Friday Oct 13 2023 09:31
6 min
Birkenstock, the German shoemaker known for its cork-soled sandals, joined the list of companies facing IPO challenges this year.
In its debut trading session on Wednesday, Birkenstock shares closed at $40.20 — a drop of nearly 13% from its initial offering price of $46, agreed on Tuesday evening. The offer price was in the middle of its previously targeted range, as noted by the Financial Times.
This trend of disappointing early performances isn't unique to Birkenstock, as other big-name listings have faced similar struggles this year. Shares in chip designer Arm Holdings — arguably the biggest IPO of the year — are currently trading below their listing price in September. A similar scenario has unfolded for Maplebear, the parent company of San Francisco-based grocery delivery firm Instacart. After debuting at $30 and surging 12% on the first day of the Instacart IPO, Maplebear stock has since declined to trade around the $25 mark.
Following Wednesday's closing price, Birkenstock, which characterizes itself as a "revered universal consumer zeigeist brand," carries a market capitalization of $7.6 billion based on outstanding shares, or $8.2 billion on a fully diluted basis.
Markets.com Chief Market Analyst Neil Wilson offered his thoughts on the bleak Birkenstock IPO in a comment on Thursday:
“Birkenstock flipped and flopped. Investors took a bit of a bath on this one with the stock sliding 12% from its IPO price. To be fair, the market for new IPOs has not been tremendous and it had LVMH out in the morning with downbeat earnings hitting luxury stocks in Europe, so it wasn’t the most auspicious beginning.”
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Birkenstock debuted on the stock market less than three years after the private equity firm L Catterton, which is backed by the French luxury fashion powerhouse LVMH, acquired a majority stake in the company. The deal initially valued Birkenstock at approximately €4 billion.
As part of the Birkenstock IPO, Financière Agache, the family holding company of LVMH's CEO Bernard Arnault, committed to purchasing up to $325 million worth of the shoemaker’s shares. Following the completion of the deal, Bernard Arnault's son, Alexandre, is set to join Birkenstock's board of directors.
After LVMH's less-than-stellar earnings report earlier on Wednesday, some analysts raised concerns that the luxury sector's post-pandemic surge might be losing momentum. LVMH shares saw a nearly 7% decline following its announcement of decelerating sales growth in the third quarter, as per a CNBC report.
Kathleen Brooks, founder of Minerva Analysis, told the publication:
“The dynamics within the luxury goods sector are changing, and today LVMH’s share price is a victim of that.”
She added that the results of previous years were an “impossible high standard to follow.”
“Usually luxury goods perform well in economically challenging environments, however there are multiple economic and geopolitical threats to the industry which are happening all at once and this could have an impact on the future outlook.”
This includes China transitioning to a structurally slower rate of economic growth and the impact of higher interest rates on the demand for "affordable luxury" products in the United States, she explained.
Birkenstock was the second L Catterton portfolio company to go public, with online beauty retailer Oddity Tech debuting on the Nasdaq exchange back in July.
There are no price targets on the stock as of yet, as per TipRanks and MarketBeat. A number of analysts said that they were hardly surprised by the dynamic on Wednesday:
"What this shows is that the valuations that they are putting (on) these companies make absolutely zero sense, particularly when you're in a down market when there's so many other bargain opportunities available," Thomas Hayes, chairman at Great Hill Capital in New York, told Reuters. He added:
"If you're putting out new paper that no one would pay for existing companies, what you're going to see is that after the initial pop, you're going to see a drop.”
David Trainer, Chief Executive of independent equity research company New Constructs, had issued similar warnings ahead of the Birkenstock IPO.
According to his estimates, Birkenstock would need to generate more than $3.8 billion in annual revenue to justify that valuation — more than three times the $1.24 billion chalked up for all of 2022, according to the company’s SEC filing prior to the IPO.
“We don’t see this happening anytime soon, if ever,” the analyst said in a report prior to the listing.
Trainer’s overall verdict on Birkenstock shares was highly negative:
“We don’t doubt that Birkenstock has strong brand equity and produces stylish sandals, but there is really no reason for this company to be public. We do not think investors should expect to make any money by buying this IPO.”
At the time of writing, the Birkenstock share price hovered around $40.30 in premarket trading.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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