CAVA Group Inc., parent to the 263-unit fast-casual Mediterranean brand, made its public market debut Thursday with shares closing at $43.30, nearly double the announced pricing of $22 a share.
The Washington, D.C.-based company issued 14.4 million shares on the New York Stock Exchange under the symbol “CAVA,” raising nearly $318 million and valuing the restaurant chain at about $2.45 billion. CAVA originally priced its public offering at $17 to $19 a share and raised it Wednesday to $22 a share.
“We believe CAVA is a category-defining brand in a fast-growing space with high unit-level economics and incredible white space opportunity ahead of us,” said Tricia Tolivar, Cava Group’s chief financial officer, in an interview shortly before trading began. “We've also invested in our infrastructure that has enabled us to grow significantly but also created a very strong foundation for future growth.”
The brand plans a 15% growth rate this year, adding between 60 and 70 new stores, Tolivar said. The 263 units were as the end of the first quarter on April 16.
Some of those may be converted Zoe’s Kitchen units, a publicly traded brand CAVA acquired in 2018 and has been switching to the CAVA look and name, she said.
“We spent time stabilizing the business and opened one restaurant in 2019 as Zoe’s to CAVA,” Tolivar said, adding that the coronavirus declaration in March 2020 planned conversions.
“We had a handful more that we planned to open in March and ran right into the pandemic and so we paused those openings,” Tolivar said. The conversions led to a higher average unit volume, she explained. “What we found is a Zoe’s restaurant would go from $1.4 million in AUV to $2 million in AUV as a CAVA, and so we saw a great opportunity to take in those restaurants and convert them the Cava and really build out that ‘coastal smile strategy.’”
That “coastal smile strategy” involved adding restaurants both the East and West Coasts as well as the Southeast, Tolivar said, based on the CAVA brand’s origins in the District of Columbia, Maryland and Virginia.
“We took a very unconventional turn and went out to L.A. and 3,000 miles across the country and opened locations there,” Tolivar said, crediting CEO Brett Schulman’s expansion strategy. “He really was watching consumer trends even before the pandemic and moving into suburban markets and into the coastal smile,” she said, “so we think of it down the East Coast across into Texas and up into California.”
The Zoe’s acquisition helped that strategy, she added. “Zoe’s major crown jewels of were Atlanta, Dallas and Houston,” she said. “Those were the key markets that were enabling us to fill out that ‘coastal smile’ strategy successfully.”
CAVA was founded in 2006 and opened its first fast-casual location in 2011. It serves a Mediterranean-inspired menu, and the brand also sells its dips, dressings and spreads in groceries.
In 2022, CAVA’s sales climbed to $564.1 million, 12.8% higher than the prior year earlier. Its losses also widened from $37.4 million in 2021 to $59 million in 2022. In the first quarter ended April 16, it reported a net loss of $2.1 million, narrowed from its $20 million net loss in the prior-year period.
Tolivar said the brand’s strengths include a 55% lunch and 45% dinner sales split, as well as demographics that are fairly evenly divided between men and women.
CAVA Group plans to use the IPO proceeds for new location openings and general corporate purposes.
The initial success of CAVA Group’s IPO may hearten other restaurant brands with an eye on the public markets.
Texas-based Fogo Hospitality Inc., parent to the Brazilian steakhouse brand Fogo de Chao, and Korean barbecue chain Gen Restaurant Group Inc. of Cerritos, Calif., have filed Securities and Exchange Commission paperwork for possible public offerings. Panera Bread and Fat Brands’ Twin Peaks casual-dining concept have shared their intent to issue public offerings.
“Certainly the access to capital as a result of this transaction further solidifies a very strong balance sheet that we already had,” Tolivar said, “and really gives us more flexibility to drive more value for investors and bring CAVA to many, many more people across the country.”
Update June 15, 2023: This story has been edited to include the closing price of CAVA's shares on its first day of trading.
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