ATLANTA Top home improvement retailer Home Depot Inc (HD.N) posted a 27 percent drop in third-quarter quarter profit and forecast a steeper fall in full-year earnings on Tuesday as the slumping U.S. housing market cut into sales and it lost market share.
The company said its $22.5 billion stock buyback plan would not be completed this year.
"It's just confirmation that the housing market is struggling," said Giri Cherukuri, portfolio manager with OakBrook Investments, which owns about 360,000 Home Depot shares.
Earnings fell to $1.1 billion, or 60 cents a share, in the third quarter ended on October 28, from $1.5 billion, or 73 cents a share, a year earlier. Shares outstanding fell 11.5 percent, reflecting buybacks.
Excluding results from Home Depot Supply, which was sold in August, profit came to 59 cents a share for the latest quarter, shy of the 60 cents analysts expected on average, according to Reuters Estimates.
Sales declined 3.5 percent to $18.96 billion, short of analysts' estimates of $19.4 billion. Sales at stores open at least a year, an important retail measure, fell 6.2 percent.
During a conference call, Chairman and CEO Frank Blake said Home Depot continued to lose overall home improvement market share but at a lower rate compared with the year earlier.
Results at Home Depot and rival Lowe's Cos Inc (LOW.N) have weakened as slowing home sales and sliding house prices led consumers to curb big-ticket projects such as kitchen remodels. Lowe's cut its full-year outlook in late September.
Crisis in the subprime-mortgage sector that serves borrowers with poor credit, rising foreclosures and higher fuel prices have exacerbated conditions for consumers.
But Home Depot also faces rising expenses as it upgrades stores and hires more trade specialists in a bid to improve service and win back market share. Total operating expenses rose 4 percent in the third quarter.
"I think Home Depot has learned from Lowe's that they need to focus on their stores," Cherukuri said. "That's what's going to get the stock up."
The average purchase fell 1.5 percent to $57.48 in the third quarter as the number of customer transactions eased 1.8 percent. Home Depot said it gained market share in paint, power tools and appliances but lost it in lighting.
Home Depot said earnings per share from continuing operations could drop as much as 11 percent for the fiscal year, compared with the 7 percent to 9 percent decline it had forecast in September, as it expects the housing market softness to continue through the period.
"We started the year with a more pessimistic view of the housing and home improvement markets than many," CEO Blake told analysts. "It turns out we were not pessimistic enough."
The company said its outlook was based on a 52-week year but added that the period had 53 weeks. The extra week should add about 5 cents per share to earnings.
Home Depot, citing uncertainty in U.S. credit markets as well as the housing weakness, also said its recapitalization plan under which it plans to buy back $22.5 billion in stock would not be completed this year.
Under that plan, the company bought back about 290 million common shares for $10.7 billion earlier this year.
Home Depot shares, a component of the Dow Jones Industrial Average, were up 65 cents, or 2.3 percent at $29.11 in afternoon New York Stock Exchange trading, while Lowe's gained 63 cents, or 2.6 percent, to $25.00 as falling oil prices and an upbeat forecast from Wal-Mart Stores aided retail stocks.
Home Depot's stock has fallen 28 percent this year, while Lowe's is down 20 percent. Both stocks reached 52-week lows last week.
(Editing by Lisa Von Ahn and Dave Zimmerman)