Guzman y Gomez Limited (GYG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the GYG Half Year '25 Results Webcast. [Operator Instructions] I would now like to hand the conference over to Mr. Steven Marks, Founder and Co-CEO. Please go ahead.

Good morning, everyone. It's great to be here today to present GYG's results for the first half of the 2025 financial year. Joining me at GYG's Hola Central Office in Sydney is my Co-CEO, Hilton Brett; and our CFO, Erik Du Plessis. Together, we are pleased to share the progress we've made in this half, none of which would have been possible without the hard work and dedication of our amazing crew, our valued franchisees, our loyal guests and our incredible suppliers. Today, I will provide an overview of the key highlights for the half. Erik will take us through our financial progress, and then Hilton and I will share an update on our operational performance. I will then cover the outlook for the remainder of the financial year before we take any questions you may have. On Slide 2, which should be familiar to you, we outline our vision, mission and values. Our vision is to reinvent fast food and change the way the masses eat, has driven us since day 1 almost 20 years ago. This vision fuels our mission to become the best and biggest restaurant company in the world. As always, GYG is defined by our values, which you'll see outlined on this slide. These values guide every decision we make, ensuring we never compromise on the quality of our food, our people and our real estate. Slide 3 outlines GYG's global network, which now comprises of 239 restaurants with 210 restaurants in Australia at the end of the half. Moving to Slide 4, you can see that not only has our restaurant numbers increased consistently over time, but we've achieved a significant milestone, surpassing $1 billion in global network sales over the past 12 months, further demonstrating our ability to drive compelling growth for clean, fresh, made-to-order Mexican-inspired food. On Slide 5, we outlined 6 key operational highlights delivered during the half. Firstly, we achieved a strong 9.4% comp sales growth in our Australia segment. Hilton will delve deeper into the drivers behind this result later in the presentation. Second, we successfully opened 16 new GYG restaurants across Australia, expanding our footprint and bringing GYG to even more communities and guests. As you all know, the success of our franchisees is paramount to GYG. I'm glad to share that as of December 31, our franchisees achieved a median ROI of 50% with profitability continuing to grow. Throughout the half, we witnessed strong sales momentum, particularly in the delivery channel. This was fueled by the continued strength of our partnership with aggregators and our own GYG Delivery channel. Our marketing campaigns continue to deliver impactful results during the half. The Cali Burrito and Nacho Fries, Good Mornings Start with GYG and Iced Coffee campaigns resonated strongly with guests, driving traffic to our restaurants. Finally, demand for our value menu items such as the popular $12 Chicken Mini Meal contributed to strong sales growth. Now I'll hand over to Erik, who will take you through our financial results in more detail from Slide 6.

Thank you, Steven, and good morning, everyone. Today's results demonstrate the strong and growing demand for GYG's clean, fresh food delivered at a high speed. We delivered robust growth across all key metrics. Network sales grew by 23% during the period, driving a revenue increase of 27%. This strong sales performance was also accompanied by significant improvements in profitability, with net profit after tax increasing by 91% to $7.3 million. Slide 7 provides further detail on our segment results. Segment underlying EBITDA, which excludes share-based payments and accounts for rental costs on a cash basis, provides a crucial metric for assessing our financial performance. It also allows for meaningful comparisons with our U.S. peers. In this half, GYG delivered a strong segment underlying EBITDA of $26.8 million, representing a 34% increase compared to the prior corresponding period. This strong performance was driven by robust sales and earnings growth in the Australia segment. This slide also outlines the reconciliation between our underlying performance and our overall earnings. As you can see, we achieved a strong 51% growth in profit before tax. Now I'll hand over to Hilton to discuss the performance of our Australia segment, which includes operations in Australia, Singapore and Japan on Slide 8.

