Thank you for standing by, and welcome to Endeavour Group's FY23 first quarter trading update. All participants are in a listen only mode. Endeavour CEO, Steve Donohue, will provide some opening remarks, followed by a question and answer session. Participants will need to press star one to ask a question. Only one question per person will be permitted. However, if time permits, participants are welcome to rejoin the question queue. I would now like to hand the conference over to Mr. Steve Donohue, CEO. Please go ahead.
Thanks, and thanks to everybody for joining us this morning. I'm joined here today by our CFO, Shane Gannon. Despite the attempts of Sydney's inclement weather to keep him from us, he's just made it in time. My plan today is to make some quick opening comments before opening up to questions. Before I begin, I'd like to acknowledge the traditional custodians of the land on which we're conducting this call today, the Gadigal people, and pay my respects to their elders past, present, and emerging. Now, turning to our trading update. During the first quarter, the group delivered a sales result of AUD 3.028 billion, up 3.1% on the prior corresponding period.
Compared to Q1 FY20, the last pre-COVID comparative period, sales revenue is up 14%, which represents a compound annual growth rate of 4.5%. This consistently strong sales performance reflects our improved customer offerings, the benefits of consistent investment in strategic initiatives, and the value of our industry partnerships. It also demonstrates, again, the natural hedge between our retail and hotel businesses as we move beyond COVID into a new operating environment. Perhaps most importantly, the result is a testament to the outstanding contributions of our many team members. The strong performance in the quarter reflects customers across the country embracing the opportunity to come together again with family and friends and make up for lost time, socializing in both large and small groups. More and more, these connections are happening in our hotels after years of COVID-19 disruptions.
There's been a rebound across all hospitality segments, with bars, food, gaming, and accommodation all performing strongly. I'm pleased to add that live entertainment is also becoming a feature of our hotels business again, with music fans enjoying a range of sold-out gigs across our hotels. Our ALH teams enjoyed welcoming back their guests in such strong numbers. Overall, from a group perspective, customer demand across both our segments has been improving, and we're looking forward to the critical Christmas and New Year period with increased levels of confidence. Now, focusing on the sales performance of each segment. Retail sales of AUD 2.49 billion were, as foreshadowed, down 6.6% on the prior comparative period due to the cycling of elevated sales related to the extensive COVID-related lockdowns and restrictions in New South Wales and Victoria.
This cycling impact's easing as we head into the second quarter. For the record, excluding New South Wales and Victoria, total retail sales for non-lockdown states were in growth year-on-year during the quarter. Central to this solid retail sales performance is our focus on knowing our customers and continuous innovation in our offers and service. My Dan's active members grew to 4.7 million members in the quarter, demonstrating the value we're delivering for customers as we increasingly tailor the experience for them via our personalized offers. The retail sales performance in the quarter was additionally supported by customers continuing to drink better, with the trend towards increased demand for premium, new, and craft products continuing. In past calls, we've extensively discussed our investments in e-commerce and endeavourX. These investments were foundational to our strong online sales during the pandemic and continued to generate benefits in the quarter.
Q1 online penetration at 8.6% of total retail sales is 210 basis points higher than in FY20. Online sales are up 50.3% when compared to Q1 FY20, which is a 14.6% CAGR. Now turning to our hotel segment. As I previously stated, the performance of our hotel segment was particularly strong in the quarter, with sales revenue up 90% to AUD 538 million, with trade across all drivers, gaming, food, bars, and accommodation recovering quicker than previously anticipated. Hotels' performance reflected the cycling of COVID lockdowns, which saw 40% of our hotels temporarily closed in the prior corresponding period. We're now seeing a strong appetite to come back together to reconnect and embrace the joy of social occasions, particularly at the pub.
Compared to Q1 FY20, the last pre-COVID comparative period, hotel sales are up 15%, representing a 4.8% three-year CAGR. Now, with inflationary pressure impacting many people's hip pockets, we remain focused on providing affordable, welcoming places for people to get out and relax with family and friends. We can see this working through our forward bookings for functions, including Christmas lunch, which are very strong. Finally, I'd like to take the opportunity again to thank all of the team members across Endeavour Group for what were amazing efforts again in the quarter. Thanks for your attention, and now I'd like to open it up to any questions.
