Woolworths chairman Gordon Cairns says the retailer has plenty of growth potential despite exiting the home improvement market.
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‘We have determined we can not continue to sustain ongoing losses from this business, ‘ he said in a statement on Monday.
Retail heavyweight Woolworths is abandoning its multi-billion dollar foray into the Australian home improvement market following years of losses, putting 7000 jobs at risk.
Previous Woolworths chairman Ralph Waters got cranky with naysayers in 2013, telling the annual meeting he was frustrated by investors who were not happy with the business’s projected break even date (then) of 2016.
While the closure of Masters helps improve management focus, we think it does little to alleviate the pressures on its supermarkets business.
Before Woolworths can exit its home improvement business it plans to buy out its US-based joint venture partner Lowe’s, which now holds a 33.3 per cent stake.
While Home Timber & Hardware is profitable, earning about $20 million in 2015, the Masters business is considered by many analysts and fund managers to be unsaleable as a going concern in its current form and may have to be liquidated.
Masters stores began appearing in Perth in 2012; however they never were never able to compete with Bunnings.
Merrill Lynch analyst David Errington congratulated Mr Cairns on the decision to end Woolworths’ failed six year-foray into home improvement, saying it was a “monumental” day for Woolworths’ shareholders, as Masters had been a huge capital drain on the company.
Lowe’s expects to record a noncash impairment charge in the fourth quarter for exiting the Woolworths venture.
“If a sale can not be secured, we’ll be ensuring that every possible avenue for redeployment of Masters’ dedicated, hard-working employees is explored”.
“The 38 billion pound United Kingdom home improvement and garden market is a large and growing market with strong fundamentals”, said Wesfarmers managing director Richard Goyder in a statement. The company reported a third-quarter profit of $736 million, a 26% increase from a year earlier.
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Homebase’s initial financial impact on Wesfarmers’ earnings per share and return on equity would be “immaterial”, Wesfarmers said, adding it would revamp operations in the United Kingdom once the acquisition is complete.
