Home Depot's stock rises, as surprise sales growth provides signs of a turnaround

By Tomi Kilgore

Home improvement retailer sees 'relatively stable' demand throughout the quarter, even as the housing market continues to struggle

Home Depot CEO Ted Decker said underlying demand remained "relatively stable" throughout the fiscal fourth quarter.

Shares of Home Depot gained 2% on Tuesday, after the home-improvement retail giant pleasantly surprised investors with growth in a key sales metric and beat profit expectations by the widest margin in years.

The company (HD) also raised its quarterly dividend by 1.3%, and provided a full-year outlook that was mostly in line with Wall Street forecasts.

Comparable sales for the quarter to Feb. 1, or sales of stores open longer than a year, rose 0.4% from a year ago, while the average analyst estimate compiled by FactSet called for a 0.4% decline. That snapped a three-quarter streak of misses. Sales in U.S. stores rose 0.3% on the quarter.

For the year, overall comparable sales increased 0.3% and U.S. sales grew 0.5% to mark the first growth in three years. The company said storm activity in January provided a sales benefit for the quarter.

The results come a day before rival Lowe's Companies (LOW) reports results. Home Depot's comparable sales have underperformed those of Lowe's the past two quarters, and analysts are also modeling for Lowe's sales to fall 0.4%.

Lowe's shares advanced 1.5% on Tuesday.

Don't miss: How Lowe's stock has trounced Home Depot's - and what may lie ahead.

CEO Ted Decker said underlying demand remained "relatively stable" throughout the fiscal fourth quarter, but overall net sales fell from a year ago to snap a six-quarter streak of increases, as consumers continued to react to economic uncertainties, and as the housing market continued to struggle.

Net sales declined 3.8% to $38.2 billion from $39.7 billion, but topped the FactSet sales consensus of $38.1 billion. The company noted that the latest quarter had one less week than the year-ago period, so on a adjusted comparable basis, sales would have climbed above $40 billion.

Net income fell 14.2% from a year ago, while adjusted earnings per share, which excludes nonrecurring items, of $2.72 beat expectations of $2.53. That not only snapped a three-quarter streak of misses, but was the biggest beat since the fiscal first quarter of 2022.

Gross margin, a measure of how profitable sales are -higher is better - slipped 0.2% percentage points to 32.6%, but as D.A. Davidson analyst Michael Baker said, expectations were for margins to be 0.6% worse that last year.

"The slightly positive comp and better than expected margins certainly does not signal an end to the home center downcycle," Baker wrote in a note to clients. "But, it is a step in the right direction," particularly as the continued dip in mortgage rates provides hopes for an improved housing market.

The company projects fiscal 2026 comparable sales to be flat to up 2%, which compares with the current FactSet consensus of a 1.7% rise.

The company also expects total sales to grow 2.5% to 4.5% and adjusted EPS to be flat to up 4%. The current FactSet sales consensus of $171.21 billion implies 4% growth, while the EPS consensus of $15.09 implies a 2.7% rise.

Separately, the company raised its per-share quarterly dividend to $2.33 from $2.30, with the new dividend payable March 26 to shareholders of record on March 12. At current stock prices, the new annual dividend rate implies a dividend yield of 2.39%, which compares with the 1.71% yield of Lowe's stock and the implied yield for the S&P 500 index SPX of 1.17%.

Home Depot's stock has gained 1.8% over the past 12 months, while shares of Lowe's have climbed 18.2% and the S&P 500 has advanced 14.4%.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

02-24-26 1718ET