Shoe manufacturer Birkenstock Holding PLC (NYSE:BIRK) celebrates 250 years in business this year, but the German apparel stalwart still offers plenty of reasons for investors to get excited. With ambitious plans to increase production capacity, controlled expenditures, new products, strong demand, and expansion into new retail settings and markets, BIRK has enticed investors since the company went public last year.
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These reasons may have contributed to Birkenstock’s presence on the most recent iteration of Deutsche Bank’s (NYSE:DB) Fresh Money list for the third quarter. But Deutsche analysts are just the latest in a growing list of analysts across Wall Street to identify BIRK as a potential stock of interest. I share this excitement about BIRK. Below, we’ll take a closer look at why.
Production Boost and Company Control
Birkenstock has ramped up spending in recent months in a bid to increase its production capacity. The firm has set a goal of doubling production capacity from its Fiscal 2022 levels over the coming few years, although a more exact timeline is not publicly available. Still, this means moving from 29.2 million pairs of shoes made per year to nearly 60 million.
The company is known for the quality of its products, which is directly linked to its strict control over its supply chain. This not only ensures consistency of production standards as Birkenstock has expanded globally and ramped up capacity but also helps the company keep costs down by allowing it to adjust its materials sources as necessary to match availability and demand.
Capital Expenditures Remain Low
With all the plans in the works to increase production, Birkenstock has worked hard to control capital expenditures. Executives have forecasted roughly €100 million in capital expenditures for Fiscal 2024, a figure that should decline in absolute terms in the years to follow. Goldman Sachs (NYSE:GS) analysts agree, as they recently revised capex forecasts for the current fiscal year down to €100 million from €117 million. They also expect this number to drop to €89 million by Fiscal 2026.
With production increasing and capital expenditures dropping, CapEx as a percentage of sales is expected to fall as well from 5.6% this year to 2.7% in Fiscal 2027. Goldman expects capex as a percentage of sales to equalize to 3.3% by 2034, a sign that Birkenstock could maintain a relatively low level of expenditures, even as it continues to grow.
New Products Driven by Strong Demand
Birkenstock is known for its cork-based sandals, but the company has recently begun expanding into higher-priced styles as well. It is able to do so thanks to strong demand, reflected by record-high second-quarter revenue and an increase in guidance in the most recent earnings report. Solid demand has also allowed the company to increase its average selling price for products.
Company executives now expect Fiscal 2024 revenue to be between €1.77 and €1.78 billion, up from previous estimates of €1.74 to €1.76 billion. This would mark an increase of 19% compared to the prior year.
Direct-to-Consumer and Asian Market Growth
Birkenstock has adopted a direct-to-consumer sales model that has allowed the company to expand its brand footprint at a faster rate than expected. Still, for an old and established firm, many investors will wonder how much room Birkenstock has to continue broadening its customer base globally.
Fortunately, it appears that the company has ample room to grow, particularly in Asia, the Middle East, and Africa. In these regions, Birkenstock reported 42% year-over-year revenue growth in the last quarter, double the growth of both Europe and the Americas. What’s more, this fast-growing part of the world currently accounts for just 11.5% of Birkenstock’s business, suggesting plenty of space for continued expansion.
Is BIRK Stock a Buy, According to Analysts?
Given the factors mentioned above, it’s no surprise that analysts view BIRK as a Strong Buy based on 14 Buy ratings, three Holds, and zero Sells assigned in the past three months. Across the Street, analysts suggest an average BIRK stock price target of $65.53, representing 15.7% upside potential. This is all the more impressive, given that BIRK shares are already up 50.8% in the last 12 months.
Conclusion: New Production and Offerings, Controlled Costs, Big Potential
Birkenstock is ramping up production capacity and capitalizing on demand to offer a wider range of products, including at higher price points than usual. It’s able to do all of this while aiming for a trajectory of reduced capital expenditures in the years to come and while capitalizing on the potential for expansion into new areas of the world. These are several of the reasons analysts view BIRK as a Strong Buy at this time.
