updated 2/28/2007 10:44:08 AM ET 2007-02-28T15:44:08

The Home Depot Inc., the world’s largest home improvement store chain, said Wednesday it will pump $2.2 billion into improving its business this year even as it expects lower earnings and slim sales growth.

The Atlanta-based company, faced with a slowing housing market, announced its priorities and outlook ahead of its annual investor conference that began later in the morning.

Home Depot said that for fiscal 2007 it expects sales growth in the range of flat to an increase of 2 percent, a decline in sales at stores open at least a year in the middle single digit percentages and an earnings per share decline of 4 percent to 9 percent.

Including the effect of a 53rd week in its fiscal year, consolidated sales are expected to increase by 1 percent to 2 percent, and earnings per share are expected to decline by 3 percent to 8 percent, Home Depot said.

Its shares fell 42 cents to $39.40 in premarket trading.

Chief Executive Frank Blake said the company does not expect residential construction and the housing market to improve until late in the second half of 2007 or early 2008.

Blake told investors at Wednesday’s conference that like last year, ”2007 also will be a difficult year.”

But he said it will be a year of focus on Home Depot’s priorities and a year with “hopefully less noise.” The “noise” was apparently a reference to the investor furor over former Chief Executive Bob Nardelli’s hefty compensation in light of the company’s lagging stock price. Nardelli resigned in early January after six years at the helm of the company. He took with him a severance package valued at $210 million.

“We continue to see short-term challenges in the market,” Blake said. “But long-term we think the home improvement market is a terrific market.”

To improve its business, Home Depot said it will invest $2.2 billion this fiscal year in key priorities. The investment includes $1.6 billion in capital spending and $600 million in expense.

Home Depot said it will open 115 new stores this year.

Home Depot said its goals this year include generating excitement about its products, increasing product availability, improving the shopping environment and cultivating the professional customer.

Home Depot said it will recruit master trade specialists, simplify its staffing model, use more technology to aid customer service and redesign employee compensation and reward plans.

It also will invest in new merchandise and review its pricing strategies. Home Depot added that it will spend money on customer loyalty programs, direct ship programs, credit programs and other specialty sales initiatives.

“We are convinced this is the right thing to do,” Blake said of the initiatives.

Beyond 2007, the company believes that investments made in its retail business will allow sales in the retail business to return to above market growth rates.

Home Depot said that coupled with its commitment to share repurchases, the company anticipates earnings per share growth of more than 10 percent annually in future years.

It projected that beyond 2007 it will see an annual sales growth of roughly 5 percent, annual earnings growth greater than 5 percent and annual earnings per share growth of 10 percent or more.

Home Depot operates 2,163 stores in the United States, Canada, Mexico and China.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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