Birkenstock Holding plc Q1 FY2024 Earnings Call

Good morning, and thank you for standing by. Welcome to Birkenstock's First Quarter Fiscal 2024 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 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 the call over to Alexander Hoff, Vice President of Global Finance.

Hello, and thank you, everyone for joining us today. On the call are Oliver Reichert, Director of Birkenstock Holdings plc and Chief Executive Officer of the Birkenstock Group; Erik Massmann, Chief Financial Officer of the Birkenstock Group; David Kahan, President Americas; Niko Bouyakhf, President Europe; and Klaus Baumann, Chief Sales Officer will join us today on the Q&A section to answer your questions regarding the information we are sharing this morning. Please keep in mind that our fiscal year-end is September 30, thus, our first quarter of fiscal year 2024 ended on December 31, 2023. You may find the press release and the supplemental presentation connected to today's discussion on our Investor Relations website, birkenstock-holding.com. 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 the morning's press release as well as 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. 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 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 the morning's press release and in our SEC filings. With that, I'll turn the call over to Oliver.

Thanks, Alexander. Good morning, everybody, and thank you for joining today's call. It's great to be here with you to discuss another exceptional quarter. We achieved the highest revenue level for the first quarter in our company's history, driven by growing demand for our products across all regions, channels, and categories. Accordingly, revenue grew by 26% versus our first quarter last year. We also successfully increased our production capacity as planned, penetrated our largely untapped white space areas, and maintained our strong profit formula. Our revenue growth was driven by an increase in both ASP and units sold. ASP benefited from the continued shift to premium products, a favorable channel mix towards D2C, and sales price increases. Additionally, units sold also increased as additional production capacity became available in Germany and Portugal to fuel our supply capabilities to meet the growing demand for our products. The strength of the Birkenstock brand is evidenced by continued high levels of full price validation across all points of distribution. We have observed that general consumer shopping has transitioned from shopping arbitrarily to intentional purchasing where consumers are seeking the key brands and products they love. Accordingly, we remain highly confident in our ability to continue our strong performance through fiscal 2024 and beyond. Our DTC channel was once again our fastest-growing channel in the first quarter of fiscal '24, resulting in a 53% share of revenue. Members of our fast-growing membership program are highly engaged and most are expanding their purchases of our brand. As the average U.S. Birkenstock consumer owns 3.6 pairs, this growing membership base of loyal fans is proving to be fertile ground for our expansion and is a key focus for us in fiscal year 2024. Despite a challenging backdrop in the wholesale market, our B2B business achieved healthy revenue growth of 22% against the same period last year. As a must-have brand for all leading retail partners, we expect our penetration to expand in fiscal '24. In our first quarter, which marks winter in the northern hemisphere, we have seen a significant continuous shift towards closed toe silhouettes, including clogs, exceeding for the first time the share of sandals, as well as a sustained move towards premium products. This is clearly demonstrated by strong sell-through in premium products, such as clogs, boots, shielding products, and closed toe sneakers. We are particularly excited to see our higher-priced new boot silhouettes, the Highwood and the Prescott outperforming our sellout expectations in DTC since their launch in October '23. While we have generated significant momentum and compelling sales results from our new styles, our momentum with our core styles remains unbroken. This highlights the commercial relevance of our iconic models and the continued demand for our most recognizable styles. We have also seen higher sales of the premium leather executions of our classic silhouettes. It's great to see these products remain in high demand after the peak holiday season. In the marketplace where inventory access is a critical concern, our stock-to-sales ratios at wholesale partners proved to be an outlier. Now let's move to our discussion of segment performance. Within our largest region, the Americas, consumer momentum and demand for our brand continued to increase. Revenue in the region was up 19%. A larger driver of the growth was once again the DTC channel. As one would expect in a quarter driven more by sell-throughs than sell-in, DTC penetration increased even further. Notably, approximately half of our revenues was generated from members of our membership program, which we are working to further expand given the strong brand engagement and fandom of these consumers. For our B2B channel in the Americas, please recall that we had large shipments early in the fourth quarter of fiscal '23 to capture the expected increase in demand around the holiday season. For the first quarter of '24, most of our top line growth was driven by greater penetration within our existing B2B channel. Specifically, with the expansion of categories like closed toe silhouettes with the vast majority of our shipment growth going to existing partners. Only a single-digit percentage of revenue in the Americas is attributed to new points of distribution, with a heightened focus on specialty retailers, including sports-specific, running retailers where the benefits of our footbed as a recovery from sport is finding strong end-use demand. In Europe, we delivered exceptional growth in the first quarter of fiscal '24. In the macroeconomic environment where consumers remained more subdued in their spending, Birkenstock continued to perform strongly. Our revenue in Europe increased by 33% in the first quarter. As a reminder, the reported revenue level in the fourth quarter of fiscal '23 was still impacted by our sales transformation initiatives, which have started to pay off in the first quarter of fiscal '21. Our growth in Europe was broad-based across all our channels and geographies underpinned by very strong sell-out performance during the holiday season. Notably, the sellout of Birkenstock products with some key partners was up high double-digits versus first quarter fiscal '23. In B2C, revenue also increased significantly and supported our strong overall growth. The first quarter of fiscal '24 also marked the start of our ambitious store opening plan in which we aim to double our fleet in Europe over the coming three years. After closing many legacy stores over the past two years, we are pleased to see the recently opened Cologne pop-up is among our top performing European stores, delivering the highest ASP from day one. In B2B, we are increasing our shelf space and continue to be one of the top-performing brands for our wholesale partners in Europe. Key retailers are increasing their purchases and shifting their volumes towards earlier delivery dates. This is resulting in even higher revenue growth for the B2B with nearly all of this growth coming from existing distribution partners. Lastly, we successfully launched new products in our expansionary categories. We presented our new and fully certified professional line at A plus A fair, the world's largest workwear trade fair and received great responses from more than 3,000 industry visitors at our booth. This quarter, our professional product category delivered the second highest growth rate both in terms of value and units. It is indicative of the strength of our brand that we have fully implemented our spring-summer '24 price increases with no adverse impact on demand, and our full price realization in Europe remains very strong. APMA was our fastest-growing segment in the first quarter of fiscal '24, with revenue growth of 51%. Growth in the region was largely driven by our DTC channel, with the digital portion of the channel nearly doubling versus last year. We also saw a healthy increase in B2B in the first quarter of fiscal '24, which was driven by an expansion of our mono-brand partner store environment with 10 newly opened stores. Similar to the other regions, closed toe silhouettes, including clogs played a decisive role in our success, contributing more than half of the total revenue in the region. I will now turn it over to Erik to discuss our financial results in more detail.

