Lowe's Looks To Grow On Pro Customer & Canadian Market Gains

It seems that Lowe's Companies, Inc. (NYSE:LOW) has not been able to extract optimum benefit from improving job scenario and gradual recovery in the housing market. Shares of this home improvement retailer haven’t exhibited a considerable run in the bourses and just increased 5.6% in the past six months when compared with the Zacks categorized Building-Product-Retail/Wholesale industry’s gain of 9.2%. Lower-than-expected first-quarter fiscal 2017 results can be cited as one of the reasons for the same.

Meanwhile, stocks like The Home Depot, Inc. (NYSE:HD) , Beacon Roofing Supply, Inc. (NASDAQ:BECN) and Lumber Liquidators Holdings, Inc. (NYSE:LL) which belong to the same industry have gained 13%, 8.4% and 56.7% in the past six months, respectively.

Nevertheless, management at Lowe’s is not sitting idle, instead it is focusing on improving its merchandising initiatives along with efforts to provide better omni-channel facilities and is also strengthening its relationship with pro customers. The company is concentrating on enhancing supply chain and managing inventory as well as containing costs.

Efforts to Get More Pro-Customers

In a bid to improve relationship with pro customers, Lowe's recently concluded the acquisition of Maintenance Supply Headquarters, the distributor of maintenance, repair and operations (“MRO”) products. This $512 million buyout will help in adding multi-family property management customers. Of late, the company has been focusing on these areas as evident from its earlier buyout of Central Wholesalers.

Following the acquisitions of Maintenance Supply Headquarters, the company now has additional 13 distribution centers which will provide services to customers in 29 geographic areas mostly in western, southeastern as well as south central U.S. Lowe’s already has MRO distributor services in the Mid-Atlantic and Northeast U.S. In total, the company has now 16 distribution centers with the acquisition of both Maintenance Supply Headquarters and Central Wholesalers. These distribution centers will generate more than $400 million in incremental annual sales.

Lowe’s refurbished its pro-service business website, LowesForPros.com, in order to cater to the needs of pro-customers.

Strengthening Canadian Business

Lowe’s Canadian business got a boost with the buyout of RONA. Earlier, the company had also acquired former Target locations across Canada, in a bid to penetrate into the Canadian market further. Moreover, the company is streamlining store portfolio, which along with its strategy of enhancing customer shopping experience and merchandising transformation, is likely to generate incremental sales.

Conclusion

There is no doubt that the company has taken right step by acquiring Maintenance Supply Headquarters, which will help to increase pro-customer base. This acquisition will not only drive the top line higher in the coming quarters as pro-customers place orders in bulk but will also help to better compete with its rivals.

The company’s other strategic initiatives have already started yielding fruitful results as we can see that its comparable store sales is improving constantly. During first-quarter fiscal 2017, comps increased 1.9%, while comps for the U.S. business increased 2%. We noted that the company’s comps increased 5.1%, 2.7%, 2% and 7.3% during the fourth, third, second and first quarters of fiscal 2016, respectively. Management projects total sales growth of approximately 5% driven by 3.5% increase in comps, RONA acquisition and store opening plans.

Lowe’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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