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Home Depot / Lowes Financial Analysis 1

Running head: THE HOME LEADER -VS- IMPROVING HOME IMPROVEMENTS

The Home Leader -vs- Improving Home Improvements

James J. Elliott

Capella University

Douglas Smith, PhD

Accounting and Finance in Organizations

Home Depot / Lowes Financial Analysis 2

Abstract

An industry of competition, and tight margins The Home Depot, and Lowes Company are

still at it. Both of these companies stand now as the industry standard for the home

improvement sector. The numbers that will be presented in this study show proof that both

companies have extremely strong financial positions, and a long future in the home

improvement industry. Competition is good for the retailer, but even better for the

customer. Each company has its strengths and limitations. The decision on which retailer is

the better one must be decided by the individual analyzing of each company. The Home

Leader -vs- Improving Home Improvements.

Home Depot / Lowes Financial Analysis 3

Table of Contents

The Home Depot

Company………………………………………………………………………………………………4

Introduction………………………………………………………………………………………………………………

……………4

Business Description / Strategic

Analysis……………………………………………………………………………………5

Strategy, Products and Market

Overview…………………………………………………………………………………….5

Financial Statements

Analysis……………………………………………………………………………………………………7

The Lowes

Company………………………………………………………………………………………………………8

Introduction………………………………………………………………………………………………………………

……………8

Business Description / Strategic

Analysis……………………………………………………………………………………9

Financial Statements

Analysis………………………………………………………………………………………………….10

Cash Flow

Statements…………………………………………………………………………………………………….10

Home Depots Cash Flow

Statement………………………………………………………………………………………….10

Lowes Cash Flow

Statement……………………………………………………………………………………………………11

Solvency, Liquidity, and

Profitability……………………………………………………………………………….12

Home Depots Solvency, liquidity, and

profitability…………………………………………………………………….12

Lowes Solvency, liquidity, and

profitability………………………………………………………………………………13

Impacting Regulatory

Bodies………………………………………………………………………………………….13

Investment

Bankers………………………………………………………………………………………………………..14

Conclusion……………………………………………………………………………………………………………….

….14

Refrences………………………………………………………………………………………………………………….

….16

Appendix

A………………………………………………………………………………………………………………..187

The Home Depot

Company……………………………………………………………………………………………………187

Consolidated Statements of

Earnings…………………………………………………………………………………………………188

Consolidated Balance

Sheets…………………………………………………………………………………………………………..189

Consolidated Statements of Stockholders Equity and Comprehensive

Income…………………………………………20

Consolidated Statements of Cash

Flows………………………………………………………………………………………………21

Appendix

B………………………………………………………………………………………………………………….22

The Lowes Company

Inc……………………………………………………………………………………………………….22

Consolidated Statements of

Earnings…………………………………………………………………………………………………..23

Consolidated Balance

Sheets…………………………………………………………………………………………………………….24

Consolidated Statements of Stockholders Equity and Comprehensive

Income…………………………………………25

Consolidated Statements of Cash

Flows………………………………………………………………………………………………26

Home Depot / Lowes Financial Analysis 4

The Home Leader -vs- Improving Home Improvements

The Home Depot Company

Introduction

Home Depot company offer a wide range of merchandise and services, and serve three

primary customer groups: do-it-yourself customers, do-it-for-me customers and

professional customers. A classic Home Depot store stocks approximately 40,000 to

50,000 product items, including variations in color and size. Major product groups include

building materials, lumber plumbing, electrical and kitchen; hardware and seasonal, and

paint, flooring and wall coverings. To balance the national brand name products it offers,

the Company has formed strategic associations with vendor partners to market products

under brand names that are only offered through The Home Depot. “As of fiscal year-end

2001, the Company offered products under more than 30 proprietary and other exclusive

brands, including Thomasville kitchen and bathroom cabinets; RIDGID power tools; Behr

Premium Plus paint; Mills Pride cabinets; GE SmartWater water heaters, and Vigoro

fertilizer.” (“The Home Depot”, 2004)

“Founded in 1978, in Atlanta, Georgia, The Home Depot is the worlds largest home

improvement retailer currently operating 1,800 stores, including 1,649 Home Depot stores,

50 EXPO Design Centers, one Floor Store and three HD Landscape Supply stores in the

United States, 84 Home Depot stores in seven Canadian provinces, seven Home Depot

stores in Puerto Rico and ten in Mexico.” The company reported employees approximately

280,000 people.

Home Depot / Lowes Financial Analysis 5

Business Description / Strategic Analysis

The Home Depot is recognized as being the leader in the home improvement retail

industry by combining the economies of scale inherent in a warehouse format with a level

of customer service unparalleled among warehouse-style retailers. (“Home Depot to”,

1999)

Each Home Depot store stocks approximately 40,000 to 50,000 different kinds of building

materials, home improvement supplies and lawn and garden products. New Home Depot

stores in the U.S. and Canada range from 114,000 square feet with an additional 20,000

square foot garden center. The stores have a design center staffed by specialized designers

who offer free in-store consultation for home enhancement projects ranging from lighting

to computer-assisted design for kitchens and bathrooms.

Home Depot offers installation services of select products ranging from single-items such

as carpet to more extensive projects such as kitchen cabinets. The company is also testing

the At-Home Services program which will offer complete installation of roofing, siding,

and window products in limited markets. Home Depots company stated vision is described

in the case as “to be one of the most successful retailers in the next millennium” which is

further defined by Home Depots management as “the most successful retailers… will be

those, among other things, can effectively profitability extend their reach to global

markets”. (“The Home Depot”, 2004) Management at Home Depot also states that they

plan to take the existing success in areas where they have a base business and use this base

to expand into other markets.

Strategy, Products and Market Overview

I believe that Home Depot has done an excellent job at reaching its goals in the past ten

years. They have been able to expand their market by aggressively opening several store

Home Depot / Lowes Financial Analysis 6

locations and using a clustering strategy. In doing this they have become a market leader

and they have also been able to keep their SG&A expenses down by eliminating redundant

expenses by spreading them out between stores close in proximity to each other. Home

Depot is facing a few problems in order to continue reaching its stated goal(s) of becoming

a global leader and expanding their existing market. There are a few established business

that are in direct competition with Home Depot such as Lowes, their number one

competitor, and other companies such as Eagle Hardware & Garden of Seattle, who has

been preparing for the intense competition that Home Depot will bring them for several

years.

They also face the problem with trying to expand their base in the Professional Business

Segment of which they only hold about 4% of this market. Their competitors in this area

are smaller businesses that have focusing on this market for some time. The EXPO Design

Center enables customers to obtain expert advice and top quality products for projects as