Home Depot sees lower profit

ATLANTA (Reuters) - Home Depot Inc (HD.N) on Tuesday said per-share earnings could fall as much as 24 percent this year due to the U.S. housing slump, and added that it would cut capital spending and open fewer new stores.

The world's largest home improvement retailer reported profit for the fourth quarter that fell short of analysts' estimates and posted its first annual sales drop, for the 2007 year.

"It's a really messy environment right now," said Stephanie Hoff, senior retail analyst with Edward Jones. But she added that home improvement stocks "are now recovering based on the view that earnings estimates are achievable in '08."

Capital spending is dropping to $2.3 billion this year from more than $3 billion in 2007, Home Depot said, and the completion of a big share buyback is on hold until business conditions improve.

Home improvement chains have been battered as consumers curbed spending on big-ticket renovations in the face of falling home prices and tighter lending conditions. Home prices fell a record 8.9 percent last year, according to a U.S. price index released on Tuesday.

Rival Lowe's Companies (LOW.N) reported a 33 percent drop in fourth-quarter profit this week as same-store sales fell 7.6 percent. Lowe's said headwinds would ease this year but also forecast lower earnings and scaled back store growth.

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Home Depot, which has been investing in staff recruitment and store upgrades, said it would build more distribution centers to improve product flow and step up store repair and maintenance.

"We're seeing Home Depot make these aggressive investments so that the company can make itself much stronger coming out of the downturn," Hoff said.

New store openings will drop to 55 this year from about 100 for 2007, and about 35 of those newer Home Depots will be in the United States.

In the fourth quarter ended February 3, net earnings fell 27 percent to $671 million, or 40 cents a share, from $925 million, or 46 cents a share, a year earlier. Analysts expected 43 cents a share, according to Reuters Estimates.

Quarterly sales rose 1.5 percent to $17.66 billion, helped by an extra week in the most recent quarter. Sales at stores open at least a year, an important retail measure known as same-store sales, fell 8.3 percent.

"Hiding beneath all these terrible results is an improving fundamental picture at Home Depot" as store investments aid the shopping experience, said Joe Magyer, senior analyst with The Motley Fool, an investing news and commentary site.

Home Depot expects profit per share from continuing operations to fall 19 percent to 24 percent this year as sales decline 4 percent to 5 percent.

The company said its planned $22.5 billion share buyback, or recapitalization program, would stay "on pause" until business and credit conditions stabilize. Home Depot completed the first part of that buyback last year.

Home Depot shares were up 1 cent to $28.82 in afternoon trading on the New York Stock Exchange while Lowe's were up 51 cents, or 2 percent, to $25.01. Home Depot's stock has fallen 29 percent in the past year while Lowe's is down 28 percent.

(Editing by Mark Porter and Brian Moss)