Home Depot's Margins Hold Steady: Is Top-Line Growth Stalling?

Margins are a vital indicator of operational efficiency, and for The Home Depot Inc. HD, margins are its core strength. With its scale-driven cost leverage, tight inventory controls and robust supply chain, the retailer has consistently outperformed its peers on profitability. In first-quarter fiscal 2025, Home Depot maintained a gross margin of 33.8% and an adjusted operating margin of 13.2%, despite pressures from higher SG&A and integration of SRS Distribution. The ability to manage shrink, supply-chain productivity and pricing helped partially offset margin pressures, even as the company invested heavily in Pro ecosystem capabilities and digital tools like Magic Apron. This underscores its disciplined execution.

However, top-line momentum tells a more tempered story. While total sales rose 9.4% to $39.9 billion—buoyed largely by acquisitions and calendar shifts—comparable sales declined 0.3%, with U.S. comps up just 0.2%. Big-ticket sales, often a barometer of remodeling demand, grew just 0.3%, as elevated interest rates weighed on demand for larger financed projects like kitchen and bath remodels. Instead, customers gravitated toward smaller DIY tasks and seasonal purchases, highlighting the ongoing macro sensitivity to elevated interest rates and sluggish housing turnover.

Home Depot’s Pro ecosystem expansion, digital tools like Magic Apron and exclusive brand deals are well-positioned to unlock future growth. However, without a rebound in large-scale renovation demand, fueled by easier credit or greater macro confidence, the company may find it challenging to convert margin resilience into sustained revenue acceleration.

Home Depot’s Competition From Margins Standpoint

From a margin standpoint, Home Depot's main competitors are Lowe’s Companies Inc. LOW and Walmart Inc. WMT.

Home Depot typically maintains stronger net margins than Lowe’s, driven by its scale, financial strength and operational efficiency. In first-quarter fiscal 2025, Lowe’s posted a 33.4% gross margin and an 11.9% operating margin, with comparable sales down 1.7% due to weak big-ticket DIY demand and unfavorable weather. While Lowe’s saw gains in Pro and online channels and continues to expand margin and ROIC, it still trails Home Depot in Pro penetration and supply-chain execution. The key difference lies in customer mix, Home Depot’s more mature Pro ecosystem offers stability and higher margins, whereas Lowe’s heavier DIY exposure makes it more sensitive to consumer spending shifts.

Walmart, though significantly larger in revenues and similarly leveraged, operates with a very different margin profile than Home Depot. In first-quarter fiscal 2025, Walmart posted a gross margin of 24.2% and an operating margin of 5.1%, with a net profit margin of 2.75%, well below Home Depot’s nearly 9%. Walmart’s scale and grocery-heavy mix offer sales stability but limit margin upside. In contrast, Home Depot’s focus on higher-margin categories like tools, appliances and Pro services supports stronger profitability. Walmart’s pricing power is more exposed to rising costs and tariffs, prompting selective price hikes, while Home Depot’s specialized model and margin flexibility help it maintain stable pricing.

The Zacks Rundown for Home Depot

HD shares have lost 7.3% year to date compared with the industry’s decline of 9%.

From a valuation standpoint, Home Depot trades at a forward price-to-earnings ratio of 23.22X, significantly higher than the industry’s 20.83X. It carries a VGM Score of A.

The Zacks Consensus Estimate for HD’s fiscal 2025 earnings implies a year-over-year decline of 1.3%, whereas its fiscal 2026 earnings estimates indicate year-over-year growth of 9.2%. The estimate for fiscal 2025 has been northbound in the past 30 days, while that for fiscal 2026 EPS has moved south in the same period.

Home Depot currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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