Economy weighs on Lowe’s
The current business earnings reporting season hasn’t been kind to many home channel companies, but at least Lowe’s can hold its head high in a couple of regards. The company is still making money—$2.2 billion in all of 2008. And it’s still building a lot of stores—it expects 21 new stores in the first quarter, although the company’s building plans have been cut back.
Of course, the company could not escape the economy. Comp-store sales declined 9.9 percent in the fourth quarter, and 7.2 percent for the year. Earnings declined 60.3 percent for the quarter and declined 21.9 percent for the year.
“The economic pressures on consumers intensified in the fourth quarter, resulting in a further decline in consumer confidence and dramatic reductions in consumer spending,” said Robert A. Niblock, Lowe’s chairman and CEO.
Above-average performing categories for the year and the quarter were building materials, rough plumbing, hardware, paint, nursery, outdoor power equipment, lawn and landscape, appliances and home environment. Executives seemed particularly optimistic for lawn and garden in 2009.
“Our outdoor categories outperformed our indoor categories,” said Niblock. “As we move into the spring selling seasons, we’re optimistic consumers will continue their outdoor projects.”
In the Mooresville, N.C.-based company’s earnings conference call, Lowe’s described cost-cutting initiatives, including a salary freeze for all vice presidents and above for 2009.
President and COO Larry Stone enumerated other operational strategies to contain costs—linking payroll hours directly to sales volume in stores, targeting its advertising more selectively and expanding coverage responsibilities of area managers.
Stone also described an improved physical inventory process that allows more stores to undergo one inventory checkup per year, as opposed to two. Early findings suggest the strategy will save $10 million, with no impact on shrink.
The stimulus package recently signed into law factored into Lowe’s forecasts, and it will provide some relief for the consumer. But Niblock described it as inadequate as an engine for dramatic turnaround. The key economic consideration, he said, and one that is beyond the control of retailers, is job security and job growth. “At some point in time we have to get employment back in the country to drive the turnaround that we all want to see,” he said.
Still, Lowe’s sees an opportunity to help homeowners take advantage of the Recovery and Reinvestment Act, and its provisions regarding weatherization incentives, tax credits and energy-efficient programs. “We’re analyzing and making sure that we’ll be there for customers to take advantage of the different parts of this stimulus plan,” said Greg Bridgeford, executive vp.
Gross margins suffered in the fourth quarter of 2008 in an environment of heavy discounting. Lowe’s margins also suffered through its decision to accelerate its plan to exit the wallpaper category, which will be completely gone in spring 2009.
As of Jan. 30, Lowe’s operated 1,649 stores and showed year-over-year square footage growth of 7.2 percent. Looking ahead, the company forecast 2009 comp-store sales to fall in the negative 4 percent to negative 8 percent range, and total sales between negative 2 percent and positive 2 percent.
The company expects to earn $1.6 billion to $1.7 billion in fiscal 2009.
