Birkenstock plunges over 12% in its stock market debut, starting at $41 per share

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In its first day of trading on the New York Stock Exchange on Wednesday, shares of the German shoe company Birkenstock—best known for its Arizona sandals—dropped more than 12%.

Following the company's IPO pricing of $46 per share, which was close to the middle of its anticipated range of $44 to $49, shares opened at $41.With the $495 million it raised in the transaction,

 Birkenstock intends to pay off debt.Birkenstock stock saw a more than 12% decline on their Wednesday debut on the New York Stock Exchange. 

With a market value of $7.55 billion, the German shoe company's stock closed at $40.20 per share, down from its opening trading of $41 per share. The opening price of the stock was less than its Tuesday opening price of $46; it was slightly below the middle of its anticipated range of $44 to $49 per share.

In the sale, Birkenstock sold 10.75 million common shares, generating approximately $495 million and beginning with a business valuation of roughly $8.64 billion. At first, Birkenstock had asked for a valuation as high as $9.2 billion.

Almost 250 years have passed since German cobbler Johann Adam Birkenstock created the firm, which is making its market debut. It was run by the family until 2021, when the company was valued at $4.85 billion and private equity giant L Catterton bought the majority of the company. 

Oliver Reichert, CEO of Birkenstock, gave an explanation of the company's decision to go public during an interview on CNBC's "Squawk on the Street."

Reichert stated, "The best thing for the brand would be to stay family owned, but there were so many problems within the family, so we go for the second best option, which is to be public and give the brand back to the people."

Sales have increased and Birkenstock's valuation has almost doubled since L Catterton purchased its interest. Sales increased from 728 million euros ($771 million) to 1.24 billion euros over the fiscal years 2020 and 2022. During that period, the company increased sales to consumers directly, deliberately ended some wholesale relationships, and concentrated on increasing sales of products at higher price points.

In the fiscal year 2022, it reported net income of over 187 million euros with margins of roughly 60%. According to a securities filing, Birkenstock stated that if it increases its direct-to-consumer sales, which have increased from 18% of sales in fiscal 2018 to 38% in fiscal 2022, it has ability to improve those margins.

The offering coincides with the market's slow defrosting from over a year of stagnation in the initial public offering space. However, it has stayed erratic and turbulent. Several recent initial public offerings (IPOs) saw strong performance in the first few days of trading, but their equities have since dropped.

The much anticipated IPO of Instacart was priced last month at $30 per share. However, following a 40% surge, it ended the first day of trading on the Nasdaq at $33.70 and is currently trading below the opening share price. Strange Tech

, another consumer brand supported by L Catterton, made a 35% jump when it went public in July and closed at $47.53 on the first day of trade. It quickly rose to a peak of $56 per share, but since then, Oddity's stock has declined and is currently trading below the $35 opening price.

Kenvue, a subsidiary of Johnson & Johnson, has seen a similar pattern.

This year has seen pressure on the clothing and footwear industries as customers move their spending from commodities to services. However, investors are taking an interest in Birkenstock because of its expansion, ongoing profitability, and cultural significance with its recent appearance in the "Barbie" film.

Although Birkenstock has a long history, the brand is in line with the current trend of accepting casual comfort in the workplace following COVID-19. According to an email from Alex Smith, global sector lead at research firm Third Bridge, "it continues to grow even in the face of a declining global footwear market as consumers allocate their disposable income to other interests, such as travel."

"A younger, new customer base and its growing popularity among celebrities—even Barbie has been spotted wearing Arizona sandals—are driving the company's current growth."

Smith pointed out that Birkenstock still has potential despite its lengthy history. Because of its production skills and sizing possibilities, its customer base is still predominantly female, but it has the potential to grow outside of the U.S. and Europe.