Home Depot Inc (HD) — Q4 2026 Earnings Call Transcript

Thank you, Isabel, and good morning, everyone. Sales for fiscal 2025 were $164.7 billion, an increase of 3.2% from the same period last year. Comp sales increased 0.3% from the same period last year and comps in the U.S. increased 0.5%. Adjusted diluted earnings per share were $14.69 compared to $15.24 in the prior period. In the fourth quarter, comp sales increased 0.4% from last year and comp sales in the U.S. were up 0.3%. Adjusted diluted earnings per share were $2.72 compared to $3.13 in the prior year. In the quarter, our regional performance varied with our Northern and Western division posting positive comps. In local currency, Mexico reported positive comps and Canada reported negative comps. Our fourth quarter results were largely in line with our expectations, reflecting the lack of storm activity in the third quarter and ongoing consumer uncertainty and pressure on housing. Additionally, storm activity in January provided a sales benefit in the quarter. Adjusting for storms, underlying demand was relatively stable throughout the year. As you'll hear from Billy, we are growing market share by delivering the best value proposition in home improvement. As we shared with you at our Investor and Analyst Conference in December, we are uniquely positioned to grow share of wallet with all our customers. We are investing across the business to drive our core and culture, deliver a frictionless interconnected experience and win the Pro. As Ann will detail, our teams did an incredible job staying engaged, focusing on the customer and elevating the customer experience. In fact, our customers are telling us that our associates continue to deliver exceptional service. In addition, our merchants continue to offer tremendous value as evidenced by record-setting events in the quarter. We're also encouraged by the traction we see with the Pro. Pros who are utilizing our Pro ecosystem of capabilities are spending more with us, and we remain focused on enhancing our capabilities from sales support to project management to delivery, all to better support Pros throughout the life of their projects. This year, SRS grew organic sales by a low single-digit percentage and expanded market share despite pressured industry demand and lack of storms in the back half of the year. This is a testament to their strong value proposition, customer relationships and consistent execution. In addition to the GMS acquisition, they completed several tuck-in acquisitions and opened a number of greenfield locations across their verticals. Going forward, we will continue to support SRS' momentum, and we expect their organic sales to grow mid-single digits in fiscal 2026. Looking ahead to fiscal 2026, we expect total sales growth of approximately 2.5% to 4.5%, comparable sales growth of approximately flat to 2% and adjusted diluted earnings per share to grow approximately flat to 4%. We remain focused on delivering the best customer experience and value proposition in home improvement. We have a clear growth strategy, and we're investing in our stores, in our interconnected shopping experience and in the Pro to grow share in any market environment. I want to close by thanking our associates for their hard work and dedication to serving our customers in a dynamic year. With that, let me turn the call over to Ann.

Thanks, Ted, and good morning, everyone. First, I want to thank our associates who did a great job serving our customers during the recent Winter Storm Fern that impacted many of our communities we serve, particularly in our Northern and Southern divisions. Our priority in situations like these is always the safety of our associates and customers. We activated our emergency response protocols, and we're working with our vendors and merchant teams to deliver essential products to the appropriate stores. This ensured we remained in stock and ready to serve our communities before, during, and after the storm. As always, I'm extremely proud of how our team showed up for each other and our customers, and that commitment continues to be a defining part of who we are as a company. As you heard from us in December, we are focused on the core and culture of our company. Our associates are the key to delivering an exceptional customer experience. Their passion, knowledge, and expertise are critical to solving customers' problems and fulfilling their dreams. Over the last year, we have talked about how we have enabled tools and processes for our associates to better serve our customers. These changes not only increase associate engagement, but also enhance store performance by driving higher sales, productivity, and efficiency in our operations. We are also improving the customer experience by transitioning tasking to our MET. Our MET team's core competency is servicing our bays and executing merchandising changes in our stores. By transitioning tasking to them, our Orange Apron associates have more time to engage with customers and drive sales. And while this transition is not complete, in our pilot stores, we have already seen a meaningful increase in labor productivity. Over the years, our business has evolved to meet the needs of our interconnected and Pro customers. As you know, over 50% of our online orders are fulfilled through our stores. Ensuring that our orders are picked, staged, and delivered in a reliable and repeatable fashion is critical to providing a frictionless customer experience regardless of the type of fulfillment, whether picked up in store or delivered the same day to a home or job site. As a result, we have realigned certain positions in our stores to better drive the outcomes we desire. We now have an operations experience manager who is responsible for managing customer service more broadly, including driving uniform operational processes to enhance the interconnected and fulfillment experiences. And for Pros, our dedicated unified Pro team, including a Pro customer experience manager, continues to elevate the Pro experience in our stores by assisting Pros and serving as a main point of contact, ensuring a superior and cohesive shopping and fulfillment experience for our customers inside and outside of our stores. As a result, we've seen increased engagement, higher Pro sales, and continued growth in our Pro Xtra loyalty program. We're excited about all of the progress we have made in our stores this year. Our efforts are paying off. This year, our customer satisfaction score increased every quarter, and our tenure with hourly associates is the highest it's been since 2017. Our associates continue to go above and beyond to serve our customers despite a challenging environment, and I'd like to close by thanking them for all that they do. We are relentlessly focused on delivering the best customer experience in home improvement, and we know that our efforts are positioning us well to grow share in the market. With that, let me turn the call over to Billy.

