Diane Dayhoff - Senior - Vice President of InvestorRelations Frank Blake - Chairman, Chief Executive Officer Craig Menear - Senior Vice President, Merchandising Paul Raines - Executive Vice President of U.S. Stores Carol B. Tome - Chief Financial Officer, Executive VicePresident Corporate Services

Chris Horvers - Bear Stearns Deborah Weinswig - Citigroup Jeff Wimmer - J.P. Morgan Budd Bugatch - Raymond James Matthew Fassler - Goldman Sachs Danielle Fox - Merrill Lynch Gregory Melich - Morgan Stanley Eric Bosshard - Cleveland Research Shannon Coyne - Credit Suisse Colin McGranahan - Sanford Bernstein Brian Nagel - UBS

Good day, everyone and welcome to today’s Home Depot third quarter earningsconference call. As a reminder, today’s call is being recorded. Beginningtoday’s discussion is Ms. Diane Dayhoff, Senior Vice President of InvestorRelations. Please go ahead.

Thank you and good morning to everyone. Welcome to the HomeDepot third quarter earnings conference call. Joining us on our call today areFrank Blake, Chairman and CEO of The Home Depot; Craig Menear, Executive VicePresident of Merchandising; Paul Raines, Executive Vice President of U.S.Stores; and Carol Tome, Chief Financial Officer and Executive Vice PresidentCorporate Services. Following our prepared remarks, the call will be open foranalyst questions. Questions will be limited to analysts and investors and as areminder, we would appreciate it if participants would limit themselves to onequestion with one follow-up, please. This conference call is being broadcast real-time on theInternet at homedepot.com with links on both our homepage and the investorrelations section. The replay will also be available on our site. If we areunable to get to your question during the call, please call our investorrelations department at 770-384-2387. Before I turn the call over to Frank, let me remind you thattoday’s press release and the presentations made by our executives includeforward-looking statements as defined in the Private Securities LitigationReform Act of 1995. These statements are subject to risks and uncertainties.These risks and uncertainties include, but are not limited to, those factorsidentified in the release and in our filings with the Securities and ExchangeCommission. Now let me turn the call over to Frank Blake.

Thank you, Diane and good morning, everyone. Our marketcontinues to face into significant headwinds. We started the year with a fairlypessimistic view of the housing and home improvement markets. It turns out weweren’t pessimistic enough. We had expected some market improvement by thethird quarter. That didn’t occur and our results reflect the difficult market. Sales for the third quarter were $19 billion, down 3.5%.Comp sales were negative 6.2% and diluted earnings per share from our retailbusiness were down 9% at $0.59. We expect continued difficult conditions for the remainderof 2007 and into 2008. We have consistently used as a guidepost to marketconditions the ratio of residential construction spend to GDP. The 60-yearaverage is 4.8%. At the height of our market in 2005, the ratio was 6.25%. Themarket is now corrected to 4.5%. When you consider the GDP is approximately $14trillion, this represents a market contraction of over $240 billion. While we are now close to the average, we don’t expect themarket do decline to the average and then pivot back up. We expect that thesoft market will continue, as reflected in the current overhang of housinginventory and the difficulties in the sub-prime mortgage [market]. As painful as the correction has been and will probablycontinue to be, we are now on the underside of this 60-year average. The valueof a time tested average is that it gives you confidence in the marketpotential ahead. For the Home Depot, it reinforces the importance of investingin our business and fixing our core operations. What most distinguishes the Home Depot is the culture of ourassociates, their passion for the company and customer service. As difficult asthe market is, it is great to see that passion reignited. We are achievingprogress from our investments in each of our five key priorities -- associateengagement, store environment, product availability, product excitement, andOwn the Pro. I’ll provide a quick summary on each, but before doing that, let’slook at overall market performance. We recognize that Home Depot's issues are not only marketrelated. We have also lost share through our own performance. One of our keyobjectives has been to reverse that market share loss. The latest data shows uslosing about 385 basis points to the market on a rolling 12-month basis. Thatis a significant improvement over last year’s number of 760 basis points. Also, as Paul will detail, in the markets where the housingand home improvement markets have been more stable, we are seeing positive compperformance. On associate engagement, Paul will take you through what we’vedone on our success sharing program, master trade specialists, and otherinitiatives. A good sign that we are seeing results here is that voluntaryhourly attrition is down 24%. We will continue to invest in our associatesbecause they are at the heart of our customer experience. On our shopping environment, we are rolling out new storestandards for cleanliness and appearance and we’ve already seen significantimprovement in our voice of customer VOC scores. On product availability, with Mark Hollifield and team wehave improved our in-stock position in our stores and this is also reflected inour VOC results, which show an improved score in our find-and-buy metric. We also have a distribution pilot well underway. We took anexisting facility in Georgia, introduced new processes in technology and areseeing shortened lead times and better in-stock positions in the servicestores. Building out our new supply chain will be one of our most importantinitiatives through the remainder of 2007 and 2008. On product excitement, Craig will discuss the areas wherewe’ve made significant share gains. We are also putting additional resourcesinto our regional merchandising efforts and adding talent to our merchandisingorganization. On our Own the Pro initiative, we are using the analyticsfrom Dunnhumby to gain better insights into the 2% of our customers who drivenearly 30% of our sales. Through these analytics, we are gaining a betterunderstanding of who these customers are and what their unique buying patternsarea. The analysis is being used to drive targeted direct mail pieces tooptimize our job lock quantity SKU lists, and to generate customer contactlists for our pro desk sales associates. I would also like to make a brief comment on core retail.We’ve launched a program to transform our merchandising systems and processesand we are on track to deliver the first phase in Canada next year. Our international business remains strong. Mexico posteddouble-digit comps in the quarter, Canada had positive comps, and China ismaking good progress. Our international stores now contribute 9% of sales and11% of operating profit, an impressive record of performance for thesebusinesses. Finally, let me make a few comments about our sale of HDSupply and our recapitalization plan. We closed the sale on August 30th and weare now focused exclusively on our retail business. We used the proceeds fromthe supply sale to fund the bulk of our $10.7 billion tender offer, which wecompleted in early September. That completes about 50% of our recapitalization. Given the market environment now, both in the housing andhome improvement market and the credit market, we don’t think it’s prudent torush to execute the remainder of the recapitalization, so this is not somethingthat will happen in the remainder of 2007. The basic principals behind the recapitalization that wewill be disciplined in our capital allocation and benchmark our use of capitalagainst returning dollars to our shareholders remain in place, as does ouroverall goal. We will provide a more complete view of our perspective on thisin 2008 inFebruary. In a meeting last week, one of our vendors made a greatcomment -- a downturn is a terrible opportunity to waste. This market downturnis an opportunity for the Home Depot to focus our resources and attention onthe things that matter and to bring greater customer focus to the business.That is what we are doing. Now let me turn the call over to Craig.

