Birkenstock Holding PLC (BIRK) 2024 Q1 法說會逐字稿

Good morning, and thank you for standing by. Welcome to BIRKENSTOCK's First Quarter Fiscal 2024 Earnings Conference Call. (Operator Instructions) 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 the call over to Alexander Hoff, Vice President of Global Finance.

Hello, and thank you, everyone, for joining us today. On the call are Oliver Reichert, Director of Birkenstock Holdings plc and Chief Executive Officer of the Birkenstock Group; and Erik Massmann, Chief Financial Officer of the Birkenstock Group. David Kahan, President Americas; Nico Bouyakhf, President Europe; and Klaus Baumann, Chief Sales Officer, will join us today on the Q&A section to answer your questions with regards to the information we are sharing this morning.

Please keep in mind that our fiscal year ends September 30, thus our first quarter of fiscal year 2024 ended on December 31, 2023. You may find the press release and the supplemental presentation connected to today's discussion on our Investor Relations website, birkenstock-holding.com.

We would like to remind you that some of the information provided during this call is forward-looking and accordingly is subject to the safe harbor provisions of the federal securities 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 the morning's press release as well as 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 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 IFRS to non-IFRS measures can be found on the morning's press release and in our SEC filings.

With that, I'll turn the call over to Oliver.

Thanks, Alexander. Good morning, everybody, and thank you for joining today's call. It's great to be here with you to discuss another exceptional quarter. We achieved the highest revenue level for the first quarter in our company's history, driven by growing demand for our products across all regions, channels and categories.

Accordingly, revenue grew by 26% versus our first quarter last year. We also successfully increased our production capacity as planned, penetrated our largely untapped white space areas and maintained our strong profit formula.

Our revenue growth was driven by an increase in both ASP and units. ASP benefited from the continued shift to premium products, a favorable channel mix towards D2C and sales price increases. Additionally, units sold also increased as additional production capacity became available in Germany and Portugal to fuel our supply capabilities to meet the growing demand in our products.

The strength of the BIRKENSTOCK brand is evidenced by continued high levels of full price realization across all points of distribution. We have observed that general consumer shopping has transitioned from shopping arbitrarily to intentional purchasing, where consumers are seeking the key brands and products they love. Accordingly, we remain highly confident in our ability to continue our strong performance through fiscal 2024 and beyond.

Our DTC channel was once again our fastest-growing channel in the first quarter of fiscal '24, resulting in a 53% share of revenue. Members of our fast-growing membership program are highly engaged and most apt to expand their purchases of our brand. As the average U.S. BIRKENSTOCK consumer owns 3.6 pairs, this growing membership base of loyal fans is proving to be fertile ground for our expansion and is a key focus for us in fiscal year 2024.

Despite a challenging backdrop in the wholesale market, our B2B business achieved healthy revenue growth of 22% against the same period last year. As a must-have brand for all leading retail partners, we expect our penetration to expand in fiscal '24.

In our first quarter, which marks winter in the Northern Hemisphere, we have seen a significant continuous shift towards closed-toe silhouettes, including clogs, exceeding for the first time the share of sandals, as well as a sustained move towards premium products. This is clearly demonstrated by strong sell-through in premium products, such as clogs, boots, [shielding] products and closed-toe sneakers. We are particularly excited to see our higher-priced new boot silhouettes, the Highwood and the Prescott, outperforming our sell-out expectations in DTC since their launch in October '23.

While we have generated significant momentum and compelling sales results from our new styles, our momentum with our core styles remains unbroken. This highlights the commercial relevance of our iconic models and the continued demand for our most recognizable styles. We have also seen higher sales of the premium leather executions of our classic silhouettes.

It's great to see these products remain in high demand after the peak holiday season. In the marketplace where inventory excess is a critical concern, our stock-to-sales ratios at wholesale partners proved to be an outlier.

Now let's move to our discussion of segment performance. Within our largest region, the Americas, consumer momentum and demand for our brand continued to increase. Revenue in the region was up 19%. A larger driver of the growth was once again the DTC channel. As one would expect, in a quarter driven more by sell-through than sell-in, DTC penetration increased even further. Notably, approximately half of our revenues was generated from members of our membership program, which we are working to further expand given the strong brand engagement and tandem of these consumers.

