Birkenstock Holding plc Q3 FY2025 Earnings Call

Good morning. Thank you for standing by. Welcome to Birkenstock's Third Quarter 2025 Earnings 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.

Hello, and thank you, everyone, for joining us today. On the call are Oliver Reichert, Director of Birkenstock Holding plc and Chief Executive Officer of the Birkenstock Group; Ivica Krolo, Chief Financial Officer of the Birkenstock Group; David Kahan, President, Americas; Nico Bouyakhf, President of EMEA; Klaus Baumann, Chief Sales Officer; and Alexander Hoff, Vice President, Global Finance, will join us for the Q&A. Today, we are reporting the financial results for our fiscal third quarter of 2025 ended June 30, 2025. You may find the press release and supplemental presentation connected to today's discussion on our Investor Relations website at birkenstock-holding.com. We would like to remind you that some of the information provided during this call is forward-looking and accordingly is subject to the safe harbor provisions of federal security 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 and can be found on our website at birkenstock-holding.com. We undertake no obligation to revise or update any forward-looking statements or information, except as required by law. We will reference certain non-IFRS financial information. We use non-IFRS measures as we believe they represent the operational performance and underlying results of our business more accurately. The presentation of this non-IFRS financial information is not intended to be considered by itself or as a substitute for the financial information prepared and presented in accordance with IFRS. Reconciliations of IFRS to non-IFRS measures can be found in this morning's press release and in our SEC filings. Now, I'll turn the call over to Oliver.

Good morning, everybody, and thank you for joining us today for our third quarter results. Once again, we delivered against our guidance with a 16% revenue growth in constant currency. We continue to grow double digits in every segment and channel. At the same time, we significantly improved profitability. Gross margin was up 100 basis points to 60.5%, and EBITDA margin was up 140 basis points to 34.4%, our best third quarter margin ever. And we did this in a global environment with pressure from tariffs and currency volatility. We continue to see the shift to in-person shopping, which amplifies our brand. We are a touch and feel product, especially for consumers who are new to the brand. We have over 12,000 high-quality touch points through our B2B partners compared to our own fleet of 90 doors. That is why this shift in consumer behavior favors our B2B channel over DTC. We are winning in retail, gaining shelf space and taking share. In a flat U.S. market, retail revenue at our top 10 wholesale partners was up 25%. As you do your channel checks for back-to-school, you will hear that Birkenstock is the winner with very strong sellout and fast inventory turns. Same for EMEA. Retail revenue at our top 10 partners was up 20%. Within our B2B channel, over 90% of the growth came from within existing doors. We are committed to maintaining relative scarcity and managing tightly our distribution growth. In own retail, we accelerated the pace of openings, adding 13 new doors. Our new stores generally deliver a higher ASP and higher units per transaction from day one, and we see a return of CapEx within 12 to 18 months. We are on track to reach our goal of around 100 stores by the end of this fiscal year. This will allow us to capture more in-person shopping demand within our own DTC business and allows us to showcase the full breadth of our product assortment. Our brand heat is stronger than ever, no matter if you look at sell-through, full price realization or our strong order book. This is especially true in the emerging youth market. Our demand is strong across all product categories and target groups. Sales of our classic leather silhouettes grew double digits. Demand for our iconic styles, such as the Arizona and Boston, remains strong and is accelerating within the younger demographic. At the same time, we are growing in expansionary categories, such as laced-up shoes. The closed-toe share of revenue increased by 400 basis points year-over-year. Now, let's briefly review our segment performance. In the Americas, revenue was up 16% in constant currency, with both the B2B and DTC channels growing double digits. Our B2B business was especially strong. Importantly, we saw no pushback or cancellations following the July 1 price increases implemented in response to tariffs. We opened 3 additional stores, bringing the total number of stores to 13. In EMEA, we delivered double-digit growth of 13%, while both channels grew double digits. B2B outpaced D2C, driven by strong sell-through at our retail partners. Our online business started off slower than planned in April and May. However, in June, online growth reaccelerated. We saw healthy growth in our own retail with same-store sales up in the mid-teens. We further expanded our brand presence with the opening of new stores in the Netherlands and Spain, bringing our store count to 39. The APAC region was up 24% in constant currency. The timing of goods in transit shifted revenue from the third quarter into the fourth quarter. We forecast an acceleration in the fourth quarter, in line with our expectation that APAC will grow twice as fast as our other two segments for the full year. We opened 8 new owned retail stores, bringing the total number of stores in the region to 38. We also expanded our strategic partnerships, increasing our mono-brand partner stores by around 20% compared to last year. Our business in China was particularly strong and accounted for 20% of APAC revenue in the quarter. I will now turn it over to Ivica to discuss our financial results in more detail.

