Q3 2025 The Home Depot Inc Earnings Call

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Speaker #1: Greetings, and welcome to the HOME DEPOT third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

Speaker #1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker #1: It is now my pleasure to introduce your host, Isabel Janci.

Speaker #1: Ahead. Thank you, Christine, and good morning.

Speaker #7: 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 Bastek, Executive Vice President of Merchandising; and Richard McPhail, Executive Vice President and Chief Financial Officer.

Speaker #7: 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.

Speaker #7: 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 include forward-looking statements under the Federal Securities Laws, including as defined in the Private Securities Litigation Reform Act of 1995.

Speaker #7: 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 and are most recent annual report on Form 10-K and in our other filings with the Securities and Exchange Commission.

Speaker #7: 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.

Speaker #7: 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.

Speaker #8: Thank you, Isabel, 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 comps in the U.S. increased 0.1%.

Speaker #8: Adjusted diluted earnings per share were $3.74 in the third quarter. Compared to $3.78 in the third quarter last year. In local currency, Canada and Mexico posted positive comps.

Speaker #8: Our results missed our expectations, primarily due to the lack of storms in the third 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.

Speaker #8: 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.

Speaker #8: 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.

Speaker #8: 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 specially building products.

Speaker #8: 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 and product categories in customer relationships that are highly complementary to SRS's existing business.

Speaker #8: 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.

Speaker #8: We're excited to see many of you in person in a few weeks at our investor conference at the New York Stock Exchange on December 9th.

Speaker #8: We will update you on our strategic initiatives, our unique positioning in the marketplace, and our investments in 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.

Speaker #8: 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.

Speaker #8: With that, let me turn the call over to Ann.

Speaker #7: Thanks, Ted, 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.

Speaker #7: 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 our resulting in a better customer experience and increased customer satisfaction.

Speaker #7: 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 onload and pack-out process.

Speaker #7: 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 and 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.

Speaker #7: 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.

Speaker #7: We're 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.

Speaker #7: 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.

Speaker #7: 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.

Speaker #7: Pros can then quickly and easily purchase all materials they need for their project through The Home Depot, simplifying this complex project process by going through a single supplier.

Speaker #7: 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.

Speaker #7: From initial planning to material delivery, saving our 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.

Speaker #7: With that, let me turn the call over to Billy.

Speaker #8: 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.

Speaker #8: 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.

Speaker #8: Turning to our merchandising department comp performance for the third quarter, nine of our 16 merchandising departments posted positive comps, including kitchen, bath, outdoor garden, storage, electrical, plumbing, millwork, hardware, and appliances.

Speaker #8: 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, with customers continuing to trade up for new and innovative products, as well as modest price increases.

Speaker #8: Big ticket comp transactions, or 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.

Speaker #8: 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.

Speaker #8: 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.

Speaker #8: 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.

Speaker #8: 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.

Speaker #8: 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.

Speaker #8: 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.

Speaker #8: They include Leadersen, Cobra Torque, Feather River, Milwaukee, Ryobi, Frigidaire, Kitta, Traeger, and many more. We are proud of the innovation and partnership that our suppliers bring to The Home Depot and the value we're able to offer both our pro and DIY customers.

Speaker #8: 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.

Speaker #8: 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, Rigid, Diablo,

Speaker #1: tools Hand , and in appliances for Black Friday , we have exciting offers on LG , Samsung , Bosch , whirlpool , GE and Frigidaire .

Speaker #1: Our assortment includes multiple exclusive products like LG Stainless Steel , French Door refrigerator with Kraft Ice and Frigidaire's , new gallery , dishwasher with a wash cycle time of only This 50 minutes .

Speaker #1: I'm also quarter , excited to announce the addition of PGT windows to our wide assortment of exclusive retail brands , including American Craftsman and Andersen Windows , PGT 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 .

Speaker #1: And they will be exclusive Home to The Depot and the Big Box channel . Our merchandising organization remains focused on being our customers advocate for value .

Speaker #1: 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 , increased functionality and enhance performance at the best value in the market .

Speaker #1: With that , I'd like to turn the call over to Richard . Thank you .

Speaker #2: 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 .

Speaker #2: Total sales include approximately $900 million from the recent acquisition of GM's , which represents approximately eight weeks of sales in the quarter . During the third quarter , our total company comps were positive 0.2% , with comps of positive 2% in August .

Speaker #2: Positive 0.5% in September , and negative 1.5% in October . Comps in the US were positive 0.1% for the quarter , with comps of positive 2.2% in August , positive 0.3% in September , and negative 1.7% in October .

Speaker #2: For the quarter . And in local currency , Canada and Mexico posted positive in the third quarter . Our gross margin was 33.4% flat compared to the third quarter of 2020 .

