Lowe’s up most in a year on sales optimism as raw spring thaws

Bloomberg

Lowe’s Cos.’ incoming chief executive officer has some repair work ahead of him. Fortunately, the improving US weather makes for perfect conditions.
The home-improvement chain, which named J.C. Penney Co.’s Marvin Ellison as CEO, posted profit and comparable sales that missed estimates in its first fiscal quarter as chilly weather in the US weighed on results. But activity began to heat up this month, and same-store sales in May are already in the double digits, outgoing CEO Robert Niblock said.
“With more rain and snow in the first quarter than we’ve seen in 12 years, and the coldest April since 2007, outdoor products were certainly impacted,” he told analysts on a conference call. Fortunately, “spring has finally arrived.”
The shares jumped as much as 11 percent to $94.79 in New York, the biggest intraday gain since March 2017. The advance erased the company’s decline this year.

NEW LEADER
The weaker-than-expected report from the start of spring — its biggest selling season — may not come as a surprise. News of Ellison’s hire came just one day before earnings, raising concerns about performance in the critical quarter. Earlier this year, D.E. Shaw took an activist stake in the retailer and pushed for changes that it said would help it catch up to market leader Home Depot Inc. That ultimately led to Niblock announcing his retirement in March after 13 years.
The retailer’s performance was “better than feared,” Morgan Stanley analyst Simeon Gutman wrote in a research note. “The quarter was weak but could have been worse.”
D.E. Shaw and the company are looking to Ellison, a former Home Depot executive himself, to close the gap when he joins Lowe’s on July 2. He is credited with helping improve in-store operations at Home Depot by investing in technology to reduce labor in some areas, so that it could be shifted to helping customers.
Lowe’s, under pressure, earlier this year unveiled a plan that included such measures.
“Marvin is an experienced retail CEO and a 30-year industry veteran with expertise in complex omni-channel environments,” Niblock said on the call. “He has a deep appreciation for Lowe’s culture, people and customers, which makes him the ideal person to serve as this great company’s next leader, and I’m confident that this will be a smooth transition.”

MAJOR SNOWFALLS
Same-store sales rose 0.6 percent, Lowe’s said in a statement. Analysts expected a gain of 2.2 percent, according to Consensus Metrix. Profit was $1.19 cents a share, compared to projections of $1.22.
The company repeated its guidance for the fiscal year, saying it expects to recover most of the revenue it missed last period over the next two quarters. Comparable sales will probably increase by 3.5 percent and earnings per share will be between $5.40 and $5.50.
The retailer is not alone in calling out a cold spring for hampering sales. Last week, Home Depot said frigid weather, including major snowfalls in the middle of the US, caused a slowdown on the purchases of outdoor goods.
Cold weather aside, home-improvement chains have been feeling the benefits of the improving US economy. Aided by rising property values that spur Americans to fix up their homes, Lowe’s annual same-store sales have averaged more than 4 percent for the past five years. That’s one of the best performances among legacy US retailers.