By Patrick Avenell
Woolworths revealed that its Masters home improvement business is haemorrhaging money, losing almost $160 million before interest and tax.
In an update to the market, specifically focusing on Woolworths’ exposure to the home improvement market, comprising both Masters and the trade-focused Danks retail brands, a Woolworths spokesperson blamed a range of factors, including Woolworths’ own ineptness, for these losses.
Total sales across Masters and Danks for FY2013 were $1.239 billion, up almost 50 per cent on the previous year. Danks accounted for $710 million (up 4 per cent) and Masters for $529 million (up 262 per cent).
The Danks chain actually made money during FY2013 — its earnings before interest and tax was $18 million — though this is considerably less than Woolworths forecasted $38 million.
Although Woolworths expected Masters to lose money during the past financial year, it underestimated the calamity: predicting a $119 million lose when the actual losses were $157 million.
“Actual losses were more than anticipated mainly due to overly optimistic sales targets budgets, relatively higher wage costs for new store openings and lower gross margins due to the sale mix,” said a Woolworths spokesperson.
However the company defended that at the announcement of its home improvement strategy in 2010, it would take five years from its store opening for the joint venture to become a profitable division.
“We are confident that our home improvement business remains on track to be a business that will be built in the first five years and deliver returns in the following years,” said the spokesperson.
So the company will continue to rollout out its stores as planned with 120 current “active sites” and believe 90 stores by the end of FY2016 will break even then, assuming there’ll be “moderate growth in sales per store for a start-up business, improvements in gross margin as the sales mix stabilises, efficiencies in store and increased fractionalisation of costs in the distribution and support network as sales levels”.
This article first appeared on Current.com.au