Speaker #2: Four , 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% compared to third the quarter of 2020 .

Speaker #2: For 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% , compared to 13.5% in the third quarter of 2020 .

Speaker #2: For . 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% , compared to 13.8% in the third quarter of 2020 .

Speaker #2: For interest and other expenses for the third quarter was $596 million, which is in line with our expectations in the third quarter.

Speaker #2: Our tax effective rate was 24.3% compared to 24.4% in the third quarter of fiscal 2020 . For hour diluted earnings per share for the third quarter were $3.62 , compared to $3.67 in the third quarter of 2020 .

Speaker #2: For excluding intangible asset amortization , our adjusted diluted earnings per third share for the quarter were $3.74 , compared to $3.78 in the third quarter of 2020 .

Speaker #2: For during the third quarter , we opened three new stores , bringing our total store count to 2356 . At the end of the quarter Merchandise .

Speaker #2: inventories were $26.2 billion , up approximately $2.3 billion compared to the third quarter of 2020 . For an inventory , turns were 4.5 times , down from 4.8 times last year .

Speaker #2: 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.

Speaker #2: Computed on the average of and ending long term beginning 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 2020 .

Speaker #2: For I will comment on our outlook for fiscal 2025 . Today , we are updating our fiscal 2025 guidance to include expected results in the softer than third quarter , continued pressure in the fourth quarter from the lack of storm activity , ongoing consumer uncertainty and housing pressure well as the inclusion of the , as GM's acquisition into our consolidated results for fiscal 2025 .

Speaker #2: We total sales growth of expect positive 3% , with GM's expected to contribute approximately $2 billion in incremental sales and comp sales growth percent to be slightly positive compared to fiscal 2024 .

Speaker #2: Our gross margin is expected to be approximately 33.2%. Further, we expect an operating margin of approximately 12.6% and an adjusted operating margin of approximately 13%.

Speaker #2: Our effective tax rate is targeted at approximately 24.5% . We expect net interest expense of approximately $2.3 billion . We expect our earnings per diluted share to decline approximately 6% compared to fiscal 2024 , when the comparing 52 weeks in fiscal 2025 to the 53 weeks in fiscal 2024 , and we expect our adjusted diluted earnings per share to decline approximately 5% compared to fiscal 2024 .

Speaker #2: When comparing the 52 weeks in fiscal 2025 to the 53 weeks in fiscal 2024, we plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2025.

Speaker #2: We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience in home improvement.

Speaker #2: Thank you for your participation in today's call and Christine , we are now ready for questions .

Speaker #3: Thank you . We will now be question conducting a and answer session . would like If you to ask a question , press please star one on your telephone keypad .

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Speaker #3: While we pull for questions . Thank you . Our first question comes from the line of Simeon Gutman with Morgan Stanley . Please proceed with your question .

Speaker #4: Hey . Good morning . everyone My is more first question short term . On the fourth quarter . So when guided you for the full year after the second quarter , we didn't have GMs in the numbers .

Speaker #4: And now we do . And we then now know , you know , your third quarter came in a little light . fourth quarter may And that the be a little lighter on revenue as well .

Speaker #4: So there's some deleverage . We're tough time getting to having a the full amount of call it Ebit , dollar shortfall because GM's looks like they made money last year .

Speaker #4: Are there any expenses that are tied to it or how do we think about the deleverage ?

Speaker #5: Yeah .

Speaker #2: Simeon . Thanks . Thanks for the question . I think you could look at it two ways . Let's talk about fiscal let's year and talk about Q4 .

Speaker #2: So year fiscal as you as you note , we've revised our guidance up by 40 basis points from 13.4% . Adjusted operating margin to 13% operating margin .

Speaker #2: The walk there . Let's talk about the most significant item , which is the inclusion of GM's in our results . If you if you take their likely impact to 2025 .

Speaker #2: And you add the transaction expenses to it , you're basically at 20 basis points of year over year impact to operating margin . You then take into account the decrease in our comp sales from one comp to from slightly positive , and then we .

Speaker #2: So that that assumption would have obviously deleverage that we've spoken of previously . And then , you with know , respect to SRS and its impact , first , SRS continues to perform extremely well .

Speaker #2: There is significant pressure in the roofing market. We know that shipments are down double digits from the absence of storm activity this year.

Speaker #2: SRS actually comp flat for Q3 and so we think that they are taking significant share . But as as as our expectations have weakened slightly for them in the full year , rather than seeing them grow at mid-single digits , they're likely to grow low single digits .

Speaker #2: You do some see , some deleverage in SRS in supply the chain and in OpEx , and so you add those together and get your revision to the fiscal year guide really , .

