Diane Dayhoff - VP and IR Frank Blake - Chairman and CEO Craig Menear - EVP of Merchandising Carol Tomé - CFO and EVP of Corporate Services Marvin Ellison - EVP of U.S. Stores

Colin McGranahan - Sanford Bernstein Deborah Weinswig - Citi Jaison Blair – Rochdale Securities David Schick - Stifel Nicolaus Alan Rifkin - Bank of America Gary Balter - Credit Suisse Laura Champine – Cowen & Co. Budd Bugatch – Raymond James Matthew Fassler - Goldman Sachs Peter Benedict - Robert Baird Gregory Melich – Morgan Stanley Dan Binder – Jefferies Analyst for Ivy Zelman – Zelman and Assoc. Michael Lasser - Barclays Capital Stephen Chick - FBR

Thank you, and good morning to everyone. Welcome to the Home Depot’s 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 of Merchandising and Carol Tomé, Chief Financial Officer and Executive Vice President Corporate Services. Following our prepared remarks, the call will be opened 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 earnings.homedepot.com. 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. Today's presentation also includes certain non-GAAP measurements. Reconciliation of these measurements is provided in the financial statements included with our earnings release. 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, essentially flat to last year. Comp sales were positive 1.2% with our U.S. stores posting a negative 1.1% comp for the quarter and our international stores contributing a positive 2.3% comp. Our diluted earnings per share from continuing operations were $0.18. As Carol will detail we had some unusual items impact our fourth quarter earnings. In particular, the write down of our remaining equity interest in HD Supply. Adjusting for the impact of HD Supply earnings per share from continuing operations were $0.24. Our business improved more than we expected in the fourth quarter. Of our top 40 markets in the U.S. all but two showed improvement in the fourth quarter on a comp sales basis. Every one of our regions showed comp sales improvement in the fourth quarter versus the third quarter and our Northern Division, our largest division with eight regions had a positive comp for the quarter. We also saw sequential improvement in California and Florida with a return to positive comps in some of the markets there. Our business also performed very well in Canada in the fourth quarter with double digit positive comps. This was a function of four things; better performance by the business, recovery from a rocky start last year with the new enterprise IT implementation, improving economic conditions and a government stimulus program designed to support homeowners updating their houses. In Mexico the business once again achieved positive comps for the quarter and the year despite a very tough economic environment. We also made solid progress on our key initiatives. Last month we opened our 12th Rapid Deployment Center (RDC) in Topeka, Kansas. RDCs now serve over 65% of our U.S. store base and we are on track to reach our goal of serving 100% by the end of 2010. Craig and the merchandising team continue to develop and integrate our merchandising pools and we can already see some of the benefits of improved assortment management and forecasting in our inventory and markdown control. As Matt [Carey] our IT leader has described, we are years behind other retailers in these areas but we are on a path to catch up over the next five years. Given the success we have seen with our internal tools we are not contemplating any third-party U.S. based enterprise wide system. Marvin and our store operations team made a significant statement last year by retraining all of our associates, everyone, on customer service launching our Customer First program. Our net promoter score improved 800 basis points over the year and is now at almost 70%. We gained over 100 basis points of market share for the year, something we have not done in quite awhile. So all of this gives us some cause for optimism in 2010. At the same time we recognize we have more work to do as a company and that the economy is not out of the woods yet, particularly in our market. So we are not projecting robust growth. Private fixed, residential investment as a percent of GDP has stopped its dramatic and historic decline but still remains well below the 60-year average. The housing industry remains at distressed levels, mortgage defaults continue to increase, unemployment remains high and our Pro customers are still under pressure. Our expectation is that 2010 will be a transitionary year. For the year we are anticipating approximately 2.5% sales growth and 15% growth in earnings per share from continuing operations. We expect to see relatively flat growth in the first half of the year with more momentum in the second half. Calling the year transitional doesn’t sound very exciting but we have been waiting for this transition for a long time. We made the decision three years ago to focus on our core business and invest in our stores and associates during a difficult economic environment. We have returned to the core values of our business and we are proud of the fact that even in the tough economic environment of 2009 we had record success sharing for our hourly associates. In fact, in the second half of 2009 93% of our stores qualified for success sharing. Going forward we will continue to invest in our associates and our business and we will also continue to focus on disciplined capital allocation and increasing shareholder return. Today the board of directors and I were pleased to announce our first dividend increase since the third quarter of 2006, reinforcing our confidence in the business and our commitment to our shareholders. It is our intent to continue to increase our dividend every year. Further, it is also our intent to use our excess cash to repurchase shares, again evidence of our disciplined approach. I want to thank our associates for all of their hard work in 2009 and their commitment and dedication in the year ahead. With that let me turn the call over to Craig.