Thanks, Oliver. I am happy to share with you Birkenstock's performance for the third quarter of 2025. This is the first quarter since we have been a public company, where we saw significant headwind from FX on our reported numbers. The dollar depreciated by about 5% against the euro in the quarter compared to last year. This impacted both our reported revenue growth and margins. FX caused a 330 basis points drag on revenue growth, lowered gross margin by 60 basis points, and adjusted EBITDA margin by 70 basis points. Third quarter revenues were EUR 635 million, reflecting growth of 16% in constant currency, within the range of our 15% to 17% annual guidance for the year. Reported revenue growth was 12%. B2B growth outpaced DTC in the quarter. B2B was up 18% in constant currency. DTC grew 12% in constant currency. DTC's share of business was 38%, down 110 basis points versus the prior year. We see sustained strength in our B2B channel from the shift to more in-person shopping. B2B has proven to be the most cost-efficient way to target new consumer groups and usage occasions, both important white spaces for our brand. We now expect B2B growth to outpace DTC in both the fourth quarter and for the full year. We are a demand-driven brand. We strategically allocate our products to where the consumer is shopping. And unlike our peers, we own our supply chain. The B2B order book provides predictability and derisks our planning. Gross profit margin for the quarter was 60.5%, up 100 basis points year-over-year. Pricing, net of inflation, and better absorption of costs related to the Pasewalk facility contributed to margin expansion. This was partially offset by channel mix and the unfavorable currency impact of 60 basis points. Selling and distribution expenditures were EUR 163 million in the third quarter, representing 25.6% of revenue. This was down 80 basis points from the prior year, mainly due to a higher B2B share. Adjusted general and administration expenses were EUR 31 million, or 4.9% of revenue in the quarter, up 40 basis points year-over-year due to higher IT expenses, primarily related to the ERP conversion in the Americas. Adjusted EBITDA in the third quarter of EUR 218 million was up 17% year-over-year. Adjusted EBITDA margin of 34.4% was up 140 basis points year-over-year. This was despite the 70 basis point impact from unfavorable currency translation. Adjusted net profit of EUR 116 million in the third quarter was up 26% year-over-year. Adjusted EPS was EUR 0.62, up from EUR 0.49 from a year ago, a 27% increase. Cash flows from operating activities during the quarter were EUR 261 million, down EUR 21 million compared to the last year due to the timing of tax payments and lower working capital release. We ended the quarter with cash and cash equivalents of EUR 262 million after the repurchase of 3.9 million shares totaling EUR 176 million. As we continuously improve our inventory efficiency, our inventory to sales ratio declined to 33% from 36% in Q3 '24. Our DSO for the quarter was 43, in line with the 42 a year ago, even with a strong growth in our B2B business. During the quarter, we spent approximately EUR 22 million in CapEx, adding to our production capacity in Pasewalk, Gorlitz and Arouca and continuing our investments in retail and IT. We are on track to meet our CapEx target of around EUR 80 million for the year. Even with the share buyback we executed in May, our net leverage was 1.7x as of June 30, '25, down from 1.8x at the end of Q2. Without the buyback, the net leverage would have been at 1.4x. Our capital allocation priorities continue to be: number one, invest in our business; number two, reduce debt; and number three, opportunistic share buybacks. Even with the buyback, we continue to expect net leverage of approximately 1.5x at the end of fiscal '25. We believe we are well positioned to meet our stated growth and profitability objectives. We believe we can manage the impact of the baseline 15% EU tariff through the actions we have already taken, including targeted price increases. Pricing is not the only lever we have. Given our vertical integration, additional levers include efficiencies in production, vendor negotiations, the optimization of the product mix and the allocation of products between the regions. Lastly, regarding FX, in the fourth quarter, we expect the currency headwinds from the weaker U.S. dollar to impact reported revenue growth and margins. At today's euro-dollar exchange rate, reported revenue growth should be about 400 basis points below constant revenue growth in the fourth quarter, and margins will be negatively impacted by about 100 basis points, which is reflected in our guidance for the year. Based on results to date, and the current trends we are seeing in the business, we expect to be at the high end of our constant currency revenue growth guidance of 15% to 17%. We still expect adjusted EBITDA margin in the range of 31.3% to 31.8% despite the drag from a significantly weaker U.S. dollar. And now, I'll hand it back to Oliver.

