Earnings Call Transcript - BIRK Q4 2024

Operator, Operator

Good morning, and thank you for joining us. Welcome to Birkenstock's Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. Please note that this call is being recorded. I will now hand it over 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, Chief Executive Officer of the Birkenstock Group; and Erik Massmann, Chief Financial Officer of the Birkenstock Group. Klaus Baumann, Chief Sales Officer; David Kahan, President of the Americas; Nico Bouyakhf, President of EMEA; and Alexander Hoff, Vice President of Global Finance, will also join us for the Q&A. Today, we are reporting the financial results for our fiscal fourth quarter and full year ending September 30, 2024. 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 provided during the call is forward-looking and is 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 and 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. During the call, all revenue growth rates will be cited on a constant currency basis unless otherwise stated. We will also reference certain non-IFRS financial information. We use non-IFRS measures as we believe they represent the operational performance and underlying results of our business more accurately. The presentation of this non-IFRS financial information is not intended to be considered by itself or as a substitute for the financial information prepared and presented in accordance with IFRS. Reconciliations of the IFRS to non-IFRS measures can be found in this morning's press release and in our SEC filings. Before I turn it over to Oliver, I want to draw your attention to the note in our press release regarding the change in our segment reporting beginning in fiscal 2025. In our fiscal years up to and including 2024, our three reporting segments were the Americas, Europe, and APMA, which was comprised of two operating segments, Asia Pacific and the Middle East Africa and India. During the first quarter of fiscal 2025, we have changed our internal organization to merge the Middle East and Africa region with the European operating segment under the leadership of Nico Bouyakhf to create a new reporting segment, Europe, Middle East and Africa, or India. While the Indian region has been merged with the Asia Pacific operating segment to create a new segment, APAC, which will continue under the leadership of Klaus Baumann. The change was due to the operational advantages and complementary benefits between the regions. No changes were made to the composition of the Americas operating segment. As a result, starting with fiscal 2025, the company has three operating as well as reportable segments: Americas, EMEA, and APAC. Our first quarter 2025 results will be reported under this new segment structure. Prior to the release of our first quarter 2025 results, we will issue a report with the 2024 quarters and fiscal year and the full fiscal year 2023 recast under the new segment reporting structure to aid in your year-over-year comparison. With that, I'll turn it over to Oliver.

