Matthew Fassler - Goldman Sachs David Schick - Stifel Nicolaus Michael Baker - Deutsche Bank Deborah Weinswig - Citigroup Dave Tractor - Banc of America Securities Alan Rifkin - Lehman Brothers Operator: Good day everyone and welcome to today's Home Depot fourth quarter earnings conference call. As a reminder today's call is being recorded. Beginning today's discussion is Ms. Diane Dayhoff, VP of Investor Relations. Please go ahead. Diane Dayhoff: Thank you, Gwen, and good morning to everyone. Welcome to the Home Depot fourth quarter earnings conference call. Joining us on our call today are Bob Nardelli, Chairman, President and CEO of The Home Depot; Carol Tome, EVP and Chief Financial Officer; and Tom Taylor, EVP of Merchandising and Marketing. At our investor and analyst conference last month, we discussed our vision of The Home Depot business through the year 2010. A replay of those comments as well as the accompanying slides are available on our website under the investor relations section. With that in mind, today's discussion will focus on our accomplishments for fiscal year 2005 and more specifically on the fourth quarter. Bob will begin with a review of our business. Tom will then provide insight into our merchandising efforts and Carol will complete our prepared statements with a discussion of our financial results. Following our prepared statements we will open the line for questions. Questions will be limited to analysts and investors. 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 home page and the investor relations section. A replay will also be available on our site. Before I turn the call over to Bob, 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 Bob Nardelli.

