Home Depot (HD) Q4 2025 earnings review
Stable Comps, But Ticket Is Doing All the Heavy Lifting
Home Depot delivered Q4 comps of +0.4% (US +0.3%), in line with lowered expectations after a zero-storm year. Full-year adjusted EPS of $14.69 (-3.6% YoY) beat the revised guidance of -5%, but missed the original -2% target. The underlying story is one of steady execution in a tough market: the company is gaining share, growing online sales 11%, and building Pro capabilities—but comp transactions fell 1.6% in Q4 and have now been negative for five straight quarters. Average ticket growth (+2.4%) driven by pricing and trade-up is papering over declining traffic. FY2026 guidance of flat-to-2% comps and flat-to-4% EPS growth is anchored by ~3% ticket inflation from tariff-related pricing, while management explicitly assumes negative transactions. Housing turnover remains at 40-year lows with no catalyst for inflection.
🐂 Bull Case
Home Depot believes it is outperforming a market that's flat to down 1%. Online sales grew 11%, Pro comps were positive and outpaced DIY, and big-ticket transactions turned positive (+1.3%). The Pro ecosystem—spanning SRS cross-selling, AI blueprint takeoffs, and trade credit—is generating incremental wins. SRS held flat comps while industry roofing shipments collapsed 28%.
Management estimates a cumulative $22 billion shortfall in home improvement spending relative to historical norms. With 55% of U.S. homes over 40 years old and home equity at record levels, any improvement in housing affordability or consumer confidence could unlock substantial demand, particularly in deferred large discretionary projects.
Over 50% of products are sourced domestically. The tariff-related SKU price impact is approximately 3%, and management says they are mostly done with related pricing actions. The diversified supply chain—no single non-US country over 10% of purchases—provides significant insulation.
🐻 Bear Case
Comp transactions have deteriorated from +0.6% in Q4 FY2024 to -1.6% in Q4 FY2025. FY2026 guidance explicitly assumes negative transactions continuing, offset by ~3% ticket inflation. If pricing elasticity increases, the comp math could break down quickly.
Housing turnover remains at 40-year lows. Mortgage rates (~6%) and elevated home prices continue to suppress activity. Management is not assuming any improvement in 2026 and acknowledged that consumer uncertainty is the #1 reason customers cite for deferring projects.
Adjusted operating margin has declined from 13.8% in FY2024 to 13.1% in FY2025, and is guided to 12.8-13.0% in FY2026. The GMS annualization adds ~24bps of gross margin pressure in FY2026, with the heaviest impact in Q1. ROIC dropped from 31.3% to 25.7%.
⚖️ Verdict: ⚪
Neutral. Home Depot is executing well in a difficult environment—gaining share, building Pro capabilities, and managing tariffs. But the results are fundamentally status quo: flat-ish comps, declining margins from acquisitions, negative traffic, and no visible growth catalyst. The company is doing the right things for when the cycle turns, but there's no evidence the turn is imminent.
Key Themes
Housing Turnover at 40-Year Lows With No Catalyst
This remains the dominant overhang on the business. Housing turnover is at roughly 2.9% of housing stock—a 40-year low—and management explicitly stated they have 'not yet seen a catalyst for an inflection in housing activity.' Mortgage rates near 6%, elevated home prices (up ~50% since 2019), and consumer uncertainty are all suppressing turnover and the larger projects associated with buying and selling a home. Management noted that while some markets are seeing home price declines, the adjustments haven't been large enough to show a statistical impact on sales. The FY2026 guidance assumes these pressures persist throughout the year.
Acquisition-Driven Margin Dilution Deepens
The structural margin compression from SRS and GMS is now the defining financial story. Adjusted operating margin has declined 70bps over two years: from 13.8% in FY2024 to 13.1% in FY2025, with guidance for 12.8-13.0% in FY2026. The GMS acquisition (owned ~5 months in FY2025) adds ~24bps of gross margin headwind in FY2026 as it annualizes. CFO McPhail provided unusually specific quarterly color: H1 gross margin will be down ~50bps YoY, with Q1 seeing the largest impact. ROIC fell from 31.3% to 25.7%, reflecting the enlarged capital base.
Pro Ecosystem Gaining Momentum via Cross-Selling and AI Tools
The Pro strategy continues to deliver tangible results. In Q4, Pro posted positive comps and outperformed DIY, with strength in gypsum, wire, concrete, and plumbing. Management highlighted several new capabilities gaining traction: an AI-powered blueprint takeoff tool that auto-generates project material lists, a project planning tool seeing 'tens of thousands of projects started each week,' expanded trade credit now rolling out to store level, and real-time delivery tracking for big and bulky items. The cross-selling vision with SRS and GMS is materializing—management cited converting multifamily customers from one entity into customers across all of Home Depot, HD Supply, SRS, and GMS. SRS achieved Two-Sigma on-time-and-complete delivery this year, a critical credential for Pro trust.
