Aug. 14 (Bloomberg) -- Home Depot Inc., the world's largest home-improvement retailer, said profit fell 15 percent and revenue dropped for the first time in four years after a U.S. housing slump reduced demand for appliances and remodeling.

The company said it may halve plans to buy back $22.5 billion of its shares should a sale of its contractor-supply unit fall through. The stock fell 4.9 percent.

Home Depot repeated its forecast for annual profit to fall as much as 15 percent. The U.S. home-improvement market will ``remain soft'' into 2008, the company said today, as slowing home sales and declining house prices make owners hesitant to invest in new bathrooms or kitchen cabinets.

``The deterioration of the housing market continues to weigh on Home Depot's sales,'' Mitch Kaiser, an analyst at Piper Jaffray & Co. in Minneapolis, said in a note to clients. He rates the shares ``market perform.''

Home Depot said negotiations with buyout firms over the sale of HD Supply continue. Last week, the company said that the $10.3 billion price buyout firms had agreed to pay may be reduced.

Second-quarter net income dropped to $1.59 billion, or 81 cents a share, from $1.86 billion, or 90 cents, a year earlier. Revenue retreated 1.8 percent to $22.2 billion, Atlanta-based Home Depot said today in a statement.

Excluding results from HD Supply, earnings were $1.52 billion, or 77 cents a share. On that basis, analysts estimated profit of 73 cents, the average of 17 projections compiled by Bloomberg. Sales were predicted to be $22.6 billion.

`Tough Period'

``They're doing a good job managing through a tough period,'' said Sarah Henry, an analyst with MFC Global Investment Management in Berwyn, Pennsylvania. The firm has $210 billion under management, including Home Depot shares.

Home Depot fell $1.72 to $33.52 at 4 p.m. in New York Stock Exchange composite trading. The stock has declined 17 percent this year.

Sales in stores open at least a year fell 5.2 percent, the fifth straight decline. Piper Jaffray's Kaiser had estimated a 7 percent decrease.

The company may buy back only $12 billion of its shares, instead of the $22.5 billion originally planned, should the HD Supply sale fall through, Chief Financial Officer Carol Tome said today.

Home Depot increased capital spending by 9.7 percent to $70 million in the second quarter. Chief Executive Officer Frank Blake is sprucing up parking lots and stores to attract shoppers, and said today he'll continue to ``invest thoughtfully for the long-term health of the business.''

Sale Financing

Financing for the HD Supply sale to buyout firms Bain Capital LLC, Carlyle Group and Clayton Dubilier & Rice may be at issue as investors hit by losses on subprime mortgages shun riskier debt. The division sells tools and lumber to builders.

``We're just starting to feel the effects of these tightening credit standards,'' said Walter Todd, a principal at Greenwood Capital Associates LLC in Greenwood, South Carolina. The firm sold its Home Depot shares last year.

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.

Twelve analysts who cover Home Depot suggest buying the stock, while seven say ``hold'' and one says ``sell,'' according to data compiled by Bloomberg.

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

Last Updated: August 14, 2007 16:07 EDT