The Home Depot (NYSE:HD) Q3 2026 Earnings Call November 18, 2025 09:00 AM ET Company ParticipantsSteven Zaccone - Director and Retail Equity ResearchIsabel Janci - VP and Head of Investor RelationsSteven Forbes - Senior Managing DirectorAnn-Marie Campbell - Senior EVPZack Fadem - Managing DirectorRichard McPhail - EVP and CFOSeth Sigman - Consumer ResearchBilly Bastek - EVP of MerchandisingTed Decker - Chair, President, and CEOConference Call ParticipantsChristopher Horvers - Senior AnalystMichael Lasser - ...

Financial Data and Key Metrics Changes - Total revenue for the third quarter was $3.8 billion, flat compared to the prior year, with a 1% organic decline driven by a 5% increase in pricing and a 6% decrease in volume [16][18] - Adjusted gross margin rate was 31.6%, up 110 basis points year over year, primarily due to pricing strategies and supply chain efficiencies [17][25] - Adjusted EBITDA margin was 12.3%, reflecting a 150 basis point improvement year over year [17] Business Line Data and Key Metrics Changes - Tools and outdoor segment revenue was approximately $3.3 billion, flat year over year, with a 2% organic revenue decline due to a 5% pricing benefit offset by a 7% volume decrease [18][20] - Engineered fastening segment revenue grew 3% on a reported basis and 5% organically, driven by a 4% volume increase and a 1% price benefit [22] - DEWALT brand maintained strong momentum with revenue expansion across all product lines and regions, reflecting targeted investments in innovation [20] Market Data and Key Metrics Changes - North America organic revenue for tools and outdoor declined 2%, with end user demand starting strong but moderating later in the quarter [21] - In Europe, organic revenue was flat, with growth in the U.K. offset by softer conditions in France and Germany [22] - The rest of the world saw a 1% organic revenue decline, primarily due to market softness in Asia [22] Company Strategy and Development Direction - The company aims to achieve a 35% adjusted gross margin while strengthening its balance sheet, focusing on activating brands, driving operational excellence, and accelerating innovation [7][15] - A strategic transformation program is on track to deliver $2 billion in cost reductions by year-end 2025, with $120 million in incremental pre-tax run rate cost savings achieved in the third quarter [28][30] - The company is reducing reliance on Chinese imports, targeting less than 10% of U.S. supply from China by mid-2026 [29] Management's Comments on Operating Environment and Future Outlook - Management acknowledges a challenging macroeconomic environment but remains confident in achieving long-term financial goals through disciplined execution [16][40] - The outlook for 2025 anticipates total company sales to be flat to down 1%, with adjusted earnings per share expected to be approximately $4.55 [30][33] - Management emphasizes the importance of maintaining operational resilience and adapting to evolving market conditions [40] Other Important Information - The company recorded a $169 million pre-tax non-cash asset impairment charge in the third quarter, primarily related to brand prioritization strategy adjustments [31] - Free cash flow for the third quarter was $155 million, contributing to a full-year target of $600 million [36][37] Q&A Session Summary Question: How did volumes perform relative to expectations? - Management indicated that volumes were in line with expectations, starting strong but tapering towards the end of the quarter due to a non-standard promotional window [44][46] Question: What are the profit levers for the fourth quarter? - Operating profit is expected to expand due to gross margin improvements and SG&A expense reductions, with a target gross margin around 33% [49][50] Question: What is the impact of tariff inflation on pricing? - The second price increase is expected to be in the low single-digit range, with minimal impact from recent tariff changes [56][58] Question: How does the company view its position in the housing market? - Management believes the company is well-positioned to benefit from any future housing market recovery, focusing on building relationships and innovation during the current market retrenchment [80][84] Question: What progress has been made on USMCA compliance? - Significant progress has been made towards USMCA compliance, with no structural roadblocks anticipated [86][88]

