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Activist investor takes roughly $1B stake in Lowe's

A day after announcing a new CEO, Mooresville-based Lowe's reported first-quarter earnings Wednesday that fell short of Wall Street expectations, thanks in part to a cold start to the spring season.
A day after announcing a new CEO, Mooresville-based Lowe's reported first-quarter earnings Wednesday that fell short of Wall Street expectations, thanks in part to a cold start to the spring season.

Another activist investor is buying up stock in Mooresville-based Lowe's Cos.

Investment firm Pershing Square Capital Management has taken a roughly $1 billion stake in the home improvement retailer, Pershing CEO William Ackman said at a conference in New York Wednesday, according to two people familiar with the comments. They were not authorized to speak publicly about Ackman's disclosure.

Pershing is supportive of Lowe's newly named incoming CEO, Marvin Ellison, who will start July 2 after stepping down as the leader of retailer J.C. Penney, the people said.

"We are aware of reports that Pershing Square has invested in Lowe’s," Lowe's spokeswoman Colleen Penhall said Wednesday. "The Lowe’s board of directors and management team remain committed to creating value for all shareholders, and will continue to take actions to achieve this objective."

Activist investors take large stakes in public companies in an effort to effect change. In recent months, Lowe's has been cutting expenses and shaking up management and its board as it works to improve performance that has lagged rival Home Depot.

Lowe's shares closed up more than 10 percent at $94.69 Wednesday.

Last fall, longtime investor hedge fund D.E. Shaw began building up an activist stake in Lowe's, and in January Lowe's announced three new board members.

On Tuesday, the company said Ellison would succeed Robert Niblock, who announced his plans to step down as chief executive in late March. Before J.C. Penney, Ellison was an executive at Home Depot.

The news of Pershing's investment, which was first reported by the Wall Street Journal, came the same day Lowe's reported first-quarter earnings that fell short of Wall Street expectations, which the company attributed to a cold start to the spring season.

For the quarter that ended May 4, the home improvement retailer reported a profit of $988 million, or $1.19 per share, 3 cents below what analysts surveyed by Zacks Investment Research had anticipated.

Sales for the first quarter rose to $17.4 billion, up from $16.9 billion a year ago but still short of analysts' expectations. Same-store sales, a key industry measures of sales at stores open for at least one year, rose 0.5 percent during the quarter.

Earlier this month, Lowe's chief rival, Home Depot, reported slower-than-expected sales growth for the first quarter. The company cited the unusually cold temperatures as a reason for its disappointing results.

On Tuesday, Lowe's announced the hiring of former J.C. Penney CEO Marvin Ellison, also a former Home Depot executive, as its new CEO, effective July 2. Ellison succeeds Robert Niblock, who announced his plans to step down as chief executive in late March.

In a statement, Niblock lauded the "solid performance" of the company's indoor product categories and sales to professional customers.

"However, prolonged unfavorable weather across geographies led to a delayed spring selling season which impacted results in outdoor categories,” Niblock said. “Spring has now arrived and we are encouraged by strong sales in the month of May."

Lowe's also said the company repurchased $750 million in stock under its share repurchase program and paid $340 million in dividends to shareholders during the first quarter.

In a research note Wednesday morning, Credit Suisse analyst Seth Sigman wrote that Lowe's still has "plenty of work to do."

"On an absolute basis, the results are not good, but in the context of weather and the opportunity for improvement ahead, we don’t see a meaningful change in sentiment," Sigman said.

The Associated Press contributed.

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