Speaker #2: And you add to that just talking about Q4 , if you're you the same have all dynamics , but let's not forget you're comparing Q4 last year has 14 weeks of expense , Q4 this year has 13 weeks of expense .

Speaker #2: And so you've got 50 basis points operating of expense deleverage in the quarter . So hopefully that will help you with the walk .

Speaker #4: Yeah , that helped a lot . Thanks . And then a follow up you mentioned on this call and in the release that there was an expectation of increased or improving demand , I guess through the remainder of the year .

Speaker #4: At one point , was that an expectation based on housing or an expectation that there would be storms ? And if there was any volatility related to government shutdown , do you have enough time looking backwards , since at the reopening that there's been an improvement in how the consumers behaving ?

Speaker #6: Yeah, let me step back and just paint a broader picture of what we're seeing with the consumer in our sector.

Speaker #6: Our comps definitely slowed as the quarter progressed . But you know , great work by the team to to register the positive comp for for the entire quarter as we said , the primary driver of that sales pressure was the lack of storm activity in the quarter .

Speaker #6: don't We plan for storms per se , but there's there's always some weather impact in the baseline . And given year , pretty last significant storm activity in this year , you know , truly zero there was no storm activity year .

Speaker #6: don't We plan for storms per se , but there's there's always some weather impact in the baseline . And given year , pretty last significant storm activity in this year , you know , truly zero there was no storm activity this So we saw that most acutely in October .

Speaker #6: That was the single heaviest impacted month . And that's where is Richard called out the comp progression . We turned negative in October .

Speaker #6: And then you talked about , you know , overall the economy and housing . We did expect to to start seeing some pickup in demand in the second half of the year .

Speaker #6: And this wasn't just , you know , the calendar oh , things dynamic of , will be better in the second half . We were expecting interest rates and mortgage rates to come down , which they did .

Speaker #6: That would would have have been some assistance to housing . But we saw really just ongoing consumer uncertainty and pressure in housing that are disproportionately impacting home improvement .

Speaker #6: Demand . I think the good news is the team , as I said , is executing at a very high level . And we believe we're taking share .

Speaker #6: And if you adjust for the storm activity, our Q3 comp, the underlying business comp was essentially the exact same as Q2. In adjusting again for storm and weather, call that underlying business to be about a 1% comp in each of Q2.

Speaker #6: In Q3 . So now here we are going into Q4 , and we're going to see even more quarter over quarter pressure from the storm activity .

Speaker #6: So again , there's nothing that's happened this year . The storm activity in the rebuild and repair continued into Q4 last year . So it will have even more storm pressure year over year in Q4 .

Speaker #6: we just don't see the And then catalyst to increase that underlying storm adjusted demand in the So market . it's certainly a very interesting consumer dynamic out there .

Speaker #6: On the one hand , you look at certain economic indicators and you say , geez , things are pretty good . You look at GDP , you look at PCE .

Speaker #6: Those those both are strong . But on the other hand , what's what's impacting us in home improvement is the ongoing pressure in housing and incremental consumer uncertainty .

Speaker #6: So take housing I housing has been soft for some time . We all know the higher interest rates and affordability concerns , but what we're seeing now is even less turnover .

Speaker #6: The housing activity is truly at 40-year lows as a percentage of housing stock. I think we're at 2.9% turnover, and then home prices have started to adjust in even more markets over this past quarter.

Speaker #6: And then when you look at the consumer , what's going to spark the consumer ? You know , we still believe we have one of the healthiest consumer segments in in the whole economy .

Speaker #6: But again , the economic uncertainty continues largely now due to , you know , living costs . Affordability is a word that's being used a lot .

Speaker #6: Layoffs , increased job concerns , etc. . So that's why we we we don't see a uptick in that underlying storm adjusted demand in the business .

Speaker #6: So as I said earlier , we're going to keep controlling what we can control , support our associates and deliver just a great value proposition for the customer .

Speaker #6: And I believe we share in Q3 and year-to-date this year, and we will do the same thing in Q4, okay?

Speaker #4: See you Thanks . in two weeks .

Speaker #3: Our next question comes from the line of Zach Fadem with Wells Fargo . Please proceed with your question .

Speaker #7: Hey , good . I morning wanted on the to start average ticket . I guess any call outs on commodities versus same Stu inflation ?

Speaker #7: And then with last quarter ticking down on on promo , curious how Q3 played out and whether you'd expect the industry to be more or less promotional this Q4 ?

Speaker #1: Yeah . Hey Billy . Thanks for the for the question as it relates to ticket . You know , as we as we've talked about on a few calls , I mean , we've continuously customers trade up for innovation .

