Shares in Endeavour Group (ASX:EDV) were down around 6% heading into lunch after the Dan Murphy and hotel owner’s 1H FY25 result fell 1% short of earnings expectations within what was a mixed cocktail of numbers.
Citing challenging macroeconomic conditions, the recent Woolworths spinoff - which was listed in June 2021 – posted a 0.7% fall in interim revenue to $6.62 billion, while profit was down 15.1% to $298 million.
Overall, retail fell slightly, while hotel sales were up.
Commenting on today’s result, Endeavour Group CEO, Steve Donohue attributed the 10% fall in group earnings to $595 million to operating deleverage from lower sales and the impact of $13 million of one-off restructuring costs relating to optimisation initiatives including: the new Jimmy Brings partnership with Milkrun, the integration of Shortyʼs into Dan Murphyʼs and support office restructuring.
He attributed the $273 million fall in net debt to improved working capital resulting from lower inventory and capex reflecting disciplined capital allocation.
Tougher trading conditions
Commenting on category performance, Donohue attributed the 1.5% fall in retail sales ($5.5 billion) to subdued consumer spending in Q1 and an estimated $40 million to $50 million in lost sales due to the Victorian supply chain disruption that reduced stock availability in stores during the peak end-of-year trading period.
“Despite this disruption, detailed planning and execution from our team enabled the Group to deliver a strong trading performance in December. Dan Murphyʼs achieved a record sales result for the week preceding Christmas and BWS recorded its best ever sales performance for the week preceding New Yearʼs Eve,” said Donohue.
“Hotel sales grew by 3.3 per cent to $1.1 billion with sales momentum increasing throughout the half. Pleasingly, higher sales results were achieved across all four key business drivers (food, bars, gaming and accommodation).”
Meanwhile, gaming remains resilient, with strong growth achieved in Queensland.
In light of the groupʼs strong cash generation, the board declared a fully franked interim dividend of 12.5 cents representing a payout ratio of 75%.
Key 1H FY25 numbers include:
- Retail sales fell by 1.5%2 to $5.5 billion.
- Hotel sales grew by 3.3% to $1.1 billion.
- Group gross margin as a percentage of sales increased to 34.9.
- Group Operating CODB (excluding one-off restructuring costs) increased by 3.0.
- Group EBIT fell by 10.0% to $595 million.
- Operating cash flow of $1 billion represents an improved cash realisation rate of 168%.
- The Group’s leverage ratio decreased to 3.2x.
- Group EBIT fell by 10.0% to $595 million.
Outlook
Sales growth for the first seven weeks of H2 was down 0.8% for Retail and up 4.7% for Hotels.
Management expects renewals and upgrades to its EGM fleet to underpin continued hotel growth.
In F25 the group expects capital expenditure of between $375 million and $425 million, including One Endeavour; and finance costs of between $305 million and $315 million.
The Group continued to pursue opportunities to unlock value in its $1 billion-plus property portfolio and during the half realised $38 million from asset and business sales as part of its capital recycling program.
“We operate in resilient categories and we expect retail market conditions to improve as inflation moderates. Our commitment to price and value leadership is expected to drive improved sales momentum in the second half. We are continuing to prioritise operating efficiency and cost savings. Capital discipline will support continued balance sheet strength," said Donohue.
Endeavour Group’s market cap is $7.5 billion making it the ASX’s 78th largest company; the stock is trading 24% lower over one year and even over the year to date.
The stock’s shares appear to be in a long-term bearish trend confirmed by a falling 200-day moving average.
Consensus is Moderate Buy.
This article does not constitute financial product advice. You should consider independent advice before making financial decisions.
