Good morning, and thank you for standing by. Welcome to Birkenstock's third quarter of fiscal 2026 earnings conference call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session. The company has allocated 45 minutes to this conference call and will take as many questions as time allows. I would like to remind everyone that this conference call is being recorded. I will now turn the call over to Megan Kulik, 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, and David Sokrolo, Chief Financial Officer of the Birkenstock Today, we are reporting the financial results for our fiscal third quarter ended June 30, 2026. You may find the press release and a supplemental presentation connected to today's discussion on our investor relations website at Birkenstock-holding.com. Results have also been filed on Form 6K with the SEC. 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, 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 for 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 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 non-IFRS measures to 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. We performed exceptionally well in Q3 and once again demonstrated the strength of our brand. Given this continued momentum for fiscal 2026, we raised our guidance for revenue growth to 15% in constant currency and adjusted EBITDA of at least 710 million euros. We delivered another strong quarter. Our revenue grew 15% in constant currency at the high end of our annual target of 13 to 15%. EMEA growth accelerated to 15%. ETC growth accelerated to 16% in constant currency. Adjusted EBDA margin on a life-for-life basis improved 60 basis points year over year. We achieved this despite an increase in costs, especially freight rates, due to the conflict in the Middle East. We returned capital to shareholders by repurchasing 230 million euros in shares. We also refinanced and upsized our senior notes at a 75 basis points lower rate. We continue to grow in our wide spaces. APEC continued its high-quality and D2C-led growth, especially in China. China. We accelerated the pace of retail expansion. We are on track to meet our target of approximately $140 by the end of fiscal 26. Importantly, own retail revenue grew 50% in constant currency. Same store sales were up high single digits. We saw a strong acceleration in the near digital growth, capturing more demand in our own e-com channel. Self-show penetration was up 500 basis points, consistent with recent trends and in line with our goal to expand usage occasions for our footbed. Product mix contributed over half of the growth in ASP. We saw double-digit growth across all of our regions. Our Americas business was up 14% in constant currency. Youth retailers and sporting goods stores continue to lead B2B growth, with sell-out at key partners in these channels up above 20% year-over-year. Within the America's B2C business, we saw very strong retail growth as we continue to open new stores to capture more in-person shopping demand in our own doors. We opened four new stores in the U.S., bringing the total to 21. Growth in EMEA was 15%. In the largest, most important quarter for EMEA, we saw accelerating consumer demand, especially in our D2C business, both online and in-store, with strong full-price realization of 93 percent. We opened four stores during the quarter bringing the total in EMEA to 50. APEC grew 23 percent in constant currency. Excluding Australia, APEC growth was close to 30 percent. Australia's growth in the quarter was impacted by a shift in quarterly cadence as a result of the distributor acquisition we are very confident in our apex target for the full year importantly we had over 50 growth in china the country with the highest asp a testament to our high quality premium brand positioning in the region within the apex segment we open five new owned stores bringing the total to 53. on the product side we continue to innovate and drive newness in both closed toe and sandals this innovation is most visible with our premium 7074 collection we introduced new ruffia canvas and premium leather executions in naples boston Arizona, and Gizeh. We also collaborated most recently with Song for the Mute, Ada Arrow, and Repetto, a very successful launch targeting the female lead and growing popularity of ballet class. This global movement also resulted in a very strong demand for the Mary jane style santa clarita one of the newest mainline silhouettes launches this once again demonstrates our ability to create a trend within our brand while demand for the box remains very strong other clock executions also performed exceptionally well for example the naples grew by more than four times the unit sold year over year we also saw very strong growth in shoes led by UTI, a lace-up mock-toe, which more than doubled in units sold year-over-year. Overall, non-Boston closed-toe executions were up more than 50%. About half of our top 20 distillates are closed-toe, including three that were introduced within the past three years. In our sandal business, we saw the strongest growth from our newest seasonal executions, such as flowers, rivets, buckles, prints, and textiles. Growth was especially strong in our Mayari, Madrid, and Siena silhouettes. We highlight this newness most prominently within our DTC business, thriving growth in our own channels. We remain super confident in the strength of our brand. We are purpose-driven and see strong global demand for the food bed. We target a diverse range of consumers across geography, gender, age, and income. Our total addressable market is only limited by the global population. This gives us flexibility to drive growth, regardless of global or regional macro conditions. We manage our distribution with discipline to maintain scarcity, properly segment the market, manage channel growth, and protect full-price realizations. Now I will pass the call over to Ivica to go through the quarterly results in more detail.

