Diane Dayhoff - Senior Vice President, Investor Relations Frank Blake - Chairman, Chief Executive Officer Craig Menear - Senior Vice President, Merchandising Carol B. Tome - Chief Financial Officer, Executive Vice President Corporate Services Mark Holifield - Senior Vice President, Supply Chain Matt Carey - Executive Vice President, Chief Information Officer

Deborah Weinswig - Citigroup Colin McGranahan - Sanford C. Bernstein Matthew Fassler - Goldman Sachs Michael Lasser - Barclays Capital Gregory Melich - Morgan Stanley Budd Bugatch - Raymond James John Zolidis - Buckingham Research Maggie Gilliam - Gilliam & Company Wayne Hood - BMO Capital Markets Brian Nagel - UBS Shannon Joseph - Wachovia Capital Markets Eric Bosshard - Cleveland Research Christopher Horvers - J.P. Morgan

Good day, everyone and welcome to today’s Home Depot fourth quarter earnings conference call. Today’s conference is being recorded. (Operator Instructions) Beginning today’s discussion is Ms. Diane Dayhoff, Vice President of Investor Relations. Please go ahead, Madam.

Thank you, Augusta and good morning to everyone. Welcome to the Home Depot third quarter -- fourth quarter earnings conference call. Joining us on our call today are Frank Blake, Chairman and CEO of The Home Depot; Craig Menear, Executive Vice President, Merchandising; and Carol Tome, Chief Financial Officer and Executive Vice President, Corporate Services. Following our prepared remarks, the call will be open for analysts’ questions. Questions will be limited to analysts and investors and as a reminder, we would appreciate it if the participants would limit themselves to one question with one follow-up, please. This conference call is being broadcast real-time on the Internet at homedepot.com with links on both our homepage and the investor relations section. The replay will also be available on our site. If we are unable to get to your question during the call, please call our investor relations department at 770-384-2387. Before I turn the call over to Frank, let me remind you that today’s press release and the presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties. These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the Securities and Exchange Commission. Now let me turn the call over to Frank Blake.

Thank you, Diane and good morning, everyone. Sales for the fourth quarter were $14.6 billion. Comp sales were negative 13%. When adjusted for the seasonal shift caused by having 53 weeks in our fiscal 2007, our comp sales were negative 11.5%. At the end of January, we announced several actions that we are taking in light of current market conditions. These included shutting down our expo businesses, restructuring support positions, and writing down our equity interest in HD Supply. Those actions resulted in $550 million of charges in the fourth quarter. Excluding those charges, diluted earnings per share from continuing operations were $0.19. Carol will give you more detail in a few minutes on both our fourth quarter and fiscal year numbers. As a general comment, we anticipated a difficult quarter and year and they were all that and more. The issues impacting us are familiar to you all -- the housing market is still depressed, the percent of GDP now spent on housing related construction is at 3.1%. This is the lowest that it has ever been in 60 years of recorded data and we anticipate further deterioration. The credit markets are still stressed for consumers and businesses alike and unemployment continues to increase. We have seen some improvement in our California and Florida markets in the sense that the rate of decline has slowed but these relative improvements are more than offset by declines elsewhere in the country. Our Canadian business started the year strong but deteriorated in the second half as the global economy began to weaken. Also, the implementation of the bulk of our core retail pilot occurred in the second half in Canada and that caused some additional distraction in a difficult time. For the year, Canada posted mid-single-digit negative comps. China, while small, had positive comps, and our business in Mexico had another great year, with double-digit positive comps. There were some very positive signs of improved business performance during 2008. We said at the start of the year that we would maintain a flat to slightly positive gross margin rate for the year. We did that and we did it at the same time we launched a new lower price campaign. This is indicative of better control and coordination within our merchandising organization and our effective focus on everyday pricing. We also reduced our inventory by over $1 billion while at the same time maintaining the best in-stock rate we’ve had in several years. Again, this reflects planning, focus, and execution across the business from merchandising to store operations to supply chain to finance, and we continue to see improvement in customer satisfaction as measured by our voice-of-the-customer surveys and by independent third parties. We also gained market share in key categories, as Craig will describe. For 2009, we anticipate another difficult year. We are expecting sales to decline approximately 9% and earnings per share to decline by about 7%. Excluding the impacts of our strategic actions from this January and the store rationalization charges of earlier in 2008, we expect earnings per share to decline approximately 26%. Let me add a note of caution here -- last year at this time, we provided guidance in terms of a range of performance for 2008. This year, we are not providing a range. That doesn’t mean that we are more certain about 2009 than we were about 2008 -- in fact, 2009 is an even more uncertain planning horizon. Housing inventory remains high; consumer demand remains soft, and the impact of government stimulus is uncertain. But rather than giving a very broad range, which would not provide you much of an understanding of how we think about the business, we thought it better to provide our working estimate. Carol will outline for you the key assumptions underlying this estimate. Our intent is to provide a reasonably transparent framework for thinking about our business without implying a certainty that would be misplaced in the current environment. And while we are anticipating a tough year in 2009, we will continue to make progress in improving our business. Over the last two years, we have become a simpler company, which is a good thing. We have exited non-core businesses; we have restructured support staff; we have stopped applying significant capital to building new square footage; and we have renegotiated our private label credit agreement. These actions will make us a better business. They also allow us to focus in 2009 on the steps we know we have to take for long-term success. We have to improve our supply chain. With the opening of our fifth RDC in January, RDCs now serve approximately 500 of our stores. By the end of 2009, we expect that they will serve over 1,000 stores. We are pleased with the results we have seen to date with RDCs and we anticipate additional improvement as we get closer to critical mass on the number of stores served, vendors [on board], and percent of cost of goods flowing through the facilities. We have to improve our merchandising tools. We have made progress over the last two years on this and 2008’s performance on margin rate and inventory would not have been possible without the improved tools and disciplines we have already put in place. Matt Carey and our IT team, along with Craig and the merchandising team, have additional improvements in process for 2009. We are not contemplating any significant spend on a U.S. based enterprise wide system in 2009. We have the advantage of being able to assess the benefits of putting such a program in place in Canada in 2008 and we’ll be in a good position at the end of 2009 to assess whether such an investment for the U.S. would make sense. And we have to continue to improve our customer service. Marvin and the store operations team have applied the same concept of simplification to our stores. Last year, we re-invested over $250 million annualized in hours to the floor of the store, our Aprons-on-the-Floor initiative. This year, Marvin and Tim [Pro], our Head of HR, and their teams will focus on improving our training so that we enhance our associates’ effectiveness. We are going into 2009 conscious that we have to preserve the momentum in improving our business and also conscious that we have to be more disciplined than ever in our use of cash. Our capital spending is back-end weighted and we’ll be prepared to adjust if circumstances require, and we’ll continue to carefully control our discretionary spending. I want to thank our associates for all their hard work and dedication during a very tough year and their commitment for the year ahead. Our associates carry the culture of our company to our customers every day and I am very proud that even in these difficult times, we had a record number of stores participate in our success sharing program for hourly associates. Now let me turn the call over to Craig.

