Lowe's chief jets in to reverse Masters losses
BusinessDay has learnt that a board meeting of the Masters joint venture will be held in Melbourne on Friday, with directors from Lowe's and Woolworths touring several Masters stores in the south-eastern suburbs, including Hawthorn East, where the key meeting will take place.
It is expected Masters director Melinda Smith will present her strategy to the board, which includes Woolworths chief executive Grant O'Brien and chief financial officer Thomas Pockett, where she will flesh out her plans to turn around the struggling hardware chain.
The company is expected to post a pre-tax loss of $157 million for 2012-13 against an original target of a loss of $119 million.
Woolworths and Lowe's hold a two-thirds and one-third stake respectively in the new Australian hardware chain.
The Masters directors include Mr Niblock, who is believed to have flown to Australia for the board meeting, as well as Lowe's executive Gregory Bridgeford and the company's international development and operations director, Douglas Robinson. Woolworths representatives will include director John Astbury and Big W director Julie Coates.
The board meetings are held annually, with Woolworths directors also flying to the US to meet their Lowe's partners.
This week's Masters meeting comes at a critical time for the new venture after it has struggled to reach the sales and earnings targets first set out for it by Woolworths when it launched into the $42 billion hardware sector more than two years ago.
Lowe's has the option to force Woolworths to buy it out, but recently the US hardware group decided to extend the first exercise date of its put option for another 12 months, to October 2014. It is not known if Lowe's was paid any money to extend its option.
Last month, Woolworths was forced to admit Masters was losing more money and at a faster rate than it expected, saying its losses for financial 2013 would blow out to $157 million due to rising costs, shrinking margins and customers leaving stock on the shelves.
It is expected Lowe's and Woolworths will demand a clear strategy from Ms Smith, with speculation growing she could soon be replaced.
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Top Lowe's executives, believed to include chairman and CEO Robert Niblock, flew to Australia to attend a Masters board meeting in Melbourne because the start-up Masters hardware chain has been losing millions, missing sales and earnings targets, and needs a clear turnaround plan from its joint-venture partners.
Woolworths has said Masters' losses are larger and rising faster than expected, and the company is now expected to post a pre-tax loss of $157 million for 2012–13, up from an original target of a $119 million loss.
Woolworths holds a two-thirds stake in Masters and Lowe's holds a one-third stake in the Australian hardware joint venture.
Directors and executives expected at the Masters board meeting include Lowe's representatives Robert Niblock, Gregory Bridgeford and Douglas Robinson, and Woolworths representatives such as CEO Grant O'Brien, CFO Thomas Pockett, director John Astbury and Big W director Julie Coates. Masters director Melinda Smith is expected to present her turnaround strategy.
Masters director Melinda Smith is expected to present plans to turn around the struggling chain. According to the article, Lowe's and Woolworths are likely to demand a clear, actionable strategy to address rising costs, shrinking margins and weaker-than-expected sales, though specific measures were not detailed.
Lowe's holds a put option that would allow it to force Woolworths to buy Lowe's out of the venture. The US group recently decided to extend the first exercise date of that put option by 12 months to October 2014; it is not known whether Lowe's was paid to extend the option.
The meeting is critical because Masters has struggled to meet the sales and earnings targets Woolworths set when entering the $42 billion hardware sector, and recent results show losses widening due to rising costs, shrinking margins and inventory issues—prompting urgent review of strategy and leadership.
Investors should watch for the board's announced turnaround strategy from Melinda Smith, any management changes (there is speculation she could be replaced), updated financial guidance or cost-cutting measures, and any further decisions related to Lowe's put option or ownership arrangements.
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