Oliver Reichert, CEO

Good morning, everybody, and thank you for joining today's call. We are proud to report very strong fiscal 2024 results, which came in ahead of our expectations. We are delivering on the commitments we made during our IPO by expanding profitably into the white space opportunities we identify. Under-penetrated product categories such as closed-toe silhouettes, orthopedics, professional, outdoor and the important APMA region. In our first full fiscal year since we completed our IPO in October 2023, we delivered 22% revenue growth in constant currency, extending our decade-long track record of 20% plus compounded annual revenue growth, driven by continued growing demand for our products across all segments, channels, and categories. We are growing profitably. Our 2024 adjusted EBITDA margin was 30.8%, beating the high end of our expectations. In fiscal year 2024, revenue from closed-toe silhouettes grew at over twice the rate of the overall group and increased share of business to about one third. In 2024, about half of our top 20 selling silhouettes were closed-toe. Our APMA business grew at 42%, nearly double the pace of the overall business. Our own retail revenue grew over two times the pace of the overall business as we continue to add to our own stores fleet, opening 20 new doors globally in fiscal 2024. Leveraging the investments we made in our new Pasewalk factory, we launched our newest orthopedic innovations. The blue footbed for sneakers was founded and relaunched in our professional lines, including the fully certified Birki Air 2.0, and expanded our water-ready outdoor assortment. We made additional investments in Görlitz and Arouca, allowing us to increase production capacity to meet the growing global demand for all our products. We increased pairs sold by 14% in fiscal 2024 while maintaining disciplined distribution to ensure scarcity and strong full-price realization of over 90% globally. ASP for the year was up 8%, driven by product mix and targeted price increases. We grew our wholesale business by 23% in fiscal 2024. Over 90% of the growth came from existing doors as our partners continue to allocate more shelf space to the Birkenstock brand, increasing order size and adding new categories and usage occasions. As consumers become increasingly selective and more intentional in their spending, we are taking share and gaining the attention of our key retail partners and their shoppers. Our D2C business grew 21%, and penetration of approximately 40% was consistent with last year. We ended the fiscal year with 67 stores globally, up from 47 at the end of fiscal 2023. We grew our membership base by over 30% during the year to over 8 million loyal members, who shop more frequently and spend on average 30% more than normal members. We continue to balance growth between B2B and DTC to meet the growing global demand, achieve our profitability goals, and maximize our reach, especially into the new targeted consumer groups. Now let's move to a brief discussion of segment performance for the year. Within our largest segment, the Americas, we experienced strong consumer demand for our brands throughout the year. Revenue in the region was up 19% compared to fiscal 2023. We saw a noticeable return to in-person shopping at multi-brand retailers in the second half of the year. Our B2B strengthened throughout the year as many of our strategic partners allocated more space to Birkenstock and experienced very strong back-to-school sell-through. We have emerged as a must-carry brand within our strategic retailers. We believe there are significant reach with both door count and social media impressions have amplified our consumer demand beyond what we may achieve on our own. In the Americas DTC channel, which is almost entirely digital, we delivered revenue growth in the mid-teens. We expanded our physical retail presence, opening four new stores during fiscal 2024. We recently opened our first Boston store and plan to add several additional stores later this year. In Europe, we delivered exceptional growth of 21%, which was broad-based across all countries and channels. In the first full year since the completion of our transformation initiatives in the region, we will clearly see the benefits of the improved quality in our distribution with double-digit unit and ASP growth. Both closed-toe and sandals grew at double digits for the year. Closed-toe grew at over 2.5 times faster than sandals, driving ASP higher. We have gained shelf space with strategic retail partners and our brand awareness increased an average of 400 basis points in key markets since we began our transformation in 2022. We saw strength in both the DTC and B2B channels in Europe. Our focus on better alignment with key strategic retail partners led to increased orders and elevated sell-through performance from these targeted accounts. Our partners continue to widen their Birkenstock assortment to meet the expanding consumer demand. In our B2B order book for Autumn/Winter 2024, we doubled our share of business in shoes compared to last year. Our European DTC business grew at a similar pace as B2B. After several years of retail consolidation in the region, we embarked on our retail expansion strategy in 2024. We opened three new stores in the region, including our first store in Paris. We have identified several additional locations throughout Europe for additional owned retail stores in 2025. The APMA region was our fastest-growing segment in fiscal 2024, growing 42%, nearly doubling the pace of the overall business. We continue to make progress towards penetrating this significant white space for the Birkenstock brand, still at only 12% of our overall revenue mix. We see substantial opportunity for growth and will continue to invest in the segment. Aligned with our roadmap and commitment to the region, we added 13 new owned retail stores, bringing our total to 25 in the APMA region. Additionally, the launch of our online store in the Philippines and the strong performance throughout our digital channels is supporting strong regional DTC growth. We expanded our strategic partnerships, increasing our mono brand partner doors by approximately 20%, which drives B2B growth in the region. Greater China made up the mid-teens share of APMA revenue. We are still in the early stages of our market rollout there but are steadily building brand awareness and demand through our increased retail and online assets. We opened our first owned store in Chengdu in October and will turn our successful pop-up store in Shanghai into a permanent store later this year. I will now turn it over to Erik to discuss our financial results in more detail.

