Birkenstock investors get cold feet
The impressive resurgence of the humble Birkenstock brand culminated in its IPO overnight. But there's a reason it stumbled on debut.
Not so long ago the summertime footwear of choice in Australia was the humble pair of thongs. Practical, cheap and ubiquitous, they were the unpretentious accessory of choice in a culture that detests show-offs. Then along came the Birkenstock.
Despite being around for centuries, it seemed like there was a sudden resurgence of the once-daggy sandal on our shores, seemingly replacing thongs overnight. From counterculture to shop counters, the most recent renaissance of the sandal has been relentless. In 2017, it premiered at Paris Fashion Week. On Wednesday, it debuted on the New York Stock Exchange in an IPO that valued the business at USD8.32 billion ($13 billion).
Yet unlike other recent new listings, shares in Birkenstock fell 13% on their first day of trading. The problem isn’t that the shoe’s popularity is already waning — although it inevitably will — or that Birkenstock isn’t a good business. In fact, compared to some of the hyped-up growth stocks that IPO’d in recent years, the fundamentals look quite solid. It’s profitable to the tune of USD145 million and revenues grew at 21% last year.
The rub is that this healthy consumer goods business has been sold to the market as if it’s a fast-growing tech stock, trading at a price-to-earnings ratio of 50. To understand Birkenstock’s inflated price, we need to understand who owns the company. In 2021, LVMH founder Bernard Arnault and his American private equity firm L Catterton took on a ton of debt to buy a majority stake in the company, valuing it at USD4.35 billion.
