Is Home Depot Poised for a Q4 Earnings Beat, or More Headwinds

Key Takeaways

• Home Depot (HD) faces a challenging Q4 FY2025 earnings report on February 24, 2026, with analysts expecting year-over-year declines in both revenue and EPS amidst a soft housing market.
• The company's strategic pivot towards its "Pro" customer segment, bolstered by acquisitions and digital tools, is a crucial long-term growth driver aiming to offset ongoing DIY slowdowns.
• While the housing market remains a significant headwind, Home Depot's reaffirmed FY2025 guidance and cautious FY2026 outlook suggest a potential gradual recovery, with a "market recovery case" offering higher growth if conditions improve.

Is Home Depot Poised for a Q4 Earnings Beat, or More Headwinds?

The Home Depot, Inc. (HD) is set to report its fourth-quarter and fiscal year 2025 results before the market opens on February 24, 2026, and the consensus among analysts points to a continued deceleration in performance. Wall Street anticipates a year-over-year decline in both the top and bottom lines, reflecting persistent pressures in the housing market and cautious consumer spending. This upcoming report will be a critical barometer for how the home improvement giant is navigating a complex economic landscape.

Specifically, the Zacks Consensus Estimate for Q4 fiscal 2025 revenue stands at $38.25 billion, representing a 3.7% decline from the prior-year quarter. Earnings per share (EPS) are projected to fall even more sharply, with a consensus estimate of $2.51, a substantial 19.8% decrease year-over-year. These figures underscore the challenges Home Depot has faced, particularly with big-ticket discretionary purchases and the absence of major storm-related demand that often boosts sales.

Despite these conservative official estimates, a "whisper number" circulating among traders suggests a potential 5.6% EPS beat over the consensus, hinting at some underlying optimism that the market might be pricing in too much pessimism. This divergence creates an interesting dynamic for investors ahead of the earnings call. The stock, currently trading at $382.25, has seen a 14.5% gain over the past three months, outperforming the S&P 500's 3.2% rise, indicating that some positive sentiment may already be baked into the price, perhaps anticipating a less severe outcome or a strong forward outlook.

The company's management has previously highlighted expectations of continued pressure in Q4 due to ongoing consumer uncertainty and softness in the housing market. Investors will be keenly watching not just the headline numbers, but also management's commentary on these macro trends and any shifts in their fiscal 2026 outlook. The ability to meet or exceed these tempered expectations, especially on the EPS front, could provide a much-needed catalyst for the stock, which has a 52-week range between $326.31 and $426.75.

How Are Housing Market Conditions Impacting Home Depot's Performance?

Home Depot's performance is inextricably linked to the health of the U.S. housing market, and recent trends paint a picture of significant headwinds. High interest rates, particularly for mortgages, have created a "frozen" housing market characterized by multi-decade lows in housing turnover. Existing home inventory, while gradually rising to a 4.1-months' supply in 2025, is still below historical averages for a balanced market, and prospective buyers remain anxious about affordability and job security.

This environment directly impacts Home Depot's core business. Homeowners with low fixed-rate mortgages are reluctant to move, reducing the typical renovation activity associated with buying and selling homes. Furthermore, elevated mortgage rates and overall higher costs of living are forcing consumers to delay or scale back big-ticket purchases and large-scale renovation projects that often require financing. CEO Ted Decker noted that housing activity is "truly at 40-year lows as a percentage of housing stock," directly impacting the company's sales.

The impact is evident in Home Depot's recent results. In Q3 FY2025, U.S. comparable sales increased by a mere 0.1% year-over-year, with foot traffic falling 0.4%. The company's gross margin is expected to contract by 50 basis points in Q4 to 32.3%, and the operating margin to decline by 140 basis points to 10.3%, reflecting these pressures alongside increased operating costs and tariff impacts. While economists anticipate a modest reduction in mortgage rates and a slight improvement in affordability in 2026, a "sustained sub-6% mortgage rate will likely wait until 2027," suggesting a prolonged period of caution for the housing market.