Speaker #1: In fact , haven't we really seen know , , you any trade down . You know , that we haven't spoken about in previous calls as it relates to that .

Speaker #1: So, there was a modest increase in ticket. But, most notably, that was from, you know, people, innovation, and things in the marketplace that we've seen.

Speaker #1: relates As it to the promotional activity . It's really consistent over year year , both in Q3 and Q4 . And as Ted mentioned , you know , the fundamental demand in our business , while it didn't increase , certainly was very consistent with what we saw in Q2 , outside of , you know , as you mentioned in the storm impact .

Speaker #1: So from a fundamental demand standpoint , you know , feel very that and good about continue to see customers , you know , projects .

Speaker #1: engage mentioned , they're going to As I continue to have pressure where they're financed . But from a promotional activity standpoint , it's really , you know , similar environment that it was in , you know , really for the balance of the year .

Speaker #1: And certainly as it relates to Q4 a year ago , you know , similar environment for us as well .

Speaker #7: Got it . And then , Richard , a couple follow ups on GM's , first of all , on operating expenses . Could you help us understand what what's one time in terms of of impact transactions , etc.

Speaker #7: , on , on Q3 and Q4 and then on the inventory growth up about 10% . Any color you can offer on how much is is GM's versus underlying volume versus pricing .

Speaker #2: Sure. You can think about the GM transaction fees as about five basis points of margin to the year, or five basis points of expense.

Speaker #2: Either way , you put it , about 15 basis points to the quarter . Obviously , Q3 is one of our larger quarters , and you can think of the impact is about $0.05 of EPs for the year for GM's transaction fees .

Speaker #2: And those all occurred in Q3 . With respect to the inventory , inventory increases reflect principally the inclusion of GM's now in our in our balance sheet and the fact that we've leaned into investments in particular , investments with respect to to hitting our speed promise .

Speaker #2: we've So seen fantastic results . improving our speed in a reliability of delivery over the last year . That's something we've leaned into .

Speaker #2: We have our our DFC network , which we think is , you unmatched in our market . And as we see results from it .

Speaker #2: And obviously this quarter , you saw an 11% comp online . We're going to continue to lean into that investment . So for the most part , it's investments in the business .

Speaker #7: Thanks for your time. See you in a couple of weeks.

Speaker #5: Thanks .

Speaker #3: Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.

Speaker #8: Good morning . Thank you so much for taking my question . Given all the from this morning , comments it begs the question , can home improvement demand recover without some assistance from either an increase in underlying housing activity or a reduction in interest rates ?

Speaker #8: And how should this foster the market's expectation toward a recovery or potential recovery in 2026? Thank you very much.

Speaker #6: Thanks , Michael . You know , we've we've talked about all the different drivers of demand in our segment . And their leads and lags and all of them .

Speaker #6: And we've clearly called out over time that the most statistically relevant factors would be home price appreciation, household formation, and housing turnover. Those three, right now, are pressured for sure.

Speaker #6: But we also know that we've more than worked our way through the pull forward of the Covid years . And there are , you know , many industry reports and calculations of now underspend per household .

Speaker #6: So on one hand , we're at something looking as much as a $50 billion cumulative underspend in normal repair and remodel in the US , activity housing , on the other hand , we have , you know , less turnover .

Speaker #6: And , you know , home appreciation . So that price that tension is going have to have to to . Balance itself out .

Speaker #6: You know, as we work through the rest of this year and into next year. But fundamentally, our job is to put great value propositions in front of the customer and take share in any environment.

Speaker #6: So can The Home Depot grow ? The answer is yes . Will the industry have some shorter term with pressures turnover in home price ?

Speaker #6: Yes , as well .

Speaker #8: Thank you. The second question is, my understanding is that The Home Depot has taken a significant number of big steps over the last few years to gain market share, particularly in the pro segment. Has The Home Depot increased its fixed cost structure to the extent that it's now experiencing deleverage as sales are under pressure?

Speaker #8: But this can act as a significant tailwind to the earnings outlook as sales Thank you improve . very much .

Speaker #6: mean , Yeah , I you're right , Michael . We have had a number of big steps on pro . It's we've talked about the size of the overall home improvement .

Speaker #6: Tam . You know one plus trillion dollars and evenly split between pro and consumer . And how strong we've we've always been in both sectors of out of our stores .

Speaker #6: The pro and the consumer, but identified a real opportunity to increase value proposition in that pro space by building out wholesale-esque type capabilities to capture more share of wallet with that customer.

Speaker #6: that's what And doing . And we'll talk we've been a lot about that more in a few weeks in New York . But we're very , very happy with with all the initiatives in the organic investments we've made to to build out those capabilities .

