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Q2 2024 Birkenstock Holding PLC Earnings Call

Participants

Megan Kulick; Director Investor Relations; Birkenstock Holding PLC

Oliver Reichert; Chief Executive Officer, Managing Director; Birkenstock Holding PLC

Erik Massmann; Chief Financial Officer; Birkenstock Holding PLC

Mehdi Bouyakhf; President of Europe; Birkenstock Holding PLC

Alexander Hoff; VP Global Finance; Birkenstock Holding PLC

David Kahan; President of Americas; Birkenstock Holding PLC

Klaus Baumann; Chief Sales Officer; Birkenstock Holding PLC

Matthew Boss; Analyst; JPMorgan Chase & Co

Randal Konik; Analyst; Jefferies LLC

Dana Telsey; Analyst; Telsey Advisory Group LLC

Sam Poser; Analyst; Williams Trading, LLC

ANNUNCIO PUBBLICITARIO

Simeon Siegel; Analyst; BMO Capital Markets

Mark Altschwager; Analyst; Robert W. Baird & Co. Incorporated

Sharon Zackfia; Analyst; William Blair & Company L.L.C

Erwan Rambourg; Analyst; HSBC

Adrien Duverger; Analyst; Goldman Sachs Group, Inc.

Paul Lejuez; Analyst; Citigroup Inc.

Jesalyn Wong; Analyst; Evercore Inc.

Jim Duffy; Analyst; Stifel Financial Corp.

Presentation

Operator

Good morning, and thank you for standing by. Welcome to Birkenstock second quarter fiscal 2024 earnings conference call. (Operator Instructions) The company has allocated 60 minutes and talk 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

Hello, and thank you, everyone, for joining us today. 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; and Alexander Hoff, VP of Finance, will join us for the Q&A section.
Please keep in mind that our fiscal year ends September 30, thus our second quarter of fiscal 2024 ended on March 31, 2024. You may find the press release as a supplemental presentation connected to today's discussion on our Investor Relations website birkenstock-holding.com.
Additionally, we have included in the press release table and presentation the quarter with for fiscal year 2023 in order to aid in your year-over-year comparisons. 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 this morning's press release as well as in our filings with the SEC, which can be found on our website 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 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. Reconciliation 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

