Dive Brief:
- Cava has launched its initial public offering of over 14 million shares of its common stock, the company announced Monday in a press release.
- At $17 to $19 per share, Cava could raise about $245 million to $274 million through its IPO. This sum could grow to between $282 million and about $316 million, as Cava plans to offer underwriters a 30-day option to purchase roughly another 2 million shares.
- Cava plans to put the proceeds of its IPO toward new restaurant openings, with remaining funds going to “general corporate purposes,” which could include paying back a loan used to finance the construction of a production facility in Verona, Virginia.
Dive Insight:
Although Cava’s revenue has grown at a compound annual growth rate of 52.2% since 2016, the company has been operating at a loss for several years, making some analysts wary of its IPO.
“Cava Group’s IPO reminds us of Sweetgreen (SG), a fellow fast-casual restaurant Zombie Stock that has been in the Danger Zone since its IPO in November 2021,” said David Trainer, CEO of New Constructs, in a report emailed to Restaurant Dive.
When Sweetgreen launched its IPO, it was unprofitable and it is still operating at a loss as of Q1 2023. Net losses improved to a negative $33.7 million during the first quarter compared to a negative $49.7 million in the year-ago period, according to Sweetgreen’s earnings release.
Trainer questioned the timing of Cava’s IPO, as well. While the company’s profitability remains elusive, losses could worsen if the U.S. heads into a recession in the near future, making now the better time to go public. Among the biggest issues the company is facing is that it is coming to the end of its “cheap source of store expansion,” as it nears the completion of its conversions of Zoës Kitchen, which it acquired in 2018, according to New Constructs. Cava noted in its S-1 filing that its real estate costs could increase in the future as it turns its attention back to new development.
Despite major profitability issues for the chain, Cava has seen growth in its foot traffic since 2019, according to Placer.ai data. Its baseline traffic growth has outperformed the rest of the fast casual segment every month and skyrocketed beginning in 2021. Eighty percent of the company’s units are in suburban markets, which Placer.ai said could be contributing to its visit growth.
“CAVA’s YoY monthly visits per venue have been up since January 2023 — a particularly impressive feat in light of the chain’s continued expansion, and an indication that new locations are driving traffic despite the current economic environment,” Placer.ai said.
This trend could be particularly beneficial to the chain as it tries to grow to 1,000 units by 2032.
