Aug. 14 (Bloomberg) -- Wal-Mart Stores Inc. and Home Depot Inc., the two largest U.S. 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 Officer H. Lee Scott said on a recorded call today. ``It is no secret that many customers are running out of money toward the end of the month.''

Wal-Mart, the world's largest retailer, fell $2.35, or 5.1 percent, to $43.82 at 4:02 p.m. in New York Stock Exchange composite trading for the biggest drop since July 2002. Home Depot lost $1.72, or 4.9 percent, to $33.52. It has declined 17 percent this year.

Slowing home sales and rising borrowing costs have made consumers hesitant to spend on kitchens and bathrooms at Home Depot, the biggest home-improvement retailer. 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 on July 19 on signs that credit-market losses are spreading beyond subprime loans in the U.S.

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

Economic growth in the U.S. may slow to an average 2.6 percent annual pace in the second half, 0.2 percentage points less than analysts forecast in July, 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.

U.S. retail gasoline prices touched a record $3.22 a gallon in May. They averaged $2.77 a gallon on Aug. 13.

Annual Profit Forecast

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 net income climbed 49 percent to $3.1 billion, or 76 cents a share. Profit 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, Arkansas-based company said in a statement.

The company forecast third-quarter profit of as much as 65 cents a share, less 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, same-store sales rose 2.1 percent, the smallest annual gain since Wal-Mart began tracking them in 1980.

Home Depot

Home Depot Chief Executive Officer Frank Blake said today that the U.S. home-improvement market will ``remain soft'' due to slowing home sales and declining house prices.

Second-quarter net income 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. Sales were predicted to be $22.6 billion.

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

Buyback, HD Supply

Separately, Home Depot said it's evaluating market conditions in preparation to buy back as much as $22.5 billion in shares, adding a note of caution to its repurchase plans.

The company said last week, and repeated today, 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.

Restoration Hardware Inc., a home-furnishings chain, said today it plans to cut 100 jobs at corporate headquarters in California because of ``challenging'' conditions in the market.

A report yesterday showed retail sales may weather any economic slowdown better than economists expect. U.S. retail sales rose more than forecast in July, signaling that consumer spending is holding up in the face of the housing recession, the Commerce Department reported.

Retail sales account for almost half of all consumer spending.

To contact the reporters on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net; Mark Clothier in Atlanta at mclothier@bloomberg.net

Last Updated: August 14, 2007 17:29 EDT