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Lowe's Companies, Inc.

FOUNDED: 1957

Contact Information:

HEADQUARTERS: PO Box 1111
North Wilkesboro, NC 28656
PHONE: (336)658-4000
FAX: (336)658-4766
TOLL FREE: (800)445-6937
URL: http://www.lowes.com

OVERVIEW

Lowe's Companies, Inc. is the second largest home improvement chain in the world, with more than 740 stores located in 42 states serving over six million individual and commercial customers. The 55-year-old company, headquartered in Wilkesboro, North Carolina, employs over 100,000 people across the nation. States with the largest number of Lowe's stores include North Carolina (77), Texas (63), Ohio (48), Florida (47), and Virginia (42). Typically, a Lowe's store consists of a sales floor approximately 120,000 square feet in size, as well as a lawn and garden center consisting of another 30,000 square feet. Lowe's offers a wide range of products and services in the areas of home improvement, home decor, home maintenance, home repair and remodeling, and maintenance of commercial facilities.

During 2000, 75 percent of Lowe's sales revenues were generated by do-it-yourself and buy-it-yourself consumers, and 25 percent came from commercial business. Retail customers include all personal-use shoppers who buy products and services for home building, repair, and maintenance. Commercial customers are professional contractors in such fields as remodeling, electrical work, landscaping, painting, plumbing, and maintenance professionals. To meet customers' wide variety of needs, all Lowe's stores provide a home fashions and interior design center; a lawn and garden center; a selection of appliances; a hard goods and hardware store; an air conditioning, heating, and plumbing supply center; and a building materials center.

COMPANY FINANCES

For fiscal year 2001, ending February 2, 2002, Lowe's reported a net income of __BODY__.02 billion on $22.1 billion in revenues. This compares favorably to net income in fiscal 2000 of $810 million on revenues of $18.8 billion. Earnings in fiscal 2001 translated into __BODY__.30 per share versus __BODY__.05 per share in fiscal 2000. In fiscal 1999, the company generated $15.9 billion in sales, resulting in a net profit of $673,000.

Both income and sales have grown steadily since 1994. The nearly 18 percent increase in sales during fiscal 2001 was driven by a 19 percent increase in square footage from new and relocated stores and a 2.4 percent increase in same-store sales. Stock prices closed in January of 2000, 2001, and 2002 at $22.21, $26.68, and $46.07 respectively. Lowe's made a particularly strong showing in the fourth quarter of fiscal 2001 with net earnings increasing 55 percent and same-store sales increasing over 7 percent compared to the same period in 2000.

ANALYSTS' OPINIONS

Analysts consider Lowe's to be a solid company with significant and consistent growth potential. During the first quarter of 2002, most analysts marked Lowe's as a Strong Buy with a target stock price of $50. In fact, some analysts believed that Lowe's own estimates for upcoming years possibly were too conservative. Based on plans for expansion in square footage, along with ongoing cost controls and inventory management, they looked for Lowe's to top its expected 20 percent increase in total sales. Those analysts who see a bright future for Lowe's stock consider the company an excellent long-term investment opportunity.

HISTORY

In 1921, L.S. Lowe opened a hardware store in North Wilkesboro, North Carolina. Upon his death, Lowe's son James and James' brother-in-law, Carl Buchan, continued to operate the family business until both men were called into military service during World War II. For several years, Lowe's sister and mother ran the store. Before the end of 1943, Buchan was wounded and returned to North Carolina. Taking a 50 percent interest in the store, Buchan sold off much of the existing merchandise and reorganized the business as a wholesale warehouse specializing in hardware and building supplies. Lowe returned from military service in 1946 to assist Buchan. The operation produced enough revenue to allow the two men to open a second store as well as purchase an automobile dealership and a cattle ranch.

In 1952 Buchan traded the automobile dealership and the cattle ranch for Lowe's half-interest in the two stores. In the same year, Buchan opened a third store in Asheville, North Carolina. In 1955, with six stores now in operation, Buchan incorporated the business as Lowe's North Wilkesboro Hardware, Inc. During the 1950s, the business grew rapidly, primarily as a result of the postwar building boom that created an endless demand for hardware and building supplies. Between 1952 and 1959, sales increased from $4.1 million to $27 million. The company's business philosophy was simple: buy products directly from the manufacturer to avoid paying higher wholesale prices from distributors. Customers were primarily building contractors and construction companies. Stores were generally small with limited inventory and a lumberyard behind the store near railroad tracks that provided easy access to delivery.

Buchan died in 1960, and the following year, with sales reaching $30.7 million, the company went public and was renamed Lowe's Companies, Inc. By 1969, the company operated 50 stores and revenues neared __BODY__ billion. Just two years later, the company posted a net income of $170 million; and by 1979, 200 Lowe's stores were producing in excess of $900 million in profits.

