Budding burger empire Shake Shack (NYSE:SHAK) went public on the New York Stock Exchange on Friday. After pricing above the expected range at $21 per share and raising $105 million, shares soared 138%, surpassing $50 midday. The stock closed just under $46, making the cult favorite worth $1.63 billion.
“This thing was an accident. We were born from a hot dog cart. Our only goal was to support an art project,” CEO Randy Garutti said in an interview with FOXBusiness.com. “We never dreamed that there would be a second Shake Shack."
Shake Shack, the creation of restaurateur Danny Meyer, started in 2004 in Madison Square Park in New York City. The high-end burgers developed a cult following and the company added more locations throughout New York City and the globe, including Moscow and Dubai. The company plans to add ten new locations every year.
Burgers are the top dining out segment in the United States, totaling $72 billion in sales annually, according to Shake Shack’s S-1 filing. People spend $135 billion on burgers globally.
Garutti said that what sets Shake Shack apart from the competition is that they “focus on just doing one great thing.” The chain has a fairly limited menu, consisting of burgers, fries, hot dogs, shakes and custard. Garutti said they may experiment with some new items, but they will mostly stick to their core business.
Shake Shack brought in $83.8 million in revenue, in the 39 weeks ending Sept. 24, 2014, which represents a 40.8% increase from the same period the year before.
Costs also rose, totaling $79.6 million for the time frame in 2014 and $54.7 million for comparable part of 2013. Net income was just $3.5 million for the portion of 2014, down from $4.4 million the year before.
"Shake Shack appears to be a solid company operating in a hot niche sector with a product that people enjoy. The company is growing revenues, and, refreshingly, it is actually turning a profit," Brian Hamilton, chairman of Sageworks, said. "However, given the frothy nature of the IPO market right now, it's not surprising that their valuation is slightly rich."
Habit Restaurants, another high-end burger chain, went public last year, and has seen its shares rise 81%. Investor appetite for restaurants has been strong, with “fast casual” chains looking to recreate the success of Chipotle (NYSE:CMG).
Shake Shack is private equity-backed, with Green Equity Investors, SEG Partners and Alliance Consumer Growth as top stockholders. Last year saw the most volume for private-equity backed IPOs on record, with $34 billion raised.
J.P. Morgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) are joint bookrunning managers on the offering. Barclays (NYSE:BCS), Goldman Sachs (NYSE:GS), Jefferies, William Blair, and Stifel Nicolaus (NYSE:SF) are also underwriters.
“This has just gotten started. We’ve just begun,” Garutti said.