Thank you, Frank and good morning, everyone. In the thirdquarter, we experienced negative sales growth in all of our departments exceptkitchens, which was driven by appliances. The departments that outperformed thecompany average comps were plumbing, kitchen and bath, garden, paint, andhardware. The departments that underperformed the company average comp werelumber, millwork, lighting, and building materials, and flooring performed at thecompany average. First let’s talk about what negatively impacted us duringthe quarter, including regional differences in performance and later, we’llhighlight some of the wins that we had in the quarter. A large driver of our weak sales performance in the quarterwas due to the softness in our building materials and related businesses. Lowerdemand, as well as commodity deflation in building material categories, such asdimensional lumber and drywall, impacted average ticket, which was down 1.5% fromlast year to $57.48. As you would expect, we are seeing double-digit declines inmarkets like South Florida, California, and portions of the Northeast. However,a few regions showed positive comps in these commodity related businesses, suchas the Southwest and Ohio Valley. The category where we lost share in the quarter waslighting. This is a product category that we have opportunity to enhance ourmerchandise offering and simplify the selection process for our customers. Herewe have promoted our top expo merchant, Lisa McLelland, to Merchandising VicePresident to lead this category going forward. She is leveraging the learningsfrom expo in fashion and design as the assortment is retooled for the spring of2008. Our kitchen category also remains challenged. In marketsfacing significant home price depreciation, such as Phoenix, Sacramento, andTampa, we are experiencing double-digit negative comps. Despite the headwindsthat we face in this big ticket category, we remain focused on improving our shareloss. We completed the rollout of our assembled kitchen cabinet program that wementioned last quarter and we are pleased with the early results. As we move into the fourth quarter, we are taking thelearnings from our success in the flooring department to our kitchen departmentand we will simplify the purchase process and increase the value propositionfor our customers. We are upgrading the shopping experience by resetting showrooms and enhancing the capability of our associates through additional trainingand technology upgrades. Now let’s talk about some of the areas where we’ve seenshare gains in the quarter -- paint, appliances, and power tools. Despite increasing competitive dynamics in the paintbusiness, our market share of paint grew again this quarter. We have a greatpartner in Masco with Behr Paint, which has been consistently rated number onein independent product testing for the past five years. Sales were particularly strong in our exterior paint andstain categories and customers are responding to the market-leading innovationand products such as our exclusive nano-guard exterior paint that requires nopriming. In a shrinking appliance market, we continued to gain sharethis quarter, building on the gains that we’ve seen for the past few years. Wesaw significant strength in this category throughout the country. Our successhas been driven by our ability to stay relevant to our customers by providingthem with the latest features and benefits at great values. Customers continue to be pleased with the innovation, style,and design we are offering in appliances in products like the GE café and theLG kitchen series, both high-end suites of kitchen appliances. Another area that is beginning to show positive shareresults is our hardware department. In power tools and accessories, we gainedshare in a shrinking market and extended our leadership in this category. Wesaw a strong performance across the country, including markets such as LosAngeles, Washington D.C., Chicago, San Francisco and Denver. We drove these share gains by staying relevant to both thepro and the do-it-yourself customer, providing them with tools that have thelatest functionality at great value. An example of this was our October launchof the new Ryobi One Plus lithium products, which offers professional featuresat affordable prices. A final comment on areas that we were pleased with in thethird quarter would be our merchandising resets. Where we have completed ourresets and implemented change from our product line review process,collectively these categories are outperforming the store sales performance inline with our expectations. There is no question that we are operating in challengingtimes, and as we look forward, we remain focused on our merchandisingfundamentals, enhancing our processes and strengthening our team. I have talkedto you in the past about our focused bay approach. The company transactionswere down 1.8% for the quarter. However, where we have applied our strategyagainst our specific category roles, we are beginning to see positive results.For example, in toolsets, whose intent is to drive traffic, we have seen thiscategory turn from a negative to a positive comp performance in the quarter. We are also partnering with our suppliers to bring value toour customers. Two weeks ago, we met with all of our top suppliers. We spent alot of time developing actions to more collaboratively solve customer problemsand drive sales for both of our companies. As we look forward to the fourth quarter, we are pleasedwith the early sales of our holiday program and gift oriented products. Thisyear, we expanded and refined our assortment and expect to be the number fourretailer in U.S. holiday décor sales, with double-digit year-over-year growth. We are also focused on managing our seasonal categories,such as heating, snow removal, and organization. Before I turn it over to Paul, I want to mention someexciting changes in our merchandising organization. During the past quarter, wehave invested to add talent within the merchandising team at our senior level.Bruce Marino, a 23-year veteran of the Home Depot has come back tomerchandising after spending eight years as the Western Division President.Bruce is leading our field merchandising teams, merchandise serviceorganization, store environment, and new concepts. We also have three Senior Vice Presidents that areresponsible for our merchandising categories. Another former division Presidentand merchant, Eric Pederson, is our SVP running our building materialsbusinesses. Giles Bowman, who has held various merchandising positionsthroughout the organization, is our SVP for hard lines. And lastly, we are pleased that Gordie Erickson has joinedus as our SVP of Décor. He brings a strong background of merchandising with 32years of experience in home center mass and specialty retailing. Now I would like to turn the call over to Paul.

