If Guzman y Gomez Ltd's (ASX: GYG) share price were anything to go by earlier today, most would assume its inaugural full-year results weren't too tasty. How could its FY24 performance be impressive when GYG's shares were down as much as 9% at one point?
Well, I've cooked up a contrarian take. Despite a statutory net loss of $13.7 million (deepening from $2.3 million in FY23), the company still pulled off an exceptional feat based on one area that isn't getting the air time I believe it deserves.
Sure, the bottom line may not look glamorous. Fortunately, thanks to its initial public offering (IPO), GYG flexes $294.5 million of cash and term deposits. So, some short-term losses are not fatal for a company in its situation.
What matters most right now is GYG's growth in the quick-service restaurant (QSR) industry.
Shrinking appetite for takeaway
Restrictive interest rates are taking a toll on takeout spending.
Fast-food heavyweight McDonald's Corp (NYSE: MCD) revealed its second-quarter results last month, showing a decline in sales year-on-year. The slowdown was described as a byproduct of a more cost-conscious consumer, with CEO Chris Kempczinski saying:
You are seeing consumers being much more discretionary as they treat restaurants. You're seeing that the consumer is eating at home more often; you're seeing more deal-seeking from the consumer. And you're seeing, I think, a trade down even within either units per transaction or within mix.
All of those things for us are indicators that the consumer across a number of these markets is being very discriminating.
If we narrow in on Australia, the Australian Bureau of Statistics reported a 0.2% decline in takeaway food services spending in June. Evidently, people are cutting back on the cheeky fast-food feed. Yet, GYG is powering ahead in its first ASX report.
GYG grew network sales by 26% in FY24. On a comparable (or same-store) sales growth basis, the increase was 8.1% year-on-year.
For context, Domino's Pizza Enterprises Ltd (ASX: DMP) same-store growth was 2.8%. Similarly, KFC and Taco Bell operator Collins Food Ltd (ASX: CKF) posted a 3.8% increase in same-store sales.
Assuming demand is falling with people spending less on takeaway, GYG's strong growth would suggest the Mexican outlet is taking market share. That's a major plus if it can hold onto it as fast-food spending eventually returns to growth.
What's the downside to GYG's ASX result?
There is still some gristle in Guzman y Gomez's full-year report.
One could argue the company was able to expand its same-store sales beyond its peers because GYG is wearing higher costs and not passing it onto consumers. As a result, the company reported a statutory loss compared to a small profit in FY23.
If that were the case, the market share gains might only be temporary. Eventually, GYG will need its prices to be high enough to generate reasonable returns on capital.
I still won't add Guzman y Gomez to my portfolio for now. However, today's result has certainly gained my attention and respect. A few more solid results showing continued execution and I might just bite.
