Wal-Mart, Home Depot foresee earnings shortfall

Wal-Mart and Home Depot, the nation's two largest retailers, said the housing slump, rising mortgage defaults and high energy prices will depress earnings for the year.

"U.S. consumers continue to be under difficult pressure economically," Wal-Mart Chief Executive H. Lee Scott said Tuesday. "It is no secret that many customers are running out of money toward the end of the month."

Wal-Mart stock on Tuesday fell $2.35, or 5.1 percent, to $43.82, for its biggest drop since July 2002.

Home Depot lost $1.72, or 4.9 percent, to $33.52.

The companies' outlooks, combined with more signs of a credit crunch, triggered a sell-off on Wall Street, sending the Dow Jones industrial average down more than 200 points. Both Home Depot and Wal-Mart are Dow components.

Slowing home sales and rising borrowing costs have made consumers hesitant to spend on kitchens and bathrooms at Home Depot.

Wal-Mart blamed higher gasoline prices for fewer visits by shoppers, which prompted the company to slash prices on back-to-school items.

The Standard & Poor's 500 index has tumbled 8.1 percent from its record July 19 on signs that credit-market losses are spreading beyond subprime loans.

An S&P index of homebuilders has slumped 40 percent this year as the worst housing slump in 16 years and tighter credit standards from the collapse of subprime lenders have cut demand.

Economic growth in the U.S. may slow to an average 2.6 percent annual pace in the second half, 0.2 percentage point less than analysts forecast last month, according to a Bloomberg News survey taken Aug. 1 to Aug. 8.

Wal-Mart predicted annual profit of as much as $3.13 a share, less than analysts estimated.

Home Depot reiterated a prediction for per-share profit to fall as much as 15 percent.

Wal-Mart's Scott has emphasized lower prices and named new executives to oversee clothing after sales of more expensive apparel and home goods faltered.

Wal-Mart slashed prices on 16,000 back-to-school items such as notebooks and staplers as high gasoline prices curbed store traffic.

Gas prices touched a record $3.22 a gallon in May. They averaged $2.77 a gallon Aug. 13.

Annual profit from continuing operations will be $3.05 to $3.13 a share, Wal-Mart said, less than the $3.15 to $3.23 it previously forecast. Analysts estimated $3.16 in a Bloomberg survey.

A year earlier, Wal-Mart's profit from continuing operations was $2.92.

The company reported second-quarter profit climbed 49 percent to $3.1 billion, or 76 cents a share. That included a benefit of $171 million, or 4 cents, Wal-Mart said.

Excluding that, Wal-Mart said it would have earned 72 cents. Eighteen analysts estimated 76 cents, on average.

Revenue for the three months through Aug. 3 rose 8.9 percent to $93 billion, the Bentonville, Ark., company said.

Wal-Mart forecast third-quarter profit of as much as 65 cents a share, lower than the 68 cents estimated by analysts.

"Consumers today are pressed by a number of factors," Wal-Mart U.S. stores chief Eduardo Castro-Wright said. "Higher energy, higher gas prices and higher interest rates are all stretching their paychecks."

In the quarter, Wal-Mart said sales at stores open at least a year gained 1.9 percent. Last year, those sales rose 2.1 percent, the smallest annual gain since Wal-Mart began tracking them in 1980.

Home Depot CEO Frank Blake said Tuesday the home-improvement market will "remain soft" due to slowing home sales and declining house prices.

Second-quarter profit fell to $1.59 billion, or 81 cents a share. Revenue dropped 1.8 percent to $22.2 billion, the first decline in four years.

Excluding the company's HD Supply unit, earnings were $1.52 billion, or 77 cents a share. On that basis, analysts estimated 73 cents. Revenue was predicted to be $22.6 billion.

Sales in stores open at least a year decreased 5.2 percent, the fifth straight decline.

The company said last week, and repeated Tuesday, that it may have to accept less than the $10.3 billion that buyout firms agreed to pay for its contractor-supply unit in June.

U.S. sales of new homes fell 6.6 percent in June, the most since January. Rising mortgage rates and stricter rules for borrowers with poor credit histories may extend the worst housing slump in 16 years and further slow economic growth.

Also Tuesday, home-furnishings chain Restoration Hardware said it plans to cut 100 jobs at corporate headquarters in California because of "challenging" market conditions.