Core Viewpoint - The power tool industry is experiencing significant growth driven by technological advancements, increasing demand in construction and manufacturing, and a rising consumer interest in home maintenance and DIY projects [3][9][10]. Market Size and Growth - The global power tool market reached $27.028 billion in 2024 and is projected to grow to $35.479 billion by 2030, with a compound annual growth rate (CAGR) of 4.64% from 2024 to 2030 [10]. - The power tool components market reached $11.349 billion in 2023 and is expected to grow to $17.245 billion by 2030, with a CAGR of 4.81% from 2024 to 2030 [31]. Technological Innovation and Development - The industry is advancing through innovations such as improved battery technology, high-efficiency motors, and smart features, enhancing performance, durability, and safety [4][25][26]. - Lithium-ion batteries are becoming the standard, providing higher energy density and longer lifespans, while brushless motors are increasing efficiency and runtime [25]. Demand from Key Sectors - The construction and manufacturing sectors are primary demand areas for power tools, with tools like electric drills and saws being essential for efficiency and precision [5][9]. - The home and consumer market is also growing, driven by increased interest in home maintenance and DIY projects [6]. Environmental Sustainability - Electric power tools offer environmental advantages over traditional fuel-powered tools, producing no exhaust emissions and aligning with sustainable development goals [7]. Regional Market Insights - North America and Europe dominate the global power tool market, with respective market sizes of $8.05 billion and $7.3 billion in 2023, accounting for 33.0% and 29.9% of the total market [16]. Major Manufacturers - Key global power tool manufacturers include Stanley Black & Decker, TTI, Bosch, and Makita, with Stanley Black & Decker leading the market with a revenue of $5,836.30 million in 2023, representing 23.93% of the total market [13][14]. Cordless Power Tool Market - The global cordless power tool market reached $13.926 billion in 2024, with a year-on-year growth rate of 12.51% compared to $12.377 billion in 2023, and is projected to reach $21.049 billion by 2031, with a CAGR of 6.28% [21]. Power Tool Components - The power tool components market includes critical parts such as motors, batteries, and switches, with major competitors like Stanley Black & Decker and Bosch leading in product quality and technological R&D [34].

Core Viewpoint - The article highlights two stocks, Stanley Black & Decker and Bath & Body Works, as strong options for income investors due to their solid dividend yields, financial upside, and trusted brand power. Group 1: Stanley Black & Decker - Stanley Black & Decker is a global leader in tools and outdoor products, with well-known brands such as DEWALT, CRAFTSMAN, BLACK+DECKER, and STANLEY [2] - The company recently increased its quarterly cash dividend by $0.01 to $0.83 per share, resulting in a dividend yield of 4.5%, marking its long-standing record for consecutive dividend payments among industrial companies [3] - The company aims to improve margins through initiatives expected to generate $2 billion in pre-tax run-rate cost savings by the end of 2025, with a long-term gross margin target of over 35% [6] Group 2: Bath & Body Works - Bath & Body Works operates in the specialty home fragrance and body care market, offering a dividend yield of 3.1% and significant growth potential through store upgrades, digital opportunities, and international expansion [7] - The company is projected to exceed $7.3 billion in sales for fiscal 2024, with plans to expand into new product categories such as shaving and facial care, as well as haircare and men's care [8][9] - Currently, only 5% of Bath & Body Works' sales come from international markets, indicating substantial growth opportunities as the company expands globally, having recently opened its 500th international store in London [10]