Thanks, Diane and good morning, everyone. This year was another year of company records, demonstrating that the strategy we laid out five years ago is working, and is delivering profitable growth. We continued to solidify our leadership position in the markets that we serve. As a result of the hard work and dedication of our associates, we achieved several records for the fourth quarter and year, including: sales, average ticket, gross margin, operating margin and net income. This success will be shared with our hourly and our non-management eligible associates. We will be distributing $44 million in success-sharing checks to them at the end of this quarter. For the year, sales were $81.5 billion; $8.4 billion or 11.5% higher than last year. Earnings per share were $2.72, over 20% higher than last year. Now this is the fourth consecutive year of earnings growth in excess of 20%. We continued to return value to our shareholders, and in 2005 we returned approximately 67% of earnings through dividends and share repurchases. Since the inception of our share repurchase program in late 2002, we've spent $9.7 billion of our $11 billion share repurchase authorization, repurchasing 277 million shares, or over 12% of our outstanding shares. During this same period, we have more than doubled the dividends paid to our shareholders. Last month we announced a 50% increase in our annual dividends to $0.60 per share, which equates to a 20% payout among the best-in-class in retail. By staying on strategy, we reported exceptional results in 2005, delivering on our commitment to provide sustainable, predictable and profitable growth. Carol Tome will take you through our financial results in more detail later. Our strategy of enhancing the core is a foundation of our business and our financial results reflect our continued focus on our customers. By consistently listening to our customers and introducing a stream of innovative and distinctive products throughout the store, we reported a record average ticket of almost $58, the highest average annual ticket in our Company's history. Tom Taylor will discuss how we are well-positioned to continue our momentum in 2006, through our exciting assortment of distinctive, innovative and new merchandise. In 2005, using technology as an enabler, we made significant IT enhancements that allowed us to improve our operational efficiency, drive expense productivity and improve our customer experience. When you add it all up, we spent over $1 billion in technology and infrastructure this year. I could not be more proud of the accomplishments we've made through initiatives such as the continuation of self-checkout, the completion of our back end automated and re-engineering, or BEAR. The progress with certified auto replenishment and our in-store special order service initiative called SOSE. Our store operation group continues to focus on putting the customer first. We get quantitative, measurable feedback from 250,000 customers each week and have seen improvements across every key attribute we measure, including: associate engagement, speed of checkout, associate know-how, and the merchandising selection. These voice-of-customer results tell us that our strategy is working. Our services businesses showed continued growth this year, with sales up 21% and currently represents 5% of our total sales. Throughout the year, we saw strength in installation categories such as: countertops, roofing, gutter, kitchen, windows and HVAC. Services is an important growth business for us and represents $110 billion market opportunity. As the largest segment of our population -- the baby boomers -- age, we see a definite and growing trend from this group towards more Do-It-For-Me services. To better position us for the continued growth, we launched a dedicated 300-person field organization focused specifically on customer service and installer performance during the fourth quarter. Our acquisition of Chem-Dry in the fourth quarter provides us with a solid franchise business model. This gives us two clear benefits. We will learn about the franchise approach to home services, which could lend itself to future expansion. In addition, through our Chem-Dry, Home Depot is represented in 10,000 additional homes every day, giving us the ability to expand our offerings to the customers, increasing our market share of services. When this is combined with our 11,000 installs a day, we touch more than 20,000 homes and have a significant