Q4 2025 Earnings Summary
- Home Depot reported positive comparable sales growth for the first time in two years, with Q4 comps increasing by 0.8%, reflecting strengthening momentum across many categories and geographies.
- Investments in new stores and strategic initiatives are generating exceptional returns, with the new store program tracking ahead of expectations and contributing positively to future growth.
- Operational efficiencies, including supply chain productivity improvements and shrink reduction, are helping to offset margin pressures, supporting profitability through effective cost management.
- The company continues to face pressure on larger remodeling projects, particularly those that are typically financed, indicating ongoing weakness in this segment.
- Increased capital expenditures, now projected at approximately 2.5% of sales, due to new store investments may lead to lower free cash flow and could impact returns in the near term.
- Weather-related disruptions negatively impacted sales in January, suggesting vulnerability to external factors that can affect monthly performance.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | 14% increase (from $34.786B to $39.704B) | Total Revenue rose due to strong U.S. performance, where revenue climbed to $42.891B, offsetting a major adverse swing in international revenue (which dropped to –$3.187B). This indicates robust domestic market dynamics compared to challenges abroad. |
Hardlines Revenue | 16% increase (from $9.981B to $11.599B) | Hardlines revenue surged driven by positive comps in departments like power and outdoor garden, with favorable seasonal weather and successful promotional events boosting demand over last year's figures. |
Décor Revenue | Approximately 10% increase (from $11.98B to $13.173B) | Décor revenue growth reflects a rebound in discretionary home improvement spending, as consumers increasingly invested in interior projects, recovering from previous periods marked by softer big-ticket sales. |
Building Materials Revenue | Slight decline (from $12.825B to $12.728B) | Building Materials remained nearly flat, with a slight decline likely due to continued challenges such as commodity deflation and a shift towards smaller customer projects, even though favorable weather conditions partially offset these issues in the current period. |
Net Earnings | 7% increase (from $2.801B to $2.997B) | Net Earnings improved as revenue growth and operational efficiencies outweighed margin pressures; despite ongoing cost challenges like higher interest and operating expenses, profitability benefited from overall business momentum. |
Operating Cash Flow | Stable (approximately $4.671B vs. $4.733B) | Operating cash flow remained stable, suggesting effective working capital management and consistent operational execution despite shifts in revenue mix and previous period fluctuations. |
Capital Expenditures | 28% increase (from $858M to $1.101B) | A significant surge in capital expenditures signals robust investment in store operations, supply chain upgrades, and digital platforms, building on previous investment levels as part of the company’s strategic initiatives. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
New Stores | FY 2024 | Approximately 12 new stores | no current guidance | no current guidance |
Gross Margin | FY 2024 | 33.5% | no current guidance | no current guidance |
Operating Margin | FY 2024 | 13.5% | no current guidance | no current guidance |
Adjusted Operating Margin | FY 2024 | 13.8% | no current guidance | no current guidance |
Effective Tax Rate | FY 2024 | 24% | no current guidance | no current guidance |
Net Interest Expense | FY 2024 | $2.1 billion | no current guidance | no current guidance |
Diluted EPS | FY 2024 | Decline 2% with extra week adding $0.30/share | no current guidance | no current guidance |
Adjusted Diluted EPS | FY 2024 | Decline 1% with extra week adding $0.30/share | no current guidance | no current guidance |
Total Sales Growth | FY 2024 | Approximately 4% growth (including SRS acquisition and 53rd week) | no current guidance | no current guidance |
Comparable Sales | FY 2024 | Decline 2.5% for 52‑week period | no current guidance | no current guidance |
53rd Week Contribution | FY 2024 | Approximately $2.3 billion | no current guidance | no current guidance |
SRS Contribution | FY 2024 | Approximately $6.4 billion in incremental sales | no current guidance | no current guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Gross Margin | Q4 2025 | ~33.5% | 32.8% ((39,704 - 26,670) / 39,704) | Missed |
Operating Margin | Q4 2025 | ~13.5% | 11.3% (4,495 / 39,704) | Missed |
