Whatever Home Depot’s (NYSE: HD) Earnings Say, Don’t Buy It

Home Depot (NYSE: HD) is set to report earnings today, but regardless of what they say, I’d encourage any potential investor to steer clear. 

In a minute, I’m going to get into some details with respect to the current economy. But the long and short of it is that there’s too much uncertainty and weakness lingering around the housing market, inflation, and consumer spending. 

And with that being the case, home sales, new builds, renovations, and big-ticket purchases run the risk of dropping off. 

That would obviously be devastating for the company, which hit a record high in December. 

Of course, I warned investors to avoid the rally in Home Depot Stock back in November. That’s proven to be good advice so far, as HD has fallen 7% since then and is down more than 13% from the high-water mark it set in December. 

That’s why I’m reiterating my warning today — regardless of what Home Depot’s fourth-quarter earnings say.

Here’s why…

Home Depot Earnings Preview

First, November’s third-quarter earnings report, which initially sent the stock flying, wasn’t even that good. 

The company played up a 6.6% increase in revenue, which rose to $40.2 billion. However, the higher overall sales are largely due to Home Depot’s acquisition of SRS Distribution — a company that sells supplies to landscaping, roofing, and pool businesses. 

Without that padding, we’d be looking at a top-line decline.  

Indeed, the third=quarter results also showed a 2.5% drop in same-store sales and a 1.8% drop in adjusted operating income.

Meanwhile, net earnings for the quarter fell 5.3%, to $3.6 billion, or $3.67 per diluted share, from $3.8 billion, or $3.81 per diluted share, the year prior. And adjusted third-quarter EPS fell 1.8%, from $3.85 to $3.78.

Wall Street analysts expect stronger revenue but declines in same-store sales, foot traffic, and ticket sales. 

If that proves true, it would mark the eighth straight quarter of negative same-store sales growth for Home Depot, although adjusted EPS are expected to be on par or even higher than last year’s.

The Case Against Home Depot Stock

Obviously, Home Depot stock could shoot higher if the company surprises to the upside the way it did three months ago. But long term, I still don’t like it because of the macro headwinds the company is facing. 

I mentioned those — inflation, spending/sentiment, and the broader travails of the housing market — up top. 

Remember, Home Depot’s success is largely dependent upon homebuilding, construction activity, and DIY projects and renovations by new homebuyers.

Problem is, the housing market has effectively been frozen by high prices and financing costs.

Home sales have been sluggish for the past two years, as buyers are being priced out of the market and potential sellers are unwilling to reenter the market themselves or forfeit the low interest rates they’ve locked in.

In 2024, home sales fell to the lowest level since 1995. And January was another dismal month that saw existing home sales slump 4.9% from December, which was worse than expected.

Furthermore, the housing market is now facing more uncertainty drummed up by the Trump administration. 

Namely, tariffs, deportations, and mass layoffs have made things even dicier — both for homebuyers and homebuilders.

A 25% tariff on softwood lumber products from Canada adds to the current effective duty rate of 14.5% already in place, bringing the total tariff to nearly 40%.

It’s not just lumber, either. When new houses get built or bought, they’re also outfitted with heavy-duty appliances, which also figure to be impacted by tariffs.

Roughly a third of building materials and appliances are sourced from foreign markets.

That means many of Home Depot’s high-ticket products are set to be ensnared with higher prices, even if the company insists the impact will be limited.

"We source well more than half of our goods domestically and in North America, but there certainly will be an impact," CEO Ed Decker acknowledged on the company’s third-quarter earnings call.

Construction is also an industry with heavy exposure to immigrant labor. So mass deportations will almost certainly reduce the supply of workers and increase the cost of labor.

It’s not surprising, then, that sentiment among homebuilders is on the decline.

The National Association of Home Builders' (NAHB) Housing Market Index fell five points in February, to 42 — its lowest level in five months.

Meanwhile, overall housing starts decreased 9.8% in January, including an 8.4% drop for single-family homes.

"As mirrored in our latest builder survey, high construction costs, elevated mortgage rates, and challenging housing affordability conditions are causing builders to approach the market with caution," NAHB Chairman Carl Harris says. 

"Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices." 

American consumers are being dissuaded, as well.

Retail sales tumbled 0.9% in January, the biggest drop since March 2023.

And the University of Michigan’s consumer sentiment index surprised to the downside in February, coming in at 64.7 — a substantial drop from 74 in December.

The index measuring expectations for buying conditions for durable goods was especially bad, plunging 19% in February. That drop was largely “due to fears that tariff-induced price increases are imminent,” according to Joanne Hsu, director of consumer surveys at the University of Michigan.

And finally, drastic, indiscriminate cuts to the federal workforce figure to cloud the picture even further. 

Workers who lose their jobs obviously won’t be inclined to buy new homes or refurbish existing ones. They’re not likely to buy durable goods, either. 

And commercial real estate could suffer, too, as office space leased by downsized or disbanded government agencies is vacated.

Typically, in that kind of a situation, you’d see lower interest rates and more accommodative monetary policy from the Fed, but it’s hard to see the FOMC cutting rates with inflation still running hot and tariffs further fueling the fire.

That means mortgage rates will remain high, as well, potentially overwhelming any regression in real estate prices.

This is why I’m bearish on Home Depot stock. It may be riding high now, but circumstances are shifting — and not in its favor.

Fight on,

Jason Simpkins

Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more…

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