Home Depot Inc. reported a 15 percent fall in second-quarter profit on Tuesday as quarterly sales fell for the first time in more than four years in the slumping U.S. housing market.

The top home improvement retailer expects soft industry conditions into 2008 and said per-share profit could still fall as much as 18 percent this year.

While the company continues to strike a cautious tone on the business outlook, it reaffirmed guidance for the year, offering a sigh of relief, Credit Suisse analyst Gary Balter said in a research note.

Shares were bid 16 cents higher to $35.40 in early electronic trading.

Earnings at Home Depot and rival Lowe's Cos. have weakened over the past year as slowing home sales, falling home prices and higher borrowing costs hurt sales.

Net earnings fell to $1.59 billion, or 81 cents a share, in the second quarter ended on July 29, from $1.86 billion, or 90 cents a share, a year earlier.

Excluding discontinued operations, earnings for the latest period were 77 cents a share, better than the 72 cents expected by analysts, according to Reuters Estimates.

Sales fell 1.8 percent to $22.18 billion, below the $22.3 billion analysts expected. Sales at stores open at least a year fell 5.2 percent. The average purchase fell 2.8 percent to $58.30, but the number of customer transactions rose 1 percent.

The Atlanta company reiterated that it was in talks that could lower the sale price of its HD Supply wholesale business and said it was weighing the impact of a restructured deal on its plan to repurchase $22.5 billion in stock.

In June, the retailer announced an agreement to sell the supply division, which provides materials to home builders and other contractors, to private equity groups for $10.3 billion. At that time, Home Depot also announced the big buyback, saying it would use funds from the sale, existing cash and new debt.

In July, Home Depot offered to repurchase 250 million shares at $39 to $44 a share, or $11 billion, as part of the repurchase plan. But last week, it said the supply sale was being renegotiated and cut the price range for its Dutch auction tender offer to $37 to $42 a share.

The supply business, accounted for as a discontinued operation, had earnings of $66 million, or 3 cents a share, in the second quarter, down from $161 million, or 8 cents a share, a year earlier. But including a tax charge of about $60 million, the unit's adjusted earnings for the latest quarter were $126 million.

(Reporting by Karen Jacobs)

Credit Suisse