Thank you, Erik, and good morning, everyone. We saw strong growth in Australia and Singapore this year with restaurant sales increasing by 23% and 36%, respectively. In Singapore, the launch of our Clean is the New Healthy Campaign with no added preservatives, no artificial flavors, no added colors and no unacceptable additives also fueled strong sales growth. In Japan, our network sales continued to grow, increasing 8.6% versus the prior corresponding period. Moving on to Slide 9. When it comes to delivering comp sales growth, we focus on 5 key levers. Throughout the half, we've made significant progress across each of them, contributing to our strong performance in Australia. Firstly, we have remained focused on utilizing the significant capacity within our restaurants. Our dual linear operating model and bespoke stickering system allows our restaurants to absorb increased demand and deliver significant comp sales growth. In fact, we set a new hourly record in one of our restaurants more than $10,500. Furthermore, GYG's top 10 restaurants by average unit volume have consistently demonstrated strong performance, achieving double-digit comp sales growth throughout the half. Daypart expansion has also been a key driver. Breakfast has been a particular highlight, delivering 19% comp sales growth. This has been further supported by extended trading hours across our network. We now have 11 restaurants operating 24/7, and we're seeing sales and earnings uplift across these restaurants as a result. Marketing has played a crucial role in driving comp sales growth. As Steven mentioned, our campaigns, including the Cali Burrito and Nacho Fries, Good Mornings Start with GYG and Iced Coffee have generated significant sales momentum. Innovation in our menu has also been a key focus. Our $12 Chicken Mini Meal has been incredibly popular with our guests. We're also excited about the nationwide launch of our Street Corn and Little G's Bowl, which we successfully trialed during the half.

You've got to try the sweet corn. It's delicious, fresh, clean and only $3.50. Love yes.

Finally, we've continued to enhance our digital and delivery experience. Our strong partnerships with delivery aggregators, combined with the strength of the GYG app and digital-only campaigns such as the GYG Socks Campaign have contributed to our growth. Overall, we anticipate that these drivers will support the continued sales growth of GYG in FY '25 and beyond. Moving to Slide 10, another key driver of our growth is ongoing restaurant expansion. We're pleased to report that we have a robust pipeline of 103 Board-approved sites as of December 31, with 32 new sites approved during the half. This strong pipeline gives us the confidence in our network expansion plans as we strive towards our target of 1,000 restaurants in Australia over time. Now on to Slide 11. When it comes to network restaurant margin in Australia, we believe these key drivers play an important role in our business. Firstly, we see benefits from improved operating leverage as sales increase. This allows us to spread fixed costs across a larger revenue base. With an anticipated increase in sales moving forward, we expect our operating leverage to lead improved margins over time. Secondly, our restaurant format and daypart mix continue to evolve. The greater proportion of drive thrus in our network contribute positively towards margin growth. While breakfast and late-night sales offer incremental growth, lunch and dinner continue to be our highest margin daypart. Thirdly, we remain committed to offering value to our guests. We've seen strong demand for our value items during this half, which are typically lower margins. During the half, we observed some inflation in COGS, which we expect to continue in the second half, particularly due to seasonality of avocados. Our channel mix will continue to influence margins. Delivery sales are growing rapidly and have contributed to the strong growth in earnings. While these sales deliver a similar dollar profit per order, the inclusion of the delivery premium means these sales do generally have lower margins than our nondelivery channels. GYG Delivery was launched in FY '24, and as it continues to grow, will provide us with a higher-margin delivery channel. Finally, as we continue to open new restaurants, there will be an initial dilution of margins as there is a 3- to 6-month ramp-up period for profit margins as the restaurant matures. Overall, we are confident that the drivers of network margin expansion are firmly in place, setting the stage for continued margin expansion in the years to come. Moving down the P&L on Slide 12, you'll see that corporate restaurant sales demonstrated strong growth, increasing by 29%, driven by the key levers we discussed earlier. Corporate restaurant margins improved to 18%, primarily driven by comp sales growth and the positive impact of the levers we discussed on the previous slide. Franchise and other revenue increased by 30%, driven by the addition of new franchise restaurants, strong network sales growth and growing number of franchisees transitioning to our tiered royalty structure. We are investing in supporting infrastructure to build a robust platform for future growth. As planned, G&A expenses increased to $38.1 million, representing a 26% increase over the prior corresponding period. Overall, we achieved a strong segment underlying EBITDA results of $31.8 million for the half, representing a 37% increase compared to the prior corresponding period. Slide 13 highlights the strength of our restaurant economics across the network. Median restaurant average unit volumes have demonstrated impressive growth, reaching $6.8 million for drive thru restaurants and $4.8 million for strip restaurants. Median network restaurant margins have also increased to 21.8% for drive thrus, reflecting the strong performance of this format. Margins for strip and other restaurants decreased slightly compared to the prior corresponding period, driven by the higher mix of delivery sales, which are lower margin. As you all know, the success of our franchisees is paramount to our own. Like Steven, I'm also delighted that the median franchisee return on investment at December was compelling at 50%. Median franchisee average unit volume also demonstrated strong growth, increasing by 4.8% to $5.4 million. Franchise restaurant margins for the half were 20.2%, which continues to demonstrate the strong profitability of our franchisees. Now I'll hand over to Steven to discuss the performance of our U.S. segment on Slide 15.

