Cash King in a Recession

Joined: 14 Nov 2008 Posts: 36

I keep waiting for that spectacular 4th quarter & Annual Report by Lowe’s and I’m curious that it’s taking so long. I’ve been reading some more articles lately about customer service, product quality & average register sales in comparing both. ROE metrics don’t tell the story alone, but it’s interesting to note that now from 2004 – 2008 Home Depot has been increasing steadily from just under 20% - 25%. Lowe’s was almost flat line during the period at just under 20% and in 2008 took a 3% dive all of the sudden. If one company is too highly leveraged, then ROE can look good for a long period of time, before finally crashing down and leaving shareholders in the lurch (U.S. Banks and certain homebuilders). Watch out shareholders… If you look at ROA (Return on Assets) provides a reasonable metric of return on every dollar that management invests in the business. Home Depot & Lowe’s were both increasing from 2004 – 2006, but HD was out pacing LOW by 2% points. In 2007, Lowe’s was ahead by .1% at around the 11% mark. In 2009 HD declined to 10% while Lowe’s fell back below 9%. Does that really mean that Home Depot is getting more for every dollar they spend? Do they have better quality inventory items, better customer service or is it just the shear fact that they have more experienced labor, not necessarily more bodies. Another ROE metric which shouts out, is where Home Depot has been further boosting its ROE by levering itself up. You can find yourself in a position of over leveraging yourself, but when you compare leveraging rates over the last 4 years & in that time but specifically during the past 5 quarters, Home Depot has been reducing its interest coverage ratio by 75%. Only in the most recent month has that ratio metric gone back up, but the quarter is not even close to over. This clearly shows that home depot is managing cash, thus having better cash flow to cover debts for fixed obligations (overhead). Lowe’s appears to be doing the opposite, putting itself in debt further to weather the housing and overall market storm. Guess who has more money when the storm is over? That is why at Lowe’s, you’re seeing some of the crazy corporate actions right now with personnel. Lowe’s has very few alternatives now as it increases debt and thus ballooning subsequent finance & interest charges, other than to slash overhead. Management labor is abundant (Circuit City) & their getting rid of heavy overhead as well as experienced (expensive) management labor at the store level. Further, it’s damaged domestic relationships (vendor/suppliers/manufacturers) so badly by hold funds and outright heavy handed tactics in the past, that you have plenty of examples of manufacturers that are slow to react with resupply unless money is in hand. If this recession goes any further than the experts think, you may find out that CASH is KING, you can decide who is wearing the crown in 2009!

Joined: 22 Dec 2007 Posts: 461

"Do they have better quality inventory items, better customer service or is it just the shear fact that they have more experienced labor, not necessarily more bodies"

You don't need that much for experience though. Some services are not provided by either. I just got the latest Ikea catalog. You can go to their site and download software to make your own kitchen then bring that in to have it them look at it (their systems are open). Neither lowes nor hd does that... dispite the mantra of being DiY.

HD's has been cutting things left and right...hr's, stores, that vendor scandle, some installs they don't do due to bad pr. The vendor problem is serious as their vendors took bribes from overseas makers and this overrode store planograms. Don't assume that hd products are exclusive...Ryobi can be found sold on the streets of Shanghai (go to Beijing street..it's there)
TTI owns ryobi
http://www.ttigroup.com/en/our_brands
Ridgid is also technically not really by hd either
http://202.66.146.82/listco/hk/techtronic/press/p090204.pdf

HD just laid off another 462 jobs in atlanta
http://atlanta.bizjournals.com/atlanta/stories/2009/02/02/daily11.html?surround=lfn

I'd also say it's a bit odd since their largest competitor between the both of them is menards and they don't have to report a thing!

this is hard to see but if you go to google finance and type in hd and compair it to low since about 1991 it's clearly outperformed hd. Hd was dominant don't get me wrong but not so much anymore. Yes lowes has debt but in the eyes of the public they are only seeing hd close stores.

Joined: 07 Jul 2003 Posts: 110

Joined: 19 Oct 2003 Posts: 2801

Vitals come out 2/17

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