Thanks, Frank and good morning, everyone. Our sales reflect the ongoing softness in the home improvement market. For the quarter and full year, our remerchandising department experienced negative comp sales growth compared to 2007. In the fourth quarter, the departments that outperformed the company’s average comp were building materials, plumbing, seasonal, paint, and hardware. Flooring performed at the company’s average comp. From a regional perspective, sales trends were mixed. In the areas that first experienced the housing downturn, there are some signs of stabilization. For example, markets such as Miami, San Francisco, and San Diego are still posting negative comps but have shown a significant improvement in comps in the fourth quarter versus last year. However, in areas that previously showed some resilience, like Cleveland, Seattle, and Pittsburgh, we are seeing greater softness. We also saw strong comps for regions that had been affected by severe weather. The Gulf Region posted positive comps in the fourth quarter as communities continued to rebuild following last summer’s hurricanes. Additionally, we saw increased sales in chemicals, flashlights, chainsaws, portable generators, shovels, and snow blowers as a result of ice storms that spread across the Midwest and Kentucky. I want to take a moment to thank our store associates, merchants, and logistics teams for coordinating the efforts during those ice storms to ensure that we had the right products in the stores to take care of our customers. It was a tremendous collaboration and they executed very well. During the quarter, we continued to experience softness in big ticket projects. We define these projects as those transactions over $500. In this average ticket tier, we saw double-digit declines during the quarter. Contrast this with transactions with tickets under $20 where the decline was just 2.7%. In total, average ticket for the fourth quarter on a comparable 13-week basis was down 7.5% to $50.87. We continued to see relative strength in basic repair and remodel as evidence of our plumbing, hardware, and paint department results. We also were pleased with our better execution and performance in our holiday and seasonal gift merchandise. While there are several economic factors affecting our results that we cannot control, we continue to focus on those areas we can control. We are executing on our merchandising transformation to provide a great, everyday value to our customers and will continue to do so in 2009. At the heart of our merchandising transformation is our portfolio strategy. This defines the role and intent of our merchandise categories to capture the full basket on project sales, driving sales and gross margin productivity. Our new lower price campaign is a major component of our portfolio strategy, where we shout out value on key products and project starters across the store. An example of this is in interior paint, where we have lowered prices on items such as Behr’s Flat Premium Plus. Unit sales are increasing and at the same time, our attachment sales of related items are going up. Overall, we are pleased with the results of this campaign and can already see that our customers are responding to this program. Despite the deterioration we saw in the fourth quarter sales as a result of the worsening economy, we were very pleased that our comp transactions did not decline sharply in the fourth quarter. Comp transactions were a negative 5.8% compared to the full year at negative 5.5%. Our enhanced assortment planning and forecasting tools allowed our merchants to make faster decisions in this business environment. Enhanced forecasting is particularly important in our seasonal businesses. We knew it was going to be a difficult holiday season, so in the U.S., we assorted accordingly and planned for less inventory in these categories. This result in better sell-through and fewer markdowns. To put this in perspective, our special buy, seasonal merchandise, we purchased fewer goods, had better than 90% sell-through while reducing markdowns nearly 10%. This was also a quarter of unprecedented swings in commodities like I’ve never seen. Framing lumber reached its lowest level since 1990 and copper and oil prices fell over 50% from the beginning of the quarter. Despite this and the softer sales, our new processes and tools allowed us to better manage the business, deliver a solid gross margin and inventory performance in the U.S. We are confident that our merchandising strategy is working, as evidenced by our unit share gains in nine out of our 13 departments during the quarter. Based on independent third-party tracking of our consumer activity, we saw strong unit share gains in several key merchandising classes -- carpet, hand tools, power tools, blinds, windows and doors, to name a few. We feel good as we head into the spring in this challenging environment. We utilized our assortment of management tools to refine our seasonal assortments and to strengthen our value segments at the opening and middle price points. In the fourth quarter, we saw some customers purchase top-of-the-line snow removal product as they traded in their third-party service contracts and opted to do it themselves. We are prepared to provide customers with the necessary products in lawn equipment, chemicals, and fertilizer categories should this trend continue into the spring businesses. 2009 is going to be another tough year, but we are focused on merchandising fundamentals and we are well-positioned to execute. And now I would like to turn the call over to Carol. Carol B. Tome: Thank you, Craig and hello, everyone. Our financial results for the quarter and year are distorted by a few factors that I would like to discuss and get out of the way before I cover our results. For the fourth quarter and the year, we will be comparing our results against an extra week, as fiscal 2007 was a 53-week year. The extra week in 2007 added approximately $1.1 billion to sales and approximately $0.04 to earnings per share. We had several strategic charges in fiscal 2008, which we have highlighted on an exhibit to our press release. For the year, the charges totaled $951 million, representing a $564 million store rationalization charge related to the closing of 15 under-performing stores and the removal of 50 stores from our new store opening pipeline, and a $387 million charge taken in the fourth quarter in connection with the closing of our expo businesses and support staff reductions. For the purpose of this call, we will refer to these charges as the business rationalization charge. Finally, earnings from continuing operations were impacted by a $163 million write-down of our investment in HD Supply, which is reflected in other expense, and we reported a $52 million loss net of taxes from discontinued operations related to the settlement of an HD Supply working capital matter. So with that, in the fourth quarter, sales were $14.6 billion, a 17.3% decrease from last year. For the year, our sales declined by 7.8% to $71.3 billion. Excluding last year’s extra week, sales were down 12% for the quarter and 6.5% for the year. Comp or same-store sales were negative 13% for the quarter, with negative comps up 12.6% in November, negative 17.4% in December, and negative 9.2% in January. The monthly comps are distorted because last year’s extra week shifted our fiscal calendar. On a like-for-like