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WOW - WOOLWORTHS GROUP LIMITED


Meteor

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Lowe's has advised Woolworths that it will exercise a put option it has held over its share of the joint venture, which will then enable Woolworths to exercise its call option over the Lowe's stake and gain full ownership of Masters and therefore the ability to maximise its value in a sale or liquidation. The Lowe's put was valued as an $886m liability in Woolworths accounts last year but the actual cost will involve a negotiation after an independent valuation of the business. There are analysts who believe this could lower the cost to around $500m.

 

While it might appear odd that Woolworths plans to buy out its partner, at significant cost, to obtain full ownership of such a cash-hungry and value-destroying business, it does appear a sensible strategy.

 

The smaller part of its home improvement business, the Home Timber and Hardware business, ought to be saleable as a going concern.

 

While it is highly improbable that anyone would buy Masters, Woolworths will have the flexibility to deal with its properties, leases and stock. Apart from 63 operating stores, of which Woolworths owns 39, and a considerable number of sites, including some that it is contractually bound to develop, that it could either use within its other operations or sell.

 

The obvious buyer for a handful of key Masters' stores and sites is, ironically, Bunnings.

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Just goes to show that Woolies is not alone as being a successful retailer who can absolutely stuff things up when they attempt to move into new territory. Here is a fairly lengthy article about how USA Target (as opposed to Woolies' brand Target) came a cropper when they attempted to move into Canada.

 

http://www.canadianbusiness.com/the-last-d...campaign=buffer

 

It surprises me how little of the blame for the Masters disaster is being pinned on Woolies partner in the venture, Lowe's. After all I thought they were the ones that had expertise in this business niche.

 

And I'm not sure about this idea that Masters should have been a home improvement specialist rather than a general category killing hardware store.

 

http://www.smh.com.au/business/retail/wool...120-gmai7m.html

 

I much prefer the explanation that Masters simply did not smell right when you walked in the door, whereas Bunnings does :rolleyes: . That, and the fact that they went for quantity of locations rather than quality of locations. Costco is gaining a foothold in Australian retail and they have what?, less than 10 stores in eastern Australia (though that they sell fuel for as much as 30 cents a litre less than Coles and Woolies is a great incentive for people to travel to their stores).

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Woolworths Ltd. (WOW) plans to boost investment in price cuts and loyalty programs to lure back customers from rivals after third quarter sales slid.

 

Woolworths said sales from continuing operations fell by 0.7% in the 13 weeks to April 3 from a year ago. The measure excludes the home improvement division which Woolworths plans to exit, having booked a 1.9 billion Australian dollar (US$1.5 billion) provision against the unprofitable business at its first-half result in February. Comparable Australian food and liquor sales, adjusted for Easter, fell by 0.9% in the quarter, as the retailer cut prices in a bid to stem the flow of business to long-term rival Coles, owned by Wesfarmers Ltd. (WES), as well as the expansion of international firms such as Aldi and Costco.

 

"The sales performance in Australian Supermarkets continues to be impacted by high levels of deflation, predominantly from our price investment," said Chief Executive Brad Banducci. "However, we are encouraged that customers are starting to notice the improvements we are making. It will be a three to five year journey to rebuild Woolworths Supermarkets, but we are confident we are on the right track."

 

In light of continued competitive market conditions, Woolworths said it plans to invest a further A$150 million in price cuts, customer service and loyalty programs in the second half of the year, beyond its expectations provided in March.

 

The weakest division in the quarter was general merchandise where comparable Easter-adjusted sales fell by 4.5%, with the company citing a disappointing response to its new season ranges reflecting a poor merchandising decision in 2015. That means the division is expected to post a small loss for the full year as it aggressively clears surplus summer and current season winter stock.

 

Woolworths said a comprehensive review of the division is underway and it is cutting costs while restructuring the division to build up direct sourcing and design capabilities.

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let's see

Woolies supermarkets beaten by Coles for the last 25 quarters

Masters a world of pain to their balance sheet (though resolution can perversely lift SP as the uncertainty disappears)

and looking at the graph..... lower highs/ lower lows for the last 24 months - a trend that isn't broken $38 to $21

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21.47 @ 10:12am for WOW, but the bounce hasn't been convincing.

 

"my wife love to shopping in woolies". - mine too, she was rusted on, but has been drifting to Coles, more and more of late (loyalty card notwithstanding)

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20.76 dropped over 6.5% so far after it's earning release.......

holy moly -----can't thank you enough nipper-----i was that close to buy it at 21.50ish.

what a timing, saved me $$$ , my wife can buy more organic eggs { cost freaking $7.50/'c} from woolies. she is crazier than me for these organic shit... :weirdsmiley:

 

anyway, looks the bottom of sp for WOW gonna fall, better stay away for now.

 

 

 

 

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one view on WOW

.. right now, Woolworths is one of the most shorted stocks in the S&P ASX 200 index but that's good, as it means it will get way oversold and when the good news eventually comes through, the short squeeze will be on. Coles is way ahead on all sorts of measures and as the last quarter for 2016 plays out, it all looks bad thanks to price competition as Aldi continues to take share and Coles matches price cuts by Woolworths...[and] expect the company to downgrade its 5 per cent margin guidance.

 

But on the bright side, the management and some of the directors who caused the mess have left.

 

In addition, there is nothing but bad news and little visibility to when the stock's fortunes will improve. That's good news for a turnaround. Woolworths trades on a forward price-earnings ratio of 16 times, just under the market's P/E of 16.2 times, which is still on the expensive side given the longer term P/E is close to 14.5 times. The stock is down 15 per cent this calendar year and down 47 per cent since its record high of $38.49 was reached in April, 2014.

 

"It looks like a long and painful wait, but .. the company will not go broke, the stock is undervalued and now disowned by a large number of fund managers."

 

"Fund managers are underweight in the stock but have to be interested given Woolworths' large weight in the index. Therefore there is intense pressure to turn Woolworths around and if this doesn't happen private equity will make a bid," .

 

...expect further competition, but ... the company has been so badly run there is upside just from better management. "This is a good catalyst to have because many companies have little control over their earnings drivers" .

 

On his numbers, Woolworths can get above $30 by the end of 2019, plus dividends, without a takeover premium. "This is not a very large rate of return but between $20 to $22 the downside is limited. We will buy the stock on further bad news or sentiment,"

David Walker, a senior analyst at StocksInValue.com.au

 

probably not one for the traders

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