Home Depot Warns of Lower Earnings

Thursday, October 12th 2000, 12:00 am

By: News On 6

ATLANTA (AP) â€” Shares of Home Depot plunged 26 percent after the home improvement retailer warned that its third-quarter and full-year earnings will fall short of expectations, primarily because of price deflation in lumber and building materials.

The Atlanta-based company said Thursday that its per-share earnings for the quarter ending Oct. 31 will be about 28 cents per share. Wall Street analysts surveyed by First Call/Thomson Financial had predicted earnings of 31 cents.

For the fiscal year, which ends Jan. 31, Home Depot said its per-share earnings will be $1.16 to $1.17, falling short of analysts' expectation of $1.25.

Shares fell $12.94 to $36 in early trading on the New York Stock Exchange.

The company said sales for the third quarter will be about 4 percent higher than the same period last year, down from the previous estimate of a 5 to 7 percent rise because of the lower retail prices for lumber and other building materials. Fourth-quarter sales also are likely to be affected.

Sales comparisons with the third quarter of last year also will be affected by hurricane-related and Y2K-related sales that inflated results in the second half of 1999, the company said.

``While our earnings outlook for fiscal 2000 is short of our long-term earnings growth target, the company's rates of profitability and return on capital are continuing at very strong levels,'' said president Arthur M. Blank. ``The outlook for growth in the home improvement industry remains strong, despite the deflationary lumber and building material environment.''

In a memo to employees, many of whom are stockholders, Blank said he expected the news to send Home Depot's stock price lower for the short term.

``But the outlook is far from bleak,'' he said. ''...This is not the first time in our history that our stock has hit a bump in the road. Our shares will rebound.''

The company, which has 1,052 retail outlets in the United States, Canada and South America, is expected to release its third-quarter earnings report Nov. 14.

Blank said the company is still projecting earnings growth of 23 to 25 percent for fiscal 2001.

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On the Net:

Home Depot site: http://www.homedepot.com