Thanks, Oliver, and good morning, everyone. We are pleased with Birkenstock's performance in the first quarter of fiscal 2024. While the broader consumer environment continued to be challenging, our brand once again proved to be extremely healthy, and our growth algorithm to be firmly intact. Birkenstock is one of the few must-carry brands in the wholesale channel that also drive shoppers to retail stores and our DTC channels, particularly as consumers become more intentional in their purchases. This trend is reflected in our first quarter fiscal 2024 results, which includes the holiday season. Let's have a look into the details of first quarter results. Revenue was EUR 303 million, representing an increase of 26% versus the prior year. Birkenstock generated double-digit growth across all segments and channels, demonstrating the desirability and resilience of our brand. We are particularly excited by our DTC performance, which was up by 30% versus the prior year, driving DTC penetration to a 53% share of our revenue. At the same time, we increased B2B revenue by 22%. Gross profit margin for first quarter fiscal 2024 was 61%, down 70 basis points compared to the prior year. While we successfully recovered inflation by increasing sales prices and optimizing our channel and product mix, slight margin compression was mainly caused by our ongoing capacity expansion and an unfavorable currency translation. Adjusted selling and distribution expenditures were EUR 103 million, representing 34% of revenue in the first quarter of fiscal 2024, generally in line with the first quarter of fiscal 2023. As a reminder, our first quarter is typically the quarter with the highest DTC share and therefore generally shows the highest selling and distribution spend as a percentage of revenue. Adjusted general and administration expenses were EUR 24 million and 7.9% of revenue, up 110 basis points compared to the first quarter of last year. This increase is largely driven by public company costs, which we did not incur before our IPO. First quarter adjusted EBITDA of EUR 81 million was up 12% versus last year, resulting in an adjusted EBITDA margin of 26.9%. The decrease versus prior year margin was largely driven by the aforementioned effects of ongoing capacity expansion, incremental SG&A expenses, and an unfavorable currency translation. Our first quarter effective tax rate was elevated due to increased tax expenses versus the first quarter of fiscal 2023 related to one-time share-based compensation expenses and certain other non-deductible expenses. These results accumulated in fully diluted adjusted earnings per share of EUR 0.09 compared to EUR 0.15 in the first quarter of fiscal 2023. Let's now have a closer look at our balance sheet as of December 31, 2023. Cash and cash equivalents were EUR 169 million. The decrease compared to year-end fiscal '23 is fully in line with our expectations and as a result of the typical seasonality of our business and our deleveraging progress. In the first quarter of fiscal 2024, we built up inventory to prepare for the upcoming spring-summer 2024 wholesale shipments while improving our inventory to sales ratio compared to first quarter fiscal '23. This buildup is a regular pattern we generally observed in the first quarter of each fiscal year. Additionally, we continue to deleverage using our IPO net proceeds and excess cash on hand. We made early repayments on existing debt of EUR 525 million, which reduced net leverage to 2.6% as of December 31, 2023. Further, we continue to invest for future growth. Capital expenditures were EUR 80 million and mainly related to our production capacity expansion. With that, I'll hand over back to Oliver.

