When Lowe’s Companies, Inc. (NYSE:LOW) CEO Robert Niblock announced last Monday he was retiring and the stock rallied in response, it was a clear indication of what owners of LOW stock thought of his tenure.
And truth be told, it wasn’t an entirely unfair response. While the home improvement retailer hasn’t exactly done poorly under Niblock’s tutelage, it arguably could have done more to ride the wave of the economic (and home construction) rebound that’s unfurled since 2009. And, there’s no denying Lowe’s has simply paled in comparison to Home Depot Inc (NYSE:HD) of late.
The $64,000 question: Will Lowe’s be better off with someone else in charge, as most investors seem to think it will be?
Inevitable
For the record, LOW stock hasn’t continued to rally in response to Niblock’s impending exit.
As exciting as the prospect of a new chief with more digital experience may be, there’s no denying the value of having a 25-year company veteran (13 as CEO and chairman) at the helm. Though not as versed in omnichannel and e-commerce as some might like, home improvement is one arena where having a compelling physical retailing presence remains decidedly relevant. He’ll be missed in that regard, and even more so in light of the fact that he’s navigated a couple of nasty recessions.
Still, there’s no denying Lowe’s growth has paled in comparison to Home Depot’s growth of late, which has outpaced that of the smaller rival in each of the past five fiscal years. It was only a matter of time before an activist turned up the heat on Lowe’s pushing for change — any kind of change — even if that meant pushing a respected CEO out of the way.
D.E. Shaw is that activist investor, a group largely being led by portfolio manager Quentin Koffey, who said in January, “Lowe’s is an excellent company with tremendous value creation opportunities in front of it.”
That’s activist speak for “this is the right vehicle being driven the wrong way.”
Regardless of whatever code Koffey may have been speaking in at the time, D.E. Shaw’s $1 billion worth of LOW stock was enough to add three new board members to the mix, ultimately paving the way for his admittedly amicable exit. Indeed, he’s going to remain in charge until his replacement is found, and there appears to be no particular hurry.
What to Expect
Nevertheless, few are denying a fresh presence in the company’s top position couldn’t do some good. As Oppenheimer & Co. analyst Brian Nagel put it: “We are optimistic that the company will attract a new, top notch talent to run the chain and that the whole of LOW will benefit from a ‘fresh set of eyes’ within its senior ranks.”
One such change (and arguably the most important change) LOW stock holders might look for is an even more intense embrace of online sales as a sales and profit-driver.
Calling a spade a spade, Home Depot has understood exactly what the use of the internet should and shouldn’t be for a home improvement retailer that is, for all intents and purposes, still an ordinary lumberyard that builders must patronize. The company has been willing to utilize its stores as local warehouses to facilitate faster shipping of e-commerce orders, and it’s further realized that in-store pickups of goods ordered online are another sales opportunity. About 43% of items purchased via Home Depot’s website are picked up in a nearby store.
Lowe’s simply hasn’t done enough on that front, falling behind not only Home Depot, but an increasingly meaningful home improvement rival in Amazon.com, Inc. (NASDAQ:AMZN). Niblock just never quite had a feel for e-commerce, even though he was able to lean on others.
That being said, the new CEO will still have his or her work cut out for them in areas other than e-commerce. Last quarter, foot traffic at Lowe’s store was off by one percent, while Home Depot managed to grow its traffic by 2%. And Home Depot’s profit margins remain notably stronger than Lowe’s. Both should be addressed sooner than later.
Looking Ahead for LOW Stock
Was Niblock’s impending exit a reason for LOW stock to surge as it did just a few days ago? Not really. The point was well taken, though. This is a company with a great brand name that isn’t doing well enough with it.
The right tweaks could make a world of difference.
The prospect of those tweaks isn’t enough to buy Lowes stock rather than Home Depot stock just yet. But, it is enough to put LOW stock on your mental watchlist, keeping any eye out for the time when — perhaps a year or so down the road — it becomes the better pick among the nation’s top two home improvement players.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