Thanks Frank. Good morning everyone. We are pleased with our continued progress in the business and performance in the fourth quarter. We saw significant improvement across many product categories and regions as well as key performance metrics including comp sales transactions and big-ticket sales. Kitchen and bath, paint, flooring and plumbing delivered a positive comp and we flat comped materials garden and millwork. Lumber hardware and electrical reported negative comps. Total customer transactions were $288 million in the fourth quarter, up 2.1% compared to last year. Transactions per ticket of $50 and below, roughly 20% of our business in the U.S., were positive 3.2%. This increase was driven by continued strength in basic DIY repair and maintenance products such as plumbing, cleaning and light bulbs. In addition we saw strength in simple décor projects which led to positive growth in categories like ceramic tile, hard wood, interior paint, faucets and bath fixtures which also contributed to our overall transaction growth in the quarter. Transactions for tickets of $900 and above, which also represented approximately 20% of U.S. sales was down less than 1%, a significant improvement compared to the double digit declines in previous quarters in 2009. This improvement was largely driven by a stronger than anticipated response to outstanding values in categories such as appliances, water heaters and windows. We were also pleased with the positive trend in our installed sales. Our total company average ticket for the fourth quarter was $50.01, down 1.7% from last year. Our comp average ticket declined by 1%. The improving trend in total average ticket was driven by the improvement in big ticket transactions as I mentioned earlier. The average ticket also benefited from strong sales in Canada resulting in part from a Canadian tax relief on a large selection of home improvement products. However, while our trends are getting better we continue to experience pressure in big ticket construction related categories such as dimensional lumber, concrete, gypsum, pneumatic tools and fasteners. We are executing our merchandising transformation to provide great everyday value to our customers. From where we started we are 1/3 of the way through the implementation of our portfolio strategy and the continued use of merchandising tools allows us to enhance and optimize our performance. This coupled with our supply chain transformation to get the right product in the right place at the right time was the foundation behind our solid quarter performance. The success of our seasonal business is a great example of how we leveraged our merchandising and supply chain transformation during the quarter. The combination of better planning tools and solid execution drove strong performance against our plan in products such as snow removal, fireplace and decorative holiday. We finished the year in a clean inventory position of seasonal goods while having spent less on mark downs compared to last year. Investments in our portfolio strategy, merchandising tools, supply chain development and customer service drove continued market share growth in the quarter. Our U.S. market share has grown over 100 basis points on a rolling 12-month basis despite closing our Expo businesses in early 2009. Based on an independent, third-party tracking of consumer activity we gained unit share in 6 of our 13 departments during the quarter. As we look forward to 2010, we are well positioned across the entire store. We will meet our customer’s needs in energy efficiency and conservation by offering them products such as the best rated bulbs on the market, a water sense rated faucets across our entire product line up. For indoor and outdoor projects requiring power tools we offer the leading cordless brand for Pro’s with Dewalt along with a strong exclusive power tool lineup including Milwaukee, Makita, Rigid and Ryobi. In décor we provide our customers the number one paint in Behr Premium Ultra Petroleum, as recently rated by leading consumer magazines. Additionally, the Martha Stewart program has been expanded into patio, cleaning and paint. Finally, as customers get ready for spring we have a fantastic line up of seasonal product offerings to meet their lawn and garden needs with leading exclusive brands of Honda and Toro mowers, Cub Cadet tractors, Echo, Ryobi and Homelife portable power products and Proven Winners, the most recognized live goods brand by garden enthusiasts. Over the past three years we have redefined our merchandising strategy which includes the repositioning of our brand, the creation of new tools to drive efficiency and implementing new capabilities and we are not done. There is more to come. As we look forward to 2010 we are well positioned to deliver quality and value to our customers. Now I would like to turn the call over to Carol.

