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Cava Group, the Mediterranean-focused fast-casual restaurant chain that’s making its trading debut on Thursday, is confident it has access to enough funding to expand its business and make a profit, according to Chief Financial Officer Tricia Tolivar.
But Tolivar declined to provide a timeline to profitability in an interview with MarketWatch.
The company raised $317 million in its initial public offering, which priced above its proposed range on Wednesday at $22 a share. The company issued 14.4 million shares at a valuation of $2.45 billion.
The stock opened up 90.9% above its issue price, boosting the valuation to $4.78 billion.
That cash infusion will be helpful as Cava
CAVA,
has just $23 million in cash and cash equivalents on its balance sheet, according to its IPO filing documents and burned through $120 million of free cash flow in 2022.
For more, see: Cava Group is going public: 5 things to know about the fast-casual Mediterranean restaurant chain
Cava also has access to a $75 million revolving credit facility, a $25 million accordion — an option to increase its line of credit by that sum — and a $35 million delayed draw term loan, Tolivar said.
“We’re finding Cava restaurants are really resonating in all locations from Back Bay, Boston, to Birmingham, Alabama, and we’re confident we can continue to expand and grow,” she said.
The company has 263 restaurants in its network across 22 states and Washington, D.C. and is planning to open 34 to 44 more on a net basis in 2023, she said.
Tolivar said she is confident the company’s unit economics and margins are strong and growing and the company has made investments in infrastructure it can leverage over time.
The company has grown revenue 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.
Those losses and the cash burn drew attention from 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.
Trainer issued several critical reports about Cava ahead of the IPO, questioning its ability to reach profitability and high valuation. Trainer even compared it to WeWork
WE,
the infamous startup created by Israeli entrepreneur Adam Neumann, that at its peak was valued at $47 billion, but is now trading at just 22 cents a share, or a market cap of $447 million.
For more, see: Fast-casual restaurant chain Cava Group’s IPO documents raise some red flags: analyst
Cava’s new restaurants are generating significant cash and cash returns of 40% on average, said Tolivar. The cost of construction is about $1.3 million per restaurant, she said.
The company has a robust list of real estate and motivated workers, she added. Since 2016, it has offered restaurant staff a $13-an-hour starting wage, which means it’s not playing catchup now, as other restaurants are doing.
Tolivar says her past experience — she was CFO at vitamin store GNC in her previous role — is relevant to the restaurant world.
“There are a lot of similarities with multi-outlet retail. It’s four-wall economics, it’s about managing inventory and risk,” she said.
The deal comes in another quiet year for IPOs, according to Renaissance Capital, a provider of IPO exchange-traded funds and institutional research.
There have been just 45 IPOs so far in 2023, up 21.6% from last year. Total proceeds raised come to $7.6 billion, up 91.9% from 2022.
The Renaissance IPO ETF
IPO,
has gained 32% in the year to date, while the S&P 500
SPX,
has gained 15%.
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