July 10 (Bloomberg) -- Home Depot Inc., the world's largest home-improvement retailer, cut its forecast for annual profit after the U.S. housing slump deepened and the company sold its contractor-supplies unit.

Earnings per share will drop 15 percent to 18 percent in the year through Feb. 3, Atlanta-based Home Depot said today in a statement. That compares with its forecast for a 9 percent decline made before Home Depot announced the sale of HD Supply, which accounted for more than 10 percent of sales.

Revenue may fall 2 percent this year, the first annual decrease in Home Depot's history, and Chief Executive Officer Frank Blake told analysts he still sees a further ``correction'' in the housing market. The sale of the contractor division, which is less tied to home building, means the company will lose a buffer against the biggest housing slump in 16 years.

``This weakness is going to persist for some time,'' Brian Nagel, an analyst with UBS Securities LLC in New York, said in an interview. ``I don't think we'll see a recovery in the home improvement-market or Home Depot for some time.'' He has a ``reduce'' rating on Home Depot shares.

Home Depot shares rose 2 cents to $40.25 at 4:02 p.m. in New York Stock Exchange composite trading after the company offered to buy back as much as $11 billion of stock in a tender offer. The shares were up 5.1 percent through yesterday since the retailer announced the HD Supply sale on June 19.

The offer to buy 250 million shares for between $39 and $44 apiece would account for almost half the $22.5 billion record stock repurchase the company announced last month.

Lower Forecast

Home Depot forecast earnings per share of $2.30 to $2.36 for the year. Profit was $2.79 last year. The forecast doesn't include this year's 53rd week, which should add about 3 cents a share, the gain on the sale of HD Supply or any per-share benefit from the stock repurchase, Home Depot said.

The retailer said its previous profit forecast, which it made in May, would have been for a decline of 15 percent had it included the sale of HD Supply.

Home Depot agreed to sell the contractor-supplies unit to three buyout firms for $10.3 billion to focus on retail stores, where sales and customer service have lagged behind Lowe's Cos.

Chief Financial Officer Carol Tome said in the statement that she expects the housing market to ``remain challenging for the rest of 2007 and into 2008.''

The National Association of Home Builders/Wells Fargo index of homebuilders' confidence fell last month to the lowest since February 1991.

Home Depot said it's pressing ahead with store openings even as demand for renovations wanes.

Sales Declines

It forecast a sales decline of 1 percent to 2 percent and a revenue drop in the mid-single digits for sales at stores open more than a year.

U.S. home sales in 2007 will fall to their lowest level since the start of the five-year housing boom in 2001 as mortgage rates and foreclosures increase, according to a forecast yesterday by Freddie Mac.

``No news is coming to our attention that is giving us any comfort that there'll be a recovery this year,'' Tome said in an interview.

Home Depot's sales have grown an average of 8.1 percent in the past five years, excluding results from HD Supply last year. That trails the 17 percent growth at Lowe's, the second-biggest home-improvement retailer.

Chief Executive Officer Frank Blake, who took over in January, is reversing predecessor Robert Nardelli's plans to expand the construction-supplies division. Nardelli made more than 30 acquisitions in four years and was accused by some investors of taking his focus off the retail stores.

Home Depot earned a score of 70 on a scale of 100, up from 67 the year before, in the University of Michigan American Customer Satisfaction Index released in February.

Mooresville, North Carolina-based Lowe's, the second- biggest U.S. home-improvement chain, dropped four points to 74. The average score for specialty retailers was 75.

To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net;

Last Updated: July 10, 2007 16:07 EDT