Birkenstock Holding PLC saw its debt ratings upgraded by S&P Global Ratings due to strong sales, improved profit margins, and expectations for continued balance-sheet deleveraging.
S&P noted that Birkenstock, in its fiscal year ended September 30, delivered revenue growth of 18 percent on a constant currency basis and an improvement of 190 basis points (bps) in terms of S&P Global Ratings-adjusted EBITDA margin. Revenue growth was broad-based across channels, product categories, and geographies, with all regions showing strong growth. According to S&P’s calculations, the company posted S&P Global Ratings-adjusted debt-to-EBITDA of 2.1x in fiscal 2025, down from 2.6x in fiscal 2024.
Under S&P’s revised base case, it expects Birkenstock to maintain adjusted debt to EBITDA of about 2.0x-2.1x in fiscal 2026 (broadly in line with the previous year) and to reduce it below 2.0x starting from 2027. The expected deleveraging is mainly driven by a higher EBITDA base and strong cash flow conversion, despite higher annual capital expenditure (capex) and possible share buybacks.
S&P raised its long-term issuer credit rating on Birkenstock to ‘BB+’ from ‘BB’. At the same time, the issue rating on the existing €428.5 million senior unsecured notes issued by Birkenstock Financing S.a.r.l. due 2029 was raised to ‘BB’ from ‘B+’ with the recovery rating at ‘5’.
The stable outlook indicates S&P’s view that the company will maintain a strong operating performance, with adjusted debt at around 2x in 2026 and below 2x in the following year, supported by a prudent capital allocation focusing on ongoing strengthening of the group’s balance sheet.
S&P said in its analysis, “Under our base-case scenario, we expect S&P Global Ratings-adjusted debt of about 2x at the end of fiscal 2026 and below 2x during the following year, supported by brand equity and a disciplined approach to capital allocation. For fiscal 2026 (ending Sept. 30, 2026), we expect total reported revenue to be close to €2.3 billion and to approach €2.5 billion in fiscal 2027, representing reported growth of about 11 percent-12 percent in 2026 and 10 percent-11 percent in 2027. We believe the business-to-business (B2B) segment (accounting for about 62 percent of total business) will continue to outpace the direct-to-consumer (D2C) segment, driven by expanded product offerings with existing wholesale partners and further penetration into new distribution channels. This is fueled by an emerging youth customer base that prefers multi-brand physical shopping.
“Revenue expansion should translate into an S&P Global Ratings-adjusted EBITDA margin of 28 percent-29 percent in 2026 (negatively impacted by foreign exchange headwinds and U.S. tariffs) and moderately improving the following year, demonstrating the company’s operational efficiency and a focus on full-price realization and improved product and distribution mix, despite external headwinds including foreign exchange volatility (primarily linked to a weaker U.S. dollar). Annual free operating cash flow (FOCF) before leases is expected to reach €165 million-€185 million in 2026 and strengthen further to €280 million-€300 million in 2027, providing the company with financial flexibility to continue investing in its business (especially in capacity expansion and the D2C channel), manage its debt profile (including possible early debt repayments), while financing the share buyback program.
“During fiscal 2025, Birkenstock spent about €175 million in share buybacks, while for 2026 it plans to repurchase about $200 million. Under our base-case scenario, we expect share buybacks to continue over the medium term (for annual estimated consideration of €150 million-€180 million), subject to market conditions. We anticipate S&P Global Ratings-adjusted leverage will remain around 2.0x in 2026, gradually improving in the 1.5x-2.0x range in 2027, indicating an expectation of continuous prudent capital allocation to support the company’s deleveraging trajectory. The company’s recent announcement related to preliminary first quarter of fiscal 2026 performance, with expectation of strong revenue growth of 17.8 percent year-on-year at constant currency (11.1 percent on a reported basis), further reinforces this view.
