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Masters keeps hammering Woolworths as losses widen

Losses have widened at Woolworths' home improvement joint venture with US retailer Lowe's despite their attempts to cut costs, boost sales and put a brake on new stores.

Figures released on Wednesday by Lowe's suggest that losses at the joint venture, which owns Masters, Home Timber & Hardware and Thrifty-link stores, widened to around $57 million in the three months ending October, up from a loss of $38.8 million in the previous quarter and a loss of $48.6 million in the first quarter of 2014.

Analysts now believe that home improvement losses this year may exceed earlier forecasts around $180 million and the $169 million loss in 2014.

"The continued large size of the losses on the Masters venture is disappointing," said Deutsche Bank analyst Michael Simotas.

The losses would have been higher if Woolworths' new home improvement boss, Matt Tyson, hadn't decided to slow the roll out of new stores. Woolworths plans to open around 10 to 15 Masters stores a year for the next few years and is tweaking the Masters offer, devoting more space to categories that drive customer visits such as hardware.

Mr Simotas said that while the sales run-rate at Masters stores had improved in the September quarter, gross margins appeared to have been squeezed by clearing obsolete stock.

Analysts believe Masters may not break even until 2018 – nine years after Woolworths announced its plans to compete head on against Wesfarmers' Bunnings in the big-box home improvement market.

Meanwhile, Woolworths and Caltex have renegotiated their 10-year fuel supply alliance, tweaking the deal to simplify the structure and reflect their individual convenience store strategies.

Some 92 sites operated by Caltex will be rebranded as 'Star Mart' or 'Star Shop' convenience stores and will continue to offer Woolworths fuel discounts. Another 39 sites, which are located in close proximity to Woolworths Petrol sites, will exit the Caltex-Woolworths alliance and will no longer offer Woolworths fuel discounts.

Between January and June 2015, an additional 12 Caltex-operated 'Star Mart' or 'Star Shop' sites will begin to offer Woolworths fuel discounts.

Once fully implemented by the end of fiscal 2015, Woolworths petrol discounts will be redeemable at about 100 Caltex-operated 'Star Mart' or 'Star Shop' sites and at more than 500 Woolworths-operated sites - compared with 633 in 2014.

Analysts said the new structure simplified the agreement, as the mix of Woolworths, Caltex and independently-operated stores created challenges for both Caltex and Woolworths.

As a result of the changes, Woolworths will no longer recognise sales from the Caltex-operated sites in its financial results. The move will not have a material impact on Woolworths earnings.

Woolworths Petrol general manager Michael James said the new arrangements enabled the retailer to focus on its operated sites and deliver further improvements to its convenience store offer. Caltex Australia general manager marketing Bruce Rosengarten said the new arrangements gave Caltex an opportunity to further streamline the branding used on its retail sites across Australia.

Source : Sue Mitchell - The

21 November 2014

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