opportunity to grow through adjacent products and services. We are now the largest retailer, installer and cleaner of soft flooring in the world. In 2005 we responded to our changing consumer trends by expanding the assortment in our stores through Home Depot Direct, which allows our customers to shop from the convenience of their homes. In addition, customers can shop through their catalogs like 10 Crescent Lane, Paces Trading Company, that offer an expanded assortment extending what we offer in our stores. While still in a start-up mode, Home Depot Direct has doubled in size over the last year. The next time you are on our website, I invite you to browse our new interactive appliance, grill and tractor selections. You will see why we are excited about this shopping platform. Last week, we invited customers to participate in selecting one of three different advertisements showing our new tractor line-up. In two days we had 1 million visitors, more visibility than any traditional form of media, demonstrating the power of our brand. I would now like to turn to Home Depot Supply. This business represents 5% of our total Company sales. In 2005, it experienced triple-digit growth. It's core business posted solid gains and we added to these businesses by completing and integrating 18 acquisitions. The acquisition of National Waterworks and USA Bluebook solidified our positions as the premier provider for water and waste water transmission products and services. Our national water infrastructure is aging rapidly. In fact, based on government and industry estimates, in 15 years more than 50% of our country's water infrastructure will be outdated and will need significant replacement and repair. National Waterworks now has 137 branches in 36 states. Creative Touch Interiors, a leading design center partner to the home builder, grew significantly through the year and now has 37 branches in 14 states. During the year we expanded our offering to home builders through the acquisition of William Brothers, a leading supplier of lumber and building materials. White Cap expanded its presence through double-digit organic growth and six strategic acquisitions. It now has over 103 locations, nearly doubling its presence in the U.S. since we acquired it in May of 2004. We acquired Contractors' Warehouse, which serves the small professional contractor and repair and remodeler. Contractors' Warehouse is a highly productive format with sales per square foot considerably above the Company average. Contractors' Warehouse has eight locations. As we look across the country, we think there are another 150 to 250 potential locations. Finally, our pending acquisition of Hughes Supply is truly a defining moment in The Home Depot's history. With Hughes Supply, we'll be positioned as the number one U.S. diversified wholesale distributor, with fiscal 2006 sales approaching $12 billion. Home Depot Supply will continue to be an important growth driver for us. We will focus on integrating the companies within Home Depot Supply, ensuring we capture the synergies we've identified, and continue to expand using a disciplined approach to develop or to acquire businesses that build off our strength, scale and core competencies. As we grow, we believe each new business has the potential to be a $1 billion plus business. When I reflect on 2005, it's clear that our commitment to creating shareholder value extends into the communities in which we live and work, and is a fundamental core value. I'm proud of the extraordinary efforts we made to look after our customers and our associates in 2005. Now I would like to say a few words on the Olympics. For Home Depot, these Olympic Games represent the culmination of all the hard work and dedication of our Olympic and Paralympic athletes. We are honored to have 35 Home Depot athletes, more than any other company competing in Torino for Olympic medals. We could not be more proud of the associates and our support as they strive to make their Olympic dreams come true. We would like to congratulate all of those medal winners to date, including Steve Elm, Danielle Goyette, Tricia Dunn-Luoma, Katie King and Jennifer Potter. So in closing, it's evident that the strategy we laid out five years ago is working. As we enter the next five years we feel confident that we are positioned for predictable, sustainable and profitable growth in support of our 2010 vision. And now, I would like to turn the call over to Tom Taylor. Tom.

