To The Moon

German high-end footwear manufacturer $Birkenstock Holding plc(BIRK)$ debuted on the US stock market with a closing price of $40.2, a 12.6% drop from its initial public offering price of $46. The stock opened at $41, an 11% drop, making it the worst-performing new stock in over two years with a valuation of over $1 billion.

Analysis: Birkenstock's IPO turns south as shares slide on first day of trading | CNN Business

Birkenstock's market value is now over $8 billion based on the closing price.

French billionaire Bernard Arnault and his luxury goods conglomerate $LVMH-Moet Hennessy Louis Vuitton(LVMHF)$ invested in Birkenstock's controlling stake in 2021, valuing the company at $4.35 billion.

L Catterton, the US private equity firm in which LVMH also has a stake, will continue to hold nearly 83% of the company's shares. Alexandre Arnault, Bernard Arnault's son, will join Birkenstock's board of directors.

At the same time, luxury goods makers could be in for a rude awakening as a luxury supercycle that has boosted many of their stock prices could be reaching its conclusion.

• First, the luxury goods market has grown by about 25% compared to 2019, and recent growth rates are higher than the long-term average for most companies in this category. "This is unsustainable, and we expect to see a gradual slowdown in revenue growth from here."

• Second, although the number of people who aspire to be luxury goods consumers has driven growth in recent years, their numbers are decreasing. According to the Bank of Montreal in Canada, of the approximately 400 million luxury goods consumers worldwide, 1.65 million are aspiring luxury goods consumers, 200 million are high-income earners, and 25 million are high net worth individuals.

• Third, although the price + quantity + mix equation has recently supported luxury goods companies, this situation is changing and is unfavorable to the companies. For example, from 2019 to 2022, Louis Vuitton's average price increase was +11%. For the 2024 fiscal year, the Bank of Montreal expects prices to rise by 2-3%, quantities to remain unchanged, and the mix to rise by 5-6%.

• Fourth, there have been three luxury goods downturns since 2010. They last an average of four quarters and see a 12% drop in stock prices. The Bank of Montreal notes that this time may be worse due to high interest rates, inflation, and macro issues in China.

• Finally, the Bank of Montreal states that macro risks are the most severe in decades. "The disposable income remaining for ordinary consumers is less, which could affect spending."