Thank you, Hilton. We remain excited about bringing GYG to Chicago and our focus on demonstrating proof of concept. The current performance of the U.S. restaurant reflects the opportunity to increase brand awareness and improve the guest experience with network sales for the half decreasing 12.7% to $4.9 million. In October 2024, GYG entered into a management agreement with a local operator to support the ongoing growth of its Naperville restaurant. This means that sales from our Naperville restaurant are no longer recognized as sales and GYG instead receives a share of the sales of the restaurant accounted for under franchise and other revenue. This change contributed to the decrease in corporate restaurant sales for the period. In recent months, we have completed a number of actions to improve the guest experience, including strengthening restaurant-level leadership and a deliberate increase in labor hours in restaurants. This has allowed us to deliver a consistently high-quality guest experience with hot delicious food served at high speeds. We have also continued to expand our local area marketing initiatives, including partnerships with schools and sporting groups to drive performance into the future. Corporate restaurant margins declined, reflecting the additional investment in restaurant labor ahead of anticipated sales growth. G&A for the period increased to $3.8 million as we continued investment in above-restaurant support. Moving forward, actions taken in the half and the upcoming introduction of 100% Clean menu is expected to drive sales growth. Additionally, increasing network density in the suburbs of Chicago is expected to yield infill benefits and build brand awareness. I am particularly excited about the upcoming opening of our Evanston restaurant near the Northwestern University Campus, which will introduce us to a new demographic in Chicago. We are confident that we -- that with continued focus on these areas, the U.S. restaurants will reach target economics. It will just take some time just like it did here in Australia. Overall, GYG remains very confident in its ability to demonstrate proof of concept in the U.S. I'll now hand over to Erik to step through cash flows, capital expenditure and the balance sheet.

Thank you, Steven. I'm now moving on to Slide 16. We delivered strong cash flow conversion from earnings during the half. Adjusted cash conversion during the period improved to 109% from 89% in the prior corresponding period. We define cash conversion as pretax operating cash flow less lease payments divided by our key metric, segment underlying EBITDA. The adjusted cash conversion ratio adjusts for the impact of IPO-related costs incurred in the prior financial year, but paid during the first half of F '25. As set out on Slide 17, capital expenditure was driven by new restaurant openings and refurbishments as well as new restaurants in progress. This totaled $21.4 million on a net basis, including landlord contributions. Capital expenditure for our restaurants continue to be in line with our target economics of $2 million for a drive thru and $1.8 million for a strip restaurant. Now moving on to Slide 18. We ended the half with a healthy balance sheet that provides flexibility for future network expansion with a net cash and term deposits position of $275 million. Lease liabilities for the half increased to $274 million, driven by network expansion and GYG continues to have no debt on the balance sheet. On Slide 19, we outlined GYG's guidance framework. Looking to the half ahead, we're focused on continued operational excellence and execution and delivering strong returns for our shareholders. Due to the strong sales momentum achieved in the half, GYG expects to exceed its F '25 net profit after tax prospectus forecast. This will be supported by 31 new restaurant openings, in line with our prospectus guidance. We expect corporate restaurant margins to land at approximately 17.8%. While this number is in line with our prospectus forecast, I would like to highlight a couple of factors that are driving this number. Firstly, relative to our prospectus forecast, we are continuing to see elevated share of delivery sales and value menu items, which are profitable, but do come at comparatively lower margins. This has offset some of the operating leverage we have seen from strong sales growth. Secondly, as you will notice, our guidance for the full year is below the corporate restaurant margin that we achieved for the half. This reflects the higher proportion of sales coming from new restaurants in the second half, which temporarily deliver lower margins than existing restaurants. This factor is not new and was accounted for in our prospectus forecast. The implied franchise royalty rate is expected to land at 8.3%, in line with prospectus forecast and G&A cost as a percentage of network sales is expected to be 6.7%, reflecting the operating leverage of higher sales. I will now hand back to Steven to take you through our trading update and outlook for the remainder of the financial year on Slide 20.

