The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Sebastian Pellejero

NEW YORK, July 9 (Reuters Breakingviews) - Fast food is back on the investment menu. Jersey Mike’s Subs, which sells cheesesteaks and Italian sandwiches across the United States and Canada, unveiled plans for an initial public offering just 18 months after buyout shop Blackstone bought a majority stake from founder and CEO Peter Cancro in a deal that valued it at $8 billion. The freshly mooted $10 billion to $12 billion valuation makes it a pricey stock to swallow.

There's plenty to relish about the IPO, the first by an eatery since Mediterranean chain Cava's CAVA.N market debut three years ago. The roughly 3,300 Jersey Mike's locations each rang up an average of $1.4 million in sales last year, more than twice as much as rival Subway shops earn, according to market research firm Circana. Franchisees can generate a healthy 42% cash-on-cash return when opening a new location, according to the company's prospectus. Headquarters collects a 6.5% royalty and a 5% advertising-fund contribution.

The company's franchise structure, started by Cancro in 1987, has served up a financial feast, with Charley Morrison now at the helm after leading $4 billion chicken-wing purveyor Wingstop WING.O to stock-market success. Jersey Mike's sales have more than doubled since 2020 to $4.2 billion last year, with revenue per site up 46%. Online orders account for nearly half of traffic, helping boost the adjusted EBITDA margin to around 47%, 12 percentage points higher than two years ago.

Blackstone BX.N, which will keep control for now, is seeking fine-dining prices for quick-service fare. At $11 billion, the midpoint of the desired range reported by the Financial Times, works out to almost 34 times the $327 million in 2025 adjusted EBITDA. It would lift Jersey Mike's above Wingstop as one of the most richly valued joints in U.S. markets.

It's a tall order. For one thing, same-store sales growth, which strips out the flattering effect of new openings, has slowed to about 3% over the past two years, from 8%. At that rate, if Jersey Mike's adds roughly 275 locations a year, with each restaurant contributing about $100,000 of earnings, adjusted EBITDA would grow 9% a year, Breakingviews estimates. Even at $12 billion, it would stay atop the valuation charts, ahead of Chipotle Mexican Grill CMG.N and others.

Morrison's Wingstop achievements earn him some benefit of the doubt. Years of Subway store closures also have helped free up customers, franchisees and prime real estate. It will take another hero-like performance, however, to keep serving up such salivating returns.

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CONTEXT NEWS

Jersey Mike’s Subs, the sandwich chain backed by private equity firm Blackstone, on July 3 unveiled plans for an initial public offering with a targeted valuation, according to the Financial Times, of about $10 billion to $12 billion.

Blackstone agreed in November 2024 to buy a majority stake in Jersey Mike's, in a deal that valued the company at $8 billion, including debt, according to multiple media reports citing unnamed sources at the time.

Morgan Stanley, Jefferies and JPMorgan are the global coordinators and joint bookrunning managers for the IPO, with Barclays and Guggenheim Securities listed as the leading co-managers. Another 21 financial institutions, including BofA and Baird, are also involved, according to the prospectus.