Thank you very much, Erik. Let me summarize our discussion. We are very pleased with the strong start to fiscal '24, with continued strong consumer demand for our products, both classic and new emerging products. We are executing on our proven engineered distribution strategy, ensuring high levels of full price realization across all segments and channels. We remain committed to building on our foundation for success and driving long-term sustainable growth guided by our principles of function, quality, and tradition. The exceptional first quarter results demonstrate the resilience of our business. In the Americas, we gained further growth momentum by deepening our DTC footprint while building on the loyal and steadily growing following. In Europe, our transformation plan is now paying off. At the same time, we are entering the next chapter of our growth trajectory as we tap into our largest whitespace market, the APMA region, increasing brand awareness and taking market share while following our playbook of disciplined engineered distribution. We believe this will catapult us on a new growth trajectory in the future, as demand continues to outpace supply in all segments and channels. Given our continued momentum, we are even more confident in the guidance we provided you just last month, while our strategic investment in sustainable growth temporarily impacts our profitability in the mid-term. We are fully committed to steering our business in line with a gross profit margin over 60% and an adjusted EBITDA margin in the low 30s percent mid-term. We are carefully tracking costs on the sourcing and production side as our capacity expansion is proceeding as expected. We continue to recover the impact of inflation through selective price increases. So in short, we are very pleased to report that we have never been in a better position to grow our business. Birkenstock is 250 years strong, and we have a long runway for growth ahead. I would now kindly ask the operator to open our Q&A session. Thank you.

At this time we will be conducting a question-and-answer session. We ask that on today's call you limit yourself to one question. And the first question today is coming from Dana Telsey from Telsey Group.

Congratulations on the strong results today. Last quarter, you mentioned the impacts of inflation and the AUR increases you were implementing. What are you currently observing regarding those inflationary effects? Additionally, can you provide an update on the capacity utilization at the new manufacturing facility? What insights do you have on that, and how do you approach leverage in this context?

This is Alexander. I will take that over. So first of all, for the cadence of our earnings, we aren't going to guide on quarterly margins. But what I can tell you is that we are very pleased with our margins, especially in a situation where we took the strategic decision to substantially increase production capacity. And please be reminded that it's not only the plant we opened in September. It is also our expansion in Goerlitz and our expansion in Portugal, and we are very happy to see that expansion because it gives us the possibility to meet future demand. We already touched on that, that those effects will slightly impact our margins in '24. This is clearly a temporary effect. We fully accounted in our guidance and our plans for on the installation side. Oliver mentioned, we are heavily tracking the cost of sourcing and production. We see for this year, low- to mid-single-digit cost inflation, mainly labor and raw materials, which we expect to mitigate through our selected price increases. Again, all those are reflected in our guidance. And to sum it up, we are fully committed to steering our business in line with the gross profit margin over 60% and an adjusted EBITDA margin in the low 30s in the mid-term.

