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Home Depot Expects Housing Weakness into 2008

Home Depot expects no recovery in the U.S. housing market for the rest of 2007 and continued weakness into next year, Chief Executive Frank Blake said Wednesday.

Blake also told a Goldman Sachs retailing conference that while the leading home improvement retailer was committed to a plan to repurchase $22.5 billion worth of stock, completing the buyback was likely to take longer than initially thought because of economic factors.

"We had hoped that we'd start to see some bottoming and some beginning of the (housing) recovery in the back half of '07," said Blake, whose comments were broadcast over the Internet.

"We don't think that's going to happen," he added. "We think '07 is going to continue to be a tough year, and our assessment is that much of '08 will continue to face into headwinds."

The Atlanta company has said earnings per share from continuing operations may fall 12 percent to 15 percent for 2007, excluding the benefit of share repurchases, as weaker home sales and construction depress demand for higher-ticket projects.

Blake said that woes in the subprime market, which caters to borrowers with spottier credit, had put added pressure on housing, and Florida and California accounted for much of the sales weakness that the retailer saw in the quarter ended on July 29.

A real estate trade group said on Wednesday that pending sales of previously owned U.S. homes fell 12.2 percent in July as credit tightened up.

On Tuesday, Home Depot said it planned to buy back about 289.6 million shares, or about 14.6 percent of those outstanding, for $37 each, or a total of about $10.7 billion.

The buyback, which is being partly funded with proceeds from the $8.5 billion sale of the Home Depot Supply division for contractors, was part of a larger planned repurchase of $22.5 billion.

Blake said Home Depot still planned to complete the full repurchase plan, but he added that the timing of additional buybacks would be influenced by the U.S. housing and credit markets.

"From my perspective it's going to be a longer path than certainly I would have initially envisioned," Blake said. When the buyback was announced in June, Home Depot said it planned to repurchase the shares "as soon as practicable."

Blake also said Home Depot was increasing spending on retail stores by hiring more licensed plumbers and electricians, raising incentive pay for staff and upgrading its supply chain system.

Home Depot shares, a component of the Dow Jones Industrial Average, were down 54 cents, or 1.5 percent, to $35.82 in morning New York Stock Exchange trading. So far this year, the shares have fallen about 11 percent.

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