Lowe’s says its makeover has just begun, but it’s ahead of Home Depot in one area

If shopping at Lowe’s seems a little different recently, it’s not an accident. The company has been working aggressively to make sure popular items are well-stocked in stores. The company has wound down struggling business units. It’s working to make sure deliveries are made more efficiently.

It has been almost exactly one year since Lowe’s announced it had hired Marvin Ellison to be its new CEO. Ellison, who said he would step down as CEO of J.C. Penney the same day Lowe’s announced his hiring, soon embarked on an ambitious transformation of Lowe’s, which has long trailed its larger rival, Home Depot.

Lowe’s has made some progress on its makeover, but the process is in its early stages, meaning there’s still a lot of work to do, Ellison told the Observer Wednesday. In fact, Lowe’s is in the first of three phases, which will take years to complete, he said.

In the past, the company struggled with serving its important pro customer, for instance. It slumped behind Home Depot, and it’s been slow to respond to tech innovation.

Some of the company’s early efforts to ramp up sales are paying off, Ellison said. For the first quarter, the Mooreville-based home improvement retailer reported mixed results Wednesday: Earnings fell short of expectations, triggering a 12% drop in its stock price. But same-store sales, which refers to stores open for at least one year, outpaced Home Depot’s. Same-store sales are an important metric in retail because they gauge the health of the company.

The same-store sales results are an indication that “customers are responding to our changes, and our approach to retail fundamentals is working,” Ellison said in a call with analysts. “Retail fundamentals” is a term he uses to describe initiatives like making sure in-demand products are fully stocked in stores, and improving the company’s supply chain to make sure deliveries are made efficiently.

Improving those fundamentals is what the transformation’s first phase entails, Ellison said, and has been his focus since he took over.

Under Ellison, the company has added several retail veterans (including former Home Depot executives) to its executive leadership team, closed dozens of stores, discontinued underperforming business units and recently began a revamp of stores, starting with one in Ballantyne.

The second phase of the transformation, Ellison said, is building off the first to “create stability” in the business that should improve the retailer’s sales. The third is taking market share from rivals.

Stock takes a hit

Lowe’s first-quarter earnings miss sparked the company’s worst intraday stock decline in more than a decade, according to Bloomberg data.

For the first quarter, Lowe’s said that same-store sales rose 3.5%, stronger than the 2.5% growth that Home Depot reported Tuesday. For Lowe’s stores in the U.S., the rise was an even higher 4.2%.

Lowe’s reported net earnings of $1 billion, or $1.31 per share. That’s up from $988 million, or $1.19 per share, the same quarter a year ago, but below the Wall Street expectation of $1.33, according to a survey by Zacks Investment Research. Total sales for the quarter were $17.7 billion, topping the Street forecast of $17.63 billion.

Lowe’s shares closed Wednesday at $97.94, down 11.85%.

Lowe’s blamed several factors for the miss, including pricing measures that hurt results, which likely included heavy promotions on some products.

Lowe’s said in an analyst call that one thing that’ll help it improve its pricing strategy company-wide is its acquisition announced this week of a retail analytics platform from Boomerang Commerce.

Employee bonuses

Ellison provided an update on a few other company initiatives.

For instance, Lowe’s has rolled out a redesigned hourly worker incentive program called “Winning Together,” Ellison said. Essentially, as the company’s sales improve in a certain location, hourly workers will receive a bonus.

“Now every associate has a clear line of sight for how they are performing,” Ellison said.

In April, Lowe’s announced that roughly 600 full-time employees at the corporate offices in Wilkesboro would be moving to the retailer’s headquarters in Mooresville, about an hour away. About another 80 Wilkesboro-based tech jobs will be moved to the Lowe’s data center in Winston-Salem.

Having corporate functions separated in the Wilkesboro office, Ellison said, hurt chemistry, communications and work efficiency.

“The good news is we have a large percentage of associates in Wilkesboro that want to relocate,” Ellison said. “The greatest concern I had was, we didn’t want to lose people. We have a lot of long-term associates working up there.”

As the retail and sports business reporter for the Observer, Katie Peralta covers everything from grocery-store competition in Charlotte to tax breaks for pro sports teams. She is a Chicago native and graduate of the University of Notre Dame.