(LOW) Lowe’s Cuts Back on New Stores

As per The Street, Lowe’s Companies Inc. (LOW) has struck a policy of rewarding shareholder value via dividend payouts and share repurchases at the cost of curtailing new store openings and saving on capital expenses.

The company has declared a five-year share buyback program in which it intends to reduce the share base by repurchasing worth $18 billion of its common stock.

Lowe’s now targets 25 new store openings in fiscal 2011 in comparison with the earlier expectation of 25 to 30 new stores. Recently, Lowe’s Chairman and Chief Executive, Robert Niblock, revealed that the company’s underperformance was not due to a loss of market share to its arch competitor The Home Depot Inc. (HD), but owed to introduction of new stores that perpetrated a loss in sales of older mature stores.

Lowe’s nearest competitor, Home Depot, is also following the path of minimal store openings with focus more on web sales and supply chain management. In fiscal 2009, the company started a store rationalization program in which it shuttered many stores. In fiscal 2011, the company plans to open only 5 stores.

Lowe’s is the world’s second largest retailer of home improvement products. Through its 1,700-plus stores spread across the U.S., Canada and Mexico, the company offers a wide range of home improvement products and installation services for individual home owners as well as for professional builders.

We appreciate the company’s rational approach of cutting new store growth targets, given the sluggish consumer environment and the still indifferent trends in the housing market. Lowe’s opened 42 stores in 2010, significantly down from 62 stores opened in 2009 and 115 stores opened in 2008.

Currently, we have a long-term Neutral rating on the stock. Moreover, Lowe’s, which competes with The Home Depot Inc., Builders FirstSource Inc. (BLDR) and Sears Holdings Corporation (SHLD), holds a Zacks #4 Rank, which translates into a short-term Sell rating.

BUILDERS FIRSTS (BLDR): Free Stock Analysis Report

HOME DEPOT (HD): Free Stock Analysis Report

LOWES COS (LOW): Free Stock Analysis Report

SEARS HLDG CP (SHLD): Free Stock Analysis Report

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