Thank you, Ann, and good morning, everyone. I want to start by also thanking all of our associates, suppliers, and supply chain partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, our performance during the fourth quarter was largely in line with expectations with underlying demand in the quarter similar to what we've seen throughout the year. Turning to our merchandising department comp performance for the fourth quarter. Eight of our 16 merchandising departments posted positive comps, including power, electrical, storage, indoor garden, hardware, plumbing, bath, and kitchen. During the fourth quarter, our comp average ticket increased 2.4% and comp transactions decreased 1.6%. The growth in comp average ticket primarily reflects some price increases, a greater mix of higher ticket items, and customers continuing to trade up for new and innovative products. Big ticket comp transactions, or those over $1,000, were positive 1.3% compared to the fourth quarter of last year. We were pleased with the performance we saw in categories such as power, plumbing, and electrical. However, larger discretionary projects remain under pressure. During the fourth quarter, Pro posted positive comps and outperformed DIY. We saw strength across Pro-heavy categories like gypsum, wire, concrete, and plumbing. In DIY, we saw strength across our Gift Center events, hand tools, storage, portable power, and hardscapes. Turning to total company online comp sales. Sales leveraging our digital platforms increased approximately 11% compared to the fourth quarter of last year. We're excited about the continued success we are seeing across our interconnected platforms. This quarter, we continued to enhance delivery reliability and communication with the rollout of real-time delivery tracking for big and bulky deliveries across all categories. This enhancement gives our customers greater visibility and certainty on the timing of their delivery. We know that as we remove friction from the experience, we see incremental customer engagement, leading to greater sales across all points of interaction. During the fourth quarter, we hosted our appliance, Gift Center, and Black Friday events. We saw strong engagement across all of these events with our Gift Center and Black Friday events posting record sales years. We are looking forward to the year ahead, particularly with the spring selling season right around the corner, and we have a great lineup of innovative products that provide our customers with tremendous value from outdoor living products, including patio and grills to our lineup of outdoor power equipment, whether it's our RYOBI 40-volt lawn mower with a brushless motor and lithium-ion batteries, which deliver more power and longer run times, or our Milwaukee 18-volt string trimmer kit designed to meet the needs of the landscape professional. And our spring Gift Center event continues to lean into cordless technology with a wide assortment of products from RYOBI, Milwaukee, Makita, and DEWALT, many of which are exclusive to The Home Depot in the big box retail channel. We're also excited about our live goods program. Every year, our merchants partner with our national and regional growers to provide our customers with new and improved varieties to enhance the overall garden experience. Investing in our relationships with our growers allows us to continue to drive innovation and value to meet the needs of our customers and improves their shopping experience while building loyalty to The Home Depot. We remain focused on delivering the best brands, assortments, and value to our customers. With that, I'd like to turn the call over to Richard.

