Björn Borg Q4’24 preview: Good growth but shrinking margins

Björn Borg will report its Q4’24 results on Friday. We anticipate good growth in revenue compared to the corresponding quarter last year, primarily driven by the integration of the footwear category, increased sales in the sports apparel category and continued strong development in own e-commerce. We estimate a lower gross margin due to a shift in the sales mix, as well as higher operating costs mainly due to increased marketing activities. Overall, we anticipate that this will offset the benefits of strong revenue growth, leading to relatively flat absolute EBIT development. Our focus in the upcoming report will be on demand-related information and updates on the footwear transition.

Strong growth supported by solid market development

We expect Björn Borg’s Q4 revenue to increase by a good 9% year-on-year to 216 MSEK, slightly below Retail Consensus (Pinpoint Estimates). We expect revenue growth to be supported by a solid Swedish clothing market development, which accounts for ~33% of the company’s revenue. Furthermore, we estimate that revenue has been driven by increased sales of sportswear, as well as the takeover of footwear distribution, which the company fully integrated in Q2’24. However, we expect underwear sales growth to have been relatively flat.

By segment, we anticipate Direct-to-consumer to show the strongest growth (~13% y/y), despite tough comparison figures, mainly driven by increased sales in the sports apparel category through Björn Borg’s own e-commerce platform. We expect a stable development in the largest channel, Wholesale (6% growth y/y), primarily driven by expanded footwear distribution and strong sell-through at major e-tailers. Among the smaller segments, we expect Distributor segment to show strong growth (~11%) due to more normalized inventory levels and easier comparison figures, while the Licensing segment is expected to continue showing highly negative growth figures following the integration of the footwear category, which previously constituted a significant part of this segment.

Higher costs will eat into sales growth

We forecast Björn Borg’s Q4 EBIT to reach 20.2 MSEK, roughly in line with Retail Consensus. Despite strong revenue growth, this figure is largely consistent with the corresponding period last year, mainly due to a shift in the sales mix. This shift includes a lower proportion of revenue from the higher-margin underwear category and a higher proportion from lower-margin categories such as sportswear and footwear. As a result, we expect the gross margin to decrease to 54.0% from last year's high level of 56.8%. In addition, we estimate increased operating expenses due to heightened marketing activities. Therefore, we expect overall profitability (EBIT-%) to decline to 9.3% (Q4’23: 10.2%). On the bottom lines of the income statement, we anticipate net financing costs and taxes to remain roughly in line with Q4’23, resulting in only a slight decrease in EPS to SEK 0.55 (Q4’23: 0.59). For the full year 2024, we forecast EPS of SEK 3.04, which is roughly at the same level as in 2023. Given that the company has distributed nearly all of its earnings as dividends over the past couple of years, we expect the dividend to remain unchanged at 3.00 SEK per share.

We expect good growth and a positive margin trend in 2025

Although Björn Borg does not provide financial guidance, we forecast revenue growth of approximately 8.5% and an EBIT margin of 11.4% for 2025. While we expect the operating margin to be on the right side of the company’s long-term target of at least 10% annually, we believe achieving its target of 10% annual sales growth will be challenging. In our view, reaching these targets will largely depend on successfully leveraging its brand to drive growth across its three main categories: underwear, sports apparel, and footwear. Additionally, we believe that further expansion into growth markets, such as Germany and the US, which currently represent a smaller portion of the company’s revenue, will play a key role in driving growth.