Lowe’s sees California growth in Orchard deal

Plans to acquire at least 60 stores from bankrupt Orchard Supply Hardware give Lowe’s an increased presence in California and a new small format with expansion potential.

Lowe’s said early Monday that it had entered into an asset purchase agreement with Orchard, which had filed for Chapter 11 bankruptcy, to acquire the majority of Orchard’s assets for approximately $205 million in cash and assume payables owed to nearly all of Orchard’s supplier partners.

Orchard operates a total of 91 hardware stores in California that average 36,000-sq.-ft., and generated 2012 sales of $657 million. Lowe’s has 110 of its large format stores in California which average about 113,000-sq.-ft.

"Orchard’s neighborhood stores are a natural complement to Lowe’s strengths in big-box retail, offering smaller-format hardware and garden stores catering to the needs of local customers," said Lowe’s chairman, president and CEO Robert Niblock. "Strategically, the acquisition will provide us with immediate access to Orchard’s high density, prime locations in attractive markets in California, where Lowe’s is currently underpenetrated, and will enable us to participate more fully in California’s economic recovery."

Lowe’s said it plans to operate Orchard as a separate business, retaining the banner and the current management team.

"Overall, Orchard’s business model offers great potential but it has been burdened with a high level of debt. With the debt addressed through the Chapter 11 process and appropriate support from Lowe’s, we believe that Orchard will be positioned for profitable growth as a standalone business within our portfolio," Niblock said.

Lowe’s ended last year with annual sales of $50.5 billion and operates more than 1,750 stores in the United States, Canada and Mexico.