Lowe’s Plans $400 Million Shutdown of All Orchard Supply Stores

Closing the 99 Orchard stores could help Lowe's stock.

Home improvement chain Lowe’s (NYSE: LOW) announced that it will close 99 Orchard Supply Hardware stores by the end of the year, taking a second-half charge of more than $400 million. Lowe’s purchased the chain in 2013 after it was spun off by Sears Holdings Corp. in 2011. Shares of Lowe’s rose over 8 percent, and began trending upward over $100 after the announcement.

Lowe’s is the second-largest home improvement chain in the U.S., behind Home Depot (NYSE: HD). Lowe’s has lagged behind Home Depot in same-store sales for some time, and declining growth in the home improvement industry has not helped.

Lowe’s also announced it will cut back on slow-moving inventory. Closing the stores and paring down inventory should help the chain’s same-store figures, which compare a store’s sales over a set period of time, usually a year. An increase in same-store sales is seen as a positive indicator of a retail chain’s health.

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How Lowe’s Shoppers Will Be Affected

The closure of the Orchard Supply Hardware stores and the inventory reduction measures should mean that consumers will see more of the products they are looking for when they shop at their local Lowe’s store, although those living in austere locations will likely have to travel a bit further to get to a store. They might also see more competitive pricing as inventory moves more quickly.

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Lowe’s Quarterly Earnings

In the company’s quarterly earnings report, issued on Aug. 22, Lowe’s announced that it earned $2.07 per share, beating estimates of $2.02. Sales for the quarter rose 7.1 percent over the second quarter of 2017. As well, Lowe’s predicted its diluted earnings per share would be $4.50 to $4.60 by the next fiscal year’s end in February 2019, up from $4.09 for 2017’s reported earnings.

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Analysts’ Estimates for Lowe’s

Lowe’s remains a good choice for investors as far as analysts are concerned, however, with the majority consensus being to buy shares, though to a lesser degree holding on to those stocks is also a good option. The average price target for Lowe’s stock is around $108. The average price target indicates the price that analysts expect the stock to reach before they sell it. Lowe’s has 2,370 stores in North America, with its most recent fiscal year revenue raking in $68.6 billion.

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In comparison, competitor Home Depot enjoys similar support among analysts, with the majority consensus again determining that selling the stock is a good idea. Both stocks inspired few analysts to consider selling as an option. The average price target for Home Depot is around $215. Home Depot has 2,286 stores in the U.S., Canada and Mexico, and raked in $100.9 billion in revenue in 2017.

Lowe’s also announced that David Denton, currently the chief financial officer for CVS (Nasdaq: CVS), will be its new CFO. He’s slated to begin in the second half of 2018.

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