Thank you.
I think just before we open up to questions, I may have referred to retail being down -6.6%. Retail was down -6.2%. My apologies, just to correct that stat.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Michael Simotas with Jefferies. Please go ahead.
Good morning, everyone. Can we talk a little bit about market share? If I look at the three-year growth trends in retail, it looks like you've lost a little bit of market share. I know you've spoken about the sort of lower margin, secondary wholesaling type volume in the past. There's a bit of feedback out there that BWS is losing a little bit of share in wine, and there have been some changes made in the business ahead of Christmas. Can you just sort of talk to those trends and, you know, whether you're comfortable with market share and whether you may be able to lift that heading into Christmas?
Yeah. Thanks, Michael. Appreciate the question. We feel really comfortable with our market share performance on a pre/post-COVID basis. There's certainly been a giveback of some market share as a result of not cycling the unexpected spikes of demand through lockdowns and COVID restrictions. Those were non-repeatable events and, you know, we've continued to fight hard to keep our market share, but the reality is that for event-based businesses, particularly like Dan's, those are non-repeatable. The other thing that we're very focused on from a pre/post-COVID standpoint is knowing our customers better. We refer to the fact that we've now got 4.7 million members in the MyDan's program. Coming into COVID three years ago, that was 1.7 million customers.
We know 3 million more customers, and they are shopping with us with a relatively high frequency. That's giving us enormous capability around being able to tailor offers and increase convenience for those customers across both businesses. That information feeds into the decisions we make about ranging. Actually, we're not seeing any particular or explicit challenges around the wine category in BWS. On the contrary, we've seen an improvement in wine category performance across both Dan's and BWS relative to the trend in the last quarter. We're not particularly concerned about wine.
We're concerned about, you know, driving the whole category, and we're particularly concerned about being focused on delivering a great Christmas, which is a really big opportunity for the whole business because we are generally a very event-based category, and we over-index in events as a group.
Okay. Thank you.
Thank you. Your next question comes from David Errington with Bank of America. Please go ahead.
Morning, Steve. Morning, Shane. You should come to Melbourne, Steve. It's beautiful down here. Anyway, I'd like to talk about hotels, in particular and the reopening. It seems to be going a lot better than what you're expecting, you know, post the lockdowns last year. I'm particularly interested in your comments where you're ensuring that they become a destination that's, for locals, welcoming and, you know, seeking a welcoming and affordable place to socialize. Now, the one thing I think the last probably three months since we last spoke or wherever it was, the world seems to be becoming a more miserable place, whether it be, you know, the threat of bombs going off or recessions going off and people tightening belts and that.
Are you doing anything different in your hotels that will ensure that you can capture this market share that potential could be got because of, you know, because it's an affordable place, rather than going out to a high-end restaurant? What are you doing to do it? How difficult is it to do it, given the constraints with getting labor and stuff like that? Now, I know it's a bit of a convoluted question, but if the world is a miserable place, what are you gonna do to ensure that your hotels are gonna be the solution to all everyone's miseries?
Thank you, David. Having been in Melbourne myself on the weekend, I enjoyed my time there, so nice to be talking to you from Melbourne. I'm not sure it's as miserable as you perhaps are characterizing. It's certainly in a global context, certainly. What we're experiencing in the way customers are enjoying the pub is actually to the contrary. On average, we're seeing larger groups coming together, so we're seeing about a 10% increase in the size of a booking. We're also seeing people wanting to enjoy the hotel over more hours of the day. I think that is a factor of both people's intent to wanna get together, but also the convenience that we offer in a hotel as well as the affordability that I've talked about.
A lot of that convenience is actually enabled by the tap order and pay functionality. We're actually seeing more food and beverages being ordered from more places in a hotel than ever before. Whereas previously, you had to go to the bar or you had to go to the bistro counter to order your meal, you can just tap and order and pay from anywhere in the pub right now. The convenience of the hotel has markedly increased, as has consumers' propensity to wanna use digital platforms for their ordering by the pub. Those are a couple of things I'd point to. I think the affordability and the quality that we offer in the hotel is something that's being recognized by customers.