Thank you, Craig. As Frank mentioned, we have seensignificant differences in regional performance, driven by macroeconomic trendsand housing indicators. In those markets with favorable housing trends andstrong disposable income, we are seeing positive comp performance. For example,in the Southwest, our Dallas, Austin, and San Antonio markets had positivecomps for the quarter. In those areas that have been the hardest hit by housingturnover and new home sales, we continue to feel significant pressure. It is nosurprise that Sacramento, Las Vegas, and Fort Myers, Naples fall in thiscategory, with Fort Myers Naples posting negative comps in excess of 20%. Our business displays significant variation acrossgeographies and that underscores the importance of having a local focus. Forexample, within our Ohio Valley region, we have relatively stable housingmarkets as well as markets with deteriorating housing indicators, both postingpositive comps for the third quarter. We believe that our performance in these markets is beingdriven by share gains, as well as our focus on our five priorities. Now let’s talk about some of our progress on thosepriorities. This year, we have made a lot of progress on our associateengagement priority and despite the difficult business environment, we aredriving positive changes around our associate reward and recognition programs.We know that the motivation and engagement of our more than 300,000 associatesmake a huge impact on customer satisfaction and on sales. In our second quarter earnings call, we spoke a lot aboutcompensation enhancements. The changes in our success sharing program, anincentive program for hourly associates driven by individual store performance,allowed us to increase our associates participation in success sharing byalmost 40 points year over year for the first half. The largest check an hourlyassociated received was $1,855 and the average check was around $200. The issuance of restricted stock grants have more closelyaligned assistant store managers with the company’s goals. We have also seenpositive results from the reinstitution of our Homer Badge program, whereassociates get rewarded with merit badges for outstanding customer service,which they can submit for cash compensation. To date, over 78,000 Homer Badges have been awarded,including seven gold level badges and two platinum level badges. We have also seen a big impact from our master tradespecialist program. As of last week, we had over 2,000 master trade specialistsin our stores, all being either licensed plumbers or electricians. We areextremely pleased with this program. These specialists are better able to helpcustomers with their plumbing and electrical projects, help train associates,and help us better assort stores to comply with local building codes andrequirements. Our merchant team is also leveraging these specialists byhaving regular conference calls to ensure we are adopting and changing ouroffering in stores to reflect the regional needs of the business. While we view this as an investment in the short-term, weare confident that longer term, we will see a return on this investment. We are seeing the impact of our focus on associateengagement through reduced turnover and our employer of choice survey. As Frankmentioned, voluntary hourly turnover in our stores is down 24% from last year.EOC results indicate that our initiatives in associate engagement are making ameaningful difference. Earlier this year, we surveyed almost 300,000 of ourassociates at both the stores and the store support centers. Our highest scoreswere in those areas that are the most difficult to change -- meaningful andchallenging work, inclusive culture, and work environment. We definitely have room for improvement, particularly inareas like communication and work schedule. We are pleased with the results andfeel we can make progress in the areas that need our attention the most. In terms of shopping environment, we are very pleased withour progress. As most of you know, the average age of our stores is aroundseven years old, a time when you really need to refurbish the stores tocontinue to drive sales. Therefore this year, we increased our maintenancebudget by 2.5 times our 2005 spend, geared at making the stores clean anduncluttered and inviting to our customers. We have integrated our field and store support center teamsto better align ourselves around the needs of the business, as well as adopteda programmatic approach to maintenance. To date, we have polished or spiffed 473 floors, striped1,038 parking lots, remodeled 172 restrooms and now have T5 lighting in 1,765stores. In addition to programmatic maintenance, our integratedfield and support center teams have rolled out store standards to all stores.Through a cross-functional approach, we developed and piloted our basicexpectations for stores and our goal is to drive a foundational level of storeappearance that is agreed upon by our merchants, operators and support teams. To do this, we’ve set common guidelines on appearance andshopability and have created discipline around how the store support center directlyimpacts a store’s environment. The standards provide guidance on things such as front apronmerchandising, wing stack usage, signage presentation, fixturing, and off-shelfproduct. This initiative helps reduce the amount of time our store manages spendon navigating some of these issues, removes unnecessary clutter from the aislesand implements a basic, consistent approach in terms of store appearance. Finally, on our Own the Pro initiative, you’ve heard fromFrank that 2% of our customers drive almost 30% of our sales. Through Dunnhumbyand our credit card programs, we have good information about what this superpremium customer spends in our stores. Over the last quarter, this customer whotypically spends twice to three times as much as a regular customer, hascontinued to shop with us. We are now taking the next steps, building betterrelationships with them, communicating our value proposition, and staying relevant to them through our bid roomand job lot quantities programs, to continue to connect with them and gain agreater share of their wallet going forward. We know these initiatives are making a difference becauseour customers are telling us. Through our voice of customer survey, where wehear from over 200,000 customers a week, we see improvements in likelihood torecommend, find and buy, and our clean and uncluttered metrics. Clean anduncluttered, which measures the shopping environment, is improving faster thanall other metrics. Although we see good progress on our associate engagement,shopping environment, and Own the Pro initiatives, we know that continue toface market headwinds and challenges. Our success will be defined by ourability to remain focused on the fundamentals of the business during thisdifficult environment. I want to make a brief comment on the stores organization.Although Craig was able to lure veteran Western Division President Bruce Marinoaway to merchandising, we could not be happier for Bruce and look forward toworking with him closely going forward. We have replaced Bruce with Joe McFarland, who is our newPresident for the Western Division. Joe is a 16-year veteran with the HomeDepot, who has held various operating positions, including regional vicepresident, district manager, and store manager. I am very excited about havingJoe in this leadership position. One last comment before I turn it over to Carol; it isunfortunate when we face natural disasters but it is during times like thesethat our associates and customers need us the most. Taking care of thecommunity and each other in a disaster is one of the things Home Depot doesbest. During the recent wildfires in California, we saw thousandsof customers and associates evacuated from their homes and many lost theirhomes or sustained significant damage to them. In order to assist ourassociates and customers in need, the Home