For our B2B channel, in the Americas, please recall that we had large shipments early in the fourth quarter of fiscal '23 to capture the expected increase in demand around the holiday season. For the first quarter of '24, most of our top line growth was driven by greater penetration within our existing B2B channel. Specifically, with the expansion of categories like closed-toe silhouettes, with the vast majority of our shipment growth going to existing partners.

Only a single-digit percentage of revenue in the Americas is attributed to new points of distribution, with a heightened focus on specialty retailers, including sports-specific, running retailers where the benefits of our footbed as a recovery from sport is finding strong end-use demand.

In Europe, we delivered exceptional growth in the first quarter of fiscal '24. In the macroeconomic environment where consumers remained more subdued in their spending, BIRKENSTOCK continued to perform strongly. Our revenue in Europe increased by 33% in the first quarter. As a reminder, the reported revenue level in the fourth quarter of fiscal '23 was still impacted by our sales transformation initiatives which have started to pay off in the first quarter of fiscal '24.

Our growth in Europe was broad-based across all our channels and geographies, underpinned by very strong sell-out performance during the holiday season. Notably, the sell-out of fitness products with some key partners was up high double digits versus first quarter fiscal '23.

In D2C, revenue also increased significantly and supported our strong overall growth. The first quarter of fiscal '24 also marked the start of our ambitious store opening plan in which we aim to double our fleet in Europe over the coming 3 years. After closing many legacy stores over the past 2 years, we are pleased to see the recently opened Cologne pop-up is among our top-performing European stores, delivering the highest ASP from day 1.

In B2B, we are increasing our shelf space and continued to be one of the top-performing brands for our wholesale partners in Europe.

Key retailers are increasing their purchases and shifting their volumes towards earlier delivery dates. This is resulting in an even higher revenue growth for the B2B, with nearly all of this growth coming from existing distribution partners.

Lastly, we successfully launched new products in our expansionary categories. We presented our new and fully certified professional line at A+A Fair, the world's largest workwear trade fair, and received great response from more than 3,000 industry visitors at our booth.

This quarter, our professional product category delivered the second-highest growth rate, both in terms of value and units. It is indicative of the strength of our brand that we have fully implemented our spring/summer '24 price increases with no adverse impact on demand, and our full price realization in Europe remains very strong.

APMA was our fastest-growing segment in the first quarter of fiscal '24 with revenue growth of 51%. Growth in the region was largely driven by our D2C channel, with the digital portion of the channel nearly doubling versus last year. We also saw a healthy increase in B2B in the first quarter of fiscal '24, which was driven by an expansion of our mono-brand partner store environment with 10 newly opened stores. Similar to the other regions, closed toes silhouettes, including clogs, played a decisive role in our success, contributing more than half of the total revenue in the region.

I will now turn it over to Erik to discuss our financial results in more detail.

Thanks, Oliver, and good morning, everyone. We are pleased with BIRKENSTOCK's performance in the first quarter of fiscal 2024. While the broader consumer environment continued to be challenging, our brand once again proved to be extremely healthy and our growth algorithm to be firmly intact.

BIRKENSTOCK is one of the few must-carry brands in the wholesale channel that also drives shoppers to retail stores and our D2C channels, particularly as consumers become more intentional in their purchases. This trend is reflected in our first quarter fiscal 2024 results, which includes the holiday season.

Let's have a look into the details of first quarter results. Revenue was EUR 303 million, representing an increase of 26% versus prior year. BIRKENSTOCK generated double-digit growth across all segments and channels, demonstrating the desirability and resilience of our brand. We are particularly excited by our D2C performance, which was up by 30% versus prior year, driving D2C penetration to a 53% share of our revenue. At the same time, we increased B2B revenue by 22%.

Gross profit margin for first quarter fiscal 2024 was 61%, down 70 basis points compared to prior year. While we successfully recovered inflation by increasing sales prices and optimizing our channel and product mix, a slight margin compression was mainly caused by our ongoing capacity expansion and an unfavorable currency translation.

Adjusted selling and distribution expenditures were EUR 103 million, representing 34% of revenue in the first quarter of fiscal 2024, generally in line with the first quarter of fiscal 2023. As a reminder, our first quarter is typically the quarter with the highest D2C share and therefore generally shows the highest selling and distribution spend as a percentage of revenue.

Adjusted general and administration expenses were EUR 24 million and 7.9% of revenue, up 110 basis points compared to first quarter of last year. This increase is largely driven by public company costs which we did not incur before our IPO.

