Home Depot CEO: bracing for tough '07, '08

Frank Blake tells analysts that the housing market and subprime mortgage squeeze will impact its business for much of next year as well.

By Parija B. Kavilanz, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Home Depot's CEO Frank Blake said Wednesday that the softness in the housing market and the subprime mortgage squeeze - twin problems that have badly hurt the No.1 home improvement retailer's business this year - will probably carry through much of 2008 as well.

"In the beginning of this year, we had hoped to see the start of some bottoming in the housing market in the back-half of 2007. We don't think this will happen," Blake told an analysts gathering at the 14th annual Goldman Sachs retailing conference in New York.

He added that 2007 "will continue to be a tough year." More importantly, he said "much of 2008 will face into the same headwinds."

"There's a lot of speculative activity in the markets. And the subprime issue is putting additional pressure on consumers. We will see this play out over the next few quarters," Blake said.

Subprime loans are made to consumers with poor credit, who are also core customers for retailers like Wal-Mart (Charts, Fortune 500) and Home Depot. A jump in subprime mortgage delinquencies has roiled the housing market - and is now affecting retailers as well.

Blake said the subprime problems were hurting big-ticket sales in particular, such as Home Depot's kitchen business.

On a regional basis, Blake said Florida and California were two markets that had suffered the most dramatic slowdown in terms of Home Depot's (Charts, Fortune 500) business.

He said those two important markets accounted for half of the retailer's negative 5.2 percent dip in its comparable sales in the second quarter. Comparable, or same-store sales, are defined as sales at stores open at least a year and are a key gauge of retail performance.

However, Blake said the retailer was seeing improving trends in some regions, including Texas, the mid-west Ohio valley and south east part of the country.

Blake did not give Home Depot's sales or profit guidance for 2008. Top of page