Guzman y Gomez US Exit Creates Doubts Over Brand's Global Portability, Jefferies Says

MT Newswires Live
Sep 23

Guzman y Gomez's (ASX:GYG) exit from the US was positive for earnings but creates doubt about whether the fast-food restaurant chain can be viable at scale outside of its domestic market in Australia, Jefferies said in a Tuesday note.

In May, the company said it is exiting the US market with immediate effect as the business has not delivered sales momentum and is not meeting financial targets.

The US exit is a "significant setback" as Guzman y Gomez lost AU$87 million of earnings before interest, taxes, depreciation, and amortization on its US rollout attempt, according to Jefferies.

On a more positive note, the company's strong growth is underpinned by continued consumer resonance, best-in-class unit economics, and underpenetration, while any successful geographic expansion has the potential to create material upside, the investment firm said.

It added, however, that the company's valuation is demanding, competition for restaurant sites is on the rise, and some risk of trade-down exists as macro pressures build, with some consumers potentially deciding to cook more at home if their budgets weaken.

Jefferies starts Guzman y Gomez with a hold rating and price target of AU$27.

The company's shares fell 2% in recent Wednesday trade.

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