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.  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 $66.2 billion in 2009 -- nearly one-and-a-half times that of Lowe's.  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. In addition, at of the end of fiscal 2009, Lowe's operated over 1,710 stores in the United States and Canada -- all but 16 of the stores were located in the US,  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. Home Depot on the other hand operates 262 stores internationally and has stores in China, which act as a buffer to the domestic market.  Lowe's expand internationally in Q12010 by opening its first store in Mexico.
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:
Lowe's provides a wide range of home building supplies (about 40,000 products per store) and services to its target customers.  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. 
Lowe's reports its sales in one general business segment which has 21 different categories of products: 
Lowe's uses four methods to make sales:
In June 2009, main competitor to Lowe's, Home Depot claimed that the worst of the housing market fallout had already passed.  However, this does not mean that the home improvement companies like Lowe's will suddenly see higher sales or net income -- Lowe's had a 19% decrease in net income in 2009. Although the housing market might have bottomed out, the economy is still suffering from the recession. The household savings rate has reached a 15 year high  and the number of homes on the market due to foreclosures is very high. Homebuilders have to wait until foreclosed homes, which are selling at rock bottom prices, and for the economy to rebound before they see any increases in housing construction. In October 2009, home construction fell 10.6% from levels in September and was at its lowest point in six months. In addition, home construction in October 2009 was 30.7% lower than it was in October 2008 In the following December, home construction fell an additional 4%. However, that month also saw a 10.9% increase in the number building permits, an indicator of future construction, which reach its highest level in a year and is perhaps a sign that the slow recovery is already beginning.
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.
Since 2006 the housing market has been struggling as a result of the credit crunch that began in 2007 in the financial industries with fallouts on subprime mortage-backed securities. As a result, national home foreclosure rates have gone up dramatically, with the hardest hit places being the Southeast and Southwest.  The foreclosure rate in Q3 2009 was 5% higher than the rate in Q2 and 23% higher than the rate in Q3 2008. This meant that one in every 136 homes were in foreclosure nationwide, and in the hardest hit places like Nevada, one in every 23 homes recieved a foreclosure notice  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 this period seeing 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. 
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.
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. 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. 
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. 
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.  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.
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. 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). 
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 -- in 2005, the DIFM business increased by 20.5%. 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.
Each Lowe's store stocks proprietary brands exclusively sold by Lowe's and national brand name items sold by other retailers and suppliers. Some notable brands unique to Lowe's include: Premier Living, Kobalt, and Portfolio. The contracts that give Lowe's exclusive rights to sell certain brands generate dual value, especially in regards to the professional customer base.
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. 
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. Despite this, Lowe's has been catching up with and even exceeding Home Depot across several measures while trailing in the international markets:
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.
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.  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.  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.