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Home Depot Warns a Home-Improvement Recovery Is Still Far Off

Dec 08, 2025 15:41:00 -0500 by Sabrina Escobar | #Real Estate

A Home Depot store in San Rafael, Calif. (Justin Sullivan/Getty Images)

Key Points

Home Depot’s first investor day in more than two years carried a sobering message for investors: The much-awaited recovery in spending on home improvement is still far off.

The company reaffirmed its financial forecasts for the fiscal year ending Feb. 1. But management set a low bar for the following year, saying the challenges that have plagued the industry since 2023 would continue to weigh on demand.

A weak housing market and high interest rates have made consumers less willing to spend on renovation projects. Industry insiders hoped that interest-rate cuts by the Federal Reserve would reignite both the housing market and home-improvement sales, but that has yet to happen.

“Looking forward to 2026, we anticipate these pressures will persist as we have not yet seen a catalyst for an inflection in housing activity,” said Richard McPhail, Home Depot’s chief financial officer, at an investor day briefing on Tuesday.

Home Depot said it expects adjusted earnings per share growth to be between zero and 4% in the year ended in February 2027, following an expected drop of 5% this fiscal year. It expects comparable-sales growth to be between zero and 2% and total sales growth of 2.5% to 4.5%.

Wall Street is currently expecting around a 5% jump in EPS next fiscal year, according to FactSet.

The company also provided guidance in the case of a housing market recovery. It said if that happens, it could achieve comparable sales growth of 4% to 5% and adjusted per-share earnings growth in the mid-to-high single digits.

“Our Market Recovery Case reflects our performance expectations once we see momentum in housing activity and increased spend on larger projects driven by pent-up demand,” McPhail said. He estimates that pent-up demand could be greater than $20 billion, which at some point will provide a boost to the home improvement industry.

“We believe that the pressures in housing will correct and provide the home improvement market with support for growth faster than the general economy, and we expect to continue to grow faster than our market,” he added.

That said, the company didn’t immediately provide a timeline for a recovery scenario. Coupled with 2026 guidance projecting roughly flat comparable sales, the initial outlook serves as something of a “reality check that home improvement remains frozen,” notes Chuck Grom, an analyst at Gordon Haskett.

Home Depot stock was up 0.5% in mid-morning trading Tuesday, reversing earlier losses.

D.A. Davidson analyst Michael Baker says the company’s effort to set a “lower initial bar” for the coming quarters is a smart move, as it will help set realistic expectations going forward.

Financial forecasts weren’t the only thing Home Depot executives talked about on Tuesday. The bulk of the discussion centered around the company’s long-term strategic initiatives, which include gaining market share among both do-it-yourself customers and professional contractors.

Starting in 2027, Home Depot plans to build 15 to 20 new stores a year, on top of roughly 43 new stores it hopes to have completed by 2027. In the past three years, Home Depot has opened 37 stores. The company will also remodel more of its older outlets.

Another facet of Home Depot’s strategy is winning over the Pro market. The newly acquired businesses SRS Distribution and GMS will play an important role in that, management said.

Through SRS, Home Depot hopes to cater to specialty contractors, such as roofers, landscapers, and drywall installers. It aims to provide them with a “one-stop shop” that allows them to source inventory, organize delivery logistics, and even apply for trade credit.

“A few years ago, they were primarily shopping out stores for emergency or fill-in needs, and today, they’re spending significantly more with us than they did a year ago,” said Mike Rowe, executive vice president of Pro, at the investor day.

The GMS acquisition, which closed in September, will help SRS expand into new Pro verticals, such as steel studs, stucco, insulation, and drywall. Executives said more acquisitions like the GMS one—so-called “tuck-in” acquisitions, where a larger company completely integrates a smaller company into its existing operations—will remain part of their playbook.

Executives said the company’s ability to acquire 10 to 20 great, small regional tuck-in acquisitions per year is “certainly there,” noting that in prior deals Home Depot has been able to start integrating the new company immediately. These companies’ revenues have doubled, on average, five years after Home Depot acquired them, executives said.

Write to Sabrina Escobar at sabrina.escobar@barrons.com