The next question is coming from Ed Aubin from Morgan Stanley.

So just on the mix, the closed toe, I think you said that it's the sales now exceeded the sales of sandals. Are you talking about more than 50% of sales just to clarify, because my recollection, but maybe I'm wrong was that close to penetration was about 30% of sales last year. So that would be quite a steep increase. And then just related to that, Oliver, you mentioned that a number of products did well in closed toe. But could you provide a little bit more color between the sneakers, slippers, boots, and the Boston? Is the Boston now exceeding 20% of your sales or not?

Edward, this is David. I'll take this. Yes, I mean, during the holiday season, which is more of a sell-through than a sell-in season, results for closed toe footwear in general were quite significant. D2C 53% were non-sandals. That's across all closed toe categories from sneakers to slippers to clogs. Some of the sell-throughs on our new boots like the Highwood and the Prescott were exceeding all expectations. And just to give you a little bit more color, absolutely, the Boston is what you would call the hot clog. But within the clog category, sales of everything other than Boston, including the Tokyo, which is basically a backstrap plug, the Newser MOD 360, the Buckley all exceeded expectations. Sales in clogs other than Boston were 75% higher. So it's a broadly based closed toe business right now. And I think that's quite significant to say that this was the first time that non-sandals were the larger percentage of our business.

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

Congratulations on the strong results here. So the sustained shift to premium products is nice to hear. How should we be thinking about ASP growth both this year and longer term? Is mid-single digits still the right expectation? Or are you gaining some confidence that it could be higher than this given the success you're seeing in the premium price points?

That's a great view. You're absolutely right. And you saw that also in the Q4 numbers we reported just a month ago that we see a great shift towards premium products. Boston is helping clearly, but also other products, colleagues already mentioned that. Overall, it's a fair assumption to be in the mid- to high single-digit ASP growth. And we already mentioned that we allocate roughly 1/3 to the product side and to the channel side, and to the pricing side. Between the quarters and between the years, there can be some little shift. And yes, maybe this year, there's a little shift towards the product side. But overall, in the long run, you should be good with this third number.

The next question is coming from Matthew Boss from JP Morgan.

Congrats on another nice quarter. Oliver, could you elaborate on your increased confidence in this year's guide? Or have you seen any change in top line momentum post-holiday relative to the more than 20% constant currency growth that we saw last quarter, just as you think about demand exceeding supply?

As you know, Matt, demand for our products has exceeded our supply for years. We have had to invest in our growth capacity which will lead to a planned moderate margin compression, as we said and as we showed in our model in the short- to mid-term. However, this will be more than compensated for in the mid-term by further qualitative growth in all regions and channels and the higher overall efficiency in production. So for the moment, we stay with our outlook and our guidance we just gave you a month ago. Just keep in mind, Matt, that the first quarter is our weakest quarter normally. It's pretty strong already. So yes, you can see us smiling and very confident.

The next question is coming from Louise Singlehurst from Goldman Sachs.

Just on that point of the greater confidence in a particular region, which has made you feel a little bit warmer about life as we look at the year ahead since January, and particularly, on Europe given the big acceleration there, is there anything on the timing of deliveries or phasing or anything that we should think about as we go through into Q2 as well?

Louise, this is Niko speaking heading up Europe. So first of all, we are very, very delighted to see Europe completing the transformation plan. We shared the details with you during the IPO and shared more details with you in the last quarter's call. Q4 fiscal '23 was impacted by transformational efforts. Now as we almost completed our transformational plan, these impacts become smaller, almost minimal. And we are very, very confident with our current position in the European market. The overall market is soft, as you know, but we are very, very strongly positioned and two years of hard work in our transformation plan are now paying off. So Q1 is another quarter, we substantially increased our ASP. It's another quarter where revenues significantly outflow units. And it's another quarter where our closed toe shoe business is growing faster than our sandals business. As Oliver mentioned, in this quarter that is bridging two seasons, we had two consecutive price adjustments, no signs of rejection, and our full price realization is superior to the market. So that shows you that we have done our homework in Europe and we are very, very confident about how we look into the future.