Thanks, Megan, and welcome to the Birkenstock team, we are very happy to have you with us, bringing the Birkenstock language to capital markets. And helping us further develop the super brands. Good morning, everybody, and thank you for joining today's call. We are happy to be here with you to discuss another exceptional quarter.
Once again, we achieved the highest revenue level for the second quarter in our company's history, driven by growing demand for products across all segments, all channels and categories. Accordingly, revenue grew by 23% versus second quarter last year. We continue to see strong demand growth in our core markets and in the largely untapped whitespace areas, we've identified across segments channels, categories in usage occasions.
Given the strong results achieved in the first half of fiscal 2024 and the continued demand growth we are seeing, we are pleased to be raising our fiscal 2024 guidance. Continuing the 10-year 20% growth trend we highlighted during our IPO. We are increasing our fiscal 2024 revenue growth forecast to 20% on a constant currency basis. Up from our prior guidance of 17% to 18% and adjusted EBITDA margin in the range of 30% to 30.5%.
Our second quarter revenue growth was driven equally by an increase in ASP and units. ASP benefited from the continued shift to premium products, a favorable channel mix towards DTC and the targeted sales price increase. Unit growth was strong across all segments, but especially strong in APMA. One of the key white space markets we have been highlighting. The additional production capacity we have brought online over the past six-months in Germany and Portugal to fuel our supply capabilities, is allowing us to meet the growing global demand for our products.
While the overall local consumer market remains weak, Birkenstock achieved 23% growth. Beating the market soundly as we continue to take share and become a must-have brand for key retail partners. As we and others have observed, consumers are increasingly becoming more selective and intentional in their spending. Consumer across all ages segments and price points are seeking brands they love. And Birkenstock is definitely one of these global super brands.
The strength of the business of brands is evidenced by continued full price realization at most in our DTC business. DTC channel was once again our fastest-growing channel in the second quarter of fiscal 2024 with 32% growth against the same period last year. We opened six new own retail stores, bringing the total to 57. Our digital business also continues to perform very well, increasing 29% from the prior year quarter. Members of our fast growing membership program are highly engaged and most up to expand the purchase of our brand spending more person to extend than non-members. Growing the membership base of loyal fans through priority access to new products and limited editions is proving successful and remains the key focus for us in fiscal year 2024.
Our B2B business, which represented 76% of our revenue in the second quarter, achieved healthy revenue growth of 20% against the same period last year, supported by higher sell through rates. This growth came despite a challenging wholesale market. You have heard discussed by many of our peers. As a reminder, the second quarter is seasonally the highest B2B quarter due to selling for the spring and summer seasons.
We saw a continued shift towards closed-toe silhouettes, including clogs and premium products during the quarter. Closed-toe penetration was over 25%, up 900 basis points from the prior year period. The premium offering across our range continues to resonate with consumers, thriving ASP up double digits in the quarter. As an example of this, our big buckle line grew over 28% and sales of our new braided suede have almost doubled year-over-year.
During the quarter, two of our new premiums styles our new sandal, the Catalina and the closed-toe Lutry ranked in our top 20. While we have generated significant momentum and compelling top-line performance from our new styles, our momentum with our core series remains strong.
Revenue from our top five clogs seller, most of which have been around for close to 50 years, was up over 20% in the quarter. Highlighting the commercial relevance of these iconic models and most recognizable styles. Now let's move to our discussion of segment performance.
Within our largest segment, the Americas, strong consumer momentum and demand for our brand continued in the second quarter. Revenue in the region was up 21% compared to the same period a year ago. DTC channel growth continued to outpace B2B growth, increasing our DTC share by over 200 basis points. Notably, 46% of digital DTC sales, were styles other than sandals, as our brand trends continue to add business of products for different usage occasions.
Over half of our digital revenue was generated from members of our membership program, who on average spend 15% more than non-members. And while our DTC revenue -- by our strong digital presence revenue from our own retail [store] continues to grow above average. Our new flagship store in the Miami Design District has performed ahead of expectations, with average order value 13% higher than other store in the US, driven by strong penetration of our premium 1774 collection.
The second quarter was another strong one for the Americas B2B channel. Our key wholesale partners recognize the strength of the brand and appreciate the rapid turnover of our products. Accordingly, they have allocated more space to Birkenstock and increased purchases by over 30% compared to last year. Driven by expansion of categories like closed-toe silhouettes. New points of distribution, the Americas accounted for a single digit percentage of revenue with a heightened focus on specialty retailers, including sports, specific, running retailers where the benefit of our footprint as recoveries and sports is finding strong and use demand.
In Europe, we delivered exceptional broad-based growth in the second quarter of fiscal 2024, underpinned by strong consumer demand. While European retail market remained soft, business still continues to perform strongly up by 21%, far outpacing any other brand. We saw strength in both the DTC and B2B channels. The strong growth in Europe is directly related to the distribution transformation efforts we've made in the region designed to grow ASP were more strategic placements that drives more premium priced products.
We saw ASP increased double digits as demand for sales price at over [EUR100] grew by over 60% and reached over 50% of total sales. Closed-toe silhouettes grow by over 80% in the second quarter with some of our fastest-growing models like the Boston up over 100%. DTC growth outperformed B2B growth due to the continued strong online demand, led by over 100% growth in [France]. Online demand for closed-toe premium leather, big buckle and other premium products was up over 40% in the quarter.
Our membership program more than doubled in the quarter versus last year. And average order value was 25% higher than non-members. In B2B, we are increasing our shelf space and continue to be one of the top-performing brands for our wholesale partners in Europe. The spring summer, order book was the highest ever with double the order book for closed-toe from a year ago.
Key retailers are increasing their purchases and shifting their volumes towards earlier delivery dates and like the America. The majority of the growth is coming from existing distribution partners. It is indicative of the strength of our brands that are fully implemented spring summer 2024 price increases at no adverse impact on demand. And our full price realizations in Europe remains very strong. APMA was again fastest growing in the second quarter fiscal 2024. With revenue growth of 42%, driven almost equally by volume and ASP.
Growth in the region was largely driven by our DTC channel with the digital portion of the channel, nearly doubling compared to last year. In addition, we added five new own retail stores, including four in India and one in Japan. Bringing the total to 19, we also saw a healthy increase in B2B in the second quarter of fiscal 2024, which was driven by an expansion of our mono-brand partner stores with 11 newly opened stores.
Demand in APMA is broad-based and like other regions has been profited from closed-toe silhouettes, including clogs, which more than doubled compared to the year ago quarter.
I will now turn it over to Eric to discuss our financial results in more detail.