Erik Massmann, CFO

Thanks, Oliver, and good morning, everyone. I'm pleased to share Birkenstock's performance for the fourth quarter and full year 2024. Again, we saw very strong growth throughout the year, which accelerated into our fiscal year end, allowing us to achieve another year of over 20% top-line growth coming in ahead of our expectations. First, let's look at revenues. Fourth quarter 2024 revenues were EUR 456 million, a growth of 22% in constant currency, accelerating from third quarter's growth of 90%. The B2B was up 26%, and our DTC performance was up by 18%. This brought our total revenue for fiscal year 2024 to over EUR 1.8 billion, up 22% from 2023 and ahead of our expected growth of 20%. B2B revenues were up 23%, and DTC were up 21% for the full year. Now looking at gross profit. In analyzing our fourth quarter gross profit margin, it’s important to note that the prior year quarter was impacted by several non-cash end-of-year true-up adjustments and the reclassification of logistics expenses. Combined, these elevated Q4 2023 gross margin by approximately 450 basis points, making it not directly comparable to Q4 2024. The adjustment did not impact EBITDA in the period. Importantly, EBITDA margin increased 190 basis points year-over-year in the quarter. On a reported basis, gross profit margin for the fourth quarter of fiscal 2024 was 59%. The remaining 190 basis points of decline in gross margin was a result of a) the expected under-absorption impact from new production capacity, which accounts for around 200 basis points, b) the increase in B2B share relative to last year, and c) FX impact, all offset by some pricing initiatives. The gross margin in Q4 2024 represents the more normalized trend. For the full year, gross profit margin was 58.8%, down 330 basis points from full year 2023. As expected, about 150 basis points of margin decline was due to the temporary under-absorption costs from the added production capacity, and the remaining 180 basis points was from a combination of X mix, channel mix, and other impacts. Selling and distribution expenditures were EUR 141 million in the fourth quarter, representing 31% of revenue, down 640 basis points year over year. This is due to logistics reclassification into COGS, as well as lower consulting and other expenses compared to those incurred during our IPO last year. For the full fiscal year, selling and distribution expenditures totaled EUR 507 million or 28.1% of revenue, down from 29.8% in fiscal year 2023. General and administration expenses were EUR 32 million or 7% of revenue in the quarter, respectively EUR 101 million or 5.6% of revenue for the full year 2024, up 20 basis points year-over-year, primarily due to incremental public company costs. Adjusted EBITDA in Q4 of EUR 125 million was up 31% year-over-year, and the margin of 27.4% was up 190 basis points year-over-year. For the full year, adjusted EBITDA increased 15% to EUR 555 million for an EBITDA margin of 30.8% and down 160 basis points year-over-year, largely as a result of the capacity expansion, but coming in ahead of our expected range of 30% to 30.5%. Adjusted net profit of EUR 55 million in the fourth quarter was up 180%, and adjusted EPS was EUR 0.29, up 107% from a year ago. Fiscal 2024 adjusted net profit of EUR 240 million was up 16% from 2023. EPS of EUR 1.28 increased 30% year-over-year. Let's now have a closer look at our balance sheet as of September 30, 2024. Cash and cash equivalents were EUR 356 million as of September 30, 2024, up from EUR 344 million at the end of fiscal 2023. We generated EUR 429 million operating cash flow during 2024, up 20% year-over-year, which was driven by the strong EBITDA growth, combined with improved working capital efficiency. We improved our inventory-to-sales ratio to 35%, down from 40% in 2023. Our DSO for fiscal 2024 remained very healthy, in line with a year ago despite a slightly higher B2B mix. During 2024, we spent EUR 74 million in capital expenditures and made net repayments of EUR 662 million in outstanding loans. Our net leverage was 1.8x as of September 30, 2024, below our stated target of 2.0x. As we look forward to fiscal 2025, we believe we are well positioned to meet our stated growth and profitability objectives. Our outlook for 2025 is aligned with our medium- to long-term targets. We expect revenue growth of 15% to 17%, with balanced and healthy growth from both DTC and B2B. We believe this is the right pace of growth to meet demand and maintain brand health and full price realization. Gross margin should improve year-over-year as we increase utilization and efficiency at our production facilities, moving closer to our 60% target. We expect EBITDA margin in the range of 30.8% to 31.3%, an increase of up to 50 basis points compared to 2024. Our effective tax rate is projected to be around 30%. We expect to invest approximately EUR 80 million in capital expenditures in 2025, primarily related to production capacity and retail store expansion. We plan to use excess cash to continue reducing our outstanding debt. Our target leverage ratio for the end of fiscal 2025 is approximately 1.5x.

Oliver Reichert, CEO

Thanks, Erik. Our strength in fiscal 2024 and outlook for 2025 demonstrate our ability and commitment to deliver on the promises we made during our IPO. We are delivering strong double-digit revenue growth, excellent margins, exceptional cash generation, and expanding into the white space areas we highlighted over a year ago. Our brand strength is evident, as our growth continues to outpace our peers globally with strong and increasing demand from our B2B partners and in our growing DTC footprint. We are investing in our production capabilities to meet the growing demand for our products, while carefully executing on our proven engineered distribution strategy to drive ASP growth, ensure healthy stock levels, and maintain strong full-price realization. We are entering the next chapter of growth as we tap into our largest white space market, the APMA region. We are increasing brand awareness, educating the consumer on the purpose of the Birkenstock footbed, and are taking market share by following our prudent flavor of disciplined engineered distribution to support ASP. With our growing retail presence in the region and continued investment in digital, we see a long runway of growth ahead of us. Fiscal year 2024 draws to a close, celebrating 250 years of shoemaking tradition, shining a light on our purpose to empower all people to walk as nature intended. Many of our wholesale partners used this moment to create special retail placements, allocating additional shelf space for our brands. In our white space region, we were invested to drive awareness, and it was great to see the strong appetite for our rich brand heritage. As I've said before, the first 250 years were just the beginning of a much larger and more significant journey. I would now kindly ask the operator to open our Q&A session.