Thanks, Ivica. We are well positioned to drive steady long-term growth and shareholder returns. We are a brand with industry-leading growth, pricing power, excellent profitability, global reach, a very healthy balance sheet and strong cash generation. During our second quarter call, we raised our EBITDA margin target based on an exchange rate of $1.12. Even with the current exchange rate of $1.17, I'm confident we will meet our targets for the full year. I would now kindly ask the operator to open our Q&A session.

And the first question today is coming from Matthew Boss from JPMorgan.

Congrats on another nice quarter. So Oliver, could you speak to current demand trends and visibility today to the acceleration that you've embedded back to high teens constant currency in the fourth quarter? And on the bottom line, excluding foreign exchange, maybe if you could just provide some perspective on the more than 61% gross margin and 35% EBITDA this quarter or just sustainability of this pace of improvement?

Thank you for the question, Matt. You're correct. Without the FX headwind, the EBITDA margin would have been 35.1%. So this is the best margin in Q3 we ever had. All things being equal, our goal is to constantly drive margin improvement, as we scale and grow the business. The demand we saw in Q3 was exceptional, but we simply don't always have the capacity to meet the demand. This was especially true for the third quarter for Europe and APAC. And growing at this pace requires also constant improvements in efficiency, and this is where I'm spending a lot of my time right now, to find ways to increase production capacity and create long-term efficiency. So, within our own supply chain, we want to meet our strongly growing demand by doing both of these things, improvement in efficiency and building the capacity. And as you know, we strive to drive our margin improvement over the long term, of course, and also need to invest in the business to sustain this growth. We are adding automation in manufacturing, investing in IT and infrastructure, and we hope to streamline our processes throughout the organization. But what we saw in demand in the market, especially in the third quarter and in the back-to-school, was tremendously strong. So from our perspective, we don't see any slowdown in consumer demand. At the moment, we're struggling with capacity. That's our biggest issue.

The next question will be from Dana Telsey from Telsey Group.

And nice to see the progress. Since implementing the price increases on July 1, can you expand on what the market response has been? What are you seeing in demand given the back-to-school season we're in, maybe the Nordstrom anniversary sale in the Americas? We would love an update.

Dana, this is David. Thanks for the question. As many in the industry know, we anticipated the potential tariffs as best we could, and we were very proactive. We shared with our retail partners our specific plan as far back as May. And on July 1, the price adjustments became effective. I will say the adjustments we made were surgical by nature versus broad strokes. And while they're a bit off our historic pricing cycle, it's no different than how we have managed this in past years regardless of tariffs. So now here we are, we're six weeks past the price actions. And as I'm sure, everyone's recent channel checks indicate, our velocity and sell-through from July and into week two of August, the period that includes a significant chunk of the important U.S. back-to-school season, has been exceptional, and it's escalated even beyond the selling results we had in Q3, which historically was when we would have high spring peak sell-throughs. So we're very encouraged and we've seen no impact whatsoever since we took our pricing increases.