Financial Data and Key Metrics Changes - The company reported sales of $24 billion for the quarter, with comparable sales increasing by 1.1% [6][24] - Adjusted diluted earnings per share reached $4.33, marking a 5.6% increase compared to the previous year [6][23] - Adjusted gross margin improved to 33.8%, up 37 basis points from last year [25] - Inventory at the end of Q2 was $16.3 billion, down $499 million year-over-year [26] Business Line Data and Key Metrics Changes - Positive comparable sales were delivered in nine of the fourteen merchandise divisions, with notable growth in pro and online sales [11][12] - The lawn and garden category saw strong performance, driven by live goods and seasonal offers [12] - Building products, including plumbing repair and drywall, also experienced positive comps, reflecting ongoing momentum in repair and maintenance projects [13] Market Data and Key Metrics Changes - The macro environment remains supportive for homeowners, with strong balance sheets, wage growth, and low unemployment [9] - Analysts estimate approximately $50 billion in deferred project demand due to delayed discretionary projects over the past few years [9] - The need for an estimated 18 million new homes by 2033 indicates a healthy pipeline for home improvement and new construction [10] Company Strategy and Development Direction - The acquisition of Foundation Building Materials (FBM) is seen as a transformational move to enhance the company's pro offerings and capture a larger share of the $250 billion total addressable market [5][39] - The company aims to integrate FBM's capabilities to improve job site delivery and expand product offerings for pro customers [37][39] - The strategy focuses on leveraging acquisitions to strengthen the pro distribution platform and enhance overall growth potential [38][89] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term outlook for the home improvement industry, driven by aging housing stock and pent-up demand [9][10] - The company anticipates a flat home improvement market for the remainder of the year, with expectations for gradual improvements in underlying business performance [28][72] - Management highlighted the importance of continuous improvement initiatives to navigate the uncertain environment and deliver value to customers [27][60] Other Important Information - The company generated $3.7 billion in free cash flow during the quarter and paid $645 million in dividends [27] - The acquisition of ADG was completed in June, and it is expected to complement the FBM acquisition by offering a comprehensive interior solutions platform [10][41] Q&A Session Summary Question: Can you expand on Foundation's year-to-date performance in 2025? - Management refrained from providing specific details until after the transaction closes but expressed excitement about FBM's historical performance [46] Question: What percentage of the 33,000 SKUs will be net new to Lowe's? - Management indicated it is too early to provide specifics but sees significant opportunities for complementary products [47] Question: Can you elaborate on the pro sentiment survey results? - Pros reported stable backlogs and confidence in job prospects, although labor costs are rising [58][60] Question: What is the customer makeup of FBM? - FBM serves about 40,000 customers with a balanced mix of 45% residential and 55% commercial, minimizing concentration risk [68] Question: How does the company plan to leverage the acquisitions? - The combination of FBM and ADG is expected to create differentiation and allow the company to capture a larger share of the pro market [95]

Financial Performance & Outlook - Stanley Black & Decker's (SWK) 2023 revenue was $15.8 billion[7] - The company is targeting ~$1.5 billion of pre-tax run-rate savings by the end of 2024[16] - The company is reiterating EPS guidance range of GAAP $1.60-$2.85 and adjusted $3.50-$4.50, and free cash flow $0.6B-$0.8B for 2024[29] - The company expects adjusted gross margin to increase sequentially in each half of 2024, planning for ~30% full year 2024 adjusted gross margin[35] - The company's 1Q'24 free cash flow outflow was ~$500 million[35] Business Segments - Tools & Outdoor segment accounted for $13.4 billion in revenue in 2023[7] - Industrial segment revenue was $2.4 billion in 2023[7] - In the Tools & Outdoor segment, Power Tools Group accounted for 48%, Hand Tools, Accessories & Storage for 30%, and Outdoor Power Equipment for 22% of the revenue[7] - Engineered Fastening accounted for 81% and Infrastructure for 19% of the Industrial segment revenue[7] Geographic Distribution - 62% of the company's revenue is generated in the U.S[10]

Financial Performance & Strategy - Stanley Black & Decker's (SWK) 2023 revenue was $15.8 billion[7] - The company is targeting ~$2 billion in pre-tax run-rate cost savings by the end of 2025[12, 14] - SWK is aiming for organic revenue growth of 2-3x the market rate[12] - The company is targeting an adjusted gross margin of 35%+ by 2025[12] - SWK expects free cash flow conversion to be 100%+[12] Segment Breakdown - Tools & Outdoor segment accounted for $13.4 billion of revenue in 2023[7] - Industrial segment revenue was $2.4 billion in 2023[7] - Within Tools & Outdoor, Power Tools Group contributed 48%, Hand Tools, Accessories & Storage 30%, and Outdoor Power Equipment 22% of the revenue[7] Geographic Distribution - 62% of the company's revenues are generated in the U S [10] - Europe accounts for 16%, Emerging Markets 12%, and Rest of World (ROW) 10% of the revenues[10] 2024 Guidance - The company anticipates organic revenue to be approximately (0 5%) year-over-year +/- 130 bps in 2024[28] - Adjusted EPS for 2024 is projected to be $3 70-$4 50, and free cash flow is expected to be $650 million-$850 million[28]