basis, for the fourth quarter comps were negative 11.5%. Now like-for-like comps for our U.S. stores were a negative 9.2%. Roughly 10% of our sales are from outside of the U.S. In the fourth quarter, we saw significant strengthening of the U.S. dollar against all currencies. Foreign exchange rate fluctuations negatively impacted total company comps by 190 basis points in the quarter. For the year, comp sales were negative 8.7%. Neither the calendar shift or foreign exchange had a meaningful impact to comps for the year. Excluding the fourth quarter business rationalization charge and the HD Supply write-downs, adjusted earnings per share from continuing operations were $0.19 for the fourth quarter. For the year, earnings per share from continuing operations were $1.37. On an adjusted basis, earnings per share from continuing operations were $1.78, down 21.6%, slightly better than our most recent guidance. In the fourth quarter, our gross margin was 34%, a decrease of 32 basis points from last year, reflecting the following factors. First, our U.S. retail business reported five basis points of margin expansion in the quarter, due primarily to better shrink results than last year. Through our focused [inaudible] portfolio approach, our merchants are driving new lower prices while maintaining overall gross margin. This gross margin expansion was offset by 14 basis points, or $20 million, related to markdowns taken in connection with the closing of the expo businesses. Second, we realized 23 basis points of margin contraction, primarily related to our Canadian business, reflecting the impact of a weaker Canadian dollar, a promotional December, and inventory adjustments related to our score or SAP conversion. For the year, our gross margin was 33.7%, up four basis points from last year. Excluding the markdowns associated with the business rationalization charge, our gross margin increased by eight basis points from last year. In the fourth quarter, operating expenses increased by 493 basis points to 32.1% of sales. Excluding the business rationalization charge, operating expense increased by 241 basis points to 29.6%. Our expense deleverage reflects the impact of negative sales, where we expect to deleverage expenses for every point of negative comp by about 20 basis points. In the fourth quarter, our expense deleverage per point of negative comp was about 18 basis points, including the cost of private label credit. Throughout the year, we had been experiencing additional expense deleverage due to rising costs associated with our private label credit program. In the fourth quarter, and as expected, the expense pressure from our private label credit card moderated. For the year, operating expenses increased by 329 basis points to 27.5% of sales. Excluding the business rationalization charge, operating expenses increased by 200 basis points to 26.2% of sales. Net interest and other expense was $297 million in the fourth quarter, an increase of $105 million. For the year, net interest and other expense was $769 million, an increase of $147 million from last year. Both the quarter and year reflect a $163 million charge due to a 50% write-down of our investment in HD Supply. Now moving to our operational metrics, during the fourth quarter we opened six net new stores, including one relocation, for an ending store count of 2,274. At the end of the fourth quarter, selling square footage was $238 million, a 1.3% increase from last year. Reflecting the sales environment and excluding last year’s extra week, total sales per square foot for fiscal 2008 were $298, down roughly 9%. Now turning to the balance sheet, our team has done an excellent job of controlling inventory in this sales environment and the quality of our inventory has never been better. At the end of the quarter, retail inventory was $10.7 billion, down 9% from last year. On a per-store basis, inventory was down 10.6% to last year. Inventory turns were four times, compared to 4.2 times last year. We ended the quarter with $41 billion in assets, including $525 million in cash and short-term investments. This is an increase of approximately $68 million in cash and short-term investments from the end of fiscal 2007, reflecting cash generated by the business of approximately $5.3 billion, offset by $1.8 billion of capital expenditures, $2 billion used to repay outstanding commercial paper and other debt obligations, and $1.5 billion of dividends. As a reminder, we have a $3.25 billion A2P2 commercial paper program that is 100% back-stopped by a committed long-term bank line of credit. As of the end of the year, we had no outstanding commercial paper. Computed on the average of beginning and ending long-term debt and equity for the trailing four quarters, and excluding the business rationalization charge, return on invested capital was approximately 11.4%. As Frank mentioned, we expect 2009 to be challenging. Our guidance reflects our best thinking at this point. We have detailed our guidance in our press release, so let me just hit the high points. First, let me remind you that we guide off of GAAP. We have based our working estimate on a number of external factors, including GDP, where our view is that nominal GDP will fall by 2.5% in the first half, and fall by 1.1% in the second half. Now our view on GDP does not include any potential lift from the economic stimulus package, which could be positive, or any impact if there were to be a significant increase in the personal savings rate, which could be negative. As of today, we expect fiscal 2009 sales to decline by 9%, with negative comps in the high-single-digit area. We expect the first half to be softer than the back half of the year. For fiscal 2009, we expect earnings per share from continuing operations to decline by 7%. On an adjusted basis, we expect earnings per share to decline approximately 26%. Included in our earnings per share guidance is our view that gross margin expansion will be flat to slightly positive for the year, and expenses as a percent of sales should be flat year over year, but clearly this is distorted by the business rationalization charge. On an adjusted basis, we expect to deleverage expenses by about 13 basis points per point of negative comp, and this reflects the benefit of our support staff reductions, a lower cost of private label credit, and the exit of the expo businesses. Now moving to capital allocations, our capital spending plan for 2009 is $1 billion, reflecting $175 million for new stores, $577 million for our existing U.S. stores and supply chain, $200 million for core IT and other corporate initiatives, and $72 million for our non-U.S. businesses. We expect to open 12 stores this year, with about half of those openings in Canada and Mexico. We have approximately $11.4 million of long-term debt, of which $1.8 billion comes due in the latter part of 2009. At this point, it is our intent to repay the debt maturities as they come due using cash generated by the business. Finally, I want to give you our latest thinking on our recapitalization plan. In 2007, we completed almost 50% of our $22.5 billion recapitalization plan. Shortly after, we put the recap on pause given market conditions and it will stay on pause until we see stabilization in our business and the credit markets. So thank you for your participation in today’s call and August, we’re now ready for questions.

