No. 2 home-improvement center Lowe's(NYSE: LOW) announced bang-up Q2 results this morning, boosting the stock as much as 10%.

The company reported Q2 EPS of $0.59, versus $0.42 in the year-ago period, beating consensus Street estimates of $0.54. The 40% earnings vault came on a 22% jump in revenues. The company raised its full-year EPS forecast to $1.74-$1.75 from $1.66-$1.69.

Lowe's earns brownie points for releasing all three financial statements at once -- yup, even the cash flow statement that tells how much cash the business itself generates -- and only 17 days after the end of its quarter. Why can't everyone do that?

Unfortunately, that very cash flow statement shows the company's Q2 free cash flow merely lumbered in, after a rich Q1:

                              Q2 2002     Q1 2002
Net cash from operations $455 mil. $1,173 mil.
Capital expenditures
 (fixed-asset purchases)($408 mil.)($ 501 mil.)
Free cash flow           $ 47 mil.  $ 672 mil.   

Normally we don't like to see earnings growing much faster than free cash flow, but it's fair to give some latitude to an expanding retailer like Lowe's, which aims to increase its 806 store count and compete with as many of Home Depot's(NYSE: HD) 1,386 stores as possible. But our indulgence lasts only as long as operating cash flow funds the store buildout and other key metrics are in line. They are. Operating cash flow has been more than sufficient for three quarters. Debt is stable. Lowe's cash conversion cycle (how long it takes to buy and pay for materials, sell the products, and collect the amount due from a customer) is 34 days, its lowest in six quarters. Its Flow Ratio is calm at 1.20.

But about that debt. One possible warning, and the main difference between the two home-improvement powerhouses, is that Lowe's $3.7 billion long-term debt is about three times that of Home Depot. Furthermore, Home Depot can brag about four times cash to long-term debt, while Lowe's reports only about 0.4. Home Depot can fund its entire $2 billion stock-buyback program announced last month, pay off its entire long-term debt, and still have plenty of bucks left over. Not so for Lowe's, which must grow stores about 70% to compete against No. 1 in all markets.

Long term, Home Depot has more ammunition to withstand the price pressure that will accompany more Lowe's stores, but neither company offers the potential for growth to provide an attractive return at current valuations. Interestingly, our Home Depot discussion board is much more lively than Lowe's. Does that mean Home Depot is the more familiar brand for the "buy-what-you-know" investor?

One thing's for sure: Whichever company first offers stores where you can actually get help on weekends will have a leg up.

Home Depot reports tomorrow.