You made the reference to perhaps the opportunity for a trade down out of fine dining into the sort of more mainstream offer that we provide. That's potentially a factor at play out there. Then the last one is that real appetite for human connection, listening to music or watching a live show, be it a comedian or whatever the case. We've certainly seen that come back quite strongly. I guess, you know, what distinguishes our hotel group is the fact that it is so multifaceted. I won't bore you with the details of the performance of our accommodation at the moment, but it's going very well.
Our pubs have great bar experience. There's great food experiences, accommodation experiences, gaming experiences, a variety of experiences and places where people can congregate and have that positive time together. The only other thing I would add is that our team are doing an amazing job, and in context of the challenges we have around finding, you know, sufficient chefs or sufficient assistant managers, the step-up in our team, particularly some of our more junior team, is just very encouraging, I suppose. I couldn't be more proud of the effort that people have made and the positivity with which they approach our customers and guests inside hotels. All in all, we're feeling positive about what lies ahead, particularly with Christmas, 'cause we think people are feeling positive about the opportunity to get together at Christmas time for the first time in a long time.
Staff, getting 'em?
Yeah. It continues to be a challenge, but we have made some progress. We're still, you know, looking for a number of chefs and a number of managers, but as I say, these shortages, as it were, have provided opportunities for people to step up that perhaps might not have had those opportunities. I think that's great for particularly.
Mm.
younger people to be getting those opportunities. I've been personally the beneficiary of those sorts of times in my life, and it's great to see it playing out.
Yeah.
for a lot of our team, too.
Yeah. It seems hotels are a positive surprise, so good news, Steve.
Well, we hope it's a very good Christmas, is what we're very focused on at the moment, David. Thank you.
Yes. Yeah. Thanks, Steve.
Thank you. Your next question comes from Grant Saligari with Credit Suisse. Please go ahead.
Well, good morning, and thanks for the opportunity. Steve, I was just wondering on the retail business, you mentioned positive mix effects. Can you just maybe unpack the price mix and volume a little for us? We observe little sort of straight-out price inflation in the CPI data, but just in your business, could you maybe unpack those drivers a little bit, if you could, please?
Yeah. Thanks, Grant. Obviously we're seeing some volume declines off that top line dollar decline that we've talked to, and there is some inflation in the category and it has been elevated somewhat by the CPI increase that flowed through in August. It's probably in the vicinity of around the 4% mark overall across the trade, I would say. I'm not just talking for us. I would expect that that's around about what it's operating at across the industry. That's true for us, too. Yes, that is a factor in this performance. What has been interesting to observe is the continued appetite from customers for what we describe as drinking better.
That has historically included low and no alcohol, as we've talked quite at length about, but also that propensity to want to enjoy a local product or a craft product or something new that you haven't tried before that perhaps is more premium than the last thing you tried. That broadening repertoire of customers and real commitment to supporting local type of businesses has continued to play forward. I think in context of the broader pressure on consumers out there, that's been really interesting to observe. I'm hopeful that that plays forward through the Christmas trading period. All indicators suggest that it will do. I think it'll be interesting to observe what happens in a post-Christmas environment.
That, that'll be the perhaps more unknown, sort of, era that we'll step into.
Okay. Thanks.
Thank you. Your next question comes from Lisa Deng with Goldman Sachs. Please go ahead.
Hi. Steve, just wanted to get a little bit more color on how you're planning to execute around Christmas, 'cause obviously that's a very important period for us and, you know, there will be different dynamics at play compared to last year. I think you talked about like maybe doing, you know, going earlier. I don't know if you can talk a little bit about, like, the promotional calendar, the key categories, the promotional strengths, what, you know, what we plan to, push in front of consumers. Like, how are you operating differently, this Christmas versus last?
Yeah. Thank you, Lisa. I think that's a really important question. Obviously there's two different dynamics that play out across both sectors, and I'll just touch on hotels to give you a flavor of that first up. We expect to serve around 44,000 Christmas covers, so Christmas lunches, Christmas dinners. At the moment, our forward bookings are double what they were at the same time a year ago. We've got demand for about a third of the seating and capacity that we'll have for Christmas already, and that's double where we were last year. What that does is give us confidence around the preparedness that we have to have in hotels, but I think your question probably related more to retail.