Thank you, Billy, and good morning, everyone. Before I comment on our results, I would like to remind everyone that fiscal 2025 consisted of 52 weeks, while fiscal 2024 consisted of 53 weeks. The extra week added approximately $2.5 billion in sales to the fourth quarter of fiscal 2024. When we report our comparable sales or comps, we report them on a 52-week to 52-week basis by comparing weeks 1 through 52 of fiscal 2025 with weeks 2 through 53 of fiscal 2024. In the fourth quarter of 2025, total sales were $38.2 billion, a decrease of $1.5 billion or approximately 3.8% from last year. During the fourth quarter, our total company comps were positive 0.4% with comps of negative 0.2% in November, positive 0.1% in December, and positive 1.3% in January. Comps in the U.S. were positive 0.3% for the quarter, with comps of negative 0.3% in November, negative 0.2% in December, and positive 1.4% in January. For the year, our sales totaled $164.7 billion, an increase of $5.2 billion or 3.2% versus fiscal 2024. For the year, total company comp sales increased 0.3% and U.S. comp sales increased 0.5%. In the fourth quarter, our gross margin was approximately 32.6%, a decrease of approximately 20 basis points from the fourth quarter last year, primarily reflecting a change in mix as a result of the GMS acquisition, which was in line with our expectations. For the year, our gross margin was approximately 33.3%, a decrease of 10 basis points from last year, which was in line with our expectations. During the fourth quarter, operating expense as a percent of sales increased approximately 105 basis points to 22.6% compared to the fourth quarter of 2024. Our operating expense performance reflects natural deleverage from top line results as well as lapping the 53rd week. For the year, operating expenses were approximately 20.6% of sales, representing an increase of approximately 70 basis points from fiscal 2024. Our operating margin for the fourth quarter was 10.1% compared to 11.3% in the fourth quarter of 2024. Excluding intangible asset amortization in the quarter, our adjusted operating margin for the fourth quarter was 10.5% compared to 11.7% in the fourth quarter of 2024. Our operating margin for the year was 12.7% compared to 13.5% in 2024. Excluding intangible asset amortization, our adjusted operating margin for the year was 13.1% compared to 13.8% in 2024. Interest and other expense for the fourth quarter decreased by $57 million to $551 million. In the fourth quarter, our effective tax rate was 22% and for the year was 23.9%. Our diluted earnings per share for the fourth quarter were $2.58, a decrease of 14.6% compared to the fourth quarter of 2024. Diluted earnings per share for fiscal 2025 were $14.23, a decrease of 4.6% compared to fiscal 2024. Excluding intangible asset amortization, our adjusted diluted earnings per share for the fourth quarter were $2.72, a decrease of 13.1% compared to the fourth quarter of 2024. Adjusted diluted earnings per share for fiscal 2025 were $14.69, a decrease of 3.6% compared to fiscal 2024. Recall that fiscal 2024 included a 53rd week, which added approximately $0.30 to diluted earnings per share and adjusted diluted earnings per share for the fourth quarter and the year. During the year, we opened 12 new stores, bringing our store count to 2,359 at the end of fiscal 2025. At the end of the quarter, merchandise inventories were $25.8 billion, up approximately $2.4 billion versus last year, reflecting higher inventory costs and the acquisition of GMS. Inventory turns were 4.4x, down from 4.7x last year. Turning to capital allocation. During the fourth quarter, we invested approximately $1.1 billion back into our business in the form of capital expenditures. This brings total capital expenditures for fiscal 2025 to approximately $3.7 billion. And during the year, we paid approximately $9.2 billion in dividends to our shareholders. Today, we announced our Board of Directors increased our quarterly dividend by 1.3% to $2.33 per share, which equates to an annual dividend of $9.32 per share. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was approximately 25.7%, down from 31.3% in the fourth quarter of fiscal 2024. Now I will comment on our outlook for 2026. As we shared at our Investor and Analyst Conference in December, there are a number of dynamics we are observing that are pressuring housing and home improvement demand. The current mortgage rate environment and significant increase in home prices since 2019 have impacted housing affordability. Housing turnover has remained at historical lows since 2023, which has significantly reduced demand for projects and other purchases associated with buying and selling a home. Our customers also tell us they have concerns over general economic uncertainty, including inflation, growing job concerns, and higher financing costs. As we look ahead to fiscal 2026, we anticipate these pressures will persist as we have not yet seen a catalyst for an inflection in housing activity. As a result, we affirm the preliminary fiscal 2026 guidance we provided at our investor conference. We expect to continue to grow our market share and for our comp sales to range between flat to 2% growth with total sales growth of between approximately 2.5% and 4.5%, reflecting the contribution of the GMS acquisition, new stores, branches, and tuck-in acquisitions. For the year, we expect SRS to deliver mid-single-digit percent organic sales growth. We plan to open approximately 15 new stores and 40 to 50 new SRS locations. Our gross margin is expected to be approximately 33.1%. Further, we expect operating margin of approximately 12.4% to 12.6% and adjusted operating margin of approximately 12.8% to 13%. Our effective tax rate is targeted at approximately 24.3%. We expect net interest expense of approximately $2.3 billion. We expect our diluted earnings per share and adjusted diluted earnings per share to both increase approximately flat to 4% compared to fiscal 2025. We plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2026. We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience in home improvement.