Thank you, Erik. In the first 7 weeks of the half, Australia segment comp sales growth has exceeded our expectations at a strong 12.2%. This result reflects the continuation of strong performance in the first half and benefits from lower trading momentum in the prior corresponding period. Our strategic priorities are set out in the slide and remain unchanged. We are confident that by executing on these key priorities, we will continue to deliver strong results for our shareholders. Finally, I want to acknowledge that these results have been achieved due to the hard work and dedication of our amazing crew, our valued franchisees and our suppliers who live our vision, mission and values every day. I can't thank them enough. Hilton, Erik and I would now be happy to take any questions.

[Operator Instructions] Your first question comes from Tom Kierath from Barrenjoey.

Just a question on the 24/7 stores. I think you've got 11 at the moment, obviously growing pretty strongly at that late-night daypart. Can you just maybe talk through how many 24/7 stores you might be able to have out in the next, I don't know, 12, 24 months? Is it only as the new drive thru stores are rolled out? Or can you actually convert some of the existing stores to 24/7?

Yes. Thanks, Tom. Great to hear from you. So at the end of the half, we had 11, and we've added one actually, Auburn just opened up a couple of days ago, and it's obviously trading very well. So for us, the goal is for all drive thrus in time to be 24/7. And as Erik said earlier, obviously, breakfast continues to grow at a slightly less margin, and we're starting to see great sales growth from that 9:00 p.m. through to breakfast. And as GYG continues to roll out 24/7, we continue to develop the playbook for those hours. Obviously, it's changing cleaning schedules, rostering times, but the sales are there, the profitability is there, and we'll look to continue to roll out 24/7 restaurants over time.

Got it. Great. And then secondly, just on the 7-week trading update, 12% comps is obviously pretty solid. Is there anything in the prior period like some weakness that you're lapping? Or are there any kind of promotions or any kind of onetime effects that has supported that number? Or is it a pretty kind of stable organic number that you reported there?

Tom, it's Erik here. So the best way to describe the performance so far this half is that it's a continuation of the momentum that we had in the first half. But we are now going into a period -- comparative period, which was a little bit softer. There's not really any one-offs in there. It just was a little bit of a softer period. And then later in the half is when we launched Clean is the New Healthy Campaign, which, as you know, generated significant momentum. So the best way, as I said, to describe it is just a continuation of the trading momentum we saw in the first half.

Sorry, just to clarify that. So the trading period gets softer going forward, sorry, you start lapping easier comps going forward or -- could you clarify that?

No. So the second half of the last -- the prior corresponding period to the last half was a little bit softer than the first half. So -- and then as we continue through the half, we start lapping the Clean is the New Healthy Campaign, which was a bit stronger.

Your next question comes from Shaun Cousins from UBS.

Great. Maybe just a question regarding the corporate restaurant margin guidance of 17.8%, that's down versus the first half. What same-store sales growth is that based on? Is it based on the 4.8% as per your prospectus? Or does it incorporate a higher rate of same-store sales growth, maybe not the 12%, but certainly higher. Just in that we're trying to sort of square what is very strong operating leverage that would come for a business generating 12% comps with the degree of investment in delivery mix and value items. Maybe just your same-store sales growth estimates based on what you put out would be helpful to sort of square that, please.

