Lowe's counters activist pressure with 3 board appointments

Dive Brief:

Lowe's last week announced it will nominate three new board members: David Batchelder, co-founder of Relational Investors; Lisa Wardell, CEO of Adtalem Global Education; and Brian Rogers, chairman of T. Rowe Price Group and its former chief investment officer. Their appointments will be effective March 22, according to a press release.
Batchelder helped engineer the turnaround of Home Depot during his time on that board (2007-2011) and is the "perfect person" to help do that at Lowe’s, a company spokesperson told Retail Dive in an email.
In a press release on the news, CEO Robert Niblock said the board "especially value the constructive discussions we have had with the D. E. Shaw group," which last week reportedly acquired an activist position in Lowe's.

Dive Insight:

While Lowe's is benefiting from a strong U.S. housing market, it's presumably important to D.E. Shaw that the company is falling behind rival Home Depot.

Lowe’s in November reported a 6.5% sales rise to $16.77 billion from $15.7 billion in the year-ago quarter, beating the Zacks consensus estimate of $16.57 billion. Gross margin increased 5.7% year-over-year to $5.71 billion and 34.07% of sales, compared to $5.4 billion and 34.4% of sales a year ago, and same-store sales in the quarter rose 5.7%, driven by a 4.8% increase in average ticket and transaction growth, and U.S. same-store sales rose 5.1%. Hurricane-related sales in the quarter were some $200 million, though that didn't measurably add to earnings.

Lowe's and Home Depot will likely always share the advantages of external forces, but GlobalData Retail Managing Director Neil Saunders told Retail Dive in an email that it's time for Lowe's to think about differentiating.

"Lowe's needs to work harder to build its brand presence and recall, something that recent advertising and marketing have begun to address," he said. "The next step should be to think about the areas where Lowe's can differentiate from Home Depot and win market share."

Interior decor is a Lowe's strong suit and a possible foil against its competitor, and Saunders suggested Lowe's should build that up more. But Home Depot recently positioned itself to steal that advantage, with its pre-Christmas acquisition of online decor business The Company Store.

Activist investors tend to pounce on companies they see as undervalued and typically push for a change in strategy, expense management or makeup of a company’s executive suite or board to unlock value. For several months now there has been "more than a usual amount of activism chatter" surrounding Lowe’s, according to a note from Gordon Haskett analyst Don Bilson emailed to Retail Dive.

Quentin Koffey, a portfolio manager at the D. E. Shaw group, said in a statement last week that Lowe's remains "an excellent company with tremendous value creation opportunities in front of it" and that the new directors "will be significant assets to the board."