Global Retail   //   October 13, 2023

Birkenstock’s lackluster IPO could be a warning sign to other brands

After months of hype, Birkenstock’s IPO got off on the wrong foot.

The German sandals maker’s debut on the public markets was one of the most anticipated IPOs of the year. But, when trading finally began on Wednesday, shares started at $41, five dollars less than what Birkenstock had priced. The stock continued to slide, finishing out the day down nearly 13%. All in all, it was the worst debut by a company worth more than $1 billion in nearly two years, according to Bloomberg data.

Birkenstock was one of the first major consumer brands to go public since the IPO blitz of 2021 — a time in which Warby Parker, Allbirds and Figs all began trading. Birkenstock fans were optimistic about the brand’s prospects on the New York Stock Exchange, especially considering Birkenstock’s recent growth. According to its F-1 filed earlier this year, Birkenstock’s revenue jumped 70% from fiscal 2020 to fiscal 2022. Its revenue for the six months ending March 31, 2023 was €644.173 million ($691.62 million), up from €542.558 million ($582.52 million) a year earlier.

In the end, though, this wasn’t enough to prop up Birkenstock’s shares. At the end of trading Wednesday, Birkenstock’s valuation stood at around $7.7 billion, nearly a billion dollars off its targeted valuation of $8.6 billion.

Birkenstock’s lackluster performance, according to analysts and experts, was likely due to several factors: an overvaluation of the company, a hesitation to buy into a market that’s still trying to right itself and a lack of confidence in the footwear sector. Together, these factors could make other brands cautious about pursuing an IPO in the coming months under similar economic conditions.

Market miscalculations

One of the biggest issues with Birkenstock’s public offering was how it priced its shares, Neil Saunders, managing director at GlobalData Retail, told Modern Retail. Even though Birkenstock priced its IPO mid-range, “the multiples around the valuation were quite toppy, and I don’t think investors shared that confidence in the business,” he said. Birkenstock originally pushed for a valuation more than six times its fiscal 2022 revenue.

Back in 2021, companies that went public with high valuations didn’t get much pushback, Saunders said. People were excited about buying into brands, especially direct-to-consumer ones, and many were eager to pay high multiples, he explained. Warby Parker’s initial valuation was $4.5 billion, more than 11 times its fiscal 2020 revenue of $393.7 million; Allbirds’ initial valuation was $2.2 billion, more than 10 times its fiscal 2020 revenue of $219.3 million.

Today, people are less forgiving of high multiples, Saunders said, especially as some experts warn of a possible recession. “The markets aren’t like that anymore, and I think Birkenstock has proven that point,” he said.

Another factor at play in Birkenstock’s IPO could be softness in demand for footwear, David Swartz, senior equity analyst in consumer equity research for Morningstar, pointed out. For months, brands have had some difficulty attracting customers who are cutting back on discretionary purchases to save money for gas and food. In addition, footwear retailers have struggled to get high inventory levels under control, and their 2023 figures often pale in comparison to 2021, when shoppers flocked to stores after lockdowns.

While some footwear companies have seen a surge in sales — On Running and Hoka, for example — others have had an up-and-down year. Despite its recently-strong earnings, Nike is down 17% year-to-date. Adidas has trimmed its profit outlook multiple times over the last year and a half, and in August, Foot Locker issued a warning about softer sales.

“Most of the companies that I cover, their stocks are down today; it’s not just Birkenstock,” Swartz said. “I think a lot of companies in the footwear and apparel space are seeing weak share prices at the moment. That’s probably caused some of the problem.”

Taking stock of going public

Very few fashion companies have floated plans to go public in the coming months, but there are still some big names on the horizon, notably Skims, Shein and possibly Reformation. While market conditions could improve by the time these brands begin selling shares, Birkenstock’s stock saga could prove a cautionary tale, some sources say.

Saunders believes that Birkenstock’s performance will “probably put a lot of companies off launching an IPO.” “Birkenstock was a sort of symbol in a way, a test to see whether the market has recovered in terms of IPOs or not,” he said. “I think the results of that testing are that it hasn’t. You can’t IPO with an extremely high valuation any longer.”

As a profitable company in line with consumer trends, Birkenstock “ticks a lot of the boxes,” Saunders said, “and if a solid company can’t achieve a really good share price, it means that there’s really very little hope for some of these other companies, like the DTC companies that really don’t make a profit at all.”

The handful of companies that have gone public in 2023 have seen mixed results. Instacart lost almost all of its IPO gains by its second day of trading. Klayvio’s shares, while up in the double-digits initially, have since dropped. Arm, a British chip designer, had a strong IPO that valued the company at $67.9 billion.

Going forward, more companies may stay private for longer, Swartz said. “Companies have been able to get private financing at good valuations, so they’ve had less incentive to go public than they used to,” he said. Shein, for example, was valued at $100 billion in April 2022, a number that has since gone down to $66 billion.

“If you can get a $100 billion valuation as a private company, you have no reason to go public, one would think, as long as the capital is there,” Swartz said.

Investors may also have been deterred from putting money in Birkenstock in case interest rates rise again, Marla Greene, associate professor of fashion merchandising and marketing at LIM College, told Modern Retail. Since March 2022, the Federal Reserve has raised its benchmark short-term rate 11 times.

Steps in the right direction

Despite the difficulties Birkenstock has had on the public market, the company is still in a strong position, some say.

For one, compared to other companies that have gone public in the sector, Birkenstock has higher annual revenues. Allbirds, whose IPO attracted much fanfare, has since lost nearly all of the gains it’s made as a public company. (Its stock price is down 96% since its debut.) Dr. Martens, too, went public with a high valuation, but “there’s been a bit of disappointment on performance,” Saunders said. Its stock price is down 75% since its debut, although the company did recently pass $1 billion in yearly revenue for the first time.

Birkenstock also benefits from the strength of its products and its large customer base, Susannah Davda, director of the U.K.-based consultancy The Shoe Consultant, told Modern Retail. In its F-1, Birkenstock said that approximately 70% of its U.S. consumers indicated they had at least two pairs of Birkenstocks. The company has also received attention for its collaborations with the likes of Dior and Manolo Blahnik.

“Birkenstock needs to stay on track rather than getting distracted or disheartened by the drop in share price,” Davda said via email. “[It needs] to refocus on connecting with past and future customers, continuing to make excellent quality products and driving sales through collaborations and influencer partnerships that their customers feel aligned with.”

And, while Birkenstock is a nearly 250-year-old company, its stock performance is still in its early innings, Swartz pointed out. The price could go up, and it could go down.

“It really matters where the stock is in six months, in a year, in two years,” he said. “Just because an IPO is hot doesn’t mean the stock’s going to be a big winner. And just because it’s weak doesn’t mean it’s going to be a loser.”