Lowe's Companies (LOW)

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See all Bulls Reasons Bulls: Reasons To Buy Installed Sales business serves emerging class of DIFM customers 100% agree Installed Sales business serves emerging class of DIFM customers An intensified focus on Installed Sales will tailor to the emerging class of DIFM customers and lead to increased sales and profits for Lowe's. View or Edit Reason 1 votes 100% agree Long-term outlook is strong due to growth strategy and better performance 0% agree Long-term outlook is strong due to growth strategy and better performance Although LOW reported a 24% profit loss in Q3 2008 (ended Oct. 31, 2008) when compared to the prior-year quarter, its results were better than what Wall Street analysts had expected. LOW earnings also did better than HD's 31% decline in earnings during the same... read more View or Edit Reason 0 votes 0% agree Canada represents a market opportunity 0% agree Canada represents a market opportunity A successful entry into the Canadian market will bring Lowe's increased footprint and name recognition. View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Housing market slump is detrimental for the home improvement industry 100% agree Housing market slump is detrimental for the home improvement industry Lowe's (LOW) reported net earnings of $488 million for Q3 2008 ended Oct, 31, 2008, a 24% decline from the same period a year ago. Sales for the quarter increased 1.4 percent to $11.73 billion, up from $11.57 billion in Q3 2007. Comparable store sales for the second... read more View or Edit Reason 1 votes 100% agree Markets for home improvement stores are well served by Home Depot already 0% agree Markets for home improvement stores are well served by Home Depot already Many of the areas where Lowe's is planning to open new stores in 2007 are already served by Home Depot stores. View or Edit Reason 0 votes 0% agree Can't beat Home Depot 0% agree Can't beat Home Depot Lowe's is severely outsized by Home Depot and will not pose a serious challenge the larger company for market share and revenues. View or Edit Reason 1 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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The company ranks second in home improvement retailing to Home Depot (HD), which experienced total sales of $90.8 billion in 2006--nearly double that of Lowe's. Two key areas of focus emerge as Lowe's battles Home Depot in the home improvement retail arena. First is the expansion of domestic and international stores; and the second is the growth of installed sales services for the growing do-it-for-me (DIFM) customer base.

• Lowe's opened 149 new stores in 2007, representing a 10.9% increase in retail selling space from 2006. Competition is fierce, especially in the larger markets, where in 2006 over 70% of Lowe's retail stores are located within 10 miles of a competing Home Depot store.
• Lowe's has opened 7 stores in Canada as of 2/25/2008 and plans on opening 3 to 5 stores in Mexico by 2009. Home Depot, on the other hand, is well established outside of the United States with over 150 stores in Canada and 60 stores in Mexico. In addition to facing established competition, Lowe's may face lower store efficiencies similar to Home Depot, which generates significantly less sales per store internationally than in the U.S.
• Installed sales for the DIFM crowd has grown 22% per year since 2004 (through 2006). However, sales from this division comprise only 6% of overall sales for Lowe's in 2006.

All home improvement retailers, including Lowe's and Home Depot, are vulnerable to macro economic changes in the housing market as well as natural disasters such as hurricanes. Lowe's struggled under the weight of a falling housing market during 2007 as same store sales for the year decreased 5.1% and the company anticipates same store sales for 2008 to remain negative as the outlook for the housing market's recovery is bleak.

[edit] 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:

• In Store Sales: Lowe's sells home improvement products in twenty different categories in its stores. In 2006, Lowe's top five selling categories accounted for 38% of total revenue.
• Installation Services: Lowe's caters to do-it-for-me customers by providing installation services across a variety of 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.
• Total 2006 Revenue: $49.6 billion

Note: Figures for 2006.

[edit] Earnings for 2008

Lowe's (LOW) reported net earnings of $938 million for the quarter ended August 1, 2008, a 7.9 percent decline from the same period a year ago. Diluted earnings per share declined 4.5 percent to $0.64 from $0.67 in the second quarter of 2007. For the six months ended August 1, 2008, net earnings declined 12.1 percent to $1.54 billion while diluted earnings per share declined 8.7 percent to $1.05.

Sales for the quarter increased 2.4 percent to $14.5 billion, up from $14.2 billion in the second quarter of 2007. For the six months ended August 1, 2008, sales increased 0.7 percent to $26.5 billion. Comparable store sales for the second quarter declined 5.3 percent and declined 6.7 percent in the first half of 2008.

[edit] Trends and Forces

[edit] Housing Market

As a retailer of home improvement products and services, Lowe's is at the mercy of the housing market. When the housing market booms, the demand for home improvement products rises. On the other hand when the housing market declines, consumers are hesitant to invest money into their homes for fear that they won't see any significant return on that investment. The housing market boom from 2005 to 2006 led to high demand for home improvement supplies while the housing slowdown in mid-2006 affected Lowe's third quarter results, producing negative same store sales growth. During the summer of 2007 the housing market continued to fall, mostly due to the economic shake up caused by the subprime mortgage crisis. This crisis has seriously hurt the U.S. Housing Market and in turn, the home improvement retail industry. In light of these macroeconomic troubles Lowe's same store sales declined 5.6% during FY 2007 as net income decreased approximately 9.5% against a 2.9% increase in net sales.

[edit] Store Expansion

[edit] Domestic

By the end of 2007, Lowe's was operating 1,534 stores in the United States, having opened 149 new stores on net during the 2007 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 near future will focus on expanding in the Northeast and West regions of the U.S.

