Motley Fool  Jun 17  Comment 
Find out which home improvement retailer investors should prefer for the long haul.
Motley Fool  Jun 12  Comment 
The home improvement retailer made a major announcement.
Motley Fool  Jun 9  Comment 
They're both posting solid sales growth these days, but one retailing stock stands out as a good buy for investors today.
Motley Fool  Jun 6  Comment 
Lost amidst the news of a new CEO and a cold spring is that Lowe's appears to finally be moving in the right direction strategically.
Motley Fool  Jun 6  Comment 
A number of companies are hiring workers for the summer.
MarketWatch  Jun 4  Comment 
Lowe's Companies announced Monday that Chief Financial Officer Marshall will retire, effective Oct. 5, after a little over a year in the role, and 21 years at the company. Croom had become CFO of the home improvement retailer in March 2017, after...
Motley Fool  Jun 3  Comment 
With just two major companies to consider in home improvement retail -- investors cannot help but make the comparison.


Lowe's Companies (NYSE: LOW) is the second largest home improvement retailer in the world and one of the top ten largest retailers in the U.S. with $47.2 billion in sales in 2009. [1] Lowe's offers products and services across twenty categories in their home improvement stores, ranging from kitchen appliances to lumber to gardening tools. The company ranks second in home improvement retailing to Home Depot (HD), which had total sales of $71 billion in 2009 -- nearly one-and-a-half times that of Lowe's. [2] Home Depot has has held the upper hand against Lowe's since 2005 in terms of sales and net income -- in 2009, Home Depot's net income was $2.7 billion, one-and-a-half times greater than Lowe's $1.8 billion.

Like all home improvement retailers, Lowe's is very vulnerable to interest rates and the housing market slowdown. The subprime mortgage crisis in the financial industry has also been a large factor behind Lowe's struggles. In 2009, even though Lowe's net sales decreased 2% from 2008 sales, net income decreased 18.8% to $1.8 billion and same store sales decreased 6.7% for the year.[1][3] In addition, at of the end of fiscal 2009, Lowe's operated 1,710 stores in the United States and Canada -- all but 16 of the stores were located in the US, [4] which gives Lowe's greater exposure to the struggling domestic US market. The economic downturn has also caused the company to slow down store expansion -- Lowe's only plans to open 40 to 45 new stores in 2010 compared to the 61 and 115 stores it opened in 2009 and 2008 respectively.[4] Home Depot on the other hand operates 262 stores internationally and has stores in China, which act as a buffer to the domestic market. [5] Lowe's expand internationally in Q1 2010 by opening its first store in Mexico.[6]

Company Overview

Lowe's started as a single hardware store in North Carolina in 1946 and since then has grown to the second largest home improvement retailer in the world behind Home Depot. Today, the company makes money in several different key areas:

Stores and Products

Lowe's provides a wide range of home building supplies (about 40,000 products per store) and services to its target customers. [7] The company sells national brand name merchandise ranging from Whirlpool to John Deere and proprietary brands exclusive to Lowe's such as Kobalt and Harbor Breeze.

In 2009, the company operated 1,710 stores in the United States and Canada -- all but 16 of the stores were located in the United States. Most retail outlets are big-box stores (averaging around 110,000 square feet of retail space) which are used in large markets, and some are smaller 94,000 square-foot stores used for smaller markets. In 2009, the company opened 61 new stores, all but 5 of which were in the United States. The company also expand internationally in Q12010 by opening its first store in Mexico. [6]

Business Segments

Lowe's reports its sales in one general business segment which has 21 different categories of products: [8]