(Operator Instructions) Our first question will come from Deborah Weinswig with Citigroup. Deborah Weinswig - Citigroup: Good morning. Throughout the call today we heard about the newly improved assortment management tools. How much more opportunity is there to improve the processes?

Deborah, I would say we’re really in the early innings of that, so just starting but Craig, why don’t you address that?

Yeah, Deborah, I think it would be fair to say that we are probably at this stage maybe a quarter of the way through the process, or even maybe slightly just a little less than that. So we have a lot of work to still do. Deborah Weinswig - Citigroup: Okay, and then we’ll sneak one more question in -- on the RDCs, I think it was said on the call it was the best [in-stock] rate that you had experienced in five years. Can you compare your RDC [serve stores] and non-RDC [serve stores]?

So at this point, Deborah, they are roughly the same. We have seen a little bit better performance from our RDC supported stores but to tell you the truth, the supply chain as a whole, along with our store operations team and our merchandise team, have just done an excellent job on the in-stock rate, so that improvement reflects improvement across the company, not just in the RDC supported stores. Deborah Weinswig - Citigroup: Great. Thanks so much. Keep up the great work and best of luck.

Our next question will come from Colin McGranahan with Bernstein. Colin McGranahan - Sanford C. Bernstein: Good morning. Focusing back on the RDCs for a second here, it sounds like that by the end of next year, or nearly half of the store base will be served by an RDC. I know Mark had talked about initially some obviously inventory benefits, some supply chain cost benefits, operating margin benefits. I think it was 30 or 40 basis points. How are you thinking about those benefits now that you have five of these open, and how is that impacting your outlook for inventory at the end of next year, inventory turnover and the potential margin benefits that could accrue in ’09 from the supply chain improvements?

