The latest trend in the fast-casual restaurant business is going public. A heaping helping of restaurant companies have served up fresh IPOs in recent months, including the high-profile Shake Shack sweepstakes, which raised $150 million back in January.
This week Wingstop’s IPO raised more than $110 million. Wingstop follows the $147 million May IPO of Southern-style chicken-and-biscuit chain Bojangles.
Jimmy John’s is hoping its forthcoming IPO will give investors a well-established sandwich brand to support. (Potbelly is the only other major sandwich chain that is public, and it is smaller than Jimmy John’s.) Chicago-based Potbelly surged 120% in its October 2013 IPO.
Why Go Public?
Restaurant companies have been getting high valuations by underwriters and investors because the industry has shown moderate growth in recent years, along with a slowly improving economy. Besides an influx of cash that helps pay down debt or expand a chain’s footprint, a big part of the motivation to go public is companies generally get a lot of media attention for their IPOs (before things settle back in to business as usual).
Since Shake Shack went public in January, its nationwide same-store sales have been steadily increasing. The company believes the publicity surrounding its IPO helped drive improved sales at all of its locations.
IPO Not Always a Gold Mine
Papa Murphy’s went public last year to little fanfare. The IPO did not generate much publicity, apart from a lawsuit filed by disgruntled franchisees. Same-store sales slowed around the offering but have since picked back up.
Although Noodles & Company saw its stock price and same-store sales increase dramatically after its IPO in 2013, the chain’s sales are down more than 40% this year. Noodles & Company now trades below its offering price.
As time goes on, being public is not always an advantage for restaurant companies. Being a publicly traded company puts pressure on executives to deliver short-term results to shareholders. The need to deliver strong quarterly sales and dividends to investors can sometimes overshadow the need to properly serve customer needs.
Photo courtesy of Wingstop.