First quarter adjusted EBITDA of EUR 81 million was up 12% versus last year, resulting in an adjusted EBITDA margin of 26.9%. The decrease versus prior year margin was largely driven by the aforementioned effects of ongoing capacity expansion, incremental SG&A expenses and an unfavorable currency translation.

Our first quarter effective tax rate was elevated due to increased tax expenses versus the first quarter of fiscal 2023 related to onetime share-based compensation expenses and certain other nondeductible expenses.

These results cumulated in fully diluted adjusted earnings per share of EUR 0.09 compared to EUR 0.15 in the first quarter of fiscal 2023.

Let's now have a closer look at our balance sheet as of December 31, 2023. Cash and cash equivalents were EUR 169 million. The decrease compared to year-end fiscal '23 is fully in line with our expectations and as a result of the typical seasonality of our business and our deleveraging progress.

In the first quarter of fiscal 2024, we built up inventory to prepare for the upcoming spring/summer 2024 wholesale shipments while improving our inventory to sales ratio compared to first quarter fiscal '23. This buildup is a regular pattern we generally observe in the first quarter of each fiscal year.

Additionally, we continued to deleverage using our IPO net proceeds and excess cash on hand. We made early repayments on existing debt of EUR 525 million, which reduced net leverage to 2.6 as of December 31, 2023. Further, we continue to invest for future growth. Capital expenditures were EUR 80 million and mainly related to our production capacity expansion.

With that, I'll hand over back to Oliver.

Thank you very much, Erik. Let me summarize our discussion. We are very pleased with the strong start to fiscal '24, with continued strong consumer demand for our products, both classic and new emerging products. We are executing on our proven engineered distribution strategy, ensuring high levels of full price realization across all segments and channels.

We remain committed to building on our foundation for success and driving long-term sustainable growth guided by our principles of function, quality and tradition. The exceptional first quarter results demonstrates the resilience of our business.

In the Americas, we gained further growth momentum by deepening our D2C footprint while building on the loyal and steadily growing following. In Europe, our transformation plan is now paying off. At the same time, we are entering the next chapter of our growth trajectory as we tap into our largest whitespace market, the APMA region, increasing brand awareness and taking market share while following our playbook of disciplined engineered distribution. We believe this will catapult us on a new growth trajectory in the future as demand continues to outpace supply in all segments and channels.

Given our continued momentum, we are even more confident in the guidance we provided you just last month. While our strategic investment in sustainable growth temporarily impacts our profitability midterm, we are fully committed to steering our business in line with a gross profit margin over 60% and an adjusted EBITDA margin in the low 30s percent midterm. We are carefully tracking costs on the sourcing and production side as our capacity expansion is proceeding as expected. We continue to recover the impact of inflation through selective price increases.

So in short, we are very pleased to report that we have never been in a better position to grow our business. BIRKENSTOCK is 250 years strong, and we have a long runway for growth ahead.

I would now kindly ask the operator to open our Q&A session. Thank you.

(Operator Instructions) The first question today is coming from Dana Telsey from Telsey Group.

Congratulations on the nice results today. Last quarter, you had mentioned some of the impacts of inflation and the AUR increases that you were taking. What are you seeing on those inflationary impacts? And it sounds like the new manufacturing facility, how -- what's happening with capacity utilization? What are you seeing there? And how do you think about leverage?

Dana, thanks for the question. This is Alexander. I will take that over. So first of all, for the cadence of our earnings, we aren't going to guide on quarterly margins. But what I can tell you is that we are very, very pleased with our margins, especially in a situation where we took the strategic decision to substantially increase production capacity.

And please be reminded that it's not only Pasewalk we opened in September, it is also our expansion in Goerlitz and our expansion in Portugal. And we are very happy to see that expansion because it gives us possibility to meet future demand. We already touched on that, that those effects will slightly impact our margins in '24, this is clearly a temporary effect. We fully accounted in our guidance and our plans for.

And on the inflation side, Oliver mentioned, we are heavily tracking the cost of sourcing and production. We see for this year, low to mid single-digit cost inflation, mainly labor and raw materials which we expect to mitigate through our selected price increases. Again, all those are reflected in our guidance. And to sum it up, we are fully committed to steer our business in line with the gross profit margin over 60% and an adjusted EBITDA margin in the low 30s in the midterm.

The next question is coming from Ed Aubin from Morgan Stanley.

