Housing Hammers Home Depot

Third-quarter profits tumble 27%, and the retailer lowers its full-year outlook.
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Home Depot (HD) - Get Report reported a 27% drop in third-quarter profits as the home-improvement giant continues to be battered by the slowdown in the U.S. housing market.

The company also offered a more pessimistic view for the fiscal year, citing the ongoing housing weakness, and said it is taking a "cautious stance" over its planned recapitalization.

Home Depot posted third-quarter earnings of $1.09 billion, or 60 cents a share, down from $1.49 billion, or 73 cents a share, a year earlier. The EPS included a 1-cent gain from discontinued operations.

Sales slid to $18.96 billion from $19.65 billion the prior year. Same-store sales, or sales at stores open at least a year, tumbled 6.2%.

Analysts, on average, anticipated earnings of 60 cents a share and revenue of $19.39 billion.

"We are facing a tough environment as housing indicators continue to deteriorate. Our financial performance in the third quarter reflects these tough conditions," said Frank Blake, chairman & CEO.

For 2007, Home Depot expects earnings from continuing operations will decline by as much as 11% from last year.

In September, the company forecast a 7% to 9% decline in fiscal-year earnings. While that view was better than Home Depot's prior projection of a 12% to 15% drop, the improvement was entirely due to a big buyback in the aftermath of the sale of its supply business.

Earlier this year, Home Depot said it planned a $22.5 billion recapitalization plan following the sale of its supply arm. The company, which has completed $10.7 billion of that plan through buybacks, said Tuesday that it will be cautious over the completion of the recapitalization given volatility in the credit markets and the housing weakness.