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

I have two questions. I apologize for breaking the rule. My first question is about your inventory levels at the end of last year, which represented about seven. The sales in Q2 and Q3 last year accounted for approximately 73% of the inventory at the end of Q1 regarding your cost of goods. Was that accurate? Should we expect a similar situation this year, or do you anticipate slowing down the turnover a bit? I'm considering this from an inventory productivity perspective as we move forward.

That was number one.

I didn't catch that because I was interrupted last time.

No big deal. Had no second one, Sam. It depends on the length of the answer, no. As you see, it changes certainly the inventory level, but you're always aware that 20% of the inventory would be raw materials and work in progress. And the vast majority of the carryover products and already contracted value and the healthy inventory shown by the full price more than 90%, especially due to the classic styles and so on. The ratio actually came down if you compare to Q1 last year, 42% inventory to sales ratio versus 35% last year that is higher than the end of Q4. Now this is obviously due to the fact that in Q2, we do the whole sale shipment and we pre-produced to be ready and prepared for the big shipments, which we do in Q2. So it's in line with the development in the past and b, getting better year-over-year because we work hard on this. And as you see, we successfully achieved a 3% downturn already in Q1 this year.

Can you provide a breakdown of the average selling price increase in the mid- to high-singles, detailing how much is attributed to pricing as well as the impact of product and geographic mix that may be influencing those numbers?

Yes, this is Alexander. I will take that over. We saw just a little effect in channel mix. Last year's quarter was even that strong than this year's quarter. So there's a slightly positive effect, but you can reject that. The other two are more relevant, which is the pricing point, Nico touched on that, especially in the Europe and APA region with price increases and let's say, the other 50% is related to the product piece.

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

I just wanted to come back to the full year guide. I mean you've obviously started with a really strong December and I think the implication would be growth would moderate to 15% to 17% top line for the rest of the year, which is very, very healthy, but obviously below the trend you've been at. Is there any particular part of the world or wholesaler DTC where we would expect to see some deceleration because of what's happening with capacity expansion or anything else as we think about the rest of the year? Or is it more a reflection of it? It's still early in the year, and there's inherent uncertainty just generally in the environment.

It's really about assuring the guidance we provided four weeks ago. At the same time, it's only the first quarter. We are seeing strong demand across all markets, channels, and geographies. Honestly, we feel more comfortable sticking with our guidance for now. As you know, we already have some insights about Q2, so there might be changes in our position later, but for now, we are satisfied with the guidance.

And the next question is coming from Simeon Siegel from BMO Capital Markets.

Could you elaborate at all on the increased shelf space for the European B2B? Is that gaining new partners deeper with specific existing partners, both? Just any further color there because that was really great to hear. And then if you could quantify the main gross margin drivers this quarter, perhaps just isolating one time-ish ramp costs versus the underlying performance and how you're thinking about those within gross margin going forward?

I'll take the first part. The good news is, and that's really something which is really a super strong message. I would say that we did this 26% growth more or less with 95 of the existing doors. So you can really imagine that we grab shelf space in the different doors. And we really expand their interest in the brand and their sell-out and their overall behavior towards the brand is super, super positive. And we are very proud that we can generate such a huge growth with existing partners. So you can imagine that once we add other doors and go in different categories because you know that we have a lot of white space categories in our back end. This will deliver a massive view to growth. That's why we are so confident about our long-term outlook and our profitability. And that's why we're investing that amount of money in doubling the capacity, again, really keep in mind that this company is doubling its capacity. It's not just a slight increase. It's a doubling of the whole thing. So that's heavy lifting and we're planning to do this within the next three years. So yes, we are super confident.

