Sign in

    Home Depot Inc (HD)

    The Home Depot, Inc. is the world's largest home improvement retailer, providing a wide range of building materials, home improvement products, lawn and garden products, décor items, and facilities maintenance, repair, and operations products . These products are available both in physical stores and online across the U.S., Canada, and Mexico . In addition to products, the company offers services such as home improvement installation and tool and equipment rental .

    1. Building Materials - Offers a variety of essential construction and renovation supplies, including departments like Building Materials, Electrical, Lumber, Millwork, and Plumbing.
    2. Décor - Provides a wide selection of home enhancement products, featuring Appliances, Bath, Flooring, Kitchen & Blinds, Lighting, and Paint.
    3. Hardlines - Includes a diverse range of products for home and garden needs, covering Hardware, Indoor Garden, Outdoor Garden, Power, and Storage & Organization.
    Initial Price$350.88August 3, 2024
    Final Price$392.59November 3, 2024
    Price Change$41.71
    % Change+11.89%

    What went well

    • Home Depot is gaining market share in key categories such as seasonal products, paint, and building materials, demonstrating resilience despite macroeconomic uncertainties.
    • The Pro segment is outpacing DIY customers, with strong performance from Pros engaging with the Pro ecosystem and dedicated salespersons, indicating successful initiatives to capture higher-value customers.
    • The acquisition of SRS is significantly boosting revenue, with $2.9 billion contributed in the third quarter and on track for $6.4 billion in sales over approximately seven months, and early cross-selling opportunities are showing positive results.

    What went wrong

    • Gross margins are under pressure due to the acquisition of SRS, which impacted gross margin by 80 basis points in the quarter and is expected to have a 70 basis point annualized impact, potentially affecting profitability.
    • Shrink remains a significant challenge, with the operating environment getting harder, indicating ongoing pressures on profitability despite investments to combat theft and loss.
    • Weakness in big-ticket transactions, with transactions over $1,000 down 6.8% compared to last year, reflects softer engagement in larger discretionary projects, possibly due to higher interest rates and macroeconomic uncertainty, which could impact future sales growth.

    Q&A Summary

    1. Gross Margin Outlook
      Q: What's affecting gross margins and future trajectory?
      A: Gross margin declined due to an 80 basis point impact from the SRS acquisition mix. Excluding SRS, margins were up significantly, aided by benefits from shrink reduction. The annualized impact from SRS is about 70 basis points, shifting our margin base. Long-term, we anticipate flat gross margins, reinvesting supply chain productivity while maintaining sharp value for customers.

    2. Housing Market and Interest Rates
      Q: How are interest rates affecting larger projects and outlook?
      A: Higher rates are pressuring larger, debt-financed remodeling projects and existing home sales, which are at a 40-year low turnover rate of about 3%. The uncertainty around rates and macroeconomic conditions delays homeowners starting big projects. Stability in rates, rather than significant drops, might restore housing activity and remodeling demand.

    3. Market Share Gains
      Q: Are you gaining market share in this environment?
      A: Although hard to parse out, we believe we're taking share as our sales outperformed deeper negatives seen in home furnishing expenditures. We saw strong performance in seasonal categories, paint, and building materials, indicating share gains.

    4. Pro Segment Performance
      Q: How are the Pro capabilities impacting performance?
      A: In the 17 markets with enhanced Pro capabilities, we're seeing low single-digit share gains and outperformance. Investments in inventory, supply chain, delivery, and sales force have led to strong results, with Pro customers engaging more deeply with our ecosystem.

    5. Shrink Reduction
      Q: How significant is the opportunity from shrink reduction?
      A: Our efforts are paying off, with multiple quarters of year-over-year benefits from shrink reduction. While the operating environment is getting harder, our investments and initiatives are leading to tangible results.

    6. SRS Integration
      Q: What's the progress on SRS cross-selling and volume?
      A: SRS contributed $2.9 billion in Q3 sales, on track for $6.4 billion over roughly seven months. Cross-selling efforts are showing triple-digit comp growth, with their catalog now available to our customers and our products being quoted to their customer base. Early collaboration between sales teams is progressing well.

    7. Big-Ticket Sales Pressures
      Q: What's impacting big-ticket sales and their outlook?
      A: Larger, discretionary projects are being deferred due to higher interest rates and macro uncertainties. Needs-based projects continue, but big-ticket sales are pressured until homeowners gain confidence to undertake larger remodeling.

