Home Depot vs Lowes

Topics: Financial ratio, Financial ratios, Generally Accepted Accounting Principles Pages: 61 (7007 words) Published: April 6, 2012
Company Background: The Home Depot, Inc. (NYSE: HD)

Home Depot was founded in 1978 by Bernie Marcus and Arthur Blank. These founders envisioned providing one-stop shopping for the “do-it-yourselfer,” and this vision became a reality after working with investment banker Ken Lagone and merchandising expert, Pat Farrah. The first two stores were opened on June 22, 1979, in Atlanta, GA. These first stores were approximately 60,000 square feet in size each, and stocked 25,000 products, which made the stores drastically larger than any competitor or hardware store at that time. In addition to offering more products than competitors, store associates were also expected to offer the best customer service in the industry. Associates at Home Depot were able to guide customers through projects such as laying tile, changing a fill valve or handling a power tool. Not only did store associates undergo rigorous product knowledge training, but they also began offering clinics so customers could learn how to do it themselves. Home Depot revolutionized the home improvement industry by bringing exceptional knowledge, more tools, and at lower prices than its competitors.

Home Depot became the fastest growing retailer in U.S. history. In 1981, the company went public on NASDAQ and moved to the New York Stock Exchange in 1984. The 1980’s and 1990’s showed tremendous growth for the company, and in 1989 they celebrated the 100th store opening. Since this time, Home Depot has expanded its operations to include stores in Canada, Mexico, and as recently as 2006, expanding to China. As of January 30, 2011 the end of the 2010 fiscal year, Home Depot has grown to operate over 2,200 stores in the United States. The company has maintained its primary objective of providing high quality customer service to its consumers, and is recognized as the largest home improvement retailer in the United States.

Company Background: Lowe’s Companies, Inc. (NYSE: LOW)

Lowe’s originated as a small hardware store in North Carolina in 1946 after Carl Buchan, bought-out his brother-in-law and partner, James Lowe. At this time, Lowe’s was a small town hardware store that sold everything from overalls to washtubs. Buchan, for-saw a post-World War II building boom, and began to concentrate on selling only hardware, appliances, and building materials. He eliminated wholesalers in order to deal directly with manufacturers, allowing Lowe’s to establish a reputation for low prices. Lowe’s continued to operate as a smaller retailer, rather than a large warehouse, as was the strategy of Home Depot.

Lowe’s became a public company in 1961, and began trading on the NYSE in 1979. At this time, the housing market in the United States began to grow and professional builders became Lowe’s loyal customers accounting for the majority of the business. In 1982, Lowe’s began to also focus on a new consumer, the “do-it-yourself” consumer, the primary consumer of Home Depot. At this time, Lowe’s began to enlarge their stores and merchandise offerings to accommodate their expanding consumer base, but the modern Lowe’s that is now customary did not begin until 1994. Lowe’s has also expanded its operations to Canada and Mexico, and currently operates 1,750 stores in the United States. Lowe’s is currently the second largest home improvement retailer worldwide behind Home Depot.

Exhibit A: Liquidity Ratios: (Full Calculations Located in Appendix 1)

|Liquidity Ratios (all numbers in thousands) | | | | | | |Period Ending |2011 |2010 |2009 | |Home Depot Working Capital |3,357,000 |3,537,000 |2,209,000 | |Lowe's Working Capital |2,848,000 |2,377,000 |1,630,000 | | | | |...
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