A retail journey's end: Lowe’s completes international exit
Since the arrival of Marvin Ellison as president and CEO of Lowe’s in 2018, the home improvement retail giant has continued to sharpen its focus on its core, domestic retail strategy.
Shortly after Ellison was named as Lowe’s top executive, the company announced in November 2018 that it would shed its retail operations in Mexico. Lowe’s first entered in Mexico 2010 but closed all 13 of its stores by 2019.
Now the company is making a much more dramatic international exit with the sale of its Canadian division.
On Nov. 3, in a surprising announcement, Lowe’s revealed that it was selling Lowe’s Canada to Sycamore Partners, a private equity firm specializing in retail, consumer and distribution-related investments, for $400 million in cash, and performance-based deferred consideration.
The Boucherville, Quebec-based business includes about 450 corporate and independent affiliate dealer stores in a number of complementary formats under different banners: RONA, Lowe's Canada, Réno-Dépôt, and Dick's Lumber.
In announcing the deal, Ellison - named chairman of Lowe's in 2001 - said, "The sale of our Canadian retail business is an important step toward simplifying the Lowe's business model.”
Although Lowe’s Canada accounts for 7% of the home improvement retailer’s full year 2022 sales outlook, it also represents approximately 60 basis points of dilution on its full year 2022 operating margin outlook, Ellison noted.
Lowe’s is also paying a much higher ticket price to exit Canada than it did to make its major entry into the nation. And the entrance and departure of Lowe’s are both arguably the biggest Canadian home improvement retail stories of the past decade.
In 2016, Lowe’s paid $2.4 billion to complete its acquisition of RONA. At the time, RONA was a thriving, independent Canadian home improvement retailer that essentially set the stage for Lowe’s Canada’s business model. Prior, RONA had entertained thoughts of entering the United States.
The purchase of RONA brought pro forma revenues of approximately 6 billion Canadian dollars (US$4.44 billion). Additionally, the RONA acquisition brought Lowe’s a network of 496 corporate and dealer-owned stores in a number of complementary formats, as well as nine distribution centers.
But Lowe’s continues to sharpen its focus on U.S. sales and its core big box business.
“By executing this transaction, we will intensify our focus on enhancing our operating margin and ROIC, taking market share in the U.S. and creating greater shareholder value," Ellison said. "I want to thank our entire Canadian team for their hard work and dedication to our customers. We look forward to working with Sycamore Partners in executing a seamless transition."
The sale of Lowe’s Canada is expected to close in early 2023. Lowe’s also said it expects to record a pre-tax non-cash impairment charge of approximately $2.0 billion related to its Canadian retail business.
In August, Lowe's reported sales for the second quarter were $27.5 billion compared to $27.6 billion in the second quarter of 2021 as comparable sales decreased 0.3%. The retailer expects full-year sales to range between $97 billion and $99 billion.
Another major move made under Ellison’s leadership was the August 2018 decision to close 99 Orchard Supply Hardware stores in California, Oregon, and Florida. Lowe’s had purchased Orchard Supply Hardware just five years earlier.
That decision was also aimed at placing a greater emphasis on Lowe’s traditional stores.
Moving forward, Lowe’s Canada and the Rona banners will be positioned as a standalone company based in Boucherville, according to Stefan Kaluzny, managing director of Sycamore Partners.
"We look forward to working with the company's management team to build on its 83-year history as a leading Canadian home improvement business serving families, builders, and contractors in their communities across the country,” Kaluzny said.
Tony Cioffi was appointed president of Lowe’s Canada this past January and succeeded Tony Hurst who moved to U.S. operations after being named Lowe’s senior vice president of pro, services, and international.
We are excited to work with Sycamore Partners on this next chapter of growth for our business." Cioffi said. "Together, we will remain committed to supporting our associates, our Canadian- and Quebec-based vendors and our dealer network."
Based in Mooresville, N.C., Lowe’s operates early 2,200 U.S. home improvement and hardware stores and employs over 300,000 associates.
Lowe's will present its third quarter 2022 sales and earnings on Nov. 16.
