Lowe's sees slower growth, will focus on urban stores and DIY market

Lowe's Cos. Inc. (LOW) is making changes to reach out to penny-pinching DIYers, urban homeowners and international markets. To ride out the housing downturn that's taken a bite out of its business, the home improvement company is adding services, opening more stores in urban markets and looking for growth overseas.

Chief Financial Officer Robert Hull laid out these change in a meeting today with investors, during which he reaffirmed Lowe's guidance. The company still expects a flat home improvement market next year and and growth of one percent in comparable-store sales in 2010. It's projecting total sales up three percent to four percent, to $48 billion to $49 billion, thanks to the new stores. Lowe's also forecasts that earnings will grow six percent to 14 percent, to between $1.24 and $1.34 per share, thanks to cost-cutting measures.
In the meeting, Lowe's executives said homeowners are still shopping their stores, but taking on smaller projects and handling many themselves. So, it's adjusting by adding more lower-priced products and offering customer assistance with projects. More expensive materials have been moved off the floor and into special-order stock to make room. The company's website, Lowes.com will also be revamped, to encourage more shopping across channels.

Homeowners have dealt with financial losses and realize their homes are their biggest asset, said Lowe's managers. Many households are now proceeding with some home improvement projects, but postponing some and cutting corners on others to save money, said Lowe's CEO Robert Niblock.

"They still have that project list on the refrigerator door, but they're waiting for more stable times," he said. "Consumers are being deliberate. But keep in mind, the home is an integral part of the family."

To appeal to those homeowners, Lowe's is planning to add a repair service that will fix appliances and other equipment sold at its stores. Now, customers have to call the manufacturer if they need repairs for a broken appliance, but once the service launches, they can call Lowe's, said Larry Stone, president and chief operating officer. He said the service, which Lowe's expects to launch in late 2010, will generate $100 million in additional annual sales.

Like its larger rival, Home Depot (HD), Lowe's is also trying to boost sales at its existing stores and cutting back its rate of new store openings, from 62 to 66 stores this year to 35 to 45 next year. And those stores will increasingly be located in urban markets, where Lowe's hadn't been well represented before, said Greg Bridgeford, executive VP of business development. These markets have strong potential, but Lowe's hadn't been able to find enough affordable space until the recession created increased retail vacancies, he noted.

Lowe's is still pushing its expansion into Mexico, where it will open its first two stores in Monterrey in January. Additionally, it has entered into a joint venture with Woolworth Group to open stores in Australia and New Zealand, a region that the company had looked at for its strong home improvement market, but passed on because it couldn't enter profitably on its own, according to Bridgeford. The joint venture, one-third-owned by Lowe's and the rest by Woolworth, will open its first stores in 2011. Bridgeford said Lowe's sees the potential to have 150 stores in Australia and New Zealand once the venture gets going. Perhaps by then, the housing slump will be fading away.
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