talking about allocation, I mean, we have prepared that field way before as we also talked in the road show a lot. But now the allocation situation has so much improved that the underdeveloped markets are like positively affected from that, and there is no problem on that right now.

[Oliver Reichert, executive]

And I would just wrap the ASP part of your question, which was the fourth part of your question. As you know, we don't give any quarterly guidance. But as I said in Matt's response, we aren't seeing any significant changes in the trend. We are really pleased by current trends, but we still have 5 important months ahead of us that is heavy in DTC, where we have less visibility, and that's -- we're about halfway through fiscal Q3.

And despite the volatile market environment, we are having -- we're hearing so much about, there's a lot of rumors around, of course, we are not seeing anything that would give us a pause. And I would say, David, from your perspective, you may add something here because ASP is really growing. I mean...

[David Kahan, executive]

Yes, one interesting point -- ASP, and it's a good way to look at it is speaking for the U.S. According to the economic reports from the FDRA, retail prices on footwear are basically up 0.3%. Our ASP is up 6 full percent. So it's a multiple of what's going on in the market. Part of it is mix and part of it is price.

But obviously, when you're selling through product at virtually full price, 90% plus full price realization, that's where you get the benefit of the ASP because the consumers realize the equity of your brand, and they're willing to pay the price. And I think we're proving that right now in this environment.

[Operator]

The next question is coming from [ Adrien De Verge ] from Goldman Sachs.

[Unknown Analyst]

I was wondering if you could comment a little bit on the performance of the new product categories and the new products. I'm thinking maybe of some of the sneakers you released and some of the boots. And also what would be the impact on ASP from these new releases?

[Oliver Reichert, executive]

So as you can imagine, Adrien, it's a very big push in ASP and this closed-toe shoe segment, we talked about the massive growth rates there. And as you know, like ASP right now is like 50% come from a product mix and 50% is coming from a channel mix. So the product is a key driver for the ASP at the moment, especially in the first half of the year.

Again, just keep this in mind, the winter season, like the first 2 quarters, are more affected by the closed-toe shoe sequence in ASP. But yes, we're very proud about this growth here because it was pretty strong.

[Operator]

And the next question is coming from Paul Lejuez from Citibank.

[Paul Lejuez, analyst]

Can you just go back to the [ Paso ] facility. How ramped up in that facility today? What capacity is it producing? And I'm curious if you can talk about the performance and efficiency relative to your plan and where you expect to be by the end of the year?

Also, I think a point you said that facility could increase your volumes by 50%. Let me know if I'm remembering that correctly, and any update there?

And then just last, can you frame the size of some of your larger countries in the APMA region?

[Oliver Reichert, executive]

So I'm taking the first part, like the [ Pazien ] factory, which is like [ Arouca ], Portugal and [ Patel ]. We're super happy with the setup in [ Passive ] at the moment. As you know, we will definitely grow the pairs in a very, let's say, how to say in English, in a very disciplined way moving forward. We told you that overall, we will develop like 10% unit growth every year and that's what we're executing.

So we are happy with the status in [ Passive. ]We hired most of the people there already, which is the most important thing for us to get access to the workforce, which is super strong at the moment where we're constantly improving and developing and further developing the footprint also in our preproduction segment in Portugal, which is Arouca, which will help us to be much more flexible than in the past.

And it's the same thing for [ Patil ], focusing on the EVA portion of the business, focusing on the -- portion of the business coming from -- but also making sure that we have the maximum flexibility within this new factory to make sure we can develop and further support our global growth. And that's something where we really for a big, big effort in.

And as you know, from our outperformance and raising the guidance, you may expect like shorten the time line of the return on invest curve, which will definitely be the case. During the roadshow, we talked about a return of invest in '26, or normalized margin level, let's say, and this will be shortened now because the performance is much better than expected.

[Operator]

The next question is coming from Michael Binetti from Evercore.

[Unknown Analyst]

This is [ Joslin Wang ] on behalf of Michael Binetti. So on the top 5 silhouettes still up over 20% in the quarter, can we talk about how trends were from here And how to sustain that kind of growth?