Erik Massmann

Thanks, Oliver, and good morning, everyone. We're very pleased with Birkenstock performance in the second quarter of fiscal 2024. For the broader consumer environment continues to be challenging, the health and strength of our brand are clearly reflected in our results. Birkenstock has become one of the few mascara brands in the wholesale channel to drive traffic to the stores and our DTC channels continue to grow as consumers become more intentional and their purchases. Now let's have a look into the details of second quarter results.
Second quarter fiscal 2024 revenue was EUR481 million, growing 23% versus prior year. We generated double-digit growth across all segments and channels, demonstrating the desirability and resilience of our brand. Again, our DTC performance was strong, up by 32% versus prior year, driving this DTC penetration up 200 basis points compared to last year. At the same time, we increased B2B revenue by 20%. Gross profit margin for second quarter fiscal 2024 was 56.3%, down [320] basis points compared to prior year.
Our ongoing capacity expansion, which will give us the bandwidth and the flexibility that will allow us to expand our footprint and underpenetrated segments and categories was the primary driver of the decline in gross profit margin, representing 220 basis points of the year-over-year decline. Margin was also impacted by the planned one-time government incentivized inflation related bonuses and wage increases for our production workforce implanted in the second quarter.
Selling and distribution expenditures were EUR113 million, representing 23.5% of revenue in the second quarter of fiscal 2024, up 220 basis points year-over-year due to increased DTC penetration and retail store investments.
G&A expenses were EUR20 million, down from EUR23 million in the prior year, despite incremental public company costs as the year ago quarter was impacted by one-time corporate event expenses and accruals that did not repeat this year. The [G&A] decline as a percentage of revenue by 180 basis points. Second quarter adjusted EBITDA of EUR162 million was the strongest in company history and up 7% versus the second quarter of fiscal 2023.
Adjusted EBITDA margin was 33.7%, down [470] basis points from the prior year, negatively impacted from the same temporary and one-time items we discussed in gross profit margin, as well as the additional cost of expanding our retail energy to see presence and incremental public company and administrative costs.
Adjusted net profit of EUR77 million was up 3% and adjusted EPS of EUR0.41, flat with a year ago due to higher [G&A], mainly related to capacity expansions and the IPO related share increase. Let's now have a closer look at our balance sheet. As of March 31, 2024, cash and cash equivalents EUR176 million as of March 31, up from EUR169 million at the end of the first quarter.
In the second quarter fiscal '24, inventory was EUR651 million or about 40% of revenue, down from [44%] in the year ago, second quarter. The seasonal increase in trade receivables, to EUR200 million is in line with our expectation given them our sizable Q2 wholesale shipments. With generate payment terms in the range of net 30 to 60 days monetization will largely be recognized in the next quarter, we will continue to deliver using cash generated from operations. Our net leverage was 2.6x earlier this week, we announced the refinancing of our loans and credit facilities, including the early paydown of approximately USD50 million of loans.
We continue to invest our future growth, capital expenditure, total EUR17 million in the second quarter, bringing the total amount invested year-to-date EUR35 million mainly related to our production capacity expansion and new store openings.
With that, I'll hand over back to Oliver.

Oliver Reichert

Thanks, Eric. And let me summarize our discussion the exceptional result during the first half of fiscal 2024 demonstrate the resilience of our business and our ability to achieve strong double digit revenue growth. We are executing on our proven engineered distribution strategy drive both volume and ASP growth and meet the growing consumer demand for our products. Both classics and new.
Emerging products and across all segments and channels. We continue to significantly outpace our peers in Americas and Europe, with strong growth momentum in our DTC footprint and increasing demand from our loyal and steady B2B partners.
At the same time, we are entering the next chapter of our growth trajectory as we tap into our largest white space market the APMA region. Increasing brand awareness and taking market share, while following our playbook of disciplined engineered distribution to support ASP. Given the strong first half and the continued strong growth in demand, we are seeing -- we are raising our guidance for fiscal 2024. We now forecast total revenue of EUR1.77 billion to 1.78 billion equals 20% constant currency growth.
In line with the compound annual growth we have achieved over the past decade demonstrating the sustainability of our strong growth trends. We expect adjusted EBITDA our margin of 30% to 30.5% and adjusted EBITDA of EUR535 million to EUR545 million. We remain fully committed to our medium and long-term targets of mid to high 10s revenue growth revenue growth, gross profit margin around 60% and Adjusted EBITDA our margin over 30%.
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.

Question and Answer Session

Operator

(Operator Instructions) Matthew Boss, JPMorgan.

Matthew Boss

So, Oliver, could you elaborate on the brands, continued global momentum and have you seen any change in business so far in the third quarter relative to the high teens embedded second-half outlook? And then just from a cost perspective, what is supporting the raise to your full year EBITDA margin outlook relative to three months ago?

