Woolworths Ltd. (WOW), Australia’s largest retailer, expects to lose A$157 million ($145 million) in the year ended June for its Masters home-improvement joint venture with Lowe’s Cos. The shares fell.
Sales from the 31 Masters stores came to A$529 million, Sydney-based Woolworths said in a regulatory statement today. The hardware division as a whole, which includes the Danks trade merchant business, lost A$139 million before interest and tax compared to a forecast of an A$81 million loss.
Weak consumer confidence and high start-up costs had weighed on performance in Masters, which along with Danks is 33 percent owned by Lowe’s according to Woolworths’ last annual report. Sales budgets were too optimistic, wage costs were too high in new stores, and the profit margin between wholesale and retail prices was too low, according to the company.
“The company looks to be facing a period of lower growth in the foreseeable future, and the earnings drag from its entry into hardware is inopportune timing,” David Errington, an analyst at Bank of America Corp.’s Merrill Lynch division, wrote in a note to clients April 26. “The drag from hardware looks likely to us to soon become substantial.” The division would lose A$135 million before interest and tax this year, Errington forecast at the time.
Woolworths shares fell 1.5 percent to A$33.18 at 10:20 a.m. in Sydney, compared to a 0.4 percent rise in the benchmark S&P/ASX 200 index.
Woolworths also revised its forecast for net income in today’s release, to a tighter range of 5 percent to 6 percent growth from 4 percent to 6 percent
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