Guzman y Gomez, the Australian Mexican-themed fast-food chain, delivered a sharp rise in underlying profit for the year ended June 30, even as its costly exit from the United States dragged reported earnings into the red. The company said underlying net profit after tax climbed about 30% to A$53.4 million, up from A$41.2 million a year earlier, helped by strong sales in its home market and other key regions.
Shares in the Sydney-listed company jumped as much as 12.6% on the news, reflecting investor relief that the core business remains healthy despite the US setback. The stock move underscores how much of the company's value now rests on its performance in Australia, Singapore and Japan.
Australia leads the way
Network sales — a measure that includes both company-owned and franchise stores — rose 17.9% to A$1.4 billion, driven by the Australia segment, which also includes Singapore and Japan. That growth helped offset the drag from the US, where the company pulled out in May after weak sales made the market unprofitable.
The US exit was a significant strategic shift. Guzman y Gomez had entered the US with ambitions to build a national presence, but after years of disappointing results, management decided to cut its losses and focus on markets where the brand had stronger traction. The decision resulted in one-off costs that pushed the reported bottom line into negative territory, though the underlying figures strip out those charges to show how the ongoing business is performing.
For everyday investors, the key takeaway is the distinction between reported profit and underlying profit. Reported profit includes one-off items like restructuring costs, while underlying profit gives a cleaner view of the company's recurring earnings power. The 30% jump in underlying profit suggests the core operations are growing healthily, even if the headline number looks worse.
What it means for investors
The strong result is a reminder that a company's geographic mix can have a big impact on its financial health. Guzman y Gomez's decision to double down on Australia and Asia, where it has brand recognition and scale, appears to be paying off. The company's network sales growth of nearly 18% is well above what many mature fast-food chains achieve, indicating that demand for its burritos and tacos remains robust.
However, the US exit also highlights the risks of international expansion. Many Australian retailers and food chains have struggled to replicate their domestic success overseas, and Guzman y Gomez's experience is a cautionary tale. Investors should watch how the company deploys its capital now that it has exited the US — whether it reinvests in growth in its core markets or returns cash to shareholders.
The broader Australian economy has shown resilience, with private sector activity expanding in August, though manufacturing has slipped into contraction. Consumer spending remains a key driver for fast-food chains, and Guzman y Gomez's results suggest Australian diners are still willing to spend on eating out, even as cost-of-living pressures persist.
For investors, the jump in shares reflects optimism that the company can continue to grow profitably without the drag of the US operations. But the stock's reaction also shows how sensitive the market is to any sign of trouble in the company's expansion plans. The next few quarters will be crucial to see if the momentum can be sustained.
Guzman y Gomez's performance also stands in contrast to other recent earnings reports. For instance, NetEase saw profit fall 18.8% on an investment loss despite revenue growth, highlighting how one-off items can distort results. Similarly, Advance Auto Parts saw its stock plunge 23% on weak DIY sales despite a profit beat, showing that investors often focus on underlying trends rather than headline numbers.
Looking ahead, investors will likely watch Guzman y Gomez's same-store sales growth, franchise expansion, and any updates on its international strategy. The company's ability to maintain its growth trajectory in Australia and Asia will be key to justifying its valuation, which remains elevated compared to many traditional fast-food peers.
For now, the message from the market is clear: Australia is pulling its weight, and the US exit, while painful, may ultimately prove to be the right call for long-term profitability.