Operator, Operator

Thank you. At this time, we will be conducting a question-and-answer session. The first question today is coming from Matthew Boss from JPMorgan.

Matthew Boss, Analyst

Congrats on another nice quarter. So Oliver, you cited 15% to 17% growth as the right pace for a healthy long-term business. I guess why do you think that's the right pace going forward? Or any structural change in drivers relative to the past decade of 20%-plus growth? And just near term, could you give us some color on what you're seeing in the first quarter relative to that 15% to 17% pace as you are cycling the toughest compare at 26% growth a year ago.

Oliver Reichert, CEO

Regarding Q1, we are seeing globally a very strong holiday season. Given what we've seen in Q1, we feel very comfortable that Q1 will likely come in at the higher end of our 15% to 17% annual revenue growth guidance range. Even against the strong comps last year, remember, last year, there was like a 26% growth. So we do think that ending up at the higher end of our guidance range will be a strong signal for the brand and the global demand, which is definitely outstripping our supply here.

Operator, Operator

The next question is coming from Paul Lejuez from Citi.

Paul Lejuez, Analyst

Oliver, can you give a little bit more color on 1Q, just how DTC versus B2B is performing? And how are you thinking about B2B versus DTC in fiscal 2025 overall? How are you planning the business around that 15% to 17% in each of those segments? And then can you maybe talk about gross margin by quarter, assuming 1Q is not up year-over-year but just wondering when you're looking for gross margin to inflect positive?

Nico Bouyakhf, President of EMEA

Thank you for your question. I’m taking the first one on DTC and B2B growth going forward. So what we will see is that we'll continue to see a balanced growth between DTC and B2B throughout fiscal 2025. Certainly, there will be some nuances from quarter-to-quarter as some quarters are more sell-in and some orders are more sell-through driven. Please be reminded that online represents 90% of our DTC currently. So in other words, retail only represents 10% of our DTC. We've been executing our retail expansion plan with great success. Recently opened stores are performing really well, and they're performing well from day one. Paris Le Marais, that opened in Q4, is our top-performing store in Europe, the Chengdu store is welcoming 4,000 visitors every week, outperforming our expectations. And then Austin stores are also really outperforming our expectations. Please be assured we have secured more locations, more exciting locations to open this fiscal year. So you will hear us more talking about retail expansion, and you'll see retail gaining more weight in our DTC channel. Our overall view on channel growth is that we want to fulfill demand where it occurs while remaining disciplined in our distribution for B2B. As you know, 90% of growth is really coming from existing wholesale partners. What they do is they expand our offering. They offer more shelf space and they go with a wider offering to their consumers. This gives us a broader reach to consumers with a broader assortment and lets consumers enjoy the full breadth of our brand. We remain disciplined in our distribution for B2B, and this is a high-quality and profitable growth with a full-price realization that is superior to any other brand.

Paul Lejuez, Analyst

And then, Erik, maybe any color on the gross margin?

Erik Massmann, CFO

Sorry, I didn't get the question at the beginning. Gross margin, if you look at Q4, the gross margin last year had a number of non-cash out-of-period accounting true-ups that impacted the quarterly margin comparatively. These totaled about 450 basis points, with the majority being related to a true-up of internal logistic expenses for the year that were reclassified between COGS and selling and distribution expenses. There was no impact on the full-year gross margin and, even more importantly, no impact at all on EBITDA. So we should look at the quarterly trends for gross margin and EBITDA margin in '24 as a guide for '25. While we will not be giving quarterly margin guidance overall, we have said we expect a modest improvement in gross margin for '25, and EBITDA will go up 50 basis points higher next year.

Operator, Operator

The next question will be from Michael Binetti from Evercore.

Michael Binetti, Analyst

Let me keep going on the gross margin and how we should think about it going forward into 2025. Are there any other unusual items we need to think about as we look out at the quarterly trends? I know there was a big reclassification in Q4 as we roll into Q1 and Q2. Is that an appropriate baseline to think about a year ago? And then on revenues, I guess, to double-click a little bit. Thanks for the color on the first quarter. You mentioned the tough compares in the quarter. Obviously, the DTC compare is very tough in the first quarter. Anything to think about between the two channels in the fourth quarter as that obviously affects margins? And then finally, on SG&A, I'm just curious if you could speak to the cadence of spending this year. It hasn't really aligned very closely with revenue growth in the past and can have a pretty material difference in earnings quarter-to-quarter. It started growing in the mid-20s last year and ended the year much lower. So I'm curious as SG&A snapped back to mid- to high teens in the first half, or is it best to think about it as like a high single-digit growth rate in the first half that accelerates as revenues increase through the year?