Core Viewpoint - Walmart and Home Depot are taking different approaches to pricing in response to new import tariffs, with Walmart planning to raise prices while Home Depot aims to manage costs without broad price increases. Group 1: Pricing Strategies - Walmart announced it would raise prices in the coming weeks and months, potentially influencing other retailers to follow suit [1] - Home Depot stated it would not implement broad-based price adjustments and would instead utilize other strategies to manage expenses [1][7] Group 2: Profit Margins - Home Depot operates with wider profit margins (33.4%) compared to Walmart (27.5%), allowing it more flexibility to absorb tariff-related costs [3][4] - The difference in markup between the two retailers is approximately six percentage points, reflecting their different product focuses [4] Group 3: Product Categories - Walmart relies heavily on low-priced groceries, with about 60% of its sales coming from food and beverages, making it cautious about raising food prices [5][6] - Home Depot, which does not focus on food sales, has more options to adjust pricing strategies without directly impacting grocery prices [6] Group 4: Supply Chain and Sourcing - Walmart sources two-thirds of its products from US suppliers but depends on China for about 60% of its imports, making it more vulnerable to tariffs [8][9] - Home Depot sources half of its inventory domestically and plans to ensure no single country will represent more than 10% of its supply base by next year [8] Group 5: Brand Partnerships - Home Depot plans to leverage exclusive brand partnerships to maintain lower prices, as certain brands are only available at its stores [10][11] - Walmart, being a mass retailer, has less incentive for national brands to offer better deals, limiting its pricing flexibility [11] Group 6: Market Positioning - Home Depot appears to have more flexibility than Walmart in maintaining stable prices while still achieving profitability [14] - As more retailers report earnings, analysts will be keen to see how they navigate pricing in light of the new tariffs [15]

Financial Data and Key Metrics Changes - Total sales for fiscal year 2024 were $159.5 billion, an increase of 4.5% from the previous year [6][33] - Adjusted diluted earnings per share for the fourth quarter were $3.13, compared to $2.86 in the prior year, reflecting a 9.4% increase [7][37] - Gross margin for the fourth quarter was approximately 32.8%, a decrease of 25 basis points from the previous year [33] - Operating margin for the fourth quarter was 11.3%, down from 11.9% in the same quarter last year [35] Business Line Data and Key Metrics Changes - In the fourth quarter, 10 of the 16 merchandising departments posted positive comps, including appliances and building materials [23] - Comp sales in the fourth quarter increased by 0.8%, with U.S. stores seeing a 1.3% increase [7][31] - Online sales, excluding the impact of an extra week in the quarter, increased approximately 9% compared to the fourth quarter of last year [24] Market Data and Key Metrics Changes - 15 of the 19 U.S. regions delivered positive comps in the fourth quarter, with Canada and Mexico also reporting positive comps in local currency [8] - The company experienced a net contribution of approximately $220 million in hurricane-related sales, positively impacting total company comps by approximately 65 basis points for the quarter [32] Company Strategy and Development Direction - The company remains focused on creating the best interconnected shopping experience and growing its Pro wallet share through strategic investments [9][10] - The acquisition of SRS contributed $6.4 billion in sales for the seven months of ownership, with expectations for mid-single-digit organic growth in fiscal 2025 [11][41] - Plans to open 13 new stores in fiscal 2025, building on the 12 new stores opened in fiscal 2024 [13][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying momentum of the business, despite uncertainties in the macroeconomic environment [40] - The company expects total sales growth of approximately 2.8% and comp sales growth of approximately 1% for fiscal 2025 [41][43] - Management noted that while there are signs of normalization in the home improvement market, continued pressure on larger remodeling projects is anticipated [40] Other Important Information - The company announced a 2.2% increase in its quarterly dividend to $2.30 per share, equating to an annual dividend of $9.20 per share [39] - Return on invested capital was approximately 31.3%, down from 36.7% in the previous year [38] Q&A Session Summary Question: What is the macro housing backdrop and its impact on comp sales? - Management indicated that while there was slight improvement in housing turnover, they do not expect a significant rebound in new housing starts or mortgage rates [47][48] Question: Were the increases in appliances and paint volume-driven? - Management noted that the positive performance was a combination of healthy transactions and unit performance across various categories [60][62] Question: What market share assumptions are embedded in the 2025 outlook? - Management expects the overall market to be flat, with continued strength in their business initiatives contributing to incremental sales [71][72] Question: How is the SRS acquisition impacting the bottom line? - Management confirmed that SRS is cash accretive and contributing positively to both top and bottom lines, with a mix impact of about 40 basis points [105][106] Question: What is the current pricing environment? - Management stated that the pricing environment has settled into a rational market, with no significant changes in promotional activity compared to pre-COVID levels [106][108]