Home improvement retail giant Home Depot (NYSE: HD) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 9.4% year on year to $39.86 billion. Its non-GAAP EPS of $3.56 per share was 0.8% below analysts’ consensus estimates.
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Home Depot (HD) Q1 CY2025 Highlights:
- Revenue: $39.86 billion vs analyst estimates of $39.24 billion (9.4% year-on-year growth, 1.6% beat)
- Adjusted EPS: $3.56 vs analyst expectations of $3.59 (0.8% miss)
- Reaffirmed fiscal 2025 guidance (2.8% sales growth, 2% decline in adjusted EPS)
- Operating Margin: 12.9%, down from 13.9% in the same quarter last year
- Free Cash Flow Margin: 8.8%, down from 12.8% in the same quarter last year
- Locations: 2,350 at quarter end, up from 2,337 in the same quarter last year
- Same-Store Sales were essentially flat, decreasing 0.3% year on year (-2.8% in the same quarter last year)
- Market Capitalization: $366.2 billion
StockStory’s Take
Home Depot’s first quarter performance was shaped by a mix of steady consumer demand for smaller-scale home improvement projects and ongoing pressure on larger, finance-driven renovations. CEO Ted Decker noted that customer engagement for smaller projects and spring-related purchases remained strong, although high interest rates continued to dampen spending on major remodels. Management emphasized positive comparable sales in several key merchandise departments, such as appliances, plumbing, and building materials, while also highlighting growth in Pro customer sales and digital engagement. Ann-Marie Campbell, Senior Executive Vice President, pointed to investments in associate training and technology—such as new generative AI tools—as supporting improved customer service and operational efficiency.
Looking ahead, Home Depot’s management is focused on navigating external uncertainties, including tariffs and high interest rates, while reaffirming their outlook for the remainder of the year. CFO Richard McPhail stated that operating margins are expected to decline slightly, driven by natural deleverage, the ongoing integration of SRS (a recent acquisition), and the transition to a standard 52-week year. Management believes that diversification in global sourcing will limit the impact of tariffs on costs, and ongoing investments in digital tools and the Pro ecosystem are expected to help capture additional market share. Ted Decker commented, “We remain bullish on the fundamentals of home improvement,” but acknowledged that a broad recovery in larger project spending will likely hinge on improved macroeconomic confidence and lower financing costs.
Key Insights from Management’s Remarks
Management attributed the first quarter’s results to ongoing consumer restraint on large projects and effective execution in core retail operations, with digital investments and Pro segment initiatives supporting growth despite margin pressures.
- Smaller projects drive activity: Customers focused spending on minor repairs and spring gardening rather than large remodels, as high interest rates discouraged major, finance-dependent projects. Six out of sixteen merchandising departments posted positive comparable sales, especially in appliances, indoor and outdoor garden, and building materials.
- Pro segment outperforms DIY: Sales to professional contractors (Pros) grew faster than those to do-it-yourself (DIY) customers, fueled by strength in categories like gypsum, decking, and siding. Management pointed to ongoing enhancements in trade credit and service capabilities for Pros, supported by the integration of SRS.
- Digital platform engagement rises: Online sales grew approximately 8% year-over-year, aided by targeted marketing for faster delivery and the launch of Magic Apron, a generative AI tool designed to support customer inquiries and improve online conversion rates.
- Sourcing diversification and tariff management: Home Depot accelerated supply chain diversification, aiming for no single country outside the U.S. to account for more than 10% of purchases within a year. This flexibility is intended to mitigate tariff impacts without requiring broad-based price increases for customers.
- Store operations and associate engagement: Investments in associate training, including certifications and new AI-powered tools, were credited with improving customer service and retention, supporting store execution during the critical spring season.
Drivers of Future Performance
Home Depot’s outlook centers on capturing market share through digital initiatives and Pro customer expansion, while managing margin pressures from tariffs and acquisition integration.
- Pro ecosystem investments: Management is prioritizing the expansion of trade credit programs and service capabilities for Pro customers, leveraging SRS expertise to onboard more accounts and drive higher engagement among large project contractors.
- Tariff mitigation and cost controls: The company expects its diversified sourcing strategy and productivity improvements to limit the need for widespread price increases, although tariffs and supply chain changes will continue to pose margin headwinds.
- Consumer demand uncertainty: Management acknowledged that a rebound in large-scale home improvement spending depends on greater macroeconomic confidence and lower interest rates, with the potential for significant deferred demand if conditions improve. Until then, the focus remains on driving traffic and sales through smaller projects and targeted marketing.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be watching (1) whether Home Depot’s Pro ecosystem investments lead to accelerated growth in large project spending, (2) the company’s ability to maintain stable margins as tariffs and SRS integration continue to impact results, and (3) sustained momentum in digital sales and customer engagement. Progress on supply chain diversification and the effectiveness of new digital tools will also be key indicators of execution.
Home Depot currently trades at a forward P/E ratio of 24×. In the wake of earnings, is it a buy or sell? The answer lies in our full research report (it’s free).
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