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Home Depot Has First Annual Sales Dip

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ATLANTA — Hobbled by the housing slump and a loss of market share, The Home Depot Inc. posted its first ever annual sales decline Tuesday and released a 2008 outlook that is more gloomy than that of its chief rival, Lowe's.

The Atlanta-based company, reporting fourth-quarter profits had declined more than 27 percent, said an earlier halt to a program to buy back up to $22.5 billion in Home Depot stock will continue until markets improve.

Home Depot appeased some investors with plans to significantly cut back the number of new store openings.

"We should be judged by the discipline we bring to executing on our key priorities and the discipline we bring to stepping away from activities that aren't priorities," Chief Executive Frank Blake told analysts during a conference call.

The home improvement industry has suffered as consumers pulled back on renovations in the face of declining home values. A business-backed research group said Tuesday that consumer confidence plunged to it's lowest level for February in five years.

"There's not a silver bullet," Chief Financial Officer Carol Tome said in an interview.

Blake, noting that last year was among the most difficult financially for Home Depot, told analysts that the company is "still too often perceived as lagging in customer service."

Home Depot's main competitor, Mooresville, N.C.-based Lowe's Cos., has been hurt by market conditions, too, reporting Monday that its fourth-quarter profit dropped by a third. But, unlike Home Depot, Lowe's predicted that its sales _ while still hurt by a soft housing market _ would increase 3 percent in 2008. Home Depot projected a 2008 sales decline of 4 percent to 5 percent.

Lowe's also said it will open 120 new stores in 2008. Home Depot only plans to open 55, about half as many as it did last year. Tome said Home Depot has no plans to close any of its core retail stores, but added, "We always look at our store portfolio."

Home Depot shares gained 1 cent to close at $28.83 Tuesday.

"With the more significant reduction in the 2008 outlook for Home Depot, we think the 2009 numbers are also likely to fall," Deutsche Bank-North America analyst Mike Baker said in a research note.

Home Depot executives made clear they are moving away from strategies that they believe aren't working, chief among them is robust new store growth.

Blake said Home Depot continues to lose market share, though it is seeing signs of the trend reversing itself.

"If we're losing share, somebody's getting it," Tome said.

Home Depot had said last June that it would buy back up to $22.5 billion of its shares. After repurchasing about half that, it suspended the program. Tuesday, it said it would not begin repurchasing shares again until market conditions improved.

The company said it earned $671 million, or 40 cents a share, in the three months ending Feb. 3, compared with a profit of $925 million, or 46 cents a share, in the same period a year earlier.

Earnings per share from continuing operations in the quarter were 40 cents, compared with 42 cents a year earlier.

Analysts surveyed by Thomson Financial were expecting Home Depot earnings of 43 cents a share in the fourth quarter.

Despite an extra sales week, revenue in the quarter rose only 1.5 percent to $17.66 billion, compared with $17.4 billion a year earlier. Excluding that extra week, fourth-quarter sales declined 4.7 percent compared with a year ago. Revenue for fiscal 2007 declined 2.1 percent to $77.35 billion. Spokesman Ron DeFeo said that was the first ever annual sales decline for Home Depot.

Sales at stores open at least a year declined 8.3 percent in the quarter. The company's average sales ticket declined 2.3 percent to $54.96 in the quarter, compared with $56.27 a year ago.

Besides its projected sales decline in 2008, the company also expects earnings per share from continuing operations to decline 19 percent to 24 percent for the full year.

For all of fiscal 2007, Home Depot said it earned $4.4 billion, or $2.37 a share, compared with a profit of $5.76 billion, or $2.79 a share, for fiscal 2006. Its $77.35 billion in full-year sales compared with $79.02 billion a year earlier.

At the end of the fourth quarter, Home Depot operated 2,234 stores in the United States, Canada, Mexico and China. Lowe's operated 1,534 stores in the United States and Canada at the end of the quarter.


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