Yes. So just on the mix, the closed toe. I think you said that it's -- the sales now exceeded the sales of sandals. Are you talking about more than 50% of sales? Just to clarify. Because my recollection, but maybe I'm wrong, was that close to penetration was about 30% of sales last year, so that would be quite a steep increase.

And then just related to that, Oliver, you mentioned that a number of products did well in closed toe, but could you provide a little bit more color between the sneakers, slippers, boots and the Boston. Is the Boston now exceeding 20% of your sales or not? That would be very helpful.

Yes. Edouard, this is David. I'll take this. Yes. I mean, during the holiday season, which is more of a sell-through than a sell-in season, results for closed-toe footwear in general were quite significant. D2C ,53% were non-sandals. That's across all closed toe categories, from sneakers to slippers to clogs. Some of the sell-throughs on our new boots, like the Highwood and the Prescott, we're exceeding all expectations.

And just to give you a little bit more color, absolutely, the Boston is what you would call the hot clog. But within the clog category, sales of everything other than Boston, including the Tokyo, which is basically a backstrap clog, the news are Zermatt 360 (sic), the Buckley all exceeded expectations.

Sales in clogs other than Boston were 75% higher. So it's a broadly based closed-toe business right now. And I think that's quite significant to say that this was the first time that non-sandals were the larger percentage of our business.

And the next question is coming from Mark Altschwager from Baird.

Great. Congratulations on the strong results here. So the sustained shift to premium products is nice to hear. How should we be thinking about ASP growth both this year and longer term? Is mid-single digits still the right expectation? Or are you gaining some confidence that it could be higher than this given the success you're seeing in the premium price points?

Thanks for the question, Mark. That's a great view. You're absolutely right. And you saw that also in the Q4 numbers. We reported just a month ago that we are seeing a great shift towards premium products. Boston is helping, clearly, but also other products, colleagues already mentioned that.

Overall, it's a fair assumption to be in the mid- to high single-digit ASP growth. And we already mentioned that we allocate roughly 1/3 to the product side, to the channel side and to the pricing side. Between the quarters and between the years, there can be some little shift. And yes, maybe this year, there's a little shift towards the product side. But overall, in the long run, you should be good with the number.

The next question is coming from Matthew Boss from JPMorgan.

Congrats on another nice quarter.

Thank you, Matt.

Oliver, could you elaborate on your increased confidence in this year's guide? Or have you seen any change in top line momentum post-holiday relative to the more than 20% constant currency growth that we saw last quarter? Just as you think about demand exceeding supply.

As you know, Matt, demand of our products has exceeded our supply for years. We have had to invest in our growth capacity which will lead to a planned moderate margin compression, as we said and as we showed in our model, in the short to midterm. However, this will be more than compensated for in the midterm by further qualitatively growth in all regions and channels and the higher overall efficiency in production.

So for the moment, we stay with our outlook and our guidance we just gave you a month ago. Just keep in mind, Matt, that the first quarter is our weakest quarter normally, and it's pretty strong already. So yes, you can see us smiling and very confident.

(Operator Instructions) The next question is coming from Louise Singlehurst from Goldman Sachs.

Just on that point, the greater confidence in a particular region, which has made you feel a little bit warmer about life as we look at the year ahead since January, and particularly on Europe given the big acceleration there. Is there anything timing of deliveries or phasing or anything that we should think about as we go through into Q2 as well.

Louise, this is Nico speaking, heading up Europe. So first of all, we are very, very delighted to see Europe completing the transformation plan. We shared the details with you during the IPO and shared more details with you in the last quarter's call. Q4 fiscal '23 was impacted by our transformational efforts. Now as we almost completed our transformational plan, these impacts become smaller, almost minimal. And we are very, very confident with our current position in the European market.

The overall market is soft, as you know, but we are very, very strongly positioned and 2 years of hard work in our transformation plan are now paying off. So Q1 is another quarter where we substantially increased our ASP. It's another quarter where revenues significantly outgrow units. And it's another quarter where our closed-toe shoe business is growing faster than our sandals business.

As Oliver mentioned, in this quarter that is bridging to seasons, we had 2 consecutive price adjustments, no signs of rejection. And our full price realization is superior to the market. So that shows you that we have done our homework in Europe, and we are very, very confident about how we look into the future.

The next question is coming from Sam Poser from Williams Trading.

I got 2 questions. Sorry, I'm going to break the rule. The first question is about your inventory levels that, at the end of the year -- at the end of last year, represented about -- the sales that followed in Q2 and Q3 last year represented around 73% of the inventory you had at the end of Q1, your cost of goods.

