Cava, the fast-casual restaurant chain specializing in Mediterranean cuisine, made an impressive debut in its initial public offering (IPO), surpassing its target and raising $318 million. The company’s shares more than doubled upon opening trading, with an increase of as much as 113%. Starting at $42, the shares reached $41.30 at 12:55 p.m. in New York, giving Cava a market value of $4.6 billion. This successful IPO places Cava as the sixth-largest offering of 2023, excluding greenshoe shares.
Cava’s strong performance in pricing and debut stands out in a challenging year for IPOs on US exchanges. The company’s opening pop of 91% marks the best debut since July 2021 for a firm listing on a US exchange that raised over $100 million. CEO Brett Schulman attributed this success to Cava’s long-term sustainable growth story and its position as a category-defining brand in Mediterranean cultural cuisine.
Despite initial skepticism from analysts about the company’s valuation, Cava’s pricing and debut remained robust. Analysts, including Bloomberg Intelligence’s Michael Halen and New Constructs CEO David Trainer, expressed concerns about the company’s valuation metrics compared to industry peers such as Chipotle Mexican Grill Inc., citing lower restaurant-level margins. Comparable companies like Portillo’s Inc. and Sweetgreen Inc. experienced initial pops in their trading debuts followed by declines over time.
Schulman defended Cava’s valuation, emphasizing their restaurant-level margins and the company’s youthful stage compared to industry giants like Chipotle. He expressed confidence in Cava’s ability to continue reinvesting in sustainable growth and nurturing their team.
Cava’s successful IPO follows the trend of a gradually reopening IPO market after a prolonged closure. Despite a sluggish IPO year, the strong pricing of Cava’s offering indicates improved sentiment for high-quality specialty IPOs in the US. Industry experts believe this positive development may prompt other companies, including Fogo de Chao Inc., Fat Brands Inc.’s Twin Peaks sports bar business, and Panera Bread Co., to proceed with their plans to go public.
Cava has demonstrated consistent revenue growth and reduced losses over the years. In the 16-week period ending April 16, the company reported a net loss of $2.1 million on revenue of $203 million, a notable improvement compared to the $20 million loss on revenue of $159 million during the same period the previous year, according to filings with the US Securities and Exchange Commission. Currently operating 263 restaurants, Cava aims to utilize the proceeds from the IPO to open more locations, with a long-term vision of reaching over 1,000 restaurants within the next decade.
JPMorgan Chase & Co., Jefferies Financial Group Inc., and Citigroup Inc. led the offering as underwriters, and Cava’s shares are now trading on the New York Stock Exchange under the symbol CAVA. With its successful IPO, Cava has made a strong statement about the attractiveness of its combined online and offline strategy within a fast-growing niche industry.
