Endeavour Group reported 3Q25 sales down 1.7%. The Retail division shrank further, while Hotels had a good quarter. The good news for the company and shareholders is the decline in retail sales should now be over. We forecast Retail comp growth of 2.1% for 4Q25e and 3.0% for FY26e. Hotels should see stronger growth, but investors should factor in an earnings dip associated with cashless gaming in Victoria from the end of 2025.

The upcoming 3Q25e sales results for Coles, Woolworths and Endeavour Group are likely to show Coles in front in both supermarkets and liquor. The shift of Easter timing will distort growth rates. We forecast Coles Supermarket comparable sales at 3.0% and Woolworths at 2.6%. For Coles Liquor, we forecast 2.6% and Endeavour Retail at -0.3%. All figures are Easter-adjusted. We will be interested in any step change in inflation for produce and meat given recent weather disruptions. Overall industry sales growth rates remain lacklustre, particularly relative to cost growth

Endeavour reported 1H25 EBIT down 10% with a poor result in the Retail segment the primary driver. Higher transition costs to its new systems, distribution centre strikes and weak liquor industry sales all contributed to the challenging half. However, these issues are transitory. We expect another soft result in 2H25e given One Endeavour costs and wage inflation. However, we can see an inflection point emerging. Earnings should recover as industry-wide sales improve and cost savings flow through.

We have produced a chart pack with category forecasts for the Australian liquor industry reset (see PDF report). This liquor outlook provides two insights – 1) The weakness in sales is more a function of the COVID-19 spike in demand than a structural concern. 2) The recalibration of liquor demand differs across categories, with wine and RTDs likely to see better demand from affordability and drinking preference. The data includes actual consumption trends for Australian households to the end of FY23.

Endeavour Group’s 1Q25 result showed weaker retail sales trends and indications that gross margins are coming under pressure. The company said that Retail segment EBIT margins will fall by 50-100bp in 1H25e. We expect weak sales trends to persist a little longer, but the problem isn’t structural. The company has increased discounting to improve sales, which has hurt margins, but is yet to help sales.

Endeavour’s share price has dropped 10% in the past quarter. Our take is the share market is concerned about the outlook for liquor industry demand and the transition to a new CEO. We address the liquor industry outlook in this report and find that the weakness in sales is more a function of the COVID-19 spike in demand than a structural concern. We expect retail liquor sales to improve meaningfully by June 2025 and support better earnings for Endeavour. 

Changes to lease accounting in 2019 have significantly changed the way leases are disclosed in a retailer’s financial results. On the surface, this may seem like only a technical accounting issue. However, in Issue 9 of The Retail Mosaic, we explain the accounting, the distortions to profit margins, cash flow and balance sheet metrics and the real world implications from lease accounting.

Endeavour Group reported FY24 EBIT up 1.8% on a 52-week basis and EPS dropped 4.3% given higher finance costs. We expect a flat EPS of 28.6 cents for FY25e with subdued 1H25e sales growth and higher finance costs largely offsetting better gross margins and cost savings.  Endeavour’s underlying sales momentum shows market share gains and cost savings are likely to continue to build in FY26e.

Endeavour Group reported normalised sales growth of 1.0% for 3Q24. The retailer’s challenge is a tough industry backdrop. We expect soft sales trends to continue as the liquor retail industry undergoes a normalisation of volume and pubs experience some trading down behaviour. Even so, sales trends should improve slightly in 4Q24e and FY25e for Endeavour.

We expect signs of slowing sales, which reflect weak volumes and decelerating inflation. For Coles, we forecast 3Q24e Supermarket comp sales growth of 4.3%. We estimate Woolworths Food comps to rise by 1.5% and for Endeavour Retail we forecast comp sales to increase by 0.7%. While the differential in growth rates will be of interest, the bigger concern for the retailers is the continued weakness in volumes. Inflation is set to slow from here and comp sales growth could be even weaker in 4Q24e, which is a challenge for the retailers given cost growth remains far higher.