Depot kept stores open longer thanany other retailer in the area and donated palettes of water, flashlights andbatteries, air purifiers, gloves, and more. Beyond providing the necessaryproducts during this disaster relief effort, our associates also donated theirtime to help in any way needed -- at evacuation centers, building sifters,providing shelter for animals and hosting kids workshops. You can always count on Home Depot to stand tall in times ofneed for our customers and associates. I want to thank each and every one ofour associates for your commitment and sacrifice. You make us proud to wear theorange apron. Now I would like to turn the call over to Carol. Carol B. Tome: Thank you, Paul and hello, everyone. Before I discuss theresults of the quarter, let me remind you that our third quarter resultsinclude one month of HD Supply as a discontinued operation. As you review ourfinancial statements, please note that the operating results and earningsimpact of the sale of HD Supply are found in a one-line item on our incomestatement entitled earnings from discontinued operations. In the third quarter, sales were $18.96 billion, a 3.5%decrease from last year, reflecting negative same-store sales of 6.2%, offsetin part by sales from new and non-comp stores. Consolidated same-store saleswere negative 5% in August, negative 7.3% in September, and negative 6.3% inOctober. In the third quarter, our gross margin was 33.4%, a decreaseof 18 basis points from the same period last year. Contributing to theyear-over-year decrease in our gross margin rate were the following factors. As expected, our gross margin benefited from lower interestcosts associated with our private label credit card financing program. In thethird quarter, we realized 36 basis points of margin expansion due to lowerinterest costs. We gave up roughly 54 basis points of margin due to a higherpenetration of lower margin products like appliances, as well as markdownstaken to clear through some seasonal items like outdoor power equipment andgrills, and allow us to transition into new products, like assembled cabinetsand kitchen accessories. As a percent of sales, total expenses grew by 183 basispoints to 24.1%. Our expense deleverage reflects the impact of negative sales,where for every point of negative comp, we expect to deleverage expenses byabout 20 basis points. So with a negative comp of roughly 6%, we would expect toreport expense deleverage of 120 basis points. In the third quarter, weexperienced an additional roughly 60 basis points of expense deleverage due totwo main factors. First, during the quarter, we announced our plans to closeour 11 landscape supply locations. We recognized $25 million of expenseassociated with the store closings during the quarter. Second, we share in the profitability of our private labelcredit card portfolio through a gain share program. Private label credit salesmake up about 30% of our total sales. The portfolio remains very profitable butlosses within the portfolio are higher than they were one year ago. As aresult, our gain share was approximately $82 million less than last year. Our expenses reflect investments we are making in support ofour five key priorities. We continue to view payroll as an investment. As apercent of sales, total payroll increased by 51 basis points over last year,which includes investments in our master trade specialist program, as well asexpense associated with employee bonus programs like success sharing.Currently, 57% of our stores are eligible for success sharing compared to 22%last year. As a result of the factors I just mentioned, our operatingmargin declined from last year. Our operating margin for the third quarter was9.3% as compared to 11.3% last year. Net interest expense was $125 million inthe third quarter, up $33 million from last year, reflecting higher levels ofoutstanding indebtedness. In the third quarter, our income tax provision rate forcontinuing operations was 34.7% compared to 37.4% last year. In the thirdquarter, we reached agreement with tax authorities on several state and federaltax audits. As a result, we recognized a $35 million tax benefit in thequarter, as well as some related interest expense benefits. Earnings from continuing operations were $1.1 billion, ascompared to $1.3 billion last year, and continuing earnings per diluted sharewere $0.59, down 9.2% from last year. Diluted shares for the third quarter were1.815 billion shares compared to 2.05 billion shares last year. The reduction in outstanding shares is due to the sharerepurchase program we began in 2002, including the 289 million shares werepurchased in our recent tender offer. Through the end of the third quarter,we had repurchased a total of 743 million shares. Earnings for our discontinued operation, HD Supply, were $20million. Included in this quarter’s results are the net after tax financialresults for the month of August, as well as the impact of the sale of HDSupply. After expenses and taxes, we recognized a $4 million loss on the saleof the business. Moving to our operational metrics, during the third quarterwe opened 25 new stores, including one relocated store, for an ending storecount of 2,224. Today, 236 stores representing approximately 11% of our storebase, operate in Canada, Mexico, and China. At the end of the third quarter, selling square footage was233 million, a 5.4% increase from last year. The average square footage perstore was 105,000 square feet, the same as last year. Reflecting the sales environment, total sales per squarefoot were approximately $323 for the quarter, down 7.8% from last year. Whilethe year-over-year trends for our new stores were also negative, sales persquare foot for our new stores had their best year-over-year performance sincethe fourth quarter of 2006. At the end of the quarter, retail inventory was $12.6billion, an increase of 3.7% from last year. On a per store basis, inventorywas down 1.9% from last year. Inventory turns were 4.4 times, slightly lowerthan last year. Computed on the average of beginning and ending long-termdebt and equity for the trailing four quarters, return on invested capital forour retail business was 15%, reflecting a 130 basis point improvement from thesecond quarter of 2007. We ended the quarter with $45.5 billion in assets, including$550 million in cash and short-term investments. This is a decrease ofapproximately $64 million in cash from the end of fiscal 2006, reflecting cashgenerated by the business of approximately $5.8 billion, net proceeds from thesale of HD Supply of $8.3 billion, along with commercial paper issuances of$748 million, offset by $2.5 billion of capital expenditures, $325 million paidfor a minority interest in HD Supply, $1.3 billion of dividends paid, and $10.8billion paid for share repurchases. For the year, we now estimate our total capital spendingwill be approximately $3.9 billion. Given our performance to date and the softness we continueto project for the rest of 2007, we think our comps for the year will benegative 6% to 7%, and earnings per share from continuing operations on a52-week basis will be down as much as 11% from last year. Finally, I want to give you our latest thinking on thecompletion of our $22.5 billion recapitalization plan. As Frank mentioned,since we announced the plan in June, we have completed about 50% of our recap.As you know, both the credit market and the housing market have become moredifficult since June. We believe it is prudent to take a cautious stance withregard to the completion of the recap. We will move forward when we seeimprovement in both the home improvement and credit market, which we believewill not occur until some time in 2008. We will keep you appraised of our plans and during ourfourth quarter conference call, we will provide you with sales, earnings, andcapital spending guidance for fiscal 2008. Thank you for your participation in today’s call and we arenow ready for questions.