  • Appliances: 10% of net sales
  • Lumber: 8% of net sales
  • Paint: 7% of net sales
  • Flooring: 7% of net sales
  • Building Materials: 6% of net sales
  • Millwork: 6% of net sales
  • Lawn and Landscape Products: 5% of net sales
  • Fashion Plumbing: 5% of net sales
  • Hardware: 5% of net sales
  • Lighting: 5% of net sales
  • Tools: 5% of net sales
  • Seasonal Living: 5% of net sales
  • Rough Plumbing: 4% of net sales
  • Outdoor Power Equipment: 4% of net sales
  • Cabinets and Countertops: 4% of net sales
  • Nursery: 4% of net sales
  • Rough Electrical: 3% of net sales
  • Home Environment: 2% of net sales
  • Home Organization: 2% of net sales
  • Windows and Walls: 2% of net sales
  • Other: 1% of net sales


Lowe's uses four methods to make sales:

  • In Store Sales: Lowe's sells home improvement products in twenty different categories in its stores. In 2009, Lowe's top five selling categories accounted for 37% of total revenue.
  • Installation Services: Lowe's caters to do-it-for-me customers by providing installation services across many product categories.
  • Special Orders: In addition to the products available in Lowe's stores, customers have the option to special order items through Lowe's.
  • Commercial Construction Products: Lowe's sells professional-grade building and construction products to commercial businesses.

Business Growth

FY 2009 (ended January 29, 2010)[1]

  • Lowe's net income dropped 18.8% in 2009 from $2.2 billion in 2008 to $1.8 billion in 2009. The company attributes the large decrease to the effect the housing crisis had on the home improvement industry and economic downturn which made consumers cut back on spending.
  • Net sales fell 2.1% to $47.2 billion. Lack of growth was reflected by a comparable store sales decrease of 6.7% for the year. However the company did have an increase in total customer transactions, which was up 2.8% from 2008, as a result of the store expansion program. In addition Lowe's also had strong building materials sales as a result of a higher demand for hurricane-related projects.
  • Operating margin for the year was 6.0% of net sales compared to 7.3% in 2008, a 130 bps decrease as a result of higher operating expenses. Operating income for the year was $2.8 billion.
  • There was an 6.7% decrease in comparable store sales in 2009, compared to a decrease of 7.8% in 2008.
  • Lowe's only opened 61 stores in 2009, compared to 115 stores in 2008, 149 in 2007, and 151 in 2006. The company expects to open between 40 and 45 stores in 2010.

Q1 2010 (ended April 30, 2010)[9]

  • Lowe's first quarter net income increased 2.7% to $489 million, up from $476 million a year earlier. The company attributes the gain to increasing consumer spending on home improvement as the economy rebounds from the recession. Lowe's also said government stimulus programs, including tax credits for home purchases and rebates for energy-efficient products, added to the gain, as did warmer weather.
  • Net sales for the period increased 4.7% to $12.4 billion. Lowe's said that its customers were spending more on discretionary projects and big ticket items, indicating their re-engagement in home improvement. Comparable store sales increased 2.4% for the period.
  • Lowe's opened 11 stores in the first quarter, increasing its total number of stores to 1,721. The company now has 194.3 million square feet of retail space, a 2.9% increase from the same time last year.

Q2 2010 (ended July 30, 2010)[10]

  • Lowe's second quarter net income increased 10% to $832 million. The increase in profits was due to higher sales, but the company remains cautious of consumer spending and a weak economy, leading it to cut its full year revenue guidance.
  • Net sales increased 3.7% for the quarter to $14.4 billion. The company attributes the increase to the increased number of air conditioners and grills that consumers bought at the beginning of the summer. However, sales were hurt by the weak economy and the hot weather. Comparable store sales increased 1.6% for the quarter.
  • The company opened 3 net new stores in the quarter to end up at 1,724 stores in operation.

