Will Rising Rates Keep Hammering Home Depot's Core Market Sales?

Higher interest rates continue to weigh on The Home Depot Inc.’s HD core market of big-ticket remodeling business. These bigger renovations typically require financing and persistently high mortgage and borrowing rates have dampened customer appetite to tap into home equity. Management cited that customers are gravitating toward smaller, seasonal improvements rather than big-ticket remodels like kitchens and baths.

Although the company reported first-quarter fiscal 2025 sales of $39.9 billion, up 9.4% year over year, led by healthy customer engagement for smaller projects, its larger remodeling jobs remained disappointing. Despite rising home equity and solid employment levels, the remodeling cycle has not taken off as expected. This cautious spending pattern, shaped by prolonged rate pressure, has muted the anticipated rebound in Pro-heavy categories. 

While Pro sales outpaced DIY in the fiscal first quarter, engagement in large discretionary projects remained soft. Big-ticket transactions, those more than $1,000, were up just 0.3% and categories like kitchen and bath remodels continued to see soft demand. Management attributes this hesitation to a mix of macroeconomic uncertainty and interest rate pressures that are keeping consumers cautious on major investments.

Nonetheless, Home Depot sees potential in the deferred demand, estimating a $50 billion cumulative shortfall in home improvement spending since the pandemic. While management remains optimistic that this backlog will unlock once rates ease or confidence improves, the rising rates are clearly limiting upside in the company’s most profitable project categories for now. Until then, Home Depot will continue focusing on driving gains through its Pro ecosystem and smaller-ticket growth levers.

What Rising Rates Mean for Home Depot’s Key Rivals: LOW & FND

Rising interest rates are not just weighing on Home Depot. it is also pressuring key rivals like Lowe’s Companies Inc. LOW and Floor & Decor FND, as consumers continue to delay big-ticket home improvement projects and discretionary remodels.

High interest rates have softened Lowe’s performance, particularly in DIY-driven categories and big-ticket purchases, as homeowners delay larger renovations. While Lowe’s has made strides in expanding its Pro segment, it still trails Home Depot in contractor penetration and supply-chain scale. Compared with HD, Lowe’s remains more exposed to discretionary consumer pullbacks. In the current high-rate environment, Home Depot appears better equipped to navigate demand pressure and capture deferred project recovery.

High interest rates have dampened Floor & Decor’s performance by stalling large flooring remodels, which often rely on financing. The company’s exposure to big-ticket discretionary spending leaves it vulnerable in this environment. Compared with Home Depot, FND is less diversified and more dependent on single-category demand. While both retailers face rate-driven pressure, Home Depot is better positioned due to its broader product range, Pro focus and resilient project demand base.

The Zacks Rundown for Home Depot

HD’s shares have lost 4.4% year to date compared with the industry’s decline of 7.2%.

From a valuation standpoint, Home Depot trades at a forward price-to-earnings ratio of 23.83X, significantly higher than the industry’s 21.11X. 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 9.1%. The earnings estimate for fiscal 2025 has been unchanged in the past 30 days, while the same for fiscal 2026 has moved south.

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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