Oliver Reichert

Okay. Thank you for your question, Matt. We're seeing nothing in the current trading that would cause us to be more cautious on revenue growth in the second half of the year, as you know, we don't guide quarter-to-quarter only for the full year and long term and we are very comfortable with our forecasted revenue growth of around 20% for '24 on the constant currency by the way, which is consistent with our 10-year track record, as you know from our IPO roadshows quarters can fluctuate shipments can shift, but there can be some noise from quarter-to-quarter.
Also, the second-half is more DTC heavy. We have less visibility in the channel and then we do in the B2B channel where we have excellent order book visibility We continue to hear about as you put it so perfectly met -- selective recession. So we are approaching our outlook for especially DTC with that in mind.
Also, as you can see from our results, we are not seeing any current impact from that. And now like the margin question of -- part of the question is, we are very pleased with our current outlook on margin, particularly given the investments we've made to support the growth in and positive Arouca and Pasewalk.
The main driver of the improved margin outlook is stronger revenue growth driving better fixed cost leverage and utilization. So halfway through the year, we are very comfortable we can hit that 30% to 30.5% range.

Matthew Boss

Great color and best of luck.

Oliver Reichert

Thank you.

Operator

Randal Konik, Jefferies.

Randal Konik

Yeah, thanks and good morning, everybody. I guess, Eric, maybe for you. I want to just unpack gross margin a little bit and maybe kind of give us some perspective on additional drivers in the quarter and then looking ahead how we should be thinking about the various fluctuations around gross margins in coming quarters, give us some perspective there. Thanks guys.

Erik Massmann

Hi, Randy. Thanks, Yeah its Eric. So overall, I have to say that the gross margin will always vary from quarter-to-quarter due to the shift in channels and mix of business, so high B2B revenue as we saw in Q2, now leads to lower ASP and therefore lower gross margin and obviously other way around with higher DTC share.
On the other side, high B2B share does lead to lower selling distribution costs. So that's always a balance and that's why we don't give guidance and quarterly margins. It can always shift a bit on timing of orders and shipments.
So we only look -- I mainly look at margins on the annual basis and I feel very comfortable with our mid to long-term guidance of around [6%] gross margin and then EBITDA margin of 30%-plus. So in terms of the year-over-year decline, that was discussed '24, certainly the transition year as we did significant investments into our production to support the demand we see and long-term growth. So this will temporarily be diluted and will continue until we reach greater utilization. But be aware and reminded we are exercising discipline in our distribution and control closely our growth to avoid the dilution of brand equity. So both reasons obviously lead to the margin we see this year and long term. As said, the guidance of around [60%] gross margin EBITDA of 30%-plus. We feel very comfortable.

Operator

Dana Telsey, Telsey Group.

Dana Telsey

Hi, good morning, everyone, and nice to see the progress. Two things on the retail store performance, anything different that you're seeing by region, is there and the new locations that you're going to, whether the store size and how you're thinking of the contribution to DTC of retail sales? And lastly the category expansions that you're doing any updates given the closed-toe performance of getting into some of those other occupational uses that your footwear can be used for. Thank you.

Mehdi Bouyakhf

Hey, Dana, this is Nico. Thanks a lot for asking the question. I'm going to cover the retail part of your question and then Oliver's going to take over with the closed-toe part of the question. So first of all, we are very pleased to be able to share with you that we are well on track with our global retail expansion. In Q2, we opened six new stores from last year’s Q2 we opened 13 new stores amongst others, Miami. As you know, in the design district Tokyo two stores and Mumbai, also a new store. Every store that we open is performing currently above planned. That's very, very pleasant to see and that's also a testament of the great magnetism that we have as a brand when we open a store.
Every store basically our average payback on CapEx is 12 to 18-months. So that shows you is not a big investment case that we're having here. It's really something that adds to our top line and that adds also to our profitability. What we do see in our stores as well is that we have an over indexed growth of premium priced products and an over indexed growth of closed-toe. So wherever we open a physical connection to our consumers, those categories will benefit, for the remainder of this fiscal year. We plan to open a similar amount of new stores in cities such as Paris, in cities such as Shanghai, so again, we are very confident with the outlook on our store expansion plan.

Oliver Reichert

So I'm taking the closed-toe part of your question, Dana. It's the last quarter was predominantly a sell through quarter and it was winter. So we saw more demand for the closed-toe silhouettes. It was over 50% of the sales were coming from closed-toe silhouettes.
So the growth in this segment was compared to last year, first two quarters, 77%. So there you can really see this is a rocket, oaky. So the closed-toe shoe segment which we a few months ago when we prior IPO, we talked about it as a wide space opportunity and now you see compared to the last year -- first half of the year, we grow by 77%. So that's really massive.
The second quarter is a big B2B selling quarter for our spring summer season. So naturally, we will see more open toe silhouettes in this -- that mix in the second quarter. And the key here is that we are now a full year non seasonal brand with strength and closed-toe including clogs and sneakers and sandals. ASP increases through closed-toe as you know and it opens up new usage occasions. Our non-sandals sell through was over 40% in the quarter, which is super strong. Okay.

