Endeavour Group (ASX: EDV) has reported its H1 F26 trading performance, revealing a strategic pivot that delivered record December sales alongside deliberate margin compression. The Endeavour Group H1 Trading Update disclosed total Group sales of $6.7 billion (up 1.0%), with Dan Murphy’s and BWS achieving 2.2% sales growth in Q2 following four consecutive months of positive momentum since September. However, this sales recovery came at the cost of an 85 basis point reduction in Retail Gross Profit margin, as management invested heavily in lower shelf prices to recapture market share. Group Profit Before Tax (pre-significant items) is expected to reach $400-411 million, down from $437 million in the prior corresponding period, reflecting the deliberate trade-off between short-term profitability and volume growth.
Endeavour Group Delivers Record December Sales Despite Margin Pressure
The H1 F26 results for (ASX: EDV) paint a picture of strategic recalibration rather than operational underperformance. Whilst Retail margins compressed, the business achieved meaningful sales momentum across both operating divisions.
Dan Murphy’s and BWS recorded their strongest December trading month on record, with Christmas Eve setting a new daily sales record and record sales in the week leading into Christmas as well as New Year’s Eve. The combined Retail division generated $5.5 billion in H1 sales, up 0.3% year-on-year, with Q2 acceleration to 1.8% growth demonstrating the effectiveness of the pricing strategy implemented during the period.
Hotels provided earnings stability during this transition, delivering 4.4% sales growth to reach $1.2 billion in H1 revenue. Q2 Hotels sales matched the 4.4% Q1 growth rate, driven by gaming uplift, refurbished venue performance, and positive trends in food and bar transactions. December represented the division’s strongest monthly sales result ever, with the week leading up to Christmas and record sales for food, bar and accommodation on New Year’s Eve.
The strategic investment in pricing, however, resulted in material margin contraction. Retail EBIT (pre-significant items, including approximately $20 million in One Endeavour transformation costs) is expected to land between $323-328 million, down from $370 million in H1 F25. Hotels EBIT guidance of $271-275 million (up from $262 million prior year) partially offsets this Retail decline, with Group EBIT expected at $555-566 million compared to $595 million previously.
| Metric | H1 F26 | H1 F25 | Change ($M) | Change (%) |
|---|---|---|---|---|
| Retail Sales | $5,513M | $5,495M | +$18M | +0.3% |
| Hotels Sales | $1,169M | $1,120M | +$49M | +4.4% |
| Total Group Sales | $6,682M | $6,615M | +$67M | +1.0% |
| Retail EBIT | $323-328M | $370M | -$42-47M | -11.4% to -12.7% |
| Hotels EBIT | $271-275M | $262M | +$9-13M | +3.4% to +5.0% |
| Group PBT (pre-SI) | $400-411M | $437M | -$26-37M | -6.0% to -8.5% |
Record-Breaking Achievements:
- December Monthly Sales: Both Retail and Hotels divisions achieved their strongest December trading performance in company history
- Christmas Trading: Dan Murphy’s biggest ever trading weeks leading into both Christmas and New Year’s Eve, with Christmas Eve setting a new daily sales record
- New Year’s Eve Hotels Performance: Record sales for food, bar and accommodation
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What is Endeavour Group’s Pricing Strategy for Dan Murphy’s?
The strategic shift to aggressive price leadership represents management’s response to Q1 sales decline and competitive market dynamics. Dan Murphy’s and BWS recorded -1.0% sales decline in Q1 F26 before implementing the “best-in-market pricing” strategy complemented by value-focused promotions underpinned by Dan Murphy’s lowest liquor price guarantee during Q2.
This pivot produced immediate results. Q2 sales growth of 2.2% (or 0.6% adjusting for the estimated $45 million supply chain disruption impact in the prior period) validated the customer acquisition approach. The four consecutive months of sales growth since September demonstrate sustained momentum rather than temporary promotional spikes.
The gross profit margin impact, however, was substantial. Retail GP margin compressed by approximately 85 basis points compared to H1 F25, reflecting both the deliberate shelf price investments and elevated promotional activity market-wide. Management has framed this compression as a necessary investment to re-establish Dan Murphy’s market position and rebuild customer confidence in the value proposition.
