Home Depot's Inventory Playbook: Is It Delivering Results in FY25?

The Home Depot Inc.’s HD inventory strategy in fiscal 2025 reflects a deliberate and agile approach aimed at supporting operational resilience and customer demand amid macroeconomic uncertainties. The company strategically increased inventory by $3.3 billion year over year to $25.8 billion in first-quarter fiscal 2025 due to the addition of SRS Distribution and planned investments in seasonal load-ins for its spring sales season.

Management emphasized that this was not a result of overstocking or panic buying but a conscious effort to ensure high in-stock levels, particularly ahead of its peak spring season. This has paid off with improved product availability and faster fulfillment, which are critical differentiators in the home improvement retail space.

Home Depot’s diversified sourcing strategy strengthens inventory management by reducing reliance on any one country, with more than 50% of goods now sourced domestically. This flexibility helps manage tariff risks and supply chain disruptions, enabling stable pricing. Digital tools like the AI-powered Magic Apron also boost online conversions and customer confidence by improving access to product information across channels.

While the macro backdrop remains challenging, with high interest rates pressuring large-scale remodeling projects, Home Depot has successfully captured demand for smaller DIY and Pro projects. Its inventory investments and merchandising strategies have driven strong engagement in high-demand categories like building materials, outdoor garden and electrical. With the added capabilities from SRS and continued investment in inventory visibility at the SKU level, the company’s inventory strategy appears to be not just holding steady but creating a competitive edge in 2025.

Inventory Strategy of HD’s Rivals: LOW & FND

Lowe’s Companies Inc. LOW and Floor & Decor FND are adopting a more disciplined and data-driven inventory strategy, focusing on tighter SKU management and demand forecasting to optimize working capital and navigate a softer home improvement market.

Lowe’s has been sharpening its inventory strategy to enhance operational efficiency and better serve both DIY and Pro customers. The company continues to invest in supply chain modernization, including market delivery hubs and improved distribution center capabilities, to ensure faster and more reliable product availability.

Lowe’s also uses advanced demand forecasting and inventory planning tools to optimize stock levels, reduce out-of-stocks and limit excess inventory. These initiatives are designed to improve in-store productivity and support its omnichannel ambitions, enabling Lowe’s to compete more effectively with Home Depot in terms of service, selection and fulfillment speed.

Floor & Decor operates with a highly disciplined and focused inventory model, centered around its warehouse-style stores and specialized product assortment. Unlike general home improvement retailers, FNP maintains deep inventory levels within key hard surface flooring categories, ensuring customers can access what they need for entire projects in a single trip.

The company’s direct sourcing strategy allows it to maintain cost efficiency and stock consistency while offering value pricing. With a centralized distribution approach and tight control over SKUs, Floor & Decor balances high inventory availability with strong inventory turnover, supporting both customer satisfaction and healthy margins.

The Zacks Rundown for Home Depot

HD shares have lost 4.6% year to date compared with the industry’s decline of 9.4%.

From a valuation standpoint, Home Depot trades at a forward price-to-earnings ratio of 23.64X, higher than the industry’s 20.52X. It has a VGM Score of B.

The Zacks Consensus Estimate for HD’s fiscal 2025 earnings implies a year-over-year decline of 1.3%, whereas its fiscal 2026 earnings estimate indicates year-over-year growth of 9.2%. Earnings estimates for fiscal 2025 have been unchanged in the past 30 days.

HD currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research