This is Niko. So to add a bit to what Oliver just shared, yes, B2B was very, very strong in Q1. In fact, it outgrew our DTC business but yet DTC increased revenues high double-digit. So actually, that's the magic thing with us. One doesn't go at the expense of the other. If I look at the B2B growth, basically, three things drove that growth. One, we had a very, very strong order book for autumn-winter '23. For B2B, our closed toe business grew 5x harder than our sandal business. So that shows you that we are also taking the success from DTC with our postal business into B2B. And then for even for spring-summer '24, we even had a stronger order book. So what's currently happening is retailers are not just increasing their orders with us. They're also over-proportionately increasing their orders on earlier delivery days in order to be ready to serve consumers earlier. That's the second thing. And then, as Oliver just shared in his intro, we enjoy currently a very high growth rate of our professionals product. So you saw the product. It's an expansionary category. We shared with you the product in unique fully certified, presented as the biggest trade fair and are now getting a really strong demand from retailers which is helping us to push our business again beyond the sandals category.

And the next question is coming from Brian Hutchinson from Bank of America.

This is Lorraine Hutchinson for Bank of America. I wanted to just ask you to comment a little bit on the Asia growth trajectory. What are you hearing from consumers there? It sounds like the product acceptance closed toe has been great. Have the price increases been greeted with the same level of success as Europe? And how do you envision that business growing over the next several years?

Klaus here running the APMA region. First of all, I think it's very important to understand that we are growing everywhere in the APMA region. So we are right now setting up Greater China, Japan, Indonesia, Southeast Asia, and we are now opening a lot of partner stores and we see very strong sellout growth in existing stores. And also, we are building our own fleet and also optimizing our DTC business there. So DTC business, for example, we have very strong results on the last 11.11 event. And with this, we can see and we keep building a lot of confidence in this sector. So teams are all on the ground and we are heading forward. Price increases had no effect at all. Generally, the prices are like 10% to 15% higher in this region already, and mainly there is a history on our product in the key markets. So on that side, no negative trends or any rejection from the consumers. I think we are very beginning in this region and there is a huge white space everywhere. So we're looking very confident towards and continuing this growth path.

The next question is coming from Randy Konik from Jefferies.

I would like to discuss the closed toe strength further. David, your earlier comments suggest that there is a notable increase in the adoption of this segment. Could you provide some perspective on where you believe closed toe penetration stands compared to your previous expectations? Do you think it could become a more significant part of the business than you originally thought? Additionally, could you remind us about the differences in average selling prices between closed toe products and sandals, as there might be potential benefits from the mix as well?

Yes, the response to closed toe and the adoption to our closed-toe products has been even better than I think we expected. And again, you're in a holiday season where we're talking about a quarter that used to be when Birkenstock was pretty dormant as you remember in the market. No longer are we dormant in fall winter. Right now on our own direct-to-consumer, to put it in perspective fall winter is over 50% of the mix, which is driven by closed toe products. I think the beauty of it is closed toe includes everything from clogs to boots and every style that we have put in the market, whether it's direct-to-consumer or whether it's in our best retail partners has been performing very, very well. Obviously, there is a significant mix impact, which will increase the ASP overall. I just think the consumer adoption has been very, very high. Again, you have to remember our membership represented 49% of our direct-to-consumer business. And when you start to share things like closed toe products with members, who have a 2x click-through rate versus non-members. You're starting to see the return on investment be much higher and the higher adoption rate between returning customers. So I think what we said originally in our roadshow and pre-IPO about the potential of closed toe product probably might be conservative based on what we're seeing right now, and that's a good thing.

Just to add to this one. Thank you, David. For Europe, what we can see is among the top 10 revenue driving models, five are closed toe and three are boots. And one of these boots is the boot that we just introduced. So the boots are the Highwood, the Stellen, the Bryson and these are higher price points, so we can migrate consumers into higher price point products and also into non-sandals products. What we are currently seeing is during the autumn-winter '24 B2B order intake, retailers are going with us on that part. So they're really believing us that we can transition the success from DTC into B2B. So we are very confident about the closed toe business but also the closed shoe and boots business.

And this is like ultimately the answer of, okay, how can you grow 26% on the same amount of doors? How is this possible? So this really shows the strength of the brand, and as we said, during the roadshow, and we saw some skeptical faces there. This is a new category for this brand having this closed toe shoe option. And now in a very relatively short-term, you see like we're performing super well in this segment.