Sure. Shaun, so we're not going to provide specific comps sales guidance for the second half. But our estimate for the remainder of the corporate restaurant margin or our full year corporate restaurant margin guidance is based on the continuation of trading momentum we're currently seeing in the business over the last 6, 7 months. So it's not based on prospectus forecast. Now clearly, that number is -- happens to be the same as the prospectus forecast at 17.8%. But what it includes is the benefit of the operating leverage on higher sales, offset by the factors we talked about earlier, which is the higher sales of -- the higher share of delivery sales, which has been above our expectations and above the prospectus forecast and also the success of our value menu items and the success of 24/7 and breakfast. So those factors have offset operating leverage in the first half and is included in our guidance for the full year.

Got you. Okay. That's helpful. So a broad continuation of what has been sort of 9% for the first half, and you've done very well for the first 7 weeks. So you're not running it on 4.8% is what you're telling us.

No. That's correct.

Fantastic. My second question is on the U.S. Network sales, and I'm alert to the change with Naperville, but network sales fell, and it looks like they were down a little bit in the first quarter, but down quite a bit more in U.S. dollars in the second quarter. You've called out adding labor in the second quarter or in the first half period. What is driving the decline in your U.S. sales? And how are you thinking about sort of effectively getting that -- returning that business, that U.S. business to growth on a, I guess, a same-store sales both conscious you've opened a store earlier this year and looking to open Evanston soon as well.

Yes. Thanks, Shaun. In the U.S., sales aren't growing as fast as we'd like. And part of it is we're building brand and it takes time. We've never been more confident to proof of concept in Chicago. I mean the food is outstanding. We're really investing in labor in our restaurants and operational support above the restaurants just to make sure that every guest that comes into GYG is we're delivering that incredible GYG experience. We're obviously very excited about the next opening we have, which is March 11 in Evanston. It's our first college campus location, obviously for Northwestern University. And for us, the real game changer will be launched probably late March, and that's Clean is the New Healthy. You got to remember when we launched that here in Australia in 2019, if you look from 2019 to today, the restaurants, obviously, that were trading during that time have doubled in AUV. And we truly feel that with our mission to reinvent fast food and change the way the masses eat to basically be able to communicate our clean menu to our guests in Chicago will add benefit to revenue in our restaurants.

Great. Just to confirm, your sales are actually decelerating in terms of in the U.S., like they are declining at a greater rate in the second quarter versus the first quarter. Is that -- sorry, we're just looking at in a U.S. dollar basis. If my math is right there -- sorry, pardon.

Yes, sales are a little lighter than we would like.

Your next question comes from Sean Xu from CLSA.

Just to follow up on Tom's question for your first 7 weeks Aussie segment comp sales growth. You mentioned that 12% was actually above your expectation. Could you please break down a few drivers for us what's leading to this upside surprise for you guys, please?

Sean, Erik here again. Look, it's really a continuation of what the factors that we've seen throughout the first 6 months, which is just continues to be stronger than we anticipate, which is really pleasing. We're seeing the same things resonate with our guests, whether that be breakfast, whether that be 24/7 and whether that be the great offer we have across the whole menu. So there's not really one factor that's driving the 12.2% in the first 7 weeks.

No problem. That's helpful. Maybe another question on your median number of the store owned per franchisee, I believe it's still 2. Did you see the number to improve over the next few years and how much is too much? I'm just very interested in how did you manage this process, please?

So just for the benefit of everyone on the call, Sean just asked about the median number of franchisees or median number of restaurants per franchisee. So this is a number that is at the moment, it's around 2. We do expect it to increase slightly over time because our franchisees are looking to expand with us and are keen to take on more restaurants. And that's assessed really on a case-by-case basis. We don't have a particular target, but we look at the 2 to 3 restaurants per franchisee, we find tends to be a great number for our franchisees and for the business. But we don't have set numbers. We have franchisees that have many more restaurants up to 7, 8. And then there's franchisees that just have the one restaurant and doing a great job as well. So it will just depend on the catchment and the particular franchisee in question.

Your next question comes from Craig Woolford from MST Marquee.

