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Lowe's closing 51 stores shows its new CEO has learned one valuable lesson

Brian Sozzi
Editor-at-Large
Lowe’s decision to close stores makes sense.

New Lowe’s CEO Marvin Ellison looks to have learned one valuable lesson to being the top person at a retail company in 2018.

That is investors want to see closures of underperforming physical stores in the age of digital shopping on Amazon, and will reward you with a higher stock price pretty quickly for pulling the trigger. Lowe’s said Monday it will shutter 51 lagging stores, including 20 in the U.S. and 31 in Canada. The stores span across 13 states in the U.S. and five regions in Canada.

The company will take a 28-cent to 34-cent a share hit to earnings this year as a result of the decision.

Lowe’s (LOW) shares rose slightly on the news as investors read it as a potential boost to 2019 earnings. The stock has gained about 16% in the past six months as the well-regarded Ellison — a former all-star store operations guy at Home Depot who arrived in July after a mixed stint leading J.C. Penney — is being viewed as a savior to the struggling Lowe’s.

It could be argued that Ellison’s reluctance to close stores at J.C. Penney, where he was CEO from August 2015 to earlier this year, sealed his fate at the department store retailer. Ellison only decided in mid-2017 to close 138 J.C. Penney stores. That was after the retailer’s tepid holiday season — fourth quarter 2016 same-store sales fell 0.7%. It would mark his sole mass store closing plan.

Up until that point, Ellison believed having more stores provided a strategic advantage to the company around people buying products online and picking them up in stores.

Investors didn’t buy the logic mostly because the financial performance didn’t prove the thesis out. After rising a solid 4.5% in 2015, J.C. Penney’s same-store sales barely rose in the following two years. The company posted net losses in two out of the three years Ellison led J.C. Penney on a GAAP basis.

J.C. Penney (JCP) shares tanked 82% during Ellison’s tenure, according to Yahoo Finance data.

“The one thing I did not do as chairman and CEO was grow the stock price and generate wealth for you and the associates and shareholders,” Ellison told J.C. Penney employees in a video in May.

He is off to a good start at Lowe’s in this regard… thanks in part to his willingness to take no prisoners to save money.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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