Iconic German sandal maker Birkenstock Holdings Ltd. made its trading debut on Wednesday, but the stock stumbled out of the gate, falling 10%. This early setback signals caution from investors in the face of new deals and a competitive casual-footwear market. The company’s initial public offering was priced at $46 a share, slightly below the midpoint of its expected range. Under the ticker “BIRK,” Birkenstock began trading on the New York Stock Exchange with lead underwriters Goldman Sachs, JPMorgan, and Morgan Stanley at the helm. While recent IPOs demonstrated strong first-day performance followed by subsequent declines, Birkenstock’s fate remains uncertain. Chip maker Arm Holdings Ltd., digital marketing company Klaviyo, and Instacart (trading as Maplebear Inc.) all experienced substantial gains initially, but later saw their momentum dissipate. Instacart, in particular, closed at $25.50 on Wednesday, well below its $30 issue price. Despite the uncertainty, Birkenstock boasts a loyal following. According to the company’s filings, 70% of existing U.S. customers purchase at least two pairs of Birkenstock shoes. Moreover, a recent survey revealed that 86% of recent purchasers expressed intent to buy again, while 40% did not consider any other brand during their purchase. Kyle Rodda, Senior Market Analyst at Capital.com, believes that the success of Birkenstock’s IPO could serve as a broad measure of market sentiment and sentiment toward consumer-sensitive stocks. In addition, he poses an intriguing question: Do cashed-up millennials prefer investing in brands found at the bottom of their wardrobes? Furthermore, Rodda suggests that Birkenstock’s valuation of around $8.6 billion appears to be on the higher side compared to other comparable consumer discretionary companies on Wall Street, with a price-to-sales ratio above 6 based on the latest revenue release.
Birkenstock Valuation Debate
The recent announcement of Birkenstock’s plans to go public has sparked a heated debate over the company’s valuation. As interest rates rise and consumer spending is expected to slow down, experts are questioning whether the current valuation of $8.7 billion is justified.
David Trainer, Chief Executive of independent equity research company New Constructs, has been vocal in his criticism of the high valuation. He pointed out that it surpasses that of other well-known footwear companies such as Skechers USA Inc., Crocs Inc., and Steve Madden Ltd. In fact, the only companies with a larger market cap than Birkenstock in the footwear industry are Nike Inc. and Deckers Outdoor.
Trainer believes that the valuation is too high, especially considering that as recently as early 2021, the company was valued at just $4.3 billion. According to Trainer’s report, not much has changed since then to justify such a significant increase.
To support the current valuation, Birkenstock would need to generate annual revenue exceeding $3.8 billion, according to Trainer’s estimates. However, the company’s filing documents with the Securities and Exchange Commission show that it only achieved $1.24 billion in revenue for the entirety of 2022.
While Trainer acknowledges Birkenstock’s strong brand equity and stylish sandals, he questions the necessity of the company going public. He advises investors not to expect significant returns from buying into this IPO.
As the valuation debate rages on, it is clear that the future of Birkenstock as a publicly traded company remains uncertain. Investors will be closely watching how the market responds to this IPO, especially in light of the current economic climate.
For more details on Birkenstock’s IPO plans and its iconic German sandal maker status, stay tuned.