An upcoming Brazilian restaurant deal could yet whet investors' appetite for hospitality stocks as the holiday season swings in.
Fogo Hospitality (which runs the “Fogo de Chão” restaurant chain) filed for its initial public offering (IPO) with the Securities and Exchange Commission (SEC) on November 16. Though it has yet to set a date for when its stock will first float on the market, it aims to raise $100 million from the deal and will list on the NYSE under “FOGO.”
This is not the first time Fogo has gone public. Its first foray into the markets came in 2015, with a launch that raised $88 million at $20 per share. Yet it faired poorly over the following two years, trading down to as low as half its initial market price at one point, before being taken private in 2018 through a deal worth $560 million.
Headquartered in Texas, the chain has been growing for over four decades and boasts 62 outlets, 55 under company ownership and seven owned by franchisees.
Delivered in the familiar all-you-can-eat format, Fogo offers a memorable family dining experience – authentic “Churrasco” barbecued cuisine from the southernmost region of Brazil. The brand differentiates itself with a unique dining style that blends the cook and wait staff roles. Their “gaucho” (Brazilian ranchers) chefs rotate between tables, serving guests their specialized fine meats. Fogo claims this ensures highly-tailored service and fast table turnover.
Fogo saw six consecutive years of customer traffic growth through to 2019 when it averaged 129,000 guests per U.S. restaurant. Like many in the hospitality sector, the brand was hit hard by the pandemic but recovered in 2021 to reach 142,000 guests per U.S. restaurant. Forgo's topline revenue for 2021 was $431 million, with $22 million in net profits.
In 2022, Fogo has tried to build on that momentum. Starting this year, the brand plans to continually expand its operations at a rate of 15% per annum through company-owned restaurants and franchising. New locations for 2022 included Monterrey, Mexico, Rio de Janeiro, Brazil, Fort Lauderdale, Florida, and Elmhurst, New York. Fogo aims to grow to over 300 restaurants in the United States over the next two decades.
The Brazillian brand boasts a demographic dividend of sorts. The company claims that in 2018 around 80% of its guests were Millennial or Generation X. Fogo hopes to leverage brand loyalty among its younger patrons to drive long-term growth as its clientele ages over the decades to come.
Through the IPO, management not only aims to fund branch expansion, but also pay off its hefty debts. As of October 3, 2021, Fogo's liabilities totaled $577 million, which dwarfs the $23 million in cash it had at the time.
So although its top line has recovered since the pandemic, Fogo is running on a relatively thin cash flow.
In sizing up this IPO, investors will likely weigh up the promise of Fogo's expanding operations and the appeal of its unique cuisine in the U.S. market while being mindful of the hospitality sector's vulnerability to pandemics and other disruptive events.
This article was produced and syndicated by Wealth of Geeks.