Alexander Hoff, VP of Global Finance

Thanks for the question. I will take the first and the third parts of your question. With our numbers in '24, the quarterly cadence, we are quite confident that this is a good basis to model the '25 quarters. So '24 is completely clean. There are no hiccups or unusual items you need to know about. Of course, we have some seasonality, especially with the higher DTC penetration in the first and fourth quarters, impacting gross margins and also SG&A ratios. But overall, '24 is a good baseline to start with for '25. And as for SG&A, it's also a good starting point, taking the '24 numbers.

Operator, Operator

The next question is coming from Dana Telsey from Telsey Group.

Dana Telsey, Analyst

As you think about it, I believe the pairs were up 14% this year, ASP up around 8% this year. How are you thinking of that going forward, especially given the production capacity that's coming more online? What are you looking at? And it also sounds like the traffic in stores did continue to accelerate in the current quarter. What are you seeing given the increased penetration of stores and the new store openings? And just anything more on wholesale in the Americas—what you're seeing on order trends? Is it still more from existing accounts? Or are there new ones too?

Nico Bouyakhf, President of EMEA

I'm going to take the first part of the question, and then I'll hand over to my team colleague, David, to provide some color on the Americas piece. Regarding units versus ASP growth, we definitely see volume being a bigger driver of growth than previous years. Finally, we have the capacity to really unlock white space categories like the APMA and our APAC region, our closed-toe product category, but also other business areas that are incremental to our unit growth. Furthermore, this increased capacity is also benefiting our B2B business, allowing us to gain shelf space with existing partners that are widening their assortment. Even with high unit growth, we expect a positive ASP contribution to revenue growth driven by mix predominantly, but also like-for-like pricing going forward.

David Kahan, President of the Americas

Just to follow up on the back half of that question. As you've heard from us, 90% of our growth in revenue comes from existing accounts and existing doors. This shows that we're getting increased shelf space, increased penetration, and increased spread in our collection, mainly in our current points of distribution. The only new points of distribution would be ones that are very, very tactical and strategic, specifically related to sports specialty, where we've established a nice small base but very disciplined growth in that specific channel.

Operator, Operator

The next question will be from Laurent Vasilescu from BNP Paribas.

Laurent Vasilescu, Analyst

I wanted to ask a three-part question, if I may. Last year, for fiscal year 2024, you opened 20 stores. How many stores should we assume for this year? And should it be weighted to Asia? That kind of leads us to the second question. I think, Oliver, you mentioned China is only 15% of your APMA region, so about EUR 30 million, still very small, but can you talk about the positioning of the brand in China and what do you think is the longer-term opportunity? And then lastly, you mentioned that the closed-toe offering was roughly one third of the business. Where do you think that goes for fiscal year 2025 and the longer term?

Nico Bouyakhf, President of EMEA

Thank you for your question. I’m going to do the first part of it, which is stores related, and then I'm going to hand over to Klaus for the Asia piece. As you know, retail is a massive growth pillar for us. We are currently operating 67 stores and have added 20 stores in 2024. We have plans to open more and are very disciplined regarding the locations we go after and our return requirements. Cash payback on investment is, as you know, within 18 months. So yes, we do expand, but we also expand very consciously. Our aim for fiscal 2025 is to increase the door fleet by 50%. That's a significant growth of our door fleet. Every store that is opened has to perform really well from day one.

Klaus Baumann, Chief Sales Officer

First of all, it's important to know that we are not new in China. We have a long history there. Yes, we are accelerating our growth; we signed up a partner for our B2B mono store development. We are now delivering to six points of sale and operating two owned stores. On the digital side, we are offering social sales channels like TikTok and the Minichat program. Looking forward, we will keep this pace next year for sure and double the fleet.

Nico Bouyakhf, President of EMEA

So closed-toe offerings continue to grow at a pace of more than twice as fast as our sandals. It's important to note that sandals are also growing double-digit, and so we are growing both areas of the business, while closed-toe is overperforming.

Randal Konik, Analyst

Just to unpack closed-toe a little more. Can you give us a little flavor on the drivers within that category? Is that the Boston just getting a lot more breadth in the assortment that's driving a lot of that? Or are there other views that are driving? Can you give us a little more flavor of what's driving closed-toe? And again, do you think that could approach 40% to 50% of the mix going forward? Lastly, what is the difference in ASP on average of closed-toe versus sandals?