Thank you Craig. Hello everyone. Our financial results for the quarter are distorted by a few factors that I would like to discuss and get out of the way before I cover our results. First, we reported $41 million of earnings from discontinued operations primarily related to our working capital settlement with HD Supply. For the purpose of today’s discussion we will focus our remarks on earnings from continuing operations. Earnings from continuing operations International comp growth of 2.3% was offset by negative comps in our U.S. stores of 1.1%. Total company comps were positive 1.2% in November, negative 0.2% in December and positive 2.2% in January. Comps for U.S. stores were positive 0.3% in November, negative 2.3% in December and negative 1.5% in January. For the year our sales declined 7.2% to $66.2 billion. Excluding the impact of sales related to the wind-down of our Expo businesses and adjusted sales for the year declined 7.5% to $66 billion. For fiscal 2009 total company comp sales were negative 6.6% and comps for U.S. stores were negative 6.2%. In the fourth quarter our gross margin was 34.4%, an increase of 45 basis points from last year. Our gross margin expansion was due to the following factors: First, our U.S. business reported 33 basis points of margin expansion in the quarter due primarily to lower mark downs than last year. Our holiday category alone contributed 21 basis points of margin expansion in the quarter. Second, we realized 12 basis points of margin expansion from our Canadian business as we didn’t repeat certain promotions and we lapsed the disruption we experienced last year when we implemented [Score or SAP]. For the year, we experienced 22 basis points of gross margin expansion. Turning to operating expenses for the quarter and the year it is easiest to compare our year-over-year performance by looking at adjusted operating expenses as a percent of sales. When I say adjusted operating expenses we adjust expenses for strategic charges taken in 2008 and 2009. We detailed the financial impact of those charges in an exhibit to our press release which sets forth reported and adjusted results for both years. So on an adjusted basis, for the fourth quarter operating expenses as a percent of sales were 29.4%, a decrease of 20 basis points from last year. We leveraged expenses primarily because of positive same store sales but we also saw continued benefits from the changes we have implemented to improve efficiency across our businesses. On an adjusted basis for fiscal 2009 operating expenses as a percent of sales were 26.4%, an increase of 18 basis points from last year. For the year we de-leveraged expenses by about 3 basis points for every point of negative comp, considerably better than we had planned at the beginning of the year. Our income tax provision rate was 25.9% in the fourth quarter reflecting a $47 million benefit arising from global tax planning. Our effective tax rate was 34.2% for the year which includes both the fourth quarter tax benefit and a favorable foreign tax settlement we reported in the second quarter of 2009. Earnings per share from continuing operations were $0.18 for the fourth quarter excluding the HD write down adjusted earnings per share from continuing operations were $0.24 for the fourth quarter. For the year earnings per share from continuing operations were $1.55. On an adjusted basis earnings per share from continuing operations were $1.66, down 6.7% from last year. Moving to our operational metrics during the quarter we opened three new stores and closed one store for an ending store count of 2,244. At the end of the fourth quarter selling square footage was 235 million, a 1.3% decrease from last year. Reflecting the sales environment total sales per square foot for the fourth quarter were $245, up 1.7% from last year. For fiscal 2009 sales per square foot were $279. Now turning to the balance sheet, at the end of the year retail inventory was $10.2 billion, down 4.5% from last year. On a per-store basis, inventory was down 3.3% to last year. Inventory turnover was 4.1 times, up 1/10 from last year. This was our first annual increase in annual inventory turnover since 2001, a true team effort and we view this as solid performance as our in stock positioning is at a record high level. We ended the quarter with $41 billion in assets including $1.4 billion in cash and short-term investments. This is an increase of approximately $900 million in cash and short-term investments from the end of fiscal 2008 reflecting cash generated by the business of approximately $5.4 billion offset by $1.8 billion used to repay senior notes that came due in September and December, $1.5 billion of dividends paid, $966 million of capital expenditures and $213 million of share repurchases. In the fourth quarter we used excess cash to repurchase $115 million or 4.1 million shares of outstanding stock. Computed on the average of beginning and ending long-term debt and equity for the trailing four quarters, return on invested capital was 10.7%. On an adjusted basis, return on invested capital was 11.1%, 70 basis points higher than what we reported for the third quarter of fiscal 2009. As Frank mentioned, we performed well against our internal expectations in 2009. As we look to 2010 we expect our performance to improve as macroeconomic conditions improve. We have detailed our guidance in our press release so let me just hit the high points. First, let me remind you we guide off of GAAP. We base our working estimates on a number of external factors and we are not expecting a robust recovery. For the year, we project our sales will increase by approximately 2.5% driven primarily by positive same-store sales. We plan to open just six stores in 2010. We expect sales growth to be flattish in the first half and stronger in the second half of the year in line with economic forecasts. We are pleased with how we started off 2010. Even with the extra winter storms, February sales are trending to our plan. For fiscal 2010 we expect earnings per share from continuing operations to increase by approximately 15% to $1.79. Included in our earnings per share guidance is modest gross margin expansion and expense leverage. We continue to learn more about the fixed, variable nature of our expenses. For fiscal 2010 you should expect expenses to grow at approximately 60% of our sales growth rate and here we are talking about adjusted expenses. Finally, we have not included the impact of share repurchases in our earnings per share guidance. We will touch on share repurchases in just a moment. For fiscal 2010 we project cash flow from the business of roughly $5.4 billion. This forecast assumes we refinance $1 billion of senior notes that come due in August of 2010. We will use our cash to invest in our business and return capital to shareholders. Our capital spending plan for 2010 is $1.250 billion, reflecting $180 million for new stores, $635 million for our existing U.S. stores and supply chain, $350 million for IT and $85 million for our non-U.S. businesses. We just announced a 5% increase in our dividend and will use our cash to fund our dividend which for the year approximates $1.6 billion. We have $12.5 billion remaining in our share repurchase authorization. It is our intent to use excess cash to repurchase shares over the course of the year. Depending on the timing of our repurchases we should see some earnings per share benefit arising from this activity in 2010. The debt finance portion of our repurchase program remains on hold principally because we are early in our recover. As our business gains momentum we will revisit the debt finance portion of our share repurchase program. Thank you very much for your participation in today’s call. We are now ready for questions.

