[R]1:00PM New York – Home Depot third quarter sales declined 3.5% and earnings fell 27%.[/R]

Home Depot Inc (HD: chart) reported third quarter net sales declined 3.5% to $18.96 billion from $19.6 billion in the year ago quarter dragged by the current housing market problems in the U.S.

Same store sales fell 6.2% in the quarter from a year ago on weak demand.

The company warned of more difficult times ahead due to the slow-down in the housing market. Home Depot lowered earnings forecast for the fourth quarter by as much as a decline of 11%.

In the third quarter, consolidated net earnings dropped 26.7% to $1.1 billion compared to $1.5 billion a year ago.

Home Depot said earnings per share fell 17.8% to 60 cents per share from 73 cents per share a year ago.

Excluding results from Home Depot Supply, which was sold in August, earnings came to 59 cents a share for the latest quarter. The company earned $20 million from the discontinued operations.

Home Depot will now adopt ""a cautious"" approach in the $22.5 billion recapitalisation programme until the housing market problems pacify. So far, $10.7 billion has been utilised.

For the nine months ending on October 28, Home Depot said net sales dropped 3.1% to $59.69 billion from $61.61 billion a year earlier.

Net earnings declined 23% to $3.72 billion or $1.95 per share from $4.83 billion or $2.38 per share reported same period last year.

In the fourth quarter Home Depot estimates earnings per share to decline as much as 11%.

Analysts surveyed by Thomson Financial estimate fourth quarter per share earnings will fall to 49 cents on revenues of $18.3 billion. For the fiscal year 2007 analysts expect revenues at $78.48 billion. Sales are estimates to decline 9.5% in the fourth quarter and 13.6% for the fiscal year 2007.

Home Depot chairman and chief executive, Frank Blake said: ""We are facing a tough environment as housing indicators continue to deteriorate. Our financial performance in the third quarter reflects these tough conditions.""

In morning trade, Home Depot traded as low as $27.77 but recovered in the mid-day to $28.81, up 38 cents. In the last 52-weeks, Home Depot traded between $42.01 and $27.77.

At the end of the third quarter, the company operated a total of 2,224 retail stores, which included 1,943 in the U.S., 160 stores in Canada, 64 stores in Mexico, and 12 stores in China.