David Kahan, President of the Americas

First off, there's no copy and paste globally on closed-toe. The beauty of the business is closed-toe encompasses everything from clogs to boots, and we're seeing positive momentum across every element of closed-toe. In the U.S. specifically, it has been driven by clogs. The beauty of that is it's not just the Boston; it's also the Tokyo, and there's a new clog called the Lutry, with a convertible strap that you may have seen out at retail that's selling very well. The impact of clogs is even spilling over to our Zermatt slipper, which has been in the line for five to six years and is now having its best season in its entire history.

Mehdi Bouyakhf, Chief Sales Officer

Yes, indeed. Last year's Q1, where we saw a very strong success of launched boot silhouettes. In fact, four out of ten in DTC were lace-up shoes. We launched the Highwood and Prescott at a price point above EUR 200, and those styles performed very well.

Erik Massmann, CFO

In an effort to help us properly calibrate our thoughts between DTC and B2B recognizing that in the first half of 2024 DTC led B2B, but in the back half, B2B led DTC. In the 15% to 17% guidance, can you just give us some flavor on whether you think B2B is higher in growth than DTC? At least for the first half or for the whole year?

Mehdi Bouyakhf, Chief Sales Officer

It's a balanced and moderate growth in all areas. We don't break it down in detail but the B2B business is as positive for us as the B2C business margin-wise. I would say it's a moderate growth overall with no specifics.

Megan Kulick, Director of Investor Relations

I just want to sum up there also. Just a reminder that 40% of our business is already DTC, which is a pretty sizable business in DTC. And we’ll continue to grow both the DTC and the B2B business as we look forward into 2025. On the DTC side, I think we'll be looking at additional stores on the retail side, and that will be more toward the back half that you'll start to see a greater contribution on the DTC side versus B2B.

Operator, Operator

The next question will be from Lorraine Hutchinson from Bank of America.

Lorraine Hutchinson, Analyst

I just wanted to step back and talk about the APMA region over the longer term. What percentage of sales do you think it could grow to over time? Can you just talk about your progress on putting the distribution and partnerships in place for continued outsized growth?

Klaus Baumann, Chief Sales Officer

We are planning to grow about 30% in share. In terms of growth cadence, we'd like to say that the APMA region should have a double speed compared to our mature markets. We signed up a partner for China. We are also very focused on our DTC development right now. Our DTC business is almost doubling with partners for Southeast Asia, mainly in the B2B section, very well prepared, and we are in touch to open more stores. We are operating on our own now 25 stores.

Oliver Reichert, CEO

It's important for you to understand that we are not only focusing on China. We really try to control the growth in a mindful way. We are trying to establish a very strong Southeast Asian business, a strong business in Australia, and a strong business in Japan, where especially our own retail is catching up very positively. However, we expect a balanced growth.

Simeon Siegel, Analyst

Hope you and your families have a very happy holiday. Erik or Alexander, just as we think about the model that we can see from the outside, are you comfortable that we're past the restatements and regional P&L, et cetera? Really great revenue, congrats, strong brand resonance. Can you share some thoughts on how you're thinking about the promotional environment at large, maybe with the competition versus what you're seeing for your own brand?

Oliver Reichert, CEO

It's very clear. It’s not a restatement. It’s a reclassification of internal logistics costs, which can be shown in sales and distribution. We cleaned it up from 2023. Now as the majority of companies do it. We feel fine, and the first year of being listed saw us look at all the details. The quality of the numbers improves significantly.

David Kahan, President of the Americas

When it comes to the general promotional environment, we see a bifurcation out there. A lot is promoted, but the few things that people really demand and shop for are selling through at full price. We manage scarcity with a high level of discipline, and our DTC business experiences over 90% full price realization. Our retailers experience over 95% full-price realization.

Simeon Siegel, Analyst

Any way to think about when Pasewalk ramps up and starts benefiting the line item?

Alexander Hoff, VP of Global Finance

We are pleased with how well the expansion has gone so far, not only in our new factory but also in the existing build-out in Görlitz and in Portugal. The expansionary steps we took in 2023 and 2024 have been the foundation of our unit growth. This is important, not just for margin pressure but also for substantial unit growth. This was a drag, especially in 2024, but in 2025 we will see an improvement.

Operator, Operator

Thank you. We have reached the end of the question-and-answer session, and this does conclude today's conference. You may disconnect your lines at this time. Have a wonderful day. Thank you for your participation.