The Home Depot, Inc. (NYSE: HD)

Home Depot delivered $39.9 billion in sales for Q1 2025, representing a 9.4% increase from the first quarter of fiscal 2024. This growth was primarily driven by the acquisition of SRS Distribution Inc. in June 2024, which has expanded the company's reach in the professional customer segment. The core business showed resilience with U.S. comparable sales growing 0.2%, demonstrating the company's ability to maintain customer engagement in its largest market despite broader economic challenges.

While total company comparable sales decreased slightly by 0.3%, it's worth noting that foreign exchange rates negatively impacted total company comparable sales by approximately 70 basis points. When excluding this currency impact, the underlying business performance was more positive than the headline figures suggest.

Operating income increased 1.1% to $5.13 billion, representing an operating margin of 12.9% compared to 13.9% in the same period last year. The margin contraction was primarily due to the integration of SRS Distribution, which currently operates at lower margins than the core Home Depot business. Adjusted operating income, which excludes the impact of amortization expense from acquired intangible assets, increased 2.7% to $5.27 billion, representing an adjusted operating margin of 13.2%.

Net earnings decreased 4.6% to $3.43 billion, resulting in a diluted EPS of $3.45 compared to $3.63 in Q1 2024. On an adjusted basis, which excludes the impact of acquired intangible asset amortization, diluted EPS was $3.56, representing a 3.0% decrease from $3.67 in the prior year period. This decline was partly driven by higher interest expense, which increased 26.8% to $615 million, reflecting the additional debt taken on to fund the SRS acquisition.

Customer transactions increased 2.1% to 394.8 million, while average ticket remained essentially flat at $90.71 compared to $90.68 in Q1 2024. This indicates that the company is successfully driving traffic to its stores, but customers are being more selective in their purchasing decisions amid the current economic environment.

Home Depot's operational performance in Q1 2025 reflected the company's continued focus on enhancing its store environment and product assortment while navigating a challenging retail landscape:

Store Network & Infrastructure

• Extensive Retail Footprint: At the end of Q1 2025, the company operated 2,350 retail stores and over 790 branches across all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, 10 Canadian provinces, and Mexico
• Workforce: Home Depot employs over 470,000 associates, representing one of the largest retail workforces in the United States
• New Store Openings: On track with plans to open approximately 13 new stores in fiscal 2025

Customer Engagement

• Customer Transactions: Increased 2.1% to 394.8 million in Q1 2025, demonstrating continued strong traffic trends
• Average Ticket: Remained essentially flat at $90.71, reflecting cautious consumer spending patterns
• Smaller Projects: Management noted continued customer engagement across smaller projects and during spring promotional events

Key Operational Initiatives

• Store Readiness: Focused on enhancing store presentation and product assortment for the spring selling season
• SRS Integration: Continued integration of SRS Distribution Inc., which was acquired in June 2024, expanding the company's presence in the professional contractor segment
• Supply Chain Enhancements: Ongoing investments in supply chain optimization to improve inventory management and product availability

As highlighted by CEO Ted Decker: "Our first quarter results were in line with our expectations as we saw continued customer engagement across smaller projects and in our spring events. We feel great about our store readiness and product assortment as spring continues to break across the country." This statement reflects the company's strategic focus on operational excellence and seasonal preparedness, particularly as the critical spring selling season gains momentum.

Home Depot's balance sheet as of May 4, 2025, reflects the significant impact of the SRS Distribution acquisition, with increased debt levels and expanded asset base:

Balance Sheet Highlights

• Total Assets: $99.2 billion, up significantly from $79.2 billion in the prior year period
• Merchandise Inventories: $25.8 billion, an increase of 15.0% from $22.4 billion in Q1 2024
• Goodwill and Intangible Assets: Combined $28.5 billion, up from $12.0 billion in Q1 2024, primarily due to the SRS acquisition
• Total Debt: $52.3 billion (including short-term debt and current installments of long-term debt), compared to $42.8 billion in Q1 2024
• Stockholders' Equity: $8.0 billion, up from $1.8 billion in Q1 2024

Cash Flow Performance

• Operating Cash Flow: $4.3 billion for Q1 2025, down from $5.5 billion in Q1 2024, primarily due to changes in working capital
• Capital Expenditures: $806 million, slightly down from $847 million in Q1 2024
• Cash Dividends: $2.3 billion paid during Q1 2025, reflecting the company's commitment to returning value to shareholders
• Share Repurchases: No share repurchases during Q1 2025, compared to $649 million in Q1 2024
• Cash and Cash Equivalents: $1.4 billion at the end of Q1 2025, down from $4.3 billion at the end of Q1 2024

The company's financial position reflects its strategic focus on integrating the SRS acquisition while maintaining strong operational cash flow. The increased debt levels have led to higher interest expenses, which rose 26.8% year-over-year to $615 million. Despite this, Home Depot maintains investment-grade credit ratings, with an adjusted debt to EBITDAR ratio of 2.3x as of Q1 2025, up from 2.0x in the prior year period.

The company's return on invested capital (ROIC) was 31.3% for the trailing twelve months ended May 4, 2025, compared to 37.1% for the same period in the prior year. This decline primarily reflects the significant capital deployed for the SRS acquisition, which is expected to enhance returns over time as synergies are realized and the business is fully integrated.

Home Depot reaffirmed its guidance for fiscal 2025, which is a 52-week year compared to fiscal 2024, a 53-week year. The guidance reflects management's confidence in the company's fundamental business strength despite near-term challenges:

Fiscal 2025 Financial Guidance

• Total sales growth of approximately 2.8%
• Comparable sales growth of approximately 1.0% for the comparable 52-week period
• Approximately 13 new stores
• Gross margin of approximately 33.4%
• Operating margin of approximately 13.0%
• Adjusted operating margin of approximately 13.4%
• Tax rate of approximately 24.5%
• Net interest expense of approximately $2.2 billion
• Diluted earnings-per-share to decline approximately 3% from $14.91 in fiscal 2024
• Adjusted diluted earnings-per-share to decline approximately 2% from $15.24 in fiscal 2024
• Capital expenditures of approximately 2.5% of total sales

Key Growth Drivers

The company's outlook is supported by several strategic initiatives and market factors:

• SRS Integration: Continued integration and synergy realization from the SRS Distribution acquisition
• Pro Customer Focus: Enhanced value proposition for professional customers through expanded product offerings and services
• Digital Transformation: Ongoing investments in e-commerce capabilities and interconnected retail experiences
• Supply Chain Optimization: Continued enhancements to supply chain infrastructure to improve delivery speed and efficiency
• Store Modernization: Investments in store refreshes and technology to enhance the customer shopping experience

Market Outlook

Management's commentary suggests cautious optimism about the home improvement market for the remainder of fiscal 2025:

• Continued customer engagement across smaller home improvement projects
• Seasonal strength expected as spring selling season continues to progress
• Potential for improving consumer sentiment as the year progresses
• Ongoing resilience in the repair and remodel segments

The company's guidance reflects a balanced approach, acknowledging near-term challenges while positioning for longer-term growth opportunities. Management noted that the year-over-year comparison is impacted by fiscal 2024 being a 53-week year versus the 52-week fiscal 2025, which affects the reported growth rates.