Woolworths Ltd. (WOW), Australia’s largest retailer, said its Masters hardware venture with Lowe’s Cos. (LOW) won’t make a profit until at least 2017 as annual losses at the group’s home improvement business widened by 24 percent.
The 49-store chain lost A$176 million ($163 million) in the year ended June and won’t meet its target of 90 outlets by end-June 2016, Sydney-based Woolworths said in a regulatory statement today, adding Lowe’s will indefinitely defer an option to sell back its one-third stake. The Masters venture initially aimed to have 150 stores by this year.
Five consecutive years of losses at the home improvement unit through 2016 will make it harder for Chief Executive Officer Grant O’Brien to restore annual earnings growth of more than 10 percent, which Woolworths achieved for 11 consecutive years to 2010. The chain will likely post A$2.45 billion in net income in annual results due Aug. 29, an 8.6 percent increase from a year earlier, according to the average of 11 analyst estimates compiled by Bloomberg.
“To call Masters a problem is getting way ahead of itself,” O’Brien said on a media call after the announcement today. “We would like to have had more stores in metropolitan Brisbane and Sydney.” The chain has seven stores across the two cities, Australia’s third-largest and largest respectively, according to its website.
Woolworths fell 0.4 percent to A$35.74 at the close of trading in Sydney, while the S&P/ASX 200 (AS51) index rose 1.3 percent.
Competition with other stores and a government budget that hit consumer confidence meant that sales at Masters’ 49-store network, announced in 2009, were lower than expected at A$752 million over the full year, Woolworths said in the statement.
That’s equivalent to about A$3.7 million in each store during the fourth quarter, about 18 percent below the A$4.5 million per store result 12 months earlier, according to a calculation by Bloomberg News.
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