Did you buy the Birkenstock IPO? What you need to know about Crocs, Allbirds and the uneven history of the shoe stock market

Nordstrom department store display of Birkenstock sandals at Shops at Merrick Park, Miami.

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Birkenstock, the iconic shoe company that dates back to the 18th century, made official on Tuesday what has been rumored in the press for months: It is planning an initial public offering.

The company filed its IPO registration statement Tuesday afternoon.

The deal, which comes more than two years after the Birkenstock family sold a majority stake in the company to LVMH-affiliated private equity firm L Catterton, highlights the growth seen since the investor buyout, and the brand's disruption since. A recent episode of the wildly popular movie “Barbie.”

Birkenstock, which began as a single shoemaker in Germany named Johann Adam Birkenstock, is now planning an IPO at a valuation of $8 billion. Birkenstock left its long-standing family ownership structure in 2021 when L Catterton, the LVMH-backed private equity firm, acquired a majority stake in the company. At the time, the deal valued the brand at $4.85 billion.

Annual revenue grew from approximately $781 million in 2020 to more than $1.3 billion in 2022, a 31% annual growth rate. The IPO filing did not include a potential valuation, but it did reveal that net income for the six months ended March 31 rose 19% to $692.9 million, although profit fell 45.3% from the prior six-month period.

Birkenstock plans to trade on the New York Stock Exchange under the ticker “BIRK”.

Recent press reports suggest that the company may be valued at approx $8 billion. L Catterton's beauty firm in the summer oddity The Nasdaq rose 40% in its debut, but has fallen 20% in the year since its first day of trading. Shoe companies have had recent success in the public market, but not all in the long run. Crocs, Sketchers and Deckers Outdoor There are all examples of shoe stocks that have done well – but all birds and on the holding they fought

“Seeing peers trading very well this year will probably encourage Birkenstock and perhaps other fashion names to go public,” said Angelo Bochanis, IPO analyst at Renaissance Capital.

“Consumers buy our products for a thousand wrong reasons,” Birkenstock CEO Oliver Reichert said in an IPO prospectus. “But they'll all be back… Thanks to our brand's strong reputation and universal appeal – allowing us extensive word-of-mouth exposure and great earned media value – we've effectively built a growing global fan base of millions of consumers that uniquely transcends geography.” gender, age and income,” Reichert said.

LVMH and L Catterton declined to comment.

From country shoes to cultural icons

The first record of the Birkenstock name in connection with the shoe industry is in 1774, when Johann Adam Birkenstock is recorded as “Under and Cobbler” in his German village. Konrad Birkenstock, Johann's grandson, followed in his grandfather's footsteps, creating in 1902 the world's first staircase with a contoured arch support. He later sells flexible arch support inserts to German shoe manufacturers. The first Birkenstock sandal was created in 1963 by Carl, Konrad's grandson. In 1966, it was an iconic shoe Margot Fraser brought her to AmericaA German tailor who lived in California. It was here that the brand's “hippie” associations arose – the shoes were mainly stocked in health food stores.

Birkenstock's first foray into high fashion was a shoot for Britain by Kim Knott Come on in 1985. Five years later, the shoe became even more entrenched in the American fashion consciousness when it became an iconic model Keith Moss Wore them in the cover shoot face (photographed by Corinne Day). In recent history, the brand has collaborated with Rick Owens, Dior and Manolo Blahnik, among many other big names in fashion.

Jeremy Moeller | Getty Images Entertainment | Getty Images

The company's latest promotional drive may be its biggest: The brand's Arizona sandal has a starring role in this summer's blockbuster billion-dollar movie “Barbie.” In the film, Barbie (played by Margot Robbie) is forced to choose between seeking knowledge in the “real world” – Birkenstocks – or returning to ignorance – unbranded stilettos. Although Barbie tries to choose stilettos, she ends up choosing Birkenstocks and continues to learn the truth about the human world. At the end of the film, Barbie is shown wearing pink Birkenstocks in the real world.

The Current IPO Market Landscape

The IPO market has been frozen since the pandemic IPO boom collapsed, and successful IPOs have included iconic brands such as Johnson & Johnson's spinoff of its consumer health business, which includes Tylenol and Band-Aids. Kenview IPO.

According to Bochanis, the brand recognition that Birkenstock has built over its nearly 250 years of existence bodes well for the upcoming IPO.

“IPO investors are now looking for something they're familiar with, something a little more predictable in these unusual times,” he said. “We haven't seen a lot of very flashy, pre-profit enterprise software companies going public. What we're seeing are names that people are familiar with, business propositions that can really withstand this tougher environment, and Birkenstock fits the bill. I mean, It's almost 250 years old, it's a company that everybody knows.”

