Björn Borg Q1'25: Solid quarter, but the valuation has run ahead

Björn Borg delivered a solid Q1 report, broadly in line with our expectations. As a result, we are maintaining our estimates largely unchanged. However, despite the good Q1 performance, the share price has risen nearly 20% since our last update. At current valuation levels, we view the risk/reward profile as less attractive. Consequently, we turn to a Reduce recommendation (prev. Accumulate) but maintain our target price of SEK 55 per share.

A solid Q1 report broadly in line with our estimates

Björn Borg’s Q1 revenue increased by 9% year-on-year to 280 MSEK, well in line with our estimates and the Retail Consensus. The wholesale segment, the company’s largest, grew by 11%, supported by strong sales in the Netherlands and Sweden, which grew 37% and 9%, respectively. Direct-to-consumer, Distributors, and Licensing segments were broadly in line with our expectations. By product category, sports apparel was the standout performer, growing 13% despite challenging comparison figures, as well as footwear, due to the takeover of distribution. However, the underwear category underperformed, declining 12%, primarily due to timing effects in seasonal deliveries. Geographically, performance was solid across most markets, with the exception of Germany, which declined 21% due to weaker through-sales at major retailers.

Gross margin declined to 49.9% (adjusted for currency effects: 50.9%), falling short of our estimates due to an unfavorable sales mix, with a lower share of high-margin underwear and a higher share of lower-margin footwear. SG&A rose by 5%, mainly due to increased marketing spend, but came in slightly below our expectations. As a result, EBIT was in line with our forecast at 34.2 MSEK (Q1’24: 33.5 MSEK). EPS rose to SEK 1.43 (Q1’24: 0.84), exceeding expectations due to favorable FX effects from a stronger SEK.

We keep our estimates intact

The Q1 report was well in line with our expectations, and we did not make any major estimate changes.

We estimate Björn Borg's growth at around 5-7% in the coming years, slightly exceeding overall market growth but falling short of the company’s long-term financial target of at least 10% annual sales growth. We anticipate that sales growth will primarily stem from the expansion of sports apparel and footwear, but achieving the revenue growth target will be challenging. While the company has proven its ability to successfully expand its sports apparel category, more concrete evidence of volume growth in footwear is necessary. To our understanding, the four latest quarters of increased footwear sales have largely been attributable to the takeover of distribution outside the Nordics, but overall volumes seem to be at lower levels. In our view, significant growth will require time, as Björn Borg needs to enhance quality, design, and distribution, similar to the earlier apparel transformation.

We stand on the sidelines for now

We forecast good earnings growth in the coming years driven by revenue growth and a slight margin increase. We expect Björn Borg to distribute most of its earnings and free cash flow as dividends, resulting in a dividend yield of 5-6%. However, the share price has increased almost 20% since our latest report and the earnings-based valuation multiples for 2025-2026 are at best neutral (P/E: 16-18, EV/EBIT: 12-14). The DCF and peer valuation paint a similar picture. As a result, Björn Borg’s expected return is lower than the required return. Consequently, we turn to a Reduce recommendation (prev. Accumulate) but maintain our target price of SEK 55 per share.