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Birkenstock set to start trading at $46 a share

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Birkenstock looks set to price at $46 a share later today when US markets open as the German sandal maker takes its first step as a publicly listed company.

The listing of 32.26m shares came in the middle of the $44 and $49 a share range, giving the business a valuation of about $8.6bn.

Today's listing will generate $1.5bn for the German-based sandal maker which has been in business since 1774, making what can be best described as leisure shoes, namely sandals or clogs. 

Since 2010 the company has diversified into sleep systems, as well as natural cosmetics however that remains a small part of the overall revenue stream, which is primarily derived from the sale of high value sandals and clogs. The proceeds of the IPO will see some of the money returned to the private equity owners, with a third of the proceeds going to repay debt. 

This seems an unambitious use of the proceeds at a time when the money could be used to improve the business, as well as help to diversify into new product areas. 

In 2021 private equity company L. Catterton and Financière Agache bought a majority stake in Birkenstock, with a view to expanding into the Chinese market. Both Financière Agache and L Catterton are backed by LVMH owner Bernard Arnault, valuing the business at the time at $4.3bn. 

Curiously the deal came in the aftermath of the Dr. Martens IPO which took place two months previously in February 2021, although both companies have undergone rather differing fortunes since then. At the time Dr Martens had a valuation of £4.5bn which has slid to £1.3bn, raising the question as to whether Birkenstock is worth such a hefty price tag.

On the actual numbers themselves Birkenstock total revenues have risen from $728m in 2020 to $1.3bn in fiscal year 2022. Over the same period net income has doubled from $101.3m to $202.8m.

In its most recent financial statement Birkenstock reported that revenues were 21% higher in the nine months to 30 June at $1.2bn, putting the business on course for a record year for both revenues, as well as profits.

While that is welcome news it doesn’t necessarily justify a valuation that is four times greater than sector peer Dr. Martens, and with LVMH issuing a profits warning earlier today, the luxury sector could be about to enter turbulent times. This may be significant given that a typical Birkenstock sandal starts at £65, while more expensive items can go for as much as £160 and above

That said investors may have other ideas as to whether Birkenstock offers good value given that valuations in the US tend to be higher than they are in London.

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