Birkenstock Holding Begins U.S. IPO Process To Pay Down Debt (Pending:BIRK)

A Quick Take On Birkenstock Holding Limited

Birkenstock Holding Limited (BIRK) has filed to raise $100 million in an IPO of its ordinary Shares, according to an SEC F-1 registration statement.

The firm designs and sells premium footwear products worldwide.

Birkenstock Holding Limited’s top line revenue growth has declined in the most recent reporting period.

I’ll provide an update when we learn more IPO information from management.

Birkenstock Overview

London, UK-based Birkenstock Holding Limited was founded in 1774 in Germany to provide comfortable and natural footwear to consumers.

Management is headed by Chief Executive Officer Mr. Oliver Reichert, who has been with the firm since 2009 and was previously at “Deutsches Sportfernsehen (currently Sport1), including as a reporter and then as Chief Executive Officer between 2006 and 2009.”

The company has over 700 “silhouettes” of different shoes, but its top five silhouettes generated 76% of the firm’s revenue in fiscal 2022.

As of March 31, 2023, Birkenstock has booked fair market value investment of $2.1 billion in equity from investors, including private equity firm L Catterton.

Birkenstock Customer Acquisition

The firm operates with a multi-channel “engineered distribution’ model, allocating its limited supply to wholesalers and its growing direct-to-consumer [DTC] channel.

The company has grown revenue at a CAGR of 20% from fiscal 2014 through fiscal 2022.

Selling and Distribution expenses as a percentage of total revenue have trended higher as revenues have increased, as the figures below indicate:

Click to enlarge

(Source – SEC.)

The Selling and Distribution efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling and Distribution expense, fell to 0.6x in the most recent reporting period, indicating reduced efficiency in this regard, as shown in the table below:

Click to enlarge

(Source – SEC.)

Birkenstock’s Market & Competition

According to a 2023 market research report by Grand View Research, the global market for footwear of all types was an estimated $388 billion in 2022 and is forecasted to reach $543 billion by 2030.

This represents a forecast CAGR of 4.3% from 2023 to 2030.

The main drivers for this expected growth are rising demand for athletic-oriented footwear and growing sales enabled by e-commerce channels.

Also, the chart below indicates that as of 2022, a strong majority of footwear was of the “non-athletic” type:

Major competitive or other industry participants include the following:

• Teva

• Crocs

• Chaco

• Naot

• Studio Moulded

• Mad Love

• Will’s Vegan Store

• Others.

Birkenstock Holding Limited Financial Performance

The company’s recent financial results can be summarized as follows:

• Slowing top line revenue growth

• Slightly increasing gross profit

• Stable gross margin

• Reduced operating profit

• Sharply lower cash flow from operations.

Below are relevant financial results derived from the firm’s registration statement:

Click to enlarge

(Source – SEC.)

As of March 31, 2023, Birkenstock had $185.4 million in cash and $2.5 billion in total liabilities.

Free cash flow during the twelve months ending March 31, 2023, was $169.1 million.

Birkenstock Holding Limited IPO Details

Birkenstock intends to raise $100 million in gross proceeds from an IPO of its ordinary Shares, although the final figure may be as high as $750 million.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

The firm intends to use the IPO proceeds to repay certain indebtedness and for general working capital requirements.

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, the firm says it is not the subject of any legal claims that would have a material adverse effect on its financial condition or operations.

The listed bookrunners of the IPO are Goldman Sachs, J.P. Morgan, Morgan Stanley and other investment banks.

Commentary About Birkenstock’s IPO

BIRK is seeking U.S. public capital market investment to pay down debt and for general working capital.

The company’s financials have generated reduced topline revenue growth, higher gross profit, flat gross margin, lower operating profit and sharply reduced cash flow from operations.

Free cash flow for the twelve months ending March 31, 2023, was $169.1 million.

Selling and Distribution expenses as a percentage of total revenue have risen as revenue has grown; its Selling and Distribution efficiency multiple fell to 0.6x in the most recent reporting period.

The firm currently plans to pay no dividends and to retain any future earnings for its working capital requirements.

BIRK’s recent capital spending history indicates it has spent significantly on capital expenditures as a percentage of its operating cash flow.

The market opportunity for footwear is large and expected to grow at a low rate of growth in the coming years.

Business risks to the company’s outlook as a public company include intensifying competition from similar footwear companies via online marketplace channels.

When we learn more about the IPO’s pricing and evaluation assumptions, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.