(FORTUNE Magazine) – For years, people considered Lowe's a poor man's Home Depot. It's true that when you think home improvement, you usually think big orange. (For the record, Lowe's color is blue.) Indeed, Home Depot has more stores: 1,388, vs. 780 for Lowe's. Home Depot is bigger. It brought in $54 billion in revenues in 2001 and has a market cap of $95 billion. Lowe's did just $22 billion in sales, and weighs in at $35 billion. Home Depot is based in Atlanta. Lowe's is out of Wilkesboro, N.C. Home Depot has a trophy CEO, Bob Nardelli (for more, see "Something to Prove"). Lowe's has Robert Tillman, who's fiery (and never shy about bashing Home Depot) and well respected within the industry but not widely known.

So Home Depot is a lot like Wal-Mart. An impregnable giant. No one's ever going to catch 'em, right? Not so fast. Don't look now, Mr. Nardelli, but little brother Lowe's is coming up your tailpipe. Fact is, Lowe's is growing faster than Home Depot. And Wall Street--which has had a love affair with HD for years--knows it. The dirty little Wall Street secret is that Lowe's stock has hammered HD's over the past 12 months, two years, and five years. (To be fair, though, HD has pounded Lowe's over the past 15 years.) Of course, some of Lowe's performance is due to the fact that the company has a tremendous advantage coming from a low base. In other words, it's much harder for Home Depot to grow as fast as Lowe's, because Home Depot is so much bigger. But don't sell Lowe's short on that. This company has been making all the right moves.

There's been a lot of talk lately--rightly so--about how Wall Street analysts always get it wrong. Well, to a certain extent Lowe's is a case where the analysts got it right, which is to say that many of them saw this one coming. (So did FORTUNE: See "Lowe's Borrows the Blueprint" on fortune.com.) Danielle Fox, retail analyst at J.P. Morgan, has had a buy on Lowe's since September 2000, when the stock was at $20. It's now in the high $40s. "It's worked," she says. "What's happened recently is they've had outstanding same-store sales and EPS performance." Yup. Lowe's recently announced that same-store sales growth (that's sales growth from shops open at least one year) was running at 7.5%. That's pretty impressive, especially in this economy. As for EPS, Lowe's is hitting it there too. Its earnings look to be growing about 21% annually (that's using three years of historical numbers and estimates for two years forward). Home Depot, by contrast, is growing about 16% a year using the same metric.

This rapid growth, says Fox, is the result of a carefully laid plan. "People are finally coming to see tangible benefits from their metro market strategy." What the hell's that? Well, Lowe's traditionally has operated smaller stores in smaller markets, mostly in the Southeast. Now it's opening big-enchilada stores--how does 150,000 square feet grab you?--in big-enchilada markets, like New York, Boston, and L.A. Get it? As in the coasts, where there are more people with more money. So, says Fox, "this improves same-store sales, and you get higher gross margins."

Of course, with this strategy Lowe's is running smack-dab into Home Depot's breadbasket. One point to watch here, says Aram Rubinson of UBS Warburg, is what happens if HD responds by starting a major price war. HD, Rubinson points out, has an awesome balance sheet with over $5 billion in cash and little debt (Lowe's is definitely more leveraged than Home Depot.) Plus, both retailers are riding the incredible housing boom--and you know I think that has to wind down at some point.

Still, in that FORTUNE article nearly four years ago, Lowe's CEO Tillman brashly predicted that the company would be doing $30 billion in sales in 2003. This when his company was on a run rate of about $15 billion. Today Tillman looks as if he has a pretty good shot at making that number. Then Home Depot will be even closer in Tillman's sights.

How many FO products here?

Okay, so a couple issues back I posed with as many Fortune Brands (FO) products as I could hold. We had a contest where we asked you to count 'em up and tell us how many SKUs there were. Well the winner is Chris Gompper of Phoenix. "I count 18 distinct Fortune Brands products. Or 16, if you include the head covers with the metal woods."

1. Titleist golf bag 2. Swingline stapler 3. Acco paper clips 4. De Kuyper liqueur 5. Golf irons 6. Titleist head cover 7. Cobra head cover 8. Cobra driver 9. Titleist 3 wood 10. Titleist golf balls 11. Moen faucet 12. Jim Beam bourbon 13. Knob Creek small-batch bourbon 14. Omega or Schrock cabinet 15. Master Lock 16. Wilson Jones binder 17. Titleist golf hat 18. FootJoy shoes

Dead on, dude! Your choice--you win either a Swingline stapler or a bottle of the Knob! (Caveat there: must be of age!)

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