Home Depot Lowers 2007 Earnings Guidance

Home Depot has reduced its 2007 earnings forecast due to continued housing weakness. It also announced a tender offer for 250 million shares at a price range of $39-44 per share, amounting to up to $11 billion. The tender will expire on August 16. The company is now forecasting 2007 EPS at $2.30-2.36, a drop of 15-18% from last year's $2.79, versus a prior forecast of a 15% decline. Total retail sales for 2007 are now projected to slip 1-2% against a previous forecast of flat to 2% growth. Same-store sales are projected to drop in the mid-single digits. The new guidance reflects the discontinuation of HD Supply, the company's contractor-supplies business, which the company says will reduce earnings by $0.18. That unit has been sold to a private equity group for $10.3 billion. Factoring out that sale, the company's new EPS forecast comes to $2.48-2.54, below prior analyst expectations of $2.59. "While we expect the housing market to remain challenging for the rest of 2007 and into 2008, we plan to continue our reinvestment plans for the long-term health of our business, understanding that it will put short-term pressure on earnings," said CFO Carol Tome. Last month, the Home Depot board authorized a $22.5 billion increase in a stock buyback program.

Sources: Press release, Reuters, MarketWatch, Bloomberg
Commentary: Home Depot is Cheap, Regardless of Upcoming Guidance • Home Depot: A Great Value for Dividend Investors • Home Depot: The Cure Is Worse Than the Illness
Stocks/ETFs to watch: The Home Depot, Inc. (HD). Competitors: Lowe's Companies Inc. (LOW). ETFs: Retail HOLDRs (RTH), Vanguard Consumer Discretionary ETF (VCR), PowerShares FTSE RAFI Consumer Services (PRFS)
Earnings call transcripts: F1Q07

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