Lowe’s Cos Inc (LOW.N) 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.
Marvin Ellison only took the helm at Lowe’s last month, but already the new CEO is making a series of bold moves, like his decision to shutter Orchard Supply Hardware. Here’s more on his rationale for that decision and how he’s trying to turn around the country’s second-largest home improvement business.
“The business was just not running well,” he told investors on the call.
Closing Orchard Supply will cost about $230 million in lease cancellations, layoff-related costs and other expenses, Lowe’s said, but allow it to refocus on its core home-improvement business.
“We are committed to driving even stronger performance in the future by sharpening our focus on retail fundamentals and by limiting any projects and initiatives that take us away from our core mission of being a great omni-channel home-improvement retailer,” Ellison said.
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.