(Operator Instructions) The first question comes from the line of Colin McGranahan - Sanford Bernstein. Colin McGranahan - Sanford Bernstein: I wanted to focus on expenses here. Obviously a very strong performance throughout the year and another good performance in Q4. It is helpful to think about expense dollar growth at 60% of sales growth so that kind of implies 1.5% dollar growth for the coming year. My question is, can you do better than that if the comp comes in flat? Obviously the performance over the past year has been far better than that. Would you think from here on out you would need a 1.5 comp to lever expenses given that embedded dollar growth? A little bit more color on what might drive you to exceed those expectations again given the strong performance you have already had and the expense reductions that have already been made.

First, thank you regarding your comments on our expenses. We have taken out over $1.3 billion of costs over the past two years. Thank you for that. As we look forward to 2010 there are a couple of things you need to think about as you think about expenses. First, as you know payroll is our biggest expense and we do have an activity based model. As we build out our sales force plan we assume early on in the year more of the sales growth will come from transactions than ticket and then as the year progresses we see more of the sales growth coming from ticket. Transactions drive payroll in the store as you can appreciate. So clearly depending upon the composition of the sales growth we have some opportunities to leverage payroll. We do have some expense pressure coming at us in 2010 that we didn’t have in 2009. For example, our medical costs are increasing by about 9% in 2010. We will do everything we can do to mitigate that pressure but we plan for that because we think that is what it may be. We have some other cost pressures coming at us. States are hungry for money. We know they are coming at us for more property taxes. We have some computer maintenance costs coming at us because of all of the IT investments we have made. So we have factored all those cost pressures coming in. We can be pretty nimble on the expense structure as you have seen us. We will always strive to do better but we are giving you our best estimate of costs for 2010. One last comment, and I know I am going on and on, but one last comment one expenses is that if sales growth is better than the guidance that we have given you we should do better on the leverage. Colin McGranahan - Sanford Bernstein: You said you gained market share in 6 of 13. Again implying you lost in 7 of 13. Yesterday Lowes said they gained 10 of 20 implying they lost in 10 of 20. Who is gaining share if the two of you are losing more share than you are gaining on a category level?

It really varies based on the category itself. It could be independents. It could be other home center type operations. It could be a multitude of different retailers. So it really varies by category.

The next question comes from the line of Deborah Weinswig – Citi. Deborah Weinswig - Citi: I wanted to focus on the gross margin side. Carol can you maybe dive into some of the guidance for 2010? I think your guidance was for modest extension. Does that have to do with some of the pressures from fuel and also inflation? Also I would think there are some opportunities to do additional private label and exclusive opportunities but maybe if you just flesh through some of that for us?

If you think about just the operating margin we have guided to for 2010, 8% operating margin is about a 50 basis point improvement year-over-year if you look at our adjusted operating margin for 2009. Of that 50 basis point improvement year-over-year about 20 basis points will come from our gross margin expansion and about 30 basis points from expense leverage, more or less. As you think about the gross margin expansion it is really coming from our focused portfolio approach and all the efforts that Craig and the merchants and the logistics teams are doing to drive out costs. We are getting smarter about our approach to merchandising. It is driving the margin expansion and we are pleased with the expansion that we have [incurred] over the past couple of years. This is in line with our path to continue to reach our long-term operating margin target of 10%. We feel real good about that. Craig I don’t know if you want to give any color?

I think you are right. It really is the continued implementation of our portfolio strategy, working to build better line structures, leveraging the opportunity we have with the supply chain transformation and the utilization of new tools that allows us to do a better job of forecasting and putting the right inventory in the right place. Therefore we are not spending unnecessary mark downs to liquidate product and we are doing a better job particularly on the seasonal side to make sure the product is in the right place and that drives efficiency for gross margin. Deborah Weinswig - Citi: I think you said at the analyst meeting that the tools were about 25% rolled out. On the call you said about 1/3 of the way rolled out. In that timeframe what are the changes that have been implemented and would the [inaudible] be in that timeframe?

