Consumer IPO prospects in 2024 at risk as spending declines

Consumer and retail companies weighing initial public offerings in 2024 will closely monitor their customers' spending prospects, after the surprisingly bright outlook began to dim late last year.

American shoppers had largely ignored rising interest rates thanks to pandemic-era savings reserves and strong job growth. That was before monthly personal spending data showed that discretionary categories such as cars, furniture and gym memberships began to slow in the fourth quarter.

If it deepens, a drop in spending could cool the optimism that had begun to emerge around possible stock sales for the first time in the sector, according to observers gathered at the ICR Capital conference, a consumer-focused gathering of companies and advisors. held this week in Orlando.

“A sector like consumer can be greatly affected by what happens in retail operations, market inflation and consumer behavior in a way that can affect issuers more than in other industries,” said Faiza Rahman, partner of capital markets from Ropes & Gray from the sidelines of the conference. “There is a potentially greater risk.”

“Companies may not want to take the risk of exiting too early without having a very strong history,” Rahman said.

IPO hopefuls in the consumer sector are conscious when considering closing deals, said Steve Parish, co-manager at ICR Capital.

“Investors and issuers want to see how businesses develop, what business conditions will be like over the next quarter,” he said in an interview at the conference, where about 2,700 retail and consumer industry executives, investors and bankers gathered. for the 26th annual event.

There were about $7 billion worth of U.S. consumer IPOs alone last year, data compiled by Bloomberg show, and investor reception was nothing short of extreme. Shares of casual dining chain Cava Group Inc. have risen 92% since raising $365 million in June, while sandal maker Birkenstock Holding Plc saw a nearly 13% drop on its first day of trading. after its $1.5 billion stock market listing. It became the worst debut since 2021 for a US-listed company to raise more than $1 billion, data shows.

The 2024 pipeline looks promising, with fast-fashion retailer Shein, soup and sandwich chain Panera Bread and FAT Brands Inc.'s Twin Peaks sports bar business set to make an initial public offering (IPO). Amer Sports Inc., which makes Wilson tennis rackets and Salomon ski boots, filed an initial public offering (IPO) earlier this month.

“The issue will be that there is no issue,” said the ICR parish. “I don't think we're going to see an avalanche of deals on restaurants or clothing. Instead, it will be the entire range of consuming sectors because there is not really a clear sector that is doing well or badly.”

Most of the consumer order book covers a broad mix within discretionary segments such as restaurants and food and beverage, according to Evan Riley, head of capital markets at BNP Paribas SA. However, the only common point, he said, is their size and financial strength.

“Each company is being weighed on its own merits,” Riley said. “Expectations are largely unchanged in terms of large-scale profitable businesses with a vision for growth.”