Williams Trading downgrades Birkenstock as brand 'may be losing premium positioning'

Williams Trading has downgraded to "hold" German footwear maker Birkenstock, arguing that the company is running too many promotions, which could erode the brand’s premium positioning.

Williams Trading has downgraded Birkenstock shares to “hold” from “buy,” as CNBC reports. The house also cut its target price by 4% to $44 per share. That implies 13% upside from the stock’s Monday closing price.

Birkenstock is running too many promotions, which is bad for the brand because it may lose its premium positioning, Williams Trading argued. Consumers may also lose the sense of urgency and need to purchase products at full price. Note that Williams Trading revised its rating and target price ahead of Birkenstock’s fiscal third-quarter earnings report, due on August 13.

Williams Trading is not alone in questioning the outlook for Birkenstock. Two weeks ago, investment bank Seaport Global downgraded the stock, according to Yahoo Finance data.

Seaport Global was disappointed by Birkenstock’s financial results for its fiscal second quarter, ended March 31, Investing.com reported. Revenue rose 8% year over year to EUR618 million, while growth in constant-currency terms came to 14%.

The second quarter is traditionally a reorder period for apparel and footwear manufacturers, Seaport Global noted. Birkenstock’s performance during the period was weaker than in the first quarter, when revenue jumped 11.1% year over year, or 17.8% in constant currency.

Nevertheless, Wall Street remains broadly upbeat on the stock. It has 18 “buy” calls from analysts versus five “hold” recommendations and one “sell” rating. The average target price is $45.90 per share, implying 18% upside from the Monday close. Birkenstock shares are down around 5% year to date.

Birkenstock CEO Oliver Reichert is trying to convince investors that his steady approach to growth will keep the company popular with consumers for years to come, Bloomberg wrote back in February. His strategy relies on manufacturing products in Germany and maintaining tight control over where its footwear is sold.

However, Reichert has faced criticism for not providing enough information about Birkenstock’s performance and expectations, FashionNetwork, an industry news site, reported in January.

“It’s clear that investors are not responding well to the ‘trust us, we know what we’re doing’ messaging from the company,” Williams Trading said already last December.