Again, it is the continued on-boarding if you will of our categories to our assortment maintenance tool which allows us to assort below market level in a much easier way. It is the continued development in terms of understanding how to use the tools that we have and continue to get better at our forecasting with the new tools. So as we go along while we are about 1/3 of the way we continue to learn each year. Our seasonal businesses, for example, have now been through four planning cycles and we have learned each year how to improve upon that. Our holiday décor performance this year was a great example of that. Deborah Weinswig - Citi: Can you talk about the size of the online business and the opportunity there?

The online business as we look forward is an important business overall. It is still small in the scope of Home Depot in total but it is an important element for us to continue to develop and integrate with our orange box business.

We look forward to the day when it is sizeable and we can talk about it.

The next question comes from the line of Jaison Blair – Rochdale Securities. Jaison Blair – Rochdale Securities: As you said conventional wisdom is that we are not going to experience a robust recovery and the U.S. industry in general has been focused on learn inventories and cost structures. However it seems we are starting to see signs of life on bigger ticket and potentially unwinding of pent up demand across the economy. How do you make sure you balance lean inventories with the very low operating rates of manufacturers and the challenges they may face meeting a surge of demand? Does it make sense to begin to start to take up your assumptions when you are planning your inventories and can you bake those lead times into those assumptions?

I think that is a great point and something that Craig and his merchants spend a lot of time working with our vendors on to make sure they understand what our projections are and that they are facilitized to meet those projections. Craig, do you want to comment on it?

The only thing I would add to that is the fact there is a lot of capacity there in our supply base and they are just looking to have the opportunity to drive the utilization of that capacity up. As Frank said, collaborative planning, strong communication is the key to making sure we are able to take care of an upswing. Jason Blair – Rockdale: Doesn’t it take some time to ramp up that capacity? If the entire supply chain decides to restock at the same time there are risks that you miss the boat?

First of all the ramp up in most categories isn’t all that significant. Then again you have to remember that we are sitting with a good inventory position today so you are really talking about ramping up the incremental.

The next question comes from the line of David Schick - Stifel Nicolaus. David Schick - Stifel Nicolaus: You talked about bigger ticket demand and appearing to be improving and your competitors did as well. You are without Expo for the first time in over a decade. Do you plan to bring any different approach to an installed business or your attempts there? Any Expo practices into the orange box?

I think as we again work to implement our portfolio strategy we are continually looking for opportunity to drive line structure improvements. When you look at the percent of business in any given category that is done between OPP, mid price point and upper price point as you see growth within that category it is the merchant’s job to continue to try and push that curve and see if you can move up in the structure. We have seen some success in certain categories. Probably the most common example of that is our Behr Ultra which is at the upper end of our paint product offering and just doing a phenomenal job with the customer because it delivers great value for what it actually does for the customer. So it is something we are monitoring and watching and we will move as the market warrants the movement. David Schick - Stifel Nicolaus: So no explicit plans to go [up] market but watching it real time?

Correct.

The next question comes from the line of Alan Rifkin - Bank of America. Alan Rifkin - Bank of America: If the housing market hopefully continues its recovery throughout 2010 how are you going to balance the additional cost of potentially hiring associates to meet those increases in volumes? In other words, will you need to see an increase in your comps and revenues first or will you proactively add associates on the floor as your outlook for the housing environment changes throughout 2010?

As Carol described we have an activity based labor model and as our projection calls for more transactions we add the labor in anticipation. So Marvin Ellison is here. Do you want to comment on that as well?

The one thing we talked about when we got together at the analyst conference is we are trying to shift payroll from what we call task, or non-customer facing locations to customer service locations. Just in the fourth quarter we were able to take almost 70 hours of payroll back office type positions to the sales floor. So incrementally we added no hours but to the customer service part of the business it felt like we added almost two full time associates because we took them from the back room to the sales floor. So not only are we going ramp up staffing based on our sales projections, we are going to continue on our mission to eliminate as much task, auditing and process we can ship to an automated process while leveraging Matt [Carey’s] team’s innovations and put associates on the sales force so we can kind of kill two birds with one stone.

The next question comes from the line of Gary Balter - Credit Suisse. Gary Balter - Credit Suisse: You had a really strong performance and that was with the investment in the distribution centers which at the meeting you had in Georgia you talked about would continue into this year. Can you somehow quantify the costs embedded in the 2009 and 2010 guidance and then as we look out to 2011 the benefits we could see from that?

