Endeavour share price down on Q1 sales miss

Endeavour has released a trading update. How did it perform?

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The Endeavour Group Ltd (ASX: EDV) share price is starting the week in the red.

In morning trade, the drinks giant's shares are down 1.5% to $4.94.

What's going on with the Endeavour share price?

Today's decline appears to have been driven by a combination of broad market weakness and the release of a mixed trading update.

In respect to the latter, Endeavour revealed that its sales for the first 14 weeks of FY 2023 were up 2.1% on the prior corresponding period to $3,091 million.

The company's retail business, which includes the Dan Murphy's and BWS brands, reported a 1.9% increase in sales to $2,538 million. Management advised that it had a strong start to the quarter, but that sales growth moderated somewhat in August. The good news is that momentum trended up again through the last two weeks in September and has continued into the second quarter.

For both BWS and Dan Murply's, shopping frequency and average item prices increased in the quarter, which more than offset a reduction in items per basket. Average price inflation in the quarter moderated from a peak in the fourth quarter, to approximately 5% year-on-year.

During the three months, 11 new BWS stores were opened and four were closed, resulting in a net increase of seven stores. One new Dan Murphy's store was opened in Bulimba, Queensland.

Online retail sales grew 2.8% during the period to $221 million, which means they now represent 8.7% of sales.

Outperforming its retail business was the company's hotels business. It reported a 2.8% increase in revenue to $553 million.

Management advised that weekly sales throughout the quarter remained relatively stable, with year-on-year growth in bars, food and accommodation. This was partly offset by a low single digit decline in gaming. Sales momentum has remained steady heading into the second quarter.

How does this compare to expectations?

Goldman Sachs wasn't overly impressed with the update, noting that it fell a touch short of its expectations. This could explain the weakness in the Endeavour share price today.

The broker was also surprised with its online sales growth, or lack thereof. It said:

EDV reported 1Q24 sales of A$3.1B (+2.1% YoY), -1.7% vs. GSe. Retail sales of A$2.5B +1.9% YoY was -1.6% vs. GSe and Hotel sales of A$553mn +2.8% YoY was -2.1% vs. GSe.

The surprise for us was slower than expected growth in e-Commerce, with only 2.8% revenue growth vs. Coles 1Q24 liquor online growth of 32.2%, taking eComm penetration to 8.7%, compared to Coles Liquor at 7.7%. This implies further market share loss in online though market share gains in offline (for Dan's and BWS).

Goldman concludes:

Whilst Dan and BWS has reported sales largely in-line with key competitor, including outperformance in store comps, we were underwhelmed by its online growth. The company now has 5.3mn active members via its My Dan's membership, accounting for almost 90% of Dan's sales though this also implies lower per member spend despite earlier move in omni-channel and personalization capabilities. We would like to better understand how the company is leveraging its digital/customer loyalty to drive better ARPU as a key question.

Management commentary

Endeavour's managing director and CEO, Steve Donohue, was pleased with the quarter and is optimistic on the future. He said:

The Group has continued to demonstrate solid trading across the quarter, with our brands and offers resonating strongly with customers.

Looking ahead, we have strong plans in place across the Group to ensure we are the destination of choice for Australians again this festive season, as customers seek out our brands to help them enjoy memorable social occasions with family and friends. Q2 is always an important quarter for the business, with key events such as Black Friday and Cyber Monday adding to the traditional peak associated with Spring Racing, entertaining and gifting at Christmas.

Motley Fool contributor James Mickleboro has positions in Endeavour Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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