Home Depot Q1 Earnings Call Highlights

Key Points

• Home Depot’s Q1 results were largely in line with expectations, with sales rising 4.8% to $41.8 billion and comparable sales up 0.6% overall, though adjusted EPS fell to $3.43 from $3.56 a year ago amid ongoing housing and affordability pressure.
• Demand was strongest in spring-related and Pro categories, while larger discretionary projects remained weak. Digital sales grew more than 10% for the fourth straight quarter, and management highlighted continued gains in fulfillment and store productivity.
• The company reaffirmed its fiscal 2026 outlook despite margin pressure from acquisitions and pricing investments, keeping guidance for flat to 2% comparable sales growth and EPS growth of flat to up 4%. Home Depot also emphasized its push into Pro and HVAC distribution with the Mingledorff’s acquisition.

Home Depot NYSE: HD reported first-quarter fiscal 2026 results that were in line with management’s expectations, with modest comparable-sales growth despite continued pressure from housing affordability, higher interest rates and cautious consumer behavior around large projects.

The home improvement retailer said sales for the quarter were $41.8 billion, up 4.8% from the same period last year. Total comparable sales rose 0.6%, while U.S. comparable sales increased 0.4%. Adjusted diluted earnings per share were $3.43, compared with $3.56 in the prior-year quarter.

Ted Decker, chair, president and chief executive officer, said underlying demand was “relatively similar” to what the company saw throughout fiscal 2025, even as consumer uncertainty and housing affordability pressures persisted. He said the company’s Northern and Western divisions posted positive comparable sales as customers engaged in outdoor projects when weather was favorable. Mexico posted positive comps in local currency, while Canada was negative.

Spring Projects Support Demand, But Large Projects Remain Pressured

Billy Bastek, executive vice president of merchandising, said nine of Home Depot’s 16 merchandising departments posted positive comps in the quarter: storage, power, hardware, plumbing, electrical, bath, indoor garden, paint and kitchens.

The company reported a 2.2% increase in comp average ticket, while comp transactions declined 1.3%. Big-ticket comp transactions above $1,000 rose 0.8% from the prior-year quarter. Bastek said the company was pleased with performance in portable power and patio, but noted that “larger discretionary projects remain under pressure.”

Pro customers outperformed DIY customers during the quarter, Bastek said. DIY strength was seen in spring-related categories including live goods, outdoor power equipment, patio, grills and storage. Among Pro-heavy categories, the company cited strength in power, pipe and fittings, water heaters, fasteners and paint.

Management also pointed to strong performance from its Spring Black Friday and Spring Gift Center events, particularly in power tools, outdoor power equipment, live goods and patio. Bastek said Home Depot’s power categories posted a first-quarter sales record, led by portable power and outdoor power equipment.

Digital Sales Rise as Fulfillment Investments Continue

Sales through Home Depot’s digital platforms increased more than 10% year over year, marking the fourth consecutive quarter of double-digit online growth, according to Bastek.

Ann-Marie Campbell, senior executive vice president, said the company is continuing to simplify store processes and improve fulfillment. Home Depot has transitioned more than 1,000 stores to a model that shifts more store tasking to its Merchandise Execution Team, allowing store associates in orange aprons to spend more time with customers. Campbell said the company expects to complete the transition across all stores by the end of fiscal 2026.

Campbell also highlighted the company’s “ship from best location” fulfillment model, which routes online orders based on distance, inventory availability and delivery speed. She said early efforts have reduced cancellations, improved fulfillment time and raised customer satisfaction and likelihood-to-shop-again scores.

For Pro customers, Campbell said Home Depot has consolidated tools into a single digital workspace that includes project planning, an AI-powered material list builder, real-time delivery tracking and purchase history. She said delivery satisfaction scores, including deliveries from stores and supply chain assets, are at record highs.

Acquisitions Expand Pro and Distribution Strategy

Decker said Home Depot completed its acquisition of Mingledorff’s, a wholesale distributor of heating, ventilation and air conditioning equipment serving residential and commercial customers through 42 locations in five Southeastern states.

