Home Depot Earnings Calm Consumer Fears — But Why Can’t HD Stock Break Above $300?

Home Depot (HD) delivered a better-than-feared first-quarter earnings report Tuesday morning, helping calm some investor nerves around the health of the U.S. consumer and the housing market. The results were far from spectacular, and several underlying metrics still showed pressure from higher mortgage rates and weaker large-project demand, but the quarter reinforced the view that Home Depot’s core customer base remains relatively resilient despite rising inflation, elevated Treasury yields, and a sluggish housing backdrop. Shares initially moved modestly higher in premarket trading following the release, though the muted reaction highlighted that investors still remain cautious toward the broader home improvement sector as Home Depot stock continues hovering near its weakest levels since late 2023 and below the psychologically important $300 level.

The home improvement giant reported adjusted earnings per share of $3.43, slightly ahead of Wall Street expectations of $3.41. Revenue came in at $41.77 billion, also above consensus estimates of roughly $41.5 billion. Sales increased 4.8% year-over-year, benefiting partly from acquisitions and modest improvement in customer demand trends. While the headline beat was enough to settle immediate fears that the consumer was collapsing under the weight of rising costs and housing affordability issues, investors digging deeper into the report still found several softer areas that likely explain why the stock reaction remained subdued.

Comparable sales increased just 0.6% during the quarter, slightly below expectations closer to 0.8%-0.9%. U.S. comparable sales rose only 0.4%, and the company noted that foreign exchange added approximately 55 basis points of support. More concerning for some investors was the continued decline in customer transactions. Comparable transactions fell 1.3%, marking the fourth consecutive quarterly decline, while total customer transactions slipped 0.9% to 391.1 million. The weaker traffic trends suggest that consumers are still pulling back on discretionary projects and visiting stores less frequently.

However, the softer traffic was partially offset by stronger spending per transaction. Average ticket size increased 2.3% year-over-year to $92.76, while comparable average ticket growth rose 2.2%. That dynamic reinforces management’s broader commentary that higher-income homeowners remain engaged even if they are delaying larger renovation projects. Home Depot’s customer base skews toward more affluent homeowners who have generally held up better than lower-income consumers during the recent inflation cycle.

Chief Financial Officer Richard McPhail acknowledged that the consumer remains cautious but emphasized that Home Depot’s core homeowner shopper continues to show resilience despite geopolitical tensions, elevated gas prices, and weak consumer confidence readings. “The homeowner in a relevant sense is perhaps more protected financially than other customer cohorts and so we continue to see engagement,” McPhail said in an interview with CNBC. Still, he admitted customers remain hesitant around larger-ticket discretionary projects, saying consumers continue to defer bigger spending decisions — a trend the company has seen for several years now.

Margins represented another area of concern within the report. Gross margin came in around 33%, slightly below expectations near 33.2%, while operating margin declined to 11.9% from 12.9% a year ago. Adjusted operating margin also fell to 12.3% from 13.2%. Operating income declined roughly 3% year-over-year despite higher revenue growth, suggesting that cost pressures and mix shifts remain headwinds. Investors have increasingly focused on margin durability across retail following several years of inflationary pressures, wage increases, and supply chain costs. While the margin decline was not severe enough to trigger major alarm bells, it reinforced that Home Depot is still operating in a difficult environment where profitability expansion remains challenging.

The broader macro backdrop continues to weigh heavily on sentiment toward Home Depot and the housing-related complex overall. Earlier this year, investors had hoped falling mortgage rates would finally help unlock housing turnover and renovation activity. Instead, Treasury yields have surged again amid geopolitical tensions and inflation concerns, pushing mortgage rates back higher and delaying the expected recovery in housing-related spending. Shares of Home Depot have fallen more than 12% so far in 2026, underperforming both the broader S&P 500 and rival Lowe's (LOW), as investors worried the long-awaited rebound in home improvement demand may once again get pushed further into the future.

One area where Home Depot continues to invest aggressively is the professional contractor market. Management repeatedly highlighted the company’s push toward expanding its “Pro” business, which now represents roughly half of total revenue. Over the past two years, Home Depot has made several acquisitions aimed at strengthening its exposure to contractors, roofers, landscapers, and commercial customers. The company acquired SRS Distribution for $18.25 billion in 2024 and later added GMS, another specialty building products distributor. Last week, SRS completed its acquisition of Mingledorff’s, a distributor of HVAC equipment and supplies, helping expand Home Depot’s exposure to what management estimates is a $100 billion addressable HVAC market opportunity.

Management believes the Pro segment remains one of the company’s largest long-term growth opportunities, particularly as larger professional projects tend to be stickier and less cyclical than DIY spending. McPhail said Home Depot ultimately believes it has the “right to win” within the broader $700 billion professional market, though he acknowledged the company is still building out the full capabilities needed to maximize that opportunity.

Importantly, Home Depot reaffirmed its full-year fiscal 2026 guidance, which likely served as the biggest relief point for investors. The company continues to expect total sales growth of 2.5%-4.5%, comparable sales growth between flat and 2%, and adjusted earnings-per-share growth between flat and 4%. Home Depot also reiterated expectations for gross margin around 33.1% and operating margin between 12.4% and 12.6%. While not exactly an aggressive outlook, the decision to maintain guidance suggested management has not seen any meaningful deterioration in underlying trends despite the challenging macro environment.

Ultimately, the quarter felt more like stabilization than acceleration. Home Depot did enough to reassure investors that the consumer — particularly the higher-income homeowner — has not cracked under inflationary pressures. But the report also reinforced that the housing market remains sluggish, large discretionary projects remain delayed, and margin pressures have not fully disappeared. For now, the results appear strong enough to settle nerves on the surface, but probably not strong enough to spark a major rerating in the stock until investors see clearer signs of a housing recovery, stronger same-store sales momentum, or Treasury yields moving materially lower.