Thanks, Oliver. I am happy to share with you details of Birkenstock's performance for the third quarter of fiscal 2026, which exceeded our expectations. We generated third quarter revenues of 720 million euros, growth of 13% on a reported basis. Growth in constant currency was 15% at the high end of our 13 to 15% expectation. The depreciation in the US dollar, Canadian dollar and Asian currencies like the Indian rupee and the Japanese yen compared to the third quarter of 2025 caused a 180 basis points headwind to revenue growth in the quarter. For reference, in the third quarter of 2026, the average euro to US dollar rate was 1.16, up from 1.13 in Q3 of fiscal 2025. We saw strong growth across all segments in the quarter. The America segment was up 14% in constant currency, continuing the trend we saw in the first half of the year and reflecting the consistent strength in our most developed market. EMEA was up 15% in both reported and constant currency, a strong acceleration from Q2, driven by particularly strong D2C in Europe in both online and retail. We continue to see some localized impact in the Middle East related to the conflicts in the Gulf region, particularly in the UAE, which is highly dependent on tourism and expat demand. This has been offset by strong domestic demand in markets such as Saudi Arabia. Overall, the Q3 performance was better than anticipated. APEC was up 23% in constant currency. APEC quarterly growth rates are skewed due to the changed revenue pattern from the Australia business. Prior to the acquisition, revenues were recognized when we delivered to the distributor before the peak season. We are now realizing revenues in line with the local market dynamics and seasonality. The Australian spring-summer month are September to February and D2C and B2B sell out peaks in this month, which aligns with our Q1 and Q4, which differs from the revenue realisation pattern pre-transaction. Therefore, Q3 Australia growth was lower versus last year, which, as one of our top markets in the region, had an impact on the APEC growth rate. Excluding the impact from Australia timing shifts, our APEC growth was close to 30%. We continue to expect APEC to grow at twice the pace of the other segments for the full year. By channel for the year, B2B was up 15% in constant currency, consistent with the trends of the last few quarters on the back of continued strong demand at our key partners. D2C accelerated strongly to 16% in constant currency, up 400 basis points from 12% growth in Q2 and outpaced B2B in the quarter. Our digital growth accelerated very nicely compared to the first half of the year. Many of the actions we are taking to drive improved conversion are beginning to show results. This includes improved content, enhanced user experience, including simplified checkout options, and expanded loyalty and member benefits. Retail was up 50% as we continue to see very strong performance from our new and existing doors. We added 13 new-owned stores, bringing our total to 124. Same-store sales growth was up high single-digit. Adjusted gross profit margin for the third quarter was 59.2%, down 130 basis points year over year, mainly driven by 60 basis points of pressure from FX and 70 basis points of pressure from incremental U.S. tariffs. Adjusted gross profit margin excluding these effects was up 10 basis points year over year. While we continue to benefit from better capacity absorption, which contributed 50 basis points to adjusted gross profit margin, product mix caused a 40 basis points drag on margin. The ongoing shift to close-toe silhouettes comes with a slight margin drag due to the manufacturing complexity and higher consumption of production minutes. However, the shift is very beneficial for us as it yields higher ASP and higher gross profit per pair, despite the slightly lower than average gross margin percentage. Selling and distribution expenses were 186 million in the third quarter, representing 25.9% of revenue. This was up 30 basis points from the prior year, primarily due to accelerated retail expansion and some higher logistics costs as a result of the conflicts in the Middle East. General and administration expenses were $33 million, or 4.5% of revenue, down 40 basis points year-over-year due to lower IT expenses and fixed cost leverage. Adjusted EBITDA in the third quarter of $242 million was up 11% year-over-year. The flow-through of FX effects reduced