Trends and Forces

Housing Market Not Expected to Reach Bottom Until 2011 Means Lowe's Faces Tough Road Ahead For Sales Growth

In June 2009, main competitor Home Depot claimed that the worst of the housing market fallout had already passed.[11] However, the housing market has gotten steadily worse since then. In the first three months of 2010, foreclosure rates grew by the highest in 5 years, and increased 35% compared to the same period last year.[12] Despite housing prices being the lowest in 40 years and very low mortgage rates, many analysts are predicting that home prices will fall another 5%-8% from the lows of May 2009, and that the housing market won't reach the bottom until the first or second quarter of 2011.[13] Many are also saying that the housing market will stagnate due to the slumping US economy.[14]

Any indication that the housing market is not making a fast and full recovery is bad news for Lowe's sales growth. A weak housing market means more foreclosures, which means that home construction declines. Lowe's sales depend on new housing construction because it provides many home builders with the materials they need to build a home. A weak housing market and a slow economy also means that homeowners are less likely to spend money on home improvement projects. If a homeowner knows that his home is decreasing in value over time, he won't bother to repair it to increase its value until home prices start increasing. Additionally a weak US economy means that people are saving more rather than spending on discretionary goods or projects. As a result of the weak housing market, Lowe's net sales fell by 2.1% in 2009.[1]

Not all is lost in the housing market however. When the US government gave a lucrative tax credit to home buyers, the number of pending home sales increased during the first four months of 2010.[15] Taking this a possible sign that the housing market was recovering, consumers spent more money on home improvement projects, and as a result Lowe's sales increased by 4.7% in Q1 2010.[9] However, the tax credit expired and as a result, pending home sales in May fell to the lowest level in a year.[15]

Changes in Housing/Interest Rates Affect Homebuilders which Lowe's Relies On

To read a more detailed discussion of how interest rates affect housing, see also Interest Rates.

In the past, a high correlation has existed between the rate of home purchases and buildings and interest rates. As interest rates fall, prospective home owners and builders can borrow money less expensively and therefore will be more likely to do so. When more homes are built and purchased, Lowe's sales to homebuilders and re-modelers increase. On the flip side, when interest rates rise, borrowing becomes more expensive and the number of building and home improvement projects decline, resulting in fewer sales for Lowe's. In addition, higher interest rates make home refinancing, a large source of funds for home improvement projects, more expensive.

The collapse of the housing market, which was caused by subprime lending, has caused national home foreclosure rates have to go up dramatically, with the hardest hit places being the Southeast and Southwest. The US foreclosure rate had the biggest jump in five years in the first three months of 2010. According to RealtyTrac, the number of US homes taken over by banks increased 35% compared to a year ago. Additionally the number of homes facing foreclosure grew by 16% during the same period. In all, more than 900,000 households (or 1 in every 138 homes) received a foreclosure-related notice during the period. If the rate of foreclosures doesn't change, the housing market is on track to lose 1 million homes to bank repossessions in 2010.[12]

The more foreclosures there are, the more homes are on the market, which results in a decrease in demand for building new homes. Lowe's has struggled through the collapse of the housing marking, having annual decreases in revenue and net income since 2006. In addition, same store sales have been negative in 2007, 2008, and 2009 at -5.1%, -7.2%, and -6.7% respectively.[1] However, there were signs of a turnaround in early 2010 as the US government gave a tax credit to home buyers. In Q1 2010, Lowe's net sales increased by 4.7%.[9]

It should be noted that housing booms do not always occur when interest rates are low. This is especially true in the case of a geographic area housing boom. There are many reasons for such booms (e.g., a company may move to an area, providing a boon through new jobs creation). Because Lowe's has widespread locations throughout the U.S., they are in position to take advantage of such booms.