The next question will be from Anna Andreeva from Piper Sandler.

Congrats, nice to see ongoing momentum. We wanted to ask regarding the tariffs. With the EU tariff now at 15% compared to 10% before August 7, do you see any incremental impact on revenue and on margin? And then as a follow-up on DTC versus B2B, a historical seasonality of the business is such that DTC is a little slower in Q3, but then accelerates in the fourth quarter. Should we expect a similar dynamic this 4Q?

Thank you, Anna. It's Ivica. So we went into 2025 with an effective tariff rate of around 11%. So we have been exposed to U.S. tariffs before as you all know. This went up in April to 21% even. This is the additional 10% you mentioned before. So following the EU-U.S. trade deal, we now face a 15% baseline tariff on EU imports, which we believe is very manageable. Our effective tariff will land somewhere just above 15%, depending largely on the product mix. So as you also know, we have some items that are already tariffed at over 15%, and those higher tariffs, historical tariffs will remain in place. So what's really important is, first, we have pricing flexibility. As David said, on July 1, we implemented pricing actions in the U.S. to offset some of the expected impact with no negative market response. Second, price is not the only lever we have. With a vertically integrated supply chain, we have additional ways to offset through vendor negotiations, manufacturing efficiency, and optimization of our product mix. So all in, for 2025, we will fully offset the absolute dollar impact of the tariffs, but see a very small negative on gross margin and EBITDA margin, which, however, is already factored into our full year guidance. So taking the second question as well, Anna, on DTC and B2B, we expect an acceleration in DTC in Q4 of fiscal '25; however, as mentioned before, B2B growth will outpace DTC in both, Q4 and for the full year. And what's driving the channel mix and what we've seen in Q3 was mostly driven by the continued trend towards in-person shopping, which naturally favors the B2B channel over DTC. Our brand is one that benefits from physical shopping, where consumers can touch, feel, and experience the footbed. So it's a tactile product, especially for those who are new to the brand. Our DTC business is still very much a digital platform, and with 90 doors globally, we are not able to capture all the in-person demand within our DTC business. The good news here is that both channels are very profitable, so we are very happy to go wherever the demand is actually. However, it's very important, we are not compromising high-quality distribution and full price realization. So we manage inventory in the B2B channel very tightly through our engineered distribution model. Price realization is at over 90%. Stock-to-sales ratios in the channel are very healthy, and our order book is very strong. We are also accelerating the pace of our own store openings, so that is why we can capture more of this in-person shopping demand in our own DTC channel. There is no change in our strategy, which includes leaning in both channels. And naturally, a higher mix of B2B means lower gross margin and a higher EBITDA margin. The opposite is true with a DTC mix, but both are very profitable. And finally, one important fact, as you know, we own our own supply chain. So the B2B order books provide for great predictability and certainly derisks our planning.

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

Can I ask about EMEA growth? It was a bit lower than the mid-teens expectation. Are there any reasons why there were one-time factors for 3Q? And should we expect a low-teens growth rate for this region as an algorithm going forward? And then, I have a quick follow-up on gross margin.

Laurent, this is Nico. Thank you for your question. I'm happy to give some context on the EMEA numbers. So yes, in our third quarter, we grew 13% in EMEA with actually double-digit growth in both B2B and DTC, and we further built on a strong third quarter of last year. In a market that was flat to negative, I actually do believe these are pretty strong results, as we continue to be among the best-performing brands, and we continue to take share from many other players. I have to admit this quarter was a more challenging one for our region, and Oliver alluded to that already, and I have to underline this because we are facing a structural demand issue. In fact, we continue to see very strong demand for our product. The challenge for us this time was that we were simply unable to capture the full relevant demand due to limited production capacity. In other words, we simply didn't have the product at hand to capture the full relevant demand. Allow me to give you some context on the numbers further in regards of trading. So third quarter, we saw strong sell-through results at our wholesale partners of plus 20% versus last year, and reorders, which is a direct demand signal, increased significantly along the quarter versus last year. As Oliver said, our same-store sales in retail went up significantly double digits, another great demand signal. Our price increases with the Spring/Summer '25 collection were fully absorbed by the market, and we maintained our full price realization of over 90%. As in the Americas, the summer started a bit later than in our core markets than we expected. So April and May were a bit softer. But what we saw in June was a full reversal of that trend, and we could see record sales across all channels and partners. What we've seen so far for Q4, that was also part of your question, is that it's going to be a stronger quarter in EMEA and should return to mid-high teens growth.

