Earnings Call Transcript - BIRK Q2 2025

Operator, Operator

Good morning, and thank you for standing by. Welcome to Birkenstock's Second Quarter 2025 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 has asked that you please limit yourself to one question and return to the queue for any follow-up. 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 over the call to Megan Kulick, Director of Investor Relations.

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; and Ivica Krolo, Chief Financial Officer of the Birkenstock Group; David Kahan, President of Americas; Nico Bouyakhf, President of EMEA; and Alexander Hoff, Vice President of Global Finance, will join us for the Q&A. Today, we are reporting the financial results for our fiscal second quarter of 2025 ending March 31, 2025. You may find the press release and supplemental presentation connected to today's discussion on our Investor Relations website. We would like to remind you that some of the information during this call is forward-looking and accordingly, is subject to the safe harbor provision of the federal securities law. 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. 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. With that, I'll turn the call over to Oliver.

Oliver Reichert, CEO

Good morning, everybody, and thank you for joining us. We are meeting today at a moment when the world seems unpredictable. The current context is a stress test for the resilience of business models. As our results for the second quarter show, we have passed this test very well. Our company is in good shape and we are confident about our future. Our performance is rooted in the power of a universal purpose of a brand that has stood the test of time. We control our own supply chain with 95% of our products made in Germany and 100% made in Europe and 96% of our raw materials sourced in Europe. This helps shield our business from the current disruptions. Once again, we're delivering on the promises we made during our IPO. In the second quarter, we delivered a record €574 million in revenues. On a reported basis, this was up 19% year-over-year. In constant currency, revenue grew by 18% above the high end of our 15% to 17% target for the full year. Revenue growth was driven by a double-digit volume increase, supported by continued average selling price (ASP) growth. The manufacturing capacity we have added over the past two years has allowed us to increase our production to meet the growing demand for Birkenstock. Sales numbers for our five iconic silhouettes grew double digits, contributing to both volume and ASP growth. At the same time, we continue to tap into the white spaces, which, as you know, are closed-toe shoes, our own retail stores, and the APAC region, all of which contributed to our strong growth. As expected, growth in the second quarter was balanced between our B2B and DTC channels, with B2B coming in at 18% and DTC at 17%. The DTC growth was driven by our investments in our online and owned retail stores. Our membership base reached over 10 million loyal members, up over 25% year-over-year. We are on track with our retail expansion with now 77 owned stores, adding six new doors during the second quarter. As shared, we are heading towards 100 owned stores by the end of this fiscal year, and we are confident we will get there. During the quarter, revenue from closed-toe silhouettes grew at twice the rate of the overall group and increased share of business by 400 basis points. Demand for closed-toe silhouettes for spring/summer '25 was strong, and we see continued strength as we build our order book for spring/summer '26. Almost half of our top 20 selling silhouettes in the quarter were closed-toe. Let us now have a brief look at the segment performance. Within our largest segment, the Americas, we experienced continued strong consumer demand for our brands. Revenue in the region was up 23% in reported currency and 20% in constant currency compared to the second quarter of '24, both the B2B and the DTC channel grew double digits. Within the B2B channel, the fastest growth came from our youth, sporting goods, outdoor, and department store partners. Americas DTC strengthened in the quarter from investments we made in the digital channel and from our expanded physical retail presence. We opened a new door in Nashville, bringing our own store count in the region to 10. In EMEA, we delivered double-digit growth of 12%. In the recently integrated Middle East and Africa area, we have been taking further actions to be more focused in our growth. DTC remained very strong, outpacing B2B growth by 1.5 times. Within our DTC channel, shoes are the second biggest category behind classic leather, showcasing the continued momentum in this important area. We increased our brand presence and awareness with the opening of new stores in London and Paris, bringing our store count in EMEA to 37. We created some strong brand moments, bringing our mission to life across the region. One highlight was an experimental pop-up store in Les Deux Alpes in France, where we hosted over 3,000 brand fans and members in a month. The APAC region was again the fastest-growing segment in the quarter. Our largest white space region grew by 30%, driven by very strong growth in our DTC channel. We opened three new owned retail stores in India, Japan, and China, bringing the total number of stores in the region to 30. We also expanded our strategic partnerships, increasing our mono brand partner doors by 20%, driving very strong double-digit growth in our B2B channel. Consistent with the other segments, closed-toe and higher-priced premium leather executions are growing faster than the regional average and contributing to positive ASP growth in the region. Our three top markets in terms of revenue were Australia, China, and Japan, all grew significantly above segment average with China more than doubling in revenue year-over-year. As a reminder, we are just beginning to enter Greater China in a meaningful way and see the opportunity for continued strong growth in this market. The strong results make us confident for our important spring/summer selling season as we are seeing great momentum across all product channels, categories, and segments. I will now turn it over to Ivica to discuss our financial results in more detail.

