‘Walking naturally’ or walking dead?🧟‍♂️ While the clever clogs at Gen Z’s ‘ugly’ fashion fave Crocs (CROX) cemented their Croctober status with spooky Halloween Jibbitz, which include ’shrooms and the Grim Reaper, perhaps the only thing scarier this month has been Birkenstock’s IPO. 

Hot on the heels of their Barbiecore movie debut, Birkenstock (BIRK) last Wednesday listed on the NYSE at an IPO share price of US$46, giving them a market cap valuation of US$8.6 billion. But in less than a week, the German-owned and European-made footwear company designed to give wearers that barefoot feeling has seen their stock tumble 17.4% to land at US$37.98 apiece with a market cap of US$6.833 billion - nearly US$2 billion or nearly 26% below their sought after US$9.2 billion valuation.

Why did ‘sleeping giant’ Birkenstock IPO?

Iconic or ironic? 🤷‍♀️ So why did a centuries-old, famously practical footwear company founded in 1774, introduced to the mass market in 1963 and backed by French luxury house LVMH need to list on the US share markets? In his prospectus letter under the subheading ‘Why we are Going Public’, CEO Oliver Reichert said of the ‘quarter of a millennium’ aged ‘sleeping giant’ company that:

‘We see ourselves as the oldest start-up on earth’, adding that ‘Birkenstock remains empowered by a youthful energy level, with all the freshness and creative versatility of an inspired Silicon Valley start-up’.

Reichert emphasised that Birkenstock had retained their family foundations while building a global business, and invited investors to be part of their ‘new chapter’. Further in the prospectus, the company outlined that money raised from the IPO would be funnelled to chip away at some of the company’s debts, according to IPO Scoop.

IPO go vs IPO no! 

Big bucks for Jobs’ clogs. 🤑 While Steve Jobs’ iconic brown suede Birkenstock Arizonas that carried the Apple founder through many ‘pivotal moments’ in the 1970s and ’80s sold at auction in November last year for a US$218,750, it appears Birkenstock investors - those who aren’t the now US$3.4 billion wealthier Birkenstock heirs - may have less cause for celebration. 

According to Bloomberg, the ‘frumpy anti-brand’ gained notoriety for having the worst first-day of trading in the US share markets for a more than billion dollar company since 2021. Renaissance Capital places Birkenstock’s IPO as one of the worst IPO results of the past decade for US$1 billion+ IPOs, with only five companies from 95 having poorer first day performances. 

Renaissance CEO and founder Bill Smith put investor hesitancy down to some having been burned by previous IPOs, adding that Birkenstock ‘has great fundamentals, but investors need to see it execute to get that kind of elite multiple’.

Seeking Alpha’s Douglas McKeeny, however, delved into Birkenstock’s figures, citing what he called the company’s ‘troubled economics’. McKeeny acknowledged the legacy company’s ‘enormous growth’ to date, but challenged Birkenstock’s profitability and assumptions about the business’ ability to grow value, saying:

‘Birkenstock's profitability is rare for an IPO, given the declining profitability profile of the typical IPO over the last few decades. It has to be said, though, that Birkenstock's return on invested capital (ROIC) is a very unimpressive 5.2% in 2022, and nearly 2% in 2021, which gives a more nuanced perspective of the troubled economics of the business.’

Not-so-happy feet 👣 

Footwear-first companies face a bundle of external forces: from supply chain issues, input costs of raw materials - with rising oil prices impacting petroleum-based fabrics - transparency and sustainability challenges, to inflationary pressures in their operations and consumers’ pockets. So, how have Birkenstock’s footwear-forward peers performed over the past year? 

• Allbirds (BIRD) has a market cap of US$149.162 million and is yet to return anywhere close to their November 2021 opening share trade price of US$21.21 following their IPO, having fallen 95% since their Nasdaq debut to less than a dollar per share, at US$0.9770. This year the eco-friendly shoe and accessory maker’s stock is looking deathly pale, having slumped 70% since the same time last year and nearly 59% year-to-date (YTD)
• Crocs (CROX) holds a market cap of US$5.285 billion, which is up 10% since October last year, peaking this year in April at US$147.18, but down YTD 23% to US$85.73
• Skechers (SKX), with a market cap of US7.636 billion, has risen 41.5% in one year and is up YTD nearly 11% with their stock at US$49.40
• Steven Madden (SHOO), which has a market cap of US$2.436 billion, has benefitted from upping their digital direct-to-consumer activity since 2022 according to Zacks, with their stock climbing nearly 12% since October last year - on par with the industry’s average rise of 12.7% over one year - but is up only slightly at 3% YTD landing at US$32.34.

Right company, wrong time? 

Could Birkenstock’s IPO trip up be a warning for other IPO hopefuls? 🦶 Birkenstock’s public debut came at a time when the footwear sector continues to weather global economic turbulence, IPOs continue to confront slow investor demand, and according to some analysts, the US share markets are still in recovery mode. 

Yet the EY Global IPO Trends Q3 2023 report showed that in the third quarter of this year ‘market momentum is building’, which resulted in better post-IPO stock performances. Thirty-three

 IPOs in the US raising more than US$8 billion - a year-over-year increase of 238% - with notable September newcomers including grocery tech business Instacart (CART), semiconductor IP company Arm (ARM - ADR), and SaaS platform Klaviyo (KVYO). 

Birkenstock’s entry onto the share markets may have begun looking like a horror show, but their nearly 250-year story is just beginning. 👹

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Like this? 👍 Then you might like this blast from the past: HeyDude, it’s Croctober

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