Why are Guzman Y Gomez shares surging more than 15% higher?

Guzman Y Gomez Ltd (ASX: GYG) shares are charging higher on Friday after the company announced it would exit the US market.

The fast food operator said in a statement to the ASX that it would cease trading its restaurants in Chicago immediately.

Not up to scratch

The company said that while genuine progress had been made in the US market, the operations were not hitting the required benchmarks.

The company said:

GYG has been consistent and transparent about the thresholds the business needed to meet to prove concept in the US. Notwithstanding the progress made by the team on brand and guest experience, the financial performance of the US business has not been acceptable and is not meeting targeted hurdles.

The decision to exit the US market will cost the company US$30 to US$40 million.

GYG Co-Chief Executive Officer Steven Marks said:

I have always been confident in the differentiation of our food and guest experience, however this was not translating to an improvement in sales momentum. Having spent the last 3 months in the US, I realised this was going to take significantly more time and capital than we had expected. In assessing the trajectory of the current network, the Board and I have concluded that the business is unlikely to deliver the performance that would justify continued investment of shareholder capital.

The company said it was the board’s view that the Australian business was in a solid position, with strong growth, “world class unit economics and a significant network growth opportunity”.

The company added:

The quantity and quality of sites in the real estate pipeline continues to grow and GYG remains on track to open 32 restaurants this financial year. In an update to its full year guidance, GYG expects to deliver Australia Segment underlying EBITDA of approximately $85 million in FY26, representing 29% growth on the prior year.

Future still looks bright

Mr Marks said the company had a long runway ahead of it as it sought to hit its long-term target of 1,000 restaurants and underlying EBITDA as a percentage of network sales of 10%.

The company said the decision to exit the US did not mean the company had lost faith in its international ambitions.

The company said:

The decision to exit the US does not alter the Board’s conviction in the global appeal of the GYG brand, or in the long-term opportunity to expand into new geographies in a disciplined and deliberate manner. The performance of GYG’s master franchise markets reinforces the Board’s confidence. In Singapore and Japan, our master franchise partners continue to deliver strong sales growth and healthy unit economics. Both markets are planning new restaurant openings in the next 12 months, with Singapore opening its 24th restaurant earlier this week.  

Guzman Y Gomez shares were 15.4% higher in early trade at $20.86. The company is valued at $1.83 billion.

The post Why are Guzman Y Gomez shares surging more than 15% higher? appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.