He said Mingledorff’s is complementary to SRS’s existing business and provides an opportunity to enter the national market for HVAC parts and supplies. Decker said HVAC distribution represents an addressable market of about $100 billion and increases Home Depot’s total addressable market to $1.2 trillion.

Management repeatedly emphasized the company’s focus on the Pro customer, which Decker described as a $700 billion market opportunity. He said Home Depot is working to win more share of wallet among larger residential pros by building capabilities such as field sales, enhanced delivery and trade credit.

In response to an analyst question, Decker said the highest-comping part of the Pro business was the “complex purchase occasion,” which the company views as evidence that its Pro investments are gaining traction.

Richard McPhail, executive vice president and chief financial officer, said SRS generated $4 billion in sales during the quarter, with positive total sales growth and positive total organic sales growth. SRS comps were slightly negative overall, driven by low-single-digit negative comps in roofing. McPhail said the company expects SRS to deliver mid-single-digit organic sales growth for the year if it sees a normal seasonal pattern.

Margins Decline, Guidance Reaffirmed

Home Depot’s gross margin was 33% in the quarter, down approximately 75 basis points from the year-ago period. McPhail said the decline was in line with expectations and primarily reflected mix changes from the GMS acquisition, with additional pressure from roofing market conditions and price investments at SRS.

Operating margin was 11.9%, compared with 12.9% in the prior-year quarter. Adjusted operating margin, excluding $171 million in pretax intangible asset amortization, was 12.3%, compared with 13.2% last year. Diluted earnings per share were $3.30, down from $3.45 a year earlier.

The company ended the quarter with merchandise inventories of $27.3 billion, up about $1.5 billion year over year. McPhail corrected an earlier statement during the call, saying Home Depot opened two new stores during the quarter, bringing its total store count to 2,361.

Home Depot reaffirmed its fiscal 2026 outlook. The company expects comparable sales to range from flat to up 2%, total sales growth of approximately 2.5% to 4.5%, gross margin of about 33.1%, operating margin of approximately 12.4% to 12.6% and adjusted operating margin of approximately 12.8% to 13%. It expects both diluted EPS and adjusted diluted EPS to range from flat to up 4% compared with fiscal 2025.

McPhail said the company plans to open about 15 new stores and 40 to 50 new SRS locations during the year. Capital expenditures are expected to be approximately 2.5% of sales.

Management Sees Resilient Consumer, Continued Housing Pressure

During the question-and-answer portion of the call, analysts focused on the macroeconomic backdrop, including interest rates, energy prices, housing turnover and consumer spending. Decker said Home Depot is not assuming a “marked improvement” in underlying demand, and that the company’s expectation for higher comps in the second half is “solely driven by a return to normal storm activity.”

Decker said Home Depot’s core customer remains in “reasonably good shape,” citing homeownership, home equity gains and equity market appreciation. Still, he said uncertainty is holding customers back from large projects, while housing turnover remains low and new construction starts and sales are trending down.

“If it’s higher for longer, on rates, in a slow housing market, we’re just gonna have to keep working our way through this period of moderation,” Decker said, adding that the company remains focused on controlling what it can control and taking market share.

Management said customer engagement improved in early May after weather weighed on the final weeks of April. Bastek said engagement in spring-related projects in the first two weeks of May was similar to what the company saw earlier in the quarter.

About Home Depot NYSE: HD

The Home Depot, Inc NYSE: HD is a leading home improvement retailer that operates large-format stores and an integrated online platform offering a broad range of products and services for do-it-yourself consumers, professional contractors and businesses. The company was founded in 1978 by Bernard Marcus and Arthur Blank and is headquartered in Atlanta, Georgia. Since opening its first stores at the end of the 1970s, Home Depot has grown into a multinational retailer known for its orange-branded stores and wide assortment of home improvement merchandise.

Home Depot's core business includes the sale of building materials, lumber, tools, hardware, appliances, paint, plumbing and electrical supplies, lawn and garden products, and home décor.

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