August 22, 2018 / 10:09 AM / a month ago

Lowe's new chief shuts Orchard stores, promises streamlining

(Reuters) - Lowe’s Cos Inc (LOW.N) on Wednesday promised to cut back slow-moving products and unsuccessful business projects as new Chief Executive Marvin Ellison seeks to turn around a company that has trailed bigger rival Home Depot (HD.N) for years.

A view of the sign outside the Lowes store in Westminster, Colorado February 26, 2014. REUTERS/Rick Wilking/File Photo

Shares of the company reversed course to rise as much as 10 percent and hit a record high as investors cheered better-than-expected quarterly sales and profit as well as Ellison’s move to shut struggling Orchard Supply Hardware stores.

Ellison also said he was stopping $500 million worth of previously planned investments and would put the money in share repurchases instead. He promised to act strongly to simplify the company’s business.

“The new CEO is working quickly to streamline the LOW business model and better position the company for improved results,” Oppenheimer analyst Brian Nagel wrote in a note.

Lowe’s same-store sales growth has lagged Home Depot’s as it focuses more on do-it-yourself customers compared to its rival’s focus on professional contractors who bill more. The same-store sales for the second quarter also missed estimates.

Under Ellison, who took charge in July, the company has also eliminated four senior positions, while creating two new senior roles for stores and supply chain. On Wednesday, Lowe’s named David Denton, a former executive of CVS Health (CVS.N), as its chief financial officer.

“We have work to do ... Although it’s never good to be behind, our current position presents significant upside potential for Lowe’s,” Ellison said on a post-earnings call.

Lowe’s said it would shut 99 stores of hardware and garden chain Orchard Supply by the end of the fiscal year, leading to between $390 million and $475 million in charges in the second half.

It also said it would seek to cut back on inventory of slow-selling product lines and reinvest in faster-moving goods.

At the same time, its forecasts for sales to grow about 4.5 percent in fiscal 2018 and sales at stores open at least a year about 3 percent were reduced from previous targets. It also cut its full-year profit forecast by 90 cents to $4.50-$4.60 per share to account for the Orchard closures and inventory cuts.

“These may be appropriate steps but likely will come with further investment and earnings pressure,” Wedbush Securities analyst Seth Basham said.

Excluding one-time items, the company earned $2.07 per share, topping estimates of $2.02. Net sales rose 7 percent to $20.89 billion, beating expectations.

In the second quarter, same-store sales rose 5.2 percent helped by capitalizing on the delayed demand for spring time goods but missed expectation of a 5.34 percent increase.

Reporting by Aishwarya Venugopal in Bengaluru; Editing by Anil D'Silva and Arun Koyyur

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