In the third quarter of fiscal 2026, Guzman y Gomez’s Australian like-for-like sales grew 7% on last year, accelerating from 4% in the first half. US like-for-like sales lifted 2%. Shares surged 18%.

Why it matters: The third-quarter update looks solid, at least in Australia, but the macroeconomic backdrop has been upended in recent weeks. Fuel prices have surged, back-to-back RBA rate hikes are hitting borrowers, and consumer confidence has plummeted.

  • The question is to what extent this weighs on near-term sales momentum. For now, we maintain our 4% like-for-like sales forecast for fiscal 2026. Growth in the first nine months of the year is running ahead of this, but there is clear downside risk for the final quarter.
  • Our Australian underlying EBITDA forecast, at 6% of network sales, is also intact, within management’s reaffirmed guidance range.

The bottom line: With sales and earnings forecasts unchanged, our AUD 16 fair value estimate for no-moat Guzman stands. Shares are in three-star territory.

Long view: The stock has swung wildly on quarter-to-quarter trading updates. It has also sold off heavily since the Iran conflict, alongside the broader consumer discretionary sector. But these are short-term factors. Ultimately, we expect Guzman’s share price to depend on its store rollout.

  • We credit Guzman with some 600 Australian stores in 10 years, up from about 240 today. The rollout hinges on franchisees’ willingness to build new stores, itself a function of restaurant economics. The solid third-quarter update suggests things are moving in the right direction.
  • We don’t ascribe value to US stores. While growth of 2% is an improvement on negative like-for-like sales in the second quarter, it is almost certainly below cost growth. The US is a huge opportunity, but incumbent Mexican chains are well established, and we think the chance of success is slim.

US Stores Struggling, but Investment Thesis Hinges On Australian Rollout

Guzman y Gomez operates a hybrid store ownership model, running corporate-owned restaurants and licensing its brand to franchisees. The company expects around 40% of stores will be corporate-owned over the long run. Most stores are in Australia, but Guzman also has a nascent presence in Singapore and Japan through master franchisee agreements and runs a handful of corporate stores in the United States.

Rolling out stores under a franchise model significantly reduces Guzman’s capital investment and funding needs. Franchisees are responsible for new store capital expenditure and ongoing maintenance. The more capital-intensive corporate stores provide Guzman with greater control over customer experience and serve as a testing ground for new ideas to optimize operations and improve its offering.

In return for using its brand and operating model, Guzman collects a royalty fee from franchisees. The royalty rate flexes with store turnover and averaged about 8% of global franchisee sales in fiscal 2024. This is a higher royalty rate than KFC-franchisee Collins Foods pays Yum Brands. However, after adjusting for other fees, we estimate a franchisee’s total payments to the brand owners, as a share of sales, are on par.

Based on recent return metrics, we think Guzman franchisees will support the rollout of around 40 new stores per year for the next decade—of which, on average, we estimate franchisees open 24, and the company operates the other 16. However, because the brand is still relatively young and its strength is yet to be fully tested, the planned expansion may need to slow in the longer term if store economics diminish. Beyond our 10-year explicit forecast horizon, we think the rollout will become more challenging as Guzman pushes into less lucrative catchments and faces more competition from quick-service restaurant operators with stronger brands, including McDonald’s, KFC, and Domino’s.

Bulls say

  • It is early days, but Guzman’s Australian restaurant economics rival that of best-in-class brands KFC and McDonald’s. This is the key metric for a durable, franchisee-driven store rollout.
  • The Australian QSR market is highly fragmented, and larger brands like Guzman could keep taking share from independent operators.
  • Guzman is demographically well-positioned. It has a young, health-conscious customer base and sees higher average spending per transaction than major QSR peers.

Bears say

  • Guzman needs to ensure store economics hold up as its ambitious rollout progresses. Overly aggressive expansion could destroy value.
  • Guzman isn’t the only Mexican-inspired QSR chain with ambitious rollout plans in Australia with home-grown Zambrero and global brand Taco Bell key competitors.
  • Very few international brands have found success in the US, and Guzman’s US expansion could wind up as a costly distraction from the Australian business.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.