Home Depot and Lowe’s operate national chains of home improvement stores that sell a wide assortment…

Home Depot and Lowe’s operate national chains of home improvement stores that sell a wide assortment of building materials and home improvement, lawn, and garden products, such as lumber, paint, wall coverings, lawn mowers, plumbing, and electrical supplies. Home Depot operates approximately 1,300 stores, while Lowe’s operates approximately 740 stores. The following operating data (in thousands) were adapted from the 2002 SEC 10-K filings of Home Depot and Lowe’s:

 

Home Depot

Lowe’s

Net sales

$53,553,000

$22,111,108

Cost of sales

37,406,000

15,743,267

Gross profit

$16,147,000

$ 6,367,841

Operating expenses

11,215,000

4,570,053

Operating income

$ 4,932,000

$ 1,797,788

Other income and expense

25,000

(173,537) $ 1,624,251

Income before taxes

$ 4,957,000

Income taxes

1,913,000

600,989

Net income

$ 3,044,000

$ 1,023,262

1. Prepare common-sized income statements for Home Depot and Lowe’s.

2. Compute the average sales per store for Home Depot and Lowe’s. Round to thousands.

3. Analyze and comment on your results in (1) and (2).

Strong

1

Buy

2

Hold

  3

Sell

4

Strong Sell

5

Based upon your answer to (3), would you expect that the average broker recommendation for Home Depot to be higher (less favorable) or lower (more favorable) than for Lowe’s? To find the broker recommendation, enter the stock symbols for Home Depot (HD) and Lowe’s (LOW) and click on “research.” Appendix C at the end of the text provides more details about using Yahoo Finance for research.

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