Ivica Krolo, CFO

Thanks, Oliver. I'm happy to share with you Birkenstock's performance for the second quarter of 2025, which came in ahead of our expectations. Second quarter revenues were €574 million, with growth of 19% on a reported basis and 18% in constant currency, above the high end of our 15% to 17% annual guidance for the year. As expected, growth in B2B and DTC were balanced in the quarter, with B2B up 19%, 18% in constant currency and DTC up 19%, 17% in constant currency. DTC share of business was 24%, equal to the prior year. As a reminder, the second quarter is seasonally our heaviest in terms of B2B mix, given the timing of the sell-in to our partners for the spring/summer season. Gross margin for the quarter was 57.7%, up 140 basis points year-over-year. Better absorption of costs related to a new manufacturing facility contributed about 50 basis points. The remainder is made up by selected price adjustments, net of higher input costs and favorable currency translation. Selling and distribution expenditures were €127 million in the second quarter, representing 22% of revenue, down 150 basis points from the prior year, mainly due to the reclassification of expenses into G&A previously recorded in S&D. General administration expenses were €32 million or 5.6% of revenue in the quarter, up 150 basis points year-over-year due to the reclassification as well as higher IT expenses primarily related to the ERP conversion in the Americas. Adjusted EBITDA in the second quarter of €200 million was up 23% year-over-year and a margin of 34.8% was up 110 basis points year-over-year. This was primarily due to the improvement of gross profit margin and the favorable currency translation, partially offset by the higher G&A. Adjusted net profit of €103 million in the second quarter was up 33% year-over-year and adjusted EPS was €0.55, up from €0.41 from a year ago. Cash flows used in operating activities during the second quarter were €18 million, down from €68 million compared to last year due to the timing of tax payments relating to prior years. We ended the quarter with cash and cash equivalents of €235 million. We continued to proactively manage working capital, and we improved our inventory to sales ratio to 36%, down from 40% in Q2 2024 and our days sales outstanding for the quarter were 46, in line with 44 a year ago. During the quarter, we spent approximately €21 million in capital expenditures, adding to our production capacity in Pasewalk, Görlitz, and Arouca, and continuing our investments in retail and IT. We are on track to meet our CapEx targets of around €80 million for the year. Our net leverage was 1.8 times as of March 31, 2025, down slightly from 1.9 times at the end of Q1. As is typical, we expect to see positive operating cash flow contribution in Q3 and Q4 due to the seasonality of our working capital. As we look forward to the remainder of fiscal 2025, we believe we are well-positioned to meet or exceed our stated growth and profitability objectives. Birkenstock is less exposed to tariffs with 100% of our production and 96% of our materials sourced from Europe and no contract manufacturing from Asia. We already have taken appropriate actions to mitigate the impact of tariffs, both near-term and long-term, with multiple levers to pull and are in a strong position with experience in managing inflationary pressures including tariffs. First, the consistency in demand, together with our engineered distribution and scarcity model, allows for pricing flexibility. For a full offset of tariff impact, we would need only a low single-digit price increase globally, which is consistent with our historical pricing actions. Pricing is not the only lever we have, though, given our vertical integration; additional levers include efficiencies in production, vendor negotiations, the optimization of product mix, and the allocation of products between different regions. This, together with our strong inventory position, gives us the confidence that we can mitigate the fiscal 2025 tariff impacts. While foreign exchange was a benefit to us in the first half of the year, the recent depreciation in the dollar will create a headwind to our reported growth and margins in the third and fourth quarters. But despite the tariff and FX headwinds we faced in the second half, we are confident that we will be able to meet or beat our financial targets for fiscal year 2025. Based on the results to date and the current trends we are seeing in the business, we now expect to be at the high end of our constant currency revenue growth guidance of 15% to 17%. More importantly, provided we do not see any further weakening of the dollar and no additional tariffs on imports from the EU to the U.S., we now expect an adjusted EBITDA margin of 31.3% to 31.8%, 50 basis points above our previous guidance. This implies an adjusted EBITDA target in the range of €660 million to €670 million, up 19% to 21% year-over-year. And now, I'll be handing back to Oliver.