adjusted EBITDA by $8 million. Excluding this FX impact, EBTA was up 15%. Adjusted EBTA margin of 33.7% was down 70 basis points year over year due to 130 basis points of pressure from FX and tariffs. Excluding these impacts, adjusted EBTA margin would have been up 60 basis points. This improvement is despite the increase in freight and logistics cost. adjusted net profit was 134 million in the third quarter up 15 percent year over year adjusted eps for q3 was 74 euro cents up 19 percent from 62 euro cents a year ago the debt refinancing triggered a 11.7 million expense from the accelerated amortization of the transaction cost and the de-recognition of the embedded derivative of the original senior notes. The ASR triggered a 10.6 million expense from fair value changes due to share price movements during the term of the ASR. At least one time, non-cash expenses were recognized in finance cost and were excluded from adjusted net profit. We generated 247 million in operating cash during the quarter compared to 261 million in the prior year due to higher income tax payments totaling 77 million we ended the quarter with cash and cash equivalents of 694 million after the share repurchase of 230 million and the refinancing and upsizing of our long-term senior notes As a reminder, in June, we repaid 428.5 million of five and a quarter senior notes due 2029 and issued 900 million new senior notes due 2033 at four and a half. The remaining excess cash added to the balance sheet gives us flexibility to further enhance shareholder value with an additional 500 million share repurchase or the refinancing of other existing debt subject to market conditions. Our inventory to sales ratio was 37% in the quarter, up from 33% a quarter ago. The increase from last year is largely driven by the increase in capitalized tariffs and FX effects. Our DSO for the quarter were healthy 45 days, up slightly from 43 a year ago. During the quarter, we spent $26 million in capex, adding to our production capacity in Aruka, Berlitz and Pasewag, beginning the build-out of Wittichenau and continuing our investments in retail and IT. We also paid the second tranche of the purchase price for Birkenstock Australia of $9 million. our net leverage was 1.8 times as of june 30th 2026 up from 1.5 times at september 30th 2025 reflecting the cash outflows from the asr excluding the asr net leverage would have been approximately 1.4 times turning to our outlook for the fourth quarter in fiscal 2026 in the fourth quarter we expect revenue growth in constant currency within our annual guidance range of 13 to 15 percent we expect fx to be relatively neutral in q4 resulting in similar growth rate on a reported and constant currency basis on margins for q4 we expect fx to be neutral on tariffs given the recently announced agreement with the european union and the implementation of section 301 tariffs we now expect a blender tariff rate for q4 of just over 15 below what we have experienced under the section 122 tariffs as a result tariffs should also be relatively neutral year over year in q4 for the full year we now expect revenue growth of 15 at the high end of our guidance range of 13 to 15 percent for the full year the fx drag is expected to be 350 basis points for the full year we continue to expect adjusted gross margin of 57 to 57.5 percent and adjusted ebta margin of 30.2 to 30.5 percent inclusive of approximately 200 basis points of pressure from FX and U.S. tariffs combined. Adjusted EBDA is now expected to be at least 710 million euros for the fiscal year. Our expected tax rate is 30 to 31 percent up from our prior forecast of 26 to 28 percent due to the non-tax deductible expenses largely associated with the ASR and debt issuance. Including the tax impact of the accelerated share repurchase, as well as the refinancing and upsizing of our senior notes, adjusted EPS is expected to be €1.90 to €2.05, in line with our prior forecast. This includes approximately €15 to €20 of pressure from FX. This does not include the impact of any additional share repurchase beyond the ASR completed end of June. CapEx should be in the range of 110 to 130 million euros. We have a net leverage target for the end of fiscal 2026 of approximately 1.6 to 1.7 times, up from our previous forecast of 1.3 to 1.4 times after the impact of the ASR, but excluding any additional share purchases. With that, I'll turn it back to Oliver to close.

