Feb. 28 (Bloomberg) -- Home Depot Inc., the world's largest home-improvement retailer, forecast a decline in profit this year and said sales growth will slow because of the slumping U.S. housing market.

Revenue may increase 2 percent or less, the Atlanta-based company said today, missing the 5.3 percent sales gain estimated by analysts. The company doesn't expect the U.S. housing market to recover for at least six more months.

Chief Executive Officer Frank Blake, who took over last month after Robert Nardelli was ousted over compensation, said he'll try to improve customer service by adding sales people and making stores cleaner and less cluttered. Rival Lowe's Cos., which ranks higher in service surveys, has forecast faster sales growth.

Home Depot effectively said it ``moved in the wrong direction for the last five years,'' Gary Balter, an analyst with Credit Suisse Holdings USA Inc., wrote in a research note today. Now ``they will turn the ship towards investments and customer service,'' he wrote.

The company forecast earnings this year of $2.55 to $2.69 a share, trailing the average analyst estimate of $2.88 in a Bloomberg survey. It would be the first decline in earnings per share since at least 1990. Earnings last year were $2.79 a share, including 4 cents in costs for executive severance, mostly for Nardelli's compensation.

Last year was ``difficult,'' and this year will be the same, Blake, 57, said today.

Stopping Losses

``It will be a year of focus, simplification and investment, and hopefully less noise,'' Blake said in a Web cast of a presentation to analysts and investors in College Park, Georgia. ``We have to stop our share loss and then build on the great market position we have.''

Shares of Home Depot slipped 23 cents to $39.59 as of 4:21 p.m. in New York Stock Exchange composite trading. They've fallen 1.4 percent this year, while Lowe's, the second-largest home-improvement retailer, gained 4.5 percent.

Arun Daniel, a New York-based senior analyst at ING Investments LLC, said this year ``will be viewed as an investment year and as such investors will turn their focus to 2008 and beyond.''

Daniel's firm has $40 billion in assets, including Home Depot shares.

Home Depot will spend more than $2.2 billion this year to help revive retail sales. That includes $1.6 billion in capital spending and $600 million partly to recruit skilled trade specialists and for a new staffing plan that doesn't change based on daily sales trends. Overall, capital expenditures will rise 29 percent to $4.5 billion.

Future Gains

Beyond 2007, Home Depot forecast annual sales growth of 5 percent and per-share profit growth of at least 10 percent a year. Home Depot revenue increased an average of about 12 percent the past four years.

Blake said today Home Depot's retail unit is now a ``mature business.''

In last year's second half, Home Depot spent $260 million to upgrade stores with fresh paint, repaved parking lots and more attractive displays. The investments may be paying off. Home Depot gained in the University of Michigan's annual survey of customer satisfaction, narrowing the gap with Lowe's.

Rival's Growth

While Home Depot forecast slower growth, Lowe's said last week revenue may have bottomed after the first decline in at least a decade. Lowe's expects annual sales to rise 10 percent and as much as 2 percent in stores open at least a year. Per- share profit for the year should be $2.02 to $2.09 from $1.99 in the year ended Feb. 2.

Both companies struggled amid a housing slump in which U.S. residential construction had its biggest annual decline since 1991. Blake said today he doesn't expect a rebound until later this year or early next.

Federal Reserve Chairman Ben S. Bernanke said today's U.S. economic figures, including a 16.6 percent decline in January new-home purchases, were in line with his estimates. Home sales fuel spending for paint and cabinets as many sellers make improvements and buyers remodel.

Sales in stores open at least a year will drop in the mid- single digits on a percentage basis, Home Depot said, without being more specific. They have fallen three straight quarters.

Home Depot said its forecast excludes an extra week in its fiscal year. Including the week, sales may rise 1 percent to 2 percent and per-share profit would be 3 cents higher.

Sales from the wholesale unit may increase and account for 15 percent of Home Depot's revenue, the company said. The unit grew through more than 30 acquisitions the past three years.

Home Depot's store expansion trails Lowe's. Home Depot plans to open 115 stores this year and opened 34 last quarter, 13 outside the U.S. Lowe's has about 1,385 stores and plans to add as many as 160 stores this year after opening 58 in last quarter.

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

Last Updated: February 28, 2007 17:25 EST