Very helpful, Nico. And then Ivica/Megan, with regards to the 4Q gross margin, I know there was a lot of noise last year relative on a year-over-year basis. I think GMs were down like 600 basis points. But should we assume that 4Q gross margins were up like 200 basis points? And then last call, during the Q&A, I think there was commentary that gross margin should be up for next fiscal year. Is that still the case, the way to think about it, despite FX and incremental tariffs?

Laurent, so gross margin was up this quarter by 100 basis points, and there are basically two main drivers behind that. The first and most important is pricing net over inflation, which contributed 120 basis points. The second point is that we continuously see better absorption regarding our newest manufacturing facility in Pasewalk, which contributed 80 basis points this quarter. If you compare it to Q2 this year, this is a trend that we are continuing to see and which are the biggest drivers behind gross margin expansion. On the flip side, the drag of FX was 60 basis points. But overall, we continue for this year to come closer to our 60% gross margin target.

The next question will be from Randy Konik from Jefferies.

Just on the B2B versus DTC, just so we have a thought process for next fiscal year, would you want us to think about B2B leading from a growth rate perspective over DTC or any kind of thought process change to that, just so we know? And then you talked about some significant improvement in penetration in closed-toe, obviously, Boston, et cetera. Can you give us some perspective just around that out a little bit more beyond the Boston, other kind of wins you're getting in closed-toe, would be super helpful?

Thanks, Randy. It's Ivica again. Coming back to your question regarding B2B and what is driving that and how you could think about it in terms of next year. We haven't given guidance yet for 2026 naturally; however, what we see is a constant drive towards in-person shopping, and this is basically why and where we are serving the demand where the actual customer wants to be served. This is certainly driving our thought process, and this is the reason why we are also seeing that increase in B2B and the demand from our retail partners. With regards to your second question on closed-toe, we see an expanded closed-toe share in Q3 by 400 basis points. Looking at the product categories, we see that non-Boston silhouettes are growing at the same rate as the Boston. So across the board, and also with the newness that we have introduced, we feel very comfortable with the growth rates we are seeing in the closed-toe silhouette.

The next question will be from Jay Sole from UBS.

Oliver, I want to ask about the durability of the ASP gains that you've seen because, with FX and tariffs and price increases because of the tariffs, there's a lot of noise around ASP, but it's been a good trend for a long time. How much further into the future can you see good ASP gains for Birkenstock, and why?

Thank you very much. It's Ivica again. If you disaggregate growth for this quarter, we see high single-digit volume growth and mid-single-digit ASP growth. If you look at ASP, this is not only like-for-like price; however, like-for-like price has contributed to that growth, but it's also a product mix. We see an increased share of closed-toe, as mentioned, 400 basis points in Q3, but we also see a continued trend and demand from customers for high-quality execution, so the preference for leather. This is also reflected in the ASP growth.

The next question will be from Adrien Duverger from Goldman Sachs.

So could you please comment on the factory expansion plans and how they are progressing versus your expectations? And how would you expect the additional supply to evolve over the next few years, particularly given the context you've given today, where supply seems to be the main constraint in the business?

