Q1 2025 Endeavour Group Ltd Trading Update Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Craig Woolford - MST Marquee - Analyst : Good morning, Steve. I guess the new news is the pressure on margins that's come out of this release. I'm interested in really understanding of the margin pressure that's been outlined at EBIT. Like how much of this is about gross margin pressure versus operating deleverage or negative operating leverage? And I guess what's tricky is it feels like there's been more discounting but no improvement in sales trends.

Question: Craig Woolford - MST Marquee - Analyst : Right. Just -- so just to clarify: There's no surprise on the cost inflation, though, is there? Like it was cost inflation that you've seen coming and we've been seeing over the last 12 months.

Question: Michael Simotas - Jefferies - Analyst : Can I just confirm that the margin guidance you've given for the first half includes the duplicate supply chain costs in Queensland? And can you give us some sense of what the quantum of those will be? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 10, 2024 / 11:30PM, EDV.AX - Q1 2025 Endeavour Group Ltd Trading Update Call

Question: Shaun Cousins - UBS - Analyst : Steve, maybe just a question regarding the One Endeavour costs. Could you maybe talk a bit about, I think it's, the $60 million to $80 million for fiscal '25? How are you seeing them split first half, second half? And I believe, in the fiscal '24, they were split 70-30 retail-hotels. Is that a similar split there? Just keen to sort of shape those costs and size those for our aggregate sort of retail EBIT.

Question: David Errington - Bank of America - Analyst : Steve, your experience, what do you do in these situations? Do you -- two-pronged question. First of all, endeavourGO, has that capped out in retail, or is it about the same level? And second pronged question, can you go a little harder, or are you reluctant to do that given that it is a sales issue? Can you find a little bit more? Or are you reluctant because you don't want to basically cripple the business? And when we do turn around, you want to be in a position to get those sales back. I'm really interested in your line of thinking, as where we're at, what you're doing with endeavourGO. Can you push it harder, go a bit harder? Or have you capped out? Or are you reluctant to push it a bit harder because, when it does turn, you want to be in the position to maximize when it grows?

Question: David Errington - Bank of America - Analyst : I'd have a lot more confidence, Steve, if you were there on the other side when it does turn around. A man of your experience don't come easily, so I'd be more confident if you were there. But anyway, that's a point for another day.

Question: Thomas Kierath - Barrenjoey - Analyst : I just want to ask on the promo intensity. Are you saying it's getting worse in October, like, progressively as the months go on? I'd just be a bit surprised given that Kohl's has kind of walked away from a bunch of these kind of bulk sales, yes. I thought that might have eased up a bit, but I'd just be interesting -- in what you're seeing there on the -- yes, on the promotional side.

Question: Lisa Deng - Goldman Sachs - Analyst : I wanted to actually ask about hotels. So hotels has actually aggressively improved, I think, from the first seven weeks. And it looks like gaming is actually doing okay. So we've only just called out the margins for first half retail. How should we kind of think about the hotels business, especially from a margins perspective, given gaming is strong?

Question: Lisa Deng - Goldman Sachs - Analyst : But -- yes.

Question: Lisa Deng - Goldman Sachs - Analyst : But gaming and accommodation are the higher margin of the three businesses, right, even though accommodation is small.

Question: Ben Gilbert - Jarden - Analyst : Just interested. And this is probably a bigger question, but what if that we're not in a cycle and it is just a structural downturn in -- of falling consumption in liquor? Do you have to rethink formats? Because it sounds like convenience might be able to start selling some liquor in some of the Southern states soon if that gets through. Do you need to start trying to put more ranges, more categories? Have you seen anyone globally do a good job finding, where they've sort of got right to play in liquor, sort of stretching? Is it in convenience products; obviously, doing some stuff in lottery tickets? Just interested in what if.

Question: Ben Gilbert - Jarden - Analyst : Just following up on that, Steve. In terms of the customer surveys and all sorts of things that you do, I suppose, what gives you confidence that it is sort of cyclical? Are people saying, We're tightening our belt, so we're buying a bigger pack size. And we're trading down on the vodka or going to achieve a case of beer. What gives you the confidence that is a cyclical issue?

Question: Bryan Raymond - JPMorgan - Analyst : Just on -- back on the retail promotional environment, just keen to understand a bit more about how that's impacting BWS versus Dan Murphy's. Are you seeing this comes through mainly in promotional activity in BWS? Or is it the lowest liquor price guarantee in Dan is the predominant impact? Are you sort of matching others or doing more of your own promotions? I'm just trying to understand sort of the supplier mix -- sorry, supplier funding mix within this as well and how we should think about this into the key trading period ahead.