(Operator Instructions) We’ll go first to Chris Horvers atBear Stearns. Chris Horvers - BearStearns: Thank you and good morning, everybody. First question on therecap program, I think when we are out here speaking with investors and weunderstand being pushed back because of the credit market aspect but pushing itback because of the home improvement market, what do you say to people who turnand say well, if they are not interested in buying our stock, why should I?

I think again, as we’ve said, it is looking at both marketsand saying what is the prudent thing for us to do for our shareholders. If yousaid all other things being equal, we were planning to go forward at the end ofthis year and then take another step in the spring, but all things reallyaren’t equal, both in terms of the credit market and we do think it makes senseto look at the housing market and see what’s happening in the housing marketbefore making another major commitment. Chris Horvers - BearStearns: Could you just expand on that last part? Why would you belooking at the housing market?

I think again for us, we look at both what our projectionwas for the year, where it turned out, and we want to get a better sense of2008 and we are frankly just in the middle of the planning process around 2008. Carol B. Tome: Chris, you’ll recall that from a capital strategyperspective, we have targeted an adjusted debt to EBITDAR leverage ratio of 2.5times, and so clearly the housing market will impact our adjusted EBITDAR, andso we are just working through our plans for 2008 and looking at that relativeto our financing plans. Chris Horvers - BearStearns: One follow-up question, Carol; as we think about 2008, andunderstand you haven’t given guidance yet, we know sales -- it’s going to be atough environment and we had the second downturn in the housing. As we thinkabout the deleverage that might occur in ’08, does the accelerated maintenanceand the additional store investment this year make the potential deleverageless next year for every 100 basis points of comp? Carol B. Tome: Well, it’s a great question. We had some catch-up spendingin 2007, as we’ve talked to you about. Again, we are not giving guidance todayfor 2008 because we are just building our plans. But as we look at our businessmodel, we believe that we will still, for every negative point of comp sales,deleverage expenses by 20 basis points. Then there will be some other goes-insand goes-outs that we’ll talk to you about. Chris Horvers - BearStearns: Thank you very much.

Next we’ll move to Deborah Weinswig at Citigroup. Deborah Weinswig -Citigroup: Good morning. Frank, I believe Carol had highlighted thefact that 57% of stores this year are eligible for success sharing versus 22% ayear ago. I would assume that that’s very important for employee morale. Canyou talk about if you’ve changed the target or how you’ve gotten to a highernumber year over year, and just what it means for the employees?

Yes, we did change the targets, so previously we tended tohave a stretched target in order to get into success sharing, and then you hadto hit 100% of the target. So for this year, we changed that approach and madeit a percent of target and at the time, we were thinking the target we set outwas a very reasonable target, with again, the basic principal being we wantedour associates to feel the benefit of success sharing and then earn their wayup into additional dollars, rather than feeling demotivated from the start at atough plan that they didn’t think they could achieve. Deborah Weinswig -Citigroup: Okay, and then last question, in terms of helping theassociates in a tough environment, are there any additional tools that you areproviding them with in store to help serve customers or help them upsell?