Dana Telsey

Great. Thank you very much.

Oliver Reichert

Thank you, Dana.

Operator

Sam Poser, Williams Trading.

Sam Poser

Thank you for taking my questions. Good morning. I have two number one. Can you talk a little bit about this -- how help the sandal business inflected more since the end of the quarter? And then secondly, not related following up on the gross margin question, how long will it take for the new production facilities to be optimized so you don't have -- so they are no longer a drag on the margins, the way that [200], like -- 220 basis points go away and be offset by the productivity of those factories and the sales that relate to them?

Alexander Hoff

Thanks for the question. This is Alexander and I will take the first margin piece actually what we communicated through the IPO at referring to Eric segment clearly '24 the transitionary year, we took the strategic decision to go with further capacity to meet future demand.
We also indicated that we see in '25, a better absorption. But '24 is one year where we will bring over volumes from [guards] pass the valid mainly (technical difficulty) only factory out of our expansion program with Portugal, which is a completely new factory where we would bring in initially under absorption overhead and so on. So that way will be the heaviest impact in '24, we expect '25 onwards to see a better absorption and better impact on the margin side.

David Kahan

This is Dave, Sam. Thanks for the question. Just a little color on the breakdown with the sandal business, the momentum in sandals has been incredibly strong, both DTC and it wholesale. As a matter of fact, what we're seeing in our core sandal business is not only strong sell throughs but a transition in penetration leather versus synthetic. Leather sandals are trending about 68% above last year while synthetic is 22%. So we're not only seeing the consumers still choose our icons across all the different styles we're seeing them trade up to more premium versions.

Sam Poser

Thank you very much.

Operator

Simeon Siegel, BMO.

Simeon Siegel

Great. Thanks. Hey, everyone really, really nice job guys. Hope you're all doing well. Oliver or David or Nico, maybe all of you. Just the increased strength you're seeing with those key retailers you talked about in prepared remarks, the earlier visibility, it's really all great to see. Can you speak to any changes you're seeing in maybe your discussions with them about the assortment that they're asking for versus your ability to suggest what they should take?
I guess I'm just wondering as you continue to innovate your products, do you think you're getting more stronger trust and ability to suggest to them as opposed to them specifically asking for maybe more limited SKUs that have been your euro products historically? Thank you.

David Kahan

Simeon, great question. This is David. As we've said before, 95% of our growth is coming from existing retail partners. So clearly the demand is there to expand not only deeper inventory but also the spread of products, as we've said, we allocate everything, every style, every quantity by door, even in people that have chains with, you know, hundreds of doors, everything is allocated to the door levels, so the assortments are really vendor managed. What we're seeing is the momentum in closed. So in non-sandal products is incredibly strong.
So not only are they doubling down on the sandal business, but they're also supporting all of the non-sandal categories. As reference we know that the overall wholesale market might be described as being a little choppy. Our sell through and this is sell through not sell in was up over 30% in the quarter. So obviously there's a lot of demand to expand our products and if you've been out at retail, as I know, many of you have, you're seeing some of the incredibly strong statements at retail like our 250 year anniversary brought to life in many of the major retail partners.

Simeon Siegel

That's great. And then just David, to your point about the synthetics, are you seeing, I don't know if you guys have done, I've updated the [3.6] survey, but are you seeing greater frequency of shop like are you seeing anything different with the synthetic option versus how people shopped your product before?

David Kahan

I would say not at all except a lot of our consumers seem to be trading up to leather, almost as an investment type item. I would say in a lot of our consumers closet, a pair of Birkenstock might be the most expensive footwear item they have compared to some of the sneakers, and choosing a leather Birkenstock. It's not an either or with synthetic because synthetic is also up, I just think that the response to the leather products as people invest has been the penetration of leather is growing, synthetic is growing also. So it's not either or, it's just reaching more consumers I believe.

Operator

Mark Altschwager, Baird

Mark Altschwager

Thank you. Congrats on the progress and results here. First, just with Q3 being a bigger DTC quarter, wondering if you can share any color on the momentum you're seeing this spring relative to Q2. And then separately, you mentioned with the spring price increases. You didn't see any impact on demand? Could you speak to how you're thinking about like-for-like price increases in future seasons to offset some of the inflationary cost pressures? Thank you.

