The German footwear brand Birkenstock is set to become one of the oldest European companies to be listed on the stock exchange tomorrow. Its roots trace back to the second half of the 18th century. However, the brand’s popularity surged during the 1960s hippie movement and more recently due to an appearance in a ‘Barbie’ movie. Can Birkenstock leverage this momentum to translate its popularity, robust growth, and improved margins into stock market success? On October 11th, the company’s shares will debut on the New York Stock Exchange, with investors preparing for one of the five largest IPOs since 2022.
Superior Product – Soaring Stocks?
Birkenstock is renowned for its patented footbed that conforms to the wearer’s foot. It’s this unique feature that allows the company to market itself as ‘The most comfortable and healthiest footwear in the world’. Notably, the global conglomerate LVMH, through the L Catterton fund, acquired a controlling stake in the company in 2021. Will all this translate into a successful NYSE debut and a rising share price?
Despite concerns about the momentum of the global economy, consumers in developed markets, where Birkenstock is currently available, seem willing to pay a premium for quality footwear that enhances their daily comfort and health. While nobody disputes that the company offers an exceptional product, its stock valuation might tell a different story.
Market concerns regarding the global economic health and rising threats to consumers in a higher interest rate environment haven’t deterred investors from valuing the German ‘most comfortable shoe in the world’ maker at around $10 billion. At this valuation, the company could raise an additional $1.6 billion to fund further expansion. Compared to other major German footwear manufacturers, this is nearly $2 billion more than Puma’s valuation but still three times less than Adidas.
The current valuation suggests Birkenstock aims for a valuation akin to some luxury brands that possess a ‘wide moat’ – significant competitive advantages and a product that generates high margins and remains in demand, even during economic downturns. Birkenstock appears to have the fundamentals in place for further global expansion. Long-term prospects for the company seem promising, but short-term valuation may be volatile.
Will LVMH Increase its Stake in Birkenstock?
The touch of luxury in Birkenstock isn’t limited to LVMH’s stake in the company. Alexandre Arnault, son of LVMH’s CEO and one of the world’s wealthiest individuals, has been nominated to Birkenstock’s board of directors. Financière Agache, the Arnault family office, has expressed interest in purchasing additional shares worth up to $325 million (likely over 3% stake). Norway’s sovereign wealth fund and Durable Capital Partners have also shown interest in buying shares worth approximately $300 million.
Since mid-September, Birkenstock is the fourth major company to debut in the US market. Shares of chipmaker Arm fell by 10% from their IPO price, Instacart dropped over 20%, while marketing firm Klaviyo’s shares are flat compared to their debut price.
If Birkenstock shares turn out to be significantly overvalued on their debut, the risk premium may be deemed too low, leading to depreciation until supply and demand stabilize at levels facilitating further growth. It’s also worth noting that speculators might be highly active on the debut day. If broader market sentiments are positive, we might witness a buying frenzy at the opening. Are investors still willing to pay a premium for quality? We’ll find out tomorrow.
Author: Eryk Szmyd, XTB analyst
