Lowe’s to Rationalize New Store Openings, Increase Cash Payments to Shareholders

June 14th, 2011 by Trefis Team
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Lowe’s Companies Inc. (NYSE: LOW) is the world’s second largest retailer of home improvement products . Through its 1,700 plus stores spread across the U.S., Canada and Mexico, Lowe’s offers a wide range of home improvement products and installation services for individual home owners as well as for professional builders. It competes with the industry leader Home Depot (NYSE:HD) and other players such as Builders FirstSource (NASDAQ:BLDR), Sherwin Williams (NYSE:SHW) and Sears (NASDAQ:SHLD).

At the recent Sanford C. Bernstein Strategic Decisions Conference in New York, Lowe’s Chairman and Chief Executive Robert Niblock revealed that the company’s lagging performance was not because of the retailer conceding market share to its rival Home Depot but because of sales from new stores cannibalizing business from older outlets. [1]

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New Store Expansion Set to Decline

After years of fast-paced expansion in the U.S., Lowe’s is planning to reduce the number of new store openings to 25 this year which is still higher than the meager 5 new stores Home Depot is expected to add in the same period. [2] Home Depot undertook its own store rationalization program in 2009, deciding to close down many stores. It has also reduced new additions ever since, focusing on web sales and supply chain improvements. Lowe’s plans to cut down on store expansion expenditures is in line with its decision last year to pay back more cash to its shareholders thorough higher dividends and share buy backs. The company has announced a 5 year program through which it plans to buy back $18 billion of its stock, a move that could result in its share base falling to half its present level.

We capture Lowe’s expenses on new store openings in our capital expenditure as a percentage of sales forecast.

We forecast the downward trend in capital expenditure as measured against sales volumes to continue over our forecast period as spending on expansion declines.

Click here for our full analysis and $24.50 price estimate for Lowe’s Companies

Notes:
  1. Lowe’s CEO Says New Store Openings Are Hurting Existing Stores, The Wall Street Journal [↩]
  2. Follow the money, Internet Retailer [↩]