Home Depot Balances Growth Ambitions With Margin Strain

Home Depot ((HD)) has held its Q4 earnings call. Read on for the main highlights of the call.

Home Depot’s latest earnings call painted a picture of steady operational progress contrasted with softer profitability. Management highlighted 3.2% revenue growth to $164.7 billion, resilient comps, and strong digital and Pro momentum, but also acknowledged margin compression, higher expenses, and weaker earnings per share against a tough housing and roofing backdrop.

Resilient Revenue Growth in a Tough Backdrop

Home Depot delivered fiscal 2025 sales of $164.7 billion, up 3.2% versus the prior year despite ongoing industry headwinds. The company framed this as proof that its scale, brand, and execution can still produce top-line growth even as the broader home improvement market remains sluggish.

Stable Comparable Sales Signal Underlying Demand

Total company comparable sales rose 0.3% for the year and 0.4% in Q4, with U.S. comps up 0.5% for the year and 0.3% in the quarter. While modest, these positive comps suggest underlying demand is holding up and that Home Depot is at least maintaining share in a choppy macro environment.

Digital and Interconnected Sales Drive Growth

Online comparable sales grew about 11% year over year in Q4, underscoring strong digital traction. Management emphasized that over half of online orders are fulfilled through stores and cited new features like real-time tracking for big-and-bulky items as boosting delivery reliability and customer satisfaction.

Pro and SRS Businesses Outperform DIY

Professional customers posted positive comps in Q4 and outpaced the DIY segment, reinforcing Home Depot’s Pro-focused strategy. The SRS roofing and supply business delivered low single-digit organic growth in FY25, gained market share, and is expected to post mid-single-digit organic growth in fiscal 2026.

Record Promotional Events Highlight Customer Engagement

Gift Center and Black Friday events set record sales levels in Q4, reflecting strong promotional execution. Management pointed to these results as evidence that consumers still respond to targeted deals and that the company can generate traffic and basket growth through high-impact events.

Shareholder Returns and Capital Investment Stay Robust

Home Depot returned about $9.2 billion in dividends to shareholders in fiscal 2025 and raised its quarterly dividend by 1.3% to $2.33 per share. The company also deployed roughly $3.7 billion in capital expenditures, reinforcing its commitment to reinvesting in the business while maintaining attractive shareholder payouts.

Store and Network Expansion Supports Long-Term Growth

The retailer opened 12 new stores in fiscal 2025, finishing the year with 2,359 locations. Looking ahead, the company plans around 15 new Home Depot stores and 40 to 50 new SRS sites in fiscal 2026, a build-out aimed at deepening market presence and expanding Pro penetration.

High but Easing Returns on Capital

Return on invested capital over the past 12 months was approximately 25.7%, still a strong level for a mature retailer. However, this marked a decline from 31.3% in the prior year, signaling that profitability and capital efficiency have come under pressure as investments and acquisition effects ramp up.

Earnings Per Share Move Backward

Adjusted diluted EPS for fiscal 2025 was $14.69, down 3.6% from the prior year, while Q4 adjusted EPS fell 13.1% to $2.72. On a GAAP basis, diluted EPS declined 4.6% to $14.23, highlighting that earnings are not yet keeping pace with revenue growth and investment spending.

Margin Compression Weighs on Profitability

Gross margin for the year slipped to about 33.3%, down roughly 10 basis points, and Q4 gross margin dipped to 32.6%, down about 20 basis points. Adjusted operating margin fell more sharply to 13.1% for the year and 10.5% in Q4, declines driven by product mix, the GMS acquisition, and sales deleverage.

Operating Expenses Rise as Sales Deleverage

Operating expenses climbed as a percentage of sales, up about 105 basis points in Q4 to 22.6% and 70 basis points for the full year to 20.6%. Management attributed this primarily to a softer top line, timing factors, and the larger expense base associated with the GMS acquisition.

Inventory Build and Slower Turns

Merchandise inventories ended the year at $25.8 billion, up roughly $2.4 billion, reflecting both higher costs and the inclusion of GMS. Inventory turns slipped from 4.7 times to 4.4 times, indicating slower turnover and higher stocking levels that could pressure working capital if not managed carefully.

Housing and Roofing Markets Create Headwinds

The company flagged persistent macro challenges, including strained housing affordability, very low housing turnover, and consumer uncertainty. Roofing was a particular drag, with industry shipments down about 28% in Q4 to the lowest level since 2019, weighing on certain categories and margins.

GMS Acquisition Adds Scale but Pressures Mix

The GMS deal contributed to mix-driven gross margin pressure, with a pro forma impact of roughly 40 basis points on the year and about 20 basis points in Q4. Partial-year ownership also increased the expense base and is expected to create margin headwinds in the first half of fiscal 2026 as the acquisition annualizes.

Near-Term EPS and Margin Pressure Ahead

Management cautioned that fiscal 2026 will start with earnings and margin pressure as the GMS acquisition fully annualizes. They expect first-quarter EPS to decline by a mid-single-digit percentage versus last year, but still forecast adjusted EPS to end the year between flat and up 4%.

Guidance Signals Modest Growth and Gradual Margin Repair

Home Depot reaffirmed fiscal 2026 guidance calling for total sales growth of 2.5% to 4.5% and comparable sales between flat and up 2%. The company sees full-year gross margin around 33.1%, adjusted operating margin of 12.8% to 13%, and expects first-half gross margin down about 50 basis points before stabilizing in the back half as SRS organic sales grow mid-single digits and new stores come online.

Home Depot’s earnings call showcased a company still growing the top line, investing heavily in digital, Pro, and network capabilities, and returning significant cash to shareholders, even as margins and EPS remain under pressure. Investors are being asked to look through near-term profitability headwinds and housing softness to a gradual recovery in earnings power anchored by Pro growth and strategic acquisitions.