Question: Phillip Kimber - E&P Financial Group - Analyst : Following on from that, just -- I just wanted to explore a bit more. This is the environment really when Dan's should be dominating value offer with a strong price component, and yet your sales are flat. And profits, it sounds like it's going to be down more than 10% in the first half, if -- well, give or take. I mean, what gives you confidence that it's a market issue and there isn't a problem at Dan's that it's not doing as well as maybe it should be doing in these environment?

Question: Caleb Wheatley - Macquarie Group - Analyst : Congratulations on your tenure. Just in the hotels business and the renewal program. So flagging 16 for the half and noting your comments that you're looking to accelerate those renewals, how should we think about the pipeline for store renewals for the remainder of '25 and '26, onwards? And also if you could provide an update just on what incremental returns are looking at on those. Are they stacking up to that 15% ROI you previously spoke to, please?

Question: Caleb Wheatley - Macquarie Group - Analyst : It was more specific on hotels, but --

Question: Caleb Wheatley - Macquarie Group - Analyst : No. That was helpful. Just around the 15% ROI as well, if that's continuing to stack up...

Question: Richard Barwick - CLSA - Analyst : Steve and Kate, I'm just -- pick up. You made a comment that you are remodeling the digital marketing teams and consolidating some of these digital projects. What exactly is going on there? This sounds like there might be a reduction in head count. And I guess one of my questions would be are there any one-off costs associated with what you're doing.

Question: Sam Teeger - Citi - Analyst : You might have just touched on a bit of it, but it seems like there have been several relatively recent departures and new appointments across key management roles such as strategy, transformation, media and marketing. Can you please touch on what roles are still vacant, what we can expect from the new pool in hotels? And any update on the CEO search more broadly?

Question: Michael Simotas - Jefferies - Analyst : I was just hoping you could give us a little bit of color around the categories and price points where you're seeing the most promotional intensity and the most consumer trade-down. Is it at the lower price points? Is it more in beer? Just interested in any sort of color you can give.

Question: Michael Simotas - Jefferies - Analyst : Okay. And other than French champagne versus Aussie sparkling, is there anything else you can sort of call out across the price points? Like are you seeing discounting and trade-down from upper price points as well as lower price points?

Question: Shaun Cousins - UBS - Analyst : Just regarding the path of the incremental EBIT in hotels, some further $150 million. Can we just confirm that's still on track given the change in hotel CEO? And can you confirm that we should be thinking about that as sort of back-end weighted? And then within that, are you comfortable that the current progress from hotels sort of means you are on track to that even though it may be a wee bit more back-end weighted, please? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 10, 2024 / 11:30PM, EDV.AX - Q1 2025 Endeavour Group Ltd Trading Update Call

Question: Shaun Cousins - UBS - Analyst : And that's the $150 million that we should be thinking about as the enormous potential.

Question: Thomas Kierath - Barrenjoey - Analyst : Just wanted to ask on store growth in the retail liquor side. So BWS, 6 closures and 3 new stores. Dan's was flat. Like how are you kind of thinking about that maybe for the rest of the year just in terms of planning, so I get the models right, please?

Question: Lisa Deng - Goldman Sachs - Analyst : Just on the follow-up. It's around the retail trading across Christmas and new year that you referred to as being so important. We've called out that challenged -- growth is likely to be challenged. How are we tactically going to trade or operate during the peak season? And how different would it be compared to last year, like, the tactical trading strategy?

Question: Bryan Raymond - JPMorgan - Analyst : Just to be really clear on the guidance for retail in the first half, conceptually how you're thinking about the operating environment in terms of trading down and promotional investment and so on. If you said -- I think you mentioned earlier, Steve, October was not all that dissimilar to September. Are you assuming that current conditions persist in November, December? Or are they going to -- or is that guidance embedding a further deterioration? And then from a sales perspective, do you -- is it sort of similar to that negative 1.1% like-for-like that we saw in the first quarter there persisting? Just so we understand how conservative that guidance is.

Question: Bryan Raymond - JPMorgan - Analyst : Great. And the customer trends you called out in September, October, they're just kind of the current run rate persists. Is that the way -- like, putting aside the sales lens for the moment just thinking about gross margin, which I know is oversimplifying things, but some of the gross margin impacts you've seen, is that just largely consistent with what we've seen in recent months? Or are you building in further downside essentially for earnings from that deteriorating further? I just want to understand if that's getting worse or sort of about the same.

Question: Sam Teeger - Citi - Analyst : Just wanted to ask: Given the importance of Christmas to the business, what's the impact from the change of Christmas timing? Last year, Christmas Eve is on a weekend. This year, it's on a Tuesday.