Is that -- was that accurate? Because -- or should we expect that same kind of thing this year? Or are you expecting to slow down the turn a little bit? I mean, because if -- I'm looking at it from an inventory productivity perspective looking forward.

So it's not -- that was number one, yes. Okay...

Do you want me -- I'll ask the second one, too, because I got cut off last time.

You had no second ones then.

[Or the other] no. As you see -- as you saw, that changes certainly the inventory level, but you're always aware that 20% of the inventory would be raw materials and work in progress. And the vast majority of the carryover products and already contracted value and the healthy inventory, shown by the full price, more than 90%, especially due to the classic styles and so on, the ratio actually came down if you compare to Q1 last year. 42% inventory to sales ratio versus 35% last year.

But it's higher than end of Q4. Now this is obviously due to the fact that, in Q2, we do the wholesale shipment and we pre-produce to be ready and prepared for the big shipments which we do in Q2. So it's, a, in line with the development in the past; and b, getting better year-over-year because we work hard on this. And as you see, successfully, it was a 3% downturn already in Q1 this year.

And then secondly, the average selling price increase. How much -- can you break that down, the mid- to high singles whatever it's going to be, by pricing, by the actual taking of price, and then channel, product and geographic mix that may be helping or hurting in either, -- in all those places.

Yes, this is Alexander. I will take that over. We saw just a little effect in channel mix. Last year's quarter was even that strong than this year's quarter. So there's a slightly positive effect, but you can reject that. The other 2 are more relevant, which is the pricing point, Nico touched on that, especially in the Europe and APMA region with the price increases. And let's say the other 50% is related to the product piece.

The next question is coming from Sharon Zackfia from William Blair.

I just wanted to come back to the full year guide. I mean, you've obviously started with a really strong December. And I think the implication would be growth would moderate to 15% to 17% top line for the rest of the year, which is very, very healthy, but obviously below the trend you've been at.

Is there any particular part of the world or wholesale or DTC where we would expect to see some deceleration because of what's happening with capacity expansion or anything else as we think about the rest of the year? Or is it more a reflection of it's still early in the year and there's inherent uncertainty just generally in the environment?

Thank you for your question. It's really about having -- just assuring the guidance 4 weeks ago. And on the other hand, it's just the first quarter. We see a lot of demand in the markets, all channels, all geographics. And so honestly, we will just feel much better if we stay with our guidance for the moment. As you know, we have already have some information about Q2, of course, so you may see us changing our position. But for the moment, we are good with the guidance.

And the next question is coming from Simeon Siegel from BMO Capital Markets.

Could you elaborate at all on the increased shelf space for the European B2B? Is that gaining new partners, deeper with specific existing partners, both? Just any further color there because that was really great to hear.

And then if you could quantify the main gross margin drivers this quarter, perhaps just isolating onetime-ish ramp costs versus the underlying performance and how you're thinking about those within gross margin going forward.

Simeon, thank you for the question. I'll take the first part. The good news is, and that's really something which is really super, super strong message, I would say, that we did this 26% growth more or less with 95% of the existing doors. So you can really imagine that we grab shelf space in the different doors. And we really expand their interest in the brand, and their sell-out and their overall behavior towards the brand is super, super positive. And we are very proud that we can generate such a huge growth with existing partners.

So you can imagine that once we add other doors and go in different categories, because you know that we have a lot of whitespace categories in our back hand, this will deliver a massive future growth. That's why we are so confident about our long-term outlook and our profitability. And that's why we're investing that amount of money in doubling the capacity. Again, really keep in mind that this company is doubling the capacity. It's not just slight increase, it's a doubling of the whole thing. So that's heavy lifting, and we're planning to do this within the next 3 years. So yes, we are super confident.

Simeon, this is Nico. So to add a bit to what Oliver just shared. Yes, B2B was very, very strong in Q1. In fact, it outgrew our D2C business. But yet, D2C increased revenues high double digit. So actually, that's the magic thing with us, one doesn't go at the expense of the other.

If I look at the B2B growth, basically 3 things about that close. One, we had a very, very strong order book for autumn/winter '23. For B2B, our closed-toe business grew 5x faster than our sandals business. So that shows you that we are also taking the success from D2C with our closed-toe business into B2B.

