Birkenstock says its sandals have stayed trendy. Here’s why it says it’ll make less money anyway

By Parija Kavilanz, CNN

New York (CNN) — Birkenstock sandals might be as pricey as ever, and the folksy footwear are as popular with shoppers as ever, too. But despite all that, the company says it still expects smaller profits in the next year.

The German shoemaker, which became a publicly-traded company in October, reported its first post-IPO quarterly results on Thursday. Despite strong sales, the company gave a cautious outlook for 2024, saying it expects “modest headwind to impact margins.”

Birkenstock shares dipped nearly 8.5% on the news Thursday.

The company said it expects adjusted earnings margin for the full year of about 30% pressured by “planned ramp up costs” compared to 32% in 2023.

It also expects revenue to grow 17% to 18% in 2024, compared to a year ago, as the company expands into more markets and invests in more retail stores and its distribution system.

The company reported sales up 20% for 2023 versus a year ago, driven by a 6% increase in unit sales and a 14% increase in the average selling price.

“Their sales did really well for the quarter. The full-year sales guidance also came in above consensus for next year. The biggest thing that caused the stock dip was their commentary around margins,” Abigail Gilmartin, a retail equity research analyst with Bloomberg Intelligence said in an interview with CNN.

“They have really strong profitability that was really eating them during their IPO and post IPO. For this year, margins fell due largely to inflation and they guided a little bit more conservatively.”

Because of the sustained demand for the brand, she said the company did not have to resort to any heavy discounting over the holiday season. Gilmartin said the investments in distribution centers this year are more of a “near-term headwind” that is necessary for future growth.

“We expect margins to reaccelerate as additional capacity comes online,” she said. “Overall the brand remains healthy with strong sales growth in the fourth quarter and encouraging first-quarter trends so far. The company has really high-quality products. Once you put on a Birkenstock, you realize that the footbed that it has makes it really comfortable.”

Birkenstock sandals, which cost about $50 for a lower-priced waterproof foam version to well over $200 for its iconic premium leather styles, are embraced by both older comfort-seeking consumers and younger TikTok-inspired shoppers, said Beth Goldstein, footwear analyst with market research company Circana.

“It is a premium product, but compared to other luxury items, Birkenstocks are fairly accessible,” she said.

Birkenstocks, she said, had a resurgence of sorts 10 years ago, spurred by collaborations with high-fashion brands and newness such as fur-lined versions. Then the pandemic hit.

“The comfort of these sandals coincided with the casual comfort dressing trend that was already in play pre-pandemic and accelerated through it. Birkenstock was at the forefront of it,” Goldstein said. And it could stay there for the time being.

“There’s no evidence that consumers are moving toward dressier styles. Casual comfort remains important to consumers,” she said.

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