Thanks, Bob, and good morning, everybody. As Bob mentioned, 2005 was a solid year. Our initiatives to create a compelling shopping experience paid off as exhibited by strong growth in the core. In the fourth quarter, we saw strength across the store. Kitchen and bath, including appliances, building materials and paint, were particularly strong. As Bob mentioned, our average ticket for the quarter and year were Company records. For the year the average ticket was $57.98, representing a 5.6% increase. For the quarter, average ticket was $57.20, a 5.7% increase over the previous year. This was driven by our relentless focus on improving the customer shopping experience through store modernization, the introduction of distinctive and innovative products, and our commitment to provide a value to our customers. In the fourth quarter, organizational categories are important to our customers. In January, people put away their holiday decorations, so we expanded our storage and organization selection, carrying everything from totes to full closet solutions. For the first time with our home organization, we did an exceptional job of coordinating our consumer advertising, including a fully integrated communications approach that took advantage of heavy Internet use, print and TV during the holiday season. This, combined with in-store information we provided associates, helped drive sales and ensure good customer service. In Decor our kitchen and countertop business realized double-digit comps in the quarter, as a result of the introduction of our Countertop Solution Center and innovative products, such as Silestone MICROBAN and Silestone leather-look countertops, featuring a number of new colors. The introduction of MICROBAN technology is now incorporated into every Silestone quartz countertop as a value-added feature. MICROBAN's antibacterial protection helps to fight the growth of odors causing bacteria, mold and mildew. The Silestone leather-look countertop offers a unique texture and the feel of fine leather with colors that are inspired by rivers around the world. The Countertop Solution Center is currently in 452 stores and we will continue to roll it out to an additional 250 stores in 2006. In kitchens, Thomasville's new cabinet finish and door styles were popular with our customers. Thomasville's reputation for fine furniture has been incorporated into unique furniture-inspired cabinet designs that are available only at The Home Depot. Our momentum in appliances continued in the quarter as we gained market share. Our core market share on a 12-month rolling basis grew by 160 basis points to 9.7% for the quarter and we captured the most market share in the period, versus our competitors. We also saw significant improvement in our close rate compared to other retailers, confirming that our approach of having dedicated staff as well as unique, innovative products is working. We maintained our momentum by continuously introducing new distinctive products, like our GE Smart Dispense dishwasher, which holds an entire bottle of liquid automatic dishwasher detergent, dispensing the right amount based on soil levels. Maytag Ice2O refrigerator, the first French door refrigerator with filtered water and ice on the door. Maytag Blue Metallic laundry set, GE Adora front loaders and our full set of LG appliances. We plan to continue this momentum by listening to our customers and responding to their needs. In professional categories, we saw strength in hardware, electrical, plumbing and builder materials across the country. This is not new. We've seen strength in our professional business throughout the year as a result of some initiatives we implemented in early 2005. Our professional customers told us they wanted dedicated sales associates and an easier way to order products. We listened and we responded. We set up a process and procedures to improve operations, enhanced our credit and loan services, created a 200-person outside sales force and set up a website to better service our professional customers. As a result of our improved customer service, we are gaining more loyalty, share of wallet and have more satisfied customers. In fact, loyalty in this segment is critical due to the frequency with which our professional customers shop. In the fourth quarter, we wowed our customers with a number of new and innovative products. Our new line of exclusive 28-volt Makita and 18-volt Makita lithium ion powered tools for the pro and serious Do-It-Yourselfers were a big hit. Customers have responded to the unique features and added functionality. Our Ralph Lauren metallic and suede paint, Bellagio Faux paint and Colores Origenes palette from Behr, featuring over 70 colors have also appealed to our customer base. Let me give you some examples of other exciting products that we introduced this year. The Ryobi MultiTask laser level, the Ryobi log splitter, RIDGID wet/dry vacs and Pegasus door locks also brought excitement to our stores. The excitement is going to continue. We believe we've done an excellent job of creating differentiation for Spring. Let me give you some examples. In our garden area, we are going to offer everything from mulch with weed protector to mulch that doesn't fade for a year, to a new exclusive masonry wall block with the look of genuine stack stone at a fraction of the price. We will also have the first ever full sun, full heat Impatiens, that we like to refer to as Sunpatiens; and a new shrub Crape Myrtle series called Razzle Dazzle, which is the perfect size for borders, beds, containers and hanging baskets. You will also see an exclusive premium rose program that will enhance our premium flower line of Viva Plants, featuring bilingual, informative packaging. In the outdoor power area, we have seen tremendous success with our new expanded tractor offerings. Earlier this month we rolled out our new tractor line-up, including Cub Cadet Series 100, Toros Time Cutters Z Zero Turn, and several other models to augment our John Deere lineup. Now, not only do we have the top brands under one roof, but because we have the most home improvement stores we provide the most convenience to our customers. This makes us the clear destination in power equipment and if people want to shop at home, 90% of our power equipment is available on line at TheHomeDepot.com. To better service our customers, by the end of the first quarter we will have a power equipment specialist in stores available to answer any questions on features and functionalities of all of our power equipment, including tractors and mowers. Finally, we will continue to expand our assortment of patio furniture, offering fashion-forward styles to suit every customer, from cast aluminum bistro sets to weather-treated teak sets. We plan to roll out a new line-up of outdoor cooking, providing all the functionality of indoor cooking. We will have everything from sleek outdoor kitchens to new grills. Our kitchens are modular, have a stacked-stone look and come with a stainless steel grill and the option of a stainless steel refrigerator. The best part about it is, at The Home Depot you will find that at a compelling value proposition. In addition to the tremendous line-up of innovative products for Spring, our capital investment into the existing stores will continue to pay dividends for the Company. As I previously mentioned, our Countertop Solution Center is outperforming our expectations and we will continue to roll it out in 2006. Additionally, because of strong initial results, we are increasing the number of pilot stores for home organization, millwork and our Lighting Cloud. We are testing other initiatives and will continue to explore different concepts as we strive to ensure we are providing innovative products, broadening our assortment, and making the environment easier to shop. With our lineup of products for the Spring and the introduction of new innovative products, our average ticket momentum will continue and we are sure we will create excitement in our stores for our customers. I would now like to turn the call over to Carol.

