Lowe’s Cos. Inc., whose $1.8-billion overture to buy rival Rona Inc. was spurned in the summer, is still interested in an acquisition.
The second-largest U.S. home improvement retailer has just 32 stores in Canada today, far smaller than either Rona or Home Depot, its two other key competitors here.
“We continue to make improvements to the operations of those stores but we need more scale,” Robert Niblock, chief executive officer of Lowe’, told an analysts’ conference call on Monday after reporting a better-than-expected quarterly profit but a cautious outlook for the coming months.
In Canada, Lowe’s is adding big-box stores while looking to branch out into smaller outlets, he said. Rona, for its part, is racing to revive its operations by focusing more on its smaller stores. As well, Lowe’s launched its e-commerce site in Canada last month, allowing customers to have purchases shipped to their homes or to a store for pick up.
“We will also continue to look at acquisitions as a potential way for expansion,” Mr. Niblock said on Monday. “So we’re going to evaluate all options.”
However, he would not directly address the troubles at Rona, its recent top management change or Lowe’s failed attempt to take it over for $14.50 a share this summer. In September, Lowe’s withdrew its informal offer, which Rona’s board of directors had rejected.
Now Rona, which this month reported another quarter of disappointing results, is faced with shareholders who are vocally upset with the company’s performance and refusal to consider fully a takeover by Lowe’s.
Invesco Canada, which holds about 10 per cent of Rona’s stock, plans to ask for the replacement of Rona’s board. However, Rona subsequently moved to call its annual meeting for May, which it says precludes a shareholders meeting before then. Rona says it had already planned to look for some board member replacements, and had hired Korn/Ferry to do so.
Rona also hired the recruitment firm to look for a new chief executive officer after Robert Dutton, the CEO of two decades, unexpectedly left the company 10 days ago.
On Monday, Lowe’s reported a higher-than-expected quarterly profit as preparation and rebuilding efforts tied to superstorm Sandy boosted business at the world’s No. 2 home improvement chain, which raised its full-year sales forecast.
The company said sales had risen 1.9 per cent to $12.1-billion (U.S.) in the third quarter ended Nov. 2, while analysts on average expected $11.9-billion, according to Thomson Reuters I/B/E/S.
Sales at stores open at least year rose 1.8 per cent both globally and in the United States, an improvement over the previous quarter, when same-store sales fell.
Lowe’s now expects total sales for the year ending on Jan. 31 to be up 2 per cent, excluding the effect of an extra week, compared with an earlier forecast of a 1 per cent rise.
Still, for the 14th straight quarter, Lowe’s same-store sales lagged those of larger rival Home Depot Inc. The industry leader last week raised its full-year outlook independently of any future sales lift from Sandy, as it benefited from a recent uptick in the U.S. housing market.
While Home Depot’s third quarter ended before Sandy battered the U.S. Northeast, Lowe’s third quarter ended a few days after the superstorm made landfall on Oct. 29, killing dozens and leaving millions without electricity for days.
Net income rose to $396-million, or 35 cents per share, from $225-million, or 18 cents per share, a year earlier.
Excluding some items like write-downs and a charge for a discontinued project, the profit came to 40 cents a share, 5 cents higher than analysts’ estimates.
But the Mooresville, N.C.,-based company gave a cautious forecast. It affirmed its outlook from August that its full-year profit would come to $1.64 a share, which is 2 cents below what Wall Street was projecting.
Lowe’s has cut jobs, curbed store expansion and streamlined its supply chain to reduce costs and compete better with Home Depot, but it has yet to see the efforts bear fruit.
Home Depot has won shoppers from Lowe’s by offering better pricing and service, while Lowe’s strategy of “everyday low prices” rather than promotions has driven some customers away.
Lowe’s chief executive officer Robert Niblock said in August that the company’s current “transformation phase” would probably not end until mid-2013. In a statement on Monday, he said his company’s execution of the transformation was “improving.”