Lowe’s Inc. is adding employee hours and making sure its home improvement stores have key items in stock, after CEO Robert Niblock said cuts went too far during the recession.
As the Mooresville-based company sought to manage expenses during the downturn, Lowe’s laid off 1,700 in-store managers and hired more weekend part-time workers. But at many stores, that left too few employees during busy weekday hours to effectively serve customers, Niblock told The Charlotte Observer.
“I think we just pulled hours back too far as we went through (the recession),” Niblock said. “We didn’t have enough coverage.” He said the cuts are hampering the company as the housing market recovers.
Niblock’s comments came as Lowe’s, the nation’s second-largest home improvement retailer, reported lackluster results Wednesday for the first quarter. Profits increased compared with the same quarter last year but fell short of analyst predictions. And sales dropped at Lowe’s even as they rose at the company’s No. 1 rival, Atlanta-based Home Depot.
Unseasonably cold and rainy weather this spring hurt sales, Lowe’s executives said. Spring is typically the busiest season for home improvement retailers, as people rush to complete projects and tend to lawns and gardens. The company said sales of its indoor categories rose 3 percent, while sales of outdoor products declined 7 percent.
Stores are also adding inventory now to keep fast-selling items in stock, Niblock said. “We didn’t have enough inventory in some key items,” said Niblock. “That was another thing we pulled back a bit too far on during the downturn.”
The company said sales fell unexpectedly for the quarter ending May 3, dropping 0.5 percent, to $13.1 billion. Sales at stores open a year or more, considered a key measure of a retailer’s health, fell 0.7 percent. The company’s profits, however, increased 2.5 percent, to $540 million, as Lowe’s kept a tight lid on expenses.
But earnings per share of 49 cents fell short of analysts’ consensus estimate of 51 cents a share for the quarter.
Niblock said the company’s performance had picked up with the weather later in the quarter. “While overall performance in the month of March was particularly soft, April improved significantly,” he said.
Lowe’s didn’t appear to get a huge boost from Hurricane Sandy relief spending, which helped propel results higher at Home Depot in spite of the bad spring weather. Lowe’s said 27 stores have seen a sustained increase in demand as a result of Sandy, but much of that demand is for lower-margin products such as gypsum and insulation.
Areas with better weather during the spring, such as the Gulf Coast and the western U.S., had better sales than stores in the rest of the country. But Niblock said Lowe’s has fewer stores in some of those markets than Home Depot, especially California, and reaped less of the benefits of the comparatively good weather. He also said Lowe’s has fewer professional and commercial customers than Home Depot, an area the company is trying to improve.
9,000 new jobs
Lowe’s problems in the first quarter were reminiscent of those at Wal-Mart Stores, another retailer that cut store employee hours and inventories to manage expenses. Wal-Mart dealt with a string of quarters where same-store sales fell and some customers began to turn to other retailers as the company has struggled to stock shelves with fewer employees.
Niblock said Lowe’s weekday employees were often too focused on re-stocking and fixing up stores after the weekend rush, and customer service suffered. He said the company needs to improve its “weekday close rate,” or how many sales it completes with prospective customers.
Lowe’s has added about 150 employee hours each to about two-thirds of its 1,750 stores during peak weekday times in order to help close more sales. The company created about 9,000 part-time jobs to fill those hours, and the new workers are dedicated to the interior sales floor.
Lowe’s employs more than 245,000 workers.
More salespeople during busy weekday times and more key items in stock will position Lowe’s to better take advantage of an improving housing market, Niblock said. As new home sales pick up and the economy gradually recovers, Niblock said he expects sales to improve.
Home Depot reported its results Tuesday. Sales at Home Depot rose 7 percent during the quarter, to $19.1 billion, and profits jumped 18 percent, to $1.2 billion. Sales at Home Depot stores open a year or more rose 4.3 percent.
Home Depot CEO Frank Blake said the company had done better than expected in spite of the gloomy weather. “We saw less favorable weather compared to last year, but we continue to see benefit from a recovering housing market that drove a stronger-than-expected start to the year for our business,” said Blake.
Analyst Wayne Hood, with BMO Capital Markets, said in a note Monday that Home Depot “continued to maintain an edge on Lowe’s during the quarter.”
Shares of Lowe’s closed up 52 cents, or more than 1 percent, at $42.97 a share. Home Depot’s stock has risen $2.93 a share, or almost 4 percent, since reporting its earnings Tuesday. Shares of Home Depot closed at $79.69 on Wednesday.