GYG says mini nachos proving popular amid weight-loss drugs craze but US expansion a bit difficult to swallow

Guzman y Gomez is doing a roaring trade in mini nachos and burritos amid the growing popularity of weight-loss drugs, says founder Steven Marks, but its ambitious foray into the US has drawn investor wrath. Mr Marks, who has temporarily relocated to Chicago to get its loss-making US stores into shape, warned investors on Friday its push into the market would likely come at a higher cost as it battles with weak sales and consumer demand. The stock had its worst day since listing in June 2024, with shares diving to a low of $17 early before trimming the fall to 14 per cent at $17.53 at the close. In the US, where it now has eight stores, Guzman posted a worsening loss of $8.3 million in the six months to the end of December. That compared with a $5m loss a year ago. But Mr Marks remains confident Guzman will resonate with customers the US — where it’s facing competition from major players like Chipotle and other independent Mexican restaurants — particularly through menu innovations like its mini range. “I’m in the US right now and there’s so many people on weight-loss drugs and they want smaller portions, we deliver that,” Mr Marks, who is also the co-CEO, told The West Australian. “In Australia, weight-loss drugs are increasing and I think you see (frequent visits to) GYG because name another chain that has our kind of quality of food at those sizes, there’s none.” According to a report led by researchers at the University of NSW in November, nearly half a million Australians — or almost 2 per cent of the adult population — are taking weight loss drugs. Guzman’s Australian segment — which also includes restaurants in Singapore and Japan — reported a slower-than-expected comparable sales growth of 4.4 per cent, driving $673.6m in sales in the half-year. Global network sales rose 18 per cent to $681.8m, a slight miss on the 19 per cent increase analysts expected. Earnings rose 23.3 per cent to $33m. The Mexican-themed fast food company reiterated the US losses were expected to increase slightly this financial year compared with fiscal 2025. In a joint letter to shareholders accompanying the half-year results, Mr Marks and co-CEO Hilton Brett said it would not expand beyond the 15 planned stores in the US until those restaurants matched sales in Australia. “Building a brand from scratch takes time,” the pair said. We want to remind everyone that it took us from 2006 to 2018 for our Australian restaurants to average $40,000 per week in sales. It then took seven years for our average weekly sales to reach $100,000. “We will remain disciplined in the US with a clear focus on protecting long-term shareholder value.” Guzman, which has plans to have 1000 stores in Australia over the next two decades, opened 17 restaurants in the December half, including 14 in Australia and two in the US. It now has 272 restaurants and expects to open another 32 in Australia this financial year. Guzman declared a fully franked interim dividend of 7.4¢ a share. “The company is executing well, but not as fast as the market is expecting,” Citi analyst Sam Teeger said. “It’s hard to see what’s new in this result that would make investors chase the stock higher, especially given the valuation.”