Thanks, Ibiza. We are super happy increasing our revenue growth target to 15% in constant currency and adjusted EBITDA to at least 710 million euro. Our third quarter results once again prove that demand for our beloved brand remains strong. Even in times of inflationary pressure on consumer wallets, will remain an accessible and desired brand. We are excited about the opportunities in the fast-growing and underpenetrated APEC market, in expanding our own retail fleet, and in the newness and innovation within our brand. As we look toward the final quarter of our fiscal 2026 and beyond, we plan to continue to grow our share and expand our following within our new, younger target group, building lifetime connections with our consumers across regions and channels, drive innovation and create newness in both our close-toe and in our standard business, actively steer product between geographies and channels to optimize margins, maintain scarcity, and protect brand equity. We continue to use our strong balance sheet and capital allocation decision to drive shareholder returns. Our organic growth generates substantial cash flow. Over the past two years, our operating cash flow totaled 774 million euros. Our first priority remains to invest in the business. Of this 774 million, 189 million was invested in CAPEX. Given our currently undervalued shares, we will look for opportunities to continue our buybacks. We will now take your questions.

We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Matthew Boss with J.P. Morgan. Your line is open. Please go ahead.

Thanks, and congrats on a nice quarter. So, Oliver, nice recovery and direct-to-consumer growth this quarter. Came in above B2B for the first time in two years. Can you speak to drivers of the improvement at direct-to-consumer and what you're seeing in B2B relative to D2C? And then relative to the raised top-line guide for the year, could you talk to trends in the fourth quarter? And do you think there's potential upside to your 15% top-line forecast for the year?

Hey, Matt. Thank you for your question. I'm maybe a bit hard to understand because I'm dialing in from Saint-Tropez. I'm heavy-selling shoes here, as you can imagine. it's quite hot but hopefully you can hear me loud and clear so um to come back to your question uh we delivered strong growth across both channels of course d2c outpays b2b supported by the investments we're making in both own retail and in our own digital business both channels are and will remain important drivers for our business the d2c performance was driven by own retail where our expanded footprint and faster store opening delivered 50% growth. Same store sales were also strong, up high single digits, which reflects the continued demand for our brand across our existing store fleet. We also saw accelerating online growth. Newness on the product side, greater personalization, and stronger storytelling are making the digital experience more compelling and driving the conversion. This was most impactful in Europe, where we saw a clear step up in online performance with 93 full-price realizations, even as the broader market became more promotional, as you know. So we're focused on growing the business where we can and create the most value. That means continuing to invest in D2C while maintaining a strong, disciplined B2B business. our wholesale partners are an important part of our growth strategy they give us efficient access to new customers particularly younger consumers while helping us maintain high quality distribution across our markets our 15 constant currency revenue growth guidance reflects the strength we are seeing today across channels and markets and um last part of your question we feel very confident about the momentum in the business, and our long-term revenue growth target is 13 to 15. Thank you.

Great color. Best of luck. Thank you.

Your next question comes from the line of Laurent Vasilescu from BNP Paribas. Your line is open. Please go ahead.

Good morning, Oliver and team. I wanted to ask about EMEA. EMEA growth accelerated nicely versus Q2. Did you see any impacts from the conflict in the Middle East? Could you provide additional color on key drivers behind acceleration and growth? And to what extent do favorable weather conditions contribute to the growth relative to the underlying trends in the business? And curious, are you seeing any continuation of these trends into 4Q within EMEA? Thank you so much.

Thank you for your question. It's Iwitsa. So indeed, we did continue to see an impact from the conflict in the Middle East, although certainly it was less pronounced than in Q2, basically at the onset of the conflicts back then. We were able to mitigate much of the pressure through adjustments in the delivery routes and strength in the other parts of the region. For instance, if you think of Saudi Arabia, a very resilient market and less dependent on tourism and expats. So in general, Q4 is a larger quarter in the Middle East, so we expect slightly more of an impact, also due to the resumption of hostilities in the region itself. That said, we expect the total second half impact to be below the 10 to 12 million we originally estimated. We now see this totaling high single-digit millions. overall the growth acceleration was largely driven by d2c demand as oliver already mentioned demand proved very resilient across the region and we saw nice growth in both retail and online we're also seeing the benefits of the investments and actions we've taken to drive traffic and improve conversion this is also something we've spoke about in january at our capital markets day And this includes enhanced upper funnel online marketing, stronger content and optimization of the inside experience. And this is all contributing positively. So on the weather, definitely warmer temperatures are generally favorable to our business. However, we are already seeing improved trends ahead of that. And those trends have continued into the first weeks of our fiscal Q4. And funnily to note, there was bad weather in some of our other markets in Q3 as well.