Thank you, Tom. Hello, everyone. I am very proud of our 2005 financial performance and add my thanks to all of our orange-blooded associates for delivering on our strategic and operational objectives. As you heard from Bob and Tom, this was a year of many Company records. In the fourth quarter, our sales grew 15.9% to $19.5 billion. Comp, or same-store sales, for the fourth quarter were 5.5%. We experienced our best retail comp of the year in the fourth quarter, with a retail comp of 4.6%. The remaining 90 basis points of total Company comp growth was contributed by Home Depot Supply. Sales from stores that have been open less than one year and sales from our newly acquired businesses contributed 10.4% to our top-line growth in the fourth quarter. For the year, sales grew by $8.4 billion, or 11.5%, to $81.5 billion. Comp sales for the year were 3.8%, with 80 basis points contributed by Home Depot Supply. Consolidated net income totaled $1.3 billion for the quarter and $5.8 billion for the year. In the fourth quarter, earnings per share increased by 27.7% to $0.60. For the fiscal year, earnings per share were $2.72, a 20.4% increase from 2004. Gross margin was 33.8% for the fourth quarter, a decrease of 37 basis points from the same period last year; 21 basis points of this decline was due to an increased penetration of Home Depot Supply. As we have told you, today this business has a lower gross margin rate than our retail business. We expect the gross margin rate for Home Depot Supply to increase over time as we utilize our purchasing power to drive synergies throughout the enterprise. Also contributing to the year-over-year decline was a change in the mix of products sold. Reflecting consumer demand, in the fourth quarter we sold a higher percentage of lower margin categories, like appliances and electrical wire, than we did last year. For the year our gross margin rate was 33.5%, a modest increase of 10 basis points from last year, consistent with our guidance. Going forward, we expect modest gross margin expansion. During the fourth quarter, we opened 70 net new stores, including 11 stores in Canada and five in Mexico. More than 9% of our store base is now found in Canada and Mexico and we are the market leader in those two countries. This year we added 174 new stores, net of five relocations, and closed 22 stores, bringing the total number of stores at the end of the year to 2,042. Today we own 87% of our stores and believe our real estate ownership strategy is a competitive advantage. As you know, we strategically cannibalize our stores in order to grow market demand and top-line sales. In the fourth quarter, we cannibalized 19.5% of our stores, which had a negative impact on comp of 2.6%. Excluding the impact of cannibalization, comp sales would have been 8.1% for the quarter. For the year, cannibalization negatively impacted comp sales by 1.8%. Excluding the impact of cannibalization, comp sales would have been 5.6% for the year. For fiscal 2005, customer transactions were $1.3 billion, an increase of 2.7% over the last year. For the fourth quarter, customer transactions increased by 4.1%. For the year, selling square footage was 215 million, a 7% increase from last year. The average square footage per store was 105,000 square feet, down slightly from last year, reflecting the changing mix in our store format as we expand into new geographies and size our stores to meet the needs of the markets. For the fourth quarter, weighted average weekly store sales were $676,000 up 1.3% compared to the same period last year. For fiscal 2005, weighted average weekly store sales were $763,000 flat compared to last year. Sales per square foot were approximately $334 for the quarter, up 2.2% over last year. In the fourth quarter, our new store productivity was the best it has been since 2001, both from a sales per square foot perspective as well as year-over-year change. In the fourth quarter, sales per square foot for our new stores increased by approximately 7%. For the year, total sales per square foot were $377, up slightly from last year. In the fourth quarter, we continued to drive expense productivity as total operating expenses decreased 96 basis points from last year to 23.3% of sales. During the quarter, we drove expense leverage in most of our major expense categories and we did that by focusing on productivity, not by sacrificing our commitment to customer service. As you know, we have been redeploying tasking hours to selling hours and as of the end of fiscal 2005, 81% of our hours were committed to selling activities, as compared to 79% last year. For the year, total operating expenses as a percent of sales was 22%, a decrease of 55 basis points from last year. Operating margin for the fourth quarter was 10.5% and for fiscal 2005, 11.5%. This is our fifth consecutive year of operating margin expansion. Our income tax provision rate dropped to 36.4% in the fourth quarter from 37.1% last year. The majority of this reduction was due to the reversal of a $22 million evaluation allowance, as we are now able to recognize a state net operating loss for which no previous benefit had been recorded. For the year, our income tax provision rate was 37.1%. Diluted shares for both the fourth quarter and fiscal year 2005 were 2.1 billion shares, compared to 2.2 billion shares in both fourth quarter and fiscal 2004. The reduction in outstanding shares is due to our share repurchase program. In 2005, we repurchased 76.5 million shares and cumulatively, since 2002 when the program began, we have repurchased 276.9 million shares and spent $9.7 billion under our $11 billion authorization. Now turning to the balance sheet. At the end of the year total inventory was $11.4 billion, an increase of 13.2% from last year. Earlier in the year, we told you that our inventory was growing faster than our sales growth due to our acquisition activity and because we increased our inventory in support of the rebuilding efforts in hurricane-affected areas. We are selling through this inventory and as a result, our year-over-year increase is dropping in line with our sales growth. We look to leverage inventory growth in fiscal 2006. For the year, inventory turns were 4.8X, down slightly from 4.9X last year. Computed on beginning long-term debt and equity for the trailing four quarters, fiscal 2005 return on invested capital was 22.4%, an increase of 90 basis points from last year. We are a financial powerhouse and are using our strong cash flow to invest in the business and return cash to our shareholders. During the year, the business generated approximately $7 billion of cash and used that cash, coupled with the net proceeds of a $1 billion bond offering, to fund $3.9 billion of capital expenditures, $3 billion of share repurchases, $2.5 billion of acquisitions and $857 million in dividends. We ended the year with $807 million in cash and short-term investments. As you would expect, we hold cash in short-term investments and operating accounts in the United States, as well as Canada, Mexico and China. For cash management flexibility purposes, we issued $900 million in commercial paper at year end, most of which has since been repaid. As we discussed at our January investor conference, our fiscal 2006 growth guidance is aligned with our 2010 vision to grow ourselves by 9% to 12% and to grow our earnings per share by 10% to 14% on a compounded annual growth rate over the next five years. It now looks like the acquisition of Hughes Supply will close in April. Given that, we believe our 2006 sales will grow in the range of 14% to 17% and our earnings per share will grow in the range of 10% to 14%. Based on our business momentum, we are highly confident of our ability to deliver upon our growth targets in 2006 and beyond. So thank you for your participation in today's call and, Gwen, we are now ready for questions.