And then for even for spring/summer '24, we even had a stronger order book. So What's currently happening is retailers are not just increasing their orders with us, they're also overproportionately increasing their orders on earlier delivery dates in order to be ready to serve consumers earlier. That's the second thing.

And then, as Oliver just shared in his intro, we enjoy currently a very high growth rate of our professionals product. So you saw the product. It's an expansionary category. We shared with you the product in Munich, fully certified, presented at the biggest trade fair and are now getting a really strong demand from retailers in, which is helping us to push our business, again, beyond the sandals category.

And the next question is coming from Brian (sic) Hutchinson from Bank of America.

This is Lorraine Hutchinson for Bank of America. I don't know where the Brian came from.

We wondered. Give us the Brian inside of you, Lorraine. Give us the Brian. All good.

I wanted to just ask you to comment a little bit on the Asia growth trajectory. What are you hearing from consumers there? It sounds like the product acceptance of closed toe has been great. Have the price increases been greeted with the same level of success as Europe? And how do you envision that business growing over the next several years?

Thank you for the question. Klaus here, running the APMA region. First of all, I think it's very important to understand that we are growing everywhere in the APMA region. So we are right now setting up Greater China, Japan, Indonesia, Southeast Asia. And we are now opening a lot of partner stores, and we see very strong sell-out growth in existing stores. And also, we are building now our own fleet and also optimizing our D2C business there.

So digital business, for example, we have very strong results on the last 11/11 event. And with this, we can see and we keep building a lot of confidence in this sector. So teams are all on ground, and we are heading forward.

Price increase had no effect at all. Generally, the prices are like 10% to 15% higher in this region already and apparently there is a history on our product in the key markets. So on that side, no negative trends or any rejection from the consumers. I think we are very beginning in this [sense], and there is a huge white space everywhere. So we're looking very confident fowards and continuing this growth path.

Maybe you can add something about the retail space there at the close.

Any more questions?

Yes, apologies. The next question is coming from Randy Konik from Jefferies.

I just want to talk about -- elaborate -- talk more about the closed toe strength. And it appears, David, your comments earlier that there's just a higher acceleration in adoption of this part of the bits. So maybe give us some perspective or remind us on where you think closed toe penetration, where you had said it would be previously? And does this kind of thing make you think that close toe penetration can become even higher part of the business than you previously might have thought? And remind us maybe what are the differentials in ASPs of closed toe versus sandals because you might get a benefit there potentially with mix as well.

Randy, hey, great question. Yes, the response to closed toe and the adoption to our closed-toe products has been even better than I think we expected. And again, you're in a holiday season where we're talking about a quarter that used to be, when BIRKENSTOCK was pretty dormant as you remember in the market, no longer are we dormant in fall/winter.

Right now on our own direct-to-consumer, to put it in perspective, fall/winter is over 50% of the mix, which is driven by closed toe products. I think the beauty of it is closed toe includes everything from clogs to boots. And every style that we have put in the market, whether it's direct to consumer or whether it's in our best retail partners, has been performing very, very well.

Obviously, there is a significant mix impact which will increase the ASP overall. I just think the consumer adoption has been very, very high. Again, you have to remember, our membership represented 49% of our direct-to-consumer business. And when you start to share things like closed-toe products with members who have a 2x click-through rate versus nonmembers, you're starting to see the return on investment be much higher in the higher adoption rate between returning customers.

So I think what we said originally in our roadshow and pre-IPO about the potential of close to product probably might be conservative based on what we're seeing right now. That's a good thing.

Just to add to this one. Thank you, David. For Europe, what we can see is among the top 10 revenue-driving models, 5 are close-toe and 3 are boots. And one of this boot is the boot that we just introduced. So the boots are the Highwood, the Stalon, the Bryson, and these are higher price points. So we can migrate consumers into higher price point product and also into non-sandals products.

What we are currently seeing is during the autumn/winter '24 B2B order intake, retailers are going with us that hard. So they're really believing us that we can transition the success from DTC into B2B. So we are very confident about the closed toe business but also the closed shoe and boots business.

And this is like -- ultimately the answer of, okay, how can you grow 26% on the same amount of doors? How is this possible? So this is really then shows the strength of the brand. And as we said during the roadshow, and we saw some skeptical faces there, this is a new category for this brand, having this closed-toe shoe option. And now in a very relatively short term, you see like we're performing super well in this segment.