Ted, I was down at IBS and I was talking to Chip down there about some of the digital planning tools and some of the initiatives you guys have to improve delivery. So I don't know if maybe you could just explore the topics on some of the initiatives you're trying to lean into here, digital planning tools being one of them. You mentioned product management. But what are some of the bigger initiatives that you guys are leaning into in 2026 to improve the overall value proposition for your Pro?

Sure. And Mike is here, and he can go into some more detail, but we know we talked about the capabilities we need to deliver for the Pro experience. We continue to mature our sales force, order management, as you say, our trade credit platform, delivery has gotten better and better. We've been looking for 2 Sigma on time and complete for our delivery to our Pros, and we achieved that this past year. And also now with the advent of AI tools, we're introducing a number of project management and list builders for our Pros, including things like an AI takeoff scheme, letting Pros build projects, just typing in the type of project they're working on in a pre-populated list of the project in the app for the Pros, so they don't have to go through and put the hundreds of items that pre-populates and then they can edit that list, they can save that, repeat it for future jobs. So there's a tremendous set of activities.

Yes. I mean, you captured a lot of it, Ted. Hence, the performance that we had in the fourth quarter, pleased overall with the investment in the capabilities, both when it comes to in-store investments as well as outside sales. We've improved in-store tools and processes that drive greater engagement with our Pros that have resulted in higher sales there, record levels of delivery reliability from our order management investments, and we're continuing to take that to another level with job site preferences that we're including in our order management tools as well as business hours of our customers. We've taken customer communications to a whole new level. We used to only be able to communicate to one person on the job. Now we can communicate to many, including the owner and those that are kind of on the job site when it comes to those deliveries. As Ted spoke to, our online B2B sales outpaced our overall online sales growth driven by the features that we've added, such as the projects tool where we're seeing tens of thousands of projects each week being started, and those result in higher conversion and greater engagement around transactions for complex sales. And we saw continued growth in our trade credit efforts, along with strong early days from our AI blueprint takeoffs. So with all of that in mind, just pleased with the continued momentum in Pro.

I appreciate the color there. And maybe just a quick follow-up...

