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Birkenstock expansion costs pinch margins as demand stays strong

Birkenstock window display at shoe store in London

By Ananya Mariam Rajesh

(Reuters) -Birkenstock warned of margin pressures stemming from costs tied to a global expansion on Thursday, even as the German sandal maker reported strong holiday quarter demand for its pricey footwear.

Shares of the company closed down 2.4% at $50.01.

Banking on shoppers ready to splurge on its sandals, Birkenstock is opening stores across markets, including India and China, as it seeks to sell at full price unlike at wholesale retailers.

The company's adjusted core earnings margin fell to 26.9% in the first quarter from 29.1% a year earlier, also weighed down by rising costs of raw material and labor.

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The expansion-related costs "will slightly impact our margins in 2024", said Alexander Hoff, vice-president of global finance, adding it "is clearly a temporary effect."

Birkenstock's shares, which had tumbled more than 12% below its initial public offering price of $46 last October, had eventually recovered over the following months and was last at $48.12 on Thursday.

Closed-toe silhouettes and newer products geared toward the growing running shoe market have helped the company carve out a niche in the U.S. and Europe, with double-digit revenue growth across its markets.

"They have been able to manage not having to put it on promotion ... their markdown levels are very low even in the U.S.," said Jessica Ramirez, senior analyst at Jane Hali & Associates.

Birkenstock's quarterly revenue rose about 22% to 302.9 million euros ($328.65 million), compared with market expectations of 288.7 million euros, according to LSEG data.

The brand has also attracted fashion aficionados after actress Margot Robbie donned a pair of pink Birkenstocks in 2023's blockbuster "Barbie" movie.

"Keeping the brand front and center on the fashion pages doesn't come cheap and there is a risk that once its movie-star status wanes, stylish shoppers could move onto the next big thing," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

"However, comfort will always be valued by other core customers ... even if fashion fans prove more fickle."

($1 = 0.9217 euros)

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Sriraj Kalluvila and Devika Syamnath)