Lowe’s Companies Inc. sells its Canadian retail operations to a US private equity firm. (Getty Images)

Lowe’s Companies Inc. (LOW) is selling its Canadian retail business.

The U.S.-based company announced on Thursday that it has reached an agreement with private equity firm Sycamore Partners to sell its Canadian retail business for $400 million in cash and “deferred consideration based on the performance”. Details of the deferred review were not provided in the statement released Thursday afternoon.

“The sale of our retail business in Canada is an important step towards simplifying Lowe’s business model,” Lowe CEO and President Marvin Ellison said in a press release, adding that the Canadian division represents 7% of the company’s sales outlook for the full year and a 60 basis point dilution of the operating margin outlook.

“By executing this transaction, we will intensify our focus on improving our operating margin and (return on invested capital), capturing market share in the United States and creating greater value for the shareholders.”

Lowe’s Canadian operations include 450 corporate stores and independent merchants under several banners, including RONA, Lowe’s Canada, Réno-Dépôt and Dick’s Lumber.

Sycamore Partners Managing Director Stefan Kaluzny said Lowe’s Canada and RONA will be a stand-alone company headquartered in Boucherville, Quebec.

“We look forward to working with the company’s leadership team to build on its 83-year history as Canada’s leading home improvement company serving families, builders and contractors in their communities across the country,” Kaluzny said in a statement.

Sycamore Partners is a New York-based private equity firm focused on retail, consumer and distribution related investments. The company has a range of retailers, including Express, Loft and Ann Taylor, Hot Topic, Staples Canada, Stuart Weitzman and Nine West Holdings.

The transaction is expected to close in early 2023. Lowe’s said it expects to record a pretax non-cash impairment charge of approximately $2 billion related to its retail business in Canada.

Lowe’s stock rose nearly 2% in after-hours trading following the announcement.

Alicja Siekierska is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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