It's Ivica again. On factory expansion and especially Pasewalk, so we have said that we are expecting full absorption by the end of Q3 '26. We are well on plan, maybe even ahead of that plan when it comes to full capacity utilization. So this works according to what we have initially said. Coming back to capacity overall and looking at our longer-term growth algorithm, we said we will be growing by mid- to high teens, and that means naturally doubling the business every five years. So we are making sure that our capacity in terms of production and manufacturing, but also beyond that, considering the logistics network, can keep up with the growth. This means additional investments, especially in cork-latex, but also final assembly, and this is what we are currently looking at to keep up with the demand that we are seeing generally in the market. This is also perfectly in line with what we've always said: investing in our business in terms of capital allocation remains our top priority. So we are well on track to invest around EUR 80 million for CapEx over the course of this year. This is something that you can expect into the future, including additional investments in building up our capacity.

If I can just maybe follow up on the wholesale channel, could you please comment on the confidence across the wholesale partners? And how you would compare this to six months ago, for example?

This is David. I think we've spoken for a few calls about general shopping being slower, but intentional purchasing for the chosen brands, with a few most successful brands being even stronger. So the wholesale partners are certainly the ones that are driving that, and they're mirroring consumer behavior. So there's certainly an appetite for more of our product, not just in quantity but in breadth of styles, but we always maintain a high level of relative scarcity. The more we do that, the more we put into the market and the more the demand is from our wholesale partners. So it continues to escalate around the world quarter after quarter.

The next question will be from Sam Poser from Williams Trading.

I have a couple of questions. First, can you provide a breakdown of the store comp results in the U.S. for the comparable stores compared to the total? I believe around six or seven of your stores are included in this comparison. Second, could you specify the reported revenue you expect for the entire year based on today's figures and considering it on an FX-neutral basis? Lastly, regarding the tariffs on your product, I recall it went from 11% to 15%, indicating a 4% difference. That isn't a cumulative increase, correct? If I understood correctly, it has decreased from about 21% to 15% since your last guidance.

Sam, it's David here. Yes, our comps in our own retail stores were up high teens, very successful quarter for us. And again, what's happened in our retail stores, even more than in the wholesale partners, is higher transaction value per transaction, higher ASP, the velocity has been very significant. All of the new products that we've introduced because, obviously, we've had some winners out in the wholesale world. We're just able to showcase so many more of the breadth of product. So we're seeing a spread be much more significant, but very successful quarter in our own retail stores, mirroring exactly what happened at wholesale.

So Sam, on your question regarding FX, it's Ivica speaking again, so the FX headwind that we've been seeing in the third quarter was significant. So it was a 5% depreciation in the U.S. dollar on average in the quarter. The average USD-euro exchange rate was $1.13 compared to $1.08 in the third quarter. So this resulted in a drag of 330 basis points. If you look ahead into Q4, we expect a revenue drag of around 400 basis points compared to where the U.S. dollar is currently trading at, which is $1.17 compared to the previous year. So if you look at the entire fiscal '25, you will certainly remember that in the first and second quarter, we had some currency tailwinds. This turned in the third and is now turning into the fourth quarter into headwinds. Overall, we expect a drag of around 150 to 200 basis points for the full fiscal year. Covering your question on tariffs, the blended rate was 11%, but this is indeed a blended rate, so pre-Liberation dates. As you certainly are aware, there are some products that have a lower rate than that and some that have a higher rate than that. For those that have been tariffed at a lower rate, the rate will go up to 15%. For those products and materials that had already a historically higher rate, say, 25%, this higher rate will remain in place. As such, we expect to be slightly higher than 15%, but depending on the overall product mix.

But a few months ago, your blended rate with the additional tariffs were stacked, so it would have stacked on top of that blended 11%, an additional 10%. Now, it's just 15%, which would help you, which is less than what you thought it was going to be three months ago. Is that fair?

Yes, it is accurate to say that compared to the additional 10% reciprocal tariff, which would have resulted in a 21% blended with the 15%, we are in a slightly better position. This is true.

The next question will be from Ed Aubin from Morgan Stanley.