I would say first, and then Mark is here and he’ll address your question in more detail, Colin, but I would say we are still very pleased with the results and counting on those results as we go forward. In 2009, it’s not yet at critical mass in terms of whether we see the benefit on inventory turnover. We are immediately seeing the benefit on transportation on the freight cost but less so on the in-stock and inventory turn. Mark, do you want to --

Sure, just a bit more detail on RDC -- as Frank said, we opened our fifth this quarter. That opened in Allentown, Pennsylvania. We had about five weeks of operation there and all of our KPIs -- key performance indicators -- are looking good there and meeting our expectations. The four other RDCs are progressing well against their KPIs as well, and we are on track to achieve the original business case for the RDCs. We expect to be serving about half of our stores by the end of 2009, and by the end of 2010 serving all of them. Colin McGranahan - Sanford C. Bernstein: Okay, and then just a quick follow-up for Carol -- you know, it looks like the free cash flow should be up nicely in 2009. I understand you have $1.8 billion in maturities but are you -- do you plan maybe to just keep excess cash on the balance sheet at this point? And do you have a specific outlook for what you expect on free cash flow? Carol B. Tome: Well, we expect it will generate more than enough cash to meet all of our obligations, including our dividend, which is $1.5 billion; our CapEx, which is $1 billion, to repay our debt maturities, which is $1.8 billion, and the additional cash that is generated will be held in the bank. Colin McGranahan - Sanford C. Bernstein: Okay. Thank you.

Our next question will come from Matthew Fassler with Goldman Sachs. Matthew Fassler - Goldman Sachs: Thanks a lot. If we could get a little more color on the progression of your business through the quarter -- you had that dip in December and I’m not sure if there was calendar distortion behind that but I would like to get just kind of quantitative color there and also how you experienced holiday this year, given the promotional environment and any particular merchandising efforts you brought to bear.

Matt, why don’t -- I think probably it would help if Carol gave you the adjusted comps through those months and then both she and Craig can comment on the holiday season. Matthew Fassler - Goldman Sachs: That would be great. Carol B. Tome: Hey, Matt. We saw some real distortion because of the calendar shift, so first let me give you the adjusted comps for total company and then I’ll give you the adjusted comps for U.S. store. So the adjusted comps for total company in the month of November were at negative 11.7%; in the month of December, negative 10.8%; and in the month of January, negative 11.9%. For the U.S. stores, the adjusted comp was negative 9.5% in November, negative 8.6% in December, and negative 9.4% in January. Matthew Fassler - Goldman Sachs: And when you give us total company, that is not local currency but U.S. dollar comps for -- as they’re impacted by Canada? Carol B. Tome: That is the total company comps in U.S. dollars reflecting exchange rate impacts, yes. Matthew Fassler - Goldman Sachs: Okay, good.

And Craig, do you want to comment on the holiday season?

Yes, overall on the holiday season, we were pretty pleased, Matt, with the overall performance when we looked at where we gained share, hand tools, power tools, holiday, decorating. You know, we felt pretty good about the end result. It was a tough environment, obviously, in the market but at the same time, we gained share and we came out as clean as we have ever come out, so we feel pretty positive about it. Matthew Fassler - Goldman Sachs: Gotcha, and then one quick follow-up -- you talked about Florida and California showing smaller declines. We’ve heard that from different companies at different times over the past two years, so I guess how consistently have you seen the comp decline moderation in those markets?

So it’s been pretty consistent for the last few quarters, Matt, that California and Florida are -- the rate of comp decline is improving. Matthew Fassler - Goldman Sachs: How do they compare with the total company level? Carol B. Tome: Just a data point -- if you look at -- and this is what we reported, you know, we reported negative comp of 13%. If you back out California and Florida, the comp would have been negative 13.5%. Matthew Fassler - Goldman Sachs: Gotcha -- okay, thank you so much.

Our next question will come from Michael Lasser with Barclays Capital. Michael Lasser - Barclays Capital: Good morning, thanks. If you start to see competitors become more aggressive from a promotional perspective in the upcoming year, what’s your sense for how you are going to respond, particularly because you will have some gross margin cushion from your enhanced inventory assortment efforts?

So Michael, I mean, the -- one of the things that really lies behind the portfolio approach is that we try to articulate pretty clearly for ourselves what the role is of each category and where it’s critical to set the right price impression, where it may not be, where we have some opportunities. And so we’re trying to set the path to provide the most value for the customer and then the response is really going to be dictated by what’s our overall portfolio strategy. Craig, do you want to elaborate on that?

For about the last year-and-a-half, we’ve been really focused on trying to work hard to eliminate promotional activity in our business. You know, we’re not 100% there, obviously but that is the strategy to get back to providing great value for our customers every single day. And I think we’ve shared with you on past calls that promotional activity that we had out there in the past wasn’t really nutritive to the business and we are simply converting that type of spend into driving our portfolio strategy and really focusing on the project business. And so we’re conscious, obviously, of the market that we compete in. We have to be because that’s at the heart of driving value to our customers. But we’re going to really react based on our portfolio strategy approach. Michael Lasser - Barclays Capital: Maybe I’ll ask it a little bit differently then -- how much of the flat to slightly up gross margin guidance for the year is a result of the focus bay approach, and how much is inherent, you know, are you assuming that the promotional environment in the upcoming year is going to become more [intense]? And then what is the risk that there’s a structural change in the home improvement sub-sector that gross margins are structurally lower because everyone else is just chasing traffic? Thanks.

Well, again, Michael, the way we look at it is our job is to provide the compelling value to our customers and that’s what sets the strategy, so I -- it’s -- we don’t start with an assumption of hey, here’s how we see all the different potentials on the competitive environment. We start from the -- where do we know we have to go to provide great value to our customer and build from there? Michael Lasser - Barclays Capital: Okay. Thank you for your comments.