Mehdi Bouyakhf

Hey, Mark, this is Nico speaking. Thank you for the question. So the first part of your question was to get a bit more color on the DTC performance in the current trading of Q3. So we see a continued strong demand in traffic in our own stores. The new stores are performing really well, as I said so, there is definitely excitement around our physical touch point for brand online as well. So we see an increased traffic across the board to all the regions, yet we do have the big month still to come. So June, July and also August, our big DTC month and we're just very -- we are confident, but we are also looking at those months to come in, in the next couple of weeks.
The second question was on pricing. So to give a bit more color on the European pricing adjustments we had in spring, summer '24, two categories in mind for price executions, one was textile, a big part of the business. We elevated the prices by 20% RRP and then we also touched Boston again with 15% [ROP] increase. Both of them were not -- were well accepted by the consumer. So there was no sort of negative, no signs of rejection, negative effect on ourselves through.
We look at pricing as a strategic measure in the future. So every season we go to the entire line and look at every model to see what's the input cost and how do we have to adjust pricing given inflation, but also what's our brand equity where we can ask for an increased price that's how we approach pricing in the future.

Alexander Hoff

Mark Alexander, just to add on the inflation piece and how it's impacting margin that alone Q2, you saw it 100 basis points, net inflation impact going forward. If I look into third and fourth quarter, but also '25, what we currently see is labor with single digit going down then in '25 raw materials, low single digit percentage. So it's definitely the clear goal that we will offset any kind of inflation on [COGS] and selling distribution expense.

Mark Altschwager

Excellent color. Thank you.

Operator

Sharon Zackfia, William Blair.

Sharon Zackfia

Hi, thanks for taking the question. I'm curious just given the strength that you continue to see in the US and as you've been opening more stores, are you seeing any kind of changes in the demographic of the customers in the US, whether you look at kind of income levels, gender region, or ages? And I'd also be similar we'd be interested in a similar answer for Europe, given the transformation efforts that you've had in that region. Thanks.

David Kahan

Yeah. Thanks for the question, Sharon. This is David. I think you have to just kind of wrap your arms around the fact that this brand has the broadest demographic of any brand on the face of the Earth. When we talk about our addressable market, it really is quite frankly everybody. We're just reaching new consumers everywhere we look we're reaching athletes right now. When they recover from sports, finding the benefits of the footbed, we're seeing a significant growth right now in the youth market, who's basically maybe a little bit tired with athletic footwear over the last couple of seasons and has added Birkenstock to their closet and just remember in a lot of those chains that have been predominantly athletic footwear driven, a pair of Birkenstock is in incremental purchase in those stores. So those stores are very keen to add something like Birkenstock to their assortments.
So I would say we're growing across all demographics most quickly, probably the youth and more sport oriented consumer, but it's been very, very broad and the growth has been just as strong in some of our old time, heritage brown shoe comfort stores that go back to the early 1970s.

Mehdi Bouyakhf

Thank you, David. And also Sharon, thank you for your question. I would definitely echo David's point. The beauty of us is you don't lose all the customers while you win new customers and younger customers that's what we see also in Europe, we do see broader base growth among younger audiences that find us for many reasons, 1774, the Boston some great [PR] executions in Europe. But what happens is they stay with us and they stay with us until the very end. So you don't lose that. All the customer while you win the younger -- customer audience.

David Kahan

And you can see some of it also in our membership program growth -- our membership program growth by 40%. So that's another sign or signal to see, okay, how [vivid] this brand is and how the more we collect the broader the fan base will be no matter age groups, races, social demographic it's all in one basket 70%, 80% of our collection is unisex, so we are the perfect brand to welcome them all and give them access to the footbed and once they are in the footbed, they come back.

Operator

Erwan Rambourg, HSBC.

Erwan Rambourg

Hi there I hope you can hear me okay. I just wanted to congratulate you on the quarter and the upgrade for the guidance. Two follow-ups one on the Asian potential major for the Klaus or Oliver, it seems that the consumer is under pressure in China for most, consumer companies, but it's probably not the case for you.
I'm wondering if this is a good time to find prime locations at preferential costs and to build awareness. Do you have a capacity issue in terms of shipping to Asia and particularly China? And maybe can you remind us what the setup is there in terms of working with the partner or going direct?
And then maybe secondly, if you could talk about ASPs, I think David was quite clear on, consumers upgrading to leather, you've put through quite a few price increases. If I look at the 23% growth in the quarter I remember you gave a reference point at the time of the IPO saying that the average pair was retailing at about $90 at the time. Where would we be? On that metric today, and if you can maybe split the 23% growth between volume mix increases and price increases, that would be super useful. Thank you.

