Mooresville-based Lowes Inc. is adding employee hours and making sure its stores have key items in stock, after CEO Robert Niblock said cuts went too far during the recession.
As the company sought to manage expenses during the downturn, Lowes laid off 1,700 in-store managers and hired more weekend part-time workers. But at many stores, that left too few employees during busy weekday hours to effectively serve customers, Niblock told the Observer.
I think we just pulled hours back too far as we went through (the recession), Niblock said. We didnt have enough coverage. He said the cuts are now hampering the company as the housing market recovers.
Niblocks comments came as Lowes, the nations second-largest home improvement retailer, reported lackluster results Wednesday for the first quarter. Profits increased compared with the same quarter last year but fell short of analyst predictions. And sales dropped at Lowes even as they rose at the companys No. 1 rival, Atlanta-based Home Depot.
Unseasonably cold and rainy weather this spring hurt sales, Lowes executives said. Spring is typically the busiest season for home improvement retailers, as people rush to complete projects and tend to lawns and gardens in warmer weather. The company said sales of its indoor categories rose 3 percent, while sales of outdoor products declined 7 percent.
Stores are also adding inventory to keep fast-selling items in stock, Niblock said. We didnt have enough inventory in some key items, said Niblock. That was another thing we pulled back a bit too far on during the downturn.
The company said sales fell unexpectedly for the quarter ending May 3, dropping 0.5 percent, to $13.1 billion. Sales at stores open a year or more, considered a key measure of a retailers health, fell 0.7 percent. The companys profits, however, increased 2.5 percent, to $540 million, as Lowes kept a tight lid on expenses.
But earnings per share of 49 cents fell short of analysts consensus estimate of 51 cents a share for the quarter.
Niblock said the companys performance had picked up with the weather later in the quarter. While overall performance in the month of March was particularly soft, April improved significantly, he said.
Lowes didnt appear to get a huge boost from Hurricane Sandy relief spending, which helped propel results higher at Home Depot in spite of the bad spring weather. Lowes said 27 stores have seen a sustained increase in demand as a result of Sandy, but much of that demand is for lower-margin products such as gypsum and insulation.
Areas with better weather during the spring, such as the Gulf Coast and the Western U.S., had better sales than stores in the rest of the country. But Niblock said Lowes has fewer stores in some of those markets than Home Depot, especially California, and reaped less of the benefits of the comparatively good weather. He also said Lowes has fewer professional and commercial customers than Home Depot, an area the company is trying to improve.
9,000 new jobs
Lowes problems in the first quarter were reminiscent of those at Wal-Mart Stores Inc., another retailer that cut store employee hours and inventories to manage expenses. Wal-Mart dealt with a string of quarters where same-store sales fell and some customers began to turn to other retailers as the company has struggled to stock shelves with fewer employees.
Niblock said Lowes weekday employees were often too focused on restocking and fixing up stores after the weekend rush, and customer service suffered. He said the company needs to improve its weekday close rate, or how many sales it completes with prospective customers.
Lowes has added about 150 employee hours each to about two-thirds of its 1,750 stores during peak weekday times in order to help close more sales. The company created approximately 9,000 part-time jobs to fill those hours, and the new workers are dedicated to the interior sales floor.
Lowes employs more than 245,000 workers about 5,000 of them at its Mooresville headquarters and Wilkesboro offices.
More salespeople during busy weekday times and more key items in stock will position Lowes to better take advantage of an improving housing market, Niblock said. As new-home sales pick up and the economy gradually recovers, Niblock said he expects sales to improve.
Home Depot reported its results on Tuesday. Sales at Home Depot rose 7 percent during the quarter, to $19.1 billion, and profits jumped 18 percent, to $1.2 billion. Sales at Home Depot stores open a year or more rose 4.3 percent.
Home Depot CEO Frank Blake said the company had done better than expected in spite of the gloomy weather. We saw less favorable weather compared to last year, but we continue to see benefit from a recovering housing market that drove a stronger-than-expected start to the year for our business, said Blake.
Analyst Wayne Hood, with BMO Capital Markets, said in a note Monday that Home Depot continued to maintain an edge on Lowes during the quarter.
Shares of Lowes closed up 52 cents, or more than 1 percent, at $42.97 a share. Home Depots stock has risen $2.93 a share, or almost 4 percent, since reporting its earnings Monday. Shares of Home Depot closed at $79.69 on Wednesday.
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