Q4 2024 Birkenstock Holding PLC Earnings Call

Oliver Reichert

Good morning everybody and thank you for joining today’s call. We are proud to report a very strong fiscal 2024 result which came in ahead of our expectations. We are delivering on the commitments we made during our IPO by expanding profitably into the wide space opportunities we identified. Underpenetrated product categories such as (inaudible) silhouettes, orthopedic, professional, outdoor, and the important of (inaudible) region and own region.
In our first full fiscal year since we completed our IPO in October ’23, we delivered 22% revenue growth in constant currency, extending our decade long track record of 20% plus compounded annual revenue growth driven by continued growing demand for our products across all segments, channels and categories. And we are growing profitably.
Our 2024 adjusted EBITDA margin was 30.8%, beating the high end of our expectations. In fiscal year 2024 revenue from coastal silhouettes grew at over twice the rate of the overall group and increased share of business to about one-third. In ’24, about half of our TOP20 selling silhouettes were close (inaudible). Our APMA business grew at 42% nearly double the pace of the overall business.
Our own retail revenue grew over 2 times the pace of the overall business as we continue to add to our own store fleet, opening 20 new doors globally in fiscal ’24. Leveraging the investments we made in our new (inaudible) factory, we launched our newest orthopedics innovations.
The blue foot bed for Sneakers expanded and relaunched our professional line including the fully certified (inaudible) 2.0 and expanded our Water Ready Outdoor segment. We also made additional investments in dollars at the hookah allowing us to increase production capacity to meet the growing global demand for all our products.
We increased pairs sold by 14% in fiscal ’24, while maintaining discipline distribution to ensure scarcity and strong full price realization of over 90% globally. ASP for the year was up 8%, driven by product mix and targeted price increase. We grew our wholesale business by 23% in fiscal ’24.
Over 90% of the growth came from existing doors as our partners continue to allocate more shelf space to the (inaudible) brand, increasing order size and adding new categories and usage occasion. As consumers are becoming increasingly selective and more intentional in their spending, we are taking share and gaining the attention of our key retail partners and their shoppers.
Our D2C business grew 21% and penetration of approximately 40% was consistent with last year. We ended the fiscal year with 67 stores globally, up from 47 at the end of fiscal ’23. We grew our membership base by over 30% during the year to over 8 million loyal members, who shop more frequently and spend on average 30% more than (inaudible).
We continue to balance growth between B2B and B2C to meet the growing global demand, achieve our profitability goals and maximize our reach, especially into the new targeted consumer groups.
Now let’s move to a brief discussion of segment performance for the year. Within our largest segment, the Americas, we experienced strong consumer demand for our brand throughout the year. Revenue in the region was up 19% compared to fiscal ’23. We saw a noticeable return to in person shopping at multi-brand retailers in the second half of the year.
As such, our B2B strengthened throughout the year as many of our strategic partners allocated more space to Birkenstock’s and experienced very strong back to school sale group. We have emerged as a must carry brand within our strategic retailer.
We believe that significant reach with both store count and social media impressions have amplified our consumer demand beyond what we may achieve on our own. In the Americas B2C channel which is almost entirely digital, we delivered revenue growth in the mid 10s. We expanded our physical retail presence, opening four new stores during fiscal ’24. We recently opened our first Birkenstock’s store and plan to add several additional stores later this year.
In Europe, we delivered exceptional growth of 21%, which was broad based across all countries and channels. In the first full year since the completion of our transformation initiatives in the region, we clearly see the benefits of the improved quality in our distribution with double digit unit and ASP growth.
While both close to and sandals grew at double digits for the year, (inaudible) to grew at over 2.5 times faster than sandals, driving a speed higher. We have gained shop space and strategic retail partners and our brand awareness increased an average of 400 basis points in the key markets since we began our transformation in 2022. We saw strength in both the D2C and B2B channels in Europe.
Our focus on better alignment with key strategic retail partners led to increased orders and elevated sell-through performance from these targeted accounts. Our partners continued to widen their budget of assortment to meet the expanding consumer demand. In our B2B orderbook for autumn winter ’24, we doubled share of business in shoes compared to last year. Our European B2C business grew at a similar pace as B2B.
After several years of retail consolidation in the region, we embarked on our retail expansion strategy in ’24. We opened three new stores in the region including our first store in Paris. We have identified several additional locations throughout Europe for additional own retail stores in ’25. The APMA region was our fastest growing segment in fiscal ’24, growing 42% nearly double the pace of the overall business. We continue to make progress to our penetrating this significant wide space for the business (inaudible), still at only 12% of our overall revenue, we see substantial opportunity for growth and we continue to invest in the segment. Aligned with our road map and commitment to the region, we added 13 new own retail stores bringing our total to 25 in APMA region.
Additionally, the launch of our online store in the Philippines and the strong performance throughout our digital channel is supporting strong regional B2C growth. We also expanded our strategic partnerships, increasing our mono-brand partner doors by approximately 20% which drives B2B growth in the region.
Greater China made up mid 10s share of APMA revenue. We are still in the early stages of our market roll out there, but are steadily building brand awareness and demand through our increased retail and online presence. We opened our first owned store in (inaudible) in October and will turn our successful popup store in Shanghai into a permanent store later this year.
I will now turn it over to Erik to discuss our financial results in more detail.

