Consumer IPO prospects in 2024 at risk from spending pullback

Consumer and retail companies weighing initial public offerings in 2024 will be closely watching the spending outlook for their customers, after the surprisingly bright picture began to darken at the end of last year.

US shoppers had largely brushed off rising interest rates thanks to pandemic-era savings buffers and strong jobs growth. That was before monthly data on personal spending showed discretionary categories like cars, furniture and gym memberships began to slow in the fourth quarter. 

Should it deepen, a spending slump could chill the optimism that had begun to emerge around potential first-time share sales in the sector, according to observers gathered at the ICR Capital conference, a consumer-focused gathering of companies and advisers held this week in Orlando.

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“A sector like consumer can be impacted pretty heavily with what’s going on in retail operations, market inflation and in consumer behavior in a way that can hit issuers harder than in some other industries,” said Faiza Rahman, a capital markets partner at Ropes & Gray from the sidelines of the conference. “There’s a potentially higher risk.” 

“Companies may not want to take the risk of going out too soon without having a very strong story,” Rahman said.

IPO hopefuls in the consumer sector are mindful when considering bringing out deals, said Steve Parish, co-head of ICR Capital.

“Investors and issuers want to see how business plays out, how business conditions are over the next quarter or so,” he said in an interview at the conference, where about 2,700 executives, investors and bankers in the consumer and retail industry gathered for the 26th annual event.

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

The pipeline for 2024 looks promising, with fast fashion retailer Shein, soup and sandwich chain Panera Bread and FAT Brands Inc.’s Twin Peaks sports bar business poised to pursue an IPO. Amer Sports Inc., which makes Wilson tennis rackets and Salomon ski boots, filed earlier this month for an IPO.

“The theme will be very much that there isn’t a theme,” said ICR’s Parish. “I don’t think you’re going to see a flood of restaurant deals or apparel deals. Instead, it will be the full range of consumer sectors because there’s not really a clear sector that’s really doing well or really doing poorly.” 

Most of the consumer backlog covers a broad mix within discretionary segments like restaurants and food and beverage, according to Evan Riley, head of capital markets at BNP Paribas SA. The one common ground, though, he said, is their size and financial strength.

“Each company is being weighed on its own merits,” Riley said. “Expectations largely haven’t changed in terms of large-scale, profitable businesses with line-of-sight to growth.”