In a sign that the people with the closest view of housing expect market conditions to remain weak for a long time, Lowe’s (LOW) is expected to announce this week that it is curbing its ambitious expansion plans.
According to The Wall Street Journal, Citigroup analyst Deborah Weinswig expects Lowe’s to open 75 new stores next year for 4.5% growth in retail-square footage, down from 120 stores opening this year, to generate about 8% growth. Lowe’s had previously said it expected to open 135 to 145 new stores each year.
Home Depot (HD) has been more drastic in cutting its store growth, but that’s been at least partly motivated by the company’s focus on improving its existing operations before it expands.
But investors wonder: in the long run, the success of any new stores Lowe’s and Home Depot open will have nothing to do with where the economy is in 6 or 12 months, and might these well-capitalized companies do well to take advantage of tough conditions for competitors and desperate landlords to open stores at bargain prices, and then ride out the tough times? A new study showing that companies that cut research and development expenditures during tough times tend to provide significantly lower long-term returns to their shareholders. Wall St. wonders if there’s a similar effect for companies that curb store openings.