Can I just ask a question about the information that's on Slide 13 of your deck, which is the information about the profitability for different channels. It was just a bit surprising that I know they're not the part of the growth of the business, but strip and other had network restaurant margins fall. Is that for the same reasons as cited across the group around delivery mix? Or is there some other factor at play on the strip and other restaurants?

Yes, great question. I mean one thing that I'll be proud of, if you look at our restaurant network as of today, I mean, half are drive thrus and 85% of our pipeline going forward to drive thrus, and that's where -- obviously, margins are expanding throughout our restaurants. I mean we're banking more EBITDA dollars than ever. But you can see with our strips and others, those have a higher portion of delivery sales where our drive thrus have less. So you're correct in that assessment.

And so would my -- like I noticed say, I take strip average AUV is up 7.5% and then the network restaurant margin for strip is down 1 percentage point. Is there any -- what -- with that sort of AUV, it still -- it seems surprising that margins would decline.

Yes, Craig. So this is exactly as Steven said. This is share of delivery sales in strip restaurants are significantly higher than they are in drive thrus. And so that disproportionately impacts the margin in our strip restaurants. That being said, and as Steven mentioned, network restaurant margin at 18.8% for our strip restaurants is a fantastic healthy position to be in, and we're generating very strong returns in those restaurants. So we're really happy with the performance of those restaurants, and we're delighted with the strong growth in delivery in those restaurants. So it's not something that concerns us.

Yes. And then with those strip restaurants, we love to drive percentage of margins, but we also want to make sure that EBITDA dollars are going up, and that's what we're seeing across all of our restaurants.

Absolutely. Got it. And just my other question. So just to clarify on the Australian G&A expense line because you have -- you've slightly ticked that down in terms of the outlook for FY '25 versus prospectus. But in dollars, it's -- I haven't done the exact math, but it probably is higher versus prospectus. If I'm right in that logic, what is the extra G&A costs that are being put in given the better sales results that the business is achieving?

Yes, Craig. So the only variable at this stage relative to our prospectus forecast and the thing that's different to our plans is we are delivering above planned sales performance and as a result, achieving higher than planned or budgeted earnings. And we have -- for our ops teams, we have a bonus structure where they share in that performance. And so it is likely that should sales and earnings performance continues that we will pay a higher bonus than we initially forecast for those ops teams. At this stage, that's the only significant variation in our G&A plans for the full year.

Understood. Just to clarify, not necessarily related to this particular half, but how should we think about that dynamic of bonuses and the impact on operating leverage with sales trends?

So I guess what I will say on the bonus plan. We set very high targets for ourselves and well above budget, particularly for these operations bonuses. And we're delighted in our performance at the moment, and we're delighted when we reach those targets and pay those bonuses. It is not a significant impact on operating leverage. And so going forward, we don't anticipate the ops bonus plan to be something that offsets operating leverage at all.

Your next question comes from Elijah Mayr from Goldman Sachs.

Just a couple of quick ones from me. Just on maybe some sort of breakfast. You've sort of got 200 stores here in Australia at the moment. Can you sort of give us a sense of how many stores during the period added the breakfast component and kind of how many stores that in the current store network have yet to have breakfast added to the offering?

Yes. There's been a pretty consistent number of restaurants that have breakfast in the network. So where the growth has come from in breakfast is just greater awareness of the breakfast offer. And while we continue to roll out breakfast more broadly across the network, what we're really seeing is the impact of our marketing campaigns.

Noted. Maybe secondly, just on the pipeline sitting at 103, added 32 stores in the half. Can you give a sense maybe on a state basis or sort of metro or regional basis on a bit color in those 32 stores that were added to the pipeline in the first half, just seeing where the incremental stores are coming from?

With regard to our pipeline, what we're seeing is that it's across Australia, a particular focus on metro, but it's really across all states. As you're aware, we've got a real estate development team of 10 people on the ground, and they're getting obviously strong traction with 32 restaurants that were Board-approved in that first half. So we're certainly seeing the new sites come up across Australia, which is very pleasing.

Excellent. And then maybe just any environment feedback just on the development side, feedback on access to opportunities or challenges in sort of getting those stores into the pipeline, competition, feedback from developers, anything you can share around the current environment?

