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Lowe’s focuses on margin drivers

Mooresville, N.C.-based Lowe’s managed to increase net earnings by 17.4% in the third quarter despite lower-than-expected sales.

During the company’s investor conference call Nov. 15, president and CEO Robert Niblock said that customers “remain cautions and continue to rationalize the scope of their projects, or in many cases delay projects until they have better clarity about their personal financial situations, the value of their homes and the overall macroeconomic outlook.”

Niblock said discretionary spending on home improvement projects is still down, and based on a consumer survey, the majority of that spending is expected to be on projects under $500.

The company reported average customer count was up 1.6%, while the average ticket price remained relatively flat at $61.59. Niblock said the company saw strength in categories supporting small projects, including tools and paint, as well as big-ticket items in seasonal living and appliances.

Niblock said extremely warm temperatures also affected sales in August and September, which delayed consumers’ fall lawn and garden plans and caused sales of live goods to suffer. However, as temperatures cooled in October the company experienced better performance in its lawn and landscape and nursery categories as consumers restored their lawns.

During the conference call, the company revealed some of its strategies in increasing margin on seasonal merchandise.

Nick Canter, EVP merchandising, highlighted the company’s efforts in seasonal items such as grills, lawn and garden and air conditioning to leverage more market-specific assortments. The company was able to uniformly meet demand and end the season with very little excess inventory, which reduced the margin impact of seasonal markdowns, he said.

“For both patios and grills, this approach translated to both higher sales and improved margins,” Canter said.

He said the unseasonably warm weather also helped contribute to increased air conditioning sales, reducing the need for end-of-season markdowns.

Canter also pointed to the company’s plan to increase its private-label offering.

“We will always be predominantly a house of national brands, but over the next few years we expect to further increase our penetration of privately branded products from approximately 15% to 18%. This strategy will provide great value to our customers while giving us increased opportunity to improve margins,” he said.

In an effort to help increase margins on a local level, the company said it will be implementing a new inventory management system next year called Integrated Planning and Executing, or IP&E.

“IP&E will complement the judgment and the creativity of our merchants by helping them better target the stores within the markets we serve. In simple terms, these tools and processes will help us to get the right product to the right place at the right time even more efficiently and effectively than we do today,” Canter said.

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