Shares in recently listed Guzman y Gomez (ASX: GYG) were trading around 10% lower at midday (AEDT), despite telling the market it was on track to beat its prospectus profit forecast for the year.
Strong sales and earnings growth in 1H FY25 saw the Mexican food chain post revenue of $212.5 million, which delivered an inaugural profit of $8.1 million compared with the $4.3 million loss posted in the previous period.
What the market clearly didn’t like was a slushy looking United States result that came in 25% down on market expectations.
The U.S. segment experienced a 12.7% decline in network sales to $4.9 million and corporate restaurant margins also decreased, due to additional investment in restaurant labour ahead of anticipated sales growth.
US segment concerns
Underscoring the future importance of getting its U.S. operation right, RBC Capital Markets notes that while this segment isn’t currently material to the group, its current valuation hinges on a successful U.S. expansion.
“…this may receive outsized attention from investors,” the broker noted.
The company noted that demonstrating proof of concept in the U.S. remains a priority, with focus remaining on driving sales through expanding brand awareness and improving the guest experience.
Australian momentum
Meanwhile, concerns over the U.S. segment performance have eclipsed what was an otherwise reasonable result, with Australia's network sales (including Singapore and Japan) in line with RBC’s estimate.
However, Australian franchise profitability fell from 53% in August to 50%, which the broker attributes to a rapid store rollout strategy.
Commenting on today’s result, CEO, Steven Marks said today’s Australia-led result reflects momentum driven by the delivery channel, impactful marketing and demand for value menu items like the 12 Chicken Mini Meal.
“With franchisees achieving a median return on investment of 50%, we are creating shared value and together [we] are on a mission to create the best and biggest restaurant company in the world,” he said.
Other key numbers announced today include:
- Earnings were up 28.3% to $31.6 million.
- Australia's earnings increased 37.3%.
- Australian segment sales were up 9.4% to $573 million.
- 62% decline in U.S. earnings to $5 million loss.
- 239 restaurants globally.
- 19 new restaurants (16 in Australia).
- Corporate restaurant margins improved from 17.5% to 18.0%.
- Median restaurant AUVs increased to $6.8 million for drive-thru restaurants and $4.8 million for strip restaurants.
- Median network restaurant margins have risen for drive-thru restaurants to 21.8%.
- Median network restaurant margins in strip formats decreased to 18.8%.
The company ended the year with a net cash and term deposits position of $274.5 million with no debt.
The board did not issue a dividend.
Outlook
Reflecting continued trading momentum, the first seven weeks of 2H FY25 saw Australia segment comp sales growth above expectations at 12.2%.
The company has more than 100 future restaurants in its pipeline, all in AAA locations and has guided 31 openings in Australia in FY25.
During the period, restaurant-level leadership was strengthened in Chicago to drive performance. Local area marketing initiatives were also undertaken, including partnerships with schools and sporting groups.
RBC expects a FY25 profit of $15 million ahead of current prospectus forecasts.
Guzman y Gomez has a market cap of $4.2 billion making it an ASX200 stock; the share price is up 88% in one year and up 2.24% year to date.
Consensus is Hold.
This article does not constitute financial product advice. You should consider independent advice before making financial decisions.
