Home Depot to Renovate

"Reflecting the challenging housing market, our 2006 retail results were disappointing," said Blake. "We may not be able to impact the housing market or general economic conditions, but we know that we can improve our performance relative to our overall market share. That will be a central point of emphasis for us in 2007 and beyond."

The company will present its 2007 outlook next week at its annual analyst conference.

On the conference call, Home Depot's chief financial officer, Carol Tome, said the retailer's efforts to sell consumer electronics items in the holiday season, such as flat-screen televisions, ended in failure.

"We didn't make any money on consumer electronics," said Tome. "In fact, we lost money on the sale."

The sales increase at the HD Supply business was muted by the fact that its profitability and organic growth rate plummeted in the fourth quarter as the residential home construction business slowed. That raised questions about whether Home Depot is about to sell its supply business at the bottom of the market after buying into it at the top.

Craig Johnson, president of Customer Growth Partners, says the supply business doesn't offer Home Depot the growth prospects that the retailer's overseas retail operations promise, and he said it's also a diversion for the company.

"They run into trouble when they get diverted from the core retail business," Johnson says.

Shares of Home Depot were recently down 38 cents, or 0.9%, to $41.06.