Erik Massmann

Thanks, Oliver, and good morning, everyone. I’m pleased to share Birkenstock’s performance for fourth quarter and full year 2024. Again, we saw very strong growth throughout the year which accelerated into our fiscal year end, allowing us to achieve another year of over 20% top line growth coming in ahead of our expectations.
First, let’s look at revenues. Fourth quarter 2024 revenues were EUR456 million, growth of 22% in constant currency, accelerating from third quarter’s growth of 90%. B2B was up 26%, and our B2C performance was up by 18%. This brought our total revenue for fiscal year 2024 to over EUR1.8 billion, up 22% from 2023 and ahead of our expected growth of 20%. B2B revenues were up 23% and B2C were up 21% for the full year.
Now looking at gross profit. In analyzing our fourth quarter gross profit margin, it’s important to note that the prior year quarter was impacted by several noncash end-of-year true-up adjustments and the reclassification of logistics expenses.
Combined, these elevated Q4 2023 gross margin by approximately 450 basis points. making it not directly comparable to Q4 2024. The adjustment did not impact EBITDA in the period. And importantly, EBITDA margin increased 190 basis points year-over-year in the quarter.
On a reported basis, gross profit margin for the fourth quarter fiscal 2024 was 59%. The remaining 190 basis points of decline in gross margin was a result of a, the expected under-absorption impact from new production capacity, which accounts for around 200 basis points, b, the increase in B2B share relative to last year and c, FX impact, all offset by some pricing initiatives. The gross margin in Q4 2024 represents the more normalized trend.
For the full year, gross profit margin was 58.8%, down 330 basis points from full year 2023. As expected, about 150 basis points of margin decline was the result of the temporary under-absorption costs from the added production capacity, the remaining 180 basis points from a combination of channel mix and other impacts.
Selling and distribution expenditures were EUR141 million in the fourth quarter, representing 31% of revenue down 640 basis points year-over-year due to in part logistics reclassification into COGS as well as lower consulting and other expenses relative to those incurred during our IPO last year. For the full fiscal year, selling and distribution expenditures totaled EUR507 million or 28.1% of revenue, down from 29.8% in fiscal year 2023.
General and administration expenses were EUR32 million or 7% of revenue in the quarter. Respectively EUR101 million or 5.6% of revenue for the full year 2024, up 20 basis points year-over-year, primarily due to the incremental public company costs.
Adjusted EBITDA in Q4 of EUR125 million was up 31% year-over-year and margin of 27.4% was up 190 basis points year-over-year. For the full year, adjusted EBITDA increased 15% to EUR555 million for an EBITDA margin of 30.8% and down 160 basis points year-over-year, largely as a result of the capacity expansion, but coming in ahead of our expected range of 30% to 30.5%.
Adjusted net profit of EUR55 million in the fourth quarter was up 180%, and adjusted EPS was [EUR0.29], up 107% from a year ago. Fiscal 2024 adjusted net profit of EUR240 million was up 16% from 2023. EPS of EUR1.28 increased 30% year-over-year. Let’s now have a closer look at our balance sheet as of September 30, 2024.
Cash and cash equivalents were EUR356 million as of September 30, ’24, up from EUR344 million at the end of fiscal 2023. We generated EUR429 million operating cash flow during 2024, up 20% year-over-year. This was driven by the strong EBITDA growth, combined with improved working capital efficiency.
We improved our inventory to sales ratio to 35%, down from 40% in ’23. Our DSO for fiscal ’24 remained very healthy at ’23, in line with a year ago despite a slightly higher B2B mix. During 2024, we spent EUR74 million in capital expenditures and made net repayments of EUR662 million in outstanding loans. Our net leverage was 1.8 times as of September 30, 2024, below our stated target of 2.0 times.
As we look forward to fiscal 2025, we believe we are well positioned to meet our stable growth and profitability of factors. Our outlook for 2025 is in line with our medium to long-term targets. We expect revenue growth of 15% to 17%, with balanced and healthy euro from both B2C and B2B.
We believe this is the right pace of growth to meet demand within the guide rails or scarcity model and maintain brand health and full price realization. Gross margin should improve year-over-year as we increase utilization and efficiency at our production facilities, moving closer to our 60% target. We expect EBITDA margin in the range of 30.8%, 31.3%, an increase of up to 50 basis points compared to 2024.
Our effective tax rate is projected to be around 30%. We expect to invest approximately EUR80 million in capital expenditures in 2025, primarily related to production capacity and retail store expansion. We plan to use excess cash to continue reducing our outstanding debt. Our target leverage ratio for the end of fiscal 2025 is approximately 1.5 times.
Now I’m happy to hand over back to Oliver.

