Home Depot forecasts surprise drop in annual profit as demand wavers

By Savyata Mishra

(Reuters) - Home Depot forecast a surprise drop in 2025 profit on Tuesday as the company grapples with a weak housing market and high interest rates that are making U.S. consumers wary of making big expenditures.

U.S. business activity nearly stalled in February as worries mount over President Donald Trump's tariffs on imports and deep cuts in federal government spending. Retail sales slumped 0.9% on a monthly basis in January.

The company's outlook comes days after Walmart forecast current-year sales and profit below estimates, citing caution in navigating an uncertain geopolitical landscape.

Still, Home Depot executives on a post-earnings call said they expected the consumer to remain "healthy" while reiterating that the company can manage any impact from tariffs. The company's shares rose about 3.4% as comparable sales turned positive after two years of declines.

"We've likely reached the bottom of housing turnover ... but we're not expecting a big rebound, nor significant increases in new housing starts," Home Depot Chief Financial Officer Richard McPhail said.

Discounts during the holiday quarter boosted demand at the top U.S. home improvement retailer. Rival Lowe's - set to report results on Wednesday - gained 2%.

"We have seen several management teams use the moment to soften near-term expectations just in case there are long-lasting headwinds that impact margins," said Brian Mulberry, client portfolio manager at Zacks Investment Management.

Home improvement chains have contended with guarded spending on expensive home improvement projects such as kitchen and bath remodels, as borrowing costs stayed stubbornly high. Customers have instead been turning to repair and maintenance activities.

The company also noted uncertainty on how immigration and tax policies, as well as ongoing federal spending cuts, could impact profits.

"Tax policy would be one of the most important (issues) to Home Depot as a full taxpayer, so we'd be very pleased if the corporate rate stays at 21%," CEO Edward Decker said.

Decker added that there has long been a shortage of skilled labor in the U.S., and was "not sure how that number would change" given the administration's crackdown on immigration.

Home Depot posted a 0.8% rise in same-store sales in the fourth quarter, compared with analysts' average estimate of a 1.87% drop, according to data compiled by LSEG.

Customer transactions jumped 7.6% from last year, while the average ticket increased 0.3%, reversing several quarters of decline.

Home Depot expects adjusted profit-per-share for fiscal year 2025 to decline about 2%. Wall Street was projecting a 4.6% growth in earnings.

Annual comparable sales are forecast to rise 1%, compared with estimates of a 1.7% jump.

Gross margin is expected to be flat year-on-year at about 33.4%.

(Reporting by Savyata Mishra in Bengaluru and Nicholas P. Brown in New York; Editing by Sriraj Kalluvila and Shounak Dasgupta)