“The company has a supportive track record of sound operating performance and fiscal 2025 results were ahead of our expectation. In the two fiscal years since its IPO, Birkenstock posted an annualized compound annual growth rate (CAGR) of about 20 percent in sales on a constant currency basis, improving its S&P Global Ratings-adjusted EBITDA margin and cash flow generation. At the same time, the group managed to reduce its net leverage (according to the company’s calculations) to around 1.5x at year-end 2025, down from 1.8x during 2024 and 3.3x before the IPO. For fiscal 2025, revenue reached €2.1 billion, a robust 16.2 percent increase on a reported basis, driven by both organic like-for-like growth and strategic retail channel expansion, bringing the total number of own retail stores to 97 at the end of fiscal 2025.
“Notably, the B2B channel contributed 62 percent to revenue, highlighting the strength of Birkenstock’s wholesale relationships, while the D2C channel represented 38 percent of revenue (up from 30 percent in 2020), reflecting the growing importance of the company’s own retail and online presence. The growth was balanced with supportive volume trends (about 12 percent unit growth) combined with a selective price increase, with a 5 percent constant currency growth in average selling price. This revenue outperformance translated into an S&P Global Ratings-adjusted EBITDA close to €645 million, better than originally anticipated, representing an adjusted EBITDA margin above 30 percent. These results provide a solid foundation for continued operational performance and reinforce our confidence in management’s ability to execute and deliver in line with the company’s guidance.
“The company’s forward-looking guidance targets a revenue CAGR of 13 percent to 15 percent in constant currency for the three-fiscal-year period ending Sept. 30, 2028. At year-end 2025, the company’s S&P Global Ratings-adjusted debt to EBITDA was close to 2.1x. The S&P Global Ratings-adjusted debt stood at €1.34 billion. Our adjusted debt calculation includes about €1.15 billion financial debt (including senior secured term loans, a subordinated shareholder loan, and senior notes maturing in 2029), about €190 million lease liabilities, and about €355 million adjustment related to the company’s tax receivable agreement. Based on the company’s prudent financial policy with a track record of earlier voluntary debt repayment, clear deleveraging commitment, good headroom in terms of liquidity profile, and general good governance practices in line with a publicly listed company, we net the accessible cash on the balance sheet (about €330 million as of fiscal year-end 2025) in our adjusted debt calculation.
“Birkenstock’s key strategic priorities include ongoing product and distribution diversification, manufacturing capacity expansion, and increasing earnings contribution coming from the Asia-Pacific region (accounting for 11 percent of sales in 2025). While the widely recognized sandal remains one of the core product offerings, the company is pursuing its portfolio diversification to include a broader range of footwear styles, including closed-toed shoes, including sneakers and boots. This allows the company to cater to a wider consumer base and mitigates reliance on a single product category, while at the same time reducing revenue seasonality. As of year-end 2025, closed-toed shoes represented 38 percent of total reported sales (from 27 percent in 2023), increasing at a CAGR of over 40 percent from 2022 to 2025. The company is also committed to further strengthening its D2C channel (accounting for slightly less than 40 percent of sales), enhancing the online shopping experience, and expanding its physical retail network (with a target of 150 stores by 2027 from 97 in 2025). At the same time, we expect the company to increase its capex to reinforce its manufacturing capacity in Germany and Portugal to support expected volume growth. The company maintains strict control over its supply chain through direct and long-term partnerships with key suppliers, in-house production (about 95 percent of products are assembled in Germany), and sourcing proximity, with the vast majority of raw materials coming from Europe. In terms of geographic expansion, Birkenstock targets doubling the Asia-Pacific business by 2028, mainly focusing on the D2C channel, which will foster a superior experience and promote the building of a community through social engagement and increased brand awareness. Including partner stores, Birkenstock is expected to expand its regional footprint to more than 400 stores by the end of the 2028 fiscal year, compared with 245 in 2025.
“The stable outlook reflects our expectation that Birkenstock will continue its deleveraging path in line with its stated conservative financial policy and will generate healthy and recurring positive FOCF. Under our base case, we expect ongoing sound operating performance that will allow the group to improve S&P Global Ratings-adjusted debt to EBITDA below 2x sustainably.”
Image courtesy Birkenstock