Our next question will come from Gregory Melich with Morgan Stanley. Gregory Melich - Morgan Stanley: Thanks. I have two questions -- one on credit and then on CapEx. On credit, we know how much it helps the SG&A, Carol -- have you guys thought about how much it could impact the top line in terms of the percentage of your sales that would be on credit, or reduced credit lines for some of your private label card customers? Carol B. Tome: Well, today we are approving 76% of all new applications and in 2008, we opened up $3.2 million accounts. Now, the approval line, if you will, is dropped by about 6% so the average line that’s been approved is $6,850. The through-the-door FICO scores are 705, so we still think that credit is going to be an important value proposition going forward. As a penetration of total sales, it was down slightly from last year at about 28%. We’re really focused on just asking our customers every time they shop with us if they would like to use their private label credit card. We’re not going to push credit at them but we certainly encourage them to use it and we have factored in our best thinking as it relates to credit in the guidance that we’ve given. Gregory Melich - Morgan Stanley: Okay, great, so you expect to see that could drop a little bit in terms of percentage, like it did last year? Carol B. Tome: I think that’s actually very reasonable, yeah. Gregory Melich - Morgan Stanley: Okay, great. And then on CapEx, for anyone there, if you think about it longer term, the billing that you are doing this year, which makes I guess a lot of sense given where we are in, on a five-year view, what do you think that needs to be or should be, if we were thinking out longer term?

Well, I think we’ve said in the past in terms of applying CapEx to new stores that we see a constrained opportunity but there’s still some opportunity, so I think we’ve talked about average -- over time, a little over 1% growth in new square footage, around 1.5%, 1.4% growth in new square footage. So as you go forward, as communities shift, as you have to follow different geographies, they will -- we’ll continue to put in some new square footage but it is going to be significantly less, obviously, than it has been in the past. And there are other things that we obviously are looking at closely. We’ll continue to spend CapEx on our building out our new supply chain on the IT side, as I said in my comments, we’re going to be spending this year, observing how, what the results are in Canada with the new enterprise wide system that they have in place, because if we were to decide to do that, that would obviously require some resources as well. Carol B. Tome: And as we look out, we can’t imagine a scenario where our capital spending would ever exceed our annual depreciation and amortization expense. And as a reminder, the RDCs are not capital intensive. In 2009, we’ll be spending about $89 million in support of our RDC investment. Gregory Melich - Morgan Stanley: That’s great. Thanks.

Our next question will come from Budd Bugatch with Raymond James. Budd Bugatch - Raymond James: Thank you for taking my question. Good morning. Can you talk, Carol, the linearity of that basis point of deleverage for every comp point of deleverage? At 13 basis points, how linear is that as that moves up and down? Obviously the comps are a big number now. Carol B. Tome: Right -- well, we feel pretty good about that. Budd, you know, this is an art, not a science. Could it move a couple of basis points if the comps were worse than we thought? Sure, but we feel pretty good about that. Budd Bugatch - Raymond James: And on the upside? Carol B. Tome: We should start to see leverage as soon as we hit a 0% comp. Budd Bugatch - Raymond James: Okay. Secondly, the 12 net new stores, off of what base are we looking at? Because we still have yard birds and expo and the store count -- I’m just making sure I understand. Carol B. Tome: Yeah, we have -- yeah, expo is still in there, so it’s just add 12 and subtract 34. Budd Bugatch - Raymond James: Okay, and the same for yard birds too? I mean, it’s 12 net off of the -- Carol B. Tome: Yes, it’s 12 net off -- subtract from the 2,274 that we ended the year, subtract 41 and add 12. Budd Bugatch - Raymond James: Gotcha. Okay, and finally on the CapEx, it’s about -- what, about $250,000 per store, if my math is right, right now excluding what you are going to spend on the supply chain? Is that number look like a number that will be constant over a couple of years? Carol B. Tome: Well, there are a couple of things to remember -- first, we did some catch-up spending that we don’t need to repeat in 2009. We also have a lot of expense dollars that we spend on just maintaining our stores. In fact, over $500 million of expense dollars go into maintaining our stores. So if we look at what we are spending on a per square footage base, just maintaining the stores, it’s a little less than $3 a square foot and we feel pretty good about that. Budd Bugatch - Raymond James: Okay. Thanks, Carol. Thank you very much.

Our next question will come from John [Zolidis] with Buckingham Research. John Zolidis - Buckingham Research: Good morning. Just a clean-up question on the foreign currency -- can you tell us what the total impact to sales was in the fourth quarter, and if there was any material impact to the bottom line? And then what is anticipated in the guidance for foreign currency impact in 2009? Thank you. Carol B. Tome: The impact to sales is about $320 million in the fourth quarter. There was no material impact to the bottom line and as we look out for 2009, included in our guidance is our view that the currencies will stay where they are, so we’re not assuming further strengthening of the U.S. dollar or any weakening as a point, so there is a year-over-year impact to ourselves because of where the currencies are today and that’s included in the guidance. John Zolidis - Buckingham Research: Can you give us some help on what that might be and since you report the comps in U.S. dollars, is there maybe a 100 basis points impact from FX in that? Carol B. Tome: That’s right -- there’s about 100 basis points. John Zolidis - Buckingham Research: Okay. Thank you. Carol B. Tome: You’re welcome.