I’ll take that one. There is a series of activities in thestores around learning that are very important. We’ve spent a lot of timerefocusing in the first half of this year around in-the-aisle learning andemphasizing project and product knowledge versus the heavily e-learning focusthat we’ve had previously. So that’s one of the tools we’ve given them. At the same time, we are doing a tremendous amount of focuson our VOC activities and giving them a lot of feedback and metrics around whatcustomers are saying about the business. So we feel that we are giving ourassociates a lot more tools around the customer and around product knowledgeand helping customers do projects in their homes through this first half. Deborah Weinswig -Citigroup: Great. Thank you very much.

And next we’ll move to Stephen Chick with J.P. Morgan. Jeff Wimmer - J.P.Morgan: This is actually Jeff Wimmer on behalf of Stephen Chick. Ihave a question about your guidance, if you could delve in a little bit moreabout that. It looks like sales remain relatively the same, in that high,mid-single digit range, but could you talk about the split between growth andSG&A deleverage? Are you still looking for up gross margins year over year? Carol B. Tome: Yes, year over year we are projecting slight marginexpansion. On the expense side, the expense deleverage that we saw in the thirdquarter will continue into the fourth quarter. Jeff Wimmer - J.P.Morgan: Okay, and then I might have missed this because I got on thecall a little late, but did you give intra-quarter sales yet? Carol B. Tome: From a comp perspective? Jeff Wimmer - J.P.Morgan: From a comp perspective, yes. Carol B. Tome: We sure did, and let me just tell you negative 5 in August, negative 7.3 in September, negative 6.3 in October. Jeff Wimmer - J.P.Morgan: Okay, and then also, just thinking about going forward, youhave the $600 million reinvestment plan. Is this going to be somethingreoccurring next year? Will there be additional incremental investment as welook into ’08? Carol B. Tome: At the beginning of the year, we said that we were investing$2.2 billion in support of our five key priorities, $1.6 billion for capital,$600 million of expense. Some of that expense was catch-up spending. We willcontinue to invest in the key priorities in 2008. Just to update the capital bit, we are going to spend thisyear we project about 1.3 against the original 1.6 target, but that’s reallybecause of the sale of HD Supply. Jeff Wimmer - J.P.Morgan: Okay. Thank you.

Next we’ll move to Budd Bugatch at Raymond James. Budd Bugatch -Raymond James: Good morning. Let me ask you a question -- my first questionreally goes to appliances. Can you update us where you are on share onappliances? I noticed in some stores maybe some additional square footagethrough the use of mezzanines. Is that prevalent in a number of stores?

Budd, that’s a very limited pilot that we were running and Iwould not expect to see a lot more of those, but let me turn it over to Craigfor general comments on appliances.

For appliances overall, again we were pleased with theperformance there. We’ve achieved a 12.4% penetration in terms of market shareversus 10.7 ayear ago, up again from Q2, which was at 11.7, so the customer really continuesto respond to the offering that the team has put together. Budd Bugatch -Raymond James: And Craig, those are unit shares?

Yes. Budd Bugatch -Raymond James: Okay, and if we could also, my last question is to talk alittle bit about any additional talent or what you see in the merchandisingorganization with Gordie’s coming on board, or can you talk about maybe whatother needs you might have?

Well again, very excited to not only have Gordie on boardbut also to have Bruce join us, coming in from the field to help us reallycoordinate and connect with our regional team as we continue to try to drivethe regional assortment variations that we need across our business and getthat executed for the stores. And with Gordie joining us, again great retail talent. Ithink well respected in terms of his knowledge, both in mass discount andspecialty retailing and it’s a super addition to our team. We feel very good about the overall team that we have inplace right now and looking forward to driving the business. Budd Bugatch -Raymond James: Okay, and Carol, could you just give us what the tax rate isgoing forward? Any more tax issues? Carol B. Tome: We project that the provision rate for the year will be36.5%. Budd Bugatch -Raymond James: Okay, that helps.

We’ll go next to Matthew Fassler at Goldman Sachs. Matthew Fassler - GoldmanSachs: Thanks a lot. Just a couple of quick questions here. Firstof all, the average ticket decline seemed to moderate a bit. If you could giveus any color on why you think that happened, be it mix or other factors. And then just by way of follow-up, Carol, on the recap,would you continue to expect to deploy free cash against buy-backs or would youhold off on that as well?

Craig, why don’t you comment on the average ticket.

On average ticket overall, again what we saw there was someshift in mix that is impacting that business. When you look at what happened tothe lumber and building materials categories, as that relates to a largerrepair/remodel project overall, that certainly had an impact on the category. We did see some shifting and we are seeing withincategories, for example, in a little more discretionary spend categories likeoutdoor power equipment, we saw some shift down in the line, which impacted theticket in that category as well. Carol B. Tome: Just another comment on the ticket, if you look at just thesequential performance, Q3 to Q2, in Q3 we picked up $0.22 of average ticketgrowth because of an increased appliance penetration. We didn’t have that samebenefit in the second quarter, so that’s part of what you are seeing. And on the recap question, as Frank said in his comments, weremain committed to our capital allocation strategy where we will alwayscompare the use of excess cash, returning that to our shareholders versussomething else, and so yes, we’ll remain committed to that. Matthew Fassler -Goldman Sachs: But just to clarify, to the extent that you are talkingabout holding off on the recap, you’re talking about holding off borrowing moremoney to buy back stock, not the repurchase of stock in and of itself? Carol B. Tome: Right. Now remember, we have $748 million of outstandingcommercial paper, so we don’t have excess cash as we are sitting today. Matthew Fassler -Goldman Sachs: Fair enough. Okay, thank you.