Oliver Reichert

Thanks, Erik. Our strength in fiscal ’24 and outlook for ’25 demonstrate our ability and commitment to deliver on the promises we made during our year. We are delivering strong double-digit revenue growth, excellent margins, exceptional cash generation and expanding into the white space areas we highlighted over a year ago.
Our brand strength is evident as our growth continues to outpace our peers globally with strong and increasing demand from our B2B partners and in our growing B2C point. We are investing in our production capabilities to meet the growing demand for our products, while carefully executing on our proven engineered distribution strategy to drive ASP growth, ensure healthy stock levels and maintain strong full price realization.
We are entering the next chapter of growth as we tap into our largest white space market, the APMA region. We are increasing brand awareness, educating the consumer on the purpose of the Birkenstock footbed and are taking market share by following our prudent flavor of disciplined engineered distribution to support ASP. With our growing retail presence in the region and continued investment in digital, we see a long runway of growth ahead and out.
F24 draws to a close, so does the year in which we celebrated 250 years of shoemaking, shining a light on our purpose to empower our people to work as nature intended. Many of our wholesale partners used this moment to create special retail placements, allocating additional shelf space for our brands.
In our white space region, we were invested to drive awareness, it was great to see the strong appetite for our rich brand heritage. As I’ve said before, the first 250 years were just the beginning of a much larger and more significant journey.
I would now kindly ask the operator to open our Q&A session.

Operator

(Operator instructions)
Matthew Boss, JPMorgan.

Matthew Boss

Great. Thanks and congrats on another nice quarter. So Oliver, you cited 15% to 17% growth is the right pace for a healthy long-term business. I guess why do you think that’s the right pace going forward? Or any structural change in drivers relative to the past decade of 20%-plus growth?
And just near term, could you give us some color on what you’re seeing in the first quarter relative to that 15% to 17% pace as you are cycling the toughest compare at 26% growth a year ago.

Oliver Reichert

Hello, Matt, thank you for your question. Can we grow faster? Yes, of course. Based on the overall demand, we see, we can definitely grow faster. But Again, we have to think about our whole business for the next decade, not in quarters or years. We have to plan mindfully. That’s the core of our business here.
And remember, we are 100% vertically integrated. So we have to think about hiring people, sourcing raw materials, investing in production, and we take the responsibility and well-being for over 6,000 employees globally. It’s very serious for us. So quality means for us, not only the quality standards, also in production. Engineered distribution, it’s a very qualitatively driven sales organization we are writing. So it’s quality comes to different layers, raw materials, all of it.
So, and just as a comparison, if you grow mid to high teens a year, that means you’re doubling your business roughly every five years. And if you think about the whole situation in Birkenstock doubling the output of this organization in the five years time frame, that’s a very, very strong growth story. And this is how we operate as a company and that’s why we committed to the mid and high-teens growth during the IPO.
And we think this is the right pace for sustainable long-term growth. And yes, you mentioned the 20-plus. 20-plus was a track record for the last years. And again, there will be periods where we can and will grow faster. But if it’s just, if we feel it’s right for our core makeup or our core values, then we will do this, absolutely, okay?
And regarding Q1, we are seeing globally a very strong holiday season. Given what we’ve seen this in Q1, we feel very comfortable that Q1 will likely come in the higher end of our 15% to 17% annual revenue growth guidance range. even against the strong comps last year.
Remember, last year, there was like a 26% growth. So we do think that ending up at the higher end of our guidance range, will be a strong signal for the brand and the global demand, which is definitely outstripping our supply here.

Matthew Boss

I’d agree. Great color. Best of luck.

Operator

Paul Lejuez, Citi.

Paul Lejuez

Hey, thanks, guys. Oliver, can you give a little bit more color on 1Q, just how B2C versus B2B is performing? And how are you thinking about B2B versus B2C in F25 overall, how are you planning the business around that 15% to 17% in each of those segments? And then can you maybe talk about gross margin by quarter, assuming is not up year-over-year, but just wondering when you’re looking for gross margin to inflect positive? Thanks.

Nico Bouyakhf

Hey, Paul, this is Niko. Thank you for your question. I’m taking the first one on B2C and B2B growth going forward. So what we will see is definitely we’ll continue to see a balanced growth between B2C and B2B throughout fiscal 2025. Certainly, with some nuances from quarter-to-quarter as some quarters are more sell-in and some orders are more sell-through driven. Please be reminded that online represents 90% of our B2C currently.
So in other words, retail is just presenting 10% of our B2C, and we’ve been executing our retail expansion plan with great success. Recently opened stores are performing really well, and they’re performing well from day one. Paris (inaudible) that opened in Q4 is our top-performing store in Europe, Chengdu store is welcoming 4,000 visitors every week, outperforming our expectations.
And then Austin stores also really outperforming our expectations. Please be assured we have secured more locations, more exciting locations to open this fiscal year. So you hear us more talking about retail expansion, and you’ll see retail gaining more weight in our B2C channel.
Our overall view on channel growth is that wonderful fill demand where it occurs. While we really remain disciplined in our distribution for B2B. As you know, 90% of growth is really coming from existing wholesale partners. What they do is they expand our offering. They offer more shelf space and they go with a wider offering to their consumers.
So this gives us a broader reach to consumers with a broader assortment and let consumers enjoy the full breadth of our brand. We remain disciplined in our distribution for B2B, and this is a high quality and profitable growth with a full price realization that is superior to any other brand out there.

Paul Lejuez

Thanks. And then, Erik, maybe any color on the gross margin?

