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Home Depot Profit Falls Sharply, Outlook Is Weak

Home Depot Tuesday said earnings per share could fall as much as 24 percent this year and plans to open fewer stores due to the slumping U.S. housing market.

The world's largest home improvement retailer also turned in worse-than-expected profit for the fourth quarter and said the home improvement sector would be "challenging" in 2008.

Net earnings fell to $671 million, or 40 cents a share, for the fourth quarter ended Feb. 3, down 27 percent from $925 million, or 46 cents a share, a year earlier.

Analysts expected 43 cents a share, according to Reuters Estimates.

Quarterly sales rose 1.5 percent to $17.66 billion, shy of analysts' estimates of $17.96 billion. Sales at stores open at least a year, an important retail measure known as same-store sales, fell 8.3 percent.

Home improvement chains have been battered as consumers curbed spending on big-ticket renovations in the face of falling home prices, lower sales and tighter credit conditions.

On Monday, chief rival Lowe's reported a 33 percent drop in fourth-quarter profit as same-store sales fell 7.6 percent. Lowe's expects headwinds facing its business to ease this year but forecast full-year profit below Wall Street estimates.

This year "will represent the trough in earnings for both names, and if and when the market recovers, there will be fewer competitors and more runway for margins upside," Credit Suisse analyst Gary Balter said in a research note.

Home Depot , which has boosted spending on store improvements, expects profit per share from continuing operations to fall 19 percent to 24 percent this year as total sales decline 4 percent to 5 percent.

The Atlanta, Georgia-based chain plans to open 55 new stores with five relocations this year, down from about 100 opened last year. Capital spending is dropping to $2.3 billion from more than $3 billion.

"We view the slower store growth and cap-ex reduction very favorably, as the firm conserves capital and acknowledges maturation," Goldman Sachs analyst Matthew Fassler said in a research note.

Lowe's, which also scaled back its 2008 store growth, said profit would fall this year as total sales rise about 3 percent.

Puts Buyback on Pause

The company also said the completion of a planned $22.5 billion share buyback, or recapitalization, program would stay "on pause" until conditions improve.

"2008 is going to be another challenging year and we think the prudent thing to do is to keep the program on pause until we see stabilization in our business and the credit markets," Chief Financial Officer Carol Tome said during a conference call.

Home Depot, which forecast lower annual profit and pared its store growth and capital spending for 2008, completed about half of the repurchase last year.

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