Guzman y Gomez dips as US expansion drags on revenue
· Michael West
Shares in Mexican-themed fast food chain Guzman y Gomez have tumbled as the cost from its United States expansion grows.
The group’s statutory net profit grew almost 45 per cent to $10.6 million on revenue of $261.2 million, for the half year ended December.
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Group underlying earnings before interest, tax, depreciation and amortisation, a key measure of profitability, lifted 23.3 per cent to $33 million, as as sales rose by 18 per cent to $681.8 million.
The earnings figured missed the lower band of consensus estimates, which had projected a figure between $34.9 million and $35.9 million.
Weighing on the figure was a $8.3 million in its US business’ equivalent line item, as new restaurants dragged on margins.
“During the half corporate restaurant margins declined, primarily due to the opening of new restaurants,” Guzman’s chief financial officer Eric du Plessis told investors at a briefing.
“In existing restaurants, increased labour productivity was offset by temporarily elevated costs in core protein.”
However, the new sites helped boost US sales by more than two-thirds on the equivalent half to $8.2 million.
The company remained focus on driving sales and brand awareness in the US, while improving restaurant profitability.
The numbers and the reasoning weren’t enough to impress investors, which offloaded Guzman y Gomez shares down to $18.21, wiping more than 10 per cent of the company’s value in early trade on Friday.
Its core Australian business generated network sales of $673.6 million and earnings of $41.2 million.
Margins in its corporate stores (as opposed to franchise stores) were down on the equivalent half to 17.6 per cent.
“Our corporate network is still weighted to non drive through restaurants, particularly those in CBD locations, which tend to operate at lower margins and have higher delivery sales,” Australian chief executive Hilton Brett said.
“As we continue to shift the corporate portfolio toward drive-throughs, our strongest format, we expect corporate margins to strengthen.”
Some 17 new restaurants were opened during the half, including 14 in Australia, one in Singapore and two in the US, leaving it with 272 in total.
Guzman y Gomez has announced it will enter an exclusive delivery arrangement with Uber Eats, but its Australian boss couldn’t shed any light on the deal’s impact on margins.
“However, I can say that the deal is designed to drive sales over the long term, and that’s in having more offers to our guests, a more compelling value proposition, and just being more front of mind with our guests on the UE platform,” Mr Brett said.
Guzman y Gomez will pay an interim dividend of 7.4 cents.