Erik Massmann

Sorry, I didn’t get the question at the beginning. Right. Gross margin, if you look at Q4, the gross margin last year had a number of noncash out of period accounting true-ups that impacted the quarterly margin comparison. So these totaled about 450 basis points of which the majority was related to a true-up of internal logistic expenses for the year that were reclassified between COGS and selling and distribution expenses.
There was no impact on the full year gross margin and even more importantly, no impact at all on EBITDA. So this is why we should look at the quarterly trends for gross margin, EBITDA margin in ’24 as a guide for ’25. And while as we, as you know, we will not be giving quarterly margin guidance. Overall, we have said we expect a modest improvement in gross margin for ’25 and EBITDA will go up 50 basis points higher next year.

Paul Lejuez

Thank you guys. Good luck.

Operator

Michael Benetti, Evercore.

Michael Benetti

Hey guys, thanks for the detail here. Let me keep going on the gross margin and how we should think about it going forward into 2025. Are there any other unusual items we need to think about as we look out at the quarterly trends? I know there was a big reclassification in 4Q as we roll into 1Q, 2Q? Is that an appropriate baseline to think about a year ago?
And then on revenues, I guess, to double click a little bit. Thanks for the color on first quarter. You mentioned the tough compares in the quarter. But obviously, the B2C compare is obviously very tough in the first quarter. Anything to think about between the two channels in the fourth quarter as that obviously affects margins.
And then finally, on SG&A, I’m just curious if you could speak to the cadence spend this year? Is it hasn’t really aligned very closely with revenue growth in the past and can have a pretty material difference on earnings quarter-to-quarter. It started growing in the mid-20s last year and ended the year much, much lower.
So I’m curious as SG&A snapped back to mid- to high teens in the first half? Or is it best to think about it as like a high single-digit growth rate in the first half and it accelerates its revenues through the year?

Alexander Hoff

Hey, Michael, this is Alexander. Thanks for the question. I will take the first and the third part of your question. And with our numbers in ’24, the quarterly cadence, we are quite confident that this is a good basis to model the ’25 quarters. So ’24 is completely clean. There is no hiccups, no unusual items you need to know about.
And of course, we have some seasonality. I’m sure you are aware of that, especially with the higher B2C penetration, the first and then the fourth quarter, impacting gross margins and also SG&A ratios. But overall, ’24 is a good basis to start with for ’25. And then maybe just one last thing remark on gross margin. Erik mentioned that we are seeing, yes, a slight uptrend of the margin in ’25. This will likely to happen in the back half of the year.

Michael Benetti

Okay. The SG&A?

Alexander Hoff

Well, on the SG&A, it’s the same cadence and also a good starting point for the ’25 quarters. There are fluctuations, but this is just pure seasonality and depending on the channel mix, but SG&A is also a good starting point taking the ’24 numbers.

Michael Benetti

Okay. Thank you very much. Appreciate it guys.

Operator

Dana Telsey, Telsey Group.

Dana Telsey

Hi, good morning, everyone. As you think about, I believe, the payers were up 14% this year, ASP up around 8% this year. How are you thinking of that going forward, especially given the production capacity that’s coming more online? What are you looking at? And it also sounds like the traffic in stores, did it continue to accelerate in the current quarter?
What are you seeing, given the increased penetration of stores and the new store openings. And just anything more on wholesale in the Americas, what you’re seeing on order trends? Is it still more from existing accounts? Or are there new ones, too? Thank you.

Nico Bouyakhf

Hi, Dana, this is Niko. I’m going to take the first part of the question, and then I’ll hand over to my team colleague, David, to give us some color on the Americas piece. So on units versus ASP growth, we definitely see volume being a bigger driver of growth than previous years. As you know, finally, we have the capacity to really unlock white space categories such as the APMA on our APAC region, our close or product category, but also other business areas such as Professional.
These are all incremental fields of play to our unit growth. Further to that, this increased capacity is also benefiting our B2B business. It really allows us to gain shelf space with existing partners that are widening their assortment offering. Even with that high unit growth, we expect a positive ASP contribution to revenue growth driven by mix predominantly, but also like-for-like pricing going forward

David Kahan

Dana, hey, this is David. Just to follow up on the back half of that question. As you’ve heard repeatedly from us, 90% of our growth in revenue comes from not only existing accounts, but existing doors. So that shows that we’re getting increased shelf space, increased penetration, increased spread in our collection, mainly in our current points of distribution.
The only new points of distribution would be ones that are very, very tactical and strategic. For us, we’ve spoken about this previously, but most specifically related to sports specialty, where we’ve, over the last year, established a nice small basis, but very, very disciplined growth in that specific channel

Dana Telsey

Thank you.

Operator

Laurent Vasilescu, BNP Paribas.

Laurent Vasilescu

Oh, good morning, Oliver and Team. Thanks very much for taking my questions. I wanted to ask a three part question, if I may. Last year, for fiscal year ’24, you opened 20 stores. How many stores should we assume for this year? And should it be really weighted to Asia?
That kind of leads us to the second question. I think, Oliver, you mentioned China is only 15% of your APMA region, so about EUR30 million still very small, but can you talk about the positioning of the brand in China and what do you think is the longer-term opportunity?
And then lastly, you mentioned that the closed tote offering was roughly one-third of the business. Where do you think that goes for FY25 and longer term. Thank you very much.

