Home Depot Has Profit Decline on U.S. Housing Slump (Bloomberg)

By Mark Clothier and Mary Jane Credeur

Nov. 13 (Bloomberg) -- Home Depot Inc., the largest home- improvement retailer, reported lower profit and cut its full- year earnings forecast after the U.S. housing slump reduced sales of kitchen cabinets and appliances.

Home Depot said it will take a ``cautious stance'' on completing its $22.5 billion share buyback because of the volatility of credit markets and housing sales. Third-quarter revenue of $19 billion missed the $19.3 billion average estimate of analysts in a Bloomberg survey. Chief Executive Officer Frank Blake is spending more than $2 billion this year to improve customer service and the appearance of stores in a bid to reverse market-share losses to Lowe's Cos. Sales have declined for two straight quarters amid the worst housing slump in more than a decade.

``It'll take Blake about five or six quarters to turn the corner,'' said Burt Flickinger, managing director of Strategic Resource Group in New York. Net income fell to $1.1 billion, or 60 cents a share, in the quarter through Oct. 28, from $1.5 billion, or 73 cents a year ago, Atlanta-based Home Depot said today in a statement. Revenue a year earlier was $19.6 billion. Excluding the sale of its HD Supply unit, Home Depot said profit was 59 cents a share. On that basis, earnings met the average estimate by analysts in a Bloomberg survey.

Home Depot lowered its full-year earnings forecast from continuing operations to a decline of as much as 11 percent. Previously, it expected a drop of 7 percent to 9 percent.

`Continue to Deteriorate'

``We are facing a tough environment as housing indicators continue to deteriorate,'' Blake said in the statement. ``Our financial performance in the third quarter reflects these tough conditions.'' Sales at stores open at least a year fell 6.2 percent, the sixth straight decline. David Schick, an analyst with Stifel Nicolaus & Co., estimated a 6 percent drop. The company has bought back $10.7 billion, or about half, of the $22.5 billion in shares that it plans to repurchase. The buyback is being paid for with proceeds from the HD Supply sale, cash and bonds. Home Depot said it will take a ``cautious stance'' on completing the remainder of the buyback because of volatility in the credit markets and the ``challenging'' housing market. Home Depot added 43 cents, or 1.5 percent, to $28.89 at 8:22 a.m. before the start of regular New York Stock Exchange trading. The shares are down 29 percent this year before today, headed for their third straight annual decline. Sales of previously owned U.S. homes dropped in September to an annual rate of 5.04 million, the fewest since records began in 1999, the National Association of Realtors said Oct. 24. Housing starts fell to a 14-year low. Eleven analysts who cover Home Depot suggest buying the stock, while 10 say ``hold'' and one says ``sell,'' Bloomberg data show.

----With reporting by Ken Prewitt in New York.