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) -- When

Home Depot

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announced its earnings this morning, it offered up some significant signs that it is confident in its outlook for 2010.

While Home Depot released what some would call conservative guidance, the home improvement retailer also upped its quarterly dividend and increased its annual capital expenditure.

During the quarter, Home Depot swung to a profit of $342 million, or 20 cents a share, compared with a loss of $54 million, or 3 cents, in the year-ago period.

Excluding a write-down related to its HD Supply Investment, the company actually earned 23 cents a share, easily topping Wall Street's forecast of 17 cents.

Sell Home Depot!: Against the Grain

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Home Depots sales fell 0.3% to $14.57 billion, while its same-store sales rose 1.2%. This was the first increase in same-store sales for Home Depot in nearly four years. In the U.S., comparable sales slipped 1.1%, which was preferable to


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2.2% decline.

Home Depot also announced that it saw strength in its international business -- specifically Mexico, China and Canada. It also received a boost from sales in plumbing, paint and flooring.

Home Depot upped its dividend 5% to 23.6 cents a share, its first hike since 2006. The company is aiming for a 40% payout ratio and plans to use excess cash to repurchase shares during the year.

It also increased its capital expenditures 30% to $1.25 billion. Home Depot had not lifted capex since 2007, "so this is perhaps a stronger indicator of the outlook than the dividend raise," Wall Street Strategies analyst Brian Sozzi wrote in a note.

"Home Depot's much improved tone, renewed interest in buying back stock and increase in dividend, reaffirm our view that the sector is rebounding and is one to own in 2010," J.P. Morgan analyst Christopher Horvers wrote in a note.

Looking ahead, Home Depot management expects full-year earnings of $1.79 a share, a 15.5% jump. It also foresees total sales and same-store sales growing 2.5% during the year. These ranges were stronger than those issued by rival Lowe's yesterday.

In reponse to all the ebullient news, shares of Home Depot reached a 52-week high in pre-market trading, gaining 36 cents, or 1.2%, to $30.68.

The company also said it will pare down its new store openings and instead focus on driving sales from existing stores, which Sozzi views as a positive. Indeed, as long as management doesn't provide any negative sentiments during the conference call, Sozzi says Home Depot remains an attractive value.

Home Depot's results come a day after rival Lowe's also posted better-than-expected fourth-quarter results. Lowe's, for its part, also predicted that the worst of the economic cycle is over, and said that it foresees a same-store sales increase of between 1% and 3% this year.

Lowe's also said it will repurchase up to $5 billion in common shares.

--Reported by Jeanine Poggi in New York.


>>Lowe's Signals End of Housing Crisis

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