Thank you. (Operator Instructions) We'll go first to Matthew Fassler with Goldman Sachs. Matthew Fassler, Goldman Sachs: Thanks a lot. Good morning and congratulations on a good quarter. I would like to ask one question and one follow up, of course. I would like to start with the gross margin issue. Ex-supply, margins were down a bit still. I'm curious how different the mix trends were in the fourth quarter versus where they were year-to-date when the core retail business was able to generate gross margin increases? And, whether the inventory reduction might have played a role in some of the gross margin erosion that you saw as well.

Matt, good morning and let me respond to your question. The mix change was very considerable. As Tom talked about, we saw a significant increase in market share as it relates to appliance growth. In fact, the comps for appliances in the fourth quarter were 29%. Appliances have a lower margin than our core business, so as you can appreciate, that was dilutive to the gross margin overall. It costs us about 13 basis points of margin dilution in the fourth quarter. If you compare that to the fourth quarter of 2004, where we had considerable gross margin expansion, 30 basis points of the gross margin expansion a year ago was related to shrink. While we continue to see improvement in shrink, we are anniversaring a pretty big number this year; so we didn't have that expansion this year. Matthew Fassler, Goldman Sachs: The appliance comp was an acceleration from what you have done previous?

Absolutely. Matthew Fassler, Goldman Sachs: Great. My follow-up question relates to traffic. It looks like if you just take your retail comp and you subtract your ticket growth, comp traffic was down only very slightly, which was a big improvement from where you were. I'm curious, given that January was so temperate and the weather was probably a positive for your business overall; whether that contributed inordinately to the traffic trends? Or whether in fact you saw traffic at that level through the quarter?

Matt, this is Bob. I think I would respond two ways. I mean, there's no question, you use the word 'inordinate'. I certainly would not say it was inordinately contributed to the weather. I think we all know in retail that January was the warmest January on record. I go back to the fundamentals that Tom talked about. If you look at the momentum -- November, December, January -- I think it speaks volumes about what Tom and Carl have done in-store. I think it again supports what Carol said in her closing comments about 2006: that we enter the year with more momentum than we had any previous year. Matthew Fassler, Goldman Sachs: Understood. Just to recap, it sounds like the traffic trends -- to the extent that they were better -- were probably better throughout the quarter, not just at the end.

That's a correct statement, Matt. Matthew Fassler, Goldman Sachs: Thank you so much.

Thank you.

We will go next to David Schick with Stifel Nicolaus. David Schick, Stifel Nicolaus: Hi, good morning.

Good morning, David. David Schick, Stifel Nicolaus: Add my congratulations. I wanted to drill into Matt's second question again. If you are saying that weather was additive but it wasn't the story; traffic was the story and traffic was better throughout the quarter. What can you tell us about what you think traffic should look like for '06 or beyond? You said that you are pleased with, essentially momentum now, but how do you think that plays out for '06?

Let me just again -- I think it would be a misrepresentation to not say retail in general got a lift out of January's warm weather, but I would come back -- and I will ask Tom to comment -- David, let me just say again, as evidenced in the comp numbers for the fourth quarter, the continual flow of new and innovative merchandise, particularly that that is exclusive to the Home Depot, I think -- Tom relative to a merchandising standpoint, Carl, relative to operations -- we are feeling very good about the momentum coming out of '05 and going into '06. Tom, wouldn't you --?

I think I would say that certainly we will learn from the things we do that help in driving traffic to our stores and continue to repeat them. As I mentioned in my comments, an important customer to us is the pro customer. We are seeing strength in our pro categories and there is a high-frequency of shop with the pro customers. We are going to continue our efforts along that line. We have a good, aggressive plan to make sure that we are satisfying our customer to increase their visits to the store. While at the same time, we are going to continue to have differentiation in our stores. We are going to have new products in our stores. We are going to try to create excitement. I think some of what we did in the fourth quarter will, as I mentioned in my comments, I am excited about some of the differentiation we are going to bring in the Spring. We are going to do all we can.

David, I am going to pile on to that because we had the entire senior leadership team walk our outdoor garden, department 28, in one of our stores and that is a new process Tom has introduced. I will tell you, you come away with unbelievable excitement about not only our power line-up, which certainly offers the most commanding brands under one roof -- Tom's comment. But if you look at the line-up of live goods for this year again, and all of the accessories from mulch and playground mulch exclusive to us, we are really looking forward to a good strong summer. We just need the weather to cooperate and we are well prepared. David Schick, Stifel Nicolaus: Great, well I would follow up -- I guess with Tom. Tom, you talked about power equipment, you were just talking about the live goods and the outdoor kitchen. Could you talk about in the Spring selling season in aggregate -- or even break it down -- should we be looking for average ticket increases for the offerings that you've outlined?

Sure. I mean, we are seeing customers step up and buy; take themselves up the ladder in our assortment. I don't see a reason why that wouldn't continue. We are continuing to add higher end products to the stores. We think we should see average ticket growth across the categories you mentioned. We should see average ticket growth continue in growth because we are adding new things. This modular kitchen that I referenced, it's an inexpensive way for people to have a built-in grill -- a real, built-in, good-looking grill on the outside of their house. That will certainly help our momentum, so I would say that it will continue.