Our next question will come from Maggie Gilliam with Gilliam & Company. Maggie Gilliam - Gilliam & Company: Could you comment on what is the status of the SAP system in Canada and what are your plans for implementing it in the U.S.? I know there has been a little bit of talk about simplifying it or making some modifications going forward. Thank you.

Sure. Good morning, Maggie. First, great credit to the Canadian team and our IT team for the implementation of the system. I mean, you look at major efforts like this and a lot of times, you run into some significant unanticipated issues. This was done on time and the Canadian team really did just an excellent job of getting it in place. Now, going forward, we have the opportunity to figure out okay, what are the benefits, who do those benefits compare to our ongoing efforts to improve our infrastructure here in the U.S., and then assess kind of towards the end of 2009, what’s the best path forward for the United States? Matt Carey, our IT leader, is here in the room and so I -- Matt, if you want to add some comments to that.

Absolutely. We intend on measuring the impact and the return that we’ve gotten or are going to get in this system and we’ll assess it throughout the year and go through a few seasonal cycles and make sure that it meets our expectations before we make a call.

Thanks.

Augusta, I think we’re ready for the next question.

Our next question will come from Wayne Hood with BMO Capital Markets. Wayne Hood - BMO Capital Markets: Good morning. I guess on Canada again, Carol specifically to you, I guess as you look at their implementation there, there was some inventory adjustments and as you look at that, what do you see there that might mean or imply inventory adjustments that might be needed in the U.S. if you rolled out SAP and how much is their inventory down up there since that rollout -- about 5% or 10% or can you put some parameters around that? Carol B. Tome: Well Wayne, we haven’t done the analysis in the United States to be able to quantify what it could mean but anytime you convert, and I think you know we converted from retail method of inventory to cost and there was an inventory adjustment that took place, so that impacted the gross margin performance in the fourth quarter. We also had some shrinkage and that was really because of the disruption associated with the implementation. So I can tell you what it meant to Canada, which we called out in this overall impact to the company gross margin up in Canada -- it was about 23 basis points. The inventory piece related to the score or SAP implementation was about 12 basis points. So I can’t tell you what it means for the U.S. Wayne Hood - BMO Capital Markets: Okay, and then I just had a quick question for Craig; Craig, you indicated some increase in units you are employing in some of these other areas. I am just wondering, when you think about fully allocating expenses back to these labor intensive departments, what level of profitability are you seeing year over year, even though your share may be up?

When we look at our flooring business -- for example, soft flooring has been a very strong business for us, where we’ve been gaining share and when we look at the overall profitability of that product category, we’re actually very pleased with our results. Wayne Hood - BMO Capital Markets: So it’s up year over year, fully allocated?

All in, when you look at everything, yeah, we’re very happy with where we are at. Wayne Hood - BMO Capital Markets: Thank you.

Our next question will come from Brian Nagel with UBS. Brian Nagel - UBS: Good morning. I wanted to just follow-up; you commented in your prepared remarks about California and Florida, and seeing some signs of stabilization there and some weakness, some incremental weakness in other markets. I guess as we think about the trend of business throughout the country and how the trend is likely to change potentially as we go through 2009, are there regions of the country that are still uncharacteristically strong, that are helping to support comps? That’s one question. And then the second, going back to California and Florida, as you’ve seen maybe signs of stabilization there, do you think that reflects, or to what degree does that reflect sales of foreclosed homes?

Brian, a couple of comments -- the first would be, just so that everybody is clear, they are still declining, so -- I mean, it’s not stabilization in the sense of oh, okay, well, we’ve actually bottomed. This is just a rate of decline that is slowing. The second, in terms of areas that are positive, as Craig called out in the weather-impacted areas, we’ve seen positive comps, so we’ve seen positive comps in our Gulf area, for example. Brian Nagel - UBS: And then as far as foreclosures, are those helping to drive better -- or I guess less bad results?

Yeah, I mean there is an advantage to existing housing turnover. That’s something clearly that is relevant to our business and clearly a lot of the turnover in those areas has been from foreclosed housing.

We also see when you look at product categories, things like vinyl flooring, cleaning, in-stock carpet -- all of those businesses and compared to the total company are relatively strong businesses and we think that that’s a combination of people that are beginning to fix up some of these homes but also the fact that there is high rent impact out there, where more people are renting. Brian Nagel - UBS: Okay. Thank you very much.

Our next question will come from Shannon Joseph with Wachovia. Shannon Joseph - Wachovia Capital Markets: Actually, my questions have already been answered. Thanks.

Our next question will come from Eric Bosshard with Cleveland Research. Eric Bosshard - Cleveland Research: Good morning. Two things as we think about 2009 -- first of all, I guess one for Craig, and that is as you think about the merchandising strategy in response to the consumer, can you just give us a little detail on categories or areas or price points or what you are thinking about proactively and how you are going to position merchandising? And then secondly for Marvin, if he’s in the room, just a similar question for how you are thinking about staffing stores and service levels in anticipation of what you are looking at for 2009.

Okay. Marvin is in the room, so he’ll respond to the second part of your question, Eric. Craig.

