Home Depot (HD) kicked off fiscal 2025 with a solid top-line performance, reporting net sales of $39.9 billion, a robust 9.4% increase year-over-year, largely fueled by its recent acquisition of SRS. Despite this growth, the quarter revealed margin pressures and a dip in profitability. Comparable sales slipped 0.3%, although U.S. comps managed a modest 0.2% gain, driven by strength in the Pro segment and select categories such as plumbing and building materials.

Profitability faced headwinds as net earnings declined 4.6% to $3.4 billion, and diluted EPS fell 5.0% to $3.45, impacted by higher SG&A and interest expenses. Adjusted figures showed slightly less erosion, with adjusted EPS down 3.0% to $3.56. The gross profit rose 8.3% to $13.5 billion, though the gross margin narrowed to 33.8%, reflecting the cost dynamics tied to the SRS acquisition and broader macro pressures. Operating income edged up 1.1% to $5.1 billion, while operating margin declined to 12.9% (adjusted to 13.2%).

The SRS acquisition stood out, contributing $2.6 billion in sales and performing above expectations across roofing, pool, and landscape verticals. It also played a role in expanding the Pro ecosystem by managing the trade credit program. Digital momentum remained strong, with online sales up 10.9%, now comprising 15.5% of total sales. However, the shift in product mix and acquisition-related expenses pushed SG&A up 12.9% to $7.5 billion, while interest and other expenses jumped 38.1% to $591 million. Cash flow from operations fell to $4.3 billion, down from $5.5 billion, largely due to working capital shifts and deferred tax payments.

Inventory levels swelled to $25.8 billion, primarily due to SRS, and inventory turnover declined to 4.3x. ROIC slipped to 31.3% from 37.1%, reflecting a higher capital base post-acquisition. Despite these challenges, management reaffirmed full-year guidance, projecting 2.8% total sales growth, 1.0% comparable sales growth, and a gross margin of ~33.4%.

Looking ahead, Home Depot is leaning into strategic investments in associates, Pro capabilities, AI-driven tools, and its digital infrastructure. The company emphasized confidence in its competitive positioning and supply chain agility, while also pausing share repurchases for FY25 to focus on integration and capital discipline post-SRS.