GEN Restaurant stock rockets 30% in Nasdaq debut, suggesting healthy appetite for IPOs

By Tomi KilgoreCiara Linnane

Small but profitable Korean BBQ restaurant chain's debut comes after loss-making Cava Group

Shares of GEN Restaurant Group Inc. fired out of the gate Wednesday, as the GEN Korean BBQ restaurant chain's stock opened more than 50% above its initial public offering price.

The profitable company raised $43.2 million as its 3.6 million-share offering priced late Tuesday at $12 a share. The company had previously expected to sell 3.0 million shares at a price between $10 and $12 a share.

The stock's first trade Wednesday was at $18.30 for 81,940 shares at 11:11 a.m. Eastern, or 52.5% above the IPO price. At the opening price, the company was valued at about $580.9 million.

The stock has pulled back since then and was last up 30%.

The deal comes just weeks after another restaurant chain, Cava Group Inc. , went public and rocketed more than 99% in opening trade. The two companies are quite different; Cava is a Mediterranean-style chain that has yet to make a profit.

See now: Money-losing food chain Cava showed IPO success. Is it finally time for some tech deals?

But GEN had net income of $4.134 million in the quarter through March 31, up from $3.0 million a year ago. Revenue rose 14.7% to $43.9 million.

The company was created in 2011 by two Korean immigrants, Jae Chang and David Kim, experienced restauranteurs who have since grown the network to 34 company-owned restaurants, offering traditional Korean and Korean-American food.

"Our restaurants have modern décor, lively Korean pop music playing in the background and embedded grills in the center of each table," says the filing documents

"Our food is served family style and requires guests to share and coordinate their cooking responsibilities, which fosters more meaningful interaction than traditional casual dining."

That is helping the company connect with two important demographics -- Millennials and Gen Z -- and to harness the current popularity of all things Korean, which include pop music, movies and TV shows.

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The restaurants are located in California, Arizona, Nevada, Hawaii, Texas, New York and Florida, but proceeds of the deal will be partially used to open new outlets.

The company is aiming to open four or five restaurants in 2023 and to open 10 to 12 new restaurants annually new and existing markets, including Virginia, Oregon, Georgia, Utah, Colorado, and New Jersey, as well as in the District of Columbia.

Over time, the company believes there's a potential for more than 250 restaurants in the U.S.

"Our restaurants have historically generated average Payback Periods of approximately 1.4 years with average Net Build-Out Costs of approximately $1.8 million for new units opened during 2018 and 2019," says the filing.

GEN believes one strength is its pricing model, which offers unlimited quantities of food at a fixed price that ranges from $17.95 to $20.99 for lunch and $25.95 to $29.96 for dinner (apart from at the Miracle Mile in Las Vegas, where dinner is priced at $35.95; and $33.95 for dinner and $36.95 for late dinner at the Manhattan location).

Still, the stock comes with risks, including the current economic backdrop with many expecting the economy to tip into recession and dampen consumer spending.

The company is exposed to its own suppliers, including a few that provide specialized equipment, such as embedded grills in its tables.

Like all restaurant operators, it faces stiff competition from other fast-casual restaurants, along with takeout offers from grocery stores and meal-kit companies, among others. It also competes for staff with such outlets and for quality locations.

GEN is an emerging growth company, which means it does not face the same disclosure requirements as bigger companies. The IPO was underwritten by Roth Capital Partners, Craig-Hallum Capital Group and The Benchmark Co.

The stock's strong debut comes as the Renaissance IPO exchange-traded fund (IPO) has gained 32% in the year to date and the S&P 500 has gained 14%.

Read: Cava Group CFO is confident restaurant chain will be profitable -- but she won't say when

-Tomi Kilgore

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06-28-23 1401ET

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