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Home Depot Sees Narrower Loss on Stock Buyback

Home Depotraised its fiscal-year earnings forecast slightly Monday after the home improvement retailer agreed to buy back 289.3 million shares of its common stock for $10.7 billion.

The buyback values each share at $37, above the current trading price, but at the low end of the company's price range of $37 to $42 under the tender offer.

The repurchase represents 14.6 percent of the company's outstanding shares on Aug. 31, the day the tender offer expired.

Home Depot said it expected earnings per share from continuing operations to decline 7 percent to 9 percent in the current fiscal year, as the buyback provides some benefit amid the very weak U.S. housing market.

The Atlanta retailer had previously forecast a per-share profit decrease of 12 percent to 15 percent, excluding the benefit of any share repurchases.

Many companies have bought back shares this year. Home Depot had come under increased pressure in 2006 as shareholders griped that the stock had not risen under former Chairman and CEO Robert Nardelli, who stepped down in January amid an uproar over his compensation.

"I think with Home Depot, there was a lot of shareholder uneasiness about the share price not going anywhere," said Zahid Siddique, an analyst with Gabelli & Co.

"After Nardelli stepped down, there was increased shareholder pressure on the company to do something" to bolster results, Siddique added.

Focus on Retail

Frank Blake, who was named Home Depot's new CEO, is refocusing on the company's retail business. The company has sold its Home Depot Supply contractor business, and is spending millions to maintain stores, hire certified staffers and improve merchandising to win back market share.

"Our sales today are lower than they were a year ago," Home Depot Chief Financial Officer Carol Tome said on Monday at a Raymond James investor conference. She reiterated that Home Depot expected its retail sales to fall as much as 2 percent this year.

"As we look out to 2008, we haven't established guidance, but clearly since we don't think the housing market is going to improve until the back half of 2008, that's going to have some top-line pressure," added Tome, whose comments were broadcast over the Internet.

The tender offer was part of a bigger plan Home Depot announced in June for a whopping $22.5 billion share buyback, which was to be funded with existing cash, new debt and proceeds from the sale of the Home Depot Supply unit.

The unit was sold last month for $8.5 billion to three equity firms. Home Depot agreed to reduce the sale price about 18 percent from the original $10.3 billion after the housing slump and recent credit crunch forced renegotiation of the deal's terms.

Tome said the rest of the big buyback would be completed "over time," in the form of open-market purchases, accelerated buybacks or perhaps another tender offer.

Home Depot shares, a component of the Dow Jones Industrial Average, were down 15 cents at $34.06 in midday New York Stock Exchange trading after rising modestly earlier in the session.

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