Oliver Reichert, CEO

Thanks, Ivica. The first half results of our fiscal 2025 demonstrate the strength of our brand with strong double-digit revenue growth, excellent margins, and significant progress in our white space growth initiatives. We expect that the tariff situation may create a unique shift in consumer behavior in the footwear category with the split between the few brands like Birkenstock, who manage strong brand equity through relative scarcity and those who distribute their products with less discipline and pricing integrity. We will navigate through these uncertain times from a position of strength as we have successfully done in the past. Think about COVID, where we came through the challenge stronger than before. And don't forget about the import tariffs previously imposed by the U.S. administration, which we completely absorbed without any loss of sales. That's why I am confident today. Our decades-long track record of managing our brand through a consistent engineered distribution strategy puts Birkenstock in a strong position to take additional shelf space and gain share. We are a brand with industry-leading growth, pricing power, clean inventories, strong profitability, global reach, a very healthy balance sheet, and cash generation. We believe there are few consumer companies better positioned today to drive steady long-term growth and shareholder returns. I would now kindly ask the operator to open our Q&A session. Thank you.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Please limit yourself to one question and return to the queue for any follow-ups. The conference call has a total duration of 60 minutes. The first question today is from Matthew Boss at JPMorgan. Matthew, your line is open.

Matthew Boss, Analyst

Congrats on another really nice quarter. So, Oliver, could you speak to your confidence in your outlook for the rest of the year and your raised EBITDA margin guidance despite the elevated macro uncertainty with tariffs and foreign exchange? What are you seeing in your current business to give you this confidence?

Oliver Reichert, CEO

Matt, thank you for your question. Let me tell you one thing. For us, the whole situation is an opportunity and not a risk. Be assured we will fully offset the effect of the existing tariffs. We are aware that currency is moving around quite a bit. But as always, we will share FX impact with full visibility. So of course, we have factored the current FX level into our margin outlook. But most importantly, we and our partners are not seeing any changes to consumer behavior and demand out there. When it comes to our product, there's no change at all. Full price realization remains at over 90% and our order book from wholesalers remains very, very strong without any cancellations. So, I think that's the ultimate test of truth to underpin the strength of the brand and pricing power. We are well-positioned to take shelf space and we could speed up our retail expansion if we have an opportunity.

Ivica Krolo, CFO

Thanks, Oliver. And Matt, maybe to add on your question regarding EBITDA margin. Compared to our original guidance, there are two drivers for that. Mostly, it is coming from gross margin improvement from first better absorption. And then second, pricing, net of inflation, which are the two key drivers for improved EBITDA margin over the course of this year.

Operator, Operator

Thank you. The next question will be from Simeon Siegel from BMO. Simeon, your line is live.

Simeon Siegel, Analyst

Really nice ongoing broad-based strength, nice to see. To follow up a little bit. So just among everything else, the DTC and Americas strength is really great, rightly encouraging to many investors. Could you just speak to the implied top-line deceleration in the back half, which looks a little bit below the first half performance? And then gross margin was nicely better and really great to see ongoing improvement from the Pasewalk ramp. How should we think about the progression of gross margin going forward, maybe add any color there from just, again, stripping out effects to your point or any remaining Pasewalk implications versus just the underlying gross margin dynamics?

