Woolies $1.5bn hardware venture may have hit a wall.
According to analysts at Merrill Lynch, the newly established hardware chain is facing earnings losses of up to $830 m, or over $200 m for the next four years, it warned a note to investors.
The first 15 Masters stores are losing $15.1 m per year due to high operating and administration costs, analyst David Errington believes, while newer stores are generating sales of $16.5 m.
“The problem for Masters is, despite its very high gross margin, its costs per store are currently inhibitively high,” says Errington.
Masters, which also sells appliances, is a joint venture with US retailer Lowes and has just opened another store in with another six planned for later this year.
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There are now 29 Masters stores trading since it was set up in 2011.
Woolies said in the Home Improvement division increased 37.4% to $290 m in Jan- March 31 2013.
However, a company spokesperson today denied Masters was in trouble, and told The Australian:
“On current Masters sales, the business is on track to achieve a break-even position in 2015-16.”
Earlier this month, Woolies boss Grant O’ Brien admitted “while conditions in the trade segment remain challenging, we continue to be pleased by the progress of this business.”
Woolies also recently completed the acquisition of Hardings Hardware, adding six sites to HOME Timber and Hardware network.
