GYG delivers and expects to exceed FY25 forecasts
Guzman y Gomez (ASX:GYG) has reported its half-year results, exceeding the market’s expectations for revenue by two per cent but missed the markets earnings before interest, taxes, depreciation and amortisation (EBITDA) forecasts by four per cent. The market’s negative reaction to the results suggests the share price had moved too far ahead of operational milestones.
The company’s performance has been particularly impressive in the Australian segment. Same store sales growth for Australia, for the first seven weeks of the second half of 2024, was reported as 12.2 per cent versus consensus for the entire second half of 6.3 per cent.
Despite a minor EBITDA miss, the overall quality of the result remains high, underpinned by strong comparable sales growth, operational efficiency, and ongoing expansion.
Results overview
Guzman y Gomez reported network sales of $577.9 million, a 22.8 per cent increase year-over-year, coming in above consensus expectations of $567.7 million. Revenue (as distinct from network sales) for the first half grew 127 per cent from $166.9 million in the previous corresponding period to $212.4 million, and was in line with consensus forecasts of $212.3 million.
EBITDA (pre-AASB16) was reported at $26.8 million, up 33.5 per cent year-over-year, but fell short of market consensus of $27.6 million. Despite the EBITDA shortfall, net profit after tax (NPAT) came in at $7.3 million, exceeding consensus estimates of $6.5 million by 12 per cent, reinforcing confidence in the operating leverage and the company’s bottom-line strength.
The company’s gains were offset by higher blend of deliveries which have a lower margin, higher avocado prices (expected to improve by April), a higher proportion of new stores (which only achieve profitability after 3-6 months)
In the Australasia segment, underlying EBITDA reached $31.8 million, a 37.3 per cent increase year-over-year, in line with market expectations. The region’s same-store sales growth stood at +9.4 per cent.
Perhaps partly explaining the market’s negative reaction to the result, Guzman y Gomez’s U.S. operations appears to require work. U.S. network sales came in at $4.9 million versus $5.6 million for the first half of FY24. An underlying EBITDA loss in the U.S. of $5.0 million was marginally worse than market expectations of a $4.0 million loss and larger than the $3.1 loss of the previous corresponding period. Reports of a store’s management being shifted to a Guzman y Gomez’s licensee is encouraging.
Operational cash flow (pre-interest and tax) came in strong at $31.7 million, ahead of market consensus of. $31.0 million. Adjusted cash conversion was an impressive 109 per cent, significantly outpacing the 89 per cent conversion in the prior corresponding period.
Guidance & trading update
Guzman y Gomez remains confident it will exceed its FY25 NPAT prospectus forecast, bolstered by strong trading momentum in the second half. As noted above, the first seven weeks of the second half of 2025 saw Australian segment same-store sales growth of +12.2 per cent, significantly ahead of the consensus estimate of +6.3 per cent. This growth has been driven by a continuation of first-half sales drivers, including increased brand penetration, menu innovation, and the cycling of a softer prior-year comparison.
Looking ahead, Guzman y Gomez is on track to meet its ambitious store expansion plans, with 31 new openings planned for FY25 (21 drive-thrus, 10 store locations), maintaining a balance between franchise (18) and corporate (13) growth. The company also expects 85 per cent of new stores to be the drive-thru format which expect to operate 24/7.
Corporate restaurant margin guidance for the year is set at 17.8 per cent, slightly below the 18.0 per cent achieved in the first half of 2025, reflecting continued ‘investment in operating leverage’ tailwinds.
Franchise royalty rates remain stable at 8.3 per cent, while general and administrative expenses as a percentage of network sales are expected to rise slightly to 6.7 per cent, compared to 6.6 per cent in the first half of 2025.
Market & trading view
The market’s reaction suggests investors are disappointed with elements including perhaps a slowing pace of same-store sales growth compared to the previous corresponding period, and they may believe the 20 per cent rally in the last quarter is not fully justified by the pace of growth.
On the flipside, the strength of the Guzman y Gomez business model, strong sales growth, a highly profitable franchise structure, and favourable consumer trends position the company for continued outperformance versus peers.
Comparisons, by analysts, to global fast-casual leaders such as CAVA (NYSE:CAVA) and Chipotle (NYSE:CMG) suggest they believe Guzman y Gomez should continue to trade at a multiple closer to these high-growth peers rather than traditional domestic rollout models.
Short interest in Guzman y Gomez’s free float is high at 32 per cent (equivalent to 29 days to cover), which may have had something to do with the pre-announcement stock rally.
Concluding thoughts
While the market has concluded Guzman y Gomez’s share price rally had moved ahead of the operating business’s milestones, the share price decline may present an opportunity for long-term investors who see the half-year results as underscoring the strength of the company’s growth strategy. While EBITDA was slightly below expectations, the company delivered solid revenue growth, impressive same-store sales gains, and strong cash flow conversion. Guzman y Gomez also remains one of the most compelling listed early store roll-out stories.
The Montgomery Small Companies Fund owns shares in Guzman y Gomez. This article was prepared 24 February 2025 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Guzman y Gomez, you should seek financial advice.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