Speaker #6: And then we've augmented that with two acquisitions of very , very strong wholesale platforms with each of SRS in GM's . Now , your question specifically on on fixed cost structure , you know , it's interesting we've mentioned this several times .

Speaker #6: The organic effort is reasonably asset like this . You know , the the regardless of whether we lease our DCS or not , the capital deployed in those DCS is first and foremost for general store replenishment .

Speaker #6: And it's an added benefit that we're able then to deliver to the customer out of those buildings . And as Richard said , you know , the speed equation is , is a flywheel that works .

Speaker #6: And all our investments in our direct fulfillment centers, regardless of what we're doing with the pro, are to serve all our customers and increase the speed at which we operate.

Speaker #6: We've done very effectively . And then all the other related operating you know , we costs , variable variable incentive pay structures for our outside salespeople .

Speaker #6: We lease trucks and we add trucks and take trucks away from markets as , as volume ebbs and flows through the season . So really , other than an IT spend , which is , you know , modest investment in the scheme of things , there's not been a lot of incremental fixed costs put into the business to support the pro organic initiatives .

Speaker #8: Thank you very much and good luck .

Speaker #3: Our next question comes from the line of Christopher Horvers with JP Morgan . Please proceed with your question .

Speaker #9: Thanks . Good morning . So I wanted to I follow up wanted to the the the implied for Q operating margin question . It looks like you're saying about 10.3% .

Speaker #9: Did you say that 50 basis points of that was the 53rd week lap? And is there anything, like unique that you think we should think about? This is not, this is or is not the right level to start to think about building the business as we look to the out years.

Speaker #9: , for So example , 53rd week , lap or perhaps , you know , the seasonality of the SRS and Ms. business structurally changing the normal flow of operating margin over the year .

Speaker #5: I would yeah .

Speaker #2: Thanks , Chris .

Speaker #5: .

Speaker #2: I would use our full year guide as the jumping off point. I think Q4 has a couple of items of noise.

Speaker #2: The first was the 53rd week . The second actually is the shape of of the business . And if you look , you can you could actually see , for instance , the the .

Speaker #2: Public filings of GM's when they were a public company and see the Q4, or rather, our Q4 is a significant low point from a volume perspective.

Speaker #2: That's true for SRS as well. And so, SRS and GM's see seasonal swings that are greater than Home Depot. You're going to just see that amplified if you hold Q4 in isolation.

Speaker #2: And so that's would why I you really point to full year as the right jumping off point for for your modeling . .

Speaker #9: That's super helpful. Thank you. I mean, if you step back about the third.

Speaker #2: Quarter , 53rd week , the 53rd week is a year contract . over year So it doesn't it doesn't impact your 2025 numbers , but it does impact the year over year .

Speaker #9: Got it makes sense . If you think about this quarter I mean if you look at the monthly basis , you know , even with the really tough weather slash hurricane , you know , driven compare in October , if you also look at the last , the first three quarters of the year , the two year trend seems to be improving on the line , which points to , you know , replacement cycle demand and maybe some pricing and and just life moves on .

Speaker #9: I guess . And then there's some research out there that points to maybe the consumer is waiting for the full effect of the head .

Speaker #9: We have a couple of meetings coming up , and you had , you know , all this noise with a government shutdown that you impacted , you know , even retailers that sell , you know , milk and eggs and , and take share every day .

Speaker #9: So why we when think that , you know , the launch point into , you know , 2026 is , you know , sort of one or if not better than this 1% sort of underlying demand , just because uncertainty goes away , full effect of the fed housing stock , ages and life moves on .

Speaker #9: And you know, cycle replacement demand continues to build.

Speaker #6: Well , yeah . And Chris , still another positive add . You know there'll be there'll be more robust you know tax returns .

Speaker #6: And you know the tax rates you know going into effect . And you know in 26 . yeah So there's there's there's there's a positive story there .

Speaker #6: But again the underlying 1% you know that that is that is what it was . And this ongoing consumer uncertainty . We're about talking in specifically housing turnover .

Speaker #6: And now price . Those are those are near near-term and newer phenomenon .

Speaker #2: me Let Chris may I just circle back ? I was focusing on your question in context of Q4 being a jumping off point and thinking about 53rd week .

Speaker #2: Let me add something , though . When you proforma gems , we do need to take that into account on a . So on a pro forma basis , recall , we've we've sort of guided you to within the Home Depot Now numbers .

Speaker #2: With SRS included, SRS changes our margin profile by about 80 basis points of gross margin and about 40 basis points of operating margin.

Speaker #2: Gems , which was about half the size of SRS , is about half the impact . So you've got to proforma . This is not fiscal year , but a proforma impact of about 40 basis points of of gems and about 20 basis points and about 20 basis points of operating margin for gems .

