Restaurant Finance Watch: Habit Burger mulls IPO

Restaurant Finance Watch: Habit Burger mulls IPO

NRN editor and restaurant finance expert Jennings breaks down what you should be watching in the industry this week. Connect with her on the latest finance trends and news at @livetodineout and [email protected] RELATED: • Habit Burger moves toward national expansion • The Habit Burger Grill to begin franchising • More restaurant finance news

With El Pollo Loco still trading at more than double its initial public offering price, it seems restaurant investors are still hungry.

Their next investment meal may include burgers.

The Wall Street Journal reported [4] earlier this month that Habit Restaurants LLC, parent to the Habit Burger Grill chain, is considering a possible IPO in the next several months.

If the rumors are true, Habit Burger could beat longtime IPO contender Smashburger, which has more than 270 units, to the public market.

Denver-based Smashburger officials have suggested for at least two years that an IPO could be in its future [5].

According to market research firm Technomic Inc., Habit Burger’s sales growth of 35 percent in 2013 edged past Smashburger’s recorded sales growth of 32 percent that year. However, both were beaten by better-burger competitors Shake Shack, which reported 40-percent same-store sales growth, and BurgerFi, which reported 178-percent same-store sales growth.

At the end of 2013, Habit Burger had systemwide sales of $120 million, based on a 53-week year, with average unit volumes reaching $1.6 million. Same-store sales have been positive for the chain since its second unit opened in 1997.

IPO watchers say investors look for growth stories, and Habit Burger may have just that to offer.

The Irvine, Calif.-based fast-casual chain has been owned by private-equity firm KarpReilly LLC since 2007, and has evolved from a beloved Santa Barbara, Calif., brand, where it was founded in 1969, to a contemporary concept with broad appeal.

Habit Burger ended 2013 with 85 locations, and began franchising last year [6]. Though known primarily on the West Coast, company officials say there’s plenty of runway for growth.

The concept is coming to Las Vegas [7], Seattle and Fair Lawn, N.J., this year, and possibly to Northern Virginia in 2015.

On the other hand, investors will likely look for concepts with a discernible point of differentiation from the traditional lineup of limited-service burger brands.

Habit Burger is known for its grilled charburgers, as well as salads and sandwiches including a grilled Fresh Albacore Tuna steak with teriyaki glaze, Tri-Tip and Pastrami.

With an average check of about $7.70, Habit Burger is more expensive than McDonald’s, Burger King and Wendy’s. That price point may be painful for consumers at lower income levels.

Still, earlier this year, consumers chose Habit Burger as their favorite burger chain in Consumer Reports [8], beating cult favorite In-N-Out Burger.

It may be the right time for Habit Burger to go public, especially since some observers are predicting the excitement over IPOs to diminish soon. Best to get in while the grill is still hot.

Or not.

Habit Burger owner KarpReilly also owns Café Rio Inc. [9], the fast-casual Mexican chain that was also on an IPO contender list earlier this year, but has yet to make a move.

Contact Lisa Jennings at [email protected] [10].
Follow her on Twitter: @livetodineout [11]