And maybe for Erik or David, in Americas, total DTC is now 29% of penetration. So this quarter, wholesale B2B selling revenues grew roughly about 16% year-on-year, but sell-through to strategic accounts was really high at 33% there. Is that driven by [ both ] exiting nonstrategic accounts? And will we see the sell-in catch up to the sell-through in the third quarter and the fourth quarter? And just curious what was selling to strategic accounts relative to the 33% -- that the company cited?

[Oliver Reichert, executive]

Yes, I'm taking the first part of your question. Thank you for your question. We are a universal purpose driven brand, never goes out of fashion. We are beyond fashion. I think the biggest proof point here is that revenue from our five classic silhouettes, which make up roughly [ 75% ] of the business, grew by over 20%, as you said, in the quarter, and ASP was up over 10%.

So if you see, these are the core, core portion of the business and its growth [ 20% ] and even in the ASP, we grow by 10%. This is -- I would say this is a massive message to the market that we are growing everywhere, okay, and really above the average. I think this says a lot about the fashion risk within the company.

And what we learned is that our I can still have a lot of growth potential, has continued to innovate and add to these Eros models with new features like premium leather, big buckles, the shilling and you know some of the other models as well then to maintain the relevance on the long term, okay? So this is really what we're doing within our product teams, we create a trend within the brand constantly.

And while we see the continued growth in our long-term core icons, new product introductions have been incredibly strong. Don't forget this. Whenever we bring something to the daylight, it's super strong in sell-through. It's super strong in sellout, as sneakers were up 31% over last year and new starts like the Catalina and [ lure ] ranked now in our top 20 styles this quarter.

So this is something that's really encouraging, and it shows that we have the right connection to the market, and it's not fashion driven. It's coming from a 250-year-old purpose-driven brand, and that is the magic -- we are executing in the market.

[Nico Bouyakhf, executive]

Joslin, I'm going to take the second part of your question. This is Nico. I think we have to differentiate between sell-in and sell-through. So what you see as a sell-through in our B2B partners is a sell-in of previous quarters. So that gives you the perspective on those two numbers.

As you know, we have done a big transformation in B2B in Europe. So we exited many partners. Globally, distribution is a -- supplement. So you'll definitely here and there some terminations going on. It's a normal effect, but we don't sort of consider a big termination wave ahead of us with B2B. However, we manage our B2B partners very tightly. So you understand that we allocate the product. You understand we achieved full price realization that is superior to any other brand up there.

And we also understand that we leverage our partners with them having a specific role in the marketplace, be it reach, be it validation, be it authentication of our product, that's what they have to do for us, and that goes beyond being transactional and that's how we look at B2B.

[Operator]

And the final question today is coming from Jim Duffy from Stifel.

[Jim Duffy, analyst]

My question builds on some of the comments in your last response. We're very pleased to see the strong uptake of closed toe to and nonsandals. I'm curious, can you speak to the gender mix contribution to the closed toe adoption and maybe highlight some of the specific styles beyond the Boston that are contributing to that strength?

[David Kahan, executive]

This is David. Yes, the Boston certainly has led the way, but what we find is just like when the Arizona opened up the sandal category to other styles like the Giza and the Maari, the Boston is doing the same thing in clogs. We introduced a style called the [ lucre ], that's outselling any expectation we could have possibly had for that category.

Other styles like the Tokyo, the Naples, it's like Nico said, any time we introduce a new style and we bring it -- we give it a little oxygen, it really starts to exceed all expectations.

Sell-through on our sneakers, speaking for the U.S., sell-through was 31% higher. And what's most interesting is when we talk about like white space categories, you can almost look at men as one big white space that we don't really identify yet, but our men's business is up 45% at retail sell-through versus a year ago and a market that, again, is basically flat.

So any category, any gender, any segment that we give a little bit more oxygen to with discipline, we start to see the results and the benefits.

[Operator]

Thank you. And this does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.