    8. Impact of Hurricanes and Weather
      Q: How did hurricanes and weather affect performance?
      A: Hurricane-related sales added about 55 basis points in Q3, mainly in generators, cleanup, and lumber, skewed towards DIY customers. Exceptional weather drove customer engagement, but this benefit is hard to quantify, making us cautious about extrapolating Q3 results. Guidance reflects Q3 outperformance with some Q4 hurricane impact.

    9. Tariffs and Sourcing
      Q: What's your view on potential tariff impacts?
      A: Any new tariffs would have an industry-wide impact, but we source the majority of our goods in North America and have experience managing through previous tariff situations. We're focused on diversifying sourcing and confident in our ability to navigate future trade policies.

    10. Order Management Rollout
      Q: What's the timeline for order management system rollout?
      A: We plan to roll out the order management system by the end of 2025. Key elements like inventory reservation are already being implemented, offering significant benefits to how pros manage larger projects.

    NamePositionStart DateShort Bio
    Edward P. DeckerChair, President, and CEOMarch 2022Edward P. Decker has been serving as the Chair, President, and CEO since March 2022. He became the Chair in October 2022. He joined The Home Depot in 2000 and has held various strategic planning roles .
    Richard V. McPhailExecutive Vice President and CFOSeptember 2019Richard V. McPhail has been the Executive Vice President and CFO since September 2019. He joined The Home Depot in 2005 and has held various finance-related positions .
    William D. BastekExecutive Vice President – MerchandisingMarch 2023William D. Bastek has been the Executive Vice President – Merchandising since March 2023. He began his career in 1989 at HD Supply, which was acquired by Home Depot in 1997 .
    Ann-Marie CampbellSenior Executive Vice PresidentNovember 1, 2023Ann-Marie Campbell has been the Senior Executive Vice President since November 1, 2023. She started at The Home Depot in 1985 as a cashier and has held various roles of increasing responsibility .
    Matthew A. CareyExecutive Vice President – Customer ExperienceApril 2022Matthew A. Carey has been the Executive Vice President – Customer Experience since April 2022. He was previously the Executive Vice President and Chief Information Officer .
    John DeatonExecutive Vice President – Supply Chain & Product DevelopmentNovember 2021John Deaton has been the Executive Vice President – Supply Chain & Product Development since November 2021. He has held various senior roles in operations and supply chain since joining The Home Depot .
    Hector PadillaExecutive Vice President – U.S. Stores and OperationsNovember 2023Hector Padilla has been the Executive Vice President – U.S. Stores and Operations since November 2023. He began his career with The Home Depot in 1994 as a store associate .
    Teresa Wynn RoseboroughExecutive Vice President, General Counsel, and Corporate SecretaryNovember 2011Teresa Wynn Roseborough has been the Executive Vice President, General Counsel, and Corporate Secretary since November 2011. She previously held legal positions at MetLife, Inc. and the U.S. Department of Justice .
    Fahim SiddiquiExecutive Vice President and Chief Information OfficerApril 2022Fahim Siddiqui has been the Executive Vice President and Chief Information Officer since April 2022. He previously held senior IT roles at Staples Inc. .
    Timothy A. HouriganExecutive Vice President – Human ResourcesJune 2017Timothy A. Hourigan has been the Executive Vice President – Human Resources since June 2017. He has held various human resources roles within the company since joining .
    1. Given your guidance of a decline in diluted earnings per share by approximately 2% and operating margin decline for fiscal 2025, what specific factors are driving this decrease, and how do you plan to mitigate these pressures to improve profitability going forward?

    2. Considering the potential impact of tariffs on products sourced from China and Southeast Asia, what percentage of your sales is exposed to these tariffs, and how are you diversifying your supply chain to mitigate this risk?

    3. Can you provide more specifics on the progress of integrating SRS Distribution, particularly regarding cross-selling initiatives, and are there any challenges that have arisen in realizing the expected synergies?

    4. You mentioned positive momentum in mitigating shrink. What are the specific strategies you've implemented to address shrink, and how significantly has shrink affected your financial performance in recent quarters?

    5. Despite stating confidence in gaining market share, could you elaborate on which specific categories you're seeing underperformance, and what actions are you taking to address competitive pressures in those areas?

