What: Leading supermarket operator and hardware king wannabe Woolworths Limited (ASX: WOW) has reportedly topped up the cash levels of its Masters Home Improvement joint venture.
According to a report in the Australian Financial Review, documents recently lodged with the Australian Securities and Investments Commission (ASIC) show that Woolworths added a further $70 million to the hardware joint venture (JV). Its JV partner, the US-based Lowe's Inc added a further $35 million.
So What: The report goes on to state that in total a whopping $3.3 billion of funds have been sunk into the Masters Home Improvement start-up with the business still making losses!
While plenty of investors and analysts are calling for management to pull the pin and shut down the business before more losses are incurred or further capital is committed, it is hard to know what will ultimately eventuate.
What now: The owner of the Bunnings hardware business, Wesfarmers Ltd (ASX: WES) has been earning salivating profit margins for years. It's hard to criticise Woolworths' management for being attracted to this sector as an opportunity for earnings growth and to deploy shareholder funds. What's more, management lowered the risk of entry by acquiring the Home Timber and Hardware business and by forming a JV with the US home improvement powerhouse Lowe's Inc.
Despite the considered approach taken and the applicable skill set of retailing, logistics and property management the call for a change in approach by many investors appears to be growing by the day. Whether management will cave into pressure and whether that will ultimately be in the best interests of shareholders remains to be seen, but judging by the latest cash commitment, Woolworths' management plans to fight on a little longer yet.
