MASTERS HARDWARE TO CLOSE
Written on the 18 January 2016
WOOLWORTHS plans to pull the plug on Masters Home Improvement, after realising 'it will take many years' for the venture to become profitable.
Masters has lost more than $700 million over the past four years.
The company intends to exercise its call option over the 33.3 per cent interest in Hydrox Holdings Pty Ltd (Hydrox) held by WDR Delaware Corporation, a subsidiary of Lowe's Companies, Inc. (Lowe's).
This is following Lowe's notice to exercise its put option under the joint venture agreement.
Woolworths chairman Gordon Cairns says this was a top priority for him after being appointed to his position.
"One of our top priorities was to determine the future of the Home Improvement joint venture," says Cairns.
"In keeping with the spirit of the joint venture we have actively been engaging with our partner, Lowe's, on this issue.
"Our recent review of operating performance indicates it will take many years for Masters to become profitable. We have determined we cannot continue to sustain ongoing losses from this business."
Woolworths intends to pursue an 'orderly prospective sale or wind-up of the business', considering its full ownership of the business through the call option, possible due to Lowe's exercising its put option under the joint venture agreement.
The put and call options will take at least two months to complete and then a potential sale process or other exit process will take additional time.
Masters will continue to trade through this period.
IBISWorld senior industry analyst Spencer Little says prior to the announcement, Woolworths' revenue in the hardware retailing inudstry was expected to increase at an annualised rate of 44.5 per cent over the 5 years through 2015-16 to reach $1.4 billion.
He says the costs were too high, however.
"This rapid expansion, albeit off a low base, reflects the acquisition of new stores and the introduction of its Masters Home Improvement chain," says Little.
"However, substantial operating losses have accompanied this revenue and establishment growth.
"The significant start-up costs associated with setting up and expanding Masters, and high wage costs generated by new store openings have affected the profitability of Woolworths' home improvement segment over the past five years."