Your next question comes from the line of Lorraine Hutchinson with Bank of America. Your line is open. Please go ahead.

Thank you. Good morning. So pricing over inflation was not a contributor to gross margin this quarter as it has been for the past few. Were you more promotional? And how should we think about your ability to pass inflation through with pricing when customers are a little more price sensitive? Are you seeing any signs of consumer pushback on pricing, particularly in early back-to-school?

Hey, Lorraine. It's Ivica. So our pricing decisions are made with the goal of passing through inflation and protecting gross margin, something that we do very consistently. There can be timing differences from when we take pricing and when the inflation works its way through the inventory and flows through the cogs. And please keep in mind year-to-date, the pricing over inflation benefit to gross margin is 30 basis points. On promotion, at an overall industry level, we see indeed a higher markdown activity as retailers compete for a more constrained consumer wallet. In this context, we continue to deliver a superior full price realization and gross margin. This basically underlines the strength of our brand and our markdown discipline, which remains unchanged. We are and will selectively discount as we always have. Any active markdown we do is to effectively manage our seasonal access stock as our business continues to grow. So as you know, 75 to 80% of our business is core products and evergreen styles. Our markdown assortment is centered very much around prior season merchandise, seasonal colorways, and broken size runs. And the beauty of our brand is we serve a broad range of price points from $50 to $1,500 and remain accessible when consumers are tightening up their spending. For those consumers who are more price sensitive, we offer executions in vehicle floor, EVA or textile, for example. And importantly, any action we have taken are not negatively impacting our margin. As you can see from our results, gross margin was even up 10 basis points on a light-for-light basis. And finally, on back to school, we continue to be a must-have brand for the school year, and we continue to see a very strong youth-driven demand in the U.S.

Your next question comes from the line of Christina Katai, an equity research analyst. Your line is open. Please go ahead.

Hi. Thank you for taking the question, and congrats on a good quarter. You've provided helpful color that the shift toward close-toe still has created, I think, a roughly 40 basis point pressure and gross margin. Can you help us quantify that further? What is the difference in gross margin between close-toe and open-toe? And then secondly, maybe if you could provide more color on the components of growth this quarter just across ASPs and volumes.

Thank you. hi christina thank you for your question and first um on the margin impact so as you know we don't disclose specific margin on a product level but the complexity of higher asp non-boston close to shoes and boots executions require more labor input and consume more production minutes so this quarter we saw an over 500 basis points increase in our close to share and this is driven by over 50% growth in the non-Boston silhouettes, with Naples units up more than four times and UTI more than doubling year over year in Q3. That impacted the gross margin. These are great, highly profitable products which are helping us to attract new consumers and broaden the usage occasions for the footbed. And they generate a higher ASP and profit dollars per pair, although a slightly lower but still very strong margin and we use contract manufacturers in Portugal for some of their production so insourcing parts of this production now the demand is scaling is a future margin opportunity for us definitely and then on your second the second part of your question on ASP versus volume it was very much in line with our one-third two-thirds target and reflects the continued build-out of our production capacity across the network, which is progressing according to plan.

Your next question comes from the line of Michael Benetti with Evercore ISI. Your line is open. Please go ahead.

Hey, guys. It's Carson. I'm here for Michael. Thanks for taking our question here. Sorry to get into the nitty-gritty of the model, but can you walk us through the tax rate? It's coming in above the original guidance of 27% to 28%. Is this 30% to 31% the new baseline for taxes? And then I would have expected more upside to EPS for the year given the strong EBITDA outlook and share repurchase. Why aren't we seeing the flow through to EPS and then related to that, what's the normalized finance cost on a quarterly basis with the new debt issued? And then should we expect to see less volatility in total finance costs going forward?

