Release Date: August 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Endeavour Group Ltd (ASX:EDV, Financial) reported record sales in both retail and hotel segments for FY24.
- The company achieved record EBIT despite an inflationary environment, driven by gross profit margin expansion and cost optimization.
- Endeavour Group Ltd (ASX:EDV) maintained strong capital discipline and cash generation, enabling the Board to keep the dividend in line with FY23 at 21.8%.
- The company delivered $100 million in savings from its cost optimization program, with a target of $290 million-plus by FY26.
- The My Dan membership program added a quarter of a million active members, with members spending 80% more per transaction than non-members.
Negative Points
- Net profit after tax declined year-on-year, impacted by finance costs of $306 million.
- Operating costs for the One Endeavour program were $45 million, contributing to increased expenses.
- The company's safety performance stepped back in the year, with a commitment to improve in FY25.
- Despite strong sales, the company faced significant inflationary pressures, including award wage increases of over 6%.
- The retail segment experienced softer trading conditions in the second half of FY24, in line with the market.
Q & A Highlights
Q: My question's on gross margin in the retail business. Good year-on-year performance through FY24, and that's across both of the halves. The margin did drop reasonably significantly in the second half versus the first half? And how should we think about that? Is that just seasonality in gross margins or as this period of gross margin expansion come to an end for a while, given the difficult conditions in the marketplace?
A: Yeah. You're right. That is the case that the growth was front end weighted, but it isn't the case that we see an end to the runway in terms of improving gross margin. I think what you've observed from us over the last few years is this balancing act between managing costs and costs have certainly been elevated -- given the elevated nature of inflation in the last little while and managing offsetting that with gross margin improvement. So I wouldn't read too much into the half-on-half movements, but it is the case that as the market gets a bit tougher, the competition does heat up now. As I touched on in my remarks. That's where we double down on our efforts to meet customers' needs to -- we need to market in any situation whether the market's expanding or contracting. So we'll keep doing that. We'll keep accentuating the benefits that we're getting from the investments we've made in advanced analytics and AI as it relates to price and promo. We'll continue to build better products through our Pinnacle portfolio. And the team have just done an outstanding job in the last year of that. And we know we've got a really solid pipeline of work coming up as well. So no, I wouldn't say that looking at just one year in isolation is indicative of what the future holds, but it is pretty dynamic right like we have to keep flexing and changing based on the conditions to hand, and we'll certainly do that. Obviously, you've observed that it's a quite different scenario in the hotels business where it's the opposite cases, those guys have really started the distress.
Q: And your priority is to maintain EBIT margins. Do you need to grow gross margin in FY25 to do that?
A: Well, like I said, I think it's that balancing act through the course of the year. So we've certainly seen some moderation in wage costs, for example, but that's still relatively light growth in wage cost, but it's still pretty elevated. And given that that the biggest element of the P&L, it will continue to require us to flex, whether it's managing costs, or managing margins. It's always a combination of both, you know. So I think we'll have to see where we may end up with.
Q: Just a question on the [$100 million] of the Endeavour Gold Savings and how we should think about which part of the business that touched. Can you please help us split it between GP, CODB, and retail versus hotels to the extent that you can?
A: I'll start with the last part of your question. It's three quarters weighted to retail, one quarter, right weighted to hotels. We probably won't give you the full detail of the breakdown in terms of where it impacts. But as you've heard us talk about before, in areas of costs like store wages and hotel wages is a high priority given the material challenge that it represents. And then we've got the benefits that we get across other areas as you work through the CODB lines in the P&L side (multiple speakers).
Q: And then the forward 100, how should we think about the phasing between '25 and '26, please?
A: Yeah. Well, we're working on that now. So as we see what the inflationary impacts look like and how the market shapes up, somewhat back to Michael's questions and comments I think we'll have to work that fruit. I think it's fair to say as we get through this year, we're going to need to look at what the next horizons look like as far as costs are concerned because it's not going to be 50 50 in the residual and that to 90-plus --you're going to have a big effort again in the year ahead.
Q: Good morning, Steve and Kate. Maybe just a question on the interplay between one [Endeavourgo] cost. [Go] cost savings and costs, fiscal 2024 to be a period where you had $100 million in go cost savings and the one endeavor OpEx seemed to be only $45 million. So it was a net benefit, but fiscal '25 seems to be a year where you want endeavor cost step-up and the remaining $100 million over these two years sort of is hence lower. So I'm just curious how will endeavor plan to manage I guess, a net cost burden from the one endeavor Opics related to a slightly lesser realization of cost savings and more generally, when do you stop paying as much money what's when do we start to see that become part of a [pool] of cost savings that comes to you, please?
A: Thanks, Shaun. In terms of how we're going to manage the increased one endeavor costs through the relative to whatever the individual targets are. There's obviously a lot more to it than that. As you look through the P&L and I touched on wage costs for. So we are obviously, obviously taken aggregated holiday pay in our view. It's not one to the other, but there is and there's a lot of room for us in the P&L to fund the spaces we've described for covering the costs associated with one endeavor. So I guess we and that's at an operating level. We've also touched on our ability to fund that re-capital as well. And in particular, you heard Kate talk about how our CapEx on Pinnacle will materially stepped back this year. And that gives us some of that headroom that after I'm referring to. So that's in line with what we've talked about before in terms of not expanding our investments in that space. So I think generally speaking, it's looking through all of the lines in the P&L and finding a way to rightsize them so that we can deliver the right outcome in line with the strategy scorecard, which we remain committed to. To the latter part of your question about when do we stop? Well, we've already had progressive roll offs of cost from Woolworths. If you think about some of the things that we touched on on that slide, in terms of spend management systems or lease management systems, those sorts of things. And there's a variety of other areas that are that are not on the page where we have rolled off services like facilities management in our retail outlets and those sorts of things. So there's quite a lot to that. What we do benefit from is a really strong partnership with Woolworths, particularly as it relates to technology and when we're embarking on something as significant as they are. So our store systems transition, which has a lot of hardware that's moving around, but obviously and additionally, the ERP build and deployment that we were very much hand in glove with [Woolies] on that. So we benefit from
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
