Lowe’s Companies Inc. (LOW - Analyst Report) announced that it has completed the acquisition of the majority assets of Orchard Supply Hardware Stores Corporation for $205 million in cash.
Orchard’s acquisition is a crucial move on Lowe’s part as increasing square-footage in the key California market brings significant opportunities for the company to improve its top line and profitability.
Orchard’s smaller-format stores located at prime locations of the region are likely to bolster the company’s market positioning and will facilitate Lowe’s to capitalize on the under-penetrated markets.
Lowe’s operates through 110 stores in California. However, its presence is significantly lower than its competitor, The Home Depot, Inc. (HD - Analyst Report) and arguably one of the reasons why it has been lagging in terms of performance. Orchard, which was spun off by Sears Holdings Corporation (SHLD - Analyst Report) in 2012, has 91 neighborhood hardware and garden stores of which Lowe’s would acquire 72 stores.
Going forward, this Zacks Rank #2 (Buy) company stated that it will retain the Orchard brand and the current management team. Alongside, Orchard will operate as an individual unit.
Being the world’s second largest home improvement retailer, Lowe’s remains well positioned to benefit from the housing market recovery. The company is closing underperforming stores and its strategy of enhancing customer-shopping experience and merchandising transformation is likely to help it generate incremental sales. Moreover, the company’s sustained focus on price management and adding extra labor hours will help it boost its market share.
Besides Lowe’s, the other stock worth considering in the housing and allied sectors includes Lumber Liquidators Holdings, Inc. (LL - Snapshot Report), which holds a Zacks Rank #1 (Strong Buy).