In Focus

The Low-Down on Lowe's

For the longest time the only home improvement store I frequented was Home Depot. That was way back when my husband and I were first building our house, and we never gave any other store a second thought. My builder said, "Try Home Depot," so we did. Since I was new to the whole industry, I couldn't have told you whether or not I was paying through the nose for certain items. Then just this year, when we moved to Cincinnati, I decided to get myself a new washer & dryer. I'm not sure what made me pull into the Lowe's (LOW: NYSE) parking lot but man, am I glad that I did. For a terrific price I got my washer & dryer delivered to me the next day, and I liked the service so much, I continued to shop there whenever the need arose. Turns out I'm not the only one preferring Lowe's to Home Depot these days. From stock analysts to do-it-yourselfers, Lowe's is raising as many eyebrows as they do roofs!

Originally called North Wilkesboro Hardware (can't ya just picture it... the mom & pop shop up the road?), the name was changed to Lowe's 55 years ago and lately these guys have been experiencing nothing but highs. For their fiscal year ending 02/02/01, revenues rose 18% to $18.78 billion. Net income was up 20% to $809.9 million. Over the past year this do-it-yourself/home decorating/home construction store outperformed shares of the beloved Home Depot (HD: NYSE) by 61%. This is big news. With the public outcry over the lack of good service and chaos in the aisles on the orange side of the street, the blue side of the street has been jam-packed with happy customers and employees whistling while they work. So Lowe's... what's the low-down?

For starters, Lowe's made a declaration not to do exactly what they saw as problematic for their biggest competitor. Home Depot was growing at an incredible pace, putting local hardware stores out of business left and right; they seemed fearless. Their main strategy appeared to be to stock the shelves, jack up the prices, and regardless of the number of customers, have one guy named Bernie on the floor. Poor Bernie. I have it on good authority from a former HD junkie that what used to be hog heaven for wannabe Tim Taylors everywhere, eventually became a truly frustrating shopping experience. Lowe's must have been lurking in the shadows taking notes. Before you knew it, they were building new stores and remodeling existing stores with brighter lights and wider aisles. They began chopping prices and hired more help. And at Lowe's, Lou from fixtures was fully capable of helping you out with lawnmowers, too.

What was happening behind the scenes at Lowe's was pretty impressive as well. They have been voted as one of the "100 Best Companies To Work For in America" three times. On April 9th, Lowe's was awarded the 2001 Corporation of the Year by the NAACP (National Association For The Advancement of Colored People). The company gave $1 million contribution to help rebuild the oldest township in America founded by freed slaves, Princeville, North Carolina. When Hurricane Floyd devastated that community, Lowe's backed a 12-home Habitat for Humanity project. Now that you're feeling all warm and fuzzy, let me give you some other figures to ponder.

LOW is ranked 3rd in the Retail/Home Improvement Industry based on Market Guide's list in order of descending marketing capitalization. They are #108 on the Fortune 500 list, #124 under Hoover's and they belong to the Chicks' favorite benchmark, the S&P 500. Considered the 15th largest retailer in the United States, they are also 34th in the entire world. There are 635 stores in 40 states and the $2 billion expansion plan they're implementing has them opening more than one store per week. Think these guys mean business? Look out HD!

But wait! In the midst of all this good news we have a few analysts displaying some skepticism. One of them from Goldman Sachs actually downgraded the stock from the "U.S. recommended for purchase" to the "market perform" category. He stated his reasoning was a reaction to the weakened same-store sales despite their great recent financials. Joe Analyst feels that this is still a decent company, he just finds them "no longer compelling." On the other hand, you have Mr. Prudential Securities analyst who loves that Lowe's has tightened cost control and had better than expected Gross Margins. Mr. P restated his recommendation of Lowe's as a "strong buy." Ugh. The confusion is too much, isn't it? This company makes a terrific future candidate for the Chicks' Dozen, hey? You know, where you walk away with a clear head in your decision-making process? Hah!

The bottom line here is that there is probably room for more than one home improvement giant in the industry. Whether or not Lowe's will make Home Depot go away remains to be seen, but I doubt it. HD didn't get where they are by being complete imbeciles. They've probably got their own people lurking in the shadows at Lowe's, too, and have probably heard enough complaining to know they need to modify their strategy. They've got the cash and the name behind them to pick up the pieces and get back into the good graces of their die-hards. I personally think a little healthy competition is good. After all, at the very least Lowe's has made Home Depot wake up and smell the sawdust. Isn't that a good thing?