Cava Group,\u00a0the Mediterranean-focused fast-casual restaurant chain, raised the proposed price range for its initial public offering on Monday as it gears up for a deal that\u2019s expected to start trading on Thursday.<\/p>\n
Cava The company is planning to list on the New York Stock Exchange under the ticker CAVA. JPMorgan, Jefferies and Citigroup are lead underwriters in a team of 10 banks working on the deal. <\/p>\n Cava is the first restaurant company to go public since Sweetgreen Inc. Bill Smith, co-founder and chief executive of Renaissance Capital, a provider of IPO exchange-traded funds and institutional research, said an office straw poll about Cava\u2019s food was mostly positive.<\/p>\n \u201cSomeone said \u2018better than Sweetgreen\u2019 and that might sum up the investment case too,\u201d Smith wrote in commentary.\u00a0<\/p>\n \u201c[Cava] has Sweetgreen-like growth, but roughly Chipotle-like In any case, the deal will test investor appetite for restaurants and growth stories, he added.<\/p>\n Here are five things to know about Cava.<\/p>\n Cava believes it\u2019s the only national player at scale in the Mediterranean category, with more than twice the number of restaurants as its next largest competitor, according to its filing documents. <\/p>\n The company has grown its network of restaurants to 263 in the first quarter of 2023 from 22 in 2016, after acquiring rival Zo\u00ebs Kitchen in 2018 in a $300 million deal.<\/p>\n The company was founded in 2006 as a full-service restaurant called Cava Mezze and later started selling its dips and spreads in grocery stores. In 2011, it launched its fast-casual concept. The company is expecting to open 34 to 44 new Cava restaurants in 2023.<\/p>\n The company does have strong growth rates for revenue, which rose at a 52.2%* compound annual growth rate from fiscal 2016 to fiscal 2022. However, net losses have also grown, widening to $59 million in fiscal 2022 from $37.4 million in fiscal 2021.<\/p>\n The company also disclosed that it\u2019s expecting its operating costs to \u201cincrease substantially\u201d in the future.<\/p>\n After converting a number of the Zo\u00ebs Kitchen restaurants into Cava restaurants, \u201cwe expect that the capital expenditure requirements to open a new restaurant will be significantly higher than we have experienced in the past few years,\u201d the prospectus says.<\/p>\n Cava\u2019s cash burn was $120 million of free cash flow in 2022, and as of April 16, it had just $23 million in cash and cash equivalents on its balance sheet, according to the prospectus. <\/p>\n It can only sustain that rate of cash burn for two months from April 16, according to David Trainer, chief executive of New Constructs, an independent equity research firm that uses machine learning and natural-language processing to parse corporate filings and model economic earnings, although its research has encountered pushback.<\/p>\n New Constructs maintains a list of\u00a0\u201czombie\u201d stocks, which it says are at risk of declining to $0 a share, and it included Cava on that list in a recent report. Sweetgreen, which is also on the list, went public at $28 a share and was last trading at $10.50.<\/p>\n \u201cCava Group is not currently profitable and its path to profitability is nonexistent as the company spends money it doesn\u2019t even have to open more stores,\u201d Trainer wrote.<\/p>\n For more, see:<\/strong> Fast-casual restaurant chain Cava Group\u2019s IPO documents raise some red flags: analyst<\/p>\n New Constructs estimates that Cava\u2019s net operating profit after tax margin is negative 3%. Chipotle, by contrast, is a positive 14%. <\/p>\n \u201cIn other words, Cava Group must grow revenue as fast as Chipotle in its first decade as a public company, while also drastically improving margins, or the stock is worth much less than its expected valuation,\u201d he wrote.<\/p>\n Cava is operating in an industry that includes national, regional and locally owned restaurants.<\/p>\n \u201cWe also compete with grocery stores, convenience stores, meal subscription services, and delivery kitchens, especially those that target guests who seek high-quality food,\u201d it says in its prospectus. \u201cOur CPG (consumer packaged goods) business also faces competition from other producers of dips, spreads, and dressings and other pantry and food items.\u201d<\/p>\n New Constructs lists 12 public companies it deems to be direct competitors, many of them well established names with a loyal following: Yum! Brands Inc.
\n CAVA,
\n
\n is planning to offer 14.4 million shares priced at $19 to $20 each, up from a previous range of $17 to $19. With 111.4 million shares to be outstanding once the deal closes, it will have a valuation of $2.2 billion at the top of that range. <\/p>\n
\n SG,
\n
\n in late 2021. <\/p>\n
\n CMG,
\n
\n restaurant operating margins. That\u2019s a powerful combo, though company-level profit still has a ways to go, and some of the recent growth has been low-hanging fruit.\u201d<\/p>\nIt\u2019s a national player<\/h2>\n
It has impressive growth rates<\/h2>\n
It\u2019s burning through cash<\/h2>\n
It has plenty of competitors<\/h2>\n
\n YUM,
\n
\n Starbucks Corp.
\n SBUX,
\n
\n Chipotle, Darden Restaurants
\n DRI,
\n
\n Brinker International Inc.
\n EAT,
\n
\n Bloomin\u2019 Brands Inc.
\n BLMN,
\n
\n El Pollo Loco Holdings Inc.
\n LOCO,
\n
\n Fiesta Restaurant Group Inc.
\n FRGI,
\n
\n Cheesecake Factory Inc.
\n CAKE,
\n
\n Shake Shack Inc.
\n SHAK,
\n
\n Red Robin Gourmet Burgers Inc.
\n RRGB,
\n
\n and Sweetgreen. <\/p>\n