Yes.
You'll probably recall that we talked about the flow-through of inventory last Christmas was very much inhibited in some respects by the supply chain, and we were quite extremely just in time. Now, it worked out okay, but we don't wanna take those sorts of chances this year, particularly with challenges around availability of pallets or labor in DCs or trucks and the various other issues that we could potentially face. We're pulling forward some of our inventory into stores a little bit earlier. We're also seeing an abatement of some of the international shortages that have been manifest as a result of supply chain challenges around the world. Some Scotch whisky availability, some American bourbon availability, and that is also continuing to get better.
As we go through October, we're actually gonna find ourselves in the best in-stock position we've been in since the start of this financial year. That too is giving us some confidence. In general terms, we'll pull forward a little bit of inventory. We've worked very hard to make sure that we've got the appropriate level of availability, particularly of things that we have to bring from overseas. What will play out, we think, in terms of Christmas demand is a combination of the tried and true, the old favorites, champagne. You know we do sell a lot of Irish cream at Christmas time and those sorts of things. There are certain products that only sell at Christmas time. The continuation of this strong appetite for new and premium, drinking better, craft and local is also what we've been prepared for.
All of that combined is giving us a degree of confidence about being able to serve the needs of customers this year, whereas last year we were quite, you know, by the seat of our pants, if you like.
Promotional strength?
Our promotional strength is as strong as ever. I think, you know, customers take great confidence in the Dan Murphy's price guarantee, an active price guarantee, unique across all forms of retail in Australia. Dan Murphy's go and seek out their competitors' prices and lower them proactively. That is a killer offer in a market where there are all sorts of challenges for customers around affordability.
Okay. Got it. Thanks. Thank you.
Your next question comes from Shaun Cousins with UBS. Please go ahead.
Good morning, guys. Just a question regarding gaming. Can you just talk a little bit about, I guess, the proportion of sales, I'd assume within hotels, as socialization has become more of a focus, this human connection, that gaming may have moderated as a proportion of your hotel's revenue there. Any comments you'd care to make around the Tasmanian announcements that are coming through in terms of the change in regulations there and potential impact it could have on your business? Maybe not so much from a Tasmanian perspective, given that's you don't have many hotels in that state, but just more generally that direction of travel in terms of gaming regulation, please.
Yeah. Thanks, Shaun. I know you spend a lot of time researching us in situ in our stores and our pubs, so you'll be familiar with the goings on of a gaming room. They are a combination of you know places time people spend time on their own and places where people spend time socializing together. The performance of gaming has been relatively strong through the quarter. What's been interesting is the performance of bars and food have surpassed them in terms of percentage growth. We feel pretty good about the balance of all of the what we call the drivers of the hotel. The fact that food and bars have become our fastest growing categories or drivers if you like is really positive.
I think it's a testament to that point we were making before about sociability, which happens in all parts of the pub. Your question on Tasmania. Yeah, well, we're obviously staying very close to the changes in Tasmania. I think your question related to the implications or impacts on other states. As you'd appreciate, every state operates its own jurisdiction, and there are differences across each of those states. I think what we remain very focused on is the engagement that we have with both regulators and government in every jurisdiction we operate.
There's all sorts of different programs underway that we're involved in actually in places like New South Wales and Queensland, on a variety of initiatives that are in some respects similar, in other respects different to those that have been announced in Tasmania. What we'll continue to do is engage very closely with regulators and governments in all jurisdictions in pursuit of progressing the agenda of responsible service of gambling in all of our markets.
Great. Thanks, Steve.
Thank you. Your next question comes from Craig Woolford with MST Marquee. Please go ahead.
Morning, Steve. Morning, Shane. Just a quick question about the excise. You alluded to it before, but, you know, it was early August, I think, and obviously very noisy year-on-year figures to try and interpret. Have you seen any volume reaction by consumers to the excise-related price increases in retail?
Thanks, Craig. Yeah, look, as I said before, what we've seen is across the market, that price increase flow through and hold, I would say. What it hasn't seemingly done is affect consumers' long-term trend appetite for new and premium and craft. That's a pretty succinct answer, but the two are operating, you know, in connection with one another, I suppose, across the category. We're seeing it across the market. My reference to the increase is one for the whole category rather than for Endeavour.
