Cava Stock Soars 99% in Stock-Market Debut, Lifting Hopes for New Listings

The sleepy IPO market is perking up.

Shares of Mediterranean-style restaurant chain Cava Group roughly doubled in their stock-market debut Thursday, a day after pricing well above expectations.

The strong demand shows investors are once again interested in companies that are growing swiftly but not yet turning a profit, investors and IPO bankers and advisers said. That bodes well for what has been a historically quiet period for new listings, since such companies traditionally form a crucial segment of the IPO market.

The stock opened at $42 a share, up 91% from its IPO price of $22 when it started trading on the New York Stock Exchange under the symbol “CAVA” Thursday. It closed up 99%, giving the company a valuation of around $4.9 billion.

Cava’s IPO raised about $318 million, valuing the company at about $2.5 billion. The restaurant chain, which sells bowls and pitas, originally aimed to sell shares at $17 to $19 apiece before raising its range in a regulatory filing earlier this week to $19 to $20 a share. 

Given the tougher market for new listings, Cava lined up two investors to anchor its offering and commit $100 million at the IPO price, representing nearly a third of the offering. Cava’s IPO price also traded at a premium to some publicly traded peers, another unusual occurrence. Typically, IPOs price at a discount to their public-market peers.

Cava Chief Executive Brett Schulman said the company has sought to be realistic in response to rising expectations for its debut, and chain executives were focused on their business rather than the market’s initial response.

“We’re trying to put forward a credible plan that we think we can deliver on and focus on building this brand for the next 10 years,” Schulman said in an interview. 

The IPO’s lead underwriters are JPMorgan Chase, Jefferies and Citigroup.

The IPO market has been unusually slow for the past year and a half, but restaurants are in better positions than other industries, according to bankers, analysts and investors. Sales at many restaurants are holding up despite rising menu prices, as are modest profits.

Panera Brands is preparing to offer its own shares on the public markets, and last month named a new CEO. Fogo Hospitality, the parent company of Brazilian-style steakhouse chain Fogo de Chão, is also aiming for an initial public offering this year, people familiar with the matter have said. 

Cava has yet to turn a profit, though its loss narrowed to $2.1 million in the first quarter of its fiscal year from $20 million a year earlier. Investors focused on consumer brands are looking for companies that can deliver robust increases in locations, sales and margins on their units, and Cava is poised to trump many other restaurants on those metrics, Wall Street analysts said. 

Write to Heather Haddon at [email protected] and Corrie Driebusch at [email protected]