J.P. Morgan Global Research forecasts U.S. house prices to stall at 0% in 2026, with demand improvements likely offsetting increased supply. This stagnation, combined with a slowing labor market, restricts both supply and demand in the housing sector. For Home Depot, this means continued pressure on its DIY segment and larger financed projects, making the recovery of the housing market a crucial, albeit uncertain, factor for its future growth trajectory.

Can the "Pro" Segment Offset DIY Slowdowns?

In response to the challenging housing market and cautious DIY spending, Home Depot has strategically intensified its focus on the "Pro" customer segment – professional contractors and builders. This pivot is not just a defensive measure but a long-term growth lever, aiming to capture a larger share of a massive addressable market. The company views the Pro market as a significant opportunity, particularly as it refines its capabilities for large-order deliveries and job-site services.

Home Depot's Pro strategy is multifaceted, building an entire ecosystem that integrates stores, supply-chain assets, digital tools, and dedicated sales teams. Recent innovations include a project planning tool and an artificial intelligence-driven blueprint takeoff application, designed to streamline complex manual processes into efficient digital workflows. These tools enable Pros to manage projects, estimate materials, and complete purchases within a single platform, positioning Home Depot as a comprehensive solution provider.

Key acquisitions have further bolstered this strategy. The integration of GMS, a specialty distributor of building products, contributed approximately $900 million in sales during Q3 FY2025 alone. This, along with the existing SRS Distribution business, extends Home Depot's reach into specialized categories like roofing, drywall, and plumbing. Management has noted that cross-selling efforts among Home Depot, SRS, and GMS are already underway, facilitating account handoffs and securing larger project wins.

While DIY trends remain challenged by consumers pulling back on discretionary spending, the Pro segment is emerging as a stabilizing force. In Q3 FY2025, both Pro and DIY comparable sales were positive and relatively in line, with average ticket rising 1.8% due to a higher mix of big-ticket items (over $1,000 transactions increased 2.3% year-over-year). This indicates that while the Pro segment isn't driving "meaningful acceleration" yet, it is providing a crucial cushion against broader market softness and is central to Home Depot's long-term value creation strategy.

What Do Home Depot's Financials and Valuation Tell Us?

A deep dive into Home Depot's latest financials and valuation metrics reveals a company navigating a period of contraction while maintaining underlying strength. For the trailing twelve months (TTM), Home Depot reported an EPS of $14.70 on revenue of $167.53 billion. Despite these robust absolute figures, the company has seen some year-over-year growth deceleration, with TTM revenue growth at 4.5%, but net income down 2.2% and EPS down 1.3%.

From a profitability standpoint, Home Depot maintains solid margins: a gross margin of 33.4%, operating margin of 13.0%, and net margin of 8.8%. These figures, while strong, are under pressure, with operating margins dropping to 12.9% in Q3 FY2025 from 13.5% the previous year, partly due to GMS acquisition integration expenses and increased operating costs. Returns remain impressive, with ROE at 156.1%, ROA at 13.7%, and ROIC at 21.4%, showcasing efficient capital deployment despite market challenges.

Valuation-wise, Home Depot trades at a TTM P/E ratio of 26.00, which is higher than its rival Lowe's (LOW) at a forward P/E below 19x. This premium reflects Home Depot's market leadership and strong Pro business, but also limits near-term upside in a sluggish market. The stock's current price of $382.25 is below the analyst consensus target of $407.77 and median of $410.00, implying potential upside of around 6.6% to 7.2%. The analyst rating consensus is a "Buy" from 61 analysts, with 37 "Buy" ratings and 19 "Hold" ratings, suggesting a generally positive outlook despite recent headwinds.

Home Depot also offers a reliable dividend, with a quarterly payout of $2.30 per share, translating to a yield of 2.4% (TTM). The payout ratio stands at 62.4%, indicating a sustainable dividend. While the company's growth in operating cash flow and free cash flow has seen a slight decline (Operating CF -6.4%, FCF -9.0% YoY for FY2024), the dividend per share grew 7.5%, underscoring management's commitment to shareholder returns. The balance sheet shows a D/E ratio of 4.87 and Net Debt/EBITDA of 2.28, indicating a moderately leveraged position.

What Does Home Depot's Guidance Tell Us About Fiscal 2025 and 2026?

