Home Depot lowers outlook

Home Depot executives presented a “retail update” to a group of analysts in New York today, warning that per-share profit is expected to drop 15 percent to 18 percent. Total sales for 2007 are expected to fall 1 percent to 2 percent, with negative comps in the mid-single digits.<

The sale of HD Supply, which is expected to close on Aug. 16, will depress earnings, company officials said. Volatile lumber prices and continued weakness in the housing market has also dampened revenues, especially in windows, roofing, flooring, appliances and water heaters.

Home Depot also announced the launch of a tender offer today to buy back 250 million shares for between $39 and $44 per share. The self-tender offer is set to expire Aug. 16.

“With the sale of HD Supply, we now have a laser focus on our retail business,” said Carol Tome, CFO and executive vp–corporate services.

Tome spoke of several retail initiatives including a revamping of Home Depot’s supply chain to centralize its distribution. The company plans to pilot the new model in Canada starting in the first quarter of 2008.

Home Depot is also changing its promotional strategy, according to chairman and CEO Frank Blake. “We’ve gotten into a pattern of [repetitive] promotions [and] we felt strongly that we needed to break that cycle,” Blake said. The retailer is now trying to offer consumers more targeted promotions with clearer value propositions, such as a current $99-per-room flooring installation offer.

Blake also addressed the difficulties faced by smaller vendors trying to get their products into Home Depot. To address this issue –- and keep up the flow of innovative products into its stores –- the company has instituted open-to-buy days. The first one, held last month in Atlanta, drew 290 vendors. Home Depot will hold a second open-to-buy day in August, Blake said.

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