WOW seemed to have an initial strategy to often open new Masters...

WOW seemed to have an initial strategy to often open new Masters stores close by to existing Bunnings stores. Presumeably the strategy was to grab business from the nearby Bunnings store. The stragey was somewhat flawed as Bunnings clients were 'rusted on' and in hindsight the approach for the first few years should have been to open in locations not currently serviced by Bunnings and thus fill a gap for the consumer.

I had shares in both WES and WOW and now only hold WES, having sold out of WOW in August 2011 @ $24.23. At the time WES was $27.83.


Looking back for the past five years details are as follow -

Date ----closing SP---dividends for year

WOW
6/5/2015 - $28.14 - 67c (interim)
6/5/2014 - $37.19 - 137c
6/5/2013 - $35.52 - 133c
6/5/2012 - $26.63 - 126c
6/5/2011 - $26.68 - 122c
6/5/2010 - $26.89 - 115c

WES (capital returns have been excluded from WES dividends)
6/5/2015 - $44.35 - 89c (interim)
6/5/2014 - $43.32 - 200c (includes 10c special dividend)
6/5/2013 - $42.50 - 180c
6/5/2012 - $30.60 - 165c
6/5/2011 - $33.00 - 150c
6/5/2010 - $27.99 - 125c

Whilst WOW hasn't gone backwards, in comparison to WES it is not a pretty picture. WES is now commanding a SP premium over WOW of almost 60%. It is going to take time (IMHO) to turn the ship around. The decision to delay capital expenditure in several areas (including Masters) and to cut jobs appears to be an acknowledgement by management that drastic action is required and hints at uncertainty, lack of direction and a sense of panic.

Looking at the latest press releases of WOW I couldn't help but notice the 'business speak' which in many cases seemed to be somewhat vague and meaningless.

"investing in a multi-faceted and seamless offer to our customers"
"portfolio advantages to be leveraged for step-change in productivity"
"..clear plans to build customer trust.."
"we will focus on landing our new range and store format"
"...superior freshness..."  (isn't fresh just that - fresh?)
"...the strategy will be supported by the right people..."


The WOW strategy to compete with Aldi seems to be to adopt lower prices, however, this must to some extent flow through to (and adversely affect) the bottom line. To have to "reformat" the Masters stores when they are basically brand new is a disaster. Lowes must be concerned about their Masters investment and perhaps pressure is coming from that quarter regarding the delayed capex. How long will Lowes allow Masters to bleed? WOW may need to buy out Lowes and take on 100% of Masters if Lowes wants out.  Would that mean a capital raising? At the moment something smells and the market doesn't like it.

I have no intention of buying WOW but have been comparing WOW and WES for a long time and decided to share my thoughts/findings. Interesting WOW is yielding 4.93% pa (based on trailing dividends) while WES is yielding 4.37% but I expect that situation is likely to reverse as the WOW results are analysed and sink in.