Home Depot's guidance for fiscal year 2025 and its preliminary outlook for fiscal year 2026 provide a clear roadmap of management's expectations amidst the current market dynamics. For fiscal 2025, which is a 52-week year compared to the 53-week fiscal 2024, the company reaffirmed its guidance, expecting total sales growth of approximately 3%. This includes an anticipated $2 billion in incremental sales from the GMS acquisition. Comparable sales growth is projected to be "slightly positive" for the comparable 52-week period.

Profitability metrics for FY2025 are also under pressure. The company expects a gross margin of approximately 33.2% and an operating margin of approximately 12.6%. Adjusted diluted earnings per share are anticipated to decline by approximately 5% from the fiscal 2024 figure of $15.24. This revised outlook, initially cut from a previous call for a 2% decline, reflects weaker-than-expected demand due to the lack of significant storm activity, persistent consumer uncertainty, and pressures in the housing market.

Looking ahead to fiscal year 2026, Home Depot has provided a preliminary, cautious outlook. The home improvement market is expected to be in a range between -1% to +1%. Consequently, the company forecasts comparable sales growth of approximately "flat to 2%," with total sales growth in the range of 2.5% to 4.5%. Operating margin is projected to be between 12.4% and 12.6%, with diluted earnings per share expected to increase approximately "flat to 4%." This outlook is below analyst estimates, which had anticipated higher growth.

Crucially, Home Depot also outlined a "market recovery case" for fiscal 2026, which envisions higher growth if housing activity rebounds more sharply. In such a scenario, comparable sales are expected to rise in a range of 4% to 5%, with diluted EPS growth in the "mid-to-high-single-digits." CFO Richard McPhail emphasized confidence that housing pressures will correct, providing support for the home improvement market to grow faster than the general economy, and Home Depot aims to outpace that market growth. This dual guidance provides investors with a baseline expectation and an upside scenario tied directly to macroeconomic improvements.

What Does This Mean for Investors, and What Should They Watch For?

For investors considering Home Depot, the upcoming earnings call on February 24, 2026, is less about a blowout quarter and more about management's tone and forward guidance. The current stock price of $382.25 reflects a company facing near-term headwinds but with a strong long-term strategic vision. The key question is whether the market has fully priced in the cautious outlook, or if there's room for either disappointment or a positive surprise.

Here are three things to watch:

1. Fiscal 2026 Outlook Refinement: While preliminary guidance has been issued, any further clarity or upward revision to the FY2026 outlook, particularly regarding the "market recovery case," could be a significant catalyst. Investors should listen for signs of improving housing market sentiment or specific initiatives that could accelerate growth beyond the current flat-to-2% comparable sales forecast.
2. Pro Segment Momentum: Pay close attention to commentary on the Pro business. Specific metrics on Pro sales growth, adoption rates of new digital tools like Material List Builder AI, and the integration progress of acquisitions like GMS will indicate if this strategic pivot is gaining sufficient traction to offset DIY softness. Strong performance here is crucial for long-term value creation.
3. Margin Management: With operating margins under pressure, management's plans for cost control and operational efficiency will be critical. Any signs of stabilization or improvement in gross and operating margins, especially given the integration costs of recent acquisitions, would be a positive signal that the company is effectively navigating inflationary pressures and investment cycles.

The bull case for Home Depot hinges on its market leadership, operational discipline, and the long-term potential of its Pro segment, which is well-positioned to capture opportunities as home improvement demand normalizes. The bear case acknowledges the elevated valuation (TTM P/E of 26.00) and the persistent macroeconomic uncertainty, particularly in the housing market, which could continue to temper near-term growth. While the stock has outperformed the S&P 500 recently, it has lagged behind rival Lowe's over the past three months, suggesting investors are weighing these factors carefully.

Home Depot remains a high-quality company with a dominant market position, but its near-term trajectory is heavily dependent on external economic factors. Investors should approach the upcoming earnings with a focus on forward-looking statements and the underlying health of its strategic initiatives, rather than solely on the Q4 headline numbers. The path to sustained growth will likely be gradual, tied to a broader housing market recovery.

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