Home Depot says it doesn’t expect to boost prices because of tariffs

Home Depot reported Q1 revenue of $39.86 billion, beating estimates, while earnings per share, excluding certain items, were $3.56, slightly below the expected $3.60. Despite a challenging housing market and ongoing tariff concerns, Home Depot anticipates no broad price increases due to diversified sourcing, with no single country outside the U.S. expected to represent more than 10% of purchases in the next year, and the company maintained its sales growth projection of around 2.8%.

Analysis

Home Depot (HD) reported first-quarter revenue of $39.86 billion, surpassing analyst expectations of $39.3 billion, driven by a 2.1% increase in customer transactions and a slight rise in average ticket size to $90.71. However, adjusted earnings per share of $3.56 narrowly missed Wall Street's forecast of $3.60, with net earnings declining to $3.43 billion from $3.6 billion year-over-year. A key highlight is the company's assertion that it does not anticipate broad price increases due to tariffs, attributing this to multi-year efforts in diversifying its supply chain; Home Depot expects no single non-U.S. country to account for more than 10% of its purchases within 12 months. This contrasts with competitors like Walmart (WMT), which has already raised prices, and Subaru, which plans to. Despite macroeconomic headwinds including a challenging housing market characterized by declining existing home sales (down 5.9% MoM in March, the slowest March pace since 2009) and increased borrowing costs deterring large projects, Home Depot maintained its full-year sales growth projection of approximately 2.8%. Comparable store sales saw a slight overall decline of 0.3%, though U.S. comparable sales edged up 0.2%, beating expectations of a 0.1% decline. The company's resilience in sourcing, particularly for lumber where most is U.S.-sourced and Canadian lumber was exempted from additional tariffs, provides some insulation, though the broader housing market remains a significant concern, as articulated by GlobalData's Neil Saunders. The overall sentiment for HD is slightly positive (0.2) despite the mixed earnings and challenging environment.

Key Decisions for Investors

• Investors should note Home Depot's effective supply chain management, which mitigates direct tariff-related price inflation risk, offering a competitive advantage over peers facing such pressures.
• Monitor closely the U.S. housing market indicators and comparable store sales trends, as these remain critical headwinds impacting Home Depot's growth in larger home improvement projects.
• Consider the company's ability to maintain its sales growth guidance amidst tariff uncertainties and a soft housing market as a sign of operational strength, though the slight EPS miss and declining net income warrant caution.
• Evaluate Home Depot's performance relative to Walmart, particularly concerning their differing approaches to tariff impacts and pricing strategies, to gauge sector resilience and competitive positioning.