An Appetite For Restaurant IPOs
"We're on the front end of the curve," says Chris Sciortino, Managing Director on Baird's Consumer Investment Banking Team. "The spring has the potential to be the first inning of a restaurant burst."
Ignite Restaurant Group will kick things off next week with a $75 million offering planned for May 11, pricing in the range of $12.00-$14.00 a share. The 122 Joe's Crab Shacks and 16 Brick House Taverns are the two chains that make up the Ignited Company. Ignite's restaurant sales have increased for 15 consecutive fiscal quarters and outperformed its peer group. From 2008, when the chain assembled its current management team, revenue increased from $273 million to $405 million. The net income increased from a loss of $3.2 million to a net income of $11 million.
I love Joe's Crab Shack. It's cheap, it's fried - what's not to love. I've also given "Shack" gift certificates, so I'm a fan even before looking at the numbers and that's why these stocks do well. People like me enjoy the product and that translates to some savory opportunities.
Year-to-date consumer stocks have raised $600 million and enjoyed on average a first day return of 53% and have an average total return of 64% according to Renaissance Capital. One reason this new crop of restaurant stocks is expected to do well is because of their growth potential. "Many of the publicly traded restaurants have reached or are nearing maturation, which creates demand for a new set of growth assets in the public arena," said Sciortino.
Other restaurant names in pipeline include three Texas food chains - Chuy's Mexican Food, Dave & Buster's and Del Frisco's Restaurant Group. Chuy's had an annual growth rate of 36% for 2011. The food is tasty tex-mex and is reasonably priced. I've eaten at Chuy's in Dallas and Houston and I wish there was one in New York (although it probably wouldn't be as cheap). The chain plans to add 35-40 stores over the next five years. The proceeds will be used to get its debt under control.
Dave & Buster's filed in November to return to the public eye after being taken private in 2006. During that time, management cut costs and streamlined operations. The chain is planning on opening three stores in 2012 and six in 2013. I had my son's birthday party in a Dave & Buster's recently and the place was packed.
The only thing that concerns me with this filing is that the accounting is difficult to understand. There are several columns with date variations and references to the predecessor and successor versions of the company. The company has had a recent history of net losses, most recently $7.3 million in 2011 and $350,000 in 2010. It may have name recognition, but it's the weakest performer of the soon-to-be-public eateries.
Del Frisco's is home to Del Frisco's Double Eagle Steak House, Sullivan's Steakhouse and Del Frisco's Grille. It's a high-end restaurant concept, whose average check is $100. The Grille restaurants are smaller in size and more casual, while Sullivan's is a more contemporary version of the flagship Del Frisco's. It earned $201 million in 2011, representing a 21% growth in revenue and an 11% growth in sales. The chain plans to open three to five stores annually.
The company originally filed back in 2007, only to withdraw the request in 2008. It filed for this offering in January, but so far no more details have emerged. It competes with Ruth's Chris Steakhouse
Restaurant stocks historically have done well, particularly those with strong brand recognition and a history of performance. Research can also be fun. Eat out. Sample the goods. It's not fattening. It's due diligence.
--Written by Debra Borchardt in New York.
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