Sun, Jan 05, 2003 - Page 10 News List

Home Depot shares nosedive 14 percent after forecast

BLOOMBERG , ATLANTA

Home Depot Inc. shares tumbled 14 percent after the world's largest home-improvement chain forecast its biggest sales decline ever.

Sales at stores open at least a year will fall by as much as 10 percent in the fourth quarter ending Feb. 2, double Home Depot's previous estimate. Chief Executive Officer Robert Nardelli warned revenue growth will be stagnant next year, leading analysts to predict another decline.

Nardelli, a former General Electric Co executive brought in two years ago, has cut costs to raise profitability. That left Home Depot's warehouse-size stores vulnerable to competition from Lowe's Cos, whose stores feature brighter lighting and wider aisles. Today's share decline follows a 53 percent drop last year, the biggest in the Dow Jones Industrial Average.

"Lowe's has momentum and Home Depot is reeling," said Phil Larkins, who manages US$330 million at Legacy South, including about 230,000 Home Depot shares. "Nardelli was brought in as an operational person, not a sales person. They have taken the eye off sales to get operational efficiency."

Home Depot shares fell US$3.50 to US$21.38 at 4:16pm in New York Stock Exchange trading Friday, the lowest level in almost 5 years.

Lowe's fell US$2.43, or 6.2 percent, to US$36.92.

Fewer people than expected bought power tools and hardware as holiday gifts in December, the company said. Shares of suppliers Black & Decker Corp dropped US$4.20, or 9.5 percent, to US$40.01.

Stanley Works declined US$2.30, or 6.4 percent, or US$33.76, and Masco Corp fell US$1.68 to US$20.28.

Net income will be US$1.53 to US$1.55 a share this fiscal year, down from a forecast of US$1.57, Home Depot said yesterday. Home Depot's total sales are expected to rise 10 percent, while earnings will increase as much as 23 percent. Next year's sales will face a "challenging environment," Nardelli said.

Goldman, Sachs & Co analyst Matthew Fassler forecast 2003 sales at stores open at least a year will drop 1 percent, including a 5 percent decline in the first quarter. In November, Nardelli said the company wouldn't meet its revenue forecast for an increase of as much as 18 percent.

"I have questions in my own mind about Nardelli's leadership," said David Nelson, whose US$465 million American Leading Companies Trust Fund holds about 75,000 Home Depot shares.

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