Björn Borg's Q3 report beat our expectations, with strong profitability driven by a favorable channel mix. The earnings beat lifted our near-term earnings estimates, while our mid-term revenue estimates came down slightly due to continued weakness in the Wholesale channel and slower-than-expected progress in footwear. Although the announced CEO change brings some short-term transition risk, we believe the strategic foundation remains solid. Given the attractive combination of expected earnings growth and a high dividend yield, we continue to see the stock's risk/reward ratio as attractive. We therefore reiterate our Buy recommendation and target price of SEK 66 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 core categories. While top-line growth is the biggest positive driver for Björn Borg, the main near-term risks to achieving it are continued slow integration of footwear, sluggish Wholesale demand, and prolonged weak consumer confidence.

Gross margin drove a clear earnings beat

Björn Borg reported Q3 revenue of 308 MSEK, corresponding to 3% year-on-year growth, roughly in line with both our and Retail Consensus estimates. Own e-commerce was a positive highlight, growing by an impressive 16%, driven by a 32% increase in sports apparel sales. Wholesale, the largest channel, grew by 3%, in line with our expectations, with e-tailers growing by 18%, supported by good momentum in Germany. Once again, the standout in the report was the gross margin, which surged to 54.6% (Q3'25: 52.5%), mainly driven by the larger share of high-margin own e-commerce, as well as lower discounts to key accounts and positive FX effects. This lifted EBIT to 53 MSEK, corresponding to an exceptionally high margin of 17.2% and well above our and Retail Consensus estimates. Cash generation also remained strong, with rolling 12-month free cash flow of 148 MSEK, and the balance sheet is solid (net debt/EBITDA 0.6x), supporting continued high dividends.

Higher near-term earnings estimates, slightly lower mid-term revenue

The Q3 beat lifted our 2026 EBIT estimate by 5% to 134 MSEK (EBIT margin 12.7%), while our revenue estimate is unchanged. Our Q4 assumptions remain largely unchanged, as we expect the channel mix to be less supportive when Wholesale accounts for a larger share of sales, and we do not expect a repeat of last year's FX tailwinds. For 2027–2028, we have lowered our revenue estimates by 1–2% due to slower growth in footwear and Wholesale, particularly in the Netherlands. However, a larger share of high-margin own e-commerce leads us to slightly raise our margin assumptions, and we expect the EBIT margin to remain around 12% in the coming years. Bunge will remain CEO until the end of March 2027 and thereafter be available as a senior adviser, which in our view supports a smooth transition.

Earnings growth and dividend yield support an attractive expected return

In our view, investing in Björn Borg exposes the investor to a profitable growth company with a solid balance sheet and a high dividend yield. With 2026–2027 P/E multiples of around 13–14x and EV/EBIT of ~10–11x, we consider the valuation low relative to the company's earnings and return on capital potential, and our DCF model (SEK 66 per share) also points to upside. We expect earnings growth of around 5–10% per year and an annual dividend yield of some 6–7%, which together offer a total expected return (~15–20%) well above our required return of 10%. We therefore consider the risk/reward ratio attractive.