Consumers are back in force, drinking and eating and losing money in pubs. Will it last?
-Pubs surge as bottle shops wane for
-Premium drinks still in vogue
-Bumper Christmas ahead
-Uncertainty thereafter
A year ago NSW and Victoria were in delta lockdown, closing some 40% of
A year on, hotels are open again, and a burning desire to socialise after two years of imprisonment has been unleashed. Endeavour reported a -6.2% fall in Retail (bottle shop) sales in the September quarter, but a whopping 91% growth in hotel sales as we all flocked back to pubs.
The fall in Retail sales included a not unsurprising -30% drop in online sales.
When pubs reopened, the diehards initially rushed back to the pokies, but that burst has eased off. The September quarter featured strong sales in Bar & Food, outpacing gaming. The number of people per booking rose 10%, and Endeavour reports the number of Christmas bookings is double what it was last year, with a third of capacity already booked.
The company has thus been stocking up for a bumper Christmas.
Cost of Living?
There may yet be an issue with staff shortages during Christmas, but management has assured they have it under control.
What most surprised analysts in the update is that despite inflation and the rising cost of living, pub-drinkers are still going for the higher-priced new, premium, low/no alcohol, craft and local products, when one might have expected a shift down the scale to lower-priced familiar beer brands and "house" wines.
Endeavour reported inflation of 4% across the industry, which is surprisingly low given food inflation.
Will it Last?
Australians suffered two Christmas periods of lockdowns and international and state border closures which prohibited the usual family get-togethers. For many, the last two Christmases have been sombre times.
This would explain why everyone wants to get out and party, and why we're happy to spend up on the fancy stuff, this Christmas/New Year. But what happens after that?
The 2023 hangover?
Here, opinions are split. With uncertainty in mind, Endeavour has not provided FY23 guidance.
Morgans (Hold) suggests trading beyond Christmas will be "more unknown". Macquarie retains an Outperform recommendation, but remains cautious on the outlook for the consumer into calendar 2023 with rising rates and inflation impacting household budgets.
Macquarie otherwise prefers consumer staples, which strangely includes Endeavour, over consumer discretionary.
The key unknown remains margins, suggests Morgans, with elevated costs related to supply chain, labour and technology expected to persist in the second half of FY23. Management also noted promotional activity remains strong, which keeps the broker relatively cautious on earnings despite ongoing revenue momentum.
The
Credit Suisse believes one risk the market is not fully pricing in is that of pre-commitment loss-limits for pokie players. The Tasmanian government has decided to impose mandatory limits, but to date is the only state to do so.
Were other states to do the same, gaming revenues would be impacted.
Management stated it remains highly engaged with state governments and regulators on the issue, although it would not be drawn on the potential implications of the Tasmanian decision should it be replicated in some form on the mainland.
Credit Suisse sees wider implementation as being low probability, but a large tail risk.
Put it all together and
A wide range of target prices underscores uncertainty, from
The stock is forecast to offer a 3.0% FY23 yield, but you can lend your money to the government for two years risk-free and get 3.3% currently, albeit not franked.
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