potential pitfalls ahead for wow

Disclaimer: I don't hold any blue chip stocks.


Can tell you from personal experience having dealt with Woolworths HO that they have millions of dollars worth of dead stock in all channels.
The only way they will clear it is through writing it off.

Their Big W and Dick Smith channels are bleeding money too.

Big W operate in an environment in which Wesfarmers owned Target and Kmart dominate. THey either need to revamp the business or sell it off. At present it is a dog to the business.

Dick Smith has undergone an unsuccessful facelift in recent times with many store rebrandings and the removal of the Tandy brand. However this has failed to convert in sales. The staff top to bottom are fleeing as they take pay and commission cuts. JB Hifi dominate this space, once again either fix it or better yet sell this dog.

THe supermarkets are the real cash cow for WOW and they operate successfully.

However with the other bleeding channels the investment by Woolworths into the home improvement market is very risky.
They are entering a saturated market for which Bunnings (wesfarmers owned) dominate. THe exercise is risky and costly. The do not expect to see ROI till around 2015, and I doubt they will even see it by 2017. $3 billion to enter a market that is flooded...it's like another mobile telco operator trying to get off the ground...too late!! Their expansion plan is too aggressive and likely to fail, it will end up being a costly exercise to share holders expense. (IMO)

Their EBIT is about to fall through the floor.
For a blue chip WOW has a high degree of risk coming up.

If they can pull the "Masters" project off in the home improvement area and fix/sell off their Big W and Dick Smith channels then WOW will be looking much better. However at the moment it's far too much risk for the potential reward.