Björn Borg Q1'26: Another solid quarter, but we remain on the sidelines

Björn Borg’s Q1 results came in above our expectations, and we view the share price reaction following the report as justified. While we have raised our short-term estimates following the Q1 beat, our mid- to long-term estimates remain largely unchanged. In our view, given the ongoing uncertainty in the operating environment and lack of clear evidence that the company can successfully scale its footwear segment, we believe the stock is already fairly priced for its expected earnings growth (2026e P/E: 17x). As a result, we reiterate our Reduce recommendation and target price of SEK 67 per share.

The investment case relies on increased sales growth

In our view, Björn Borg’s investment case depends on the company’s ability to sustain profitable growth while successfully expanding its footwear and sports apparel categories. While the biggest positive driver for Björn Borg clearly is topline growth, the main near-term risks to achieving this are slow integration of footwear, a lack of brand traction, and prolonged weak consumer confidence.

Björn Borg delivered an overall solid Q1 report

Björn Borg delivered strong Q1 revenue growth of 10.9% in local currencies, above both our and Retail Consensus expectations. Underwear was the main growth driver, rising around 15% due to strong wholesale performance and favorable comparisons. However, weaker development in DTC and distributors suggests this was largely timing-related, and we expect normalization to low single-digit growth in Q2. Sports apparel growth was good at 13%, marking 15 consecutive quarters of double-digit growth and supporting the brand transformation. Footwear declined around 20% and remains a key underperformer despite some improvement in Own e-commerce.

The gross margin increased to 54%, supported by product mix, especially due to strong underwear sales, which carry higher margins. Currency tailwinds further supported margins, as the company sources in USD and EUR but generates little revenue in USD. Overall, this margin expansion, combined with higher sales volumes, enabled solid operational leverage in the quarter, with operating profit rising 37% year-on-year to 46.9 MSEK, well above both our and Retail Consensus expectations.

Short-term estimates raised, mid-term outlook remains cautious

Following the Q1 beat, we have slightly raised our revenue estimates for the current year. Looking ahead, we maintain a cautious stance on demand and keep our medium-term revenue estimates largely unchanged, due to rising geopolitical tensions, higher energy prices, renewed inflation concerns, and weakened consumer confidence. Higher short-term revenue estimates have led us to raise our EBIT forecast by around 6%, while leaving 2027-2028 largely unchanged. Going forward, we see a risk of increased cost pressure across sourcing and logistics due to the increased energy prices. In addition, we also expect the FX tailwinds that have supported the gross margins to fade somewhat going forward as they normalize in the comparison base.

Expected return is insufficient

We forecast good earnings growth in the coming years, driven by revenue growth and a gradual margin increase. We expect Björn Borg to distribute most of its earnings and free cash flow as dividends, resulting in a dividend yield of around 5%. However, looking at absolute valuation multiples, we believe that the stock is fairly priced for the earnings growth, and the DCF and peer valuation paint a similar picture. In our view, a larger upside for the stock would require a faster-than-expected expansion within the footwear segment, which has underperformed since its full integration into operations.