Guzman y Gomez pulls the plug on ‘underperforming’ US expansion, shutters stores

Guzman y Gomez has shut down its eight Chicago stores and pulled the plug on its ambitions to conquer the American market after years of spending tens of millions of dollars and defending the plan as a long-term investment.

The move is a major blow to the chain’s hopes of going truly global, which at one point even included an ambition to enter Mexico, but delighted shareholders who were relieved the Australian company had cut its losses in North America.

The burrito chain’s founder Steven Marks, who has spent the last three months in the US trying to turn around the business, said the burrito seller was not hitting the sales targets needed to justify spending more money and time on the expansion.

“It wasn’t easy,” Marks said in a snap call to investors on Friday morning. “We’ve always said that we would remain disciplined in pursuing growth in the US, and have been transparent about the thresholds we would be targeting to validate our proof of concept.”

Chief financial officer Erik Du Plessis said the US business had been “underperforming our expectations”.

Guzman y Gomez, which was worth just over $2 billion on Friday morning, expects the exit will result in a hit of up to $56 million to its annual results, with $15 million of this sum set aside in cash to pay future staff entitlements, leases and other costs.

Marks said the exit was not a reflection on the chain’s American staff, who he said had “delivered genuine progress”.

Investors swiftly signalled their approval of the US exit. Guzman y Gomez’s share price soared 18 per cent to $21.32 per share after announcing the decision on Friday morning.

RBC Capital Markets analyst Michael Toner told clients: “We believe the US business had very low prospects of being successful, and the losses of the business were weighing down the earnings of the group so the sooner exit than anticipated is positive.

“We did not forecast the US business to break even until [fiscal] 2037.”

Marks, a former Wall Street hedge fund manager, opened the first Guzman y Gomez store in the Sydney suburb of Newtown in 2006 with co-founder and fellow New Yorker Robert Hazan. He has claimed at various times that it was named after two of his Mexican childhood friends, and that the faces on its logo were inspired by a melange of men he met in his youth and did not resemble particular individuals.

Australia, which remains the chain’s biggest market at 242 stores, is performing strongly and continued to grow, it said, with a further 32 restaurants set to open before the end of the financial year.

“We have a long runway ahead of us in Australia as we progress towards our long-term target of 1000 restaurants,” Marks said.

Marks had long signalled ambitions to expand internationally, including selling Mexican food to Mexicans. “We’ll take care of the US first, then move south,” the founder told this masthead in 2021, when he explained he was “very tied to Mexico” even though he wasn’t of Mexican descent.

Guzman y Gomez opened its first Chicago outlet in 2020. There are also 24 stores in Singapore and five in Japan.

The chain listed on the stock exchange in mid-2024 at a blockbuster float where burritos were served, Marks grew emotional and Guzman y Gomez’s market value soared to above $3 billion. The company’s share price has been on a steady decline since.

Industry watchers believe that exiting the US, the biggest fast-food market in the world, will allow management to refocus on the Australian business and other countries where the business is succeeding.

“GyG is one of the most shorted stocks on the ASX, meaning that investors had lost faith in the US story long before today,” said eToro lead analyst Josh Gilbert.

“Markets will generally reward a decisive call over a slow bleed. What markets don’t forgive is open-ended losses with no end in sight, and that’s what the company’s US operations had become. Importantly for shareholders, the final dividend is unaffected and the buyback remains active.”

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