Home Depot eyes extended housing slump

Home improvement retailer warns on earnings and sales, says recovery in homebuilding and real estate won't come until late '07 or early '08.

NEW YORK (CNNMoney.com) -- Home improvement retailer Home Depot said early Wednesday that a recovery in the battered housing and homebuilding market is still as much as a year away, and warned that its sales and earnings will take a hit.

The company said it doesn't expect residential construction and the housing market to improve until late 2007 or early 2008 and that current fiscal-year earnings are expected to fall 4 to 9 percent. Analysts surveyed by earnings tracker First Call had forecast that earnings excluding special items would fall only 2 percent to $2.78 a share in the current fiscal year.

The company earned $2.79 a share in the fiscal year ending Jan. 28, which was hit by a charge of 4 cents a share related to the severance of former CEO Robert Nardelli. Its fourth-quarter earnings fell sharply but hit forecasts.

The company also warned that sales at stores open at least a year, a closely-watched retail measure known as same-store sales, would be down in the mid-singled digits for the year. And overall sales would be in a range from flat to up only 2 percent for the year, which is less than the 3 percent revenue gain forecast by analysts.

Home Depot (Charts) shares, a component of the Dow Jones industrial average, were off 0.8 percent in pre-market trading following the report, after falling 2.4 percent Tuesday during the worst day for Dow stocks since 2001.

Lowe's (Charts), the No. 2 home improvement retailer behind Home Depot, reported lower earnings Friday for the just-completed fiscal year, but it gave more optimistic guidance, seeing improved same-store sales and a better-than-forecast gain in earnings.

Home Depot, the nation's No. 2 retailer behind Wal-Mart Stores (Charts), also announced plans to increase capital expenditures 29 percent to $4.5 billion, focused on new stores and retail reinvestment. It plans about 115 new store openings during the fiscal year.

It also announced a number of initiatives it said are aimed at improving shopper experience, including spending $865 million on programs such as maintenance and merchandising reset programs to keep stores clean and uncluttered, and $275 million on logistics improvements to improve product availability.

"While the current home improvement market remains challenging, the long-term fundamentals of our company are strong, and we believe we can improve our performance and grow at, or faster than, the market beyond 2007," said a statement from new CEO Frank Blake. "That's why we are making significant investments in our associates and our stores."

The company said that after the current fiscal year it should be able to return to 5 percent annual income growth, and a 10 percent annual growth in earnings per share.

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