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Here's Why the Best Is Yet to Come for Lowe's Companies, Inc.

By Daniel B. Kline – Apr 2, 2018 at 8:18AM

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The company is searching for a new CEO.

Lowe's (LOW -1.12%) has been one of the big retail winners in a very challenging market. The company has benefited from carrying a line of products that aren't easily shipped and that people want to see before buying.

Most people don't want to buy a light fixture, paint, or an appliance without seeing it first. In addition, since some home repairs are unexpected or spur-of-the-moment, Lowe's remains a retail destination that can offer immediate gratification.

Now, Lowe's stands at a crossroads. Those advantages remain intact, but the company's longtime CEO plans to leave and digital advancement may limit, or even eliminate, the edge of having physical stores.

A man looks at wooden planks inside a home improvement warehouse.

Lowe's stores remain a draw for customers. Image source: Getty Images.

A time of change

CEO Robert A. Niblock has decided to retire after 25 years with the company. The retailer's board has begun a search and he will remain chairman and CEO until a replacement is found.

"I am confident that it is the right time to transition the company to its next generation of leadership," Niblock said in a statement. "...As we transition to the next chapter, I have great confidence in the strength of our team and the opportunity ahead for Lowe's."

While he has been very successful in his 13 years as chairman and CEO, Niblock's departure may be coming at a fortunate time for the company. Ideally, his replacement will be someone well-versed in the digital side of the business.

Some Lowe's products will likely remain in-store draws as it seems unlikely that contractors will buy drywall or 2x4s from a website.

Home improvement and beautification items, however, will become more vulnerable to digital disruption in coming years. Dealing with that will require expanding Lowe's ability to offer omnichannel services. That's something Niblock may have been able to handle, but a CEO with a stronger digital pedigree may have an easier time of it.

Building on success

Whoever takes over Lowe's inherits a company that's in good shape, although its fourth-quarter results were a bit of a stumble. On an adjusted basis, Q4 earnings per share came in at $0.74 in 2017 compared to $0.86 in Q4 2016. Full-year earnings, however, were $4.39 per share, up from $3.99 in the previous year.

"As we enter 2018, we are working diligently to improve execution with a focus on conversion, gross margin, and inventory management," said Niblock in the Q4 earnings release. "Given the rapidly evolving competitive landscape, we are also accelerating our strategic investments leveraging the benefits of tax reform. We continue to build the capabilities required to deliver simple and seamless experiences and strengthen our position as the omnichannel project authority."

Lowe's will be fine

The outgoing CEO has essentially laid out what his successor needs to work on. Lowe's has to improve its omnichannel capabilities, but it does not face the same pressures as many other retailers. Its stores are going to remain a destination for customers with digital being more about convenience.

Yes, consumers may want to look at items in a store and have it delivered at home. Some will also want enhanced ability to preview items online before having them delivered or picking them up in store.

These are projects at least partly under way. The new CEO will have to figure out where the market is going, but he or she can do that from a strong foundation of brick-and-mortar stores. Lowe's has risks, but they are minor compared to most retailers making the company a strong buy if only to hedge against risks across the retail space.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool recommends Lowe's. The Motley Fool has a disclosure policy.

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