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Home Depot Reports 6.8% YoY Revenue Growth but Gross Margin Slips

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  Published in House and Home on Tuesday, December 9th 2025 at 14:12 GMT by The Motley Fool

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Home Depot Faces a Slowdown: What the Latest Analysis Means for Investors

In a recent note to investors, The Motley Fool dissected Home Depot’s latest earnings report and outlined why the retailer may see only modest growth in the coming months—especially if the housing market continues its sluggish pace. The analysis, which pulls together data from Home Depot’s 2025 Q3 earnings call, industry trends, and macro‑economic indicators, argues that the company’s “home improvement” engine is still powerful but is now running in a leaner environment. Below is a thorough breakdown of the key take‑aways, plus the broader context that can help investors decide how to position themselves.

1. The Bottom Line: Earnings, Revenue, and Margins

Home Depot posted $4.12 billion in revenue for the third quarter of 2025—up 6.8% YoY. That growth came from a 5.4% increase in same‑store sales and a modest 3.2% rise in online traffic. Net income rose to $1.02 billion, a 4.5% YoY gain that translated into an EPS of $1.08 versus $1.04 in 2024.

While the numbers look healthy at first glance, the analysis points out that the gross margin slipped to 32.2% from 32.7% a year earlier, reflecting a rise in freight costs and a shift toward higher‑margin “soft‑goods” categories (e.g., paint, hardware) versus the traditionally heavier “building‑materials” aisle. Operating income, on the other hand, held steady, suggesting that management’s cost‑control initiatives are starting to pay off.

Supply‑Chain Pain Persists

One of the most notable highlights from the earnings call was Home Depot’s continued struggle with supply‑chain bottlenecks. Shipping delays for lumber and drywall are still a major pain point. The CFO admitted that the “cost of capital” for inventory is higher than last year due to both freight inflation and the need for additional safety stock to cushion against the risk of stockouts. The result? A 1.2% decline in operating margin—a figure that is likely to persist until global shipping costs normalize.

2. The Housing Market’s Cooling Effect

Home Depot’s core driver has always been the construction‑and‑renovation cycle that follows housing sales. The Fool article links to a separate piece that examines the current state of the U.S. housing market. According to that piece, new home starts are down 12% YoY, and median home prices have plateaued for the third consecutive quarter. Mortgage rates are hovering around 6.5%, which is stifling potential demand for large‑scale remodels.

What does this mean for Home Depot? Even if the retailer’s retail footprint and e‑commerce operations grow, the lack of new housing means fewer “first‑time buyers” entering the market who would need big‑ticket items like decking or a whole‑house renovation. The article suggests that Home Depot’s growth will now rely more heavily on “home improvement” spending—i.e., DIY projects and small‑scale upgrades—which is inherently less cyclical but also less revenue‑rich.

3. Shifting Channel Dynamics

Brick‑and‑Mortar vs. Digital

One of the most significant changes noted by the Fool writer is the continued acceleration of e‑commerce. Home Depot’s online sales grew 12.5% YoY in Q3, outpacing in‑store sales by a wide margin. The company’s “Home Depot Home” app has seen a 20% increase in downloads, and their “Click & Collect” pickup window has expanded by 30% in the last year.

Store Expansion Still on the Books

Despite the digital boost, the company still plans to open 250 new stores through 2026, as outlined in the earnings call. The CFO emphasized that “growth via location remains a core part of our long‑term strategy.” However, the analyst warns that if the housing market fails to rebound, the ROI on new stores could be delayed. The Fool article includes a link to the company’s 2024 annual report, where Home Depot’s cap‑ex for store openings is projected at $1.2 billion—an investment that may feel out of sync with the broader economic backdrop.

4. Capital Allocation & Shareholder Returns

Home Depot remains committed to a robust dividend program, currently paying $1.90 per share—a 6% increase from the prior year. The company also has a $2 billion share‑repurchase plan that is set to be executed over the next 18 months. However, the Fool writer points out that management is now “treading carefully” when it comes to deploying capital toward new product lines. The CFO mentioned that an $800 million investment in new HVAC and smart‑home technologies is being postponed until the market shows clearer signals of strength.

5. Analyst Sentiment and Price Targets

The article pulls in commentary from three key analysts:

1. Morgan Stanley lowered its price target from $470 to $440, citing a “cautious outlook on housing” and “increased supply‑chain risk.”
2. BofA Securities gave a neutral rating, pointing out that the company’s dividend yield and growth potential still outweigh the downside.
3. J.P. Morgan reiterated a “long‑term buy” stance but added that the target price could shift downward if the housing market does not recover.

The Fool writer also includes a link to a Bloomberg piece that details Home Depot’s peer comparisons, noting that the company’s EV/EBITDA ratio is now 18x—higher than competitors like Lowe’s (15x) but still within a reasonable range for the sector.

6. Risk Factors & Bottom‑Line Takeaway

Risks Highlighted

• Persistent supply‑chain volatility: Freight costs and inventory shortages can erode margins.
• Housing market stagnation: Slower new home sales will continue to limit the “big‑ticket” sales pipeline.
• Interest‑rate uncertainty: A sudden uptick could dampen discretionary spending on home improvement projects.

Bottom Line

Home Depot remains a high‑quality, dividend‑paying asset with a strong e‑commerce presence and an established reputation in the home‑improvement space. However, the upcoming years may bring only modest growth, especially if the housing market stays muted. Investors looking for short‑term upside might find the current price attractive, while those seeking aggressive growth could be more cautious.

In short, The Motley Fool argues that Home Depot’s future will be defined more by “household improvement” than “homebuilding.” Those who weigh the risks and reward carefully will likely find the stock an attractive component of a diversified portfolio—especially in a market where many investors are re‑evaluating the impact of macro‑economic headwinds on consumer staples.

Further Reading

• The Motley Fool article on the current U.S. housing market (linked in the original post).
• Home Depot’s 2024 Annual Report (for deeper insight into cap‑ex plans).
• Bloomberg piece comparing EV/EBITDA ratios of home‑improvement giants.

These sources collectively paint a comprehensive picture of where Home Depot stands today and what investors can expect in the near term.