Ivica Krolo, CFO

Thanks, Simeon. It's Ivica. So, as you know, with our B2B, we have an order book, which provides us with great visibility in terms of growth. But you also know, the second half is more DTC heavy compared to the first half of the fiscal year. So, we have naturally less visibility as a result of that. And given the current macro conditions, we are, as you are aware, prudent in our planning given this reduced visibility in the second half. In terms of cadence or seasonality, the third quarter as is typical will be the slowest growth quarter for the year. The first reason is just simple mathematics. The sandal share is the heaviest in the third quarter. And while sandals are growing double digits, closed-toe shoes grow twice as fast. So, the weighted growth is slowest in the third quarter in the fiscal year. So, this covers the first part of your question. The second question on gross margin comes back to my initial statement. So, we had expected about 50 basis points tailwind to gross margin for the full fiscal year '25 through better absorption, primarily, however, in the second quarter of the year. Now, we're seeing 50 basis points in Q2. So, we are already slightly ahead of schedule. We now think that we will be about 75 basis points, which will be the benefit for '25, with the remainder coming in fiscal year '26. So as mentioned earlier, this will be driving the improved gross margin.

Operator, Operator

The next question will be from Mark Altschwager from Baird. Mark, your line is live.

Mark Altschwager, Analyst

Great results. Could you expand more on your plans for tariff mitigation and the impact for demand for Birkenstock? And relatedly, could you just speak to the timing, any call-outs on the timing of when you expect the costs and the offsets to flow through the P&L?

Ivica Krolo, CFO

Thank you, Mark. It's Ivica speaking. Yes, sure. So most importantly, and as Oliver already mentioned, we will fully offset the existing 2025 tariff impact. As you know, we are a brand with a broad heritage being made in Europe. As such, we are less exposed than most. So, 96% of our raw materials are sourced from within Europe and 100% of our manufacturing and final assembly is from the EU. So that said, we will offset the tariff impact. First, we will look at global pricing. So, as you know, we have a goal to maintain global pricing architecture, and the tariffs in the U.S. will not change that. We are in a position where we have pricing flexibility without the impact on consumer demand, which is very consistent. We also have over 90% full price realization given the brand equity that we've built not only in the U.S. but also beyond. Secondly, unlike our competitors, we are vertically integrated. So, we have other levers to pull, mainly the ability to gain efficiencies across our value chain. Overall, in an environment where consumers face pressure from inflation in many areas, we expect to see even more intentional purchasing and a shift between the brands that are in high demand like we are and those brands that are struggling really to gain consumer attention. As such, referring back to what Oliver has said, we do see this indeed as an opportunity to take additional shelf space and gain share eventually.

Operator, Operator

The next question will be from Dana Telsey from Telsey Group. Dana, your line is live.

Dana Telsey, Analyst

Nice to see the progress. As you think of some of the gross margin drivers, particularly on the fact of the ability to better absorb the new manufacturing capacity added in September '23, where are we on that journey? When does it get fully absorbed? And when you talk about the sales price adjustments, between closed-toe sandals, what are you doing in terms of pricing to continue to generate the solid gross margin?

Ivica Krolo, CFO

Dana, it's Ivica. On the first part of your question regarding better absorption, we had expected about 50 basis points tailwinds to gross margin for this full year. We are now seeing that materializing ahead of schedule. So now, it will be 75 basis points for this fiscal year. The overall effect for next year will be an additional 75 basis points, so that will be clearly a driver for gross margin improvement.

Nico Bouyakhf, President of EMEA

Dana, this is Nico. I'm going to take this question. So, as you know, retail is a massive growth pillar for us and we are very pleased to see that we are currently operating 77 stores. We added six stores in this quarter. We opened in less than a year in Paris number two, which is doing really well. We opened London number three, we opened in Nashville, and we opened also in Shanghai. It's worth mentioning that we don't need that long ramp-up period for those stores. It takes a couple of weeks, and then they are top five, top seven, top eight, or top 10 stores from a performance perspective. We remain very disciplined in choosing the right locations. For us, the locations matter the most. We want to ensure that the financials are right, that the economics are right, and the location provides the best consumer experience. We said that we're going to come closer to 100 stores at the end of this fiscal year and closer to 150 stores by the end of 2027, and we are well on track with the store expansion around the new stores. It's worth mentioning, while we open stores, retail growth is not just driven by store expansion. We also have very solid and healthy comparable store growth in our longer-standing stores.

Operator, Operator

The next question is coming from Laurent Vasilescu from BNP Paribas. Laurent, your line is live.

Laurent Vasilescu, Analyst

Closed-toe increased its mix rate by 500 basis points in 1H. Is that driven by the Boston as well as other closed-toe offerings? Should we assume a similar rate increase of 500 basis points for the second half? And secondly, by my math, it looks like the sandal assortment grew low teens in 2Q. Should we assume the sandal business grows low double digits for FY '25 similar to last year?