Oliver Reichert

So I'm taking this first part of your one question. Thank you for the question. Why is he chosen so? Overall the APMA region is from a geographic point of view. One of our biggest white space opportunities of course. And as you see numbers, will grow there by 42%, so that's quite a massive growth and compared to a lot of other brands cooling down in this environment, we are very encouraged and please keep in mind that this 42% growth is coming with a full, disciplined and highly engineered distribution model where we don't flood the market and we don't over push its always in the pull mode we allocate the products and Klaus. Who's responsible for the region will give you more in detail about our distribution strategy there and how we execute the engine distribution in this segment. Klaus?

Klaus Baumann

Erwan, Klaus here. Thank you for your question. First of all, I want to point out that obviously we are aware of the problems in China and what's going on. I mean, we there in the markets in the long time. This whole story you're doing is an APMA story, so we are not only depending on China and what we learn in expanding, I mean the strategy following our learnings from the [EU] and in the US. So it's a qualitative distribution and it's a mixed model. So obviously we are going with the DTC focus.
But we also are signing in a partner to balance out also the size of the territories. So this is -- talking about allocation, I mean we have prepared that field way before as we also talked in the roadshow a lot. But now the allocation situation has so much improved that the underdeveloped markets are like positively affected from that and there's no problem on that right now.

Erwan Rambourg

All right. Thank you.

Oliver Reichert

And then I just wrapped the ASP part of your question, which was the fourth part of your question. As you know, we don't give any quarterly guidance. But as I said in [math] response, we aren't seeing any significant changes in the trend. We are really pleased by current trend. But we still have a pipe in more important months ahead of us that are heavy DTC, where we have less visibility and that's we're about halfway through fiscal Q3 and despite the volatile market environment we are having so much about a lot of rumors around, of course. We're not seeing anything that would give us a pause. And I would say, David, from your perspective, you may add something here because ASP is really growing I mean.

David Kahan

One interesting point on ASP and it's a good way to look at it is, speaking for the US, according to the economic reports from the FDRA retail prices on footwear are basically up 0.3%. Our ASP is up [6%], so it's a multiple of what's going on in the market. Part of it is mix and part of it is price. But obviously, when you're selling through product at virtually full price, 90% plus full price realization, that's where you get the benefit of the ASP because the consumers realize the equity of your brand and they're willing to pay the price and I think we're proving that right now in this environment.

Erwan Rambourg

Super useful. Thank you.

Operator

Adrien Duverger, Goldman Sachs.

Adrien Duverger

Hey, good morning. Thank you very much for taking my question. I was wondering if you could comment a little bit on the performance of the new product categories and the new products. I'm thinking maybe of some of the sneakers you released and some of the boots and also what would be the impact on ASP from these new releases? Thank you very much.

David Kahan

So I think you can imagine, it's a very big push in ASP and this closed-toe shoe segment, we talked about the massive growth rates there. And as you know like ASP right now is like 50% coming from a product mix and 50% is coming from a channel mix. So the product is a key driver for the ASP at the moment, especially in the first half of the year. Again, just keep this in mind the winter season like the first two quarters are more affected by this. So shoe sequence in the ASP.
But yeah, we're very proud about this growth here because it was pretty strong.

Adrien Duverger

Thank you very much.

Operator

Paul Lejuez, Citibank.

Paul Lejuez

Hey, thank you. Can you just go back to the pass lock facility, how ramped up, is that facility today and what capacity is it producing? And I'm curious if you could talk about the performance and efficiency relative to your plan and where you expect to be by the end of the year?
Also, I think at one point you said that facility could increase your volumes by 50%. Let me know if I'm remembering that correctly and any update there. And then just last, can you frame the size of some of your larger countries in the ATMA region? Thanks guys.

Oliver Reichert

So I'm taking the first part like the puzzle right, the new factory which is like Arouca Portugal and [Pasewalk]. We're super happy with the setup in Pasewalk at the moment. As you know, we will definitely grow the pairs in a very. Let's say I would say in English in a very disciplined way. Moving forward we told you that overall we will develop like [10] unit growth every year and that's what we're executing. So we're happy with the status and Pasewalk.
We hired most of the people there already, which is the most important thing for us to get access to the workforce, which is super strong at the moment we're constantly improving and developing and further developing the footprint also in our preproduction segment in Portugal, which is Arouca Which will help us to be much more flexible than in the past and it's the same thing for Pasewalk, you know, focusing on the Eva portion of the business, focusing on the [PO] portion of the business coming from Pasewalk, but also making sure that we have the maximum flexibility within this new factory to make sure we can develop and further support our global growth and that's something where we really for the big, big effort in.
And as you know from our outperformance and the rising, the guidance you may expect like shorten the timeline of the return on invest curve which will definitely be the case, you know during the roadshow we talked about return of invest in '26 or normalized margin level, let's say and this will be shortened now because the performance is much better than expected.

