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As we approach the end of Week 3 of August’s ASX reporting season, around two-thirds of companies have now shared their earnings results. This season has certainly delivered its share of surprises—some positive, such as impressive performances from The A2 Milk Company (ASX: A2M), Brambles (ASX: BXB), Nick Scali (ASX: NCK), and Seek (ASX: SEK). Conversely, some firms like James Hardie (ASX: JHX) and CSL (ASX: CSL) suffered significant declines in their share prices, with JHX plummeting 28% on its earnings day.
Guzman y Gomez (ASX: GYG) Updates
Today’s significant development comes from Guzman y Gomez, a prominent Mexican fast-food chain. The company issued its FY25 earnings this morning, marking only its second full-year report since going public. Despite showing notable growth in revenue, GYG’s stock anticipated a sharp decline, plunging 20% in early trading. This response indicates the market’s focus on more than just top-line figures.
Key Earnings Metrics
- Revenue: A$436 million (Consensus: A$450.6 million)
- EBITDA: A$65.1 million (Consensus: A$64.1 million)
- Segment Underlying EBITDA: A$52.8 million (Consensus: A$54.5 million approximately)
- Net Profit After Tax (NPAT): A$14.5 million (up 151.8% year-on-year, pro forma)
- Earnings Per Share (EPS): A$0.137 (Consensus: A$0.155)
- Final Dividend (DPS): A$0.126, fully franked (first dividend, payable in September 2025)
Despite a solid US$1.18 billion in global network sales—a 27% increase—GYG fell short against consensus forecasts.
Guidance Insights
- New Store Openings: Plans for FY26 include 32 new restaurants in Australia (20 franchised, 12 company-owned), alongside 23 drive-thru and 9 strip locations.
- EBITDA Margin: An expected margin of 5.9% to 6.3% for the Australian segment falls below the 6.3% consensus, suggesting increased cost pressures.
- Comparable Sales Growth: The first seven weeks of FY26 revealed a modest growth of 3.7%, significantly under market expectations of around 7%-8%.
- US Operations: The US segment saw losses of A$13.2 million, worse than the anticipated A$10.5 million. While management aims for an average unit volume of US$3.0 million, wider losses are expected for FY26.
Key Takeaways
- Revenue Shortfall: Despite overall growth, GYG’s revenue failure to meet expectations raises operational concerns.
- Margin Pressures: The EBITDA margin projection suggests a challenging cost environment, indicating a lack of operating leverage.
- Dissatisfactory Trading Update: The disappointing growth rate has undermined investor confidence and may affect market perceptions of GYG’s growth trajectory.
- Struggles in the US Market: Worsening losses in US operations continue to be a concern, with management signalling the need for substantial time to prove viability.
- Eroded Investor Confidence: Analysts are already revising forecasts downwards amidst fears of earnings misses, exemplified by the immediate 20% drop in stock price.
Future Outlook
GYG targets long-term ambitions to become a top-tier restaurant company globally. The company’s leadership highlighted its commitment to providing clean, fresh food and developing scalable operations. With aspirations to establish 1,000 restaurants—up from 224 today—there appears to be significant growth potential. However, the path forward is fraught with challenges, particularly given recent underwhelming sales figures and ongoing issues surrounding its US market performance.
Conclusion: Potential Warning Signs
While GYG’s FY25 results appear robust at first glance, disappointing indicators—such as revenue shortfalls, weak comparable sales, and widening US losses—have deeply unsettled investor sentiment. The dramatic 20% decline in share price reflects the market’s intolerance for misses this earnings season.
In reviewing GYG’s technical patterns leading up to these results, it becomes clear that signs of weakness were present. With declining trends in share prices and overall market conditions remaining less than hospitable, it may be prudent for potential investors to adopt a wait-and-see approach before determining if GYG represents a genuine buy opportunity amidst ongoing volatility and uncertainty.