Nico Bouyakhf, President of EMEA

This is Nico. Thank you for your question. Closed-toe, as I just mentioned, continues to outpace our open-toe by 2x in this quarter. It's worth mentioning, while this is an outpacing, our open-toe business still grows double digits. We are really pleased to see that this is not only driven by Boston. Boston continues to show a very strong performance, while our non-Boston clogs are growing at the same pace. We are diversifying our clogs business, and they can also off some pressure off the Boston. When it comes to laced-up shoes, this category delivered another record quarter, significantly outgrowing our clogs business. We are diversifying our closed-toe business beyond Boston and beyond clogs. In EMEA, just to reference one thing, it is already the second biggest category in our online channel; seven out of the top 20 are laced-up shoes. All of this is occurring while sandals are growing double digits.

Operator, Operator

The next question will be from Paul Lejuez from Citi. Paul, your line is live.

Unknown Analyst, Analyst

This is Kelly on for Paul. Just want to follow up on some of the gross margin puts and takes. I think last quarter, you said gross margin would approach 60% this year. I guess with the raise in the Pasewalk ramp contribution, but maybe some FX headwind, just curious if you're sort of reiterating that guidance, if you're raising it. So, any color there? And then just secondly, on the pricing strategy, you took around the price increases in the second quarter. Is that to offset the tariffs? Or should we expect more from here? Just any regional color on where those price increases are focused.

Ivica Krolo, CFO

It's Ivica speaking. Thank you for your question. So, on gross margin, there will be two drivers. We will have and we will see better absorption in our facility in Pasewalk. This is the one factor driving the increase, which is 50 basis points in Q2. But we also experienced favorable FX and pricing effects, net of inflation, which contributed to the increase of 140 basis points in Q2. Generally, on pricing, as mentioned, we're taking a global approach here. Every season, we are reviewing prices on a style-by-style basis. We are very surgical when it comes to pricing while always maintaining a globally aligned pricing architecture.

Operator, Operator

Thank you. The next question will be from Jay Sole from UBS. Jay, your line is live.

Jay Sole, Analyst

Just a question, how are you thinking about cash flow and cash flow uses in the back half of the year? And as you get into the year, obviously, the Company has a lot of cash on its balance sheet. What are your plans for that cash?

Ivica Krolo, CFO

Jay, it's Ivica again. We've always said that our first priority for the use of cash is to invest in the business and especially in the white space opportunities that we have identified. We expect to invest about €80 million in CapEx for this year, and that will continue in future years. This quarter, we invested €21 million, and this is predominantly in our production facilities in Görlitz, Pasewalk, and Arouca, but also to support our retail expansion. We have also said that we would like to continue to reduce our debt, and we will continue to do that. We are fortunate that even after these two priorities, we have additional optionality and discretionary cash available. We are always evaluating the opportunities for the use of cash, including the possibility of share repurchases.

Operator, Operator

The next question will be from Lorraine Hutchinson from Bank of America. Lorraine, your line is live.

Lorraine Hutchinson, Analyst

You've called out a trend over the past few quarters of a younger customer trending more toward in-person shopping. Have you seen that build continue? Is that a global phenomenon or more focused on North America?

David Kahan, President of Americas

Yes, it's David. Certainly, the phenomenon seems to be global. I just think that youth tend to shop more in person. I also think that our brand, because of the tactile shopping experience of coming into contact with Birkenstock, especially for new consumers, the first time, it's a very real experience in our own retail, and I think that's going to continue.

Operator, Operator

Thank you. The next question will be from Sam Poser from Williams Trading. Sam, your line is live.

Sam Poser, Analyst

I'm wondering, on the demand side in the back half of the year, once the impact of the tariff kicks in on other things, how much of it from a demand perspective have you tempered your outlook from a unit perspective or something given that? Since you run, what percentage of your scarcity of the demand right now? Is that what gives you the comfort that you're scarce enough that it won't impact sales? Or are you going to say that you're running at 75% of the demand? Is that going to just leak up to 80%, but you'll still be scarce, and that's why you're not concerned on the top line?