Nico Bouyakhf

This is Niko again. Thank you for your question. I’m going to do the first part of it, which is stores related, then over I’m going to hand over to Klaus for the Asia piece. As you know, retail is a massive growth pillar for us. We are currently operating 67 stores, adding and have added 20 stores in 2024. We have plans to open more. We are very disciplined in regards of locations that we go after, but also our return requirements.
Cash payback on investment is, as you know, within 18 months. So yes, we do expand, but we also expand very consciously, if you will. Our aim for fiscal ’25 is to increase the door fleet by 50%. So that’s a significant growth of our door fleet. And as I said, every store that is opened is performing and has to perform really well from day one. So you see us having some really exciting locations lined up.
We just opened, in Europe, we just opened (inaudible), we opened Amsterdam, more to come. As I said, Paris is a very, very great success story in Europe, and so there are many others in the other regions. So more to come on that.

Klaus Baumann

Hello Laurent, Klaus here entering the China question. First of all, it’s important to know that we are not new in China. I mean we have a long history there. And yes, we are accelerating now our growth, we are, as you know, we signed up a partner for our B2B mono store development and we are delivering now to six point of sales, and we are operating two owned stores.
On the digital side, we opened social sales channels as TikTok and the mini-cat program. So looking forward, I mean, we will keep this pace next year, for sure, double the fleet.

Laurent Vasilescu

That’s great to hear. And on a closed to offering, where do you think that goes for this year and over time?

Nico Bouyakhf

Yes. So this is Niko again. So close to offering, as you know, is now of our business and it continues to grow at the pace of more than twice as fast as our sandals. Important to note that sandals is growing double digit. So we grow both areas of the business, while closed-toe is overperforming. It will go more. We haven’t set ourselves a target for this one, but you will see an increased share of closed-toe business going forward

Laurent Vasilescu

Very helpful. Thank you very much.

Operator

Randy Konik, Jefferies.

Randy Konik

Yeah, thanks a lot. Good morning. Just to unpack closed-toe a little more. Can you give us some a little flavor on the drivers within that category. Is that the Boston just getting a lot more breadth in the assortment that’s driving a lot of that?
Or are there other kind of views that are kind of driving. Can you give us a little more flavor of what’s driving closed-toe? And again, do you think that, that could approach 40%, 50% of the mix going forward? And lastly, what is the difference in ASP on average of close to versus sandal? Thanks, guys.

David Kahan

Randy, it’s David. First off, there’s no copy and paste globally on closed-toe. The beauty of the business is closed toe encompasses everything from clogs to boots, and we’re seeing positive momentum across every element of close to. In the US specifically, it has been driven by clogs. The beauty of that is it’s not just the Boston. It’s also the Tokyo.
There’s a new clog called the lucre, with a convertible strap that you may have seen out at retail that’s selling very, very well. And the impact of clogs actually is even spilling over to our XMat slipper, which has been in the line for five to six years and because of the interest in clogs is now having its best season in its entire history.
Obviously, from an ASP clogs overall, as do all of closed-toe to have a higher ASP than sandals in general. I don’t know what that exact dollar amount is. But clearly, the mix certainly changes the ASP. Again, I think the velocity of it is the sell-throughs it are much higher than they are across the total collection in anything that’s close to right now. I think Europe is seeing a bit more of a close to shoe and boot reaction, so I’ll pass this to Nico.

Nico Bouyakhf

Thank you, David. Yes, indeed. So maybe remember our Q1 last fiscal year, fiscal year ’24, where we saw a very, very strong success of launched boot silhouettes. In fact, four out of top 10 in B2C, the top 10 sellers were last shoes, and we launched the Highwood and the press cord at a price point of EUR200, above EUR200, and that, those tires really performed very well.
So as you can see, we are spare heading, not just closed till, but also boots and layup shoes in our B2C business. what we do is we take the great learnings and the great success into our B2B business. And (inaudible) In ’24, the season that we are selling through now with our partners was the first season where we doubled the order intake for laced-up shoes.
And for us, it was quite significant to do that because we shared the great success of our B2C and asked our partners to broaden the range with us and invest into that part of the collection. Now the sell-through now of exactly that order intake is doing really positive. So we see a continuation of the trend of last Q1 with, again, laced-up shoes and Boots really performing well and and overperforming against the rest of the business.

Randy Konik

Great. Can I ask one more follow-up, maybe more for Erik. In an effort to help us properly calibrate our thoughts between B2C and B2B recognizing that in the first half of ’24 B2C (inaudible) B2B, but in the back half, B2B-led B2C. In the 15% to 17% guide, can you just give us some, may qualify, do you think B2B is higher in growth than B2C? At least for the first half or for the whole year. Just give us just any kind of flavor you can give us between the channels and how they should grow relative to the 15% to 17% or higher or lower would be super helpful.

Alexander Hoff

It wasn’t because of the question. So it’s, we don’t break it down in detail, as you know, but it’s a moderate growth in all areas. So it’s a balanced growth to whatever the demand is asking for. And as we have, I think, discussed in the past, the B2B business is as positive for us as B2C business margin-wise.
And therefore, I would overall and for the full year, say yes, it’s a moderate growth, it’s a moderate plan with no specifics. And obviously, seasonality a bit as we have seen in the quarters this year. But again, overall moderate on both sides. I don’t know what that’s enough answer.

