The world's leading home improvement retailer, Lowe's Companies, Inc.LOW has announced plans to part ways with its home improvement joint venture partner Woolworths Limited in Australia. The joint venture operates Masters Home Improvement stores and Home Timber and Hardware Group's retail stores as well as wholesale distribution in the country. Notably, Lowe's holds a 33.3% stake in the venture.
Per the terms of the joint venture, Lowe's can choose to opt out of the partnership after serving a notice to Woolworths. Lowe's, who sent the notice on Jan 15, 2016, expects to incur a non-cash impairment charge in the fourth quarter of fiscal 2015 for quitting the joint venture.
The companies had signed the joint venture agreement in 2009, with hopes to tap in on the opportunities in the growing housing market in Australia. The first Maters store was launched in 2011 with the store count standing at over 60 now. In the recent fiscal year ended Jun 28, 2015, revenues from the joint venture, which comprises both the Masters stores as well as the Home Timber and Hardware Group, came in at A$1.9 billion (US$1.6 billion).
To date, Lowe's has put in nearly $930 million in the joint venture. However, the company has failed to reap the desired results. The Masters Home Improvement chain had missed the target of reaching the break-even point within 5 years.
We believe this Zacks Rank #2 (Buy) company's decision to exit the home improvement joint venture in Australia will help it to utilize the cash in its core markets which hold more scope for growth. We believe an improving job scenario, gradual recovery in the housing market and merchandising initiatives bode well for Lowe's in the domestic market. In addition, the company's Canadian business is also performing quite well. Moreover, the company has acquired 12 former Target locations across Canada and plans to open two more stores to fortify its presence in the Canadian market.
Additionally, Lowe's seems to be gearing up for the spring and summer seasons, its busiest selling period, with plans to employ over 46,000 workers - reflecting an increase of 6,000 from the previous year.
Stocks which warrant a Look
Other stocks that warrant a look in this sector include The Home Depot, Inc. HD , Builders FirstSource, Inc. BLDR and BMC Stock Holdings, Inc. STCK . All these stocks carry the same Zacks Rank as Lowe's.
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