SRS Under Pricing Pressure in Historically Weak Roofing Market
Q4 was a remarkably bad quarter for the roofing industry. According to AAMA data, total industry shingle shipments fell 28% YoY—the lowest quarterly volume since 2019. For the full year, 2025 industry shipments were the lowest since 2019, pulled down by Q4 and the absence of any meaningful storm activity. SRS responded by investing in price to maintain share, which management fully supported. SRS posted low-single-digit negative comps for Q4 but significantly outperformed the industry. However, this pricing aggression will bleed into Q1 FY2026 margins. SRS is still expected to grow organic sales mid-single digits in FY2026, but a recovery in roofing demand is a key assumption.
Digital and Interconnected Growth at 11%
Online sales leveraging digital platforms grew approximately 11% in Q4, consistent with the prior two quarters. B2B online sales outpaced overall digital growth, driven by Pro-specific features like the project planning tool and AI blueprint takeoffs. A major Q4 milestone was the rollout of real-time delivery tracking for big and bulky items across all categories—previously only available for small packages. Over 50% of online orders are fulfilled through stores, and management continues to invest in removing friction: faster delivery, better communication to multiple job site contacts, and driver handhelds for live tracking. The interconnected strategy is working—customers engaging with delivery capabilities 'meaningfully increase their overall spend.'
Comp Transactions Negative for Five Straight Quarters
Comp transactions declined 1.6% in Q4, continuing a trend that started in Q1 FY2025. For the full year, comp transactions were -1.0%. This is being offset by average ticket growth (+2.4% in Q4, +1.4% for the year), driven by a mix of modest price increases, customer trade-up to innovative products, and a greater share of higher-ticket items. Big-ticket transactions (over $1,000) were positive 1.3% in Q4, but management was clear that large discretionary projects remain under pressure. FY2026 guidance explicitly assumes ticket growth of ~3% (from tariff-related pricing) offset by negative transactions.
Tariff Impact Manageable at ~3% SKU Price Impact
Management provided the most specific tariff color yet. Over 50% of products are sourced domestically and are not subject to tariffs. The tariff-exposed portion represents a mid-single-digit percentage of total cost, translating to approximately 3% in SKU-level price impact. Importantly, management said they are 'mostly done with tariff-related pricing actions' as of the earnings date, covering the impacts known since April. New tariff announcements over the recent weekend are still being analyzed. The merchant and finance teams have spent nearly a year working through SKU-level cost models, supplier negotiations, and supply chain diversification. Within 12 months, no single non-U.S. country will represent more than 10% of purchases.
SRS Cross-Selling and Greenfield Expansion
Despite the weak roofing environment, SRS expanded market share in FY2025 and completed several tuck-in acquisitions plus the GMS deal. Management highlighted specific cross-selling wins: converting multifamily construction and property management companies from customers of one entity into full-portfolio customers across Home Depot, HD Supply, SRS, and GMS. Pilot markets for pro referral projects on roofing leads are producing results. For FY2026, management plans to open 40-50 new SRS locations and expects mid-single-digit organic sales growth, driven by share gains and gradual normalization in building activity.
Operational Improvements Driving Higher Associate Productivity
A quieter but significant theme is the operational restructuring in stores. Management is transitioning tasking work to dedicated teams, freeing orange-apron associates to spend more time with customers. A new Operations Experience Manager role manages customer service broadly, including interconnected fulfillment. For Pros, a unified Pro team with a dedicated Customer Experience Manager serves as a single point of contact. Results are encouraging: customer satisfaction scores increased every quarter in FY2025, hourly associate tenure is the highest since 2017, and management reported a 'meaningful increase in labor productivity.' These are structural improvements that should compound over time.
Free Cash Flow Declined 22% on Working Capital Swing
Operating cash flow fell to $16.3 billion from $19.8 billion in FY2024, a 17.6% decline. Free cash flow (after $3.7 billion in capex) was approximately $12.6 billion, down from $16.3 billion—a 22.5% drop. The primary driver was a $3.1 billion working capital drag (vs. a $0.7 billion tailwind last year), reflecting higher inventory costs, the GMS acquisition impact on receivables, and tariff-driven inventory cost increases. Cash on hand fell to $1.4 billion from $1.7 billion, while total debt stands at $55.8 billion. No share repurchases were made in FY2025; management expects to resume buybacks in H1 2027. The 1.3% dividend increase to $9.32 per share annualized is the most modest in years.
