Unlike its No. 1 rival Home Depot, Lowe's Cos. isn't participating in the slowly recovering housing market.
Lowe's, the nation's second-largest home improvement retailer, cut its full-year-earnings and revenue forecasts Monday after posting a 10 percent drop in second-quarter net income. Revenue at stores opened at least a year, a key yardstick for measuring the health of the retailer, declined 0.4 percent.
Lowe's results were hurt in part by a timing shift in how the retailer reported the quarter and a charge tied to job cuts. But the latest performance also shows the Mooresville, N.C., company's efforts to revamp its merchandise and prices aren't working while Home Depot is reaping the benefits of the improving — but still weak — housing market.
Over the past year, Lowe's has been working on strengthening customer service and reviewing all of its products to lower costs and differentiate its product mix from its rivals. Lowe's reviewed products that accounted for nearly half of its business and expects to reach about 90 percent by the end of the fiscal year. It declined to say how many items for which prices have been permanently lowered.
Lowe's has also changed how it displays its merchandise in nearly 15 percent of its stores; it expects to do the same in about 50 percent of its stores by the end of the fiscal year. The company operates more than 1,700 stores in North America. Additionally, it's bolstering its e-commerce business to compete better with the likes of Amazon.com.
During a conference call, Lowe's Chief Customer Officer Greg Bridgeford offered more details about how its pricing plan played out in the quarter.
QUESTION: Can you offer more color on what happened with the pricing strategy during the latest quarter?
ANSWER: Focusing on our monthly comp progression, our May comps were negatively impacted by our reduced promotional schedule that resulted in light Memorial Day weekend traffic, particularly in appliances, flooring, cabinets, and countertops. As a result of early adjustments, we improved sales as the quarter progresses but in hindsight we overcorrected and added too heavily to big-ticket promotions, negatively impacting profit margins. Based on our experience in the second quarter, we have completely taken apart our promotional strategy, not to go back and add in more events for the third and fourth quarter, but to rebuild from the inside out ... We are on a journey to return to the operational leverage of EDLP (Every Day Low Price) and we recognize it is not a day trip.