By Rhiannon Hoyle
SYDNEY--Australia's Woolworths Ltd. (WOW.AU) said poor sales
contributed to losses at its home improvement business widening,
and its problems were compounded by ad hoc openings of new
stores.
Woolworths, which operates the country's largest supermarket
chain by store numbers, said the home-improvement division would
post an operating loss of 169.0 million Australian dollars
(US$156.6 million) in the year through June. That missed the
company's earlier forecast that losses from hardware sales wouldn't
be worse than the A$138.9 million reported last year.
Also, Woolworths said it no longer expected the business to
break even in 2016.
"We are disappointed we will not reach this guidance,"
Woolworths said. "However, we were right to set challenging targets
for the business and will continue to set stringent internal
hurdles for the home improvement business."
Woolworths operates supermarkets, liquor stores and
household-goods retailers in Australia and New Zealand, in addition
to some restaurants and bars. It moved into home improvement in
2009 through a joint venture with U.S.-based Lowe's Cos. (LOW) to
launch the Masters chain, at the same time as it acquired one of
Australia's largest hardware suppliers, Danks Holdings Ltd.
Woolworths problems in building a competitor to the
Wesfarmers-owned (WES.AU) Bunnings DIY chain aren't new. Last year,
the company reported bigger-than-expected losses at Masters, citing
higher wages and lower sales margins.
On Tuesday, the company blamed a fragmented store rollout for
some of its problems as it tried to expand its footprint as quickly
as possible.
"This has resulted in uneven national store coverage and a less
efficient supply chain at this stage of development," said the
retailer, which pledged to take a more strategic approach to new
store openings in coming years. This will mean the company, which
runs nearly 50 Masters stores now, won't meet its previous target
of 90 stores in 2016, it said.
Woolworths said sales were lower than expected, due to strong
market competition, despite a 42% increase in revenues on-year as
new stores opened for business.
Still, company executives expressed confidence in the long-term
future of the business.
"This was never a short-term business plan," the company said.
"We remain confident about the home improvement business and that
it will be a material profit contributor to the group and will
deliver an acceptable return on investment."
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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