“The pricing and promotional decisions we have made in our Retail business have generated positive sales results, delivering on our aim to better align the customer propositions for each of our brands to re-ignite top line growth. In a competitive market landscape, we have focused on reinforcing customer confidence in the value we offer across all channels, particularly in Dan Murphy’s unbeatable price and customer experience,” said CEO Jayne Hrdlicka.
Three-Part Value Proposition:
- Lower Shelf Prices: Direct investment in everyday pricing to establish price leadership position
- Value-Focused Promotions: Targeted promotional activity complementing shelf price positioning
- Price Guarantee: Dan Murphy’s lowest liquor price guarantee providing customer confidence mechanism
Understanding Retail Gross Profit Margin Compression
For investors evaluating the Endeavour Group H1 Trading Update, understanding the GP margin metric provides critical context for assessing management’s strategic trade-offs.
What is Gross Profit Margin?
Retail GP margin measures the difference between product purchase cost and selling price, expressed as a percentage of sales. A 22% GP margin means that for every $100 of sales, $22 remains after product costs to cover operating expenses and generate profit.
Why the 85 Basis Point Decline Matters:
At (ASX: EDV)’s scale, 85 basis points of margin compression on $5.5 billion Retail sales equates to approximately $47 million in foregone gross profit. This magnitude explains the $42-47 million reduction in Retail EBIT guidance, with the compression largely attributable to deliberate pricing investments rather than cost inflation or operational inefficiency.
Expected Recovery Timeline:
Management has indicated the upcoming Investor Day in March 2026 will outline initiatives to improve pricing sophistication and cost reduction. However, CEO Hrdlicka explicitly cautioned that “it will take time for these initiatives to be implemented and for the full benefits to be realised,” suggesting margin recovery will occur over multiple quarters rather than immediately in H2 F26.
How is Endeavour Group’s Hotels Division Performing?
Hotels emerged as the growth engine and earnings stability provider during H1 F26, delivering consistent performance across both quarters. H1 sales of $1.2 billion represented 4.4% growth, with Q1 and Q2 each contributing 4.4% growth rates.
Q2 sales growth was driven by an uplift in gaming, strong results from refurbished venues and positive trends in food and bar transactions. December’s record monthly performance included the strongest weekly sales result in the week leading up to Christmas and record sales for food, bar and accommodation on New Year’s Eve.
The division’s EBIT guidance of $271-275 million represents 3.4% to 5.0% growth compared to $262 million in H1 F25. This Hotels earnings growth partially offsets the Retail EBIT decline, with the division’s consistent execution providing portfolio diversification benefits during the Retail strategic transition period.
“The holiday spirit across our Hotels business was exceptional, enabling strong results. There is a lot to play for in our Hotels portfolio and we are excited by the opportunity to create additional value as we begin to roll out the refreshed strategy. I look forward to updating the market with further detail on our plans later this year,” said CEO Hrdlicka.
Key Performance Drivers:
- Gaming Uplift: Positive gaming trends contributing to revenue growth
- Refurbished Venues: Strong results from recently upgraded properties demonstrating effective capital allocation
- Food & Bar Transactions: Positive transaction trends indicating resilient consumer spending in hospitality category
Significant Items: $45 Million Melbourne Warehouse Transition Cost
(ASX: EDV) expects to recognise a net expense of approximately $45 million (pre-tax) related to significant items in H1 F26. Approximately $40 million of this total relates to a provision for one-off cessation costs associated with the Melbourne Liquor Distribution Centre (MLDC) closure.
The provision reflects an estimate of the maximum amount the Group is contractually required to reimburse Woolworths Group for one-off cessation costs, following Woolworths’ decision to close the MLDC in September 2028. The reimbursement is expected to be paid in September 2028, providing a 2.5-year runway before the cash outflow materialises.
