Endeavour, which owns Dan Murphy’s and BWS, misses profit expectations despite a boom in pub visitors

The beer was flowing, and hot meals were served at Endeavour’s large portfolio of pubs, but the company which also owns Dan Murphy’s has missed profit expectations.

Punters have flocked back to Australian pubs, driving higher earnings for Endeavour Group, but the operator remains wary of a jump in labour and energy pressures after unveiling a new multi-year cost savings plan.

This return to public venues, bars and restaurants has helped Endeavour bolster its earnings through fiscal 2023 in the face of weakening sales and earnings for its large portfolio of 1700 liquor stores after booming sales through lockdowns and consumers returned to pre-pandemic behaviours.

But Endeavour, which was demerged from Woolworths in mid 2021, now faces a number of other headwinds that, like the pandemic, are not in its control.

They include reform on its gaming machines in Victoria that will constrict profitability and a bloated wages bill from the recent Fair Work Commission decision to raise minimum rates of pay by 5.75 per cent from July 1.

On Wednesday Endeavour – the owner of liquor outlets Dan Murphy’s and BWS as well as a portfolio of 354 pubs and hotels – reported a full-year net profit of $529m, up 6.9 per cent but below market expectations of $543m, while it also unveiled a new cost savings initiative called endeavourGo to ring up $200m in savings over the next three years and combat cost pressures in its businesses.

During the year, in keeping with trends in the wider hospitality sector, Endeavour has experienced an increase in labour and energy costs due to elevated inflation as well as higher beer and alcoholic beverage prices driven by a hike in the excise duty.

Pre-tax earnings were however above $1bn for the first time, gaining 10.7 per cent to $1.023bn and the liquor store and pubs owner recorded a 2.5 per cent lift in revenue to $11.884bn.

The company declared a final dividend of 7.5c per share, down from 7.7c, and payable on August 25.

Endeavour chief executive Steve Donohue said his executives hadn’t seen such a vibrant and lively atmosphere at pubs to watch a sporting event since Cathy Freeman raced at the Sydney Olympics, declaring people were “absolutely back at pubs”.

He said Endeavour continued to see a rebalancing of its operations as Covid-19 restrictions were eliminated and people returned to more typical trading and consuming activities – especially over the first half – when it came to drinking, pub meals and retail sales.

Sales at its bottle shop retail outlets, which enjoyed a boom through lockdowns when pubs and hotels were closed, fell 1.8 per cent to $9.9bn as earnings declined 1.2 per cent to $658m. In the peak of the pandemic and heavy restrictions in 2021 sales for its bottle shops rose almost 10 per cent.

Its Pinnacle Drinks arm, which owns and produces a large range of wines, reported sales of $1.7bn, up from around $1.5bn a few years ago.

Sales at Dan Murphy’s and BWS, owned by Endeavour Group, weakened slightly in 2023. Picture: Dan Peled

At its hotels arm sales rebounded as people returned to the pub to enjoy public gatherings such as sporting events like the Matildas competing at the FIFA Women’s World Cup. Sales for the 2023 fiscal year lifted 31 per cent to $1.98bn as earnings increased 35.9 per cent to $428m.

“I was chatting to (the executive) who leads our operations across hotels nationally the other day and he has been there for a long time, and he said to me hotels haven’t felt this good since Cathy Freeman in the 2000 Olympics.

“People are absolutely back into pubs, and they are there on times of day and days of the week they wouldn’t ordinarily be there.

“Our hotels offer welcoming and affordable social moments, from a drink and meal with friends, to live music and quality accommodation. Providing this comprehensive range of experiences has delivered strong results in the first period of unrestricted trading since 2019,” said Mr Donohue.

Sales of drinks and meals were booming at Endeavour Group’s portfolio of hotels and pubs as Australians celebrated freedoms from pandemic restrictions.

Meanwhile, its network of liquor stores surpassed 1,700 during the financial year, through the addition of 18 net new BWS stores and eight Dan Murphy’s stores. Of these new stores, 15 were associated with hotel acquisitions, which are expected to add approximately $50m in annualised revenue.

Mr Donohue said a number of cost savings and efficiency initiatives have seen it take $90m of costs out across the group since the demerger, including $60m in 2023. Over the next three years, Endeavour is targeting a further $200m in savings.

There was strong momentum in the initial weeks of fiscal 2024, led by food and bars, with hotels and pubs sales for the first six weeks of the new financial year up 4.6 per cent.

At its retail outlets, sales for the first six weeks of the year were up 2.5 per cent.

Shares in Endeavour fell more than 4 per cent on the results as it missed analyst expectations and later closed down 25c at $5.75.