David Kahan, President of Americas

Sam, it's David. Great question. As you know, we always manage with what we call relative scarcity. It would be a little hard to say what we think the percentage of relative scarcity is. Having said that, based on the demand, based on the momentum, we find that every time our sales increase, and we put a little bit more stock into the market, we see the top line demand continue to increase. So, I think we're not being cavalier about the fact that consumers might be a little pinched in the wallet, but we see this shift to the products and the brands that are most in demand. So, we don't see any impact to the demand we currently see. I think that's a strong statement that we're not going to compromise that balance of stock to sales in the marketplaces around the world.

Sam Poser, Analyst

Ivica, could you share your general thoughts on what the gross margin for the full year is expected to be? Additionally, how are you approaching SG&A in total?

Ivica Krolo, CFO

For the full year. Yes, sure. It's Ivica speaking. So, on gross margin, as mentioned, the key driver will be the additional absorption that we are seeing, also pricing net of inflationary effects, and this will drive the increased gross margin. We said that we will be moving closer to the 60% gross margin target, and this is what we are reiterating on the SG&A side. We are going to continuously invest in infrastructure in IT. And as such, we want to have leg space here to continue to make the organization future-proof to cope with the growth we are experiencing and the demand we are seeing. Also, be aware in terms of selling and distribution expenses that we are continuing to invest in retail, and this is certainly also driving additional selling and distribution expense.

Megan Kulick, Director of Investor Relations

Sam, it's Megan. That's three questions. We're going to have to move on. I'm sorry.

Operator, Operator

Thank you. And the next question is coming from Michael Binetti from Evercore. Michael, your line is live.

Jesalyn Wong, Analyst

This is Jesalyn on behalf of Michael. Congrats on a good set of results. Maybe just a little bit on the other markets. Oliver called out white space in APAC growth and China more than doubled in the quarter. Can you talk about the opportunity there and what is the long-term store growth plan for the region? And on EMEA, there was a bit of a slowdown in Q2. So how should we think about second half growth? Any color there would be helpful.

Nico Bouyakhf, President of EMEA

Jesalyn, this is Nico. I'm going to touch on the EMEA question. In EMEA, Q2 this year is built on a very strong quarter last year. We did some land grab in B2B last year. Simultaneously, we had very strong DTC performance. We saw across our EMEA countries a broad-based growth, specifically in our DTC channels, which grew 1.5 times faster than our B2B channel. Our overall sell-through rate at strategic wholesale partners is very healthy, and we have a very healthy inventory to sales ratio. As you know, we integrated Middle East and Africa with Europe into one EMEA segment. We took the opportunity to visit those markets and have started to take some right-sizing actions specifically in the North African business with our distributors. These actions will ensure a focus and also high-quality growth in the future. We are really protecting the quality of our distribution there. Q2 is also the highest B2B shipping quarter. So, you face with a full order book and sometimes some operational limitations in getting the product out across the quarter. That's a bit more color for EMEA.

Klaus Baumann, President of APAC

Hello, this is Klaus talking about the APAC region. We had another very strong season in APAC. DTC was strongly outpacing the B2B part. We are seeing a very strong increase in our traffic, not only online but also in the stores. By keeping a good conversion rate, we are receiving positive feedback from our sell-out on new stores. Same for the like-for-like business. We've seen double-digit growth in comparable stores and in the product sellouts and development. We see similarities to the other markets. We are selling more high-priced products and getting all our icon products running. The closed-toe shoe business is also slowly growing in the APAC region. We are very confident about what is coming.

Operator, Operator

Thank you. The next question will be from Edouard Aubin from Morgan Stanley. Edouard, your line is live.

Edouard Aubin, Analyst

If you can, just a clarification. Are we right in thinking that most of the inventory you're going to be selling in the U.S. in fiscal '25 was shipped before the tariff announcement? Therefore, the tariff news and also the effects from a transactional standpoint should have little impact on your fiscal '25? Just wanted to have some clarification. Relatedly, can you give us a hypothetical growth impact on the FX? If the U.S. depreciates 10% versus the euro, what's the impact on your EBIT?

Ivica Krolo, CFO

Edouard, it's Ivica speaking. So, to your first question on inventory. We have a strong inventory position, not only in the U.S. but also globally. This inventory position in the U.S. helps us fully offset the 2025 adverse effects from increased tariffs.

