Is the restaurant company CAVA Group cooking up an IPO?
Before were sit down to answer that question, let's see how the (Mediterranean) sausage is made. A while back we found out that our local Zoe's Kitchen was opening just two days per week, which seemed odd. The Mediterranean casual chain, which went public in 2014, opened a store in our town in 2013, and for years, it was a family favorite. In 2014, the company went public at $15 per share, hit $45 in mid-2015, but was a bit of a mess thereafter. In August, 2018, with shares trading in the mid-$9 range, and another Mediterranean chain, yes, CAVA Group, offered $300 million, or $12.75 per share and bought the company. That was a disappointing end for Zoe's as a publicly traded name.
Fast forward, to 2021, and CAVA began closing and converting Zoe's locations into CAVA stores. According to the company, this was a much cheaper and quicker option then building new restaurant locations, and the company has continued that process into 2023. That may or may not be the fate of our local Zoe's, however, there is no confirmation that a CAVA will take its place.
All of this leads to the main question: Is CAVA going public? Last month, the company submitted a draft registration statement (Form S-1) for an initial public offering. That does not mean the company will follow-through; it will likely be dependent on market conditions.
Restaurant IPOs have been more miss than hit in recent years. It seems that for every name like Action Alerts PLUS-holding Chipotle (CMG) , which has richly rewarded early shareholders, several IPOs turned out pretty yucky, such as BurgerFi's (BFI) . In 2021, for instance, five chains went public, including Dutch Bros (BROS) , First Watch (FWRG) , Krispy Kreme (DNUT) , Portillo's (PTLO) , and Sweetgreen (SG) . All are down from their early trading days to varying degrees, and all enjoyed significant early run-ups before giving those gains back.
That does not say a great deal for the prospects of being rewarded as a long-term restaurant shareholder. It's either get in on the initial offering, and dump shares when IPO euphoria sets in, or wait until the madness wears off, they become busted IPOs, and select those that might have a shot. Its certainly not easy making money in restaurant stocks, it's a very difficult business.
Once in a while, lightning strikes, and you end up with the next McDonald's (MCD) , but that's rare.
Either way, I will be following the CAVA story.