Home Depot 'laser-focused' on retail after earnings hit

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The Home Depot is in for some rocky times. The retail giant predicts a decrease in earnings per share in fiscal 2008 by 15 percent to 18 percent and total retail sales to be down 1 percent to 2 percent, as the retailer begins its stock-repurchase program.

The home retailer attributes the falling stock price and decreased retail sales to the sale of Home Depot Supply and the oversaturated housing market. At the time of the HD Supply sale, the move was posed as a strategic one to refocus the business on core retail for the home user after an unpopular attempt to court contractors.

"We've defined our challenges and opportunities as a company around five key priorities: associate engagement, product excitement, product availability, shopping environment and æown the pro,'" Paula Drake, public relations manager at Home Depot, said in an e-mail interview. "We have made significant progress on each but still have a lot of work to do. We are excited that with the sale of HD Supply we are now laser-focused on our retail business and are optimistic about the future.

"The new financial guidance à reflects the fact the HD Supply will not be part of our numbers moving forward," Drake said. "Second, we expect [the] housing market to remain challenging for the rest of 2007 and into 2008. ... These factors account for our view that the housing market will remain challenging for the rest of the year."

In May, the company said that it expected earnings per share to be down 9 percent for the year, but this guidance included an estimated eighteen cents of earnings per share contribution from HD Supply for the last six months of fiscal 2007.

Had the company excluded the HD Supply earnings contribution at that time, its earnings per share guidance would have been a decline of 15 percent for fiscal 2007. Despite the decrease in earnings expected to go as low as 18 percent, the retailer plans to open approximately 108 new stores in fiscal 2007.

Along with the decreased expectations, The Home Depot has begun the first phase of its stock repurchase program with a self-tender offer for the purchase of up to 250 million shares of the company's common stock, totaling about $11 billion, in which the retail giant plans to buy back up to $22.5 billion in shares.

The plan, which was announced last month, has authorized a buy back of the stock as soon as practicable. The company will fund the $22.5 billion share repurchase with the net proceeds from the sale of HD Supply, existing cash on hand and the net proceeds from an anticipated $12 billion issuance of senior unsecured notes.

"Our planned recapitalization is transformational for our company," Drake said. "While we continue to invest heavily in our core retail business, this recapitalization plan allows us to return significant capital to our shareholders, improve the efficiency of our balance sheet by lowering our cost of capital, while at the same time retaining strong financial and operational flexibility."

The self-tender offer for this first phase of the buyback, which totals approximately $11 billion, will offer a tender price range of $39 to $44 per share. The tender offer is scheduled to expire on August 16 and is subject to the terms and conditions described in the offer to purchase and offering materials.

Under terms of the tender offer, shareholders are given an opportunity to specify prices, within the stated price range, at which they are willing to tender shares. Upon receipt of the tenders, The Home Depot will select a final price that enables it to purchase up to the stated amount of shares from those shareholders who agreed to sell at or below the company's selected price. There is no guarantee that shares tendered will be purchased. The Home Depot may purchase up to an additional 39.5 million shares in the tender offer without extending the tender offer.

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