Home-improvement retailer Lowe's (LOW 96.92, +0.10, +0.1%) announced this morning that it will be closing 51 of its underperforming North American stores -- 20 in the U.S. and 31 in Canada -- as part of its ongoing strategic reassessment. The closures are expected to be finalized by February.
Lowe's added that the closures will reduce its fiscal 2018 earnings by $0.28 to $0.34 per diluted share. That impact was not accounted for in the company's August 22 guidance, which called for FY18 earnings to range from $4.50 to $4.60 per diluted share.
Today's announcement marks the second round of store closures since former J.C. Penney CEO Marvin Ellison took over the chief executive role on July 2. The first round resulted in the closure of all Orchard Supply Hardware stores by the end of 2018. Lowe's bought the financially-troubled chain in 2013, not long after it had filed for bankruptcy protection.
The added closures aren't entirely surprising. Mr. Ellison acknowledged at the time of Lowe's second quarter report that the company would be continuing to evaluate the productivity of its real estate portfolio as part of its strategic reassessment. The store closures announced today are an offshoot of that reassessment.
Notably, Lowe's conceded the majority of stores being closed in the U.S. are within 10 miles of another Lowe's location. That acknowledgment leaves an opening to think that sales cannibalization may have been a catalyst for their underperformance.
Whatever the case might be, the company's aim is to focus on its most profitable stores. Investors seem content with that aim, as the reaction to the FY18 earnings revision has been relatively muted.
This focus should presumably help Lowe's compete more effectively against its main rival, Home Depot (HD 181.36, +1.40, +0.8%), which has been delivering stronger sales and comparable-store sales growth for some time.
Both home improvement retailers are contending with investors' concerns about softening activity in the housing market, which has been driven in part by rising mortgage rates. Affordability pressures are getting in the way of both new home and existing home sales, the latter of which is particularly important since home improvement efforts often follow the sale of an existing home.
Shares of LOW have dropped 17% from the all-time high they hit in September while shares of HD have fallen 14% from the all-time high they hit in September as well.
Lowe's is scheduled to report its quarterly results on November 20. The company said it will provide more details on the impact of the store closings at that time, yet investors will be even more interested to hear what Lowe's says about the macro outlook and its earnings projections for FY19.