Speaker #2: So, 4020, those you add together, you roughly have a change in our profile with both of them together of 120 basis points of gross margin and 60 basis points of operating margin.

Speaker #2: Now , when you're talking fiscal year 2025 . Obviously we have some wonkiness in the comparison periods . We have . We've owned SRS for full year of 2025 , but only owned them a partial year in 2024 .

Speaker #2: We will gems for about five in months 2025 and owned them for no months in 2024 . So I'm just going to avoid all the steps in the math and tell you on a fiscal year perspective , you've got about a 55 basis point impact to gross margin year over year the , reflecting ownership of both SRS and Gems , and about a 35 basis point impact to operating margin mix , reflecting the year over year comparison of those ownership periods of SRS and Gems , we'll clarify this more .

Speaker #2: Just when one more time we move forward and in the future , talk about future years . But hopefully that gives you a little bit more clarity .

Speaker #2: So I do want to put an jumping off asterisk . The point is our is our full year guidance . But you also have to include that that comparison , or rather the full year impacts of gems next year .

Speaker #9: Offset Right . by a tick of transaction fees .

Speaker #2: That'd be correct . Yep .

Speaker #9: so much . We'll see Awesome . you Thanks soon .

Speaker #10: Thanks .

Speaker #3: Our next question comes from the line of Zihan Ma with Bernstein. Please proceed with your question.

Speaker #11: Hi . Thank you . I wanted to follow up on the complex pro and DMs side . So firstly the short . Term question on the $2 billion contribution to sales from GMs this year .

Speaker #11: I think if we do the math based on the reported numbers last year , kind of implies a high single digit percentage decline on a year over year basis .

Speaker #11: I don't know if I completely got that right . If that's much of true , how that is macro weakness versus underlying share dynamics ?

Speaker #11: And is there any additional color you can provide on that underlying market?

Speaker #2: So basically, you're owning it for a quarter plus eight weeks, and you're heading into the lowest quarter of the year for GM's fiscal year.

Speaker #2: There's there was also weather impact across Home Depot , SRF and GMs . No one was immune to the to the broader weather impacts in the market .

Speaker #2: And so, $2 billion is an approximation. We know that Ms. continues to take share. We continue to take share as an enterprise.

Speaker #2: And particularly in all of Ms. categories. We feel great about that business going forward.

Speaker #11: Got it . Thank you . And then the long term question to your point about the current margin dilution impact from the acquisitions .

Speaker #11: Now , is there a long term argument that as you further consolidate , assume , if you further consolidate in the complex pro space , is there a path for you to structurally improve or recover your margins as you start to gain more bargaining power versus suppliers ?

Speaker #11: Thank you .

Speaker #6: Well , there's there's there's structural differences in in the margins of the wholesale business in retail . I mean , the highest level retail would would have higher gross and lower operating costs in the inverse with wholesale , of course , as as we we drive between synergies the two platforms in the most important synergy is , is .

Speaker #6: The cross-sell and the value proposition to the pro will be able to leverage incremental sales in both retail and wholesale platforms to leverage the businesses .

Speaker #6: And of course , just operating efficiencies across a larger scale business will able to be drive efficiencies as well . But the fundamental difference of wholesale margin structure in a retail margin structure will would be the case going forward .

Speaker #6: Those would dramatically change .

Speaker #11: Got it . Thank you very much .

Speaker #3: Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question.

Speaker #12: Hey good morning everyone . I had a couple follow questions . up Just first on transactions slowed while ticket accelerated this quarter . I'm just curious , how do you read that ?

Speaker #12: Are there any signs of elasticity ? Maybe just elaborate on price changes that in the quarter you made ? Or is the slowdown in transactions just really storm related ?

Speaker #1: Yeah . Thanks , Seth . It's Billy . I'll answer the I'll answer your last question first as it relates to the transactions .

Speaker #1: That was really related strictly to the storm impact that that we called out . You know , as I mentioned , you know , in our Q2 call , after , you know , some policy changes were made around tariffs that we would take some , you know , moderate price moves with the , you know , the entire strategy to make sure we protected the project .

Speaker #1: And so as it relates to elasticity , it's a little early . And then you couple that with a lot of dynamics in the marketplace over the last 60 days , 90 days since our last call .

Speaker #1: It's a little early to know , how say , you much of that , you know , was going to , you know , the elasticity piece will play out .

Speaker #1: thrilled with that the team has done . the work If you go into our right now and stores look at gift , you know , and , and all the value that we have there , and certainly with our holiday program , same thing .

Speaker #1: So we'll we're watching that , you know , again , our was to entire goal protect the And , you know , it bears project .

