It’s a pretty damning assessment of a CEO’s performance when his company’s shares surge on news of his retirement.
But it’s easy to see why investors in Lowe’s (LOW) sent shares up 7% on Monday when the home improvement chain announced that long time CEO Robert Niblock was stepping down after 13 years at the helm. After years of underperforming rival Home Depot (HD), they are no doubt eager for new blood at the top.
Lowe’s touted the news as a succession announcement, but companies typically prefer to have a new CEO lined up, or at least have identified candidates for the role, before they announce a corner office change. Niblock, a 25-year veteran of Lowe’s, will stay on until the company finds a replacement. Lowe’s has recently faced pressure from activist investor D.E. Shaw & Co. to make greater strides in catching Home Depot and named new directors to its board in January.
While both Home Depot and Lowe’s have benefited enormously from the home improvement boom caused by increasing home values and the aging housing stock in the United States, Lowe’s has not been as adept at capitalizing on that. For years, Home Depot has clocked in better sales performances, thanks to better store locations, earlier investments in e-commerce and more nimbleness in updating its product assortment.
And Home Depot is not ready to cede any of its leadership. In addition to an aggressive move into appliances, an area where Lowe’s leads it, Home Depot is roughly doubling its capital spending in the next three fiscal years to some $11.1 billion on store remodeling and new tech to make store workers more productive and deepen their interaction with customers. (Last year, Home Depot’s online sales rose 21.5%) Niblock said in December that Lowe’s will increase its own capital spending to $3.6 billion from 2017 to 2019.)
D.E. Shaw has said Lowe’s stock market could triple with better e-commerce and a better cost structure. And the company has made strides in its online offerings and the use of robotics to train workers and serve customers.
One of the director D.E. Shaw got on the board was David Batchelder, a key player in Home Depot’s comeback a few years ago. According to Bloomberg News, he will lead the search for a new CEO along with a group of directors that includes the former Dollar General and VF Corp CEOs, Rick Dreiling and Eric Wiseman respectively, two of the most respected and successful retail leaders of the last few years. So it’s easy to understand investor optimism that help is on the way.