Home Depot Stares Down a Housing Slump While Doubling Down on Pros and Delivery

A softer cycle, but a firm grip on share

Home Depot closed fiscal 2025 with the kind of numbers that betray a market stuck in neutral rather than in free fall. Sales for the year rose 3.2% to $164.7bn, supported by a modest 0.3% rise in comparable sales and a slightly stronger 0.5% uplift in the U.S. Yet earnings slipped, margins compressed and management opened its 2026 playbook with the clear message that the housing drag is far from over.

Ted Decker, chair and chief executive, framed 2025 as a “dynamic year” overshadowed by consumer uncertainty and pressure on housing. Underlying demand, he argued, remained “relatively stable” once the noise of storm activity was stripped out. For investors, this stability sits alongside a subdued profit profile: adjusted diluted EPS fell 3.6% to $14.69, with last year’s extra 53rd week alone having contributed about $0.30 to 2024 earnings.

The fourth quarter captured the cross‑currents neatly. Sales declined 3.8% year-on-year to $38.2bn due to the prior-year 53rd week, yet comparable sales edged up 0.4%. U.S. comps were up 0.3%, with January the standout month following winter storms that spurred demand. Decker noted that storm activity in January provided a “sales benefit,” but insisted the underlying run-rate was largely consistent across the year.

Behind those modest comps lay a familiar pattern. Average ticket rose 2.4% in the quarter, helped by selective price increases and a richer mix of higher‑ticket items, while comp transactions declined 1.6%. Big-ticket tickets over $1,000 grew 1.3%, driven more by repair-heavy categories such as power, plumbing and electrical than by large discretionary remodels, which “remain under pressure.”

That tilt matters because it defines the cycle. Home Depot is, for now, operating in a repair-and-maintain market characterized by aging housing stock, constrained mobility and wary homeowners, rather than the rip-and-replace exuberance that follows buoyant housing turnover.

Margin compression and a more complicated balance sheet

The numbers on profitability show the cost of operating through this plateau while digesting acquisitions. Gross margin in Q4 slipped 20 basis points to 32.6%, and for the year eased 10 basis points to 33.3%. The driver, chief financial officer Richard McPhail stressed, was not rampant discounting but mix: the contribution of the recently acquired gypsum distributor GMS, a structurally lower-margin line of business, alongside SRS, the roofing specialist Home Depot bought in 2024.

Operating expenses rose faster than sales. In Q4, opex increased 105 basis points as a percentage of sales to 22.6%, reflecting deleverage from the lower reported top line and the absence of the 53rd-week sales base. Full-year operating expenses climbed 70 basis points to 20.6% of sales. That left operating margin at 10.1% for the quarter, or 10.5% on an adjusted basis, down roughly 120 basis points year-on-year; for the full year, operating margin stood at 12.7% (13.1% adjusted), down from 13.5% (13.8% adjusted) in 2024.

Return on invested capital, a metric Home Depot has historically guarded jealously, fell to 25.7% from 31.3% as the company layered in the capital-intensive distribution platforms of SRS and GMS.

The balance sheet itself is bulkier. Year-end inventories rose to $25.8bn, up about $2.4bn. McPhail attributed the increase primarily to the GMS acquisition, higher inventory costs tied to tariffs, and a conscious decision to support faster delivery speeds. Inventory turns eased to 4.4 times from 4.7, a slight deceleration consistent with a softer big-ticket environment and an enlarged building-materials footprint.

Capital expenditure underscored the company’s willingness to invest through the downcycle. Home Depot spent roughly $3.7bn in capex during the year, including the opening of 12 new stores, bringing the fleet to 2,359 locations. The board lifted the quarterly dividend 1.3% to $2.33 per share, or $9.32 annually, and McPhail reiterated the long-standing hierarchy: invest first, sustain and grow the dividend, then resume share repurchases once the balance sheet returns to an “excess cash position,” which he pegged in the first half of 2027.

Housing pressure, but a clear playbook for 2026

If 2025 was about stabilising in a weaker landscape, the guidance for 2026 makes plain that management does not expect a macro catalyst to arrive any time soon. McPhail listed the familiar headwinds: elevated mortgage rates despite recent declines, a sharp run‑up in home prices since 2019, and historically low housing turnover since 2023. Overlay those with household worries about inflation, job security and financing costs, and the result is a demand environment without an obvious inflection point.