And just to add one last point there because obviously, the U.S. market is fairly developed to grow at the rate that we grew when 95% of that revenue growth is coming from not only existing accounts but existing doors that really shows the strength of retailers and consumers in expanding our brand way beyond the sandal category.

Your next question is coming from Paul Lejuez from Citi.

Two months in through the second quarter. Just curious if you can share how you're thinking about top line growth in 2Q, given what you've seen to date and how should we be thinking about gross margin? Not just in 2Q, but as we move through the year, I think first quarter came in a little bit better than what you were thinking. If you can give us any color there in terms of how gross margin looks relative to last year, as we move throughout the year?

I can refer back to what I mentioned earlier. We discussed that this year is a transition year, focusing on margin, EBITDA, and gross margin. We are clearly noticing the impact of capacity, along with other factors that could affect our margins. In the first quarter, we saw a 110 basis point impact from currency translation due to a weaker U.S. dollar compared to last year's figures. Regarding margins, we are outperforming the group. Typically, gross margins in the second quarter are slightly lower than in other quarters due to a higher wholesale share. However, we remain confident in our annual projections and will stick to the numbers we provided. Let's see what the future holds.

The next question will be from Michael Binetti from Evercore ISI.

Let me quickly follow up on that, Erik. Regarding the work on the IPO and the consensus numbers, it appears there is a significant decline in gross margin in the second quarter as anticipated, about 600 to 700 basis points. Is the difference in the growth rates between B2C and B2B so substantial when comparing the second quarter to the first quarter and other quarters in the year to account for this drop? I'm also interested in examining the gross margin further. Can you provide some insight on how much you believe the mix effects contributed to this, and more importantly, can you quantify the impact of factory absorption on gross margin in the first quarter? I'm trying to determine if the unit growth rate for the quarter exceeded your expectations and if that trend continues, does it imply that you're pulling forward additional units with a higher per-cost from the new factories? Or will you see better leverage by pulling forward unit growth? I want to understand how to project the factory absorption component in future gross margins.

In Q2, while I can't provide a specific number, it's clear that a high wholesale share will lead to a lower margin, which is typical for this season. We experienced a similar situation in Q1 when a higher direct-to-consumer share resulted in better gross margins. The impact on the EBITDA margin from the channel perspective in Q2 is not significant. Regarding absorption from new capacity in Q1, the products involved were produced months earlier, so it doesn't have a substantial effect on that quarter. We also launched a parcel service in September and are currently in the ramp-up phase, which is expected to continue until 2025. Therefore, the numbers won't show significant changes on a full-year basis, but the main influences on the 2024 projections for gross margin and EBITDA margin will stem from the capacity expansion, which is a temporary impact.

And the next question is coming from Edward Yruma from Piper Sandler.

I know one of the big product priorities has been EVA and really kind of more water sports. I would love a quick update on performance there, particularly in APMA. And we noted that you're introducing more kind of water sports sandals in the Americas. Curious if you have any early reads this season.

Hello, Klaus here again. I'm not sure if I understood you right, but you're asking performance for EVA in the APMA region. Obviously, the territory in APMA is a very good region for us and we are building on that. These non-core sandals, especially for the territories with rain time and stuff. This is in the plan. Absolutely. In this moment, we are really doing kind of balancing our very well how much product we are putting into this region also for controlling our ASP and also, yes, well building the qualitative part of the brand on the product side, too.

Ed, I think you asked also about EVA in the Americas, just as reference. And just as a reminder, we've said this before, but that's all incremental product footwork. There is not a pair of EVA that takes away a pair of cork. We've seen absolutely the opposite. We see this demand flywheel, where every product that we continue to expand in the market drives more and more demand across the line. So whether it's water sports, whether it's after-performance sport use, it's purely incremental and it's additional use occasions. And just to remember also, regardless of the ASP on EVA, it may carry potentially a higher EBITDA margin. So it's not directly related to ASP when it comes to that product.

And that does conclude today's Q&A section. And also, this concludes today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.

Thank you.