Woolworths could be forced to shutter up to a third of its struggling Big W stores at a cost of almost $800 million.

The Australian reported this morning that analysis by Macquarie Wealth Management had shown Woolworths’ best bet could be to “cut the tail” and reduce the number of stores across Australia from 183 to avoid a complete sell-off of the department store chain.

Big W was revealed as a relative bright spot in Woolworths’ half-year reports last month after years of poor performance.

It booked a 2.7 per cent rise in sales in the six months to the end of December to almost $2.1 billion and a 10 per cent lift in earnings before interest and tax to $34 million.

“Partial closure of the most unprofitable and shorter-lease stores is more likely,” Macquarie said in a note to clients this morning.

“Given significant closure costs for the portfolio, a more likely scenario is Woolworths to close up to one-third of its stores (60 stores), in our view.

“This cost could be around $759 million. The ultimate cost would come down to the lease term remaining on these problematic sites and whether the landlord would accept a discount given potential for alternate use, etc.

“The market may like the removal of uncertain downside given the challenging industry outlook.”

Macquarie warned Big W was hamstrung by $2.7 billion in lease commitments and that half of it stores were located in regional areas, which could hamper a turnaround for the business.

“Given the format of Big W stores, we believe it would be difficult to reduce space as Myer is doing and that outright store closure is more likely,” the note said.

Woolworths is due to provide an update on the department store chain in coming weeks.

Shares in the company were up 1.5¢ to $30.245 at 12.10pm.