Alexander Hoff, VP of Global Finance

Edouard, this is Alexander speaking. Yes, well, there is always some fluctuation in currency. We also commented on that earlier. Clearly, we saw some tailwind in the first half of the year with the current foreign exchange rate. We see a little bit of a headwind for the remainder of the year if the FX rate remains the same. Simulating this with the current rate, we believe that at a full year, we will be exactly on '24 rates. So, this shouldn't be a full-year impact to us. To simulate it a little, approximately $0.05 change in the U.S. dollar exchange rate will give you €37 million of revenue impact and €26 million of EBITDA impact. This should be a good math to model out.

Operator, Operator

The next question will be from Anna Andreeva from Piper Sandler. Anna, your line is live.

Anna Andreeva, Analyst

Great. And let me add my congrats as well. You mentioned strong trends in the business and Q2 being seasonally the slowest growth quarter given the sandals. Just curious, any additional color you could share on what you're seeing in April and May? Curious how the closed-toe is performing? Are you seeing any signs of pull-forward in demand ahead of the tariffs rather in the U.S.?

Ivica Krolo, CFO

We see no change in demand sell-through results through the quarter that we're referencing. And whether or not there are requests for pull-forward, we manage that ourselves. We make the decisions. Right now, the flow of inventory is always managed by us relative to stock to sales ratio. We don’t do anything from an inventory standpoint in shipments based on anything that has to do with any tariff impact whatsoever.

Megan Kulick, Director of Investor Relations

Anna, it's Megan. Can you just repeat the first part of your question? I think you said that we said that the second quarter is the slowest quarter? That's not what we said. We said that our fiscal third quarter seasonally is our slowest growth quarter because it's the highest mix of sandals and closed-toe grows at twice the rate of sandals.

Anna Andreeva, Analyst

Right. Just any additional color on what you're seeing in the demand. Any additional categories of franchises that you can call out?

Megan Kulick, Director of Investor Relations

The sandals business continues to grow nicely at double digits. I think we're not seeing any slowdown there. It's really just closed-toe grows faster.

Operator, Operator

Thank you. The next question will be from Janine Stichter from BTIG. Janine, your line is live.

Janine Stichter, Analyst

So, nice to see the DTC improvement. I think you mentioned some investments in online or e-commerce initiatives. I was hoping you could elaborate on that and then, maybe just share how you're thinking about investments in that channel for the rest of the year.

Ivica Krolo, CFO

Yes. Thanks, Janine. DTC, the biggest growth has come from our membership base. As Oliver said in the opening comments, our membership base, we like to call it a fan base, is over 10 million right now, that's up 25% versus a year ago. As we market more specifically to that database to our fan base, the average purchase is 20% higher. When you look at the allocation of dollars against the DTC space, it's more targeted rather than broad. So, the return on investment is higher there. We're very happy with the growth in our membership, and we think this is just going to continue. Again, the return on investment from those members is significant.

Operator, Operator

Thank you. The next question will be from Erwan Rambourg from HSBC. Erwan, your line is live.

Erwan Rambourg, Analyst

Congratulations. It's pretty rare to see consumer companies increasing guidance. Maybe a bit of a philosophical question for Oliver. At the time of the IPO, there was this rule of 20-60-30, so 20% top line growth, 60% gross margin, 30% margin. I'm wondering how you think about the arbitrage between margin and sales. You referenced Hermes, which is a company that refused to increase its margin because every time they have excess contribution, they reinvest everything to continue to feed the top line and brand desirability, brand equity. You're sort of above the 30% margin today. Is there a possibility to reinvest some of that to grow at a faster pace? I don't know if it's possible to grow at a faster pace. But theoretically, Asia growing at 50% not at 30%, or you reinvesting quite a bit to move closer to that 20-60-30. And maybe related to that, your margins at a higher level than expected this year. Is that sustainable? Or are there reasons to believe that there is a particular boost for the current fiscal year that will be nonrecurring in the outer years?

