(News Bulletin 247) – The share price is moving significantly below the price of 46 dollars which was set for its IPO. The valuation proved demanding for the market.

Birkenstock’s debut on Wall Street was more of a misstep than a success. The German sandal specialist founded in 1774 fell 9.6% around 8:20 p.m. according to Marketwatch data, to $41.66.

A price significantly below the price of 46 dollars per security which had been chosen for the operation. As Michael Hewson of CMC Markets points out, this IPO enabled the company controlled by the L Catterton fund, with which LVMH is associated, to raise around $1.5 billion.

Birkenstock perhaps expected too much from the market. Based on the price initially used, $46 per share, the company’s market capitalization amounted to $8.6 billion. Or approximately twice the implicit valuation that Birkenstock displayed when L Catterton acquired it in 2021 (more than $4 billion).

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Good growth since 2014

Certainly, Birkenstock has since shown good growth. Its revenues increased from 728 million euros for the financial year ending in 2020, to 1.24 billion euros for that ended last year, with average growth of around 20% between 2014 and 2022. And on the first nine months of the financial year ending in 2023, growth reached 21% to 1.1 billion euros, notes Michael Hewson.

“While this news is encouraging, it does not necessarily justify a valuation four times higher than that of its counterpart Dr. Martens (listed in London, Editor’s note)”, however, qualifies the market analyst.

Bloomberg noted Wednesday afternoon that this $8.6 billion implies a demanding valuation. Including approximately $1 billion in debt, the agency calculated a total enterprise value of $9.6 billion. Estimating that gross operating profit (Ebitda) would reach around 500 million euros over the entire current financial year, Bloomberg arrived at a stock market multiple of around 18 times the expected Ebitda.

“This is far ahead of Dr Martens and Crocs” which each display multiples of less than seven, argues the agency. Birkenstock “is even ahead of LVMH, the largest luxury group in the world, by around 13 times,” she adds.

Normalization of demand in luxury

The example of Dr Martens, who issued a profit warning this year, is not really appealing. Since its listing on the London Stock Exchange in 2021, the company’s share price has seen its price cut by more than three. Crocs, for its part, has lost more than 20% since the start of 2023, and more than 50% since the summer of 2021.

However, it should be recognized that Birkenstock appears to have excellent operational execution, which is not necessarily the case for Dr Martens, points out Bloomberg. But even with this Wednesday’s decline, the company will have to avoid any hitch (or “fashion faux pas”) under penalty of probable stock market sanctions.

Especially since its introduction occurs in a context of normalization of demand for luxury products. LVMH’s activity in the third quarter illustrated this very well with like-for-like growth of 9% over the period compared to 17% over the previous quarter. The market also sanctioned the publication of the number one luxury item, with the share price falling 6.5% this Wednesday.