Investors will pay for Birkenstock Holding’s hot IPO, the price of which will be announced late Tuesday.
Birkenstock plans to sell 32.3 million shares in a deal that would value the European sandal maker at $8.7 billion in the middle of the $44 to $49 per share price range. Taking debt into account, the company’s value (market value plus net debt) could exceed $10 billion. The company plans to list on the stock exchange under the ticker symbol BIRK.
It could be a hot deal as Reuters reports that the price could be on the high end. The main insurers are Goldman Sachs Group (ticker: GS), Morgan Stanley (MS) and JPMorgan Chase (JPM).
How rich is it? Barron estimates that at a midpoint of the price range of $46.50, the company would be valued at about 37 times earnings.
By contrast, Deckers Outdoor (DECK), the maker of Uggs and Hoka shoes, trades at around $511 a share, or 22 times forecast earnings in its fiscal year ending in March. Crocs stock (CROX) is trading at around $87 for just seven times estimated 2023 earnings. Dr. Martens
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The British bookmaker with lightly traded US stocks (DOCMF) is valued at around 13 times estimated current year earnings.
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It’s hard to find a luxury goods company with a similar valuation. One of the few is Hermès International (HESAY) stock, which trades for about 45 times current year earnings. Shares of leading luxury goods maker LVMH Moët Hennessy Louis Vuitton (LVMUY) are valued at 22 times estimated 2023 earnings.
To arrive at our Birkenstock valuation, Barron’s used the company’s adjusted after-tax profit of $193 million for the nine months ended June 30 (Birkenstock reports its results in euros, and we adjusted for currency), the stock-based compensation was deducted and then that amount was annualized and divided by the 187.8 million shares that will be outstanding after the IPO.
We expect adjusted annual earnings for the fiscal year that just ended in September to be about $232 million, which translates to about $1.25 per share.
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Birkenstock includes stock compensation in calculating its adjusted earnings, but there is no good reason for this considering that stock compensation is properly treated as an expense under generally accepted accounting principles and the IFRS accounting rules used by Birkenstock.
Big-name investors like Berkshire Hathaway (BRKb) CEO Warren Buffett said it was ridiculous to exclude stock compensation from earnings. The argument for exclusion is that stock compensation is not a cash expense and that other companies do the same thing.
Nonetheless, Birkenstock appears to be highly rated based on other valuation metrics as well. The company is valued at about 20 times earnings before interest, taxes, depreciation and amortization (Ebitda) in the current fiscal year, versus 15 for Deckers. Based on its enterprise value (market value plus debt), Birkenstock is valued at about six times sales, while Deckers is valued at about three times.
Growth stock investors don’t place much emphasis on book value, but it’s worth noting that Birkenstock has negative tangible book value.
Birkenstock, a popular brand whose origins date back to the 18th century, posted sales growth of around 20% to $1.2 billion in the first nine months of the current fiscal year. Its sales growth is about twice that of Deckers, which can be attributed to its Hoka shoes.
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Birkenstock sees growth potential in Asia, where it has only a small presence, as well as in what it sees as underserved European markets such as Britain and France. Most buyers of Birkenstock sandals, which sell for about $100 a pair, are women.
But shoes – and clothes – are fashionable. Look at parka maker Canada Goose Holdings (GOOS), whose shares are trading at $14.75, down from a high of 75 in 2019. Allbirds (BIRD) is making wool sneakers popular in Silicon Valley; The stock has slumped to around $1 from a post-IPO high of $30 in 2021.
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In its IPO prospectus, Birkenstock describes itself as “a respected global brand based on function, quality and tradition since 1774.”
Barron’s reporter Andy Serwer wrote more than a month ago that the IPO of the maker of “Teutonic-hippie-cum-hipster sandals is a symbol of what is currently on the minds of not only culture lovers but also hardcore investors.” The sandals had one Cameo appearance in the Barbie movie.
Serwer noted that the IPO will be a big payday for the billionaire Birkenstock brothers Christian and Alex, as well as majority shareholder L Chatterton, a private equity firm that valued the company at $4.9 billion in 2021 bought US dollars. Existing shareholders paid an average price of about $17.50. New investors pay more than double.
Birkenstock has a vibrant and long-lasting brand, but needs to sell a lot of sandals to justify the expected valuation.
Write to Andrew Bary at [email protected]
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