Home Depot ((HD)) has held its Q1 earnings call. Read on for the main highlights of the call.
Meet Samuel – Your Personal Investing Prophet
- Start a conversation with TipRanks’ trusted, data-backed investment intelligence
- Ask Samuel about stocks, your portfolio, or the market and get instant, personalized insights in seconds
Home Depot’s latest earnings call painted a mixed picture of steady growth amid margin strain and macro uncertainty. Management highlighted solid sales gains, strong digital traction, and momentum with professional customers, but investors must weigh these positives against declining profitability metrics, higher inventories, and a notable drop in return on invested capital.
Total Sales Growth Shows Solid Top-Line Momentum
Home Depot reported first-quarter sales of $41.8 billion, an increase of 4.8% or about $1.9 billion from a year earlier. The pace underscores resilient demand across the business, even as the broader home improvement market remains choppy and interest rates stay elevated.
Digital Strength Extends Streak of Double-Digit Growth
Online comparable sales grew more than 10% year over year, marking the fourth straight quarter of double-digit digital growth. The company is clearly benefiting from ongoing investments in e‑commerce and omnichannel capabilities, as customers increasingly blend online research and purchasing with in‑store pickup and delivery.
Comparable Sales Turn Positive but Show Volatility
Total company comparable sales increased 0.6%, with U.S. comps up 0.4%, signaling modest underlying demand. The month‑to‑month pattern was uneven, with comps of 0.7% in February and 2.0% in March, but slipping to a 0.5% decline in April as weather and macro factors weighed on activity.
Pro Customers Outperform as Big Tickets Edge Higher
Professional customers once again outpaced DIY, posting positive comps as large projects and jobsite activity held up. Nine of sixteen merchandising departments delivered positive comps, average ticket rose 2.2%, and big‑ticket transactions over $1,000 grew 0.8%, hinting that higher‑value projects remain intact despite cost pressures.
Acquisition and SRS Platform Expand Addressable Market
The closing of the Mingledorff’s acquisition adds 42 HVAC distribution locations and deepens Home Depot’s reach into a critical Pro category. Management emphasized that the SRS platform now targets an estimated $1.2 trillion addressable market, supported by roughly 16,000 delivery assets and about 5,000 professional sales associates focused on growth.
Fulfillment Upgrades Drive Better Service and Satisfaction
Enhanced “ship‑from‑best‑location” logic and operational changes reduced order cancellations and shortened fulfillment times during the quarter. These improvements helped the company achieve record delivery satisfaction and on‑time‑and‑complete metrics, while transitioning MET tasking in more than 1,000 stores to streamline in‑store execution.
Capital Allocation Remains Active as Guidance Reaffirmed
Home Depot spent $845 million in capital expenditures and returned $2.3 billion in dividends in the quarter, underscoring continued shareholder focus. Management reaffirmed fiscal 2026 guidance, calling for low‑single‑digit comp growth, modest margin expansion versus today’s levels, and adjusted EPS roughly flat to up low single digits compared with fiscal 2025.
Earnings Per Share Decline Highlights Profit Pressure
GAAP diluted EPS came in at $3.30, down from $3.45 a year earlier, reflecting higher costs and integration effects. On an adjusted basis, excluding certain intangible amortization, EPS was $3.43 versus $3.56 last year, a decline of about 3.7% that contrasts with the solid top‑line performance.
Margins Compress as Costs Weigh on Profitability
Gross margin slipped to 33.0%, down roughly 75 basis points year over year, as mix, costs, and investments pressured profitability. Operating margin declined to 11.9% from 12.9%, with adjusted operating margin at 12.3% versus 13.2%, highlighting that cost inflation and integration expenses are outpacing current sales growth.
Inventory Build and Slower Turns Raise Efficiency Questions
Merchandise inventories rose to $27.3 billion, up about $1.5 billion from last year, as the company absorbed SRS and built stock to support Pro demand. Inventory turns ticked down to 4.2 times from 4.3 times, suggesting slightly slower movement of goods and putting a sharper focus on working‑capital discipline.
ROIC Declines as Investment Outpaces Near-Term Returns
Return on invested capital over the trailing 12 months fell to 25.4% from 31.3% a year earlier. The drop indicates that while Home Depot is investing heavily in growth platforms like SRS and fulfillment, the financial payoff is not yet fully reflected in current earnings and cash flow.
SRS Roofing Softness Drags on Comparable Sales
SRS generated $4 billion in sales and delivered positive organic growth overall, but comparable sales were slightly negative as roofing posted low single‑digit declines. Management estimated that SRS softness reduced total company comps by roughly 30 basis points in the quarter, though they still expect mid‑single‑digit organic growth for SRS this year.
Variable Weather and April Weakness Pressure Results
April comparable sales were negative, with total comps down 0.5% and U.S. comps down 0.8%, influenced partly by unfavorable weather comparisons versus last year. Storm‑related headwinds were estimated to have pressured first‑quarter performance by around 56 basis points, effects that management expects to ease as the year progresses.
Rising Costs and Macro Uncertainty Cloud Margin Outlook
Interest and other expense increased to $604 million, up $13 million year over year, while operating expenses rose to 21.1% of sales, about 20 basis points higher. Leadership cautioned that fuel, commodity inputs, and tariffs could add further cost pressure, creating ongoing uncertainty around the pace of margin recovery.
Guidance: Steady Growth Targets and Measured Expansion
Home Depot reaffirmed its fiscal 2026 framework, calling for flat to 2% comp sales growth and total sales up roughly 2.5% to 4.5%, including contributions from new stores and acquisitions. The company expects gross margin near 33.1%, adjusted operating margin of 12.8% to 13.0%, EPS roughly flat to up 4% versus fiscal 2025, capex around 2.5% of sales, and plans to open about 15 new Home Depot stores and 40 to 50 new SRS locations.
Home Depot’s earnings call underscored a business leaning on digital strength, Pro momentum, and acquisitions to drive growth, while battling compressed margins and softer returns. For investors, the story is about balancing near‑term profitability pressure and macro risk against management’s confidence in its long‑term strategy, market share gains, and disciplined but steady growth targets.