You will see the most commanding line-up of outdoor living that this Company has ever put out there, both in-store and on catalog. David Schick, Stifel Nicolaus: Do you think average ticket growth will accelerate in '06?

David do you mean, will we continue to get year-over-year improvement as we have over the last few years? David Schick, Stifel Nicolaus: Would the year-over-year accelerate in what your Spring offering looks like? I'm not asking you to predict what the customer is going to do. Just in terms of what you are putting in front of the customer.

David, the average ticket growth as well as the transactions are all implied with the sales growth guidance that we have provided for you for 2006. Which, with Hughes, is to grow our sales by 14% to 17%. So hopefully that will help you build your model. David Schick, Stifel Nicolaus: Fair enough. Okay, thanks.

We will go next to Michael Baker with Deutsche Bank. Michael Baker, Deutsche Bank: Thanks. I wanted to touch on The Home Depot Supply business. Carol, you had mentioned that through synergies and the like, you expected to grow margins in those businesses. You have a number of acquisitions that you have made throughout the year and several years ago. So in fact, are you seeing better operating margins already in the businesses that you have acquired and have owned for some time? If so, can you try to quantify that a little bit?

Joe DeAngelo is in the room and Joe I think shared some of that at our recent analyst meeting so let's let Joe reconfirm what basically he laid out there. Joe DeAngelo Certainly this year our operating margin growth was north of 200 basis points across the board with Home Depot Supply. Every business that we have acquired has grown faster after we've acquired them than before; and, we continue to see operating leverage down through the businesses. There is not a business that has not enhanced their operating margins since we have acquired them or that have been in our portfolio for a while that we didn't increase this year. We will grow that going forward.

If you look at our 2010 vision, slides that are on our website, we actually show the margin growth that we expect in Home Depot Supply. Michael Baker, Deutsche Bank: Okay, good, I appreciate that. Thanks for the clarity. The follow-up, just some housekeeping. The $44 million in success sharing, Bob, that you talked about earlier; is that in the fourth quarter earnings already? And then last, that guidance, Carol, that you had touched on, the 10% to 14% in '06. I believe -- and just to confirm -- that excludes share buyback?

The $44 million is in the fourth quarter, to be clear. Again, that goes to recognize the fantastic performance of our hourly associates in the store and our non-eligible managers here at SSE and around the country. We are very proud. We are really pleased to be able to pay out $44 million to the associates that have helped earned the success of this Company. Carol.

Regarding the earnings per share growth guidance, it does not include additional share repurchases. Michael Baker, Deutsche Bank: Great, thank you very much.

You're welcome.

We will take our next question from Deborah Weinswig with Citigroup. Deborah Weinswig, Citigroup:

Well clearly the benefits of global sourcing will help to drive margin expansion in our retail business. We do have some pressure with an increasing penetration of Home Depot Supply, so it's a balanced view as we look at gross margin going forward. That is why we are saying modest at this point. Deborah Weinswig, Citigroup: Okay. In terms of a follow-up, from a technology perspective can you talk about what inning we are in? Especially as it relates to automated replenishment?

Let me do two things. Again, I hate to use the inning example. If I can maybe provide a different perspective, because in a baseball game, 10 innings and it's over. Deborah Weinswig, Citigroup: Do a double-header.

That would be better. I think the more we reinvest to digitize our Company, the more benefit that we are seeing. Carol talked about a dramatic shift in selling hours, for example, as we digitized tasking, which allowed Carl to put more on consultative selling. If you just look at kitchens and appliances then you would say that is clearly gaining a return on that investment. So we will continue to invest. , Bob DeRodes and the team are doing a fabulous job. We talked about continuation of self-checkout; we talked about BEAR, we talked about SOSE and I am going to let Tom talk about CAR because again -- Tom, did you want to cover it? I think we have 20% enrolment.

We are at 20% of our product is being replenished automatically, with the goal to get to 50% by the end of the year; 50% of the product will be replenished automatically. Deborah Weinswig, Citigroup: Tom, that will be at the end of 2006. What about longer term?