Speaker #1: also to point out that , you know , over 50% of our inventory is is of tariffs . obviously not part sourced And is domestically .

Speaker #1: So we'll continue to watch that . And , you know , look forward to the Q4 .

Speaker #12: Okay. Thanks for that. And then just a follow-up on some of the demand comments today and what seems like a more cautious view on the consumer.

Speaker #12: I'm just trying to figure out how to reconcile that with big ticket. Still outperforming. You've had a few quarters of big ticket being positive that continued this quarter.

Speaker #12: And I guess just based on what you've seen historically , should that be a leading indicator for big projects that have still pressured ?

Speaker #12: And I guess just based on what you've seen historically, should that be a leading indicator for big projects that have still pressured? Been, you think about that?

Speaker #1: Well , I mean , as you pointed out correctly , in in my prepared comments , I talked about , you know , big ticket transactions over $1,000 or positive 2.3% , I but wouldn't read into that from a project standpoint .

Speaker #1: about Think appliances , think about power tools , and some of those pieces . Those are individual items . As we've kind of talked about that metric in the past versus more the project oriented pieces that customers are still , you know , challenged with based on all the things that we've talked about earlier .

Speaker #6: And I think some of that, some of the big ticket as well, we've called out there's pressure on commodities overall, but some of that big ticket is the success in our pro initiatives.

Speaker #6: I mean , managed the accounts , the activity that that might grow in team are driving to capture , you know , more share of larger pro complex purchase that is also driving that .

Speaker #6: So it's not so much that it's an indicator of demand as it is an indication of our taking share in bigger ticket pro-oriented projects.

Speaker #12: Got it . Okay . That's helpful . Thanks much so .

Speaker #3: Our next question comes from the line of Chuck Grom with Gordon Haskett . Please proceed with your question .

Speaker #13: Hey , thanks a lot . Good morning . You know , there's a lot of talk about a k-shaped economy right now , but we're starting to see more evidence of job losses for for white collar employees .

Speaker #13: So I guess I'm curious , when you look at your data , is there anything you see that supports more fatigue in your in your upper income customer base ?

Speaker #13: And I guess as a follow-up, anything regionally that you'd call out over the past couple of months?

Speaker #6: Well , I think the regionally , the most acute difference , again , is the storm and weather patterns on the the larger or the higher income cohort .

Speaker #6: Don't we see anything specific? As Billy said, there has not been a lot of trade down. We've talked in the past about things like countertops.

Speaker #6: There have there's been been some trade down , but we have still not seen trade down across the broader assortment in the store .

Speaker #6: If there's an indication of maybe some fatigue in taking on bigger, bigger projects, we have seen pro backlogs in larger backlogs start to diminish a little bit.

Speaker #6: So, our pros are reporting, you know, months that they're booked out. You know, as we know, some time ago you couldn't find a pro, and then, you know, they all had full books.

Speaker #6: And we're seeing a little softening in larger project backlog. I can't say we've tied that directly to an income cohort, but we've definitely seen the dynamic.

Speaker #13: Okay . And then just Richard , can we just double click on the opportunity to improve the margin structures of both GMs and our SRS ?

Speaker #13: It sounds like 3,035 basis points of pressure this year. You probably have some wrap of that into '26. But just a broader picture over the next few years.

Speaker #13: I mean , how should we think about the the improvement line for those two two businesses ? Thanks .

Speaker #2: Well , you know , we we don't like to separate them out while they do operate independently as Ted said , the name of the game here is synergies .

Speaker #2: And synergies in the form of cross-selling . And so I think the leverage in the businesses is going to be a function of how we create a differentiated value proposition across the entire enterprise , including SRS and Ms. .

Speaker #2: So look , SRS , the combined entity is a an engine for growth for The Home Depot . And and so , you know , we're just getting started .

Speaker #2: So, I wouldn't put a formula on it. But it's all going to be a function of how fast we can drive cross-sell.

Speaker #13: Thank you .

Speaker #3: Our next question comes from the line of Steve Forbes with Guggenheim . Please proceed with your question .

Speaker #14: Good morning . Maybe , maybe Richard , on the idea of cross-selling . Would love to sort of hear high level thoughts on I don't know if you can rank order how you guys see the cross-selling opportunities to get today .

Speaker #14: Now that Ms. is integrated, what are you, you know, sort of building the business for from a cross-selling standpoint as we head into next year?

Speaker #14: You rank order the known opportunities, which would be great.

Speaker #15: Yeah , I mean , it's Mike here . Thanks for the question . You know , we see just from the relationships that have already been established between the outside sales force that we've got , you know , we're here within Depot combined with the sales forces that they have originally with SRS and now MMS with , there is a count handoffs that happen .

