To enliven competence, augment operational efficiencies and enrich customers shopping experience, Lowe’s Companies Inc. (LOW), the world's second largest home improvement retailer, recently announced reformation of its store and merchandising operations.
The move was the need of the hour as Lowe's posted soft second-quarter 2011 results and trimmed its fiscal 2011 projection. Moreover, heavy job losses and reduced access to credit have led to a sharp drop in consumer discretionary spending on big-ticket items.
To combat sluggish performance, Lowe’s also announced a $5 billion share buyback program. Though such measures enhance shareholders value, it comes at a cost of future expansion plans, as the free cash can be used to expand the operational roots of the company.
Coming back to the main story, Lowe’s will now operate under three divisions in the U.S.– North, South and West. Moreover, the company also curbed its divisional structure to 14 regions from 21 regions before.
According to Lowe’s, each of the three divisions will be led by a Senior Vice President (SVP) of operations, reporting to Rick D. Damron, Executive Vice President of store operations.
In addition, Lowe’s rationalized the merchandising organization into two product divisions. Each division will be led by an SVP/general merchandising manager (GMM), reporting to Executive Vice President of Merchandising Robert J. Gfeller Jr.
Theresa Anderson and Robert Wagner, formerly Senior Vice Presidents of operations, and Patricia Price, formerly SVP/GMM of home decor unit, will leave the company as part of restructuring.
Lowe’s is rationalizing its capital expenditures to improve its return on investment. We also appreciate its approach of cutting new store growth targets in the current consumer environment. Moreover, the company recently announced the closure of seven underperforming stores.
Moreover, Lowe’s boasts of a proven strategy of investing in stores to enhance customer-shopping experience by improving point-of-sale and directional signage, and adding more product selection. The company’s sustained focus on the Everyday Low Prices, New Lower Price, Go Local and Specialty Sales initiatives have helped it to boost its market share.
However, we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes and consumer spending rebounds.
Currently, we have a long-term ‘Neutral’ rating on the stock. Moreover, Lowe’s, which faces stiff competition from The Home Depot Inc. (HD), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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