Despite its rapid growth, Lowe's noticed that revenues paralleled increases and declines in the housing market. During the 1970s when the price of homes and homebuilding rose considerably and the cost of professional remodeling became prohibitive, homeowners began taking on fix-it projects themselves. When the housing market came to a near dead stop in the late 1970s, Lowe's made the decision to realign the company to target do-it-yourself consumers rather than commercial contractors. Correctly, Lowe's management expected that the company would be more protected from economic swings that traditionally affected the housing industry.

To attract consumers, stores were redesigned to resemble a supermarket. Seasonal and nonessential products were placed at the front of the store on the assumption that customers would come in for basic hardware supplies but buy more when exposed to such departments as home decor and appliances. Product selection was upgraded and expanded, store hours were extended, and the advertising budget was increased. The strategy was a spectacular success. By 1982, sales topped __BODY__ billion and the following year became the first that Lowe's consumer sales outdid its commercial sales.

By the end of the 1980s, the do-it-yourself home improvement market was clearly here to stay. Home Depot arrived on the scene and quickly surpassed Lowe's to lead the industry. Modeling Home Depot's much larger floor plan, in 1989 Lowe's began greatly expanding its own square footage from 20,000 square feet to 60,000 square feet, which was still significantly smaller than Home Depot's standard 100,000-plus square feet stores. Becoming more aggressive in its expansion efforts between 1991 and 1995, Lowe's remodeled or relocated approximately half of its stores, bringing the square footage to between 85,000 and 115,000.

After focusing for several years on restructuring, Lowe's began to expand into new markets again in the mid-1990s. The company operated 520, 576, 620, and 744 "warehouses" in 1998, 1999, 2000, and 2001, respectively. In 1999, Lowe's purchased Washington-based Eagle Hardware for __BODY__ billion and converted its stores over to the Lowe's name. Although the majority of Lowe's stores are located in the Midwest and Southeast, Lowe's has increased its presence in other regions, especially on the West Coast with 35 stores in California and 20 stores in Washington.

STRATEGY

Customer satisfaction is at the heart of Lowe's retail strategy. Using the tag line, "Improving Home Improvement," the company is constantly looking to improve its warehouses and increase its line of products and available services in order to provide a customer-friendly environment that offers the products consumers want. For example, after researching consumer preferences, Lowe's discovered that important aspects of Lowe's warehouses included a bright, friendly store environment, informative displays, and a practical store layout. This information helped Lowe's determine product display, design, and location. Lowe's also provides goods and services to consumers with a broad range of needs, tastes, and budgets. The company attempts to include a variety of offerings within a product line with clear information on individual features.

An important factor in Lowe's profitability is inventory management, which is based on the company's network of distribution centers. The key is to maintain minimal levels of merchandise on the warehouse shelves without sacrificing selection choice or availability. Regional distribution centers allow for rapid restocking of individual stores, which means better customer service while minimizing distribution and inventory costs. Lowe's operates seven regional distribution centers along with nine smaller support operations that handle merchandise with unique shipping requirements due to size or packaging, such as lumber, special imports, and some building materials. Approximately 50 percent of a store's merchandise arrives from a Lowe's distribution facility. The remainder is shipped directly from suppliers.

INFLUENCES

Lowe's is a leader in the phenomenon of the do-it-yourself home improvement trend. Along with being the second largest home improvement retailer, it is the 14th largest retailer in the United States and the 30th largest retailer in the world. However, despite its big chain status and direct competition with industry leader Home Depot, 80 percent of Lowe's competition comes from smaller and regional chains. With the home improvement industry generating an estimated $400 billion annually, the impact of local competition is significant.

Customer type also influences Lowe's strategy for sales growth. The company wants to appeal to Baby Boomers who are in the process of upgrading their housing by moving or remodeling as well as Gen-Xers who are preparing to purchase their first house. The company continues to upgrade special order options and installation services to accommodate a range of needs and preferences. Additionally, women shoppers have become increasingly important as more and more women become the decision-makers in home improvement projects.

One specific reason for a positive outlook is Lowe's increasing strength in appliances in the wake of Circuit City removing its appliance product line and Montgomery Ward going out of business altogether. With Sears as Lowe's lone remaining national competition, analysts expect the company to increase its share of the appliance market. Of interest will be comparable same-store sales of appliances at Sears and Lowe's locations. Appliances comprise 10 percent of Lowe's sales, representing its largest product line.

CURRENT TRENDS

Lowe's has expanded its square footage consistently and significantly. Between 1998 and 2001, total square footage increased from 47.8 million to 80.7 million, and average store size grew from 92,000 square feet to 121,000 square feet. Continued store expansion over the next several years has been targeted to grow by 10 to 15 percent annually. Traditionally, Lowe's has located in small and medium-sized markets. However, future growth will be focused primarily in major metropolitan areas. New stores will account for the majority of growth. Some store relocations will also continue to take place as smaller, older warehouses are moved into new, larger facilities.

