In the end, Orchard Supply Hardware was felled by a battle of the big-box stores: Parent company Lowes wants to catch up to Home Depot.
All 99 Orchard locations will close in California, Oregon and Florida, a move that affects 4,000 employees.
“While it was a necessary business decision to exit Orchard Supply Hardware, decisions that impact our people are never easy,” CEO Marvin Ellison said in a statement Wednesday. “We will be providing outplacement services for impacted associates, and they will be given priority status if they choose to apply for other Lowes positions.”
North Carolina-based Lowes, which has owned Orchard for the past five years, just brought in Ellison last month. He replaced former CEO Robert Niblock, who is retiring after three new members joined the board amid pressure on the company from an activist investor.
Most recently chief executive of JC Penney and a former longtime Home Depot executive, Ellison is known as a fixer and is wasting no time on a major renovation. He eliminated the chief operating officer, chief customer officer, corporate administration executive and chief development officer at Lowes during his first week.
During Wednesdays earnings call, Ellison said the changes are “less about looking at competition but looking within.”
But Lowes also announced Wednesday that its second-quarter same-store sales werent as strong as expected, despite overall sales and profit that were up year over year, beating analyst forecasts. The company posted $20.9 billion in revenue and profit of $1.5 billion, or $1.86 a share, for the quarter.
As he explained his plan, Ellison talked a lot about taking market share. Home Depot, Lowes biggest competitor, reported its second-quarter earnings last week: $3.5 billion in profit on $30.46 billion in sales.
Ellison also said buying Orchard may not have been the “most prudent use of capital” because the “business was just not running well.” Last year, it lost $65 million on $600 million in sales.
Orchard was founded in San Jose in 1931 as a farmers co-op. It was bought by Sears in the 1990s, and by Lowes in 2013. About half of all Orchard locations are in the Bay Area.
Ellison said shutting down Orchard is necessary for Lowes to focus on its “core home-improvement business,” part of the many moves hes making. He also expressed optimism that Orchard workers would be able to find jobs at nearby Lowes, since 86 percent of stores that are closing are within a 10-mile radius of a Lowes location. The company has more than 2,100 stores in the United States, Canada and Mexico.
However, the CEO did talk a lot about cost-cutting, and at one point during the call said the company couldnt fix all its problems by “throwing payroll” at them. He said the company continues to “assess everything.”
“We come away incrementally encouraged that new CEO Marvin Ellison is working quickly to streamline the LOW business model and better position the company for improved results in coming quarters and years,” said Brian Nagel, consumer growth and e-commerce analyst for Oppenheimer, in a note to investors Wednesday after the earnings call. He left his 12-to-18-month stock price target for the company unchanged at $140.
Lowes shares, which dipped in pre-market trading, are up almost 9 percent to $108.61 Wednesday morning.
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