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Tickers in this Article: HD, LOW, LL, BXC
Home Depot (NYSE:HD), the nation's largest home improvement retailer, is seeing signs of life again. For the 2010, fourth quarter, Home Depot delivered a 72% increase in net income. While that growth number is a result of an easy comparable figure in 2009, overall Home Depot experienced a fundamental improvement in its business.

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Shoppers Coming Back
In addition to strong income growth, Home Depot experienced an average purchase amount of $51.31, the highest figure in nearly five years. Management also continued its successful execution of expense management with a 1.9% decline in operating expenses. Combined with a 3.8% increase in sales, Home Depot was able to earn 36 cents a share in the quarter, beating estimates of 31 cents and growing significantly quarter over quarter. While management was quick to point out that consumers are still cautious, it did not stop the company from raising full-year earnings estimates to $2.20, or nearly 10% better than 2010.

Wait and See
Despite Home Depot's successful quarter, housing is still in trouble. Housing prices are declining in most parts of the U.S. and housing starts remain severely depressed. While Home Depot is clearly benefiting from existing home improvement, a strong housing market is a significant tailwind for the company. Rival Lowe's (NYSE:LOW) reported recently as well, and investors may look to this the major builders' performance as an overall indicator for the housing market. Other niche housing-related stocks like Lumber Liquidators (NYSE:LL) also reported earnings recently, so the outlook for these big names may be a way to get a decent perspective on the housing market going forward.

Companies that are more exposed to housing starts, such as small cap building materials supplier BlueLinx (NYSE:BXC) are facing more difficult headwinds than the likes of Home Depot. Recently, BlueLinx reported another quarterly loss as housing starts lost steam in 2010. (If you don't realize how big small cap stocks can be, you'll miss some good investment opportunities. Check out What Is A Small Cap Stock?)

The Bottom Line
Going forward, consumer confidence will play a big role in the growth and profitability of not only business like Home Depot, but many others as well. That said, any hope of creating new growth in the housing industry is going to require a heavy dose of consumer optimism.

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