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Investing.com -- Fitch Ratings has upgraded Birkenstock (NYSE:BIRK) Holding plc’s Long-Term Issuer Default Rating to ’BB+’ from ’BB’ with a Stable Outlook, the rating agency announced Wednesday.
The upgrade reflects Birkenstock’s specialist market positioning, which enables strong profitability, free cash flow generation and deleveraging capacity. The company has demonstrated adherence to a conservative financial policy, which anchors the rating and Stable Outlook.
Birkenstock achieved significant deleveraging in fiscal year 2024, with EBITDA gross leverage reducing to below 2x following debt repayments in FY23-FY24, including from the cash proceeds of a €449 million IPO. Fitch projects EBITDA gross leverage will average about 1.5x over FY25-FY27, creating healthy rating headroom.
The rating agency expects Birkenstock’s revenue to grow by mid-teens in FY25, assuming some deceleration from the 19% sales growth reported for the first half of the year, with moderation towards high single digits over FY26-28.
Fitch noted that potentially slower revenue growth in the U.S. due to lower sales volumes following the introduction of trade tariffs will likely be offset by continuing strong sales growth in other geographies, including Asia where the group is expanding.
The company’s business model, with a strong brand proposition allowing pricing power and high vertical integration, should maintain the Fitch-calculated EBITDA margin at 28%-29% over FY25-FY28. Reduced debt and lower interest charges, combined with projected capital expenditure at 4.5% of revenue, means Fitch expects Birkenstock’s free cash flow margin to remain in the high single digits to low teens.
Despite these strengths, the rating remains constrained by the company’s size, limited but growing diversification, and exposure to consumer spending, as well as adherence to financial policies under private equity ownership.
Birkenstock’s credit profile is comparable with Levi Strauss & Co . (NYSE:LEVI), with both companies having high concentration on one brand. The one-notch rating differential with Levi Strauss (BBB-/Stable) is mainly due to Levi’s much greater scale and diversification by product.
Fitch does not anticipate an upgrade for Birkenstock in the medium term. A future upgrade would require the company to maintain its successful commercial strategy leading to EBITDA growth towards $1 billion, along with increased financial policy clarity that supports consistent free cash flow margins in the high-single digits and EBITDA gross leverage trending towards 1x.
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