Diluted EPS | Q4 2025 (YoY) | Expected to decline ~2% for FY 2025 | +6.7% YoY ((3.02 - 2.83) / 2.83) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Comparable Sales Growth Consistency | Q1–Q3 discussions detailed declining comps (–2.8% in Q1, –3.3% in Q2, and mixed results in Q3 partly boosted by hurricane‐related sales) | Q4 saw comparable sales grow by 0.8% overall with U.S. comps up by 1.3%, supported by holiday shifts and tempered weather concerns | Improved sentiment: Shift from negative or variable comps to modest growth, reflecting a recovery in comparable sales. |
Pro Segment Growth and Customer Ecosystem Investments | Q1–Q3 earnings calls consistently highlighted positive Pro performance and strong investments—enhancements in digital tools, dedicated sales teams, and cross‐sell opportunities contributed to Pro outperformance relative to DIY | Q4 continued to emphasize incremental Pro sales growth (over $1 billion in annualized incremental sales), robust cross‐selling via SRS integration, and further expansion of digital and fulfillment capabilities | Consistently bullish: The narrative remains strongly positive with further integration and enhanced capabilities driving stronger Pro performance. |
Operational Efficiencies and Supply Chain Management | Earlier periods detailed improvements in inventory management, order management enhancements, and OSA improvements with investments in technology (e.g., Sidekick, computer vision) and supply chain upgrades | Q4 emphasized supply chain productivity improvements, systematic shrink reduction, enhanced FDC network, and achieving the fastest delivery speeds in company history | Steady and positive: Continued focus on operations with added emphasis on speed and system efficiency, reinforcing improvements seen in previous quarters. |
SRS Acquisition Impact | In Q1–Q3, SRS was noted as a revenue booster with strong sales (e.g., $2.9 billion in Q3 and high single-digit organic growth in Q2) but also introduced margin pressure (ranging from 35–80 basis points) | Q4 reiterated the strong revenue contribution of SRS with positive comp growth and described a 40 basis point mix impact on margins, along with improved cross‐selling initiatives | Mixed but slightly moderated: Revenue boost remains robust while margin pressure appears slightly reduced relative to Q3, reflecting improved integration and cross‐selling success. |
New Store Investments and Capital Expenditure Concerns | Q1 through Q3 mentioned ongoing expansion with modest new store openings (2–5 stores per quarter) and capital expenditure investments ranging from $720 million to $850 million, with a disciplined 2% of sales approach | Q4 announced an accelerated 5‐year program to build 80 stores (with 25 already complete) and noted that capital expenditures have risen to 2.5% of sales, reaffirming strong growth and strategic expansion plans | Growth oriented: A higher level of commitment and investment is highlighted in Q4 with aggressive store expansion, reflecting the company’s strategic focus on long‑term growth. |
Shrink Reduction and Loss Prevention | Q1 highlighted investments in computer vision and operational initiatives to curb inventory shrink; Q3 reinforced positive momentum with continued year‐over‐year improvements, although Q2 had no specific mention | Q4 reinforced the trend with further year‑over‑year shrink improvements driven by ongoing store operations and dedicated initiatives | Steady improvement: The focus remains consistent with continued improvements, showing persistent efforts to mitigate shrink despite external pressures. |
Weakness in Large Remodeling Projects and Decline in Big-Ticket Transactions | Q1–Q3 consistently reported weakness in large remodeling projects (due to high interest rates and financing challenges) and noticeable declines in big-ticket transactions (declines of 5.8%–6.8% in Q1–Q3) | Q4 noted ongoing pressure on large remodeling projects from higher interest rates; however, big-ticket transactions showed a modest improvement (up 0.9%) despite continued deferral of larger financed projects | Mixed with slight recovery: While large remodeling projects remain weak, there is a modest positive turn in big-ticket transactions, hinting at selective strength amid broader financing challenges. |
Macroeconomic Uncertainty and External Disruptions | Throughout Q1–Q3, discussions repeatedly cited persistent macro uncertainty with low housing turnover, high interest rates, and weather disruptions affecting sales, though occasional hurricane-related sales gave temporary boosts in Q3 | Q4 continued to stress the challenges from limited housing turnover and high interest rates; however, weather impacts were viewed as temporary and not significantly altering the underlying uncertainty | Persistent headwinds: The external macro environment remains challenging with consistent concerns over housing, interest rates, and weather, despite some transient positive weather effects. |
