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On Thursday, Evercore ISI, a renowned investment research firm, issued a stark warning regarding the potential impact of current tariff plans on the earnings before interest and taxes (EBIT) of sportswear companies Nike (NYSE:NKE) and On. The analysts at Evercore highlighted that without any mitigating actions, the tariffs could completely obliterate On’s EBIT by 2026 and would significantly impair 80% of Nike’s EBIT in the fiscal year 2027. The firm contrasted these projections with those for Birkenstock (NYSE:BIRK), which they estimate would see only an 8% reduction in FY26 EBIT under the same tariff regime. According to InvestingPro data, Birkenstock maintains strong fundamentals with a healthy gross profit margin of 58.7% and robust revenue growth of 20.5% in the last twelve months, suggesting better resilience to potential tariff impacts.
The analysts elaborated on the severity of the situation, suggesting that the sportswear giants would face nearly insurmountable challenges in maintaining profitability within the United States if the tariffs were implemented as planned. They pointed out that even if Nike and On attempted to mitigate the effects by relocating to lower-tariff jurisdictions, adjusting pricing strategies, or negotiating deals with the assistance of industry groups or the Trump administration, it would be a daunting task. These strategies could take two years or more to implement and come with considerable uncertainty, especially given recent consumer sentiment and unknown price elasticity effects. Birkenstock’s strong financial position, with a current ratio of 2.84 and moderate debt-to-equity ratio of 0.51, could provide it with more flexibility in navigating these challenges.
Evercore’s analysis comes as a stark reminder of the fragility of profitability in the face of trade policy changes. The firm’s use of this "stylized example" is to underscore the potential severity of the tariff plan’s impact on these companies. The research does not predict the complete erosion of EBIT for Nike or On but uses the scenario to emphasize the significant risks posed by the proposed tariff measures. InvestingPro analysis reveals several positive indicators for Birkenstock, including impressive gross profit margins and strong liquidity position. Subscribers can access 8 additional ProTips and comprehensive financial metrics in the Pro Research Report.
The report has implications for investors and stakeholders in the sportswear industry, as it highlights the potential for significant financial strain on companies with high exposure to sourcing costs affected by tariffs. While the analysis is hypothetical, it serves as a cautionary tale for companies operating in industries vulnerable to policy shifts.
Evercore’s findings are a sobering reminder of the potential consequences of trade policies on corporate earnings. The firm’s analysis is likely to be closely reviewed by industry players and market watchers alike as they assess the resilience of their business models against such policy-induced headwinds.
In other recent news, Birkenstock Holding plc reported its Q1 FY2025 earnings, surpassing analysts’ expectations with earnings per share (EPS) of €0.18, compared to the forecast of €0.16. The company also exceeded revenue projections, reporting €362 million against the anticipated €355.39 million, marking a 19% year-over-year increase. The wholesale division led this growth with a notable 30% increase, while the direct-to-consumer segment saw a 10% rise. Despite the positive earnings, Birkenstock maintained its full-year revenue growth guidance of 15-17%.
Analyst firms have shown varying confidence in Birkenstock’s performance. BMO Capital Markets maintained an Outperform rating with a price target of $70, citing strong revenue growth and robust margins. In contrast, Bernstein SocGen Group held a Market Perform rating with a $57 target, noting the company’s cautious approach in reaffirming its annual guidance despite exceeding first-quarter expectations. Birkenstock’s management anticipates balanced growth between its direct-to-consumer and business-to-business channels, with plans to expand its store count to nearly 100 by the end of the fiscal year.
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