By Kimberly Chin and Sarah Nassauer
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 23, 2018).
Marvin Ellison is stepping up efforts to close Lowe's Cos.'s performance gap with its larger rival Home Depot Inc.
Lowe's plans to shut down Orchard Supply Hardware stores, a small regional hardware chain it acquired five years ago, and Mr. Ellison, chief executive of the world's second-largest home-improvement retailer, said Wednesday a portfolio review is under way to determine the future of other nonretail investments.
Mr. Ellison, who left J.C. Penney Co.'s CEO post earlier this year and previously spent more than a dozen years at Home Depot, joined Lowe's in early July and is working to put his stamp on the retailer. About a week into his tenure, he eliminated positions including operating head and customer chief.
On Wednesday, Lowe's said it recruited David Denton, CVS Health Corp.'s finance chief, to join the company as its new chief financial officer. Mr. Denton announced plans to leave CVS once it completes its acquisition of health insurer Aetna Inc. CVS has said it expects to close the deal during the current quarter or the early part of the fourth quarter.
Mr. Ellison, 53 years old, said the company needs to reduce its inventory of low-performing products and increase stocks of faster-selling items.
He said in an interview that some fundamental retail tactics had been lost at Lowe's in recent years and key executives didn't have enough on-the-ground experience. "The person leading our stores team until recently had never worked in a store, never ran a store and never was an associate on the sales floor," he said. "I'm not saying that's a prerequisite; what I am saying is, it really helps."
In addition, Mr. Ellison said, store space isn't being used efficiently. For example, he said instead of stocking best-selling items in promotional areas at the ends of aisles, stores prioritized the placement of new products like smart-home devices.
"What that tells me is we're more concerned about shouting out to the world that we have smart-home products than we are in saying we're making money," said Mr. Ellison.
Mr. Ellison succeeded former CEO Robert Niblock, who announced his retirement shortly after three new directors joined the board as part of an agreement with activist investor D.E. Shaw & Co.
D.E. Shaw has pushed the company to better compete with Home Depot and do more to capitalize on an improving real-estate market. William Ackman's Pershing Square Capital Management LP also has built a stake in the firm. Pershing Square held about 7.7 million shares in Lowe's, worth about $737.4 million, as of June 30, according to a securities filing. The Wall Street Journal reported in May, citing people familiar the matter, that the stake built by the activist is expected to be a friendly investment.
Shares of Lowe's rose 5.8% to $105.52 in trading Wednesday, the strongest gain among S&P 500 constituents, as the retailer also posted stronger sales and profit in its latest quarter. However, the sales growth, driven in part by a pickup in purchases delayed from the spring, lagged behind that of Home Depot.
Lowe's said second-quarter sales rose 7.1% from a year earlier to $20.89 billion.
Comparable sales for Lowe's rose 5.2%. Home Depot reported last week that sales jumped 8.4% in its latest quarter and its U.S. comparable-store sales rose 8.1%.
Net income for Lowe's was $1.52 billion, or $1.86 a share, compared with $1.42 billion, or $1.68 cents a share, a year earlier. The results included a $230 million charge related to the Orchard closure. Excluding certain items, Lowe's said profit rose to $2.07 a share from $1.57 a share.
Lowe's acquired Orchard in 2013 after that retailer filed for chapter 11 bankruptcy protection. Orchard operates 99 locations located in California, Florida and Oregon, and Lowe's wants to close them by the end of the year.
Lowe's lowered its forecast on sales in connection with Orchard. The company expects sales in the current fiscal year to rise about 4.5% from the prior year, down from 5% previously. The forecast for comparable-sales growth was revised to 3% from 3.5%.
Lowe's share price has risen 39% over the past year, outpacing Home Depot's 32% gain and the 17% rise in the S&P 500.
Write to Kimberly Chin at firstname.lastname@example.org and Sarah Nassauer at email@example.com