Next we’ll go to Danielle Fox at Merrill Lynch. Danielle Fox -Merrill Lynch: Thanks. Good morning. I guess just looking backhistorically, the retail business has had an operating margin as high as 11.8%,which is about 200 basis points above where you are tracking this year. I’mwondering what needs to happen to get back up to those levels. Presumably youneed to return to positive comps, but do some of these supply chainenhancements that you are beginning also need to work out in order to return tothe 11.8%?

I think first, clearly positive comps, because that leverspositively versus the negative, the deleverage that we see now. And thensecond, you are exactly right in terms of improving. What we see is thesubstantial investment that we are going to make in our supply chain will helpus improve our operating margins, as will the merchandising transformationthat’s really at the heart of core retail. Danielle Fox -Merrill Lynch: You don’t see anything as having changed in the underlyingcost structure that would prevent you from returning to those levels, giventhat you did need to step up the P&L investing beginning in the second halfof ’06?

No, I would say 11.8 is a long ways away, but we think thereis significant improvement from where we are. Danielle Fox -Merrill Lynch: Okay. Thank you.

Next we’ll go to Gregory Melich at Morgan Stanley. Gregory Melich -Morgan Stanley: Thanks. I have two questions; Frank, did we start on theCanadian rollout of the merchandising system that was mentioned as somethingthat will happen next year? Is that a pilot or is that across all the stores or-- just fill us in on the timing there.

The timing is around the end of March, the pilots will -- Imean, the way the actual rollout works is it starts with a set of pilot storesand you pilot that for several weeks and then fix any bumps that occurredduring the pilot process and then we expect to have it rolled out to everystore in Canada by the end of 2008. Gregory Melich - MorganStanley: And if I remember correctly, there was a plan to maybeaccelerate the U.S. following that. Is that still the case? Or that will be a’09 business?

The way we are setting this up, and I think the tremendousadvantage that we have with Canada as our laboratory, in effect, is that we aregoing to look very closely at what the results are from Canada, both pilot androllout, and that’s going to determine the pace that we take on the U.S. side. Gregory Melich -Morgan Stanley: Okay, so stay tuned, basically.

Yes. Gregory Melich -Morgan Stanley: Okay, and the second question, Carol, is a follow-up on theearnings share of the credit business. I think you said it was $83 million. DidI get that number right? Carol B. Tome: It’s $82 million year over year. Gregory Melich -Morgan Stanley: So was that -- but it was still profitable in the quarter? Carol B. Tome: Yes, it certainly is -- very profitable. Gregory Melich -Morgan Stanley: And was that swing -- would you call that an ongoing -- Carol B. Tome: Yes, you know -- Gregory Melich -Morgan Stanley: -- provision that you [unwound], effectively. Carol B. Tome: It’s a good question. It’s the loss piece of the portfolio.The portfolio is really a good portfolio. The losses have been running in the4%, 4.5% range. They’ve popped up. We’re now projecting they’ll be in the 6%range which, relative to other credit card portfolios is not bad, but it’shigher so it means the profitability isn’t as large as it was, so we didn’t getas much of a share gain in the quarter. And that pressure will continue intothe fourth quarter. Gregory Melich -Morgan Stanley: Okay, so we think that 6% is now a good ongoing number thatwe should use? Carol B. Tome: Well, we’re going to be watching it very, very carefully.Some other stats, just for your information, 65% of the portfolio has FICOscores greater than 650, so that’s very high quality. But 17% of the portfoliohas FICO scores of less than 600, so we are going to be watching this verycarefully. I mean, the credit market is interesting in today’s environment. Gregory Melich -Morgan Stanley: And are you -- on the downside there, is there like astop-loss so to speak, that you share profits but is there a cap on that or no? Carol B. Tome: The profits that are share is over a threshold, over anearnings threshold. We’ve got a long way to go before that would happen. Gregory Melich -Morgan Stanley: Okay, great. Thanks.

Our next question comes from Eric Bosshard at ClevelandResearch. Eric Bosshard -Cleveland Research: Good morning. Two questions -- first of all, on the recap,is the -- waiting to see what you are going to do next year, is that based asmuch on uncertainty about the EBITDA of the business next year? Is that theprimary driver to how you are rethinking the pace of which you are going tomove on that?

Well, as both Carol and I said in our comments, it is boththings, both the credit markets and the underlying housing market. As Carolindicated, obviously the underlying housing market impacts our performance,which impacts our EBITDA which impacts our coverage. And for where we are now, I think it’s worth pausing andrealizing look, the window has been closed on us, so we could not have been buyingeven if we had wanted to. The window is now open and you would say -- we’d saylooking at our business and looking at the credit market that this is a time topause and make sure we’ve got a pretty firm idea going forward before makingthat second and third steps in the recapitalization plan, which again, as Isaid in the initial comments, we remain committed to. It’s really just aquestion of figuring out the right timing. Carol B. Tome: And we certainly have debt capacity. If you look at ouradjusted debt-to-EBITDA ratio for the trailing 12 months, it’s 1.9 times, sowe’ve got debt capacity. Eric Bosshard -Cleveland Research: Okay, and then secondly, understanding the uncertainty,you’ve made the decision to move slower on the repurchase. I understand thatbut in terms of the capital and the sales investment that you are going to makein the business for next year, how are you thinking differently about that? Isthat a wait and see how sales are until you determine what you are going toinvest in the business? Or are you going to continue to make the investmentregardless of the sales environment?