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 allows Lowe's to help prevent from building up excess inventory by matching an area's demand with the appropriately sized supply of products and services. However, the company only plans to open 75 to 85 new stores during 2009 compared to 120 new stores in 2008, citing the turmoil of the U.S. Housing Market and reduced consumer spending as reasons for caution.^[1]

[edit] International

In addition to domestic expansion, Lowe's opened its first stores outside of the U.S. in Canada during FY 2007. The company opened seven stores in the greater Toronto area between the end of 2006 and February 2008. Lowe's also has plans to venture into Mexico with three to five stores in and around Monterrey in 2009.

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 could experience lower overall store efficiency as it steps outside of the U.S .in the next few years.

[edit] Installed Sales

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 will install 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 topping $2.8 billion in 2006 (6% of overall sales).

[edit] Hurricane Seasons

Despite their tragic and destructive nature, hurricanes lead to increased sales for Lowe's and other home retailers. The destruction caused by severe weather creates a high demand for home repair products, lumber, tools, appliances, paint, and the like. The rebuilding efforts of New Orleans and the Gulf Coast after Hurricane Katrina in the late summer of 2005 led to 10%+ quarterly increases in revenue for Lowe's during the following months.

[edit] Internet-based protest campaign

September 2007 saw Lowes become the subject of an online protest site lowes-sucks.com (no longer active) complaining about the quality of work by contracted installers. Whilst the underlying complaint (about the quality of a fence installation) seems trivial, the issue has snowballed and become more about Lowe's complaint handling and legal responses, rather than their quality of work. All this received considerable media interest, and is an example of the often unexpected side of The Internet Impact on companies.

[edit] Competition

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, in 2006 over 70% 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 leaders of the home improvement retail industry, but together they make up only about 18% of the estimated $725 billion home improvement marker, 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--$91 billion vs $47 billion in 2006--and revenue per store--$42.3 million per store vs $33.8 million per store. 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 for the past three years. In 2006 the housing market slowdown hit Home Depot hard, yet Lowe's weathered the adversity more effectively: over all of 2006 Home Depot experienced a same store sales growth drop of -2.8%, while Lowe's saw nearly flat same store sales growth at -0.1%.

• Operating Margin: Lowe's had been behind Home Depot in terms of operating margins for several years until 2006 when Lowe's held a slight advantage over Home Depot with an operating margin of 10.7%. Home Depot's operating margin fell to 10.6% from 11.5% in 2005.

• International Markets: One reason Home Depot is ahead of Lowe's is because Home Depot has over 220 retail stores outside of the US (155 in Canada, 61 in Mexico, and 12 in [Rise of the Middle Class|China]]). The Canadian stores contributed over $5 billion to total revenue in 2006 (Home Depot does not release figures that break down its revenue in Mexico). Lowe's on the other hand only has stores in the U.S.

In light of the recent housing market troubles, Lowe's has fared comparatively better than Home Depot (HD). During the third fiscal quarter of 2007, Home Depot saw sales and profit drop, while Lowe's maintained sales growth with slight decreases in profit.

 Lowe's Companies

	Select All  |  Select None Metrics Revenue by Geography - International Revenue by Direct Marketing Revenue for Do it Yourself Customers Revenue for Do it for me Customers Cost of Goods Sold Store Operating Expenses Sales Growth Sales per Store Sales per Square Foot Number of Stores Square Footage Inventory per square foot Selling, General and Administrative expenses Current Liabilities Revenue Revenue by Geography - US Net Income Same Store Sales Growth Inventory Turnover Cancel

	Select All  |  Select None Companies Builders FirstSource (BLDR) Lowe's Companies (LOW) Lumber Liquidators (LL) Home Depot (HD) Cancel

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Company	Data From	Net Income	Revenue	Same Store Sales Growth	Revenue by Geography - US	Inventory Turnover
Builders FirstSource (BLDR)	2007	($23.8M)[2]	$1.59B[2]	Add	$1.59B[2]	11.1[3]
Home Depot (HD)	2007	$4.21B[4]	$77.3B[4]	(6.7%)[5]	$69.9B[6]	4.2[4]
Lowe's Companies (LOW)	2008	$2.81B[7]	$48.3B[7]	(5.1%)[8]	$48.3B[7]	4.28[7]
Lumber Liquidators (LL)	2007	$11.3M[9]	$405M[9]	Add	$405M[9]	4.37[9]

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[edit] References

1. ↑ MarketWatch 9/24/2008
2. ↑ ^{2.0 2.1 2.2} BLDR-2007-10-K-Item 8-Page 45
3. ↑ BLDR-2007-10-K-Item 8-Page 46
4. ↑ ^{4.0 4.1 4.2} HD -2007-10-K-ITEM 15-PAGE F1
5. ↑ HD 2007 ITEM 7 , 10-K PAGE 19
6. ↑ HD 2007 ITEM 8 FROM 10-K PAGE 44
7. ↑ ^{7.0 7.1 7.2 7.3} LOW-2008-10-K-EXHIBIT 13-PAGE 21
8. ↑ LOW-2008-10-K-EXHIBIT 13-PAGE 8
9. ↑ ^{9.0 9.1 9.2 9.3} LL -2007-10-K-ITEM # 6-PAGE 27