Home Depot Posts Q4 Earnings Beat but Soft Guidance Weighs on Shares

Home Depot (HD) reported fourth-quarter results that surpassed analyst expectations, with adjusted earnings per share (EPS) of $3.13 topping the consensus estimate of $3.04. Revenue for the quarter came in at $39.7 billion, ahead of the expected $39.2 billion. Same-store sales increased 0.8%, marking a return to positive growth after eight consecutive quarters of declines. U.S. comparable store sales grew 1.3%, exceeding estimates of a 1.02% decline. Despite these strong results, shares of Home Depot slipped in premarket trading as the company’s guidance for fiscal 2025 fell short of expectations.

Key Metrics: Signs of Recovery Amid a Tough Housing Market

Several key performance indicators pointed to improving business trends for Home Depot:

- Same-store sales increased 0.8% vs. expectations of a 1.5% decline, with U.S. comps rising 1.3%.

- Customer transactions jumped 7.6% year-over-year, well ahead of the 4.47% estimate, signaling increased foot traffic.

- Average ticket sales rose 0.3% to $89.11, slightly above the $88.84 estimate.

- Sales per square foot improved by 1.2%.

- Gross margin came in slightly below expectations, missing by approximately 20 basis points.

- SG&A expenses increased 16% year-over-year to $7.73 billion, higher than the expected $7.56 billion, reflecting ongoing investments.

While customer transactions saw a notable rebound, the relatively small increase in average ticket size suggests that consumers remain cautious about larger purchases, likely due to high mortgage rates and inflationary pressures.

Guidance: A More Cautious Outlook for 2025

Home Depot provided a more tempered forecast for fiscal 2025, with several key figures coming in below analyst estimates:

- Comparable sales growth is expected at 1 percent, lower than the consensus estimate of 1.65 percent.

- Total sales growth is projected at 2.8 percent, while analysts had anticipated closer to 3.27 percent.

- Operating margin is expected to decline by 40 basis points to 13 percent, compared to consensus expectations of 13.7 percent.

- Adjusted EPS is forecast to decline about 2 percent, to $14.94, versus the $15.72 expected by analysts.

- The company plans to open 13 new stores and allocate 2.5 percent of sales to capital expenditures.

The softer guidance reflects continued challenges in the home improvement sector, including rising interest rates, a still-cautious consumer base, and a cooling housing market. CFO Richard McPhail noted that while housing remains "frozen by mortgage rates," Home Depot sees underlying demand for home projects persisting, with homeowners gradually adjusting to the higher rate environment.

Hurricane and Fire Impact: A Modest Boost to Sales

Home Depot noted that rebuilding efforts from Hurricanes Helene and Milton contributed 0.6 percentage points to comparable sales growth in the quarter. However, the company did not provide detailed commentary on the impact of the California wildfires, suggesting that any related sales boost was relatively minor.

Capital Returns: Dividend Increase Signals Confidence

Despite the cautious guidance, Home Depot remains committed to returning capital to shareholders. The company announced a 2.2 percent increase in its quarterly dividend, raising it from $2.25 to $2.30 per share. This brings the total annual dividend to $9.20 per share, reinforcing the company's position as a strong dividend payer.

Strategic Initiatives: Driving Growth in a Challenging Environment

Home Depot continues to invest in long-term growth through several key initiatives.

1. Pro Customer Expansion: The company is increasing its focus on professional contractors, who tend to make larger and more frequent purchases than DIY customers. The recent $18.25 billion acquisition of SRS Distribution, a distributor of roofing and landscaping materials, is expected to strengthen its Pro segment.

2. E-commerce and Supply Chain Investments: Online sales grew 9 percent year-over-year, making the fourth quarter the strongest digital sales quarter of the year. Faster delivery times and improvements in fulfillment, especially in appliances and power tools, contributed to the online momentum.

3. Store Growth: Home Depot opened 12 new stores in 2024 and plans to open another 13 locations in 2025, despite the challenging retail environment.

4. Technology and Innovation: The company continues to invest in automation and supply chain enhancements to improve efficiency and support growth in high-demand categories like tools and home renovation materials.

Market Reaction: Testing Key Support Levels

Shares of Home Depot fell more than 2 percent in premarket trading following the earnings release, as investors digested the softer guidance. However, early trading saw the stock reclaim its 200-day moving average at $381, a key technical level that could provide support if investor sentiment stabilizes.

Home Depot shares have underperformed the broader market over the past year, gaining only 2 percent compared to the S&P 500's 18 percent rally. The stock remains pressured by concerns about home improvement demand, though its improving sales trends suggest that a potential rebound could be in sight.

Conclusion: A Mixed Bag, but Long-Term Strength Intact

Home Depot's fourth-quarter results were solid, with earnings and revenue both exceeding expectations and a return to positive comparable sales growth. However, the company’s cautious 2025 guidance weighed on investor sentiment, as expectations for slower sales growth and a slight decline in EPS highlighted the ongoing macroeconomic challenges.

Despite near-term headwinds, Home Depot remains a well-positioned industry leader, benefiting from strong customer engagement, continued investments in e-commerce and supply chain efficiency, and a growing focus on professional contractors. While shares may face volatility in the short term, long-term investors will likely watch the $381 support level closely as they assess whether the home improvement sector is poised for a stronger recovery in the latter half of 2025.