We have really never broken out the cost of the supply chain transformation because it is all part of what we are doing from a merchandising transformation perspective. We have given you long-term perspective on where our margin is going to go and we are well on the path to reach those long-term targets we have given. So as the facilities come online and start to pay for themselves we are adding more facilities obviously to build this out throughout 2010, which should be able to cover those costs effectively in 2010. The real margin opportunities are going to show for us in 2011 once it is up and running. It is not just the margins. While we have done a really nice job I think on inventory we have some inventory opportunities coming at us in 2011 too. Gary Balter - Credit Suisse: So when you talked I think it was 20-40 basis points that Mark was highlighting we are not seeing that at this stage of the investment?

We are not seeing that. That’s right. We had some benefits from fuel and some other things you might see that are supply chain related but we are on path to deliver the long-term targets we gave. Gary Balter - Credit Suisse: How much is lumber pricing impacting comps and what are your thoughts about lumber pricing going forward?

If you look at lumber in the quarter certainly the lumber market did increase during the timeframe both on framing lumber and panel with significantly more driven on framing than in panel. But the total impact to our business in the quarter was six basis points. What you have to remember is right now the supply is offset by lack of demand if you will. So there is not a lot of demand out there obviously in the construction industry. So what used to be a low teens penetration for us is around the 7% penetration today. It is really not a huge impact at this point certainly in the quarter and as we look forward we will continue to monitor it and watch. Today the rising cost really is due to smaller log decks that are out there because there is just not a ton of demand. There is wet forest in the south which makes it difficult to pull logs out and then you have pulp and paper mills competing with saw mills for what product is available. So that is kind of helping to drive the cost side of the market. We will see what happens on the demand side.

I want to go back to your question because I want to make sure I give you as much color as possible. If you think about our overall gross margin expansion target it was 120 basis points and that included the 20-40 from the supply chain. So Craig and I have been talking about it and today we think we have enjoyed about 40 basis points. We have just guided another 20 basis points for 2010 so that gives us 60. So we should be half of the way through in 2010. Then supply chain comes online big time in 2011 and that is when you should see the rest between 2011 and whenever. But it is coming.

The next question comes from the line of Laura Champine – Cowen and Co. Laura Champine – Cowen and Co.: I have another question on your gross margin. Is there any implication, a material positive implication, from product costs from ramping up your sourcing out of the RDCs?

Not beyond the guidance we have given in terms of our total merchandising transformation and supply chain. Over a period of years we see 120 basis point expansion. Beyond that, no. Laura Champine – Cowen and Co.: As we go through this year and demand starts to improve what is your outlook for overall product costs?

There is no pricing pressure out there. Inflation is very, very low. We aren’t seeing any pricing pressure.

The next question comes from the line of Budd Bugatch – Raymond James. Budd Bugatch – Raymond James: I would like to explore the pro business again. A couple of quarters ago you said that a recovery has to be based and have a significant impact on the pro. I think you told us at that point that using the company data it had gone from like 32% of sales to 27% of sales. I am curious if you have updated that? If you have gotten any color on the pro and are you seeing any competitive intrusion in the pro business?

What the data would tell us is the pro business is still more down particularly compared to the consumer business but where the rate of decline had been in the 20+ range it is now more in the teens, mid to low teens. So it is still down. Definitely one of the things implied in our 2010 guidance is we see the pro business strengthening as we go through the year and being much stronger in the back half of the year. Budd Bugatch – Raymond James: Marvin talked about changing task hours for customer facing hours. Can you give us an average of where we are now in terms of payroll in the stores versus cash versus customer facing and where it might be at the end of next year?

We are approximately at about 55% service to task. When we started this we were on the other side of that. We had probably 40% service and the majority in task. We have taken a lot of steps. One big move we made this past quarter we took our broad room or back office associate that balances the register tills and we worked with Matt [Carey’s] team and automated that process. We were able to take almost 40 hours of payroll from a back office position and we put that payroll directly on the sales floor. We allow the stores to determine based on their department penetration of hardware, garden, paint, etc. where we put those payroll hours to drive sales. That was a direct impact to the service levels in our stores and we started to see as we do these initiatives immediate responses from our customer service surveys. As you know we get over 100,000 customer service surveys each and every week. Our net promote scores as Frank mentioned is at a 700 basis point improvement from last year and these initiatives are a key contributor to that improvement. Budd Bugatch – Raymond James: Where do you think your goal is for next year?

Our goal is to get to 60/40 and that is 60% service and 40% task. We are going to give a good shot to try and get there at the beginning of 2011 but there are a lot of factors that will contribute to that but that is the goal we are going after.