The new logistics arrangement is positioned to deliver superior economics. The Group has entered into a 10-year contract with a leading global supply chain provider for a new Victorian Distribution Centre commencing operations in October 2027. This is expected to deliver material benefits for the Group over the term of the contract, compared to current arrangements, inclusive of the one-off cessation costs.
| Event | Date | Financial Impact |
|---|---|---|
| H1 F26 Provision Recognition | January 2026 | ~$40M non-cash provision |
| New Victorian DC Operational | October 2027 | Improved logistics economics commence |
| MLDC Closure & Cash Payment | September 2028 | ~$40M cash outflow to Woolworths |
Breakdown of $45 Million Significant Items:
- MLDC Cessation Provision: ~$40 million for warehouse closure reimbursement
- Property Impairments: Non-cash write-downs on Hotels properties
- Advisory Fees: Transaction and strategic advisory costs
- Gaming Entitlement Gain: One-off gain relating to sale of gaming entitlements
What Are Endeavour Group’s H1 Financial Results?
The complete H1 F26 financial picture reveals the magnitude of the strategic investments undertaken during the period. Group PBT (pre-significant items) guidance of $400-411 million represents a $26-37 million or 6.0% to 8.5% decline compared to $437 million in H1 F25.
The segmental breakdown shows Retail bearing the primary earnings impact. Retail EBIT of $323-328 million compares to $370 million previously, incorporating both the margin compression from pricing investments and approximately $20 million in One Endeavour transformation programme costs. Hotels EBIT guidance of $271-275 million shows growth momentum, whilst Other EBIT (corporate costs) of $37-39 million loss remains consistent with prior year at $37 million loss.
Group EBIT (pre-significant items) of $555-566 million represents the combined divisional performance before net interest expense to arrive at the PBT guidance range.
| Financial Metric | H1 F26 Guidance | H1 F25 Actual | Change | Strategic Rationale |
|---|---|---|---|---|
| Retail EBIT | $323-328M | $370M | -$42-47M | Deliberate pricing investment + One Endeavour costs (~$20M) |
| Hotels EBIT | $271-275M | $262M | +$9-13M | Gaming uplift + refurbished venues + F&B strength |
| Other EBIT | ($37-39M) | ($37M) | -$0-2M | Corporate cost base maintained |
| Group EBIT (pre-SI) | $555-566M | $595M | -$29-40M | Retail investment period partially offset by Hotels |
| Group PBT (pre-SI) | $400-411M | $437M | -$26-37M | Strategic transition period, margin recovery expected longer-term |
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Strategic Outlook and March Investor Day Preview
Management has signalled that the upcoming results presentation and Investor Day will provide comprehensive detail on the strategic refresh guiding future performance. H1 F26 results are scheduled for release on 4 March 2026, with a subsequent Investor Day to elaborate on longer-term strategy.
CEO Hrdlicka has previewed a “range of initiatives” focused on improving pricing sophistication, enhancing in-store and online customer impact, and advancing the cost reduction agenda. However, management expectations have been explicitly tempered regarding implementation speed.
“This year, guided by our refreshed strategy, we will begin to put in place a range of initiatives that will help to improve the sophistication of our in-store price execution, further improve our in-store and online customer impact as well as add to our cost reduction agenda. It will take time for these initiatives to be implemented and for the full benefits to be realised. We will elaborate more on this at our H1 results presentation in March and at our subsequent Investor Day. In the meantime, we will remain focused on ensuring our shelf prices reflect the best value in the market for Dan Murphy’s, both in-store and on-line,” said CEO Hrdlicka.
Near-term operational focus remains on maintaining Dan Murphy’s price leadership position whilst the broader strategic initiatives are developed and implemented. The explicit acknowledgment that benefits realisation will require time suggests investors should calibrate expectations for margin recovery over multiple quarters rather than immediate H2 F26 improvement.
Three Upcoming Catalysts for Investors:
- H1 F26 Results (4 March 2026): Complete financial detail and trading commentary for the first half
- Investor Day Detail: Comprehensive strategy refresh presentation outlining multi-year initiatives for pricing sophistication, customer experience enhancement, and cost reduction
- Strategy Implementation Milestones: Phased rollout of initiatives with benefits realisation expected over extended timeframe
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