From an environment perspective, I mean, we're obviously very pleased with the fact that we've now got 103 restaurants in our pipeline. And importantly, those 103 restaurants are all Board-approved sites. A combination of obviously drive thrus where our emphasis was in terms of the focus. As you're aware, from a focus perspective, we expect 85% of our future openings to be drive thrus. So there's a combination of drive thrus and strip restaurants. From a landlord perspective, there's obviously a lot of interest with landlords in terms of dealing with GYG, and that's for a number of factors. Obviously, reputationally, GYG has got a very, very strong reputation in the market. Also, based on our AUVs, we're in a position where we can secure that AAA real estate across drive thrus and strip restaurants. So we feel very confident in our ability to continue to drive our restaurant growth with the 103 restaurants in the pipeline. We opened the 31 restaurants this year, building up to 40 restaurants over the next 5 years and well placed with our team to obviously deliver on our long-term goal of getting to 1,000 restaurants over time.

Your next question comes from Billy Boulton from Morgans.

Appreciate all the color you've given today on the moving parts of your corporate store margin. I was just going to ask around the guidance you've given for expansion, if you could potentially give us some idea around the trajectory, whether it's more linear or whether it's more gradual? And yes, because obviously, drivers, I would -- of that around delivery and value, I'd expect those to be key drivers of comps going forward. So I just wanted to see if you'd give us some color on that.

Yes. Thank you, Billy. Look, I think what I would say firstly as a starting point, the drivers of margin expansion for the business is very much in place, and Hilton covered them in the presentation today. So as we roll out drive thrus, as we continue to deliver sales growth, as we continue to optimize breakfast and 24/7, there's significant opportunity to continue to drive margin expansion and drive operating leverage. The exact path of that margin expansion will depend on all of those factors, the degree of sales outperformance, the pace of drive thru rollout, et cetera. But what we are expecting is for that to continue. So while I can't give a point-by-point estimate over the next few years, we do expect margins to be higher each of the following financial years as we go forward in terms of corporate restaurant margin. We will be -- also be providing at the -- as we do now for the remainder of the financial year, at the full year results, we will be providing guidance on that number into F '26 as well. So there will be an additional color there.

Okay. And guys, just interested in any more innovation you've got coming this year. I appreciate you can't really say what is coming, but is there much in the pipeline? And also with Street Corn, Steven, just interested in the rationale there. Is the initial performance has been solid?

People are asking about the economy and all I think about is corn. So I think that's a difference between GYG and other businesses. So the Street Corn has been released. We had to change the ratio. So you'll see a new Street Corn on Monday with 50% more corn, a little bit less chipotle mayo, a little bit less cheese and more pico. And that's how we look at food, man. It's such an amazing addition to our menu and for only $3.50, which is obviously incredible value. I'll share some other things that we're working on the kitchen, just kidding, I'm not allowed to share anything about our menu development. But we've got some amazing things happening at La Cocina. So stay tuned.

Your next question comes from Declan Carroll from Wilsons Advisory.

My question is just around sort of the store opening mix. So I think back to your prospectus, you were guiding for 16 corporate stores and 14 franchise stores to be opened in FY '25. But when I look at the presentation today, it looks like that skews shifted more towards franchise stores. You got 18 franchise and 13 corporate stores to be opened. Could you just give some color to what's driven that shift?

Yes, absolutely. So one of the things we always say is our -- when we decide whether a restaurant will become a corporate or franchise restaurant, it is who can run that restaurant the best. It's not a financial decision. It's a decision that we make at the time and decide what is the best operator of that restaurant. So there's been a slight shift. That shift occurs for -- the primary reason that shift occurs is that the exact restaurants that fall into that mix do shift a little bit over time. So you might have a corporate coming forward, a franchise going backwards. So that happens sometimes. And then sometimes we make a decision that a corporate restaurant that we had initially set up for corporate will become a franchise or vice versa. But the important thing is it's not a financial target, and it's about who can run that restaurant the best. So we're not concerned about that mix at all. And we do expect that 60-40 mix weighted towards franchise to be the mix over the long term.

