Lowe's has 'a big window of opportunity' after shutting down its underperforming stores, UBS says (LOW)

  • Lowe's on Tuesday reported third-quarter earnings that beat on both the top and bottom lines but saw comparable sales miss Wall Street's estimates.
  • Lowe's also said it will exit Mexico retail business and some non-core US businesses, following previous announcements to shut down Orchard Supply Hardware operations and close 51 underperforming stores in the US and Canada.  
  • The closure schedule will boost same-store sales of surviving Lowe's locations that are close to storefronts slated to be closed, UBS said.
  • Watch Lowe's trade live.

Lowe's recent decision to close underperforming stores will help the retailer survive in the brick-and-mortar meltdown, said UBS in a bullish note titled "still a big window of opportunity."

"We think Lowe's has a significant runway for earnings growth as it improves its execution, exits underperforming ventures, and removes excess costs from its profits and losses," a team of UBS analysts led by Michael Lasser said in a note distributed on Wednesday.

The home-improvement retailer on Tuesday reported third-quarter earnings that both sales and profit expectations. However, same-store sales grew 1.5%, missing the 3% increase Wall Street expected according to Bloomberg data. 

"Our top priority in the third quarter was positioning Lowe's for long-term success by identifying underperforming or non-core businesses and stores for divestiture," CEO Marvin Ellison said in the press release.

RELATED: Every retailer who filed for bankruptcy in 2018

Every retailer who filed for bankruptcy in 2018
See Gallery
Every retailer who filed for bankruptcy in 2018


Women's apparel and accessories retailer A'Gaci filed for Chapter 11 bankruptcy in January. 

Photo credit: Getty

Kiko USA

Cosmetics retailer Kiko USA Inc filed for Chapter 11 bankruptcy protection in January.

Photo credit: Getty

Tops Markets

Tops Markets operates 174 supermarkets — called Tops Friendly Markets. The company filed for bankruptcy protection in February.

Photo credit: Getty

The Bon-Ton Stores

The Bon-Ton Stores owns multiple department store chains including Bon-Ton, Bergner's, Boston Store, Carson's, Elder-Beerman, Herberger's, and Younkers. The company filed for bankruptcy in February.

Photo credit: Getty

Remington Outdoor

Remington filed for Chapter 11 bankruptcy protection in March.

Photo credit: Getty

The Walking Company

The shoe seller The Walking Company, which operates 208 stores in the US, filed for Chapter 11 bankruptcy protection in March.

Photo credit: Getty


The jewelry chain Claire's filed for bankruptcy in March.

Photo credit: Getty

Southeastern Grocers

Southeastern Grocers, the parent company of the grocery chains Winn-Dixie, Harveys and Bi-Lo, filed for Chapter 11 bankruptcy protection in March.

Photo credit: AOL

Nine West

Nine West Holdings filed for bankruptcy in April.

Photo credit: Getty


Italian casual-dining chain Bertucci's filed for Chapter 11 bankruptcy protection in April.

Photo credit: AOL


The footwear brand filed for Chapter 11 bankruptcy protection in May.

Photo credit: Getty

National Stores

The owner of the Fallas chain of discount stores filed for bankruptcy in August.

Photo credit: Facebook


Brookstone filed for Chapter 11 bankruptcy protection in August.

Photo credit: Getty

Samuels Jewelers

Samuels Jewelers filed for Chapter 11 with an agreement for bankruptcy financing in August.

Photo credit: Facebook

Toys R Us

Toys R Us filed for bankruptcy in September.

Photo credit: Getty

Mattress Firm

Mattress Firm filed for bankruptcy in October.

Photo credit: PA


Sears filed for bankruptcy in October.

Photo credit: PA


 "With our strategic reassessment substantially completed, we can now intensify our focus on the core retail business.

As part of this reassessment, the retailer said Tuesday it will exit its Mexico retail business as well as some non-core US businesses including Alacrity Renovation Services and Iris Smart Home.  These actions are in addition to the previously announced decisions to exit its Orchard Supply Hardware operations, and close 20 underperforming stores in the US and 31 stores and other locations in Canada.  

Most associates at the affected stores will be extended opportunities to transition to similar roles at nearby stores, according to the company.

By UBS' calculation, there are 16 surviving Lowe's stores within a 15-minute drive of the stores slated to be closed in the US and the corresponding number of Lowe's stores in Canada is 38, suggesting that comparable sales of the surviving stores will likely get a boost. 

"We calculate that these stores closures could add 30-50 basis point [or 0.3% to 0.5%] to Lowe's same-store sales," said the team led by Lasser. 

UBS slightly lowered its price target to $115 from $120 but remained bullish on the stock. 

Lowe's jumped 2.74% on Wednesday and is down 3.35% for the year.


More from Business Insider:

Read Full Story

From Our Partners