Still, even though Kenvue was the biggest deal of the year, it's barely holding its IPO price today, according to data from CNBC and Renaissance Capital, and the IPO market as a whole hasn't performed well since the announcement. 64 percent – ​​or 70 out of 70 IPOs from 45 years to the present – ​​are trading below their IPO price. Most of those deals were at the small end of the market cap, and even the tech sector, which was hardest hit by the IPO freeze, is now moving forward, with chip giant Arm and grocery startup Instacart set to go public this week and next.

Retail stocks are insufficient this year

“Birkenstock is in a class of its own,” said Mark Cohen, director of retail studies at Columbia Business School. “It's a long-standing brand, it's been around for a very long time. It's very well-known, it has a niche customer that appreciates its brand quality, its shape, its finish, its style and its comfort.”

But Cohen says investors shouldn't bank on its success as a new publicly traded stock.

Covid-19 has brought significant and dramatic change to the retail industry, but many of those changes have been reversed as the pandemic subsides. Meanwhile, the rate of inflation will continue to affect consumer spending for the foreseeable future. Most consumers haven't had the experience of dealing with inflation as adults, Cohen said. “We are dealing with a very strange series of events that has continued since Covid,” he added.

Add to the list of risks the rise of Birkenstock products on Facebook, which the company pointed to in its IPO filing.

Although inflation has fallen from its peak, there are signs that it will continue, and consumers tend to reduce discretionary spending in this type of environment. Credit concerns have also reached levels not seen since 2009. While Wall Street firms play down the odds of a recession, it's still a risk with significant consumer impact, though it may not be one that hits soon enough to derail current IPO enthusiasm.

JPMorgan CEO Jamie Dimon said earlier this week that while the U.S. economy is doing well, it would be risky to believe it will continue to do so for years. “To say today that the consumer is strong, which means you're going to have a growing environment for years, is a big mistake,” Dimon said. “If and when you have a recession, which you eventually will have, you will have a real normal credit cycle,” Dimon added. “In a normal credit cycle, something is always worse than expected.

But for now, consumer sentiment is still high, Bochanis said, “but if that changes dramatically, if there's even a small possibility that we've got a rough landing, then that could have a serious impact on discretionary spending.”

“Most retail stocks are nowhere near the low water mark,” Cohen said. “There's a lot of cynicism in the market in general, and retail is no different.”

The S&P SPDR Retail ETF It's up about 3% this year, but it's far from the pace set by the S&P 500, which has fallen more than 6% in the past month.

Next Crocs or Allbirds?

Two potential shoe IPO paths can be traced to the stories of Crocs and Allbirds.

Although its stock has been under pressure this year, Crocs, which went public in 2006, has made the biggest gains in stock market history, trading at $21. Like Birkenstock, the brand has successfully collaborated with various designers, including Balenciaga, and also relies on a loyal customer base that appreciates the product's comfort.

Allbirds, which went public in 2021, also opened around $21 but traded lower in the $1 range.

“It's a movie that doesn't always have a great ending,” Cohen said. “A recent example: the creation of Allbirds. Wildly successful, kind of a pony, but very successful, very popular. The company goes public.”

But Allbirds, he said, was trying to grow too much, in too many areas.

“Management, whether pushed by their investors or because they were flush with cash, continued to try to expand the brand and train wrecked the company. And now we're downsizing,” Cohen said. “They expanded their offerings to apparel and accessories beyond shoes, assuming that consumers would be equally interested in purchasing those products… Turns out that's not really the case,” he said.

Birkenstock has expanded beyond its core footwear products into skincare, accessories and sleep systems. And it faces — and details IPO risk factors — all the challenges that consumer brands cannot escape: a consumer base whose preferences cannot be predicted; A single, discretionary product category that is vulnerable to sudden changes in consumer trends and costs; The need for fast-paced innovation to keep up with changing styles and intense competitive pressures; And not only the need to find new customers, but also to maintain existing customers, which represent a significant percentage of revenue.

Birkenstock says its direct sales channel, which is more important to brands in the changing retail landscape and e-commerce era, is growing, from 30% of revenue in fiscal 2020 to 38% of revenue in fiscal 2022, with a particular focus on the U.S. The average Birkenstock customer in the U.S. owns 3.6 per pair, according to the IPO document provided by the company. He sees significant room for growth globally in the footwear market, which generates more than $350 billion in annual retail sales and where the top five brands account for 20% of the market, particularly in the Asia-Pacific region. “Based on our current market penetration of less than 1%, we believe there is sufficient room to continue to grow the Birkenstock brand,” the IPO prospectus said.

But retail is a highly unpredictable market, and that has its pluses and minuses.

“The beauty of retail is that every day is a new day. The misery of retail is that every day is a new day,” Cohen said. “Today's success does not predict tomorrow's results – you have to earn your keep on an ongoing basis.”