ATLANTA (AP) _ Shares of Home Depot buckled 28 percent on Thursday after the home improvement giant warned that price deflation in many of its staple products would cause third-quarter and full-year earnings to fall below expectations.

The company said earnings for the quarter ending Oct. 31 will be about 28 cents per share, three cents below the consensus of Wall Street analysts surveyed by First Call/Thomson Financial.

For the fiscal year, which ends Jan. 31, The Home Depot Inc. said per-share earnings will be $1.16 to $1.17, falling short of analysts' expectations of $1.25.

Investors reacted swiftly, sending the Atlanta-based company's stock down $13.81, or 28.2 percent, to $35.13 on the New York Stock Exchange. The selloff contributed to a broad retreat Thursday from the 30 companies included in the Dow Jones industrial average, which fell 379 points.

Other retail stocks also suffered. Shares of Home Depot's main competitor, North Carolina-based Lowe's, lost nearly 8 percent of their value, declining $3.25 to $37.81. Wal-Mart dropped $1.19 to $44.13, while Sears, Roebuck & Co. slipped $1.08 to $30.62.

Home Depot said sales for the third quarter will be about 4 percent higher than the same period last year, a downward revision from the previous estimate of between 5 percent and 7 percent. The company blamed the revised forecast on lower retail prices for lumber and other building materials. Fourth-quarter sales also are likely to be affected.

Sales comparisons with the third quarter of last year also will be affected by sales related to Hurricane Floyd and Y2K preparedness that inflated results in the second half of 1999, the company said.

But in a call with analysts, Home Depot President Arthur M. Blank said the company retains its strong industry position, despite the earnings disappointment.

In a memo to employees, many of whom are stockholders, Blank said he expected the news to send Home Depot's stock price lower for the short term.

``But the outlook is far from bleak,'' he said. ``This is not the first time in our history that our stock has hit a bump in the road. Our shares will rebound.''

Analysts offered mixed reviews of Home Depot's forecast. Some wondered if the company's current troubles would extend beyond just deflation concerns about prices for lumber and other materials.

``It was such a growth story over the past decade that people were used to this company beating their expectations,'' said Maureen Carini, an analyst at S&P Equity Group. ``I think this could almost be a little warning to the consumer stocks.''

Blank said most of the factors were unique to this year and that the company still expects 23 to 25 percent earnings per share growth in 2001. He said the lumber pricing index was at its lowest sustained levels since 1992.

David Schick, a retail analyst with Robinson-Humphrey, said Wall Street might have overreacted.

``It may not be as nightmarish as some stock prices are reflecting,'' he said. ``It's fair to assume there is a slowdown but at the same time I don't believe it's correct to assume it's the end of the road for retailers.''

Home Depot, which has 1,052 retail outlets in the United States, Canada and South America, plans to release its third-quarter earnings report Nov. 14.

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On the Net:

Home Depot site: http://www.homedepot.com