Hi, Carsten. Thank you for your question. The first one on tax, no, we do not believe that 30 to 31 is the new baseline. Going forward, we expect a recurring tax rate in the high 20s. This year, it is elevated due to the non-deductible, non-recurring, non-cash finance expenses associated with the refinancing that we have completed over the course of Q3, the ASR, and the mark-to-market valuations in the embedded derivative expenses. On EPS, this year will be impacted by this higher effective tax rate. With a normalized tax rate, adjusted EPS growth would have been 23% in the third quarter. For the full year, the impact is about €0.08 per share. Your last part of your question on the finance cost. This quarter finance costs were impacted by, again, one-time non-cash expenses related to the refinancing of $11.7 million and the ASR of $10.6 million. So we do not expect to incur these expenses going forward. What will result, however, in a recurring way and a recurring change is the issuance of the new 900 million senior notes and the repayment of the original close to 430 million notes. This will increase interest expense within finance costs by approximately 4.5 million per quarter. And finance costs should normalize at around 25 million per quarter. Overall, we expect volatility to decrease due to lower fluctuations in the embedded derivative, resulting from the longer time to optional redemption of the new senior notes.

Your next question comes from the line of Simon Siegel with Guggenheim Securities. Your line is open. Please go ahead.

Thanks. Hey, everyone. Hope you're having a nice summer and a nice job. can you just speak to the spread between inventory and sales how are you thinking about the composition of your inventory now maybe how's the change in units versus euros and how are you thinking about the go forward inventory levels and then just to clarify on the australia timing shift did sales shift earlier into 2q or later into 4q and is that change now behind us just curious how to think about the underlying comment you made or the underlying trends comment you made and the go forward expectations thanks guys hey simian it's ivita again thank you for your question The first part on the inventory, so as you are well aware, over 70% of our finished goods inventory is already contracted.

Most of this inventory is core, basically evergreen products which don't go out of style and definitely allowing us for better pre-production and production balancing and definitely also helps our planning. More than half of the increase in our stock-to-sales ratio is attributable to FX and capitalized tariffs, and this is something that we've spoken about already in our earnings call in Q2. The other half is largely attributable to the consolidation of the Australia business and the timing of revenue recognition and sell-through of the inventory there. We're now running an onshore business and are more bound to the cadence of selling in the region itself.

Your next question comes from the line of Adrian Duverger with Goldman Sachs. Your line is open. Please go ahead.

Hey, good morning, good afternoon. Oliver Witz and Megan, thank you very much for taking my question. Could you please comment a bit more on the performance in the U.S.? More specifically, how is the order book performing? Could you please comment maybe on the sell-in versus sell-out at your wholesale partners? I think you commented already that you have seen very good growth from these youth department stores and sporting goods. And also, yeah, I guess following up on the prior question, I'm confident that there is no buildup of inventory anywhere in the wholesale channel. And is there anything you're seeing in terms of wholesale appetite for your products?

I guess as well in terms of consumer feedback. that would be super helpful thank you very much thank you very much um adrian it's if it's again um so on your question with regards to us uh b2b and indeed as oliver said earlier in this call we're continuing to see um strong youth-led demand and basically this is the cohort that is highly growing and effectively being new to the brand so this is what we call the footbed newbies Sell-through across these channels in Q3 was up by 20% plus year over year. So a continued strength we've observed for the last couple of quarters and very similar to what you have seen already before. With regards to back to school, as mentioned, we are one of the must-have brands. We are continuing to see this youth-driven growth. And with regards coming back again to the markdown activity, there is no change to our approach. And if we would be marking down, you would immediately see it in our gross margin, but you don't see it. It's just the opposite. You see an increase on a like-for-like basis. And this is what we will continue to build on.

Your next question comes from the line of Ed Olbin with Morgan Stanley. Your line is open. Please go ahead.

