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Lowe’s Guidance Disappoints, Closes Hardware Stores

Lowe’s Guidance Disappoints, Closes Hardware Stores

MOORESVILLE, N.C. (AP) – Lowe’s rebounded in the second quarter after dismal weather cut into projects at home and into company profits to start the year.

Investors shrugged off a more guarded outlook from the home-improvement retailer, which trimmed its expectations for the year as shifts direction under new CEO Marvin Ellison.

Wednesday was the first earnings report for Lowe’s under Ellison, who was president of the northern and western divisions at The Home Depot Inc. for eight years. Ellison, one of only a few African-American CEOs at a Fortune 500 company, took over for the retiring Robert Niblock after spending less than four years as CEO of J.C. Penney.

After a premarket sell-off, shares jumped 8 percent at the opening bell Wednesday to hit an all-time high.

Lowe’s is preparing for a more constrained housing market and is closing the 99 Orchard Supply Hardware stores it owns in California, Florida and Oregon so that it can focus solely on its core home improvement business.

Higher mortgage rates combined with steadily rising real estate prices have dampened home sales this summer despite the robust economy and job market, but Americans continue to invest in the places where they live.

Lowe’s said Wednesday that in addition to shutting down Orchard Supply it’s rethinking some of the goods it sells, getting rid of lower-performing items, and that could dampen business in the short term.

Lowe’s now expects 2018 earnings of between $4.50 and $4.60 per share, with revenue up about 4.5 percent. Its prior outlook was for earnings in a range of $5.40 to $5.50 per share, with revenue rising about 5 percent.

Analysts polled by FactSet expect earnings of $5.44 per share for the year.

He is moving quickly to reshape Lowe’s, which has lagged behind rival Home Depot for years. After thinning executive positions at the company, he’s begun paring away what he sees as nonessential in the aisles of Lowe’s.

The company is shedding $500 million in planned capital projects this year not directly related to its core business, Ellison said. That money will be used for share buybacks.

“The company has unfortunately become distracted over the past few years and specifically we have chased initiatives that did not add value and were not core to our retail business,” Ellison said in a conference call following his first quarterly report as CEO. “Spending time on these non-core initiatives shifted capital, people, and attention away from being an operationally sound home improvement retailer.”

For the three months ended Aug. 3, Lowe’s earned $1.52 billion, or $1.86 per share, or $2.07 per share when one-time events are removed. That’s 5 cents better than what analysts surveyed by Zacks Investment Research predicted.

The Mooresville, North Carolina, company earned $1.42 billion, or $1.68 per share, a year earlier.

Revenue rose to $20.89 billion from $19.5 billion, topping the $20.81 billion that analysts polled by Zacks expected.

Sales at stores open at least a year, a key gauge of a retailer’s health, climbed 5.2 percent, and 5.3 percent when measuring only U.S. locations, which was in line with expectations.

Last week, rival Home Depot handily beat expectations for the second quarter after, like Lowe’s, being handcuffed by foul weather.

“We posted solid results this quarter by capitalizing on delayed spring demand,” commented Ellison. “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. I would like to thank our associates for their hard work and commitment to the company.

“While it was a necessary business decision to exit Orchard Supply Hardware, decisions that impact our people are never easy. We will be providing outplacement services for impacted associates, and they will be given priority status if they choose to apply for other Lowe’s positions,” Ellison added.

“In addition to the decision to exit Orchard Supply Hardware, we are developing plans to aggressively rationalize store inventory, reducing lower-performing inventory while investing in increased depth of high velocity items. Exiting Orchard Supply Hardware and rationalizing inventory are the driving force behind the changes to Lowe’s Business Outlook,” Ellison continued.  “Our strategic reassessment is ongoing as we evaluate the productivity of our real estate portfolio and non-retail business investments.  We will update you on the changes to our strategy at the upcoming analyst and investor conference in December.”

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Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on LOW at https://www.zacks.com/ap/LOW

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