Megan Kulick

This is Megan. I just want to follow up there also. Just a reminder that 40% of is already B2C, which is a pretty sizable business in B2C. And we’ll continue to grow both the B2C and the B2B business as we look forward into 2025. On the B2C side, I think we’ll be looking at additional stores on the retail side, and that will be probably more toward that half that you’ll start to see a greater contribution on the B2C side versus B2B.

Operator

Lorraine Hutchinson, Bank of America.

Lorraine Hutchinson

Thank you. Good morning. I just wanted to step back and talk about the APMA region over the longer term. What percentage of sales do you think it could grow to over time? And can you just talk about your progress on putting the distribution and partnerships in place for continued outsized growth?

Klaus Baumann

This is Klaus. I think we are planning to grow about 30% share. So we are balancing out in the regions. That’s the plan. In the growth cadence, we’d like to say that the APMA region should have a double speed of our mature markets. And can you repeat the second question, please?

Lorraine Hutchinson

I was just hoping for an update on your progress on building the partnerships and distribution that you need to continue that growth.

Klaus Baumann

Okay. Thank you. As you know, we signed up a partner for China. We are also very much focused on our B2C development right now. And you can see that we are almost doubling the business on and partners for Southeast Asia, mainly a B2B section, very well prepared, and we are in context over here to open more stores. We are operating by ourselves now 25 stores. And in the B2B side, we have 256 stores where we added like 45 stores only this year. So going forward very well.

Oliver Reichert

So I think it’s important for you to understand. It’s Oliver again, sorry, that the APMA region is, we’re not only focusing on China, okay? So we really try to control the growth in a mindful way and say, okay, double the speed aggressive compared to the rest of the world, that’s a good speed for us. It’s, we try to establish a very strong Southeast Asian business.
We have a very strong business in Australia, a strong business in Japan, where especially our own retail is catching up very, very positive and very, very good. And of course, China has a main focus for a lot of investors, but we try to balance everything moving forward. So don’t expect crazy stuff from us in these regions because keep in mind, if political situation change you will ask the questions exactly the other way around.
So mindful way moving forward, double the speed. We grow in this region over 40%. So I would say that’s pretty nice speed in this area. And, but don’t overwrite this. It’s really, it’s important and it’s, but it’s more important to keep it balanced. Thank you.

Lorraine Hutchinson

Thank you.

Operator

Simeon Siegel, BMO Capital Markets.

Simeon Siegel

Thanks. Hey guys, morning or good afternoon. Hope your families have a very happy holidays. Erik or Alexander, just as we think about the model that we can see from the outside, are you comfortable that we’re past the restatements, regional P&L, et cetera? And then just higher level. Really great revenue, strong brand residents.
Can you share some thoughts on how you’re thinking about promotional environment at large, maybe its competition versus what you’re seeing for you guys? And then just, maybe speak to the, how you clear the last chance on your side versus wholesale clearance. I know there’s a breath step element there that we can see versus that you can see.
So any color there, promo environment clearance approaches on relevant. And then how you’re thinking about the progression of gross margin next year in the context of lapping (inaudible) when that becomes a good guide to gross margin. Thanks.

Oliver Reichert

That sounded like a long question, but thanks, Simon. So let me start with your comment regarding the P&L. It’s very clear. It’s not a restatement. It’s a reclassification of internal logistics costs which can be shown in sales and distribution and can we show on the (inaudible) and some companies do it like this so we sort of cleaned it up from ’23.
And now as the majority of companies do it. And so it showed in our gross margin. So that’s a reclass of internal logistic costs, non-cash impact EBITDA, as you have seen, also no impact. So I think that’s important to see to understand.
And to come to your question, yes, we feel fine and we had the first year of being listed used to sort of look at all the details. And then if you see the quality of the numbers and where we came from as a family run company, I think we had a big improvement now. And I’ll hand over to David.

David Kahan

Yes, Simeon, hey, I think on the question about the general promotional environment, I think what you’re seeing is this bifurcation out there. A lot is promoted, but the few things that people really demand that they’re intentionally shopping for are selling through at full price. We’re very fortunate that we are one of those brands.
As you know, we manage scarcity with such a high level of discipline that the amount of hash, which is the industry term for broken sizes at any given time is mathematically quite small. Having said that, when you have a very developed digital business where you do carry a broad assortment, you are going to see what may be more breadth.
But certainly, a very, very low depth in any given style. So specifically to the US, who I know you’re referencing with MAP pricing, we managed wholesale so tight our retailers experience in season well over 95% full price realization on our own B2C business, which again is largely digital right now. It’s over 90%. So you’re going to see a bit more breadth, but certainly not any significant depth whatsoever.

Simeon Siegel

That’s really great. Really helpful. And then just, Erik, any way to think about when (inaudible) we ramp, we work through that ramp and it starts becoming a benefit to the line item?

Alexander Hoff

Hey, Simeon, this is Alexander. I will take that over Yes, thanks for that part. Overall, we are absolutely pleased with how well the expansion has gone so far, not only in our new factory in (inaudible) but also in the existing built out in (inaudible) and in Portugal. So the expansionary steps we did in ’23 and ’24 has been the foundation of our unit growth.
I think that’s also important to mention in every single situation that it’s not only pressure to margin. It gives us the opportunity to substantially grow in units. And this was clearly a drag, especially in ’24 as expected and communicated upfront. This was a peak year of the margin pressure and, with that transitionary year, we are now going into a 25 year where we will see a better absorption as discussed already, primarily in the back half of the year. And, we will also confirm that we expect the full absorption of fixed costs in the third quarter of ’26.