Reacting to a change in its customer base, Lowe's began providing services for what it calls "buy-it-yourselfers," those consumers with the money to purchase products but without the time for delivery and installation. Quick to target this new consumer group, Lowe's began offering delivery and installation services as well as providing Web-based tools, also staffing its locations with professionals with home improvement knowledge, skills, and practical experience to provide assistance and guidance to customers. The increase in buy-it-yourselfers has also fueled the growth of Lowe's commercial-based business.

PRODUCTS

Lowe's offers a broad range of home improvement and maintenance products. Major product lines consist of tools, books and videos, home organization, home dÈcor, outdoor living, paints and painting supplies, cleaning supplies, appliances, hardware, lighting and ceiling fans, moving supplies, plumbing, outdoor equipment, electrical supplies, fencing, safety equipment, lawn and garden products, and lumber and building supplies. An average Lowe's warehouse stocks approximately 40,000 items, with hundreds of thousands more available via special order. Excluding special order suppliers, the company contracts for goods from nearly 7,000 vendors, many of whom supply name-brand merchandise. No single vendor claims more than 4 percent of a typical store's total sales. Along with name-brand selection, Lowe's offers an exclusive line of products including Lowe's Top Choice Lumber, Kobalt Tools, and Alexander Julian at Home décor products.

A limited selection of products can be purchased on line at the company's Web site. Purchases are available for pickup at a local Lowe's store or may be delivered. Visitors to the Web site can also find how-to advice and information as well as specialized services for commercial customers. The company offers two Lowe's credit cards, one for individual customers and another for commercial accounts.

CORPORATE CITIZENSHIP

Lowe's is an active member of the communities in which its warehouses are located through support of local programs and volunteer involvement, including the Lowe's Heroes program and Lowe's Charitable and Educational Foundation. The company also provides financial support to such well-known nonprofit organizations as the American Red Cross and United Way.

As a major U.S. supplier of lumber, Lowe's has taken steps to phase out the purchase of lumber from endangered forests as these areas are identified. In 2000, the company placed an immediate ban on lumber purchases from the endangered Great Bear Rainforest of British Columbia. Lowe's is also a founding sponsor of the National Garden, a three-acre area adjacent to the U.S. Botanic Garden Conservatory located in Washington, D.C.

EMPLOYMENT

Lowe's considers its employees as the key to customer satisfaction, which in turn relates directly to the company's success. Committed to diversity and inclusion, Lowe's provides comprehensive, ongoing training that provides its employees with product knowledge, home improvement know-how, and people skills to better serve customers. Lowe's wants its friendly, knowledgeable associates to separate the company from competitors. Newly hired store personnel are provided with a one-on-one mentor as well as group orientation programs.

Employment benefits include competitive pay, performance incentives, stock options, and career development opportunities. Store managers can benefit from a bonus program based on the store's performance. All employees are eligible to participate in the Buy, Own, Save stock program, which provides company stock at a discounted price. After one year, employees are automatically enrolled in an employee stock ownership plan into which the company makes annual contributions of Lowe's stock. A 401(k) employee investment plan is also available.

SOURCES OF INFORMATION

Bibliography

"Analysts See Lowe's Growth." Pacific Business News, 11 January 2002.

Benjamin, Jeff. "Lowe's Builds a Solid Foundation for Profit Growth." Investment News, 18 February 2002.

Grant, Tina, and Jay P. Pederson, eds. International Directory of Company Histories, Vol. 21. Detroit: St. James Press, 1998.

Lowe's Companies, Inc. Home Page, 2002. Available at http://www.lowes.com.

"Lowe's CEO Tillman Tells Vendors What it Will Take to Do Business with the Big Box Chain in the Future." Do-It-Yourself Retailing, March 2002.

"Lowe's Companies, Inc." Hoover's Company Profiles. Available at http://www.hoovers.com.

"Lowe's Concentrates on Metro Markets." Home Textiles Today, 4 March 2002.

"Lowe's Fourth-Quarter Earnings Surged 55.1 Percent to $218.4 Million." Chain Store Age Executive Fax, 1 March 2002.

"Lowe's Reports Record Earnings for Fourth Quarter and Fiscal Year." PR Newswire, 25 February 2002.

For an annual report:

on the Internet at: http://www.lowes.com

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Lowe's Companies, Inc.'s primary SICs are:

2431 Millwork

3442 Metal Doors, Sash And Trim

5031 Lumber, Plywood And Millwork

5039 Construction Materials, Not Elsewhere Classified

5072 Hardware

5211 Lumber And Other Building Materials

5251 Hardware Stores

5261 Retail Nurseries And Garden Stores

5722 Household Appliance Stores

Also investigate companies by their North American Industry Classification System Codes, also known as NAICS codes. Lowe's Companies, Inc.'s primary NAICS codes are:

321918 Other Millwork (Including Flooring)

332321 Metal Window and Door Manufacturing

421310 Lumber, Plywood, Millwork and Wood Panel Wholesalers

421390 Other Construction Material Wholesalers

421710 Hardware Wholesalers

443111 Household Appliance Stores

444130 Hardware Stores

444190 Other Building Material Dealers

444220 Nursery and Garden Centers