Optimism around Guzman Y Gomez’s US exit falters as company hit by class action

When Guzman Y Gomez (ASX:GYG) late last week announced it was exiting the U.S. market, closing its stores in Chicago and giving up on a much-discussed U.S. expansion plan, the shares climbed back to A$20/share.

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That reaction may have been counterintuitive for observers, given that since listing a few years ago, Guzman Y Gomez hasn’t really stopped talking about the importance of the States to its overall valuation proposition.

However, last Friday, we learned the jig was up: Management told a webinar call the U.S. market was underperforming their expectations, and just like that, the pin was pulled on the highly competitive U.S.-Mexican fast food market (which is already saturated by other players, another way of saying dominated).

Shares climbed because it would be losing less money in the U.S., and GYG identified a new plan to expand into Singapore instead. (Fun fact: this is also the target market for the recently ASX-listed skin piercing franchise brand SkinKandy.)

Singapore’s stock market is currently at an all-time high, similar to the NIKKEI, which may shed some indicative light on why that jurisdiction is attracting attention.

Regardless, on Monday afternoon this week, right after market close, we learned that GYG is now facing a class action in the U.S. from workers at its Chicago stores, who they claim were let go without adequate notice or pay.

At the time of writing, GYG shares had sunk -2.6% to $19.35/sh.

While GYG has since maintained it’s done nothing wrong (in more words or less), clearly, it’s another blow for the troubled stock, which is fair to say if you look at its price chart since listing. The company’s share price hit all time lows back in April, as well as being one of the most heavily shorted in Australia.

According to Reuters, some 500 staff may be covered by the class action, and legal paperwork indicates employees are seeking 60 days of unpaid wages.

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