Yes, Ivica, so first one is a clarification, sorry, because I couldn't really hear what you said on the DTC in Q4. Did you imply that DTC would reaccelerate from the plus 12% you printed in Q3 to a mid-teen rate or not, just to make sure I understood it correctly? Number one. And the second one is also a clarification, am I right to assume that most of the goods that you're selling in fiscal '25 in the U.S. have already been shipped prior to kind of Liberation Day, and therefore, you have very limited? If no tariff impact, then that it will come in '26. If you could clarify that, that would be helpful.

On the first part of the question with regards to DTC, we expect indeed an acceleration in DTC in the fourth quarter of this fiscal year. However, as mentioned before, B2B will outpace DTC in both Q4 and the full fiscal '25. However, DTC will accelerate in Q4. With regards to tariffs and inventory, generally, and more broadly speaking, we have had a very good inventory position. But it's not that limited to the U.S. only. So looking at our inventory, it's very productive. It's pre-allocated to customer orders, and certainly, a very good inventory position does help to mitigate adverse effects.

The next question will be from Janine Stichter from BTIG.

I was hoping you could expand a bit on the B2B business. You talked about 90% of the growth coming from existing doors. How do you feel about where the ceiling is for growth in shelf space in those existing doors? And then maybe talk a little bit more about what you're seeing from the 10% new doors that you're opening, whether it's sporting goods, the outdoor channel, rent specialty. Curious what you're seeing in those newer channels?

Yes, we've indicated that over 90% of our growth is coming from our existing locations. This means we're increasing our presence with styles, SKUs, and depth of inventory. Our approach to expanding locations is very intentional, particularly when it comes to exploring new distribution points, whether in the professional area, run recovery, or outdoor markets. Most of our growth is attributed to adding some new locations and key partnerships, but the bulk is really from our diverse styles, increased inventory, and performing at a level significantly higher than our competitors. While the overall market remains flat, we're experiencing growth, indicating that we're gaining market share intentionally. As Nico mentioned regarding retail in EMEA, we never compromise on maintaining relative scarcity.

The next question will be from Mark Altschwager from Baird.

I guess just first thinking about the DTC business, where perhaps you have some more granular customer data, curious what you're seeing in terms of sort of new customer growth versus spend per customer or frequency per customer? Obviously, closed-toe penetration growth continues to be a theme here. Just wondering to what extent that sandals buyers that are also buying closed-toe styles versus the closed-toe bringing a new customer into the brand, which is maybe how those trends may be evolving? And then, I had one quick guidance follow-up as well.

This is Nico. I'm going to give you some context on the DTC trading and also acquisition of new customers, but also how pleased we are with the success of expansionary categories and new categories. In our DTC, we have a higher share and a higher growth of so-called expansionary categories. New categories that we expose to our consumers in DTC, be it through our online shop or in our physical retail, are fast adopted by consumers more than in our B2B partners. What we also do is, for sure, we have the power to celebrate the full line in our DTC, whereas B2B partners typically are safer placing the buy. We use the great success in our DTC business to bring it over to B2B and share with our B2B partners what are the styles, what are the categories that are spearheading in our DTC business. What we also see is, whenever we open a retail store, a new store, consumers are coming in and trending towards higher-priced products. Our new stores are delivering a higher ASP, more premium product, and also more units per transaction, while our same stores, as David mentioned, are growing double digits in their sales. This gives us very much confidence on expanding in DTC through our retail expansion plan that is targeted to address the physical shopping trend, while we also spearhead growth in underpenetrated areas for digital. Specifically, in regions like APAC, but also the Middle East, our digital business is quite young but expanding really fast. This gives us great confidence that we are with quality, expanding our business on the DTC front, while we keep scarcity and the quality in our B2B business.

Excellent. And then just on the margin guidance, reiterating the full year, but that does imply a fairly wide range of outcomes for the fiscal fourth quarter, including EBITDA margin being down year-over-year. Just wondering if you could comment on that. I mean, is there a scenario where you see EBITDA margin could be down? Or just what are the factors that you see driving kind of the low end versus the high end of that guidance range?

