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Woolworths’ Masters Chain Posts Record Losses

Woolworths’ Masters Chain Posts Record Losses
May 21, 2015 By Imran Valibhoy

The Masters store chain owned by Woolworths (ASX:WOW) is expected to post losses that exceed $200m this year. The stores are part of a joint venture with US retailer Lowe’s, which reported a steep loss in profits during trading hours in the US yesterday. The US company reported a US$17m loss in the three months ending in April for its 33 per cent stake in the joint venture. In the December quarter, Woolworths reported a $36.1m loss and a $55.8m loss in the third quarter.

For the quarter ending in April, Deutsche Bank is projecting a $66m loss for the entire joint venture. This would take annualised losses to over $200m, compared to the $169m losses in 2014. The total losses over the past three years may total over $500m. According to Deutsche Bank, the Masters stores are generating about $20m per year, but the stores cost the joint venture $30m per year. According to the data, the joint venture is bleeding $5.1m per week. “At this rate, we estimate the JV could report a loss of more than $200 million in 2015,” said Deutsche Bank analyst Michael Simotas.

At Woolworths’ strategy day earlier in the month, Chief Executive Officer Grant O’Brien said despite the profit losses, he expects the joint venture to eventually make a turnaround and post gains. "We are making good progress - that can't yet be seen in the numbers but I'm encouraged by the progress we have made in the latest evolution of our format," he said. However, while the joint venture is struggling, the management at Woolworths is shifting its capital away from hardware and using it bolster its food and liquor business. Shares of WOW are up 14c, or 0.50 per cent, at $28.29 per share around 1:56pm on Thursday. WOW has fallen 24.03 per cent in the last 12 months and 7.76 per cent so far this year.

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Imran Valibhoy Author: Imran Valibhoy May 21, 2015

Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.

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