Interactive Investor

Birkenstock IPO: will investors hotfoot it after the shares?

The ‘ugly duckling’ sandals shop has turned into a swan and is about to embark on a multibillion dollar listing in the US. We explain how to buy a stock seeking a valuation upgrade.

10th October 2023 14:01

by Nina Kelly from interactive investor

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Birkenstock window display 600

Next year, the Birkenstock Group will celebrate 250 years of shoemaking tradition. That’s quite a pedigree.

When I was a teenager, Birkenstocks weren’t for the cool kids. They were the functional footwear of choice for “ancient” elders with painful feet. Nowadays, Birkenstocks are no longer a frumpy orthopaedic shoe, but the footwear of fashionistas. A-listers shod in the global brand include Hollywood star Margot Robbie, who dons the classic Arizona sandal, predictably in pink, in the billion-dollar film Barbie.

And it’s no longer just about sandals. Birkenstock has diversified into unisex boots and clogs, so you can wear the brand year-round should the fancy take you. “We see ourselves as the oldest start-up on earth,” says Oliver Reichert, Birkenstock’s chief executive, who has been in the top job since 2013. Birkenstock will list in New York on Wednesday, with the company planning to sell at least 32 million shares priced between $44 and $49 apiece. That could raise as much as $1.6 billion and value the business at over $9 billion.

Headquartered in Germany and employing 6,200 people worldwide, Birkenstock (NASDAQ:BIRK)produces every single “anatomically shaped cork-latex footbed” and makes 95% of its products in Germany. L Catterton, a private equity firm, which is backed by the French luxury goods producer LVMH (EURONEXT:MC), holds a majority stake in Birkenstock.

Reichert argues that: “Some say: ‘Birkenstock is having a moment’. I always reply then ‘this moment has lasted for 250 years, and it will continue to last’ - driven by an international consumer movement toward casualisation, a growing preference for healthy products, an increasing appreciation of craftmanship and a preference for brands with a purpose.”

Recent figures support his confident stance. In 2022, the company sold 30 million Birkenstocks, with revenues increasing from €727.9 million in 2020 to €1,242.8 million in 2022. In the firm’s Securities and Exchange Commission (SEC) preliminary prospectus, Reichert says that “the average Birkenstock consumer in the US owns 3.6 pairs today,” suggesting customer satisfaction and loyalty to the brand. Ker-ching.

On the back foot: the market right now

Yet an IPO right now is a brave move. On both sides of the Atlantic, there are fears a recession could happen in 2024.

In Britain, the cost-of-living crisis continues, which means many consumers are reining in their discretionary spending. With inflation at 6.7% in August, and interest rates at 5.25%, millions more British households with a mortgage will move on to a higher rate over the next few years. Footfall in shoe shops, if you’ll pardon the pun, is at real risk of decline.

Another stone in the shoe for a footwear IPO is the experience of mid-cap Dr. Martens Ordinary Shares (LSE:DOCS). Like Birkenstock, it has also branched out, and now sells sandals and shoes as well as its trademark chunky boots. Since its IPO in January 2021, the share price of the iconic footwear brand beloved by teenagers with attitude, has fallen and, on Friday, was trading at £1.38 compared to an IPO of £3.70.

Yet Birkenstock is ambitious for the Asia-Pacific region, with its large youthful populations and growing middle-class, and says that: “Based on our current market penetration of less than 1%, we believe there is ample whitespace to continue growing the Birkenstock brand. We expect to capture market share globally, particularly in Asia Pacific, which is expected to be one of the fastest-growing regions in the world at a CAGR [compound annual growth rate] of 5.9% between 2022 and 2027, and where we are meaningfully under-penetrated”.

I have certainly become a fan of flat shoes, but it remains to be seen whether investors and consumers will fall en masse at this brand’s feet.

Your guide to buying Birkenstock shares with ii

Early investment in Birkenstock is not available to UK retail investors but you will be able to buy shares through ii on the first day they start trading. We will only accept limit orders on the day the stock begins trading on the US market.

 Here are the steps you can take in advance to be ready for day 1:

1.    Open an account

You will be able to hold shares in our Trading Account, SIPP, ISA, and Junior ISA.

2.    Complete the exchange agreements

You need to complete this form before you make your first international trade. We will prompt you to complete the agreements the first time you search for an international share price.

3.    Complete a United States dealing (W-8) form

Before you can buy US-listed shares you need to have completed a W-8 form. You can do this online by logging in and visiting our Useful Forms page. You don't need to do this if you are only investing in a SIPP.

On the day shares are admitted there will likely be an initial period of price stabilisation, after which trading commences. This may only be a few minutes but can take a few hours.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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