Björn Borg Q2'25: Playing offense on growth, margins under watch

Björn Borg’s Q2 results were mixed. While the company reported strong revenue, it did not come without costs and profitability was lower than our expectations. The company’s earnings multiples for this year are at the upper end of our acceptable valuation range, with a P/E ratio of approximately 18x and an EV/EBIT of ~14x. At current valuations, we would like to see clearer evidence that the company can successfully expand its revenue while maintaining solid gross margins. As a result, we reiterate our Reduce recommendation and target price of SEK 55 per share.

Another quarter of strong growth

Björn Borg's Q2 revenue grew by 8.9% in local currencies. However, due to a negative FX impact from a strengthening SEK, reported revenue increased by 6.0% year-on-year to 226 MSEK. Given the challenging comparison figures, we believe the company delivered strong growth, slightly exceeding our expectations. The main growth drivers in the quarter were Own e-commerce and the Wholesale segment, growing 26% and 9%, respectively. By product category, sports apparel was the standout performer, growing 40% despite challenging comparison figures. However, footwear revenue decreased, as anticipated, as last year's summer collection was distributed in Q2'24 due to delays in the footwear takeover, whereas this year's collection was distributed as planned in Q1’25. Geographically, key markets Sweden and Germany both experienced strong growth, while the Netherlands stood out on the negative side.

While the company showed a strong topline growth, the Q2 gross margin was weak, declining to 47.5% adjusted for currency effects. The decline primarily reflects strategic initiatives aimed at driving growth, including a focus on larger customers with higher order volumes, which has required offering greater discounts. Naturally, growth does not come without cost, and while this strategy supports revenue expansion and market share gains, it has weighed on profitability in the quarter. On the cost side, the company managed to keep operating expenses relatively in check, leading to a slight increase in absolute EBIT to 10.6 MSEK. Nevertheless, despite good revenue growth, Q2 earnings were below our expectations as a result of the lower gross margins.

No major changes to our estimates

While we expect Björn Borg to remain aggressive in pursuing growth, which will likely pressure margins, we also anticipate stronger FX tailwinds in H2 than previously assumed, which should provide some offset. As a result, we have made only marginal adjustments to our estimates. While we do not view Q2’s gross margin as the new normal, there is some downside risk to H2 estimates if the discounts that weighed on Q2 margins persist.

For the current year, we expect revenue growth of around 9% in local currencies (7% reported), driven primarily by the expansion of the sports apparel category within the company’s own e-commerce channel. Looking ahead to 2026–2027, we forecast organic growth of around 6-7%, supported by rising sales in sports apparel and footwear, as well as expansion in the German market. While sales growth should generate some operating leverage, continued expansion will likely require additional costs. Overall, we continue to expect Björn Borg to deliver an EBIT margin roughly in line with its 10% target in the coming years, supported by good sales growth.

We stay patient for a more attractive valuation

We forecast good earnings growth in the coming years driven by revenue growth and solid margins. 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 is expensive on an actual earnings basis, and in our view, Björn Borg’s expected return is lower than the required return. The DCF and peer valuation paint a similar picture. Consequently, we reiterate our Reduce recommendation and target price of SEK 55 per share.