We are continuing to make the investment in the business tomake the customer experience the best possible customer experience. I’d saywhere there’s an impact and where you’ve already seen an impact this year is inour new store opening and taking down our new store opening, both for 2007, asCarol indicated, that reduced our CapEx for 2007 and into 2008. Carol B. Tome: And you’ll recall, Eric, at the beginning of the year, wesaid we would spend $4.5 billion in capital. We are going to spend 3.9. Thatincludes about $200 million at supply, so in the retail business about 3.7 andthe delta from the beginning of the year is really new store capital. Eric Bosshard -Cleveland Research: Thank you.

We’ll go next to Gary Balter at Credit Suisse. Shannon Coyne -Credit Suisse: This is actually Shannon Coyne for Gary. I just had onequestion -- how much of the lower guidance is due to the reinvestment in thestores, or minimum labor standards that you’ve put in place versus theworsening housing markets? Carol B. Tome: For the fourth quarter and full year, Shannon? Shannon Coyne -Credit Suisse: Yes. Carol B. Tome: If we’re looking at comps of negative 67%, earnings fromcontinuing operations, EPS down 11%, implied in that is expense deleveragealong the lines of what you saw in the third quarter, and gross marginexpansion. And the expense deleverage is just a factor of the negative compsthat we are projecting, the investment, and some continued pressure on credit. Shannon Coyne -Credit Suisse: Okay, thanks.

Next we’ll take a question from Colin McGranahan atBernstein. Colin McGranahan -Sanford Bernstein: Good morning. I wanted to focus first on the expense line alittle bit. As I look at the expense dollars, year over year the growth rate ofthose dollars is about 4.1%, which is -- looks like a deceleration of about 100basis points from roughly 5% growth rate in the first half of the year. Givensuccess sharing dollars look like they were probably pretty consistent, youhave this $82 million negative year-over-year delta in the credit portfolio,square footage growth is pretty much the same at 5.4%, what was it that causedthe expense dollars to decelerate and where did you realize some expensesavings in the business? Carol B. Tome: We didn’t call it out in our prepared remarks, but just likethe second quarter, we were actually under our expense plan in the third quarter.Every day we wake up and look at sales, we look at cash, and we look at wherewe control expenses so it doesn’t impact the customer experience. And we’ve hadgood expense control in areas like advertising. We might want to talk about payroll, it’s our biggestexpense. On the payroll side, wages are up year over year. That’s reflectingthe investments that we are making but as you would expect, we’ve got anactivity-based labor model and the hours in the stores are actually lower thanthey were a year ago, as you would expect, because we have less activity in thestores. On the G&A side, we’ve got unbelievable expense control.We’re investing where we need to invest but where we can cut costs, we are. Colin McGranahan -Sanford Bernstein: So were labor dollars then growing at a slower rate in thethird quarter than they were in the first half of the year? Carol B. Tome: They were. Colin McGranahan -Sanford Bernstein: Okay, so that was a savings, then advertising is a savingsand just tightening the nuts on the G&A. Carol B. Tome: Yes. And still there are lots of other small goes-ins andgoes-outs, but yes, those are the big buckets. Colin McGranahan -Sanford Bernstein: Okay, and is that 4% a reasonable pace going forward?Because it looks like that $82 million credit delta is probably recurring andgiven probably some stress levels of some of your larger pros that are sittingon those credit cards, that may actually be getting worse, not better. Carol B. Tome: Well, I think we’ve given you pretty good guidance for theyear, so you can do the math. Colin McGranahan -Sanford Bernstein: Okay, and then my second question just on traffic. Obviouslyticket improved sequentially a little bit. It looks like there was a prettysignificant deceleration in traffic. Would you peg any of that to kind ofseasonal variances and the drought conditions and thinks like that? Or was itjust general housing market?

Not really -- as we looked at the traffic, just let meaddress the drought question. We saw some impact in categories like live goods,pressure washers, and power equipment in the southeast area of the country. Itwasn’t material overall in the quarter. We did take the opportunity to movesome power equipment into the southwest region of the country, which wasperforming extremely strong, and to make sure that we continued to leverage theopportunity in that business. But overall, I wouldn’t say that weather was the impact tothe average ticket. Colin McGranahan -Sanford Bernstein: To the traffic?

Or traffic, I’m sorry, yes. Colin McGranahan -Sanford Bernstein: Okay, great. Good luck, guys. Thanks.

We have time for one more question.

Okay, and we’ll go to Brian Nagel at UBS. Brian Nagel - UBS: Good morning. A question on -- as we see the weakness in theU.S. dollar here, and [you are presumably] sourcing more products overseas,what impact has that or could that have upon your business or specific grossmargins in the coming quarters?

When we look at what’s going on with the dollar right now,certainly there is some pressure out there but we are working hard with oursuppliers to really work through that pressure with them to find other waysthat we can work together to take mutual costs that we have out of our businessand really not let that impact the retail environment whatsoever, so we’re notseeing a significant change overall. Brian Nagel - UBS: That’s helpful, and then one very quick question; I noticedin the guidance, it seems like the benefit of that extra week from an EPSperspective change this time in your guidance. What explains that? Carol B. Tome: We tightened up our forecasts. We had carried over somecosts into that extra week that we didn’t need to, and so we just have a betterforecast. Brian Nagel - UBS: Okay, fair enough. Thank you very much and good luck nextquarter.

Thank you all very much.

Thank you for joining us and we look forward to the callnext quarter.

And that does conclude today’s conference. Again, thank youfor your participation.