Against that backdrop, Home Depot reaffirmed the preliminary 2026 guidance it shared at December’s investor day. It expects total sales growth of 2.5% to 4.5%, with comparable sales ranging from flat to 2% growth. The spread between total sales and comps reflects the full‑year impact of SRS and GMS, new stores, and additional SRS branches and tuck‑in deals. Management expects SRS to grow organic sales at a mid-single-digit rate in 2026, notwithstanding a bruising 2025 in roofing markets where industry volumes fell to their lowest levels since 2019.

The margin guidance reflects the same acquisition arithmetic. Gross margin is expected at about 33.1% for 2026, roughly 24 basis points below 2025, largely due to the first full-year consolidation of GMS. That implies gross margin for the first half down about 50 basis points year-on-year, with the second half roughly flat to 2025. Operating margin is forecast at 12.4% to 12.6%, with adjusted operating margin at 12.8% to 13%. Net interest expense should run around $2.3bn, while the effective tax rate is pegged at 24.3%. Within that framework, both GAAP and adjusted EPS are guided to be flat to up 4%.

The cadence across the year will not be smooth. The largest gross margin drag will appear in the first quarter, when the acquisitions annualize, and operating expenses as a share of sales will also peak given the timing of GMS expenses versus last year’s base. McPhail warned that Q1 EPS will likely be down mid‑single digits year-on-year, with improvement in subsequent quarters as comparisons ease and synergies accrue.

On the top line, Decker expects second-half comps to be “slightly higher” than the first half, largely due to the absence of storms in the 2025 base rather than an assumed macro uplift. Tax refunds, often touted as a spring tailwind for retailers, are not a core plank of Home Depot’s outlook. Decker walked through scenarios for refund flows and suggested the net benefit could be modest—perhaps half a point of comp uplift at most—but he also acknowledged the risk that many households will use any windfall for debt repayment or savings rather than home projects.

Tariffs, another wild card, have been in the works for nearly a year, and merchandising chief William “Billy” Bastek struck a measured tone. More than half the company’s projects, he noted, are sourced domestically and untouched by tariffs. Home Depot has already implemented most of its tariff-related pricing actions tied to measures from April onwards, with the exposure described as mid-single digits on affected items and roughly 3% at a SKU price level. The company is keen to portray itself as the “customer’s advocate for value,” but the fact remains that some cost pressure has been, and will be, passed through.

The bigger unknown is consumer confidence. Decker was explicit that the primary reason customers are deferring large projects is uncertainty: about the economy, prices, jobs and financing. Housing turnover may be “bouncing along the bottom,” but until homeowners feel more secure, those larger remodels will likely remain subdued.

Pro customers, delivery and the quiet build-out of a B2B engine

If the macro backdrop is stubbornly unhelpful, the internal story is more dynamic. Home Depot has spent the past several years tilting its business toward professional customers and an interconnected, omni-channel experience. That agenda continued unabated in 2025.

Pros once again outperformed DIY in the fourth quarter, with positive comps and particular strength in Pro-heavy categories such as gypsum, wire, concrete and plumbing. Online B2B sales grew faster than overall digital sales, which themselves were robust at 11% growth in Q4. These Pro customers—contractors, remodelers, tradespeople—are at the heart of the company’s argument that it can “grow share in any market environment,” as Decker put it.

The SRS acquisition, and now the addition of GMS, are central to that thesis. McPhail underscored that SRS managed low single-digit negative comps in Q4 in a roofing market where shingle shipments fell 28%. In his telling, this was less a margin sacrifice than a conscious decision to invest in price and take share in a severe downturn. Some of that pricing pressure will bleed into the first quarter of 2026, but management’s confidence in mid‑single-digit organic growth for SRS suggests they view 2025’s roofing volumes as an aberration rather than a new normal.

Equally important are the less visible plumbing and wiring of the enterprise: order management, trade credit, digital project tools and delivery technology. Decker sketched a picture of a maturing Pro ecosystem: a more sophisticated sales force, better order management, an improved trade credit platform and deliveries approaching “two sigma” on-time, complete performance.

Michael Rowe, who leads Pro and services, added detail. In-store tools and processes have been redesigned to encourage deeper Pro engagement, resulting in higher sales and record levels of delivery reliability. The company is rolling out jobsite preferences and customer-specific business hours into its order management systems, reflecting the reality that a flatbed of lumber or a pallet of drywall is not just a delivery but an integral part of a project workflow.

Communication has been upgraded as well. Where previously Home Depot could communicate with a single contact on a job, it can now notify multiple stakeholders—owners, site supervisors, trades—about delivery timing and changes. The rollout of handheld devices for drivers ties into this: these tools allow real-time tracking of deliveries, capture service requests at the curb and, in tandem with software, enable the live tracking of “big and bulky” deliveries, from lumber loads to appliances, which customers, Rowe said, “are loving.”