Slumping Housing Market Forces Decreased Domestic Expansion and Increased International Expansion

  • Domestic:

By the end of 2009, Lowe's was operating 1,710 stores in the United States, having opened 61 new stores during the 2009 fiscal year. [4]Approximately half of Lowe's retail stores are located in one of the top 100 markets in the US, which are comprise about two-thirds of total revenue in the home improvement market. Lowe's store expansion in the future focuses on expanding in the Northeast and West regions of the U.S. However, because of the turmoil of the U.S. Housing Market and reduced consumer spending due to the recession, Lowe's has drastically decreased its rate of expansion. The company only plans to open 40 to 45 new stores in 2010, compared to the 61 and 115 stores opened in 2009 and 2008 respectively. [4][16]

Lowe's currently has two types of retail stores, a larger one for areas with higher demand and a smaller store type for areas with less demand. This lets Lowe's prevent building up excess inventory by matching an area's demand with the appropriately sized supply of products and services. Matching demands and cutting costs are essential for Lowe's because its main competitor Home Depot has 1,976 stores in the U.S and is competing for the same customers. [5]

  • International:

In addition to domestic expansion, Lowe's is starting to focus on expanding internationally as well. Home Depot already has a large presense outside of the US in countries like Canada, Mexico, and China. Not only do these markets provide a new customer basis and more sales, they also act as a buffer to the slumping US domestic economy. Lowe's sees international expansion as a means to increase revenue and keep up with Home Depot.

Lowe's opened its first stores outside of the U.S. in Canada during FY2007 with seven stores in the greater Toronto area. In FY2008, the company opened five more stores in Canada, increasing its international stores to 11. Lowe's made plans to venture into Mexico in 2009 with three to five stores in and around Monterrey. [4] The first of these stores opened in Q1 2010.

Home Depot, on the other hand, is already established outside of the United States with over 150 stores in Canada and 60 stores in Mexico. It is important to note that Home Depot's international stores generate less revenue per store than domestic stores. This differential is likely tied to the fundamentals of international markets (i.e., lower disposable incomes, lower average home prices). As such, Lowe's faces the risk of having lower overall store efficiency as it steps outside of the U.S .in the next few years.

Increased Installed Sales Due to Older Population

One quickly growing contributor to revenue for Lowe's is their Installed Sales division. Through this division, the company provides installation services to customers who prefer the concept of do-it-for-me (DIFM) rather than do-it-yourself (DIY). Lowe's sells to DIFM customers products as well as home installation. For example, Lowe's installs the new flooring purchased in its retail stores. The company offers installation services in over 40 categories and has an association of over 10,000 professional installers nationwide. As the demographics of the U.S. change, specifically baby boomers getting older, there will be an increased amount of demand for DIFM services. The 77 million baby boomers provide a growing market for Lowe's DIFM business line. This is good for Lowe's because they reap additional revenue in this segment from installation charges that they do not accrue from DIY (do-it-yourself) customers.

Sales from this division have increased at a compounded annual growth rate of approximately 22% since 2004 with segment revenue achieving 6% of net sales in 2009 (approximately $2.9 billion). [17]


Lowe's vs. Home Depot

Lowe's is in second place behind Home Depot (HD) in a two horse race in the home improvement retail industry (both are among the top 10 overall retailers in the U.S.). To illustrate the competition between the two companies, nearly a quarter of Lowe's retail stores are located within 10 miles of a competing Home Depot retail store. [18]

Lowe's and Home Depot are by far the most known of the home improvement retail industry, but together they make up only about 18% of the estimated $725 billion home improvement market, which includes pure product demand as well as installation labor demand. The rest is distributed between other "big-box" retailers such as Wal-Mart Stores (WMT), smaller hardware store chains, construction firms, and other small businesses.

Lowe's ranks behind Home Depot in terms of overall revenue--$47.2 billion vs $66.2 billion in 2009.[1][2] Despite this, Lowe's has been catching up with and even exceeding Home Depot across several measures while trailing in the international markets:

  • Same Store Sales Growth: Lowe's has consistently been ahead of Home Depot in same store sales growth since 2004. Same store sales growth lends the best comparison of sales growth between the two companies by looking at the same stores year over year for both companies. By doing this it does not allow new store openings to affect the comparison. In 2009, same store sales of Home Depot decreased by 6.6% [2] whereas same stores sales of Lowe's decreased only by 6.7%. [1]
  • Operating Margin: Lowe's had been behind Home Depot in terms of operating margins for several years until 2006 when Lowe's won a slight advantage over Home Depot. However, Home Depot surpassed Lowe's again in 2007. Home Depot's operating margin was 7.3% compared to Lowe's 6.0% mark in 2009. [1]
  • International Markets: Home Depot has 268 stores [5]outside of the US (mostly in Canada and Mexico) which is six more stores than it had in 2008. On the other hand, at the end of 2009, Lowe's had a total of 16 stores outside the United States, all of which are in Canada.[4] Lowe's hopes to pursue international expansion to catch up to Home Depot's global sales by opening new stores in Mexico -- the first of which were opened in Q1 2010. It is reported that Lowe's has opened its first store in Mexico on Feb 5, 2010.[1]

One key driver of the difference in operating performance is Lowe's store environment, which is often noted to be more more customer friendly than Home Depot's. Consumers wanting less of a "warehouse style" home improvement retailer often choose Lowe's over Home Depot. The other key factor is that Home Depot is much more concentrated in CA, AZ, FL areas than LOW. And those areas have the worst housing slump.

Smaller Competitors

Lowe's also faces competition from smaller independent mom & pop stores. Although these stores usually cannot match the prices of the industry giants Home Depot or Lowe's, they make up for higher prices with customer care, tradition, and perhaps convenience. [19] In addition, the presence of big companies like Lowe's and Home Depot in some areas has even caused customers to boycott the giant firm and to shop at local businesses. [20] The advantage that Lowe's has against these smaller competitors is that they stand a better chance at outlasting the economic downturn and in the mean time attracting old customers of fallen businesses.

One example of a small competitor is Builders FirstSource (BLDR), a company that makes and sells structural and related building products for residential new construction. The company is based in the United States and operates in the United States.[21]


  1. 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 LOW 2009 10-K Exhibit 13 "Consolidated Statements of Earnings" pg. 21
  2. 2.0 2.1 2.2 HD 2009 10-K "Selected Financial Data" pg. 18
  3. LOW 2009 10-K Exhibit 13 "Operations" pg. 5]
  4. 4.0 4.1 4.2 4.3 4.4 4.5 LOW 2009 10-K Part 1 "New Store Expansion" pg. 5
  5. 5.0 5.1 5.2 HD 2009 10-K "Properties" pg. 10-11]
  6. 6.0 6.1 Market Watch "Lowe's Opens First Stores in Mexico" 5 February 2010
  7. LOW 2009 10-K Part 1 "Products and Services" pg. 5
  8. LOW 2009 10-K Exhibit 13 "Sales By Product Category" pg. 44
  9. 9.0 9.1 9.2 LOW Q1 2010 Report
  10. LOW Q2 2010 Report
  11. Motley Fool "Home Depot Calls a Bottom" 11 June 2009
  12. 12.0 12.1 MSNBC "Foreclosure rates surge, biggest jump in 5 years" 15 April 2010
  13. Tech Ticker "Housing Cheapest in 40 Years, But Buyers Don't Need to Rush In, Dan Alpert Says" 29 June 2010
  14. Seeking Alpha "1,000 Brokers Can't Be Wrong: Housing Market Headed for Stagnation" 1 June 2010
  15. 15.0 15.1 Washington Post "U.S. housing market remains fragile despite low mortgage rates" 2 July 2010
  16. Reuters "Lowe's curbs expansion as consumers pull back" 17 August 2009
  17. LOW 2009 10-K Part 1 "Our Service Offerings" pg. 6
  18. Hartford Courant "Construction woes hammer Lowe's, but it stays strong" 18 Nov 2007
  19. Juneau Empire "Surviving Home Depot" 17 Feb 2008
  20. Costal Point "Home Depot plan stirs talks of boycott" 11 Aug 2006
  21. Google Finance: BLDR Overview
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