Home Depot Stock Sags After It Joins Lower-Earnings Club

Home Depot, long one of Wall Street’s top growth stocks, stunned investors Thursday by joining the growing din of earnings warnings.

The home-improvement retailer said that price deflation in many of its staple products would cause third-quarter and full-year earnings to fall below expectations.

Investors, hardly in a mood for more disappointment, were merciless with the stock (ticker symbol: HD): It plummeted $14.06, or 29%, to $34.88, lowest since 1998. With nearly 67 million shares changing hands, it was the New York Stock Exchange’s most active issue.

Home Depot said earnings for its quarter ending Oct. 31 will be about 28 cents a share, 3 cents below the consensus of analysts surveyed by First Call/Thomson Financial.

For the fiscal year, which ends Jan. 31, the company said per-share earnings will be $1.16 to $1.17, falling short of estimates of $1.25.

The Atlanta-based chain, which has more than 1,000 stores, said sales for the third quarter will be about 4% above the same period last year--a downward revision from the previous estimate of 5% to 7% growth. The firm said results will be depressed by lower retail prices for lumber and other building materials. Fourth-quarter sales are also likely to be affected, it said.

Sales comparisons with the third quarter of last year also will be affected by sales related to Hurricane Floyd and Y2K preparedness.

Home Depot President Arthur M. Blank, in a call with analysts, said the shortfall is not an indication of a significant slowdown in consumer spending. “This is not a bad economy,” he said, though he added, “It’s certainly a little bit softer in the last couple of months than it has been in the past.”

In a memo to employees, Blank said, “This is not the first time in our history that our stock has hit a bump in the road. Our shares will rebound.”

Analysts offered mixed reviews of Home Depot’s forecast. Some wondered if the company’s current troubles would extend beyond just deflation concerns about prices for lumber and other materials.

“It was such a growth story over the past decade that people were used to this company beating their expectations,” said Maureen Carini, an analyst at S&P; Equity Group. “I think this could almost be a little warning to the consumer stocks.”

But Blank insisted that most of the factors were unique to this year and that the company still expects 23% to 25% profit growth in 2001.