WOW's Revalation, page-85

"Regarding Masters, I am of two minds. Up until I read their latest announcement I completely agreed with you. However seeing 23% growth in revenue for last year makes me think they have a real chance to salvage some value from it by holding for another couple of years, at least until it is breaking even (or close to it). I don't think they should keep it long term, but the difference in sale price between a loss maker and a break even business with growing revenue could be huge, and may only require another 18mths - 2 years."

@stockanalysisguru,

Yes, Revenue is growing, but it is consuming a huge amount of capital in order to do so.

But the real metrics to track, i.e., Sales per store (or, even better, to adjust for different store sizes being rolled out: Sales per square metre of store space), are all going backwards:


Sales per average number of stores (% Change on pcp):

DH13: -12%
JH14: -15%
DH14: -13%
JH15: -6%


Sure, there is an element of store immaturity effect implicit in those numbers, which will eventually cycle out as the store base matures, but that might take a while yet.

And don't forget, we are talking about Revenues here.

We haven't even gotten to talk about profits (or lack thereof):

Five years into this failed strategy, and the losses keep growing:

Masters EBIT Losses ($m):

2011: 12
2012: 97
2013: 139
2014: 170
2015: 225

With that ugly trend, how long before those figures get into the black, let alone earn a return on the near-$3bn WOW and Lowes have jointly invested into Masters over the past 5 years?

Based on the hard numbers, persisting with Masters has all the hallmarks of throwing good money after bad.

It is worth noting that - if the $225m of EBIT losses currently being incurred by Masters - were made to go away (for example, if they sold the business or even gave it away), then there would immediately be a 8% EBIT uplift. (Of course, choosing to close the business down would involve crystalising some contingent liabilities, such as long-term leases which could be as high as $1.0bn, possibly).

Either way you look at it, it is a debacle and any incoming CEO inherits a pretty invidious position in relation to Masters.

But I think that even if they could give the thing away, it will be better that tearing up more shareholder value, which I think is what they are highly likely to continue to be doing if the persist with the current strategy.