Shares of Cava, a chain of Mediterranean restaurants, saw a significant increase of 112% during its market debut. However, they subsequently ceded some of those profits.
The stock price started at $42 per share, valuing the company at $4.68 billion. Despite shrinking, the stock is still trading around $41, which is an 85% increase from its initial public offering price.
Cava Group priced its public offering at $22 per share, exceeding the expected range of $19 to $20. In total, the company sold 14.4 million shares, raising nearly $318 million and initially valuing the restaurant chain at approximately $2.45 billion. Cava shares are traded on the New York Stock Exchange under the symbol “CAVA”.
Although founded in 2006, Cava opened its first fast and casual food establishment in 2011, following the successful formula popularized by Chipotle Mexican Grill. The chain has built a customer base by introducing Mediterranean ingredients such as harissa and tahini, positioning itself as a healthy and convenient option. In addition, Cava sells its sauces, spreads and salad dressings in grocery stores.
In 2018, Cava acquired Zoes Kitchen, its competitor in the Mediterranean area, for $300 million. For the past five years, it has been converting Zoes Kitchen locations into Cava restaurants, which has contributed to its current presence of 263 establishments as of April 16. Importantly, Cava’s net sales increased to $564.1 million last year, an increase of 12.8% compared to the previous year.
Cava CEO Brett Schulman noted that we are seeing an inflection point in the business and that the structure in which they have invested is strengthening and generating positive momentum for the company. Despite this, losses have also increased, from $37.4 million in 2021 to $59 million in 2022. Still, industry experts believe the chain has shown a clear path to profitability, making it attractive to investors interested in growth stocks. In the first quarter, Cava reported a net loss of $2.1 million, down from $20 million a year earlier.
The company plans to use the revenue generated by its initial public offering to open new locations and for general corporate purposes. Cava joins the growing number of publicly traded casual fast food chains. Chipotle, an industry leader, made its market debut in 2006 and its current market value stands at $56.9 billion.
Recently, salad chain Sweetgreen also went public in November 2021, with a market value of $1.2 billion. Although the company’s lack of earnings has weighed on its shares, they have risen more than 25% this year.
Cava’s debut could inspire other restaurant chains to follow suit, helping to break the drought in the initial public offering (IPO) market. Some companies such as Brazilian steakhouse Fogo De Chao and Korean barbecue chain Gen Restaurant Group have filed regulatory documents confidentially, while both Panera Bread and Fat Brands have also shown interest in this type of financial move.
