Lowe’s Companies Inc. (LOW - Analyst Report) will be acquiring the majority assets of Orchard Supply Hardware Stores Corporation for $205 million in cash as the latter did not receive any competing bids. The deal subject to the Bankruptcy Court approval is expected to close by August end.
Orchard, which was spun off by Sears Holdings Corporation in 2012, had filed a voluntary Chapter 11 bankruptcy petition. Orchard earlier stated that in the absence of competing bids, Lowe’s will acquire its assets.
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.
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 has 91 neighborhood hardware and garden stores of which Lowe’s would acquire 72 stores.
Orchard’s smaller-format stores located at prime locations of the region are likely to bolster Lowe’s positioning in California’s housing recovery and facilitate the company to capitalize on the under-penetrated markets.
Going forward, this Zacks Rank #3 (Hold) company stated that upon completion of the deal, 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.
However, until any further upward revision in the Zacks Rank on Lowe’s, the other stock worth considering in the housing and allied sectors is Lumber Liquidators Holdings, Inc. (LL - Snapshot Report) , which holds a Zacks Rank #1 (Strong Buy).