The next question comes from the line of Matthew Fassler - Goldman Sachs. Matthew Fassler - Goldman Sachs: First of all on the principle question you guided to 8% operating margin in 2010 which is certainly faster than we initially thought you would get there. Has your performance and both on a cyclical basis and also some of the initiatives you have put in place led you to reconsider the normalized targets you have discussed in the past?

No. I would say we are still on those targets. Matthew Fassler - Goldman Sachs: You spoke about improvement in Florida and California with some scattered signs of positive comps. Can you talk about the pace of improvement you saw in those troubled markets relative to the pace of improvement you saw for the company overall?

I would say if you again not putting only a few markets positive but if you would say kind of the pace maybe a little bit more of a pace of pickup in California and to some extent in some of the markets in Florida. That is obviously a positive for us. Matthew Fassler - Goldman Sachs: Is there a lot of difference among markets in those regions?

You are exactly right. There is a lot of difference. Northern California is different than Southern California. Orlando is different than Miami. Each of the markets is its own story.

The next question comes from the line of Peter Benedict - Robert Baird. Peter Benedict - Robert Baird: Carol did you give us what the U.S. store traffic did for the quarter year-over-year? U.S. comp stores?

I can give you the U.S. comps if that is what you are looking for. Peter Benedict - Robert Baird: I was more interested in U.S. comp store traffic or comp transactions.

The comp tickets? Peter Benedict - Robert Baird: Yes.

The U.S. comp was 2.1%. The ticket was down 3.2%. Peter Benedict - Robert Baird: With the better average ticket trend you are seeing how are you thinking about this spring’s riding mower outlook? Any adjustments?

No. I think we feel like we are well positioned for the spring business. I think the industry projections are again for 2010 to not be dramatically robust in that particular product category. It is still a big ticket transaction. So we are hopeful if you will but not looking for robust growth.

The next question comes from the line of Gregory Melich – Morgan Stanley. Gregory Melich – Morgan Stanley: When you mentioned the inventory was down I believe that was a global number, or the U.S.? If so, if you expect comps to pick up this year why would the inventory be down?

That is a total company number we shared with you. Part of the decline was Expo but only about $133 million was related to Expo. So we did rationalize inventory based on the sales environment. We will be building inventory in support of the sales guidance that we have given you. Gregory Melich – Morgan Stanley: So we should expect inventory to start to grow in the U.S. business similar to the comps you expect?

About 50% of the growth rate. Gregory Melich – Morgan Stanley: In terms of credit, something that has helped you much of this year can you tell us what that helped in the fourth quarter if at all and what you are planning for 2010?

When we sat here a year ago we told you we expected about $250 million of expense benefit in 2009 as a result of our renegotiated private label credit card agreement. We actually enjoyed about $300 million of expense benefit. So we did better. In the fourth quarter the year-over-year benefit was about $91 million and that included $21-22 million of an expense true-up we hadn’t counted on. We were pleased obviously with the performance. Now as we look towards 2010 we are not going to repeat this. If you look at it, a simple way of thinking about it what will your cost of credit be next year? The cost of credit next year will be about 1.2%, in line with what it was in 2009. Gregory Melich – Morgan Stanley: So it starts to be flat and that is pretty much through the year?

Yes.

The next question comes from the line of Dan Binder – Jefferies. Dan Binder – Jefferies: Related to the question earlier about share gains, if you continue to take share in roughly half the categories, is that in your view sufficient enough to allow gross margins to keep rising? Or do you think once you get that level you have to rethink how much you reinvest in price?

First off, let me just make a more global comment around share and share gains because we referenced two different things during the course of our discussion this morning. One is an entire U.S. market that is the NAICS I can’t remember 444 and that looks at everybody in the lumber and building and garden center area. Then, there are discrete third-party surveys of share that tie to what Craig was referencing in terms of particular product categories. So we picked up 100 basis points of share overall as measured by the census bureau or whoever measures it. Then as Craig said on individual items we had six where we gained share. In terms of your broader question, look our intent is to gain share in every category and then Craig and team, consistent with the overall portfolio approach, figures out how we go about doing that. So we are never happy if we show ourselves losing share anywhere. Dan Binder – Jefferies: Related to store growth, it is pretty modest as expected for next year. I am curious if we get into a situation where comps start to get back into material positive territory, call it mid single digits or so, would you consider or rethink the store growth strategy for out years?

I think it is important to keep in mind for our business that we are significantly smaller at the end of 2009 than they were at the end of 2006. Our sales per square foot are significantly lower at the end of 2009 than they were at 2006. Even with a strong market recovery or a modest recovery or whatever the recovery is going to be we see an enormous opportunity in building up the productivity of the existing stores we have and getting back to the numbers we had in terms of sales per square foot several years ago. There will always be geographic opportunities to add stores where growth is in a different area than it used to be or you have to reposition yourself but there is a lot of sales for us to absorb in our existing store base.

