Home Depot reports $41.4 billion Q3 sales, revises 2025 outlook due to consumer uncertainty and storm activity impact

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Greetings and welcome to the Home Depot third quarter 2025 earnings call. @ this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabel Janci. Please go ahead.

Thank you Christine and good morning everyone. Welcome to Home Depot's third quarter 2025 earnings call. Joining us on our call today are Ted Decker, Chair, President and CEO Ann Marie Campbell, Senior Executive Vice President Billy Bastick, Executive Vice President of merchandising and Richard McVail, executive vice president and Chief Financial Officer. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors and as a reminder, please limit yourself to one question with one follow up. If we are unable to get to your question during the call, please call our investor relations department at 770-384-2387. Before I turn the call over to Ted, let me remind you that today's press release and the presentations made by our executives and today's presentations include forward looking statements under the Federal securities laws, including as defined in the Private Securities Litigation Reform act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the release. In our most recent annual report on Form 10K and in our other filings with the securities and Exchange Commission. Today's presentation will also include certain non GAAP measures including but not limited to adjusted operating margin, adjusted diluted earnings per share, and return on invested capital. For a reconciliation of these and other non GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website Now. Let me turn the call over to Ted.

Thank you Isabelle and Good morning, everyone. Sales for the third quarter were $41.4 billion, up 2.8% from the same period last year. Comp sales increased 0.2% from the same period last year and comparable sales in the US increased 0.4. Adjusted diluted earnings per share were $3.74 in the third quarter compared to $3.78 in the third quarter last year. Local currency Canada and Mexico posted positive comparable sales. Our results missed our expectations, primarily due to the lack of storms in the third quarter which resulted in greater than expected pressure in certain categories. Additionally, while underlying demand in the business remained relatively stable sequentially, an expected increase in demand in the third quarter did not materialize. We believe that consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand.

Today.

We've revised our guidance for fiscal 2025, which Richard will take you through in a moment. We remain focused on controlling what we can control. Our teams are executing at a high level and we believe we are growing market share. We continue to invest across the business, supporting our associates and delivering the value proposition expected by our customers. In September, SRS completed the acquisition of GMS, a leading distributor of specialty building products, including drywall, ceiling and steel framing related to remodeling and construction projects. GMS further enhances SRS’s position as a leading multi category building materials distributor, bringing differentiated capabilities, product categories and customer relationships that are highly complementary to SRS’s existing business. We could not be more excited to welcome GMS to the family and look forward to bringing a truly differentiated value proposition to our pro customers. We're excited to see many of you in person in a few weeks at our investor conference, the New York stock exchange on December 9th, 2025. We will update you on our strategic initiatives, our unique positioning in the marketplace, our investments and the traction we are seeing with our customers as we continue to position ourselves to win market share in both the near and long term. In closing, I would like to thank our store associates, merchants, supply chain teams and vendor partners who continue to take care of our customers and execute at a high level. With that, let me turn the call over to Ann.