Thank you, Billy, and good morning, everyone. Before I comment on our results, I would like to remind everyone that fiscal 2025 consisted of 52 weeks, while fiscal 2024 consisted of 53 weeks. The extra week added approximately $2.5 billion in sales to the fourth quarter of fiscal 2024. When we report our comparable sales or comps, we report them on a 52-week to 52-week basis by comparing weeks 1 through 52 of fiscal 2025 with weeks 2 through 53 of fiscal 2024. In the fourth quarter of 2025, total sales were $38.2 billion, a decrease of $1.5 billion or approximately 3.8% from last year. During the fourth quarter, our total company comps were positive 0.4% with comps of negative 0.2% in November, positive 0.1% in December and positive 1.3% in January. Comps in the U.S. were positive 0.3% for the quarter, with comps of negative 0.3% in November, negative 0.2% in December and positive 1.4% in January. For the year, our sales totaled $164.7 billion, an increase of $5.2 billion or 3.2% versus fiscal 2024. For the year, total company comp sales increased 0.3% and U.S. comp sales increased 0.5%. In the fourth quarter, our gross margin was approximately 32.6%, a decrease of approximately 20 basis points from the fourth quarter last year primarily reflecting a change in mix as a result of the GMS acquisition, which was in line with our expectations. For the year, our gross margin was approximately 33.3%, a decrease of 10 basis points from last year, which was in line with our expectations. During the fourth quarter, operating expense as a percent of sales increased approximately 105 basis points to 22.6% compared to the fourth quarter of 2024. Our operating expense performance reflects natural deleverage from top line results as well as lapping the 53rd week. For the year, operating expenses were approximately 20.6% of sales, representing an increase of approximately 70 basis points from fiscal 2024. Our operating margin for the fourth quarter was 10.1% compared to 11.3% in the fourth quarter of 2024. Excluding intangible asset amortization in the quarter, our adjusted operating margin for the fourth quarter was 10.5% compared to 11.7% in the fourth quarter of 2024. Our operating margin for the year was 12.7% compared to 13.5% in 2024. Excluding intangible asset amortization, our adjusted operating margin for the year was 13.1% compared to 13.8% in 2024. Interest and other expense for the fourth quarter decreased by $57 million to $551 million. In the fourth quarter, our effective tax rate was 22% and for the year was 23.9%. Our diluted earnings per share for the fourth quarter were $2.58, a decrease of 14.6% compared to the fourth quarter of 2024. Diluted earnings per share for fiscal 2025 were $14.23, a decrease of 4.6% compared to fiscal 2024. Excluding intangible asset amortization, our adjusted diluted earnings per share for the fourth quarter were $2.72, a decrease of 13.1% compared to the fourth quarter of 2024. Adjusted diluted earnings per share for fiscal 2025 were $14.69, a decrease of 3.6% compared to fiscal 2024. Recall that fiscal 2024 included a 53rd week, which added approximately $0.30 to diluted earnings per share and adjusted diluted earnings per share for the fourth quarter and the year. During the year, we opened 12 new stores, bringing our store count to 2,359 at the end of fiscal 2025. At the end of the quarter, merchandise inventories were $25.8 billion, up approximately $2.4 billion versus last year, reflecting higher inventory costs and the acquisition of GMS. Inventory turns were 4.4x, down from 4.7x last year. Turning to capital allocation. During the fourth quarter, we invested approximately $1.1 billion back into our business in the form of capital expenditures. This brings total capital expenditures for fiscal 2025 to approximately $3.7 billion. And during the year, we paid approximately $9.2 billion in dividends to our shareholders. Today, we announced our Board of Directors increased our quarterly dividend by 1.3% to $2.33 per share, which equates to an annual dividend of $9.32 per share. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was approximately 25.7%, down from 31.3% in the fourth quarter of fiscal 2024. Now I will comment on our outlook for 2026. As we shared at our Investor and Analyst Conference in December, there are a number of dynamics we are observing that are pressuring housing and home improvement demand. The current mortgage rate environment and significant increase in home prices since 2019 have impacted housing affordability. Housing turnover has remained at historical lows since 2023, which has significantly reduced demand for projects and other purchases associated with buying and selling a home. Our customers also tell us they have concerns over general economic uncertainty, including inflation, growing job concerns and higher financing costs. As we look ahead to fiscal 2026, we anticipate these pressures will persist as we have not yet seen a catalyst for an inflection in housing activity. As a result, we affirm the preliminary fiscal 2026 guidance we provided at our investor conference. We expect to continue to grow our market share and for our comp sales to range between flat to 2% growth with total sales growth of between approximately 2.5% and 4.5%, reflecting the contribution of the GMS acquisition, new stores, branches and tuck-in acquisitions. For the year, we expect SRS to deliver mid-single-digit percent organic sales growth. We plan to open approximately 15 new stores and 40 to 50 new SRS locations. Our gross margin is expected to be approximately 33.1%. Further, we expect operating margin of approximately 12.4% to 12.6% and adjusted operating margin of approximately 12.8% to 13%. Our effective tax rate is targeted at approximately 24.3%. We expect net interest expense of approximately $2.3 billion. We expect our diluted earnings per share and adjusted diluted earnings per share to both increase approximately flat to 4% compared to fiscal 2025. We plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2026. We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience in home improvement.