Pubs bounce back but home drinkers dry up

ENDEAVOUR Group, which owns Dan Murphy’s, BWS and a network of pubs, is toasting the return to social connections formed over a glass of beer at the local bar, but has had its annual results partly spoiled by thinning profit margins at its bottle shops.

Shares in Endeavour sank 12 per cent after its latest fullyear results were issued, making it the worst performer from the S&P/ASX 200 leaders on Tuesday, as its profit slightly undershot market consensus and analysts raised concerns sales at its bottle shops were now slowing more than expected.

Adding some extra pain to the performance and outlook was escalating costs coming out of its portfolio of 258 Dan Murphy’s and 1417 BWS convenience stores in the June half as higher supply chain costs diluted profit growth.

Analysts were preparing for earnings revisions for Endeavour this year as trading volatility and a lift in the intensity of competition in the liquor store sector had made Dan Murphy’s possibly more reliant on discounting and promotions to keep faith with its “lower price guarantee”.

Endeavour sank 12 per cent as investors digested the fullyear results, which reported flat revenue of $11.59bn for 2022 and an 11.2 per cent rise in net profit to $495m.

While its retail liquor stores might have underwhelmed investors, there was plenty to cheer at the pubs and hotels arm of the business, consisting of 344 hotels and pubs, as customers flooded back.

Spun off from Woolworths and floated on the ASX in June last year, Endeavour has enjoyed the best of times and worst of times through the pandemic. Dan Murphy’s and BWS stores were kept open through lockdowns but its pubs and hotels were closed. This triggered a rocket in sales at its bottle shops as consumers bought beer, wine and spirits to consume at home but left its pubs shuttered.

Now Endeavour is witnessing a return to “normal” patterns of Australians socialising to push a rebound in sales at pubs and hotels and bring turnover at bottle shops back down to historic levels.

A trading update provided with the 2022 results revealed retail sales at its bottle shops had fallen 6.7 per cent yearon-year over the first seven weeks of 2023, as it cycled last year’s lockdowns, while hotels trading was 75 per cent up from the same period last year.

Meanwhile, Endeavour said earnings from its bottle shops slipped 0.4 per cent to $666m in 2022 with earnings margins thinned in the second half and as much as 100 basis points below analyst expectations.

Higher supply chain costs were partly blamed for the slimmer profits.