Cava (CAVA) on Thursday made its public debut on the New York Stock Exchange, and it looks like Wall Street investors want, at least initially, to take a big bite.
Shares of the Mediterranean fast-casual restaurant chain closed at $43.30, valuing the restaurant chain at roughly $4.8 billion. That's almost twice what the company priced on Wednesday evening at $22 per share, which valued the company at $2.5 billion.
Cava initially sought a common stock price offering for between $17 and $19 per share, which valued Cava as a roughly $2.1 billion business; it then raised that range to $19 to $20 last Monday.
Cava's IPO is the sixth largest on a US exchange so far this year. The largest? On May 3 J&J spinoff Kenvue (KVUE), a consumer health company, made its public debut at $4.37 billion.
Last year, Cava saw same-store sales grow 14.2% year-over-year. In Q1 of 2023 alone, the company saw sales increase 28.4%.
In fiscal year 2021, the company posted a net loss of $37.4 million, which widened in 2022 to a net loss of $59.00 million.
Yahoo Finance asked cofounder and CEO Brett Schulman when he expects Cava to turn profitable. His response, in part: "We're focused on our long-term growth, we've got a tremendous unit economic profit engine...in Q1 alone, we generated $50 million at the restaurant level, that's compared to $91 million all of last year, so very healthy margins at the restaurant level and that's kind of the lifeblood, the oxygen of our business."
Cava said in the S-1 filing that it plans to use the proceeds to open new restaurants and for general corporate purposes such as the payback of a loan used to finance its second production facility in Verona, Virginia, which broke ground in 2022.
The chain opened its first fast-casual concept back in 2011. As of April 16, there are 263 Cava restaurants. Since it acquired the Mediterranean fast-casual chain Zoes Kitchen for $300 million back in August 2018, it has successfully converted 145 Zoes Kitchen locations into the Cava brand. Throughout the rest of 2023, it plans to open between 34 to 44 new Cava locations and open another eight converted Zoes (the remainder of the locations). By 2032, the company said it plans to operate 1,000 locations in the US.
Cava is the first food chain to go public since Sweetgreen (SG) made its debut in 2021. Back then, shares of the salad chain surged in its public debut to $52 per share from its offering price of $28 per share. The chain, however, is now trading well below its offering price, largely because it isn't yet profitable.
On Thursday, when Cava made its debut, shares of Sweetgreen got a bit of a boost in early market trading to more than $11 per share, after falling to roughly $6 earlier this year.
When Yahoo Finance asked Schulman if he felt like Cava's valuation was too high in its debut, he said he's not focused on the day-to-day moves in the stock price.
"I told the team last night, we're not going to focus on the daily stock price markets go up markets go down, we're focused on the same thing we've been since we started, which is our long-term vision of defining the Mediterranean category and bringing the Mediterranean way to communities across the country," he said.
There is some hesitation on the street though.
David Trainer of New Constructs said the IPO is overvalued, while Chris Versace, Tematica Research chief investment officer, told Yahoo Finance, "As an investor, I would just sit kind of sit back and wait and kind of see what develops. I would not be chasing this in the near term."
If the Cava IPO is successful though, it could have implications for other chains: Panera Brands, which owns Caribou Coffee, Panera Bread, and Einstein Bros Bagels; Korean barbecue concept GEN Restaurant Group; and Brazilian Steakhouse Fogo de Chão are expected to go public at some point.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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