Lowes Case Study

Topics: Stock, Stock market, Financial statements Pages: 8 (2871 words) Published: May 3, 2012
I. Executive Summary
Lowe’s Company has been in business for over 60 years. The company is the second largest home improvement retailer in the world and employs more than 215,000 employees. The company’s home base is Mooresville, North Carolina. Standard & Poor ranks Lowe’s as #48 . Presently, Lowe’s stock, which is identified on the New York Stock Exchange as LOW, is selling for right under $20 a share. This price has been consistent and is comparable to their biggest competitor Home Depot, Inc whose stock has remained steady at $23. Lowe’s, and other home improvement businesses, serve three types of customers; the Do-It-Yourself customer that is the individual who completes their own projects and installations. The Do-It-For-Me customer, who purchase supplies then hire third parties to complete the installation or project. Finally, there are the professional customers who are the remodeler, general contractor, repairman, small business owner and tradesmen. The slowdown of the market has affected all types if customers in the home improvement markets. The home improvement market takes in approximately $755 billion annually. However, with the softening of the housing market, unseasonable drought and flooding, and last year’s variable mortgage interest rate hikes the industry has taken some hits. Although mortgage rates are decreasing, high gas prices has caused a recession and overall sales has decreased. California and Florida, which bring in a large portion of sales, experienced the biggest declines in home prices and the most pronounced slowdown in housing turnover. With that said, Lowe’s company was still able to report $48.3 billion in net sales. An analysis of the financial statements and financial prospects of Lowe’s Company was performed on the last two years (2007 and 2008). Financial statements which include the balance, income and cash flow statements for Lowe’s Company and Home Depot, Inc. were obtained to perform the financial analysis to see if Lowe’s is a worthy investment. When comparing Lowe’s against Home Depot, their most closely matched competitor, Lowe’s comes ahead in long term debt to equity ratio with 34.6% whereas Home Depot has a negative outlook on long term debt with debt accounting for 64.3% of total liabilities. This and other factors are defined more closely in the financial statement analysis. According to Fortune 500, Lowe’s is still closing the gap with competitor Home Depot, whose dissatisfied customers were defecting. A Company subsidiary, Lowe’s HIW, Inc., is a defendant in a lawsuit, for allegedly failing to pay overtime wages pursuant to the requirements of the California Labor Code. Though this lawsuit has been filed since 2001, and is in the early stages of class action proceedings, the Company has not estimated the range of loss that may arise from this claim. II. Industry Summary

Lowe’s Company is identified under the Standard Industrial Classification code 5211. SIC 5211 is Lumber and other Building Material industry. This industry is engaged in selling lumber and building materials. Hardware is one of the most important items sold. Lumber and building companies that do not sell to the public are classified as Wholesale Trade, Industry Group 503. Lowe’s closest competitor is Home Depot, Inc. Home Depot is the world's largest home improvement retailer and the second largest retailer in the United States ("U.S."), based on Net Sales for the fiscal year ended February 3, 2008. Home Depot is ranked #22 by the S&P. Their home base is in Atlanta Georgia. Home Depot had 2,234 stores at the end of 2007 with plans to open 87 new stores in 2008. Home Depot has over 284 stores overseas to include 165 stores in Canada and 12 stores in China. In 2007 Home Depot sold HD Supply, the company received net proceeds of $8.3 billion and recognized a loss of $4 million Home Depot also signed a $1.0 billion guaranteed senior secured loan of HD Supply....
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