We have such a disciplined approach to capital allocation. As we have talked to you about we want to show increasing rates of return on our return on invested capital, not decreasing rates of return. So if we see opportunities to increase the rate of return we will take those opportunities. We are not going to spend just to dilute the return.

The next question comes from the line of Analyst for Ivy Zelman – Zelman and Assoc. Analyst for Ivy Zelman – Zelman and Assoc.: A couple of the categories you mentioned both in the kitchen and bath space and flooring, can you talk about what the promotional environment was like there? Are you still having to pull the consumer to the store or are you seeing confidence start to improve for those categories?

Let me start with kitchen and bath. We are working hard to continue to drive that business and get to our everyday great value proposition for our customers. We are not there yet in that product category, nor is the industry. So that is an area we continue to see. Likewise appliances would be another category that still has promotional activity in it as well and that is going to be an industry that has done it that way for a long time. So it will be a category that will be a challenge for us to try and break that cycle but we certainly would like to get to everyday value for our customer. In the flooring business it is different. We are pretty well there. On an everyday basis part of our heritage in our company is to go out and grab special buy opportunities our manufacturers might have to bring some urgency to the business. We do that in that industry but at the same time we are driving great value everyday for our customers and we see that pull through as a result. Analyst for Ivy Zelman – Zelman and Assoc.: I know you have made foreclosures an initiative in some of the stores and some programs around the pro desk. Can you talk about any benefit you are seeing there and the programs you expect to have in place this year to benefit from what should be more foreclosure sales in the market?

We started that focus in Northern California and we reaped some benefits by simply talking to our customers and as noted the Pro segment is under pressure so a lot of the pro contractors shifted their business focus to doing different types of projects and foreclosure properties became one of those. We have done a pretty extensive survey around the country identifying markets that fit a certain profile and we have implemented these initiatives in the stores around certain product categories we have brought in, around certain types of communication activities to these customers, as well as educating them on the features and benefits of our contractor/pro desk in our stores. So we have expanded this to areas in Florida and in some areas in the Midwest and we are hoping to see similar benefits we have identified so far in the Northern California area.

The next question comes from the line of Michael Lasser - Barclays Capital. Michael Lasser - Barclays Capital: With the home improvement market seeming to be reaching an inflection point and the company achieving so many improvements in customer service during the downturn, how are you thinking about the cost of drawing back customers that might have been alienated in the past? Might you have to use either promotions or advertising? Have you contemplated that in the long-term margin outlook? If it occurs more organically than perhaps you have assumed might that provide upside to the margin outlook?

We have been on a path over the last several years trying to draw our customers back and providing great customer service in our stores. We have also taken a different tact on our marketing campaign. I think our marketing better reflects Home Depot and our values and what we bring to our customers. It is truly one customer at a time. I don’t think there is any other way to do it.

I wouldn’t discount our social media. We have our own Facebook page. We tweet. We are talking to customers in ways that we have never talked to them before.

We have also taken an unprecedented approach where we are also surfing all the social media sites and we are identifying customer issues before they even come to us. We are communicating and contacting customers and when we see or hear and see any negative chatter about the Home Depot or service experience and we are addressing those proactively. As Frank mentioned in his opening statements we took the aggressive step last year to retrain every single associate in our store on our new customer service expectation by position. Our goal is simply this, and Craig and I have discussed this often, as the merchandising and marketing team draw customers to the stores it is our expectation in the store to convert those customers with improved service. That has been the goal and we have work to do but we think we have made some progress. Michael Lasser - Barclays Capital: On Canada, now that the tax credit has expired have you seen perhaps a drop off in demand that was consistent with your expectations? I know Carol you said that February has been running according to your planning assumptions. Is that true in Canada as well?

It is consistent with our expectations.

The next question comes from the line of Stephen Chick – FBR. Stephen Chick - FBR: What interest expense number are you assuming within your guidance for 2010? I seem to recall you had guaranteed some debt on the part of Home Depot Supply. I just want to clarify if that is the case and the status of that given the equity write downs?

Sure. We are estimating an interest expense of about $600 million next year. As it relates to the HD supply question we did guarantee $1 billion senior secured note that is an amortizing loan so the principle is something I think around $980 million right now. We have taken no action on the guarantee. It doesn’t expire until 2012 and there is nothing that has come to our attention that suggests we should do anything differently. Thank you everyone for joining us today. We look forward to talking to you next quarter.

That concludes today’s conference. Thank you for your participation.