Simeon Siegel

Great. Thanks a lot guys. Best of luck for the year ahead and great job.

Operator

Mark Altschwager, Baird.

Mark Altschwager

Thanks for taking my question and congrats on the strong quarter and year. I wanted to ask about pricing. It looks like price accounted for about half of the 8% ASP increase in 2024. Call it, 4%. Is that a good way to think about 2025 as well? And a similar question on mix. That was also a big driver. Should we expect much of a change there for 2025. Thank you.

Alexander Hoff

Hey, Mark, this is Alexander. Thanks for the question. And you’re absolutely right. So when you’re looking into ’25, I think Nico mentioned also that we are expecting approximately two-third unit growth, approximately one-third in ASP growth. And yes, ASP is primarily driven by like-for-like pricing and product mix with consumers continuously buying more into higher price points and premium products.
We mentioned closed toe as an example here. So higher leather share, but also product embellishment are supporting this trend and this will continue into the future. Retail will have on the channel expansion. But overall, in ’25, we are not expecting a major influence on ASP from a channel mix.

Mark Altschwager

Great. Thank you.

Operator

Sam Poser, Williams Trading.

Sam Poser

Thank you. Good morning, everybody. Thank you for taking my question and happy holidays. I just want to dig into the B2C business a little bit more, especially in the Americas, but in total. When, in the Americas, the B2C business represents probably around 40-plus percent of the sales.
And of that, over 90% is digital. Will most of the B2C growth that happens in fiscal ’25 happen out of Asia and Europe ex the stores and then those stores that open later drive incrementally. Is that the way to think about it?

Megan Kulick

Yes. Hi, Sam, it’s Megan. Obviously, we don’t, we’re not providing by channel, by region. But I think to your, to get to your question, yes, you’re right on the B2C side on the US predominantly e-com. And I think that as we look to B2C growth in the US, a lot of the additional growth in B2C will be coming from the additional stores.
And we will see B2C growth contribution coming from the other regions. In particular, we’re seeing very strong B2C growth both on the digital side and in the retail side coming from the APMA region, and that will continue to drive B2C growth higher, particularly as we move into the latter part of this year and those stores and the digital channels continue to ramp there.

Sam Poser

And what would you call a mature digital penetration, I guess, in total. Is 40-plus percent mature? Is that like going to be a tough number to get ahead of higher than digitally and you really just need these stores, you need to just open the stores and have them really start producing. And I guess, over the long term, you’re going to open 30-plus stores this year. In the long term, how many stores do you foresee owned stores do you foresee globally?

David Kahan

Sam, hey, it’s David here. First off, we’re going to increase our door count physical doors by 50% in 2025. So that’s pretty aggressive as far as new door openings. I would say, and again, it’s a little bit mathematical. It’s a little bit anecdotal. But I would say, once you get to a 40% digital penetration in the market, that becomes pretty much optimized.
It doesn’t mean it’s not going to grow. It will grow in revenue dollars, but as far as share of business, it may be slightly above 40% about optimized where it is. And I think we’ve learned over the last few years from other brands. Once you try to lean into one channel versus the other, it may not serve the purpose that you’re seeking it to actually serve, so I think we have a pretty optimal balance around the world.
It might play out a little different by region. It might play out a little different by quarter. But I would say that we have the most healthy balance in the market right now as we open more retail stores and more physical touch points with that brand, that’s going to be purely incremental B2C growth on top of the digital growth that we will see.

Sam Poser

Thanks and a subtle dig to your, to other companies. David, happy holidays again.

Operator

Jeanine Stichter, BTIG.

Jeanine Stichter

Hi, thanks for taking my question. I just wanted to get more color on what you’re seeing from a customer lens. Is there any change you’re seeing in either repeat purchase behavior or a number of pairs owned? And also curious what you’re seeing in terms of the customer demographic. Are you seeing a younger audience? Or I’m just curious what you’re seeing there.

Nico Bouyakhf

This is Nico. Thank you for your question. So in regards to repeat purchases, we do have a very strong buildup of our membership base currently 8 million members. There you use your imagination how fast this can still grow. It’s growing, has been growing 30% year-on-year with already now members spending 30% than non-members.
So what we also typically see with members is they sort of transcend into other categories with us, let’s say, more expensive categories but also newer categories, such as shoes, laced-up shoes, install business, that is typically adopted much faster than with members than with non-members. We’ve done a great job in becoming clearer on our member segments.
So you’ll see us becoming more personal in how we treat our members. And more exclusive. We have a very, very large amount of product that is exclusively meant for members that is displayed online. And that also typically sells through much, much faster than the rest of the line. So yes, a very healthy growth in membership, a very healthy business with members, but yet to be growing significantly.

Jeanine Stichter

Great. Thank you for the color and best of luck.

Operator

Jim Duffy, Stifel.

Jim Duffy

Thank you. I want to ask on cash flow and capital allocation. The 1.5 times net leverage guide at the midpoint of adjusted EBITDA implies just modest improvement in the net debt. Can you talk about free cash flow objectives? You’ve given us CapEx. Is there some sort of offset to cash generation in the working capital lines? Or does that imply some use of cash such as share repurchases? Thanks.

