Home Depot (HD) posted a stronger-than-expected fourth quarter, breaking an eight-quarter streak of declining same-store sales.
Comparable sales rose 0.8% year-over-year, surpassing Wall Street’s expectations of a 1.5% decline. This turnaround signals a potential stabilization in the home improvement sector, despite ongoing macroeconomic headwinds.
The home improvement giant also outperformed revenue expectations, reporting $39.7 billion in sales compared to analysts’ projections of $39.2 billion. Adjusted earnings per share (EPS) came in at $3.13, beating the $3.04 consensus estimate. Investors responded positively to these results, with Home Depot’s stock rising 3% in early trading.
Cautious Guidance Dampens Enthusiasm
Despite the strong quarter, Home Depot’s full-year outlook fell short of expectations. The company projects a 1% increase in comparable sales for the fiscal year ending January 2026, below Wall Street’s forecast of 1.65%. Additionally, Home Depot expects adjusted EPS to decline by 2%, reflecting continued pressure on large-scale renovation projects that typically require financing.
Chief Financial Officer Richard McPhail acknowledged the uncertain macroeconomic landscape, stating that the company does not anticipate meaningful changes in interest rates or housing market activity in the near term. High mortgage rates have constrained housing turnover, limiting demand for major home improvement projects.
Professional Business Outperforms DIY Segment
A key area of strength for Home Depot has been its focus on professional contractors, or “Pro” customers. The company has been expanding its offerings for these customers, who typically drive higher transaction values. Notably, Pro sales outpaced the do-it-yourself (DIY) segment, with strong demand for products like decking, concrete, and gypsum.
Home Depot’s $18.25 billion acquisition of SRS Distribution Inc. last year further bolstered its Pro segment. The deal, the largest in the company’s history, expanded Home Depot’s reach in the roofing, landscaping, and pool supply markets. SRS contributed $6.4 billion in sales over the first seven months of Home Depot’s ownership, and the company expects mid-single-digit organic growth from the acquisition in fiscal 2025.
Market Outlook: Cautious Optimism Despite Interest Rate Headwinds
While Home Depot’s conservative guidance initially tempered investor enthusiasm, analysts believe the company may be setting a low bar for expectations. Sales trends indicate resilience, with consumers increasing spending on appliances, lumber, and building materials. Big-ticket transactions—those exceeding $1,000—rose 0.9% in the fourth quarter, a positive sign for discretionary spending.
As the Federal Reserve navigates inflation concerns, interest rate movements will play a crucial role in shaping home improvement demand. While Home Depot does not anticipate significant changes in the economic environment, steady consumer spending and a stabilizing housing market suggest that the worst may be behind the company.
With a strong operational foundation, an expanding Pro business, and strategic acquisitions driving growth, Home Depot remains well-positioned for long-term success despite near-term economic uncertainties.
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