Other KPIs
Monthly total company comps: November -0.2%, December +0.1%, January +1.3%. January benefited from storm-related demand (Winter Storm Fern). US monthly comps followed a similar pattern: -0.3%, -0.2%, +1.4%. Adjusting for storms, underlying demand was stable throughout the year at roughly under 1% comp.
In line with expectations. The decline was primarily driven by mix impact from the GMS acquisition. Full-year gross margin was 33.3%, down 10bps from FY2024's 33.4%. Within the year, gross margin tracked from 33.8% in Q1 to 33.4% in Q2/Q3 to 32.6% in Q4, reflecting both seasonality and the increasing weight of lower-margin wholesale revenue.
Inventory rose $2.4 billion (+10%) YoY, driven by higher inventory costs (including tariffs), the addition of GMS inventory to the balance sheet, and investments in delivery speed. Turns declined from 4.7x to 4.4x. Management stated they feel 'fantastic about how we're positioned for 2026' with in-stock levels in good shape.
Total shareholder returns were limited to dividends in FY2025 as the company digested the SRS ($17.6B in FY2024) and GMS ($5.4B in FY2025) acquisitions. The quarterly dividend was increased 1.3% to $2.33 ($9.32 annualized)—the most modest increase in recent history. Management expects to resume share repurchases in H1 2027 once returning to an excess cash position.
Opened 12 new stores in FY2025. For FY2026, plans include approximately 15 new stores and 40-50 new SRS locations. The multi-year plan to open 80 stores over five years continues, with new store performance exceeding expectations.
Guidance
Stable. Midpoint of +1.0% would be roughly in line with FY2025's +0.3%, representing slight acceleration. Management estimates the overall market at -1% to +1%, so even the low end implies continued share gains. Ticket expected to contribute ~3% (tariff-related pricing), offset by negative transactions. H2 comps expected stronger than H1 due to easier storm-related comparisons. Key swing factors: consumer sentiment improvement (upside) or increased price elasticity and broader home price declines (downside).
Accelerating from FY2025's +3.2%. Implies total sales of $168.8-172.1 billion (midpoint ~$170.5B). The premium over comp sales reflects contributions from: GMS annualization (acquired mid-FY2025), 15 new stores, 40-50 new SRS locations, and tuck-in acquisitions. SRS expected to deliver mid-single-digit organic sales growth.
Reversing. After declining 3.6% in FY2025, EPS is guided to stabilize or modestly grow. Midpoint implies ~$14.99. However, Q1 will be the weakest quarter: management guided for mid-single-digit percentage negative EPS YoY in Q1, driven entirely by GMS annualization and expense timing, with improvement through the year. The FY2026 guidance excludes ~$0.50 after-tax impact from acquired intangible asset amortization.
Decelerating. Down ~20bps from FY2025's 33.3%, reflecting the annualized mix impact of GMS (~24bps headwind from seven non-comp months of ownership). H1 gross margin expected down ~50bps YoY (with Q1 seeing the largest impact), improving to roughly flat YoY in H2 as comparisons normalize.
Decelerating. Midpoint of 12.9% represents a ~20bps decline from FY2025's 13.1%. This continues the two-year compression from 13.8% in FY2024, cumulatively ~90bps of margin erosion driven primarily by the wholesale acquisition mix shift. Excludes ~40bps impact from acquired intangible asset amortization. Operating expenses as a percentage of sales expected to be at their highest level of the year in Q1.
Roughly in line with FY2025's $3.7B, stepping up due to higher sales base and continued investment in stores, supply chain, and technology. Tax rate of ~24.3% (vs 23.9% in FY2025). Net interest expense of ~$2.3 billion, flat with FY2025. No share repurchase guidance provided; management expects to resume in H1 2027.
Key Questions
Transaction Recovery Path
Comp transactions have been negative for five consecutive quarters and guidance assumes continued declines. What specific indicators would signal a transaction inflection, and at what mortgage rate or turnover level do you expect to see a meaningful recovery in customer traffic?
GMS Integration and Revenue Synergies
GMS has been owned for five months. Can you quantify the cross-selling pipeline between Home Depot, SRS, GMS, and HD Supply? What percentage of the combined customer base currently purchases from more than one entity, and what's the target?
Price Elasticity Risk
With ~3% average ticket inflation embedded in FY2026 guidance, primarily from tariff-related pricing, what elasticity response have you observed so far in affected categories? Are you seeing any trade-down in categories where prices have already adjusted?
ROIC Recovery Timeline
ROIC declined from 31.3% to 25.7% this year, primarily from the enlarged capital base. What is the medium-term ROIC target post-acquisition, and how does this compare to the cost of capital used in the original SRS and GMS deal models?