Nico Bouyakhf, President of EMEA

Thank you for your question. I want to assure you that I am working hard to manage the margins effectively to avoid any unpleasant surprises. We are well-prepared as a team and as a company, viewing the current situation as a significant opportunity. I agree that the second half of the year and fiscal year '26 will present us with chances to grow our own retail presence as other brands decline. We are ready for this and keep resources available to act quickly and develop the brand more strategically. For us, quality means both growth and maintaining a solid gross profit and EBITDA margin. Regarding Asia and the APAC region, I believe it's wise to maintain our current pace. We've decided to grow the APAC region at nearly double the speed of the rest of the world, which seems to be the right approach. While we've identified partnerships and opportunities for quicker growth, faster unit growth can lead to logistical challenges. We must ensure our organization is prepared for this, as we have a fully vertically integrated supply chain. If we accelerate growth, it requires careful coordination to keep everything aligned, which is complex. We feel confident in our growth strategy for the APAC region. We are ready to take on more shelf and retail space aggressively and believe there will be plenty of opportunities ahead.

Megan Kulick, Director of Investor Relations

Erwan, it's Megan. We do not see anything that's one-off this year that would go away next year. In fact, we do expect some gross margin tailwind further next year given the absorption of the Pasewalk facility.

Operator, Operator

Thank you. The next question will be from Sharon Zackfia from William Blair. Sharon, your line is live.

Sharon Zackfia, Analyst

I was hoping you could provide an update on the membership trends in the U.S. as a percentage of your direct-to-consumer sales. Are you seeing sign-ups in the 10 stores you have in the U.S. for the membership program? Additionally, how is the membership performing in Europe?

David Kahan, President of Americas

Membership is growing in Europe and the Americas. We will soon be able to handle sign-ups in stores. The focus is less on the sign-ups and collecting data and more on how we personalize and segment our communication with customers and brand fans to engage them effectively. That's where the real long-term benefits lie. We're experiencing continued momentum in our direct-to-consumer business. We now have over 10 million members, which is a 25% increase from last year, and these members spend, on average, 20% more. Any investments we make in technology and resources will generate a strong return on investment.

Operator, Operator

Thank you. The next question will be from Adrien Duverger from Goldman Sachs. Adrien, your line is live.

Adrien Duverger, Analyst

So, the question would be on the opportunity that you see from price mix, particularly with new products coming in the second half of '25. A follow-up on this would be that within each of your product categories in both open and closed-toe shoes, do you see a difference in the performance between the different price points of the products? Any difference from your low-end and high-end products?

Nico Bouyakhf, President of EMEA

This is Nico. Thank you for your question. Generally, we can see that consumers are voting for higher price points within our categories. The leather share has been increasing constantly, also in Q2. Our closed-toe business outpaced our sandals business. Consumers are much more willing to buy laced-up shoes than they did in previous quarters. Within the closed-toe business, high-priced executions are trending well. For our sandal business specifically, we see consumers coming in and buying much stronger premium embellishments. So, understated executions are doing well; they sell out quickly online, and we are replenishing those executions quickly. You're seeing across the business and across categories a premiumization.

Operator, Operator

Thank you. The next question will be from Peter McGoldrick from Stifel. Your line is live, Peter. This will be the last question, sorry.

Peter McGoldrick, Analyst

Could you talk about the scaling wholesale opportunity? You called out progress in youth, sporting goods, outdoor, and department stores. Can you help us think about the forward opportunity for increasing channel representation?

David Kahan, President of Americas

This is David. Thanks for the question. There is limited expansion of our footprint other than current doors. It's very surgical and strategic. The vast majority of the growth, over 90%, comes from existing retail accounts. It's more expansion of the assortments. In EMEA, there is quite a substantial number of doors and partners that are not yet penetrated for a reason. We are watching the quality of the partners closely. We always give the example of Foot Locker in Europe; we do not serve them because we don't believe they currently add value to our B2B portfolio. There are more partners in the sporting and outdoor space, as well as in the lifestyle segment that we monitor and decide to service when we feel it is the right moment.

Oliver Reichert, CEO

And yes, I just want to add one thing because you've seen probably our new product categories and different usage occasions. So yes, in the mid- to long term, we will add new chains, new doors, and new channels due to the fact that we will then develop a professional segment, an orthopedic segment, and shoes for outdoor and single-use outdoor also in closed-toe. All these incremental usage occasions will indeed create a broader and wider distribution network. Thank you.

Operator, Operator

Thank you. We are at the top of the hour, which concludes today's Q&A session, and it also concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.