Buyers often see share prices fade following an initial public offering but Teavana Holdings, despite a roller-coaster market closed above $25 per share two weeks after an initial public offering.
Despite a DJIA decline of more than 1000 points since the offering, TEA was trading at $25.39 at the close of trading Aug. 9.
Initial shares of Teavana Holdings closed at a surprisingly strong $27.80 a share July 28 with two million shares traded. Offers jetted skyward 65 percent above the $17 opening to as high as $29 in early trading but settled in a narrow range between $28 and $28.50 following buy recommendations from leading analysts.
On Thursday Founder Andrew T. Mack, surrounded by family, guests and senior executives was at the NYSE to ring the opening bell.
Shares at 10:30 a.m. as high as $28.90 on volume of 2.23 million shares. At mid-day the stock was up $11.27 from the initial asking price to $28.27. Trading at $27.80 the firm stands to gain $29.7 million for its 1 million company shares. Investors will reap considerably more on sales of up to 6,071,429 shares worth $168,785,726 at the closing pricepoint.
The stock debuted in the busiest week for IPOs since 2007. On Tuesday Dunkin’ Donuts’ made a brilliant opening, funding its IPO at $425 million, well above the $400 million estimated in its SEC filing. Buyers took the initial $19 offer to $27.85 on the first day of trading, a 47 percent climb. Shares of Chef’s Warehouse, an online food retailer rose 17 percent obove the $15 opening.
CNN reported that “retailers who have gone public this year are up 60 percent on average from their debut, according to IPO Tracking Firm Renaissance Capital. That’s compared to an average return of 16 percent for all IPOs so far this year.”
Teavana (NYSE: TEA) expected to generate $100 million and estimated its stock price at between $13 and $15 per share but underwriters saw an opportunity to reap a little more pricing the stock at $17 based on analyst recommendations. The Dunkin’ opening energized the sector bringing to mind the fabled 2000 IPO of Krispy Kreme, which saw a 76 percent first-day rise in its stock.
“At the price range mid-point of $14 TEA should be considered a buy, and we expect TEA to rise in the IPO aftermarket, even though most of the IPO proceeds are going back to shareholders,” reports stock pick website which named Teavana its IPO Pick of the Week.
The Street’s Tuesdayedition of featured a segment on Teavana with analyst Debra Borchardt who told the audience “I’m no so sure Americans are going to warm up to a tea franchise.”
Guest Francis Gaskings, President of IPO Desktop, praised Teavana’s 9.4 percent profit margins, the same as Starbucks. He said a the firm’s P/E ratio of 40 is comparable to Peet’s Coffee and Tea. “I think it is a quality stock,” he told listeners, “but it’s high priced so they will have to do what they say.”
Lead underwriters are Bank of America Merrill Lynch and Goldman, Sachs & Co. Others marketing shares available include Morgan Stanley, Piper Jaffray, William Blair and Stifel Nicolaus Weisel.
The to the original SEC registration filed on Apr. 28 lists 8,214,287 shares of common stock of which 6 million are offered by selling shareholders including the founders, senior executives and investment firms seeking recover their initial seed money. The firm is making available 1,071,429 shares of company-owned stock. Underwriters exercising the over-allotment option of an additional 1,071.429 shares at top dollar would give the firm a valuation close to $570 million.
IPO-focused websites evaluated the pros and cons but a majority recommended buying the stock. As the American tea industry’s first retail merchant to go public, the chain represents an important bellwether. Teavana set the bar with sales approaching $900,000 per 900-sq. ft. store. The number is sufficiently enticing for investors and proof that retail tea merchants can top $1 million in sales, a threshold that will spur on the competition.
The successful IPO will lead to construction of 340 Teavana stores in the next three years, according to the filing. The Atlanta-based chain, founded in 1997, operates 161 company-owned stores in 35 states with 19 franchises located mainly in Mexico. Net income during the 2010 fiscal year was $12 million on $124.7 million in sales which are up 126 percent compared to FY2009. According to filing, shops averaged almost $1000 a square foot in sales and contributed $886,000 per store based on transactions averaging $36 each. About 7 percent of total sales are online.
Sales of $134 million for the 12 months ending May 1 demonstrate the firm’s continued growth. According to the S1 filing, founder Andrew T. Mack and his wife hold 69.5 percent of the company’s common stock. SKM Partners, LLC, which bought out an early private investment firm owns 23.9 percent of the company. Total assets are $64 million as of Jan. 31, 2011.
Fairy tale openings sometimes fade as the euphoria diminishes. Investors funding the Krispy Kreme IPO are down 14 percent and the firm now trades 83 percent off its all-time high of $49.37 in August 2003.
One at 24/7 Wall St. was critical of how the offer is structured.
“The Teavana team has decided to somewhat adopt the same model of some of the recent Web 2.0 offerings with a very low float at the IPO and with founder majority control long after the IPO. Of the 7.1+ million shares being offered, the company itself is only offering 1,071,429 shares and the selling stockholders are offering an additional 6,071,429 shares. On top of that, only about 15 percent of the authorized shares will be in the float as it lists its authorized share count as 38,040,518 shares,” writes analyst Jon C. Ogg.
Ogg estimated the market cap at $532 million at a $14 per share mid-point.
“That is not really a problem on its own when considering the rest of the IPOs we have seen, but the notion that the float is so small, and that the founder and the financial backing fund own more than 70 percent of the float, and that only a small fraction of the shares coming to market are going to be for the benefit of the company all combine into a scenario that is just not very favorable for the shareholders at the initial public offering,” concludes Ogg.