In just over a week, J.C. Penney CEO Marvin Ellison will leave behind the woes of the struggling department store sector and return to the world of home improvement. But he'll have his work cut out for him at Lowe's too.
Ellison, who previously served in various executive roles at The Home Depot, will take the reins as CEO of Lowe's after a lackluster performance in the first quarter of the year. The home improvement retailer reported Wednesday that sales in the first quarter rose 3% to $17.4 billion from $16.9 billion in the year-ago period, with total comparable sales up 0.6% including at stores in Canada and Mexico. Comps in the U.S. rose 0.5%. Sales through Lowes.com, meanwhile, rose 20%, according to the retailer.
For the fiscal year, the company anticipates total sales will rise 5%, with comps up 3.5%. The retailer — which currently operates 2,154 home improvement and hardware stores — said it will add approximately 10 more.
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"We drove solid performance in indoor categories and continued to grow our sales to Pro customers. However, prolonged unfavorable weather across geographies led to a delayed spring selling season which impacted results in outdoor categories. Spring has now arrived and we are encouraged by strong sales in the month of May." Outgoing CEO Robert Niblock said in a statement. "We continue to work diligently to improve conversion, better manage inventory and stabilize gross margin, while investing in the capabilities required to deliver simple and seamless customer experiences."
The company has been a leader when it comes to digital investments, developing mobile applications using augmented reality, for example, to help customers view products in their home before committing to big-ticket items. Some analyst critics have questioned whether its investments in projects like its LoweBot or Holoroom are leading to increased sales.
Although Niblock won't be there to see it through, he said on an investors call Wednesday that he expects strong employment and income gains to sustain market expansion in the home improvement sector. After a 25-year career at Lowe's, with 13 of those years serving as chairman and CEO, Niblock will retire as previously announced. The Lowe's board has appointed Richard Dreiling, a director of Lowe's since 2012 and former CEO of Dollar General, as chairman — which will divide the CEO and chairman role, something analysts view as a positive.
As Ellison joins Lowe's, he leaves behind a department store retailer still spinning its wheels on a turnaround plan that has never quite gained traction. At Lowe's, he will find himself in one of retail's brighter spots, where he will predominantly be tasked with making good on the business' broad promise: To help customers love where they live. In order to do that, analysts say Ellison will need put together a business strategy that carves out a distinct identity to set it apart from rival The Home Depot.
Ellison's previous stint at The Home Depot should be a huge asset, "especially given his focus on store operations, logistics, the Pro, and customer service, all areas that we believe Lowe’s needs to improve upon," according to comments from Jefferies analysts emailed to Retail Dive.
"The Lowe’s brand is solid, its stores have been maintained, pricing is competitive and its balance sheet is strong," the analysts said. "However, it does need some shepherding to get it on a path toward stronger growth and higher profitability."
According to Neil Saunders, managing director of GlobalData Retail, any new plan should focus on Lowe's identity as a core DIY retailer. "It could, for example, develop more of a compelling proposition around indoor decorative projects. Not only are these activities year-round, but they also necessitate a much more inspirational and compelling product mix and store environment," he wrote in comments emailed to Retail Dive. "While Lowe's has already made progress in store, including the increased use of specialist advisors, we maintain our view that it has not yet fully capitalized on the opportunity."
As Ellison's plan comes together over the next few months, Jefferies analysts predict focusing on Pro will be the "single biggest opportunity for Lowe's." And Ellison's experience with Pro at Home Depot should provide a fairly good roadmap for a successful path forward.
"Mr. Ellison was part of developing that winning strategy at [Home Depot] and was closer to the playbook than probably any other candidate for this position," the analysts said. "Hence, his ability to adapt key learnings to the Lowe’s situation, while maintaining a separate identity, is important and should prove pretty interesting."