Lowe's on Wednesday reported second quarter sales rose 7.1% year over year to $20.9 billion. Comparable sales in the quarter rose 5.2% as U.S. comps rose 5.3%, and net earnings rose 7.1% to $1.5 billion, according to a company press release.
The company also announced that by the end of the fiscal year it will shutter all 99 of its Orchard Supply Hardware stores, located in California, Oregon and Florida, along with the distribution facility that services those stores. Lowe's is providing outplacement services for affected associates, who will be given priority if they choose to apply for other Lowe's positions, the company said.
Also on Wednesday the company announced that David Denton, executive vice president and chief financial officer of CVS Health, will join Lowe's as executive vice president and CFO after the closing of the CVS acquisition of Aetna (expected later this year).
Better weather helped Lowe's recover from stalled spring sales, though, in a pattern that is vexing for the retailer, the lift wasn't as great as at rival The Home Depot. Its Q2 comps, overall and in the U.S., were outpaced by Home Depot's in the similar period.
"We still get the sense that Lowe's is very much a victim or beneficiary of circumstance rather than the true author of its own fate," GlobalData Retail Managing Director Neil Saunders said in comments emailed to Retail Dive. He added that his firm's data show the Lowe's customer is "much more capricious and far more driven by impulse needs than is the case at Home Depot."
Still, new CEO Marvin Ellison, who arrived in May from J.C. Penney, appears to be boldly taking charge, and the closure of the company's Orchard Supply unit is a stark example of that. Ellison has also shaken up his leadership team as Lowe's struggles under pressure to catch up to its major competitor.
But Saunders said the move to shutter Orchard Supply, which will cost some $230 million to carry out, will allow the retailer to focus on its core operations and image. At the same time, those locations may have proven useful. "Orchard should have been used as a vehicle for Lowe's to expand into urban markets where it was difficult to build a full-line Lowe's shop," Saunders said.
Provided that outside forces like the weather cooperate, the strong economy should give Lowe's some breathing room as it undertakes more changes. Ellison on Monday said his team is scrutinizing operations and developing plans to "aggressively rationalize store inventory, reducing lower-performing inventory while investing in increased depth of high-velocity items." The company will also continue to evaluate the productivity of its real estate portfolio and non-retail business investments, he also said. That's not without risk, however, Saunders warned.
"While we understand that this might improve profitability in the short-term, we believe that care needs to be taken not to dilute Lowe's specialist home improvement credentials," he said. "If the cutbacks are soft ones designed to reduce excessive and unnecessary choice, then they are sensible. If they go too far, then they will further undermine Lowe's destination status and are likely to drive more [customers] to Home Depot."