Yeah, good afternoon. So just a question on China, actually. obviously your exposure to China is small. I think it was about 2% last year, but you mentioned on the call that you're growing about 50% year over year. Could you just update us on your plan to continue to grow in that market? And then just on production capacity, because I'll never mention your sustained capex investment. I think on my estimates, you're going to be selling about 42 million pairs this year uh when will you start to um be thinking about building a new factories or with the existing capacity uh what could be the uh potentially the the number of pairs you could be you could be producing every year thank you hi edward it's if it's also the first part of your question on china so the business there was up 50 in the quarter and it was our largest market in APEC in Q3.

And it's very much a premium market for us. It's high quality retail-led growth with the highest ASP globally. We'll continue to follow the roadmap we outlined for the market at our capital market day in January. So this is including raising brand awareness through new stores, both company owned and partner doors, local activation, brand building events. So events do play a key role in increasing the brand awareness through the region. And this will be built up further. So the second part on your question, Eduard, with regards to build out of capacity especially with regards to production. So we are on track to deliver 10% unit growth as we've said at our capital markets day and the build out of the entire manufacturing network especially with regards to Wittichenau but also Aruca in Portugal and Görlitz is progressing according to plan, and we are well on track to deliver the target unit growth.

Your next question comes from the line of Mark Altschvager with Baird. Your line is open. Please go ahead.

Great. Thank you for taking my question. I wanted to hit on capital allocation. You have another, I believe, $500 million of liquidity for buybacks. How do you anticipate executing the additional buyback program going forward. You know, this last one was ASR, obviously. How are you thinking about that versus a regular ongoing buyback program? And relatedly, net leverage 1.8 times today, guiding to 1.6, 1.7 by year end. Do you have a target leverage ratio or what is the leverage level you're going to run in order to complete the buyback program? Thank you.

Hi, Mark. Thank you for your question. It's again, and you are right. We have a significant cash balance from which we can execute additional buybacks, and we plan to do so. We will be responsive to capital market activity and make the decision how and when to utilize that cash based on a number of factors, including a potential liquidity events for our largest shareholder, the timing naturally of which we do not control. Ideally, we would utilize the cash as we did the 200 million last year and buy shares as part of a larger transaction. So we do not further reduce our public float, which is, as you know, already very low. That said, as we did this year with our most recent ASR, we don't have to wait for a bigger transaction and we'll buy back from the public float. if our board decides that it's in the best interest of our shareholders. With regards to leverage, we do not have a specific leverage target set. We will keep our options open to allocate capital. However, it is in the best interest of our shareholders.

Your next question comes from the line of Anna Andriva with Piper Sandler. Your line is open. Please go ahead. Anna, you may need to unmute your device locally. For now, we will move on to Dana Telsey from Telsey Advisory Group. Your line is open. Please go ahead.

Congratulations on the nice results. Oliver, as you think about the closed toe penetration, which is up so nicely in the quarter, which typically is a summer quarter that's usually more sandals heavy, what was the growth in the sandals category and the go forward? How do you think about product innovation and newness, whether in sandals or closed-toe, and pricing? Thank you.

Hey, Dana. It's Oliver again. Thank you for your question. As you know, our sandal business remains very strong, up with high single digits in constant currency year over year. So sandals were particularly strong in our own DTC channel, driven by newness. There's no one else with the footbed and its benefits. So this is a category we own. It's not just Arizona, which is still growing and benefiting from newness. The Mayari, the Madrid and the Siena silhouettes performed particularly well this summer. The success of our close-toe business, especially Glocks, has created true four-season demand, reducing the seasonal dependence on sandals. This is not just the Boston, it includes the Naples, the Lutri, Amsterdam and others. all of which are doing very well and building on our momentum in clocks. We are constantly driving newness and innovation in both open-toe and closed-toe, growing our global fan base. We create new trends from within our brand to build and expand our archive and extend usage occasions. I mentioned two good examples of this in my opening comments like the Santa Clarita and the Repetto Collaboration to capture the increasing global demand for ballerinas. This will be, don't forget this, this will be the trend for the next three, five years. The ballerinas for ladies.

And with that, we have reached the end of the Q&A session. This concludes today's call. Thank you so much for attending. You may now disconnect.