Speaker #15: So a great example . You know , recently , you know , with Ms. . You know , engaged in a large roofing sale on a property .

Speaker #15: The customer was looking You know , for . in terms much more of terms of product , in framing , whether it be flooring and more .

Speaker #15: And that relationship then that SRS introduced to The Home Depot outside sales force to come in and sell that engagement to the contractor were quite successful.

Speaker #15: That's just one example of many that have happened. They happen both ways, whereby the Home Depot sales organization recognizes a large roofing opportunity that they can pass over to SRS or a large drywall opportunity that they can pass over to Ms. Those engagements are happening on a daily and weekly basis.

Speaker #14: And then just a quick follow-up. I was hoping maybe to explore the branch growth opportunity across SRS, DMs, and Heritage. So, I don't know.

Speaker #14: if you can Ted , provide current a update on branch counts across the various assets and then then like what's the right and think way to about or think through the Outyear branch growth opportunity ?

Speaker #14: And I don't know if you can sort of talk about like what's the end state as you see it today versus the 1,200 you have today.

Speaker #14: How do how do we sort of think about the the footprint evolving over the next three , five or so years ?

Speaker #6: Yeah , we'll certainly go into a lot more detail in a few weeks . But the model that that SRS deploys , very similar to G.m.s that they will they'll drive organic comp growth through existing branches .

Speaker #6: They open greenfield branches and then they'll they'll focus on tuck in customer list expansion oriented acquisitions . And they've been doing that . Excuse me quite successfully on the branches .

Speaker #6: Think of SRS , GM's . You know , 40 to 50 branches , a year . And they've been sort of running at that pace since we acquired SRS .

Speaker #6: then , you know , they've done a And handful of of little tuck in acquisitions . And again , these can be a one branch , five ish million dollar acquisition or a smaller regional 30 , 40 , $50 million couple .

Speaker #6: Few branch operations . So it's going really , really well . And see that that continuing is a key part of their business model .

Speaker #2: And I mean , just to , you it's not about our just know , plans . It's actually happening right now . If you talk about our Non-comp sales , putting new stores and new SRS branches together , you've got about half a point of sales growth driven by those two investments .

Speaker #2: And so, we're with that.

Speaker #14: Thank you Christine .

Speaker #16: have time for question one more .

Speaker #3: Thank you. Our question will come from Steven Zaccone with the city. Please proceed with your question.

Speaker #17: Great . Good morning . Thanks so much in . for I wanted to follow up on the storm impact . So it sounds like it 80 was points to the third quarter .

Speaker #17: Pressure to same store sales . How large will that in the be fourth quarter ? then we And should be mindful of that .

Speaker #17: That's also a headwind to think about in the first half of next year.

Speaker #17: That's also a headwind to think about in the first half of next year.

Speaker #2: thanks . You know , Ted Well , as said , the demand for the underlying business was sort of similar Q2 to Q3 .

Speaker #2: If you talk about the storm in Q3 and Q4, we absolutely are lapping strong results. In fact, even, you know, slightly higher sales last year in Q4 than in Q3.

Speaker #2: But let's call it relatively even . So , let's say you've basically , if you've got underlying the storm minus impact , you've got pretty much similar run rates for Q3 and Q4 .

Speaker #17: Okay , understood . And then the comments on the housing pressure , how does that inform your maybe near to medium term outlook for SRS and MBS ?

Speaker #17: These are new assets for Home Depot . So think that original expectation of mid-single digit growth for SRS stepping down to low single digits , is that kind of run rate ?

Speaker #17: Consider for the near to medium term.

Speaker #17: consider for the near to medium We term ?

Speaker #6: mean , I wouldn't say that we'll talk more about this Well , I in a weeks , few but the first thing to remember is SRS is much more in the reroof .

Speaker #6: construction . So 80 plus there percent reroof yes , there . So are 1,520% of the business that goes new into construction is impacted , but the fundamental business is reroof activity again , which is why it's disproportionately impacted with storms , particularly in their home and biggest market , which is Texas , which is , you know , by far , we think a hurricanes .

Speaker #6: of We think and other hail wind events . There was such none in 2025 . So no , look we at SRS long as a term know , you , mid-single digit grower .

Speaker #6: And this is a principally a storm impacted dynamic . That's taken them down to flattish right now . But as Richard said earlier , we think roofing shipments , you can see this by reported data .

Speaker #6: Roofing square the shipments into market are down mid-teens , and SRS was flat . So clearly taking share .

Speaker #17: Okay, understood. See you guys in two weeks.

Speaker #3: I'd like to turn the floor back over to you for closing comments.

Speaker #16: , Christine , and

Speaker #16: Thank you all for joining us today. We look forward to speaking at our investor conference on December 9th.