The announcement of Lowe's Cos. Inc. on Monday, 51 stores would be "below average", 20 of them in the US, is the second closure in Marvin Ellison's brief tenure as chief executive of the home rehabilitation business. Analysts say this may not be the last.
The company announced in August that it will close all 99 Orchard Supply Hardware stores in California, Oregon and Florida and its distribution facility by the end of fiscal 2018.
At the earnings discussion in the second quarter, during which the motion was discussed, Ellison said the company needed to simplify to achieve better results.
Read: These lowe stores will close in the next three months
"[M]Her experience has taught me that a simplified organizational structure is the first step in creating operational excellence and enabling faster decisions, "he said in a FactSet transcript. "[W]We decided to end our orchard supply hardware activities in order to focus on our home improvement core business. "
Ellison was appointed CEO with effect from 2 July 2018. Prior to joining the company, he was chief executive of serious retailer J.C. Penney Co. Inc.
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The company, whose turnaround persists, closed 141 branches in the 2017 financial year.
Bill Fahy, Senior Credit Officer at Moody's, says it's normal for a new CEO to review the portfolio of businesses.
"Anyone conducting a strategic review of the business is something you expect from them," he said.
In addition, Fahy points out that most of the shops that close are less than 10 miles from other Lowes
LOW, + 0.40%
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"Consumers still have a Lowe store," he said. "If I suddenly lose a store, maybe I have to go to the competition."
With just 20 stores in the US, Fahy said, "There are not that many." The rest of the closures will take place in Canada. Lowes said it would go into more detail in the next earnings release on November 20. And Fahy expects more details about the corporate strategy on December 12 Investor Day.
Wells Fargo analysts said the closures are "not surprising" and "more could come".
"[It] could close the beginning of a broader initiative to improve profitability by rationalizing real estate, "said analysts led by Zachary Fadem.
Lowes exceeded earnings expectations in the second quarter, but lagged behind the previous two quarters
Home Depot Inc.
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Lowe's biggest competition has exceeded earnings expectations in the last 15 quarters.
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Home Depot sales were $ 100.9 billion last fiscal year. Lowe's sales reached $ 68.6 billion.
Ellison worked for Home Depot for a dozen years before moving up to senior management before joining J.C. Penney left.
"[W]We believe that for a new CEO in Marvin Ellison, all options remain on the table that have shown a willingness to act quickly (following the recent reorientation of management and the decision to close 99 Orchard Supply stores). "Wells Fargo said.
"We continue to see Lowes in the early days of a multi-year reversal, and while the expectations of a short-term improvement are low, we see significant opportunities for Pro [professional] Initiatives, inventory rationalization, and improvements to storage and processes. "
Wells Fargo Stock Lowe's shares outperform the price target of $ 125.
Lowe shares rose 4.5% year-over-year, beating the S & P 500 index
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, which represents an increase of 2.2% for the period.