Erik Massmann

Thank you. It’s Erik. Happy to take over. Yes, we are comparatively cash rich, which shows the strength of our business, and we hit the target of below 2 times leverage, 1.8 times end of the year. And the goal for next year is around 1.5 times. Going forward, the plan is much the same as it was this year. First of all, invest in the business. That’s always first priority.
So if something is needed, if we think it helps the business, we will do it. and around EUR80 million of the plan for current year. Afterwards, continue to pay down our debt. We expect, as I said, 1.5 times leverage end of the year, eventually pay off the US term loan. And everything after this will be a decision made by the Board, obviously. But the strength of our business and the very strong cash flow conversion shows that we are on the right way.

Jim Duffy

Erik, at the midpoint of the EBITDA guide, 1.5 times net leverage guide implies like [EUR980 million] in net debt. at year-end. That’s just [EUR25 million] or so better than fiscal ’24 year-end. What are you thinking in terms of free cash flow? You’ve given us the CapEx I’m curious, is there some sort of offset that’s impeding the progress on the net debt.

Erik Massmann

Calculation wise, you are correct. Of course, we have to be free on this, and we just want to be capable of investing in whatever is needed, either build up inventory or invest into the the CapEx, yes, for me, personally, US term loan is the first priority because it’s the most expensive one. It’s around USD170 million. Plus, as you know, there’s another euro term loan debt, there’s a bond and everything else will be decided by the Board afterwards

Jim Duffy

Understood. Thank you so much.

Operator

Erwan Rambourg, HSBC.

Erwan Rambourg

Hi, good afternoon, everyone. Thanks for taking my question and congrats on a great year. I just wanted to come back on APAC to understand if, what are the P&L implications of APAC? Is it gross margin accretive? Is it operating margin dilutive? And just maybe an anecdotal but moving from APM to APAC, is that linked to particular managers or particular synergies by regrouping regions or countries together in a different manner than in the past? Thank you.

Alexander Hoff

Erwan, this is Alexander. I’ll take the first part and then hand over to Nico. So to keep it simple on the margin side, with that share of business, of course, you don’t get the full leverage if you compare that to a much more bigger business, but we have really nice price points in the regions. Some markets are already quite developed.
And we expect in the mid to long term, no margin pressure from making that region bigger. So it’s definitely supporting that margin. But in some markets, to be fair, when starting that up and ramping, you don’t have the full profitability in year one or year two, but this is fully built into our plan.

Nico Bouyakhf

Thank you, Alexander. Just on the segment change, yes, we decided to realign our segment structure into Americas, EMEA and APAC. Basically, the decision has been taken because we see structural similarities, but also operational advantages between Europe and Middle East, Africa, but also in beyond APAC.
So Asia Pacific, with India space under the leadership of Klaus Bauman in the new APAC segment, and I will take care responsibility of the EMEA segment. We’ve just started in Q1 to execute in this new segment formation and will provide all financials and recast segment results with the next quarter’s release in February.

Erwan Rambourg

Thank you. And just to check, I think you said China was a mid-teens contribution to APMA sales. So that’s about 2%. Is that Mainland China? Or is that Greater China?

Alexander Hoff

This is Greater China.

Erwan Rambourg

Thank you.

Operator

Jay Sole, UBS.

Jay Sole

Great. Thank you so much. You talked a lot about closed-toe shoes and some of the newer products. You just talked about your injection molded sandal business and how that performed in 4Q and what you expect to see in that business next year?

Oliver Reichert

Hey, Jay, this is Oliver. You’re talking about the (inaudible) segment, the outdoor water ready sandals. So we are just working on this new segment. Actually, it was invented to cover the more humidity tropical conditions around Southeast Asia and the APMA region in total. All of a sudden in the US at the outdoor segment and in Europe, this starts performed pretty good.
So it’s just a new category that will be rolled out globally. There will be also coming up some collaboration styles and some special makeups in some areas where we push and introduce these new wearing occasion in the, let’s say, soft hiking, outdoor-ish water ready environment. You may see some of it in REI in the US or globe trotter and some other outdoor doors in Europe.
So it’s a very promising start for this new category. And that’s why we invested in (inaudible) in this kind of manufacturing process because it’s technically wise, it’s completely different set up than the classical plastics sandals.

Jay Sole

Got it. Thank you so much.

Operator

Adrien Duverger, Goldman Sachs.

Adrien Duverger

Hey, good morning and thank you for taking my question. Just a follow-up on the manufacturing that you just mentioned. In terms of your investments and the factory expansion plans, how are they progressing versus your expectation? And how do you expect the additional supply to evolve over the next two to three years. Thank you very much.

Alexander Hoff

Hey, Adrien, I think we touched on that question earlier in the call, but let me just wrap up that here’s everything on plan, not only in the new factory, also the other two we are building out. And this is not a plan which is done in 6 or 12 months. We started in ’22, and this will last until ’26, especially building out gilet. This is absolutely on what we expected so far. The drag on margin is nothing what will continue in ’25 and ’26. So for now, all good year.

Operator

Thank you. And we have reached the end of the question and answer session, and this does conclude today’s conference. You may disconnect your lines at this time. Have a wonderful day. Thank you for your participation.