Lowe’s reports mixed results amid major overhaul for the company
Amid a company-wide overhaul, Mooresville-based Lowe’s reported mixed financial results Wednesday that included a major charge related to the closure of dozens of stores.
In a call with analysts, Lowe’s leadership expressed optimism about the retailer’s efforts to catch up to its chief rival, Home Depot.
Marvin Ellison, who took over as CEO of Lowe’s in July, said on the call that the company still has work to do, but that it is pleased with the results so far in its transformation.
Furthermore, Lowe’s anticipates that customers will start spending more on home-improvement projects this year. Housing market conditions in Charlotte are indicative of that trend, Ellison told the Observer, citing rising home values.
“When homes appreciate in value, oftentimes customers decide to stay in their homes because they either a) are not willing to pay more (to move) or b) are gaining value in an asset they own,” Ellison said. “That’s a driver for home improvement.”
Ellison has called the overhaul at Lowe’s “a transformation ... not a turnaround.” Priorities he’s outlined as part of this process include exiting “non-core businesses,” getting rid of slow-moving inventory in stores, improving IT capabilities and better serving professional customers.
Pro customers, such as contractors, spend an average of five times as much as the typical do-it-yourself shopper, Lowe’s has said. Home Depot has traditionally excelled with pro customers; Lowe’s hopes to catch up.
”We want to improve our overall service and engage DIY customers, but we want to have a more intentional focus on pro (customers),” Ellison said in a call with analysts.
Lowe’s, the world’s second-largest home improvement retail chain, reported a net loss of $824 million for the fourth quarter of 2018, down from earnings of $554 million during the same period a year prior, according to a filing from the company.
Excluding certain charges, adjusted diluted earnings per share rose 8.1 percent to 80 cents for the last quarter, up from 74 cents in the fourth quarter of 2017.
Sales for the fourth quarter were $15.6 billion, up from $15.5 billion in the fourth quarter of 2017, Lowe’s reported. Same-store sales, an industry term that gauges the health of a retailer and refers to stores that have been open for at least a year, rose 1.7 percent. In the U.S., same-store sales rose 2.4 percent.
Earnings beat Wall Street expectations but sales fell short: Analysts had called for earnings of 79 cents on sales of $15.74 billion, CNBC reported Tuesday, citing Refinitiv data.
Quarterly results for Lowe’s included pre-tax charges of $1.6 billion. That figure included, among other charges, $952 million of goodwill impairment associated with its Canadian operations, $208 million in lease obligations related to the closure of all 99 of its Orchard Supply Hardware stores and $150 million in charges related to the closure of nearly 50 under-performing stores across the U.S. and Canada.
Lowe’s shares closed Wednesday at $107.62, up 2.47 percent.
Significant changes
It’s been a year of significant changes at Lowe’s.
Ellison, a former J.C. Penney CEO, took over as CEO at Lowe’s last summer, ushering in months of changes for the retailer. He has taken major steps to improve the company’s financial health, from closing stores to replacing executives.
Last fall, Lowe’s announced plans to exit its Mexico business, as well as “certain non-core activities” at its headquarters in Mooresville, to improve profitability.
Ellison has said that former leadership at Lowe’s “lost its way” over the years by moving away from popular brands to increase margins, while losing expertise in stores and falling behind in IT development.
In December, Lowe’s said it will hirie roughly 2,000 software engineers over the next few years as it works to modernize its digital capabilities. Those jobs, Ellison told the Observer, will “help us catch up in the world of retail technology.”
Ellison also said that Lowe’s has improved how it manages inventory in stores.
At this time last year, for instance, several Lowe’s stores still had holiday products on clearance instead of promoting spring inventory, Ellison said. He added that Lowe’s is working to clear out bulky items in stores to make way for fast-selling products, such as paint and power drills. Those bulky items will instead be shipped directly from Lowe’s website to homes or job sites, he added.
“Most of the intense work over the past six months to transform our company has been in preparation for an improved spring season and fiscal 2019,” Ellison said in the statement. “Although we have remaining work to do, we are pleased with the results we are seeing in early spring categories, which is evidence that we are focused on the right actions at this stage of our transformation.”
As of Feb. 1, Lowe’s operated 2,015 home improvement and hardware stores in the United States, Canada and Mexico. The company employs about 4,000 people at its Mooresville headquarters.
Housing market barometers
The financial performance of home-improvement retailers like Lowe’s and rival Home Depot is often considered a barometer of the health of the housing market. In a possible reflection of that market slowing, Atlanta-based Home Depot reported earnings and sales Tuesday that fell short of analysts’ expectations.
There have been other signs recently that the U.S. housing market may be slowing down.
The number of homes being built in December fell to the lowest level in more than two years, the Commerce Department reported this week. This could mean fewer new homes are sold this year, according to the AP Tuesday.
Sales of existing homes fell 1.2 percent in January to their worst pace in more than three years, the AP reported.
“The U.S. home improvement industry should continue to benefit from several factors including income growth, lower federal tax rates, gains on household formations and continued home price appreciation,” Ellison told analysts Wednesday.
This story was originally published February 27, 2019 at 7:44 AM.