All right. Thanks. Thanks, Steve.
Thanks, Craig.
Thank you. Your next question comes from Bryan Raymond with J.P. Morgan. Please go ahead.
Morning, all. Might just maybe a follow-up on Shaun's question around gaming. If we could have a look at it rather than year-on-year, which is obviously very messy with lockdowns. If we could look at the three-year CAGR figure of in the 4% range, and think about gaming versus food and bev over that timeframe. Most of my feedback suggests it's pretty buoyant out there in gaming from a hotel perspective across the major states. I just wanted to understand how you're seeing the environment more broadly, and also how your investments in the gaming floor and content has maybe helped on that front. Thanks.
Thanks, Bryan. There's plenty of publicly available data on gaming performance over all of those horizons that you just referred to. My comments are very grounded in the here and now and what are the particular trends that are playing out. As I say, food and bars are leading at the moment, and we've got good balance overall. I think as COVID restrictions eased, gaming was one of the categories that came back first, but that wasn't an enduring trend. People were able to enjoy all elements of the hotel very quickly thereafter. What we're very focused on at the moment is what lies ahead.
We're taking a degree of confidence, I suppose, from the forward bookings for Christmas, and our preparedness for that. We think it's gonna be very exciting for customers this year.
Absolutely. Just maybe a quick follow-up. Just on that three-year CAGR figure that you guys put in your presentation. Gaming in Queensland, where it is readily observable, is trending at sort of well above that level. Would that be a fair indication for a national run rate that you would see gaming ahead of the overall level on a three-year CAGR basis for your hotel business?
Just make sure I understand your question. Well, first of all, we don't intend to split out the drivers of the hotel. What we're observing is a good return on the investments that we've been making in improving the quality of our fleet and our rooms. That stands in good stead relative to the markets that we're operating in. When we look at those market results that you're referring to, we feel as though we're delivering very effectively in our hotel network.
Okay. Excellent.
I might also add, sorry, just to draw a line under it. When we look back over that three years that you're talking about, we see a degree of balance as well. There's not an imbalance in the historicals, if that's what's motivating your question.
Yeah. No, no. That's great. Thanks. Thanks very much.
Thanks, Bryan.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from Peter Marks with Barrenjoey. Please go ahead.
Morning, guys. Again, just to follow on from Shaun's question on the Tasmanian proposed changes to the regulations on gaming machines. I think the interesting proposal there is the loss limits of AUD 5,000 per year. Have you done any work on what sort of proportion of your gaming revenues would be coming from gamblers that are losing more than that per year? Just to give us a sense of how material a risk that could be for your hotels business.
Thanks, Peter, for the question. I think I should just state for the record, I think we've got five pubs in Tassie, just so everybody's conscious of that. We have stared into the plan changes in Tasmania, and we're conscious of the impact that that'll have on our business down there. I think, you know, the bigger picture here is that, as I said earlier, we remain very close and engaged with regulators and government in every state on the topic of improving outcomes as it relates to responsible gambling. We're active participants in digital wallet trials, in facial recognition trials, and we're very committed to the best possible outcomes that we can be involved in across every jurisdiction.
I'm not gonna go into detail on any modeling or anything of that nature other than to say we're very committed to working closely with government and regulators in every jurisdiction.
Okay, thanks.
Thank you. Your next question is a follow-up from Michael Simotas with Jefferies. Please go ahead.
Thanks very much for taking another one. Look, I know this is a sales call, not an earnings call, but there was a lot of confusion after the full-year result in terms of retail margins. Is there anything that you can do to give us a little bit more color or comfort on the outlook for retail margins in terms of the one-offs that we're seeing in that FY22 result?
Thanks, Michael. Yeah, you're right. It is a sales call. I think the only thing I would say, which is really only a follow on from what we said at the full year, is that we're seeing things get back to normal. Now, if you look back through the historicals for us, our seasonality in H1, H2 bottom-lined about 60/40, and that's probably where things will play out into the future, one would expect. That's true for both hotels and retail. That's as much as I think I can give you at the moment.