Thanks Tad and good morning everyone. Our associates did an incredible job focusing on our customers and delivering exceptional customer service in our stores. During the quarter, we continue to lean in on initiatives that help our associates do their jobs more effectively while also driving productivity in our operations. I'm going to highlight our progress across a number of initiatives that have helped improve the associate experience and are resulting in a better customer experience and increased customer satisfaction. Last year we rolled out our freight flow application to all stores which has improved our freight processes and driven efficiency in our operations. This initiative has significantly improved our cartons per hour metric resulting in greater efficiency in our unload and pack out process. We also continue to focus on on shelf availability and through computer vision and Sidekick we have reached record in stock and on shelf availability levels. Lastly, our faster fulfillment efforts leveraging both our stores in distribution centers that you've heard about over the last few quarters have driven an over 400 basis point increase in our customer satisfaction scores. In addition, we continue to focus on our pro ecosystem, maturing the new capabilities we have built for pros working on complex projects while enhancing the tools we have to serve pros. We are pleased with the progress we're seeing as our customers engage with our capabilities. There are two new tools we have deployed over the last several months that help us differentiate our offering. The first is a new project planning tool that we launched in September which allows our pros to create and manage material lists and track orders and deliveries. The second tools, Blueprint Takeoffs, will transform the way pros plan and prepare for their projects. This new tool leverages advanced AI and proprietary algorithms to deliver accurate blueprint takeoffs and material estimates in record time. Pros can then quickly and easily purchase all materials they need for their project through the Home Depot. Simplifying this complex process by going through a single supplier. This technology replaces a manual intensive process that took weeks to complete, increasing accuracy and reliability. Adding this advanced technology to our ecosystem of capabilities to better serve the pro working on complex projects will further enable us to be the one stop shop for all project needs from initial planning to material delivery saving or pros time and money. We look forward to seeing you in a few weeks in New York to provide a holistic view of how our full ecosystem is resonating with our pros and allowing us to gain traction and win in the market. With that, let me turn the call over to Billy.

Thank you Ann and good morning everyone. I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, the underlying demand in the quarter was relatively similar to what we saw in the second quarter, however, our results were below our expectations, largely due to a lack of storms relative to historic norms, which most notably impacted areas of the business such as roofing, power generation and plywood, to name a few. Turning to our Merchandising Department Comp performance for the third quarter, 9 of our 16 merchandising departments posted positive comps kitchen, bath, outdoor, garden, storage, electrical, plumbing, millwork, hardware and appliances. During the third quarter, our comp average ticket increased 1.8% and comp transactions decreased 1.6%. The growth in comp average ticket primarily reflects a greater mix of higher ticket items, customers continuing to trade up for new and innovative products, as well as modest price increases. Big ticket comp transactions for those over $1,000 were positive 2.3% compared to the third quarter of last year, we were pleased with the performance we saw in categories such as appliances, portable power and gypsum. However, we continue to see softer engagement in larger discretionary projects where customers typically use financing to fund renovation projects. During the third quarter, both Pro and DIY comp sales were positive and relatively in line with one another. We saw strength across pro heavy categories like gypsum, insulation, siding and plumbing. In diy, we saw strength across our seasonal product offerings including live goods, hardscapes and other garden products. Turning to total company online comp sales, sales leveraging our digital platforms increased approximately 11% compared to the third quarter of last year. We're excited about the continued success we're seeing across our interconnected platforms. Our faster delivery speeds are resonating with customers and driving greater engagement and sales. We know that as we remove friction from the experience, we see incremental customer engagement leading to greater sales across all points of interaction. During the third quarter, we hosted our annual Supplier Partnership meeting where we focused on how we will continue to work together to bring the best products to market, deliver innovative solutions that simplify the project and offer great value with best in class features and benefits. At the event, we recognized a number of vendors across categories who continue to transform the industry with the innovation they bring to our customers on a daily basis. They include Leadersun, Cobra, Torque, Feather River, Milwaukee, Ryobi, Frigidaire, Kidda, Traeger and many more. We are proud of the innovation and partnership that are supplied by our suppliers bring to the Home Depot and the value we're able to offer both our Pro and DIY customers. As we turn our attention to the fourth quarter, we're looking forward to the excitement we will bring with our annual holiday Black Friday and Gift center events. In our Gift center event, we continue to lean into brands that matter most for our customers. With our assortment of Milwaukee, Ryobi, Makita, Dewalt, Ridgid, Diablo, Husky and more, we'll have something for everyone, whether it's our wide assortment of cordless Ryobi tools or Milwaukee hand tools. And in appliances For Black Friday, we have exciting offers on LG, Samsung, Bosch, Whirlpool, GE and Frigidaire. Our assortment includes multiple exclusive products like LG's stainless steel French Door refrigerator with craft ice and Frigidaire's new Gallery dishwasher with a wash cycle time of only 50 minutes. This quarter I'm also excited to announce the addition of PGT Windows to our wide assortment of exclusive retail brands including American Craftsman and Andersen windows. PGT's impact resistant windows are engineered to meet some of the highest performance standards in the industry, reducing storm damage risk, providing energy efficiency, UV protection and sound reduction, and they will be exclusive to the Home Depot and the Big Box Channel. Our merchandising organization remains focused on being our customers advocate for value. This means continuing to provide a broad assortment of best in class products that are in stock and available for our customers. It is the power of our vendor relationships coupled with our best in class merchant organization that allows us to offer our customers the best brands with the most innovation to solve pain points, increase functionality and enhance performance at the best value in the market. With that, I'd like to turn the call over to Richard.

