NEW YORK (CNN/Money) - Home Depot, the No. 1 U.S. home improvement retailer, lowered its sales and earnings growth targets for the coming fiscal year Friday, citing a challenging economic environment.

The company said at an analysts meeting in Atlanta that it was revising its earnings growth for the year ending next January to between 9 and 14 percent, and adjusting its sales growth estimate to between 9 and 12 percent. The previous growth forecast was 18 to 20 percent for earnings and 15 to 18 percent for sales.

Home Depot (HD: up $0.03 to $22.20, Research, Estimates) also said it is increasing capital spending by 21 percent to $4 billion to enhance the customer shopping experience and boost its sagging sales. Home Depot has been facing increased competition from Lowe's (LOW: down $0.94 to $36.83, Research, Estimates) in its key markets.

The company said it is launching a $250 million store remodeling program in the coming fiscal year and is refocusing its business strategy on aggressively improving its stores and adding 40,000 associates. It also will open 200 new stores.

"We have embarked on a transformation of The Home Depot from a young, decentralized business toward a more mature and balanced company with predictable and sustainable growth potential," said Bob Nardelli, chairman, president & CEO of The Home Depot.

"While necessary, the level of change has proven to be disruptive, putting pressure on our sales performance. Over the coming year, we will increase our investment in our associates, existing stores, and new information systems," he said.

Additionally, Home Depot reiterated its earnings growth for the current fiscal year, which ends Feb. 2, of between 21 and 23 percent on 10 percent sales growth. The company said it had completed its previously announced $2 billion common stock buyback program during the current quarter.

Earlier in this year, Home Depot warned of a profit and sales shortfall for its fourth quarter and fiscal year ending Feb. 2, on the back of weak December sales. Home Depot expects earnings of between $1.53 and $1.55 a share for the year. Wall Street analysts forecast $1.53 a share, according to earnings tracker First Call.

The dour forecast pummeled the stock, sending it tumbling to nearly a five-year low. In 2002, Home Depot was the worst performing stock on the Dow Jones industrial average, losing more than 50 percent of its value.

The company reports its quarterly results Feb. 25.

For the fiscal year ending January of next year, the company estimates earnings will be between $1.67 and $1.77 a share. Analysts forecast $1.67 a share.

Analysts point out that much of Home Depot's woes come from the fact that the company, which operates 1,340 Home Depot stores in the United States, is facing a mature and saturated market with little expansion opportunity.

Meanwhile, its biggest competitive threat, Lowe's, the No. 2 home improvement chain, continues to nibble away at its market share -- taking advantage of its unique position as a hardware retailer that also caters to women -- while delivering the kind of forecasts that Wall Street wants to hear.

The same day that Home Depot warned, Lowe's reiterated its fourth-quarter guidance of 16 to 17 percent sales growth and earnings of 33 cents a share for the quarter.

Home Depot is gearing up to confront Lowe's on that front, John Costello, executive vice president of brand marketing for Home Depot told investors. Not a surprising move given that the company blames its December shortfall on weak sales of its "male" oriented powertools.

"The female customer is growing in importance and we could have undervalued our women customers in the past," Costello said. Among its marketing initiatives to attract more women to its stores, Home Depot said it would host clinics like "Ladies Night" with do-it-yourself sessions.

To meet its store layout and merchandising challenges, Home Depot said it was creating a store merchandising team that would overlook its "Designplace" rollout effort, intended to upgrade about 1,450 of its stores by the end of 2003.

Although some industry analysts said Home Depot's focus on reinvesting in its stores is a "correct step," others were less impressed.

"There was not much new that I heard," said Jim Medvedeff, retail analyst with Evergreen Investments. "Although they said that capital spending is going up from $3.3 billion to $4 billion, the same challenges of inventory management, getting the right in-store systems to manage it, still exist."

Added Medvedeff, "I think what's more important is what they didn't tell us. The earrings growth target is too high given that it's a mature industry. The company also didn't give an outlook for 2004. Also, management didn't say what they intend to do with the share repurchase program."