    Program DetailsProgram 1Program 2
    Approval DateAugust 2022 August 2023
    End Date/DurationReplaced by Program 2 No expiration date
    Total additional amount$15.0 billion $15.0 billion
    Remaining authorization amountN/A (replaced)Approximately $11.7 billion
    DetailsReplaced by August 2023 authorization Replaced August 2022 authorization

    Q3 2025 Earnings Call

    • Issued Period: Q3 2025
    • Guided Period: FY 2024
    • Guidance:
      • Total Sales Growth: Approximately 4%, including contributions from SRS and the 53rd week .
      • Comparable Sales: Expected to decline approximately 2.5% for the 52-week period .
      • Gross Margin: Expected to be approximately 33.5% .
      • Operating Margin: Expected to be approximately 13.5% .
      • Adjusted Operating Margin: Expected to be approximately 13.8% .
      • Effective Tax Rate: Targeted at approximately 24% .
      • Net Interest Expense: Expected to be approximately $2.1 billion .
      • Diluted Earnings Per Share: Expected to decline approximately 2% compared to fiscal 2023, with the extra week contributing approximately $0.30 per share .
      • Adjusted Diluted Earnings Per Share: Expected to decline approximately 1% compared to fiscal 2023, with the extra week contributing approximately $0.30 per share .
      • New Stores: Plan to open approximately 12 new stores .

    Q2 2025 Earnings Call

    • Issued Period: Q2 2025
    • Guided Period: FY 2024
    • Guidance:
      • Total Sales Growth: Expected between 2.5% and 3.5%, including the SRS acquisition and the 53rd week. The 53rd week is projected to add approximately $2.3 billion to total sales, and SRS is expected to contribute approximately $6.4 billion in incremental sales .
      • Comparable Sales: Expected to decline between negative 3% and negative 4% for the 52-week period .
      • New Stores: Expect to open approximately 12 new stores .
      • Gross Margin: Expected to be approximately 33.5% .
      • Operating Margin: Expected to be between 13.5% and 13.6% .
      • Adjusted Operating Margin: Expected to be between 13.8% and 13.9% .
      • Effective Tax Rate: Targeted at approximately 24% .
      • Net Interest Expense: Expected to be approximately $2.2 billion .
      • Diluted Earnings Per Share (EPS): Expected to decline between negative 2% and negative 4% compared to fiscal 2023, with the extra week contributing approximately $0.30 .
      • Adjusted Diluted EPS: Expected to decline between negative 1% and negative 3%, compared to fiscal 2023, with the extra week contributing approximately $0.30 .

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2024
    • Guidance:
      • Gross Margin: Expected to be approximately 33.9%, an increase of approximately 50 basis points compared to fiscal 2023 .
      • Operating Margin: Expected to be approximately 14.1% .
      • Effective Tax Rate: Targeted at approximately 24.5% .
      • Net Interest Expense: Expected to be approximately $1.8 billion .
      • Diluted Earnings Per Share Growth: Targeted to be approximately 1% compared to fiscal 2023 .
      • Total Sales Growth: Expected to outpace sales comp with sales growth of approximately positive 1% .
      • Comp Sales: Expected to be approximately negative 1% .
      • 53rd Week Contribution: Expected to contribute approximately $2.3 billion in sales .

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2024
    • Guidance:
      • Total Sales Growth: Approximately positive 1% compared to fiscal 2023, benefiting from a 53rd week and acquisitions and new store openings .
      • Comp Sales: Approximately negative 1% compared to fiscal 2023 .
      • Gross Margin: Expected to be approximately 33.9%, an increase of approximately 50 basis points compared to fiscal 2023 .
      • Operating Margin: Expected to be approximately 14.1% .
      • Effective Tax Rate: Targeted at approximately 24.5% .
      • Net Interest Expense: Expected to be approximately $1.8 billion .
      • Diluted Earnings Per Share Growth: Targeted to be approximately 1% compared to fiscal 2023, with the extra week contributing approximately $0.30 .
      • Capital Expenditures: Approximately 2% of sales on an annual basis .
      • Return of Excess Cash: Intent to return excess cash to shareholders in the form of share repurchases after investing in the business and paying dividends .

    Competitors mentioned in the company's latest 10K filing.

    • Other home improvement retailers
    • Local, regional and national hardware stores
    • Electrical, plumbing and building materials supply houses
    • Lumber yards
    • Specialty design stores
    • Showrooms
    • Discount stores
    • Paint stores
    • Specialty and mass digital retailers
    • Warehouse clubs
    • MRO distributors
    • Home décor retailers
    • Providers of home improvement services
    • Tool and equipment rental providers