Thank you Billy and good morning everyone. In the third quarter, total sales were $41.4 billion, an increase of $1.1 billion or approximately 3% from last year. Total sales include approximately $900 million from the recent acquisition of GMS, which represents approximately eight weeks of sales in the quarter. During the third quarter, our total comparable salesany comparable saless were positive 0.2% with comparable saless of positive 2% in August, positive 0.5% in September and negative 1.5% in October. Comps in the U.S. were positive 0.1% for the quarter, with comparable saless of positive 2.2% in August, positive 0.3% in September, and negative 1.7% in October. For the quarter and in local currency, Canada and Mexico posted positive comparable sales. In the third quarter. Our gross margin was 33.4% flat comparable salesared to the third quarter of 2024, which was in line with our expectations. During the third quarter, operating expense as a percent of sales increased approximately 55 basis points to 20.5% comparable salesared to the third quarter of 2024, our operating expense included transaction fees related to the acquisition of GMS but otherwise were in line with our expectations. Our operating margin for the third quarter was 12.9% comparable salesared to 13.5% in the third quarter of 2024. In the quarter, pre tax intangible asset amortization was $158 million excluding the intangible asset amortization in the quarter, our adjusted operating Margin for the third quarter was 13.3% comparable salesared to 13.8% in the third quarter of 2024. Interest and other expense for the third quarter was $596 million, which is in line with our expectations. In the third quarter, our effective tax rate was 24.3% comparable salesared to 24.4% in the third quarter of fiscal 2024. Our diluted earnings per share for the third quarter were $3.62 comparable salesared to $3.67 in the third quarter and comparable salesared of 2024. Excluding intangible asset amortization, our adjusted diluted earnings per share for the third quarter were $3.74 comparable salesared to $3.78 in the third quarter of 2024. During the third quarter, we opened three new stores, bringing our total store count to 2,356. At the end of the quarter, merchandise inventories were $26.2 billion, up approximately $2.3 billion comparable salesared to the third quarter of 2024, and inventory turns were 4.5 times, down from 4.8 times last year. Turning to capital allocation, during the third quarter we invested approximately $900 million back into our business in the form of capital expenditures, and we paid approximately $2.3 billion in dividends to our shareholders comparable salesuted on the average of beginning and ending long term debt and equity. For the trailing 12 months, return on invested capital was 26.3%, down from 31.5% in the third quarter of fiscal 2024. Now I will comment on our outlook for fiscal 2025. Today we are updating our fiscal 2025 guidance to include softer than expected results in the third quarter. Continued pressure in the fourth quarter from the lack of storm activity, ongoing consumer uncertainty and housing pressure, as well as the inclusion of the GMS acquisition into our consolidated Results. For fiscal 2025, we expect total sales growth of approximately positive 3%, with GMS expected to contribute approximately $2 billion in incremental sales and comparable sales sales growth percent to be slightly positive comparable salesared to fiscal 2024. Our gross margin is expected to be approximately 33.2%. Further, we expect operating margin of approximately 12.6% and adjusted operating margin of approximately 13%. Our effective tax rate is targeted at approximately.