Birkenstock share run-up leaves little room for earnings error

With shares of Birkenstock Holding Plc gaining about a third since its $1.5 billion initial public offering, the pressure is on for the orthopedic shoe company to deliver when it reports earnings Thursday.

Investors have taken in stride the prospect of a sell-down by its private equity owner, L Catterton. Despite a tumultuous US debut in October, the German sandal maker’s shares have climbed 34%.

Analysts, including Evercore ISI’s Michael Binetti, said expectations for the company’s third-quarter report are high. The Birkenstock brand shined in his conversations with stores in the US and Europe coming out of the summer.

“It’s just the one name that we can call around to lots and lots of retailers, and there’s just not somebody saying there’s a miss here. We can’t find any,” Binetti said. 

Birkenstock’s revenue number will be key. Binetti, who has a higher-than-average revenue estimate for the quarter ending June 30, expects the company to lift its sales and adjusted Ebitda forecast for its fiscal year ending in September.

Citigroup Inc. analyst Paul Lejuez also expects Birkenstock to raise its annual outlook. He anticipates growth across regions will help drive quarterly results that beat consensus sales and profit estimates.

Following the German sandal maker’s last report in May, shares notched a record one-day gain after earnings that topped estimates and a guidance boost. The stock has added another 10% since then.

There are reason to be cautious ahead of the report.

“When you’re in the financial markets, anytime you hear somebody say there’s no issues at all, you’ve got to start putting on your skeptic’s hat,” Evercore ISI’s Binetti said. 

Despite an advance, Birkenstock shares have trailed footwear peers. The stock has gained 26% this year, while Deckers Outdoor Corp. has climbed 42% and On Holding AG has surged 76%.

More selling by firm L Catterton, which still owns over 60% of Birkenstock’s shares outstanding, could hurt the stock. The company and a group of the sandal maker’s employees raised $756 million in a share sale in June. 

“I would expect them to try to sell, and the market will have to work their way through that,” Binetti said. He anticipates that Birkenstock and L Catterton are in close contact and would time any potential deal carefully.

Birkenstock’s earnings will come on the heels of upbeat results from rivals. Earlier this month, On reported quarterly sales that jumped 28% from a year earlier as consumers rushed to buy its running shoes. In late July, Deckers posted stronger-than-expected quarterly sales and boosted its annual profit outlook.

The strong results from other trendy footwear brands bode well for Birkenstock, according to Telsey Advisory Group analyst Dana Telsey. She boosted her fiscal third-quarter sales estimate for the company on the resilience seen from the likes of On, Hoka and Ugg this earnings season, and after her positive store checks. 

“Consumers are intentionally shopping for brands that offer newness,” Telsey said. “Birkenstock is one of those brands.”