And just to add one last point there because obviously, the U.S. market is fairly developed to grow at the rate that we grew, when 95% of that revenue growth is coming from not only existing accounts, but existing doors, that really shows the strength of retailers and consumers in expanding our brand way beyond the sandal category.

(Operator Instructions) Your next question is coming from Paul Lejuez from Citi.

You're 2 months in through the second quarter. Just curious if you can share how you're thinking about top line growth in 2Q given what you've seen to date. And how should we be thinking about gross margin, not just in 2Q, but as we move through the year? I think first quarter came in a little bit better than what you were thinking. If you can give us any color there in terms of how gross margin looks relative to last year as we move throughout the year.

Yes. Thanks for the question, Paul. I think I can reference to what I said before. '24 is the transition year. We talked a lot about EBITDA and gross margin. Clearly, we see the effects from capacity. There are also some other effects, which influence or could influence our margins. You saw in Q1, just with 110 basis points from currency translation, just to a weaker U.S. dollar compared to prior year's number.

Overall, on the margin side, what we can say, you see also from the [curriculum of] financials, Q2 margin is always -- gross margins always a little bit below the other quarters due to the high wholesale share. But on an annual basis, we will stick with the numbers we gave out. And let's see. We are absolutely positive on that, but let's see what will come out.

The next question will be from Michael Binetti from Evercore ISI.

Let me just follow that one really quickly with you, Erik. If I just follow the work on the IPO and the consensus numbers here, it does look like a pretty meaningful step down in gross margin in 2Q as expected. Is that -- it looks like 600, 700 basis points. Is the change in D2C versus B2B growth rate that drastic when we look at 2Q versus 1Q or the other quarters in the year to explain that big step down?

And then I was just wondering on the gross margin, if you could help us quantify a little bit. Just the -- how much you thought the mix effects were. But more so, do you have any way to quantify the impact of the factory absorption on the gross margin in the first quarter so we understand that? I'm curious if the unit growth rate in the quarter was maybe above what you planned.

If we see that continue, does that -- does the accounting for that mean that you're pulling forward incremental units that have a higher per cost unit from the new factories? Or do you see better leverage if you pull forward unit growth? I'm trying to understand how to model forward the factory absorption component on the grosses.

Michael, thanks for the question. So it's clearly in Q2, without giving a concrete number, but you're absolutely right. With such a high wholesale share, we will see a lower margin. This is typical seasonality. We have it in every year. You saw it also in Q1, where you have a generally higher D2C share, which gives you better gross margin. The other way around in Q2 on the EBITDA margin level, there's not that much impact from the channel perspective.

And on the second one, so do we see -- or did we already see some absorption from the new capacity in Q1? Actually, these are also products we produced some months ago. So this is not a material effect in Q1, as we also opened Pasewalk in September. So with ramping up -- currently, we are in the ramp-up phase which will last until '25.

So you have not seen it substantially in the numbers going forward on a full year basis. This is the main effect on '24 numbers, gross margin and EBITDA margin. So the capacity expansion. But again, a temporary effect.

And the next question is coming from Edward Yruma from Piper Sandler.

I know one of the big product priorities has been EVA and really kind of more water sports. I would love a quick update on performance there, particularly in APMA. And we noted that you're introducing more kind of water sports sandals in the Americas. Curious if you have any early reads this season.

Hello, Klaus again. I'm not sure if I understood you right, but you're asking performance for EVA in the APMA region. Obviously, the territory of APMA is a very good region for us, and we are building on that at these noncore sandals certainly the territories with rain time and stuff, this is in the plan, absolutely.

In this moment, we are really doing kind of balancing out very well how much product we are putting into this region also for controlling our ASP and also, yes, well, building the qualitative part of the brand on the product side, too.

Ed, I think you asked also about EVA in the Americas. Just as reference. And just as a reminder, we've said this before, but that's all incremental product to cork. There is not a pair of EVA that takes away a pair of cork. We've seen absolutely the opposite. We see this demand flywheel where every product that we continue to expand in the market drives more and more demand across the line.

So whether it's water sports, whether it's after performance sport use, it's purely incremental and it's additional use occasions. And any time we can open up our brand to additional use occasions, it's more pairs in somebody's wardrobe and it's more top line revenue.

And just to remember also, regardless of the ASP on EVA, it may carry potentially a higher EBITDA margin. So it's not directly related to ASP when it comes to that product.

Thank you. And that does conclude today's Q&A section. And also, this concludes today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.

Thank you.