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David’s Tea brews a successful IPO

David's TeaDavid's Tea
Shares of Canada-based David's Tea simmered on the first day of trading on Friday.Photograph by Melissa Renwick — Toronto Star via Getty Images

Shares of David’s Tea, a Canada-based tea retailer that has only dipped its toes into the U.S. market, simmered on the first day of trading on Friday.

The Montreal-based beverage company priced its shares Thursday evening at $19 apiece and posted a 35% gain on Friday. Investors leapt at a chance to invest in a tea retailer with 136 stores in Canada but just 25 locations in the U.S. Shares jumped as much as 42%, but were recently trading at around $34.80 under the ticker symbol DTEA on the Nasdaq Global Market.

“Tea is a big market, it is growing and very popular with millennials,” David’s Tea Chief Executive Sylvain Toutant told Fortune. Toutant, who personally drinks tea “four to five times a day,” said his company more directly competes with grocery chains because a bulk of sales are tied to teas meant to be brewed at home.

David’s Tea is a relatively new, but fast growing, beverage and retail chain, and it is the latest consumer-focused company to see a strong market debut. Almost two-thirds of the retailer’s sales are derived from loose-leaf tea and tea-related gifts meant for the home, while tea accessories contribute 22% of sales and food and beverages prepared at the stores make up about 10%. That contrasts drastically with Starbucks (SBUX), which pulls in over 90% of revenue from food and beverages sold at its retail locations.

David’s Tea’s market debut is almost a perfect mix of two other companies: it is based in Canada, like coffee and doughnuts seller Tim Hortons (THI), and it mostly focuses on the sale of tea, like Teavana. Teavana was once public but sold to Starbucks for $620 million in 2012.

How does David’s Tea stack up? Well, Tim Horton’s first-day pop was 22%, while Teavana’s shares grew 64% on its market debut, according to IPO ETF Manager Renaissance Capital. Another competitor, Dunkin’ Brands (DNKN), saw its shares leap 47% on the first day of trading when it went public in 2011.

Toutant said one misconception that still exists regarding tea is that it is looked at as a bit too traditional. “We are trying to make tea fun and accessible,” Toutant said.

David’s Tea has launched over 400 different teas since it was founded in 2008. But, within the $40 billion global tea market, it is a relative small player, particularly compared to Teavana, which has more than 360 locations. David’s Tea says it believes it can add an additional 100 stores in Canada and 300 more in the U.S., which would bring the total count a tad over 550 in those two countries over an indefinite time frame. Toutant said the company is planning to open 40 additional locations this year, with up to 15 of those in the U.S.

While new store openings and a string of 22 consecutive quarters of same-store sales growth are both encouraging trends, sales increases at existing locations have slowed a bit. Comparable sales jumped 11% for the most recent fiscal year, slowing from a 26.6% increase two years earlier.