Guzman y Gomez shares plunge as U.S. sales slow, underlying profit misses

By Sameer Manekar and Rishav Chatterjee

(Reuters) -Mexican fast-food chain Guzman y Gomez on Friday reported first-half underlying earnings that missed estimates as declining sales at its U.S. outlets raised concerns about ambitions to break into the world’s largest market.

The company, which listed in Australia last year, reported underlying earnings before interest, taxes, depreciation and amortization of A$31.6 million ($20.21 million), missing a Visible Alpha consensus of A$32.5 million and UBS estimate of A$35.9 million.

It logged an underlying net profit after tax of A$7.3 million, lower than market consensus of A$10.8 million.

Shares in the quick-service restaurant, which offers popular menu items like the A$12 chicken meal, closed 14.3% lower at A$38.58 in Sydney and were set for their weakest trading session since July 2024. The stock fell to its lowest since February 6.

Results from the firm's United States operations were mostly downbeat, with an underlying loss widening and network sales dropping by 12.7%.

"The performance of the U.S. restaurants reflects the opportunity to increase brand awareness and improve the guest experience with network sales for the half decreasing," the company said in a statement.

GYG raised about A$335.1 million in what was Australia's biggest initial public offering in three years.

With much of the company’s valuation hinging on future growth and the U.S. market's pivotal role in that trajectory, investors are increasingly concerned that its expansion across the Pacific could falter, prompting a wave of selling pressure.

In a note on the results, RBC Capital Markets analyst Michael Toner said U.S. sales looked very soft relative to market expectations at about 25% below the bank's forecast.

"We believe the current valuation hinges on a successful U.S. expansion and this may receive outsized attention from investors," he said.

GYG also gave corporate restaurant margin and general and administrative network sales guidance for fiscal 2025, which was below what UBS had expected.

On the bright side, GYG said it was on track to beat its prospectus profit estimates this financial year.

The group's Australian restaurants posted a 9.4% same-store sales growth to A$573 million for the first half of the yeah, benefiting from strong demand for its breakfast menu and expanded trading hours at 11 stores.

($1 = 1.5637 Australian dollars)

(Reporting by Sameer Manekar and Rishav Chatterjee in Bengaluru; Editing by Alan Barona, Shilpi Majumdar and Christian Schmollinger)