Birkenstock Holdings shares
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The cork-soled clog maker had a rocky start to its stock market debut on Wednesday.
The company’s stock (ticker: BIRK) opened Wednesday afternoon on the New York Stock Exchange at $41, down 11% from its IPO price of $46 per share. The German shoemaker expects to price its IPO between $44 and $49 per share, according to documents filed last week.
Birkenstock raised $1.58 billion, giving it an initial market value of $7.7 billion, excluding employee and executive stock.
Still, Birkenstock’s market capitalization is larger than its peers Allbirds (BIRD), Skechers (SKX), Crocs (CROX), and Steve Madden (SHOO), and its valuation means it’s being acquired by private equity firm L. Catterton. This is approximately double the approximately $4.3 billion paid for the project. The company is expected to be established in early 2021.
Neil Saunders, managing director and retail analyst at research firm GlobalData, said the high valuation reflects the company’s success over the past few years. Birkenstock’s revenue increased from €727.9 million ($770.9 million) in fiscal year 2020 to €1.24 billion ($1.3 billion) in fiscal year 2022. Net income increased by approximately 86 million euros ($91 million) during that period.
“I think we’re seeing some growth and some trust in the brand,” Saunders said. “It looks like it’s going to be a pretty strong IPO.”
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But some people aren’t convinced. To justify its $8 billion valuation, Birkenstock’s annual revenue would need to reach more than $3.8 billion, or about three times its fiscal 2022 revenue, according to top investment research firm New Constructs. CEO David Trainer said:
“I don’t think this is going to happen anytime soon,” he said last week. “BIRK looks more than well-valued, but there isn’t much upside potential for investors.”
Looming over Birkenstock’s public offering is the fear of other recent IPOs that saw their stock prices plummet on their first day. Shares of chip design company Arm Holdings (ARM) fell below their opening price after an impressive debut. Shares of distribution platform Maple Bear (CART), which is the holding company for Instacart, fell below its public offering price. Additionally, the stock price of Cava Group (CAVA), a fast-casual Mediterranean chain that went public in the summer, is trading well below its initial price. Perhaps the most similar stock is fellow footwear company Allbirds, which opened at $21.21 in November 2021 but now trades for less than $1. Allbirds is currently valued at approximately $144 million.
It’s “very unlikely” that Birkenstock will follow the same path as Allbirds, said Alex Smith, global head of research firm Third Bridge. Unlike Allbirds, which is a relatively new company, Birkenstock has a loyal customer base and his 250-year “rich history.”
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GlobalData’s Sanders agrees. Currently struggling IPOs, such as Instacart, carry higher risks given that their business models are still relatively new, he said. Birkenstock, on the other hand, is “very mundane” in the way it operates, following a classic retail model that the market is already accustomed to, he added.
“In this day and age, investors want to be in a safe place, and Birkenstock is one of those safe places,” Sanders said.
Birkenstocks also have backers. L. Catterton, who merged with the private equity arm of LVMH Moët Hennessy Louis Vuitton (LVMHF) in 2016, will remain a majority shareholder in the company after its initial public offering. The company also secured financing offers from several investors, including Financière Agash, Durable Capital Partners and Norges Bank Investment Management, according to the filing.
Email Sabrina Escobar at sabrina.escobar@barrons.com.
