The housing and home improvement markets will always go hand-in-hand. If new houses are being built, contractors need tools to buy them. If people are inclined to stay put waiting for a better time to sell, home improvement projects can be a productive way to bide time. If timed and executed correctly, the money spent on home improvements can pay off when the market recovers.
During the covid-19 lockdown, that's exactly what happened. Masses of people were stuck at home for no-one-knew-how-long. Lots of us found ourselves staring at those faded old cupboard doors or our overgrown plant beds and thinking "what the hell else is there to do?"
It was an incredible time for home improvement companies, too. Hardware stores like Lowe's (LOW), Home Depot (HD), and Ace Hardware saw an overall 8.7% boost in sales from the previous year. All those extra hammers and nails built up $440 billion in sales thanks to bored, house-bound homeowners.
Now the housing market has slowed to a crawl, plenty of people are once again start staring at the same old projects with a creative eye. With high interest rates keeping more people sitting still for longer than desired, some real estate investors are expecting another home improvement boom.
Whether this comes to pass or not remains to be seen -- but one major home improvement store will be walking into the season with $400 million more dollars in pocket thanks to a major sale.
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Lowe's Sells its Stores in Canada
Last week, Lowe’s announced the sale of its Canadian branches to a private equity firm. The Sycamore Partners paid $400M in cash and future performance-based considerations to acquire about 450 stores.
President and CEO of Lowe's Marvin R. Ellison said in a statement that "the sale of our Canadian retail business is an important step toward simplifying the Lowe's business model. While this business represents approximately 7% of our full year 2022 sales outlook, it also represents approximately 60 basis points of dilution on our full year 2022 operating margin outlook."
Yes, Lowe's will feel the lost sales volume that comes with letting go of all those stores. But the company's overall margins will improve slightly thanks to this sale. And now, according to Ellison's statement, the company can focus on the success of its U.S. stores.
"We remain confident in our short and long-term outlook for the U.S. business," Ellison says, "underscored by improved sales trends and strong profit flow-through in the third quarter, as well as our expectations for solid business performance for the remainder of 2022."
Here's What Is Next for the Canadian Hardware Stores
Hardware business owners familiar with the market have reason to watch this acquisition very closely. There's concern that a private equity firm may not have long-term vested interest in the brands they've acquired. Canadian hardware and renovation franchise Groupe BMR Inc. has reported interest in acquiring stores to accommodate its own rapid expansion.
But for now, it seems that The Sycamore Partners intends to create their own standalone company under the Rona banner. All Lowe's locations in Canada will become Rona stores, and will work to continue the store's relationships with Canadian suppliers.
