IPO Pick of the Week: Teavana

NEW YORK ( TheStreet -- Teavana Holdings ( TEA) is the top pick from among this week's crowded slate of IPOs, according to Francis Gaskins, the president of IPO Desktop.

Teavana is a specialty retailer that sells loose leaf tea and tea making accessories. Predominantly located in malls, the retailer is known for courting shoppers to try the tea, which is premium priced.

The Atlanta-based company is looking to raise roughly $100 million through the sale of 7.1 million shares at an estimated price range of $13-$15 per share. It plans to use the proceeds to redeem preferred stock and pay off its debt. The company's shares will trade on the New York Stock Exchange under the symbol "TEA."

Gaskins like Teavana because of its growth story. The company currently operates 146 stores located in 34 states, and has another 15 franchised locations in Mexico, and it plans to open 50 more stories in 2011, another 60 in 2012 with an aggressive expansion target of 500 stores by 2015.

And it seems like there's plenty of room to grow. Tea consumption in the United States is much lower than the rest of the world, ranking 22nd globally. Teavana has grown revenue to $125 million in 2010 from $64 million in 2008 with net income rising to $12 million in 2010 from $2 million in 2008. The company averages $1,000 in sales per foot, which is higher than most specialty retail stores.

Teavana believes that its store placement is the reason for some of its success. The company is very careful in choosing where to place its stores. By doing so, its new stores have a payback period of less than one and a half years.

The company compares itself at times to Starbucks ( SBUX), which also sells premium tea, but also takes pains to differentiate itself. Gaskins like the aggressive plans to grow, but investors should realize that, at some point, demand for tea may not be enough to support the expansion.

A quick word on Uruguay-based Union Agriculture Group ( UAGR), the other food-related IPO this week. The company has scheduled a $200 million offering with shares seen pricing between $13 and $15 per share.

UAG is a producer of agriculture products that it exports to the global market. It owns over 84,000 hectares of farm land in Uruguay, but does not actually own the title to the land, although it is supposed to receive the title at a later date.

UAG has been losing money for some time. It is based in a foreign country with an unclear legal structure. If investors wanted to make profits off of an agriculture stock, there are much better choices with proven tracks records and clean ownership structures.

-- Written by Debra Borchardt in New York.

>To contact the writer of this article, click here: Debra Borchardt.

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