Why Did Lowe’s Companies, Inc. Shares Gain 15% in May?

Lowe’s (NYSE: LOW) has been one of the brick-and-mortar retailers that has generally done well even as internet shopping has become more popular. The home improvement chain has largely been able to succeed because it sells products that people want and/or ones that are hard to ship.

Changing technology may weaken those advantages, so it makes sense for Lowe’s to address its digital and omnichannel operations sooner rather than later. The chain has taken a strong step toward doing that in its effort to replace retiring CEO Robert A. Niblock.

Home improvement retailers have been resistant to the move of business to the internet. Image source: Getty Images.

What happened

Lowe’s named J.C. Penney (NYSE: JCP) CEO Marvin R. Ellison to replace Niblock as its chief executive. That move made a lot of sense as Ellison has made progress in turning around the department store chain. Before he worked there, he spent 12 years in senior leadership positions at Home Depot.

“Attracting Marvin is a great win for the entire Lowe’s team,” said Lowe’s Board of Directors member Marshall O. Larsen in a press release. “Marvin is an experienced retail CEO with extensive expertise in a complex omnichannel consumer-facing company. He also brings significant experience in the home improvement industry, with a proven track record of global operational excellence and driving results from both DIY and Pro customers.”

So what

Ellison has experience in taking a brick-and-mortar chain and building out its digital and omnichannel capacity. He also knows the home improvement space well since he oversaw U.S. sales and operations during his time at Home Depot.

Investors clearly liked the news of the hiring. Lowe’s shares closed April at $82.43 and spiked after news of the hiring was made public on June 22, closing May at $95.01, a 15% gain, according to data provided by S&P Global Market Intelligence.

Now what

The new CEO has to prove that he’s right for the job in reality, not just on paper. His efforts at J.C. Penney were somewhat encouraging, but that chain has not definitely turned a corner or proven that it will be around for the long term.

At Lowe’s, Ellison gets to work with a company in a much stronger position. He’s under less immediate pressure, but he still has to figure out what the right mix of brick-and-mortar and digital presence is for the company.

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has the following options: short September 2018 $180 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.

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