Mark, it's Ivica speaking. I mean, certainly, the key point driving that is the volatility that we have seen in currency. So it's extremely hard to predict. If you see where things have developed over the course of the year, we feel very comfortable with that guidance, although we can't naturally predict where the U.S. dollar versus the euro will trade. As such, we are very comfortable again on that guidance, but there is this part of the equation which is unknown.

The next question will be from Paul Lejuez from Citi.

You provided some insights on the DTC business in EMEA. It started slowly but then picked up speed. Can you share what you observed in other regions of the DTC business during the quarter, whether there was an increase or decrease in performance? Additionally, could you explain what your sell-throughs look like in B2B? How does that compare to what you're experiencing in DTC across each region?

This is Nico. We've seen a significant increase in sell-throughs at our B2B partners, rising to 25% in the Americas and 20% in EMEA. This indicates strong immediate demand, as reorders have also increased considerably. In the two major regions where David is sitting next to me, we noticed that the summer began a bit softer. April and May were slightly below expectations in our DTC business, which was a trend seen across the market. However, June marked a complete turnaround, with record sales that matched previous high levels. In our DTC business, same-store sales saw significant growth, and new stores performed exceptionally well from the start, while our B2B partners also achieved record sell-through rates. We are pleased to observe this in the current market where conditions are largely flat to negative. We continue to be the brand of choice for consumers facing difficult decisions amid considerable uncertainty. Our brand's appeal remains strong.

The next question will be from Peter McGoldrick from Stifel.

I'm curious on the closed-toe penetration, up 400 bps in the June quarter, which is the seasonally smaller quarter for these products. Can you help us think about the closed-toe rate of growth in the September quarter? And how this builds as we look into fiscal '26?

Yes, this is Nico again. Closed-toe continued to outpace open-toe, while open-toe shows very robust growth. We're also very pleased to see that non-Boston styles grow at the same pace as Boston. So it's not just a one-horse race. Just now, you might have seen we are completely sold out of Naples Wrapped. We saw an organic TikTok celebration that made Naples Wrapped the style among youth audiences. We are currently replenishing and coming back early September with Naples Wrapped. I also want to mention that Tokyo and Lutry are really performing well. It's again, not just a Boston race, it's really a very diversified business, and consumers are enjoying that business. Where that share of business can grow? We shared something around 30%, but it can grow stronger. We are not at the ceiling yet with closed-toe, and typically in the autumn season, closed-toe is growing faster than open-toe even further. But I'd also like to mention that open-toe is showing very robust growth, so it's not at the expense of open-toe.

The next question will be from Luca Solca from Bernstein.

Yes. Maybe a different question, trying to parse out what you've been doing and what you're planning to do in order to maintain or increase brand momentum. How you are planning to support brand equity in terms of marketing initiatives, collaborations, communication, social media events, activations, anything that if planned on the marketing side would be very useful?

Thank you for your question. We are a purpose-driven brand focused on introducing our brand's functionality and purpose to new audiences, especially through in-person shopping. Our B2B and DTC initiatives are strong, with high demand for this type of information in the APAC region, as well as in emerging markets in EMEA, and consistently in the U.S. and Latin America. We communicate about our brand’s functionality, which forms the foundation of our marketing efforts. It's not just about creating large, visually appealing advertisements; instead, our daily efforts focus on encouraging people to try our footbed, leading them to return for additional purchases. This groundwork is vital for us, especially given our extensive collection and global relevance across various channels, product categories, cities, and territories. We're committed to working hard for our audience. Additionally, our 1774 initiative, based in Paris, collaborates with artists and creators to launch a luxury-driven line aimed at attracting hard-to-reach audiences, which represents a key marketing effort. The essence of our mission is to provide everyone access to the footbed, and our daily outreach reflects that commitment.

This does conclude today's Q&A session, and it also concludes today's conference. You may now disconnect your lines. Thank you for your participation.