Woolies home improvements needs a reno

Woolworths needs to fix its home improvements division before it becomes a drain on earnings and investor confidence.

Woolworths shares could come under pressure this morning as the company finally fesses up on the real performance of its new home improvement division, Masters.

Wesfarmers’ Bunnings division is one of the few operations with dominance over Woolworths, which has spent the past two years building a rival operation that so far has failed to live up to expectations.

While it was never going to be easy to take on Bunnings, Woolworths lack of management expertise in the rollout has become painfully evident to investors.

Adding to suspicions about the division has been the paucity of information on Woolies’ new venture. The company previously indicated that losses would be above $80 million. But it is believed that sales momentum has stalled in the division and that losses have blown out to between $100 million and $135 million.

Woolworths this morning will deliver guidance on the division with analysts estimating that losses above $120 million could negatively affect profit growth this year by around 1% which will hit the share price this morning.

The company indicated in February that profit this year was likely to grow between 4% and 6%, which was an upgrade of the previous guidance of 3% to 6%.

It is possible the company may unveil a shakeup in the Masters management to speed up the division’s push towards a break-even position.