Eric, as it relates to kind of how we are looking at the merchandising piece, using our assortment planning tools, we are actually expanding the variety or clusters, if you will, of assortments that we are putting out there, trying to be more granular to approach specific customer needs and specific types of stores. So we have an improvement in, for example, in our seasonal areas of things like patio grills, power equipment, and so on, where we have put more clusters to be more granular. Also, the other thing that we have focused on is really making the adjustments where we feel it was necessary and potentially shifting to stronger opening price point and mid-price points, and we have assorted accordingly as we move into 2009 to make those types of adjustments. And then as I mentioned, we are also watching, because we think that there is potential upside where customers will in fact potentially opt out of services that they have around their home today and elect to do it themselves, and what we saw in snow equipment in the fourth quarter was that actually -- that translated into our better product selling at the top end of the line and we’ll be prepared to make those type of adjustments to fulfill those customers’ needs as well.

Eric, good morning. This is Marvin. The second half of your question, we’re really going to keep it very basic. We have spent a lot of time simplifying the stores, removing task and making sure that we are positioning associates in the customer facing areas of the business. So for ’09, it’s going to be a focus on training, as Frank mentioned earlier. We are going to re-orient and re-train every single associate on the fundamentals of customer service. We’ve never done that before and we are going to focus on that in the first quarter. We are also going to make sure that we have our associates in the parts of the store during the times of the day that we have our greatest customer traffic and we are going to just focus on customer service. Our goal is going to be to execute well so that we can bring some of the merchandising events and new products to life with better service and just better associate know-how, so really taking [inaudible], customer service, and associate know-how will be the plan for 2009. Eric Bosshard - Cleveland Research: And in terms of staffing levels relative to sales, is there any adjustment being made in the model?

No, it’s not -- I mean, we have an activity based system that is staffed based on departments, so an example would be when we have a department that is performing well, like our repair maintenance categories, you will see more associates in that area because sales are up. And when we have some [inaudible] that may be slightly down, you will see less associates based on the number of customers. So department by department, store by store, and we feel like that has served us well and we’ll continue that for 2009. Eric Bosshard - Cleveland Research: And then lastly on that, is there any change in the minimum staffing target as the sales continue to contract?

No, because we staff based on departments, we don’t look at minimum staffing by store. We focus on a department-by-department basis. If you look at our store, we are a store made up of many different, smaller stores. A hardware store, plumbing store, so we think a department-by-department focus is the best method for us to serve our customers. Eric Bosshard - Cleveland Research: Great. Thank you.

Augusta, we have time for one more question.

That question will come from Chris Horvers with J.P. Morgan. Christopher Horvers - J.P. Morgan: Yes, made it in. I was going to say best for last, but -- so first to clarify, we’ve received a number of questions about guidance, so it’s $1.37, down 7% -- that’s $1.27. Should we think about adjusting for that $132 million of one-time expenses in 4Q as well? Carol B. Tome: Yes, when we said on an adjusted basis, EPS would be down around 26%, we’re adjusting out the expenses in 2008 and 2009, related to the business rationalization. Christopher Horvers - J.P. Morgan: Right, so the point forecast is like $1.32-ish, something like that. Carol B. Tome: On an adjusted basis. Christopher Horvers - J.P. Morgan: Right, yes, on an adjusted basis. Okay, that’s perfect. And then can you talk of a follow-up question on the promotional environment -- you know, Lowe’s results last week caused a lot of concern out there. Have you seen Sears pull back? What is Menards doing? Has Lowe's changed their pricing strategy? And then broadly on inventory, it seems like you guys are very clean. How do you think the channel looks and your other big retail competitors?

Well first, look, it’s always a competitive market. I mean, we’re always responding to customers, we’re always out there trying every day to have the best pricing for our customers, so that’s going to be the same in 2009 as it was in 2008. And in terms of our competitors inventory positions, I guess I’m not really in a position to comment. Christopher Horvers - J.P. Morgan: From what you are seeing in the channel and the suppliers, do you think they are clean, so it’s not like there’s a lot of inventory that needs to be cleared out?

In our channel? Christopher Horvers - J.P. Morgan: Yeah, your vendors.

I really -- you mean from the vendor standpoint, Chris? Christopher Horvers - J.P. Morgan: Yes.

Yeah, I mean, I think our vendors are probably in pretty good shape as we talk to them. You know, everybody in this environment is trying to watch how they manage their business, so I’m not hearing anything from our vendor community that has them with dire concern over inventory position. You know, and just one other comment as it relates to kind of how we are approaching the environment -- it is the job of our merchants to understand and anticipate where they think the market will go as they build their assortments for a given year, and we take into account what we think will happen the best we can and then assort accordingly, which is why we’ve made some of the adjustments that we’ve made within the line structures as we move into 2009. Christopher Horvers - J.P. Morgan: Okay, and then just one final one -- so then Craig, how have you ordered Spring on a year-over-year inventory basis?

We have --

You know, Chris, I think that’s probably not --

More competitive information than I want to give out. Christopher Horvers - J.P. Morgan: Okay, fair enough. Thank you.

Thank you, Chris.

Thank you all for joining us and we look forward to talking to you at the end of next quarter.

This does conclude our call. We would like to thank everyone for their participation. Have a great day.