On the digital side, the Pro-facing “projects” tool is gaining traction, with tens of thousands of projects initiated each week, leading to higher conversion rates. Decker highlighted the early use of AI in project planning: an “AI takeoff” function that allows Pros to input the type of project they are tackling and receive pre-populated materials lists that can be edited, saved and reused. It is a small but telling example of how Home Depot is trying to embed itself in the planning phase of work, not just the purchasing phase.

Trade credit remains a work in progress. Today, many of the capabilities are concentrated in outside sales, but 2026 will see that platform pushed further into stores, broadening availability to smaller Pros. Pricing tools are in pilot, with plans to scale later in the year, and further integrations with e‑procurement and construction management software are on the roadmap.

Overlaying all this is the combined reach of Home Depot, HD Supply, SRS and GMS into large commercial and multifamily accounts. Rowe spoke of national accounts where a property manager that had been a “significant customer” of one entity can be converted into a multi‑line relationship spanning all four, with internal mapping and coordinated contact between sales reps. Early pilots in roofing lead referrals between Home Depot and SRS hint at the cross‑sell potential. The company is, in effect, building a federated B2B network designed to follow the Pro from the jobsite to the warehouse to the store aisle and back.

Stores, culture and the quiet productivity work

Behind the Pro narrative, the core stores still matter enormously, and management was at pains to stress the cultural and operational work underway there. Ann‑Marie Campbell, who oversees U.S. stores and operations, described Winter Storm Fern as a real‑time test of the company’s emergency protocols, from safety procedures to rapid merchandise allocation. But the deeper story lay in how Home Depot is reshaping store labor and tasks.

One of the more significant shifts has been the continued migration of “tasking” work—everything from bay maintenance to merchandising resets—away from front-line “orange apron” associates to the company’s dedicated Merchandising Execution Team (MET). The logic is simple: let specialists handle planograms and resets, while sales associates focus on customers. In pilot stores where this shift is more advanced, Campbell reported “meaningful” gains in labor productivity and higher engagement.

Store roles are being redefined as well: a new “operations experience manager” now has responsibility for customer service more broadly, including the uniform execution of processes that underpin interconnected fulfilment, such as buy‑online‑pick‑up‑in‑store and same‑day delivery. For Pro customers, a “unified Pro team” anchored by a Pro customer experience manager is tasked with orchestrating a cohesive experience across sales, service and fulfilment.

These structural tweaks are starting to show up in softer metrics. Customer satisfaction scores rose every quarter in 2025, Campbell said, and hourly associate tenure is at its highest level since 2017. For a retailer that trades heavily on the expertise and availability of its floor staff, that stability could be as important as any incremental point of gross margin.

Merchandising, meanwhile, remains relentlessly event‑driven. The fourth quarter saw the staple appliance promotions, Gift Center and Black Friday events. Both the Gift Center and Black Friday delivered record sales years, underscoring that when Home Depot “leans into” value events, customers still respond even in a jittery macro.

Looking to the spring, Bastek reeled off a familiar arsenal of cordless lawn equipment, grills, patio furniture and live goods. The emphasis on cordless technology—exclusive assortments from RYOBI, Milwaukee, Makita and DeWALT—aligns with broader consumer shifts, while the long-term relationships with national and regional plant growers are meant to keep the seasonal offering fresh and differentiated. The underlying message is that, storms or not, the company intends to defend and grow its share of the spring “selling season” that remains the heartbeat of its year.

Reading between the studs

For investors, the picture that emerges from Home Depot’s 2025 call is not one of dramatic swings but of an industrial‑scale retailer methodically re‑wiring itself for a different phase of the housing cycle.

The macro script—muted turnover, strained affordability, cautious consumers—is unlikely to change quickly. Management is not promising it will. Instead, the bet is that through a combination of Pro‑centric acquisitions, digital tooling, delivery reliability and in‑store productivity, Home Depot can continue to coax out modest comp growth, maintain industry‑leading returns and accrete share from weaker or more fragmented rivals.

Margins will be lower than they were at the peak, at least while SRS and GMS are folded in and scaled. Return on invested capital has stepped down. EPS will, in the near term, be more a function of mix, integration and timing than of a rising home‑improvement tide.

But beneath the headline numbers, the company is steadily embedding itself deeper into the workflows of builders and trades, wrapping its stores into a broader supply chain and digital fabric. If and when the housing market finally shifts from repair to replace, those quiet investments may matter more than this year’s 24 basis points of gross margin.