Value Line Publishing

Value Line Publishing

Group I: Shanting Yan, Jingtong Li, Yu Cao

Assumptions and Comparisons (EXHIBIT 1 and 2)

Firstly, we make the assumption on the growth of new stores. For Home Depot, we can see that they add average 200 new stores ever since 1999. We can assume that this trend would continue in the following years, which would newly increase about 200 stores every year from 2002 to 2006. Thus, growth rate of new stores of Home Depot would be 15% in 2002, 13% on 2003, 11.3% on 2004, etc. Compared with forecast of Galeotafiore’s analysis, our growth rate trend descends more slowly than hers, especially in 2005 and 2006, making big difference on the coming forecast. On the other hand, Lowe’s management planned to open 123 stores in 2002, 130 stores in 2003, 140 stores in 2004, which are approximately 10 more new stores on following years. Thus, we choose to use their plan and growth rate of new stores of Lowe’s shows as Exhibit.

Given that latitude of sales growth rate rises bigger than that of stores growth since 1997, we believe that sales growth for existing stores would rise in the future. Therefore, for both Home Depot and Lowe’s, sales growth would increase quickly in the first 2 years and then become stable. However, Lowe’s has a bigger potential market because of its marketing strategy so that we make a higher sales growth trend for Lowe’s, just as the Exhibit shows. In Galeotafiore’s analysis, she gave a much higher estimate on this section, average 2% higher than ours. From the data of previous years, we found that total sales growth is highly correlated to growth of new stores and sales growth of existing stores so that we made it simple that assuming total sales growth is the gap between other two sections. As a result, sales growth of both two companies declines gradually in the next few years. Most of our forecasts such as profits and Cash and ST investments are based on the sales growth, so we regard these three estimates as the most basic...