Just to be clear on that. When you say 60/40, should we be looking at that second half of 2022 as a reasonable indication of a normal second half? Or it sort of looks like there are some one-off drags in that. That's probably not the right way to think about it for this year?
Yeah. I think your last point's right. Go back to a pre-COVID year and have a look at the weighting there, and that's where we get the balance from. That's right.
I think, Michael, the underlying point is, you know, what we experienced, particularly around January, February, earlier this year, with the disruptions around supply, those additional sort of, COVID costs, they were sort of, one-offs that, we're not experiencing now. We've moved back to that normalized environment. To Steve's point, the seasonal point is a 60/40. We have talked about more normal, sort of, historical EBIT margins as a sort of, expectation. That will continue.
Okay. All right. Thank you.
Thank you. Your next question is a follow-up from Lisa Deng with Goldman Sachs. Please go ahead.
Hi. One on sort of hotel acquisitions. I think we've done three in the first quarter. Can we talk a little bit about sort of the trend going forward or what we're seeing in the market and kind of what we can expect? Because, you know, going back to the strategy day, we had, you know, a decent allocation of sort of the capital, with, you know, a good sort of range in between to do acquisitions and renewals.
Yeah. Thanks, Lisa. The point here is that we always balance the capacity we have with the discipline we must apply from a capital management standpoint. You're right, we do have the capacity, and we have taken in three into the portfolio in the quarter versus the five that we had in the preceding two years. Last year was five, and the year before was five. I think we feel, you know, marginally more confident of being able to have a number greater than five in the current financial year. The market continues to shift its shape quite materially from one week to the next at the moment. We just stick very close to what the opportunities are and continue to work to the best possible outcomes.
Our aspiration is to grow our hotel network through acquisition as well as to improve the existing hotel network. The first part of that really depends on the market in many respects, so we just have to maintain the discipline. I'd be hopeful of well and truly exceeding that five in this year, given we've already got three done.
Have we seen, sellers more willing and, you know, potentially terms, or evaluations get easier?
If anything, just in the last couple of weeks, there's been a little bit less inventory in the market, but that's a very narrow perspective. I think we'll have to wait and see what happens, particularly through this quarter, before we make any judgments on a shift in the market.
Okay. Got it. Thanks.
Thank you. Your next question is a follow-up from Bryan Raymond with J.P. Morgan. Please go ahead.
Thanks for taking the follow-up. Just a quick one on Pinnacle. Has Pinnacle sales growth continued to outperform the broader retail sales growth? Also, just as a kind of knock-on from that, how are you seeing the Pinnacle portfolio in terms of positioning you for potentially a period of trading down or maybe an unwind of some of that premiumization that we've seen over the last couple of years?
Thanks, Bryan. It's tracking marginally ahead, I would say, of the total business. It's important to remember that Pinnacle is a combination of our quite small but premium Paragon Wine Estates-based portfolio, a number of the other brands that we own. An important part of Pinnacle is the partnerships that we have, and there's media today on the strong performance of Better Beer. That's an example of something that we consider a Pinnacle product. It's not just an Endeavour-owned portfolio. There's also a number of partnership brands that sit inside it. Overall, it's tracking slightly ahead. The second part of your question about the potential performance in an environment which is a little bit more value-oriented.
Certainly, we've historically had an over-index of entry price points or lower price points through the owned end of our portfolio, so we think that stands us in good stead, noting that a lot of our efforts have been going into tapping into the higher price points, the more premium craft driven price points. So, we think we're well-placed, I would say. The further point would be that the team is able to move very fast based on what we see customer behavior changes looking like. So we will pivot, be agile, create new products and brands on a needs basis, and we've got a strong track record of doing that.
Excellent. Thanks.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Donohue for closing remarks.
I'd like to thank everybody for joining us for the call today, and again acknowledge the efforts of the Endeavour Group team. Hope to see everybody at a pub or in a Dan Murphy's or a BWS between now and Christmas while you're getting ready for what is hopefully the biggest Christmas we've had in many years. Appreciate everybody joining us for the call.
That does conclude our conference for today. Thank you for participating. You may now disconnect.