Heavy discounting lifts sales at Dan Murphy’s, BWS owner Endeavour but dents profits

Making beer cheaper at Endeavour Group has helped lift sales at Dan Murphy’s and BWS — but has come at the expense of profitability.

High-profile executive Jayne Hrdlicka has been in the top job at Endeavour — which also owns hundreds of local pubs nationally under the ALH Hotels banner — for less than two weeks and faces a big task of returning sales growth for the group as budget-conscious consumers suffer through a prolonged cost-of-living crisis.

In a trading update on Tuesday, Endeavour said total group sales hit $6.7 billion in the 27 weeks to January 4, up one per cent from a year earlier

Sales at the group’s 1728 Dan Murphy’s and BWS outlets lifted 0.7 per cent to $5.4b, with growth improving in the second quarter after going backwards at the start of the financial year.

Endeavour said Dan Murphy’s had its biggest ever trading weeks leading into Christmas and New Year’s Eve.

But the promotional push that helped it deliver sales growth has hit profits. Endeavour expects profit before tax to hit between $400 million and $411m, down from $437m a year ago.

The guidance came in well below analyst expectation — about 10 per cent below RBC Capital Markets’ forecast and 8 per cent consensus estimates — to trigger a 2.9 per cent drop in Endeavour shares to $3.70 on Tuesday.

Fronting analysts and investors for the first time since she stepped into the role on January 1, Ms Hrdlicka said it had invested in lower shelf prices across the retail business and extended “market-leading promotions to our customers against a backdrop of a competitive retail liquor market, particularly in the online channel”.

She said its decision to lower shelf prices, combined with the elevated promotional environment across the sector led to a reduction in retail profit margins of about 85 basis points.

Ms Hrdlicka was tight-lipped on her strategies for Endeavour, but said there were a “number of initiatives we expect to put in place . . . which will sit alongside this investment in customer”.

This includes getting more “sophisticated” with how it brings prices to market.

“The underlying thesis here is, we have gone back to the consumer. What do they need? What do they want? It’s a tough category at the moment but we can wallow in that, or we can wallow in the future,” the former chief executive of Virgin Australia said on a call.

“Both Dan Murphy’s and BWS play really important roles for our customer base.

“It will take time for these initiatives to be implemented and for the full benefits to be realised, but we’re confident that we’re now headed in the right direction.”

At Endeavour’s 352 pubs — which includes Young and Jacksons in Melbourne and the Como Hotel in Perth — sales grew 4.4 per cent to $1.2b. It expects first-half earnings to hit between $271m to $275m, up from last year’s $262m.

The trading update came the same day Endeavour announced ALH managing director Paul Carew would step down this month to pursue other career opportunities.

He will be temporarily replaced by Paul Walton, director of Endeavour’s wineries portfolio, Pinnacle Drinks.

Endeavour is set to report half-year results on March 4.