Operator

Michael Binetti, Evercore.

Jesalyn Wong

Hi this is Jesalyn Wong on behalf of Michael Benetti. Thanks for taking our questions here. So, Oliver, on the top five classic silhouettes, they were up over 20% in the quarter. Can we talk about how trends were from here and how to sustain that kind of (inaudible) ? And maybe for Eric or David, in Americas, total DTC is now 29% of penetration. So this quarter, wholesale B2B selling revenues grew roughly about 16% year-on-year, but sell through the strategic accounts is really high at 33% there, is that driven by [broke] exiting non-strategic accounts. And will we see the selling catch up to the sell through in the third quarter and the fourth quarter? And just curious what was selling to strategic accounts relative to the 33% seller that the company cited? Thank you.

Oliver Reichert

Guys, I'm taking the first part of your question, thank you for your question. As you know, we are universal, purpose driven, brand never goes out of fashion. We are beyond fashion. I think the biggest proof point here is that revenue from our five classic silhouettes which make up roughly 75% of the business.
Grew by over 20%, as you said in the quarter and ASP was up over 10%. So if you see these are the core portion of the business and its growth 20% and even in the ASP we grow by 10%. This is, I would say this is a message to the market that we are growing everywhere, okay, and really above the average.
I think it says a lot about the fashion risk within the company and what we learned is that our icon still have lots of growth potential as we continue to innovate and add to these heroes, models with new features like premium leather, big buckles, the shilling and you know, some of the other models as well. They maintain their relevance on the long term. okay, so this is really what we're doing within our product teams. We create a trend within the brand constantly.
And while we see the continued growth in our long time core icons, new product introductions have been incredibly strong. Don't forget this, whenever we bring something to the daylight, it's super strong and sell through -- it's super strong and sell out as sneakers were up 31% over the last year and new stars like the Catalina and Lutri ranked now in our top 20 style this quarter. So this is something that's really encouraging and it shows that we have the right connection to the market and it's not fashion driven. It's coming from a 250 year old purpose driven brand and that is the magic source we are executing in the market.

Mehdi Bouyakhf

Jesalyn, I'm going to take the second part of your question. This is Nico. I think we have to differentiate between sell in and sell through. So what you see now as a sell through in our B2B partners is a sell in of previous quarters, so that gives you the perspective on those two numbers. We -- as, we have done a big transformation and B2B in Europe. So we exited many partners globally. Distribution is a living document. So you'll definitely see here and there some terminations going on. It's a normal effect. But we don't sort of consider a big termination wave ahead of us with B2B, however, we manage our B2B partners very tightly. So you understand that we allocate the product you understand that we achieve full price realization that is superior to any other brand out there and we also understand that we leverage our partners with them having a specific role in the marketplace.
We reach validation, good authentication of our product, that's what they have to do for us and that goes beyond being transactional and that's how we look at B2B.

Operator

Jim Duffy, Stifel.

Jim Duffy

Well, thank you. Thanks for squeezing me in. My question builds on some of the comments in your last response. We're very pleased to see the strong uptake of closed-toe and non-sandals. I'm curious, can you speak to the gender mix contribution to the closed-toe adoption and maybe highlight some of the specific styles beyond the Boston that are contributing to that strength.

David Kahan

Hey, Jim, this is David. Yeah, the Boston certainly has led the way, but what we find is just like when the Arizona opened up the sandal category to other styles like the Gizeh and the Mayari, the Boston is doing the same thing in clogs. We introduced a style called the Lutri that's outselling any expectation we could have possibly had for that category. Other styles like the Tokyo, the Naples, it's like, Nico said.
Anytime we introduce a new style and we bring it, you know, we give it a little oxygen, it really starts to exceed all expectations, sell through on our sneakers. Speaking for the US, sell through was 31% higher. And what's most interesting is when we talk about like white space categories, you can almost look at men as one big white space that we don't really identify yet. But our men's business is up 45% at retail, sell through versus a year ago in a market that again is basically flat.
So any category, any gender, any segment that we give a little bit more oxygen to with discipline, we start to see the results and the benefits.

Jim Duffy

Thank you.

Operator

Thank you. And this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.