Endeavour Group’s (ASX.EDV) sales increased 3% in the September 2026 quarter year on year. However, in both its liquor and gaming segments, sales momentum slowed toward the end of the quarter. High fuel prices and rising cash rates are cutting into household budgets and weighing on sentiment.

Why it matters: Demand for liquor and gaming is surprisingly soft. We estimate group sales growth decelerated to 1% in September, down from 4% at the beginning of fiscal 2027. We anticipate the resurgence in fuel prices and likely further monetary tightening in November to throttle consumer spending.

  • Notwithstanding, we expect mid-single-digit income growth to underpin 4% growth in Australian retail spending in fiscal 2027. While we expect liquor and gaming to underperform, we see Endeavour taking market share in liquor and increase sales by 3%. For its hotels segment, we forecast 2% growth.
  • Endeavour is outperforming Coles’ Liquorland chain. We estimate Endeavour’s sales growth over the past 12 months was on average 5 percentage points higher than Liquorland’s. In the September quarter, Endeavour’s liquor sales grew 3% compared with a 1% decline at Liquorland.

The bottom line: We maintain our fair value estimate for wide-moat Endeavour at $5.10 per share. We trim our fiscal 2027 EPS estimate by 4% on slightly lower margins in the hotels segment due to flat gaming revenue. But our long-term estimates are unchanged. Shares are cheap.

  • We think the market expects group margins to stay at depressed fiscal 2027 levels for longer. We forecast they improve 160 basis points by fiscal 2030, split in roughly equal parts from completing Endeavour One, transformation costs rolling off, gross margins improving, and cost reductions.

Between the lines: Industry wide discounting is irrational. Coles’ liquor EBIT margins have fallen under 2%, and we think economics are even less viable for independent liquor stores. Endeavour’s EBIT margins in liquor retailing were over 4% in fiscal 2026.

Endeavour’s cost reductions partially offset investment costs and wage inflation

Endeavour is Australia’s preeminent omnichannel liquor retailer, operating the largest network of brick-and-mortar stores throughout the country, with more than 1,700 liquor outlets across the well-known Dan Murphy’s and BWS brands. Endeavour also has substantial interests in hotels and electronic gaming machines, operating more than 12,000 gaming machines across its portfolio of over 300 hotels, pubs, and clubs. Endeavour is one of Australia’s leading employers, with staff of some 30,000 throughout Australia.

Endeavour’s business is divided into two segments. Its retail segment is Australia’s leading omnichannel liquor retailer, while its hotels segment provides hospitality services and gambling operations.

Endeavour’s retail segment is also vertically integrated, supported by Pinnacle Drinks’ private-label portfolio, which operates several wineries, as well as bottling and packaging facilities. Products produced are supplied exclusively to Dan Murphy’s, BWS, and ALH Group in Australia and provide a source of high-margin differentiation while also minimizing supply chain risks in the wine category.

Shifting consumer trends toward online shopping and convenience have led to strategic investments in online shopping platforms and delivery capabilities. About 9% of all Endeavour’s liquor sales are transacted online.

Endeavour’s revenue is highly skewed to the retail segment, which we forecast will contribute about 80% of revenue over the next decade, with the balance coming from the hotels segment. The split is more evenly balanced at an EBT level due to the higher margins achieved in the hotels business, with approximately 60% of EBT derived through the retail business and 40% through the hotels business.

We expect consumer demand for alcohol to be relatively steady through the economic cycle, exhibiting attributes of consumer defensives. We estimate the Australian hotels market will predominantly be driven by the same factors as the off-premises retail liquor market, namely population growth and inflation. However, we anticipate a lasting trend to lower liquor consumption per capita to offset population growth and premiumization.

Bulls Say

  • Endeavour’s dominant retail market share of about 50% is multiples of its closest competitor and provides a source of long-term, maintainable cost advantage.
  • Endeavour’s hotels segment, with its electronic gaming machines, is proving resilient during periods of consumer weakness.
  • Endeavour’s wide economic moat, strong competitive positioning, and strong balance sheet underpin top-line recovery as the industry rationalizes.

Bears Say

  • The growth of online shopping could detract from Endeavour Group’s profitability as the online sales channel has incremental costs above traditional brick-and-mortar sales.
  • Endeavour faces ESG risks through its exposure to electronic gaming machines and alcohol retailing. While gaming reforms in Victoria and NSW are incorporated in our base case valuation, material value destruction due to ESG remains a tail risk.
  • Amazon Australia’s liquor range competes in the strongly growing online channel, and irrational pricing could erode contribution margins of Endeavour’s online liquor sales.

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