The traditional sandal manufacturer Birkenstock experienced a debacle during its eagerly anticipated IPO in New York. Investors let the shares fall almost 13 percent below the issue price on the first day of trading. Companies usually attach importance to finding a price point at which there is a significant plus at the start of trading. In the case of Birkenstock, that went completely wrong.
The first price on Wednesday was $41, more than ten percent below the issue price. After that, things got even worse: at the close of trading, the share cost almost 12.6 percent less at $40.20. This gave Birkenstock a valuation of $7.55 billion. In after-hours trading, the price fell even further to $39.66.
How could this happen?
Were Birkenstock and its main owner L Catterton too greedy with the price or did they misjudge the demand? Of course, the climate for IPOs, especially in the fashion sector, is not the best, especially with economic concerns and tighter consumer budgets. But when chip designer Arm went public four weeks ago, its shares jumped by a fifth – even if they have since retreated from their highs. And unlike many unprofitable companies whose prices took off when they went public, Birkenstock can point to solid business and is making a profit.
Birkenstock had already set the issue price at $46, rather conservatively, in the middle of the previously set range of $44 to $49. However, that was too much for investors. According to the business broadcaster CNBC, at least some of them disliked the fact that the valuation was based on earnings before interest, taxes, depreciation and amortization (Ebitda) and not on net profit.
Even though stocks very rarely end the first day with a loss, Birkenstock is not an isolated case. A similar mishap happened to the ride-hailing company Uber in May 2019, for example, whose shares debuted on the stock market at seven percent below the issue price of $45. The price later recovered. And the shares of the delivery service Instacart, which started with a plus just a few weeks ago, are now 20 percent below the issue price.
The share placement raised almost 1.4 billion euros
The Birkenstock share placement raised almost $1.5 billion (around €1.4 billion). Around two thirds of this go to the main owner L Catterton, who is linked to the luxury group LVMH and its billionaire boss Bernard Arnault. Birkenstock wants to use its share of the IPO proceeds to reduce debt. After the stock market debut, company boss Oliver Reichert emphasized that Birkenstock was focused on sustainable long-term growth. L Catterton will remain in control even after the IPO.
The origins of Birkenstock, headquartered in Linz am Rhein in Rhineland-Palatinate, date back to 1774. Almost 250 years ago, shoemaker Johannes Birkenstock laid the foundation for “a shoemaker dynasty,” according to the company. The company describes itself as the “inventor of the footbed”. The sandals have long since broken away from their former eco-slipper image; in recent years they have increasingly developed into a fashion accessory, also through collaborations with high-end brands such as Dior and Manolo Blahnik.
In the first half of the current financial year, which ended at the end of March, Birkenstock increased sales by 18.7 percent to around 644.2 million euros. The bottom line is that a profit of 40.2 million euros remained in the books, after around 73.5 million euros a year earlier. The decline was primarily due to unfavorable exchange rates. Birkenstock ended the last financial year with sales of 1.24 billion euros and a profit of 187 million euros. (dpa)