Market Share Gains in Key Categories | Q1–Q3 earnings calls described market share gains in key areas such as paint, vinyl plank, water heaters, building materials, and seasonal categories, with strong performance from Pro channels and digital enhancements | Q4 emphasized market share gains driven by investments in both Pro and consumer segments, with strong performance in Pro-heavy categories and notable contributions from SRS to overall share expansion | Consistently positive: The narrative shows steady gains in market share, bolstered further by digital and omnichannel enhancements and cross-selling initiatives. |
Diversified Business Model (HD Supply, SRS) | Q1–Q3 consistently discussed a diversified model with a strong focus on the SRS acquisition (noted for expanding TAM and complementing the pro ecosystem) and contributions from HD Supply (especially highlighted in Q2) | Q4 discussions focused primarily on the SRS acquisition’s robust performance and its integration, while HD Supply was not mentioned specifically, implying a steady integration phase without new developments | Stable focus with minor shift: The diversified model remains important with SRS taking center stage. The lack of mention of HD Supply in Q4 suggests it is performing as expected with no major changes, while SRS continues to drive growth. |
-
Operating Margin Guidance
Q: Should we exclude intangibles in operating margin guidance?
A: Yes, excluding noncash amortization of intangibles provides a better view of underlying operating margin. This adjustment includes all noncash amortization, not just from SRS. Deleverage remains consistent when comparing adjusted or GAAP margins. -
SRS Impact on Margins
Q: How does SRS affect 2025 bottom line?
A: SRS contributed significantly, adding $2.5 billion to top line in 7 months. They met expectations and are cash accretive within the first year. SRS causes a 40 basis point mix impact on margins, but their strong performance offsets this. The year-over-year 40 basis point decrease in adjusted operating margin is due to natural deleverage (20 bps), SRS mix (15 bps), and the 53rd week comparison (5 bps). -
Sales Growth and Expense Leverage
Q: Will higher comps lead to expense leverage?
A: As the market normalizes, with expected 3–4% top-line growth, we anticipate operating expense leverage and mid- to high single-digit EPS growth. This view hasn't changed since 2023. -
Market Share Gains
Q: Why won't market share gains accelerate in 2025?
A: In a flat market, our 1% comp growth reflects continued gains from investments in interconnected capabilities and the Pro ecosystem. SRS will grow faster than the core, taking share in their verticals. New stores contribute meaningfully; our market share hasn't peaked in DIY or Pro. -
Pro Initiatives and ROIC
Q: How will complex Pro initiatives impact ROIC?
A: We don't expect a meaningful ROIC impact from capital investments. The initiatives are asset-light: leasing DCs and trucks, and commissioned sales teams. Trade credit exposure remains small and won't significantly affect the balance sheet. -
CapEx Guidance
Q: Is 2.5% of sales the new CapEx run rate?
A: We increased CapEx to 2.5% of sales to support high-return investments and our new store program. We've built 25 of 80 planned stores, exceeding expectations, and will complete the program by 2027. -
Gross Margin Outlook
Q: How will you offset SRS dilution on gross margin?
A: While SRS mix pressures margins, supply chain productivity and reduced shrinkage offset this impact. Our teams' efforts enable us to maintain flat gross margin guidance. -
Pricing Environment
Q: Is pricing returning to normal? Impact of tariffs?
A: Pricing has settled; promotional activity is back to pre-COVID levels. We're monitoring tariffs but have diversified sourcing and are well-positioned to navigate changes. -
Weather Impact on Comps
Q: Did weather affect January sales?
A: Yes, severe weather in January negatively impacted comps. Holiday shifts also influenced monthly progression, benefiting December and hurting November and January. -
Government Policies Impact
Q: Are government measures affecting your business?
A: No significant impact observed. Tax policy is crucial; we'd prefer the corporate rate stays at 21%. We've managed tariffs before and have diversified sourcing. Immigration impacts skilled trades availability; changes haven't affected us yet.
Research analysts covering HOME DEPOT.