Earnings Call Insights: The Home Depot, Inc. (HD) Q1 2025
Management View
- Ted Decker, Chair, President & CEO, highlighted that “Sales for the first quarter were $39.9 billion, up 9.4% from the same period last year. Comp sales declined 0.3% from the same period last year, and comps in the U.S. increased 0.2%. Adjusted diluted earnings per share were $3.56 in the first quarter, compared to $3.67 in the first quarter last year.” Decker emphasized the company’s global sourcing strategy, noting more than 50% of purchases are sourced in the U.S. and stated, “We are already taking action and anticipate that 12 months from now, no single country outside of the United States will represent more than 10% of our purchases.” He described ongoing momentum from the back half of fiscal 2024 and confidence in market positioning due to rising home equity and aging housing stock.
- Ann-Marie Campbell, SEVP, detailed continued investments in associates and training, including the launch of a new certification and generative AI tools for store associates, which are expected to drive customer satisfaction and sales.
- Billy Bastek, EVP of Merchandising, noted six of 16 merchandising departments posted positive comps, including appliances, plumbing, indoor garden, electrical, outdoor garden, and building materials. He said, “Big ticket comp transactions for those over $1,000 were positive 0.3% compared to the first quarter of last year.” Bastek also announced an exclusive agreement to offer KILZ branded primer products in the U.S.
- Richard McPhail, CFO, stated, “In the first quarter, total sales were $39.9 billion, an increase of $3.4 billion, or approximately 9.4% from last year,” and highlighted a gross margin of 33.8%. He added, “Our diluted earnings per share for the first quarter were $3.45 compared to $3.63 in the first quarter of 2024.”
Outlook
- The company reaffirmed its fiscal 2025 guidance, with McPhail stating, “We expect total sales growth to outpace sales comp with sales growth of approximately 2.8% and comp sales growth of approximately positive 1% compared to fiscal 2024.” Gross margin for 2025 is expected to be “approximately 33.4%, essentially flat compared to fiscal 2024,” with operating margin at “approximately 13% and adjusted operating margin of approximately 13.4%.” Adjusted diluted earnings per share are expected to decline approximately 2% compared to fiscal 2024, and on a 52-week basis, would be essentially flat.
Financial Results
- The first quarter saw total company comps at negative 0.3%, with U.S. comps positive 0.2%. Gross margin was 33.8%, down approximately 35 basis points from the prior year, and operating margin was 12.9%. Operating expense as a percent of sales increased to 20.9%. Merchandise inventories were $25.8 billion. Return on invested capital was 31.3%, down from 37.1% a year ago. The company invested $800 million in capital expenditures and paid $2.3 billion in dividends during the quarter.
- SRS delivered $2.6 billion in sales in Q1, with expectations for mid-single-digit growth in 2025.
Q&A
- Christopher Horvers, JPMorgan, asked about the demand environment and macro uncertainty. Ted Decker responded, “We’ve yet to see that large project. The large project generally requires some sort of financing…I think there’s still enough macro uncertainty.”
- On operating expenses, Richard McPhail explained, “We’re overlapping a legal settlement of some size in Q1 of last year, so that did have an impact…when you take that noise out, we levered expenses exactly how we would have expected.”
- Simeon Gutman, Morgan Stanley, inquired about comp guidance and SRS integration. McPhail noted, “We’re a quarter in. We feel good about the business heading into Q2. But right now we feel good about reaffirming our guidance where it is.”
- Michael Lasser, UBS, pressed on tariffs and pricing. Billy Bastek replied, “We don’t see broad-based price increases for our customers at all going forward. It’s a great opportunity for us to take share, and it’s a great opportunity for our suppliers to take share as well.”
- Zhihan Ma, Bernstein, asked about inventory and comp acceleration. McPhail stated, “The majority of the increase year over year in inventory is simply from adding the SRS inventory into our base.”
Sentiment Analysis
- Analysts’ tone was neutral to slightly cautious, focusing on macro uncertainty, tariff impact, and expense management. Questions reflected a keen interest in demand trends and cost pressures, with probing on guidance prudence and pricing strategies.
- Management maintained a confident but measured tone in prepared remarks and Q&A. Decker and McPhail both emphasized confidence in strategic positioning, but repeatedly acknowledged ongoing macro headwinds and uncertainty, frequently using phrases like “we feel good” and “we are confident,” but stopping short of strong commitments to upside.
- Compared to the previous quarter, management’s tone remained consistent—steady, pragmatic, and focused on execution, while analysts continue to scrutinize macro sensitivity and expense control.
Quarter-over-Quarter Comparison
- Guidance remains unchanged from Q4 2024, with reaffirmation of 2.8% total sales growth and 1% comp sales growth targets for 2025.
- Strategic emphasis continued on sourcing diversification and Pro ecosystem expansion, building on themes from Q4.
- Analysts’ questions this quarter reflected ongoing caution about macro trends, with additional focus on tariffs and inventory management, compared to Q4’s focus on Pro ecosystem ramp and SRS integration.
- Management’s confidence in sourcing flexibility and expense control is more pronounced, given current tariff discussions.
- Key metrics such as gross margin, operating margin, and adjusted EPS continue to face modest headwinds, consistent with Q4 commentary.
Risks and Concerns
- Management cited “continued pressure and volatility across the market,” persistent high interest rates affecting large remodeling projects, and unplanned foreign exchange rate impacts.
- Tariff exposure was discussed, with assurances of sourcing diversification and no broad-based price increases anticipated. Bastek said, “We have a number of different levers that we have in the portfolio…we don’t see broad-based price increases for our customers at all going forward.”
- Analysts raised concerns about SG&A growth, inventory build, and the potential for demand destruction if macro conditions deteriorate.
Final Takeaway
Home Depot’s leadership remains steadfast in its strategic direction, reaffirming its 2025 financial targets and emphasizing sourcing diversification to mitigate tariff impacts. The company continues to invest in supply chain flexibility, digital initiatives, and its Pro ecosystem, while maintaining tight expense controls and a cautious approach to pricing. Macro uncertainty, elevated interest rates, and ongoing volatility are expected to persist, but management expresses confidence in its positioning to gain market share and navigate the evolving environment.
Read the full Earnings Call Transcript