Home Depot (NYSE:HD) is a veritable Fort Knox. Today, the world's leading home-improvement retailer reported double-digit increases in year-over-year sales and earnings, higher margins, and a growing cash position. Expect more of the same in 2004.

Yesterday, Lowe's (NYSE:LOW) reported a stunning 20.1% increase in fourth-quarter sales. While Home Depot's revenue only improved 14.5%, its total sales are still more than twice its rival's. Moreover, Home Depot's earnings increased at a faster clip: 40% vs. 27.6%.

How does the Big Orange do it? For one thing, the cash-rich company earned $4 million in interest, while debt-financed Lowe's paidout $180 million. Cash is king, and when it comes to home improvement, Home Depot is the gold standard.

And consider the company's sales momentum. Same-store sales increased by 7.6% in the fourth quarter -- a far cry from last year' s average of 3.8%. Even Lowe's managed just a 7.3% increase in the latest quarter. Clearly, Home Depot can still compete for the gold.

Operating margins are headed in the right direction, too. Sequentially, they improved from 8.3% to 10%, besting Lowe's 9.7%. When premier retailers such as Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and Williams-Sonoma (NYSE:WSM) all have lower operating margins and command higher price-to-earnings multiples, is it not time to call Home Depot the value play in retail?

As for innovation, its do-it-for-me segment is growing at 3.5 times the company average. At the same time, new technologies such as self-checkout and wireless scanners are speeding the checkout process and reducing operating costs. Women now have national Do-It-Herself Workshops. And, via a GSA contract, the company does business with the U.S. government nationally.

Don't get the wrong idea; not all Home Depot's cash is asleep in the vault. Management repurchased $3.6 billon worth of outstanding shares over the last two years and, while the $0.28 dividend is modest, the stock still yields 3.8 times more than Lowe's. The company doubled its investment in technology and store upgrades last year, and opened 64 new stores in the fourth quarter alone.

Despite all that free spending, cash on the balance sheet increased from $2.2 billion to $2.8 billion in 2003. Also, long-term debt dropped from $1.3 billion to $856 million. Talk about a cash monster!

CEO Bob Nardelli sums it up like this: "The Home Depot is a company with a proud past and a bright future." I'd say that and more, if I had the keys to Fort Knox.

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Fool contributor W.D. Crotty owns shares of Home Depot.