Australian-born Mexican-themed fast food chain Guzman y Gomez is pulling out of the United States in a dramatic reversal of its American market ambitions. The stock exchange-listed company made the announcement on Friday, stating that its restaurants in Chicago will cease trading immediately.
Financial Performance Concerns
The decision was driven by the unacceptable financial performance of the US business, which was not meeting targets. Founder and co-chief executive Steven Marks expressed confidence in the food and guest experience but acknowledged that this did not translate into improved sales momentum. 'I have always been confident in the differentiation of our food and guest experience, however this was not translating to an improvement in sales momentum,' Marks said.
Six-Year US Experiment
Guzman's foray into the US market lasted approximately six years, beginning with its first store opening in Chicago in January 2020. Marks admitted that the venture required significantly more time and capital than anticipated. 'The board and I have concluded that the business was unlikely to deliver the performance that would justify continued investment of shareholder capital,' he added.
Financial Results Context
In February, Guzman reported a bottom-line net profit of $10.6 million, up nearly 45 per cent, on revenue of $261.2 million for the first half of its financial year. However, total cash earnings came in at $33 million, missing market forecasts of between $34.9 million and $35.9 million. The US business weighed on results, with an $8.3 million slump in equivalent earnings as new restaurants dragged on margins, despite global network sales rising 18 per cent to $681.8 million.
Australian Growth
Guzman's core Australian business generated network sales of $673.6 million and earnings of $41.2 million. The company reiterated that its Australian operations continue to grow strongly. 'We have a long runway ahead of us in Australia, as we progress to our long-term target of 1,000 restaurants,' Marks said.
International Operations
Guzman still maintains operations in Singapore and Japan under a master franchise arrangement. Marks expressed pride in the international partners and sees substantial growth ahead in those markets. 'Today's decision is about the US specifically - it is not a statement about GYG's global potential,' he clarified.
Financial Impact of Exit
The US exit is expected to impact the full-year profit and loss statement, with a one-off charge of between $30 million and $40 million. Despite this, RBC Capital Markets analyst Michael Toner upgraded Guzman's stock to 'outperform' with a price target of $22, citing the strength of its Australian business and expansion opportunities beyond 1,000 stores. Shares ended Thursday at $18, giving the company a market value of $1.8 billion.
