Weather, Housing Hammer Home Depot

"Home Depot is deeply intertwined with the economy," says Richard Hastings, senior retail sector analyst with Smyth-Bernard Sands. "Whatever happens out there, they're going to feel it."

The ongoing U.S. housing slowdown has hit Home Depot and rival Lowe's (LOW) hard, cutting into sales over the past year and leading each company to lower earnings projections for 2007.

"We believe the home improvement market will remain soft throughout 2007," Blake said in a statement. "We plan to continue our reinvestment plans for the long-term health of the business, understanding that it will put short-term pressure on earnings."

Blake also didn't give any updates on Home Depot's plans to sell its supply business, aside from saying that the company continues to consider alternatives for the division. In the first quarter, the supply business had revenue of $3.1 billion, up 46% from a year ago because of acquisitions.

In February, Home Depot hired Lehman Brothers to explore a sale of the division. Home Depot had previously viewed the supply market as a key expansion area as domestic growth for its retail business slowed.

"We remain committed to our strategy of investing in the retail business despite the challenging environment," Blake said on the call Tuesday.

Home Depot had been criticized under Nardelli's leadership for not reinvesting in its stores and losing a focus on customer service. During the call, Executive Vice President Paul Raines said the company was working to improve the morale of store associates, and he noted he has been getting positive emails from customers regarding sales staff.