Small Caps | 10:30 AM
Guzman y Gomez silenced the naysayers with a more positive Australian sales update for the March quarter, sending shorters scrambling and brokers lifting forecasts.
- Macro outlook offered plenty of headwinds going into the 3Q26 update
- Australasian result pushed back on negative sentiment, beating analysts' expectations
- US expansion continues to be challenged, but showed some improvement
- Management reiterates guidance with upside potential to consensus forecasts
- Upbeat brokers reiterate positive ratings on the stock
By Danielle Ecuyer
A beat and a short squeeze
Entering Guzman y Gomez’s ((GYG)) March quarter result, the stock had become one of the most heavily shorted names on the ASX, with short interest sitting at 14% and reflecting mounting skepticism around growth, margins and US execution following a more than -50% share price decline from post-IPO highs.
That positioning left the stock vulnerable to a sharp reversal on any positive surprise, and the 18.5% rally on the day suggests all and sundry were caught offside, with short covering likely amplifying the move as stronger-than-expected Australian sales challenged the prevailing bearish market narrative.
Arguably, investors will look back on 2026 as a period marked by heightened volatility, driven by the sheer intensity of news flow.
The last five weeks have been described by some commentators as a more impactful energy crisis than those of the 1970s (1973 and 1979), when much of the world moved to rationing.
Compounding the equity valuation de-rating linked to the Middle East war and potential energy shock have been inflationary concerns, which had already emerged prior domestically.
Australia, having been slower than peers to raise rates post covid, has taken a more proactive stance in 2026, with two RBA hikes already delivered.
For consumer-facing sectors such as quick service restaurants, pressures are building from multiple fronts, including higher interest rates weighing on discretionary spending and rising energy costs feeding into input costs and margins.
Sales growth surprises in Australia
Against this backdrop, Guzman y Gomez reported what RBC Capital described at first look as “strong Australian comparable sales”, beating expectations for both the quarter and 2H26 forecasts.
It was a uniform 'beat' across brokers, with group network sales advancing 19.5% (19.7% in Australia) and same store sales growth of 6.6% for Australasia (Australia, Japan and Singapore), above 2H26 consensus expectation of 5.1% and UBS forecasting 5.5%.
According to Jarden, quarterly like-for-like sales growth of 6.6% y/y in Australia implies growth of around 9% for the past five weeks, highlighting an acceleration in momentum.
Importantly, that result has been achieved despite the “challenging” macro backdrop and has not come at the expense of earnings (EBITDA) margin, i.e. no discounting to offset volume pressure or boost demand.
Jarden emphasises this point, suggesting volume-led growth with no price increases or decreases. Two factors supporting the “value” proposition and marketing push include the DingDong promotion and the exclusive partnership with Uber Eats.
Guzman has been a featured partner in Uber Eats’ DingDong promotional campaigns, including $10 burritos in 2025, while the broader partnership is expected to support delivery penetration and customer acquisition.
Macquarie notes the March quarter was cycling the most challenging comparable period, with prior year growth of 11.1%, making the acceleration to 6.6% y/y particularly noteworthy against 1Q26 growth of 4% and 2Q26 growth of 4.8%.
Underlying drivers include marketing campaigns focused on “value”, notably the Minis offering, smaller portion sizes at lower price points without compromising quality, alongside limited time offers such as Caesar menu items and improved digital and delivery execution.
Citi also points to the Uber Eats partnership, effective from late February, as an anticipated tailwind and considers how the agreement may evolve and contribute to growth over the next two years.
Despite the stronger-than-anticipated performance, Citi remains the only FNArena-monitored broker with a Sell rating, testament to this broker's overall cautious stance, with commentary suggesting more short covering may be triggered if strong sales momentum continues.
ASIC's most recent data are indicating the stock carried more than 14% in shorts as at March 31.
See also: https://fnarena.com/index.php/analysis-data/the-short-report/
Consensus sales upgrades
Looking ahead to the June quarter, analysts broadly agree upside risks remain to same store sales growth.
Ord Minnett raises its Australian same store sales growth projections by 50bps to 5.5% for FY26 and by 100bps to 6% for FY27.
UBS also sees upside risk to 2H26 consensus growth of 5.1%, highlighting easier comparables ahead, with 4Q25 growth of 8.3% versus the more challenging 11.1% in the March quarter of 2025.
The latter broker lifts its 4Q26 same store sales growth forecast to 8.3% from 7%, with FY26 EBITDA margins now expected at the top end of guidance at 6.2%.
Macquarie expects further support in 4Q26 from events such as the Cinco de Mayo promotional day and notes trading comparables are becoming less demanding.
Store rollout remains a key focus, with management confirming a target of 32 new stores in Australia for FY26, including five openings in 3Q26 and 19 completed year to date.
Citi notes consensus expectations sit at 31 new stores, including 23 drive-thrus.
The US business remains an area of concern. Same store sales growth of 2.2% in 3Q26 improved from a negative -1.1% in 2Q26 but remained below 1Q26 growth of 6.7% and 4Q25 growth of 2.8%.
UBS attributes weakness to the cessation of DoorDash deliveries from early March, with sales momentum reversing from 6.7% growth in the first seven weeks of the quarter to minus -3.1% over the final six weeks.
RBC Capital notes US performance remains below 2H26 expectations of 5.1% to 6.2%, while Morgan Stanley expects conditions to become more challenging given softer recent trends. Two new US restaurants were opened in the quarter.
Macquarie points to the transition from DoorDash to Uber Eats as a contributing factor, although this had been flagged by management.
Management continues to focus on improving US performance through brand awareness and customer engagement initiatives, including social media campaigns and partnerships with NBA players.
Jarden maintains a cautious view on the US and notes growth in Singapore and Japan is being driven by new store openings rather than like-for-like sales growth.
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