We will continue to evaluate it. The goal would be to get as much as we can, certainly there are some commodities, but that will be difficult to do. I can't give you an ending number to that. We hit our first milestone. We want to hit 50% and then we will see where we take it from more. There is no reason that it shouldn't go up more than 50%. Deborah Weinswig, Citigroup: Obviously, I think Bob you had spoke about at the analyst meeting how important in-stock position is to the customers. Obviously, this should significantly drive that metric.

I think there are two things: CAR you referenced, clearly will do that. the other bit of technology that Carl and Bob DeRodes put in is our new mobile ordering cart. I spent a good part of a Saturday going through that in-store and I would tell you, the Windows-based technology and our inventory management associates have embraced this technology and are using it. As a result of that, Carl, you may want to just provide some guidance that we really are seeing an increased benefit from this technology of in-stock and order replenishment. Carl, did you want to -- Carl Liebert: Hi, Deborah. This is Carl. A couple of things. We talked about Mobile Floor Walk at the analyst conference. It's been a terrific technology for us, because it gave us visibility to inventory that's in the store, that we can make sure it's at the right eye level so the customer can grab it. We've seen improved metrics for our ability to fill holes on the shelf within 24 hours, to pack down smarter and better; as well as our ability to order products on a much more frequency and use auto-replenishment that Tom talked about. But also to leverage the inventory that we've had in our box to begin with. We are six weeks into using this new tool and we've seen a significant improvement. It is the number one customer satisfaction metric for our customers, in-stock. We are pretty pleased with what we are seeing and we know that's going to continue to drive conversion in our stores. Deborah Weinswig, Citigroup: Great. Thank you so much.

We will take our next question from Dave Tractor with Banc of America Securities. Dave Tractor, Banc of America Securities: You talked about 10 Crescent Lane earlier in the beginning of the call as well. Where is the end game there? Or, where do you think that can be? Are we going to start seeing it beyond the New York stores? From a merchandising standpoint, how much of that can be incorporated?

Let me say that I think online has always been a legitimate channel to market, and only within the last probably 12 to 18 months have we really, I think embraced that technology in a meaningful way. If you look at -- and we've talked about 3 million visits a week, again significantly above any traditional media circulation that's out there. The million visitors in two days. We are seeing that business has, as I said, doubled year-over-year. Harvey Seegers is in the room and Harvey can comment on, but we are very pleased with the start-up of both of those catalogs. We will be expanding that not only online, but you certainly have heard from Harvey recently. There have been some articles about how we will expand that in-store. Harvey, did you want to comment at all about that?

Bob, I would simply mention that 10 Crescent Lane represents the result of market segmentation. In particular, we are going after aspirational merchandise, the high-end customer. We will continue to pursue those market segments in the future. So you will see 10 Crescent Lane become the bigger part of Home Depot Direct and you may see other brands introduced as well.

Tom, did you want to add to that?

I just want to comment on New York. I think it's an excellent point. If you look at the Paces Trading Catalog, a lot of the light fixtures that you see there are hanging in the Manhattan stores that you referenced. But as we look at some of our resets and as we are investing capital back in the store, our Lighting Cloud pilot that we have going incorporates a lot of what you see in Manhattan across into other markets. So as we roll that out, you will see the learnings from Paces Trading, the learnings from the Manhattan store with the higher offering of Depot Direct products. Dave Tractor, Banc of America Securities: Thanks. Diane Dayhoff: We have time for one more question.

We will take our last question from Alan Rifkin with Lehman Brothers. Alan Rifkin, Lehman Brothers: Thank you very much. Just a follow-up question with respect to Home Depot Supply. Now that you have said that you experienced triple-digit growth and that within White Cap you saw double-digit organic growth, I was wondering if maybe you could provide a little bit more color as to how some of the other businesses are doing from an organic perspective? Joe, I know you mentioned that operating margins are up 200 basis points on The Home Depot Supply business. I'm wondering if you could provide a little bit of color with respect to what types of returns on invested capital you are seeing. Thank you.

In terms of the organic growth in aggregate cross Home Depot Supply, we were 20%. But certainly everyone was double-digit growth across the board. Relative to the return on invested capital we ended return on invested capital, including goodwill, at 13%.

So that is consistent with what we've been talking to you about, Alan and as we look to the future, we see increasing returns coming off both the Home Depot Supply business as well as the retail business. Alan Rifkin with Lehman Brothers Thank you very much.

Thanks, Alan. Diane Dayhoff: Well, thank you everyone for joining us and we look forward to talking to you next quarter.