Woolworth's Masters losses to balloon to $157 million

Woolworths lifts FY profit guidance across overall operations, says targets for home improvement JV were 'overly optimistic'.

Losses for Woolworths Ltd's troubled home improvement joint venture Masters will balloon beyond the retailer's previous guidance to hit $157 million for the 2012-13 financial year but the group insists the result will not sink further into the red for the current year. 

However, the loss would have no bearing on the retail giant's net profit for the year to June, with the group slightly upgrading the bottom end of its full-year guidance range to 5% growth.   

In a market update, Woolworths said its full-year budget for Masters was "overly optimistic", with the group previously flagging a $119 million fall in earnings before interest and tax.

It came despite Masters posting a 262% rise in sales to $529 million on a 53 week basis.

Woolworths said it still maintained that Masters would break even during 2015-16, five years after the first store opening.

"Actual losses were more than anticipated mainly due to overly optimistic sales budgets, relatively higher wage costs for new store openings and lower gross margins due to the sales mix," Woolworths said.

Woolworths also insisted that "the rationale for entering the Australian home improvement market remained compelling and attractive with substantial opportunity for growth".

The retail giant said it had revised  broader net profit guidance up to between 5% and 6% growth, ahead of the 4 to 6% previously indicated, excluding significant non-recurring items.

Sales across Woolworth's home improvement division rose 49.6% to $1.239 billion in the year to June on the previous year.

But sales for Danks missed targets, increasing by 4.1% to $710 million, weighed down by softness in the market, a higher level of competition and fewer acquisitions than Woolworths had expected.

"Danks’ high reliance on the trade and building sectors and the softness of the segment has affected delivery of sales relative to our expectations in FY13," Woolworths said.

In the past year, Woolworths has opened 15 Masters stores.