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Lowe Case Essay Sample

Lowe Case Pages
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Should Lowe’s expand into Canada or renew efforts to acquire Rona? Lowes’s should renew the efforts to acquire Rona instead of expanding into the Canadian market. The Canadian consumers already are aware of the stores operated by Rona and this will help ensure they use them. Rona has the advantage by have a combination of large and small stores spread throughout Canada this alone will help cut cost greatly for Lowes if they choose to enter this market. Rona will already know the Canadian laws required for entering the market and this will help protect Lowes in the long and also save time and money. Would you recommend Lowe’s enter the Australian market with 150 new stores as currently planned in an attempt to match Ace’s international presence? If Lowe’s wishes to stay competitive with Ace’s international market they would have no choice but to enter the Australian market and move forward with the new 150 stores. Ace is known for having a market based on the consumers understanding and approval of their products and services.

If Lowes wants to compete they will need to persuade the consumers they care about their understanding and use of the products as well. Having the new stores will spread consumer awareness and offer a better chance at expanding the customer base. Would you recommend Lowe’s reduce the size of its stores to match Home Depot, and even smaller stores such as Ace and True Value? Yes it would be a good idea for Lowes to cut down on cost in general. The costs to operate these large stores are higher because they require more employees, higher utilities and more products on hand to fill the spaces. Ace and True value use smaller areas so the general overhead cost is kept lower from the beginning.

By reducing the store size will free up money to use in other areas and help the bottom line of profits for Lowes. Having smaller stores can also lead to better one on one with consumers leading to more repeat business. What do you think are the best strategies for Lowe’s to outperform Home Depot as the housing market and world economy continues to improve? For Lowes to outperform Home Depot in the housing market they will need to improve the consumer based involvement. The more they know the consumer the more likely they are to outperform Home Depot. This can be done by using advertisements, promotional sales and lower prices. By offering more serves such as flooring installation, do it yourself classes for consumers and other home improvement needs, Lowes will widen the consumer base and can have a lasting impact on the consumer.

Develop the projected financial statements that fully assess and evaluate the impact of your proposed strategy The management projects that the introduction of the new stores will lead to a 20% increase in total revenue. Other items related to sales revenue are also expected to increase by the same percentage. Projected income statement

For the year ended February, 2014

Feb-13
Feb-14
Net sales
$ 50,521
$ 60,625
Cost of sales
$ 33,194
$ 39,833
Gross margin
$ 17,327
$ 20,792
Expenses

Selling, general and administrative
$ 12,244
$ 14,693
Depreciation
$ 1,523
$ 1,523
Interest, net
$ 423
$ 523
Total expenses
$ 14,190
$ 16,739
Pre-tax earnings
$ 3,137
$ 4,054
Income tax provision
$ 1,178
$ 1,522
Net earnings
$ 1,959
$ 2,531
Basic earnings per common share
$ 1.69
$ 2.18
Diluted earnings per share
$ 1.69
$ 2.18
Cash dividends per share
$ 0.62
$ 0.80

Projected Balance sheet
As at 28 February, 2014

Feb-13
Feb-14
Assets

Current assets

Cash and cash equivalents
$ 541
$ 541
Short-term investments
$ 125
$ 125
Merchandise inventory-net
$ 8,600
$ 9,200
Deferred income taxes-net
$ 217
$ 220
Other current assets
$ 301
$ 351
Total current assets
$ 9,784
$ 10,437
Property, less accumulated depreciation
$ 21,477
$ 23,438
Long-term investments
$ 271
$ 271
Other assets
$ 1,134
$ 1,140
Total assets
$ 32,666
$ 35,286
Liabilities and shareholders’ equity

Current liabilities

Current maturities of long-term debt
$ 47
$ 52
Accounts payable
$ 4,657
$ 4,600
Accrued compensation and employee benefits
$ 670
$ 670
Deferred revenue
$ 824
$ 824
Other current liabilities
$ 1,510
$ 1,510
Total current liabilities
$ 7,708
$ 7,656
Long-term debt, excluding current maturities
$ 9,030
$ 10,030
Deferred income taxes-net
$ 455
$ 450
Deferred revenue-extended protection plans
$ 715
$ 700
Other liabilities
$ 901
$ 950
Total liabilities
$ 18,809
$ 19,786
Common stock
$ 555
$ 555
Capital in excess of par value
$ 26
$ 26
Retained earnings
$ 13,224
$ 14,867
Accumulated other comprehensive earnings
$ 52
$ 52
Total shareholders’ equity
$ 13,857
$ 15,500
Total liabilities and shareholders’ equity
$ 32,666
$ 35,286

The assumption is that the expansion will be financed through additional debt.

EPS/EBIT analysis

Feb-13
Feb-14
Pre-tax earnings
$ 3,137
$ 4,054
Add back interest expense
$ 423
$ 523
Earnings before interest and tax
$ 3,560
$ 4,577
Net earnings
$ 1,959
$ 2,531
Common shares outstanding
1160
1110
Earnings Per Share
$ 1.69
$ 2.28

As shown above, the company’s EBIT will increase from $3,560 to $4,577. Despite the additional interest expense on the additional debt, the company’s Earnings per Share will rise from $1.69 to $2.28. The expansion will, therefore, increase shareholders’ returns.

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