Home Depot Inc., the world's #1 home-improvement retailer, warned investors this morning that its 2007 earnings would not meet Street expectations as it struggles with a housing and home-improvement slowdown. Home Depot said it expects EPS to drop 4%-9% ($2.56-2.68 a share), short of consensus estimates of $2.88/share. The company said it didn't expected residential housing construction to improve until late 2007 or 2008, and that sales would increase only 0-2%, down from this year's 11%; analysts had expected a 5.3% sales increase. It said its supply division will contribute 
15% of total sales, vs. 13% last year (there has been speculation that Home Depot was planning to spin off the unit, and some analysts took the forecast as an indication to the contrary). New stores will be limited to 115 for the year, while capital expenditures on existing stores will be upped to $4.5b. The company, which has been criticized for reducing its specialist store associates, said it was committed to recruiting new "master trade specialists," and will invest over $2.2b this year to help improve customer experience. Gary Balter of Credit Suisse: "Home Depot put out one of the most realistic press releases this morning, effectively saying they had moved in the wrong direction for the last five years, but that they will turn the ship towards investments and customer service in a massive way to regain share." Shares were down 1% ($0.42) this morning to $39.40.
Sources: Press Release, MarketWatch, Bloomberg
Commentary: I May Owe Robert Blake An Apology • Lowe's: Expect Superior Growth vs. Home Depot
Stocks/ETFs to watch: The Home Depot Inc. (HD). Competitors: Lowe's Companies Inc. (LOW). ETFs: Retail HOLDRs (RTH), Consumer Discretionary SPDR (XLY), SPDR S&P Homebuilders (XHB)
Conference call transcript: The Home Depot F4Q06
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