Yes. No, that makes sense. And then just sort of touching on that 60-40 split. Obviously, yes, long term, talking 60% franchise, 40% corporate. Looking more near term, say, FY '26, FY '27, is there anything that we should think that could materially alter that balance? Or is that a pretty good proxy to use when we're sort of modeling the store openings?

It's the best proxy to use. And then as I said, this guidance framework will be updated at the end of the financial year, and we'll provide a more up to date picture for FY '26 when we next speak at our full year results.

Your next question comes from Peter Meichelboeck from Select Equities.

Just wanted to ask around the U.S. performance, the segment sales, which you alluded to earlier. Is there any -- was there any noticeable sort of difference across the stores? Or was the sort of the weakness sort of across -- broadly across all stores?

Yes. It was broadly across all stores. And obviously, it was slightly weaker than we wanted. And I think people need to understand when you build brand, it takes time. I mean there's nothing like GYG in the United States. We are incredibly confident that it will work. I mean, obviously, our focus is just in the suburbs of Chicago. We've got a great team in place. It's just getting our product into the people's hands of Chicago. As I said, we're super excited about our next opening, which is our first college town campus. And obviously, if you look at GYG, we're at University of New South Wales, Monash University, it's probably the #1, obviously, product on offer and obviously really excels. So it's just going to take time. We're very confident. We're obviously beginning to strengthen our pipeline there as well. And we hope once we launch Clean is New Healthy, we'll start to continue to see obviously, movement in revenue because the team is ready to deliver that experience.

Great. And can I just ask quickly just on Singapore. I mean you've got a good network there for sort of 10, 12 years or so. It's good footprint. I'm just wondering if you've got a long-term aspirational target for Singapore. I mean you've spoken a lot about 1,000 for Australia and using McDonald's as a bit of a benchmark here. I'm just wondering about Singapore, there's 135 McDonald's stores there. Is that the sort of target that we could be thinking about in that market?

Well, obviously, Singapore has done an exceptional job over the last 10 years. We really can't share what their goal is for -- obviously, for the number of restaurants, but it's definitely higher than we are right now, and they're committed to rolling out, obviously, a decent number of stores in the future.

Your next question comes from Tom Kierath from Barrenjoey.

Just a couple of follow-ups. Just one to Craig's question on G&A. Do you create a provision for the bonuses in the first half? Or does that all come through the P&L or the expense line in the second half?

Yes, we do is the short answer. So it's provided for as we go.

Okay. Great. And...

Just to be clear, those operational bonuses are -- the targets are set every quarter. So -- and it incorporates current trading performance.

Okay. Okay. Cool. And then second, avocados, you're calling out as a headwind there on the COGS line. I'd just be interested if you could clarify how much of the COGS base that is and whether there was some consideration to take some price, which doesn't look like you have, excuse me, you have. But just given how much that is of the menu or the COGS?

Yes. Tom, I'll answer that one because my whole life is about avocados. So I think I got the knowledge and history over the last 20 years. So right now, avocados as it basically rolled into December, January to April, obviously, there's been a shortage. So what's amazing with fresh fruit, sometimes with quality, when the quality is not where we want it, usually there's also a supply issue. So avocados right now are costing us 0.6% more in our COGS. The great thing is, I mean, over the last 5 years, the supply has increased. It takes 5 years to grow -- 5 to 7 years to grow an avocado tree. So what's looking like from April, there'll start to be some relief as we start to go into May, June, and there should be a bumper crop for avocados this year, which is exceptional. So like I said, to summarize that, it's about 0.6% ahead due to it being in the mid-6s, and that will start to come off starting April.

Sorry, so it's 6% of COGS and it's going to go up where it's at the moment, 6.6%.

So right now the increase is 0.6%.

I have to take that one offline. I don't understand.

So you're correct, Tom. It's 6% of sales -- COGS, I should say, 6% of COGS. And it just happens to be 0.6% above our plans.

There are no further questions at this time. I'll now hand back to Mr. Marks for closing remarks.

Yes. Just I would like to thank, obviously, the team here at GYG and for everybody that's dialed in for the call. Appreciate your time, and have a great day.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.