Home Depot Q3 2025 Analysis: Rising Costs Squeeze Profits Amid Pro Customer Push

Home Depot, a bellwether for the home improvement sector and consumer spending, has released its financial results for the third quarter of fiscal 2025. To understand the company's current health and strategic direction, let's analyze the key figures from its latest 10-Q filing.

Sales Show Resilience, but Details Matter

At first glance, Home Depot's top line shows modest growth. Net sales for the quarter reached $41.35 billion, an increase from $40.22 billion in the same period last year. A critical retail metric, comparable sales—which tracks performance at stores open for at least a year—posted a 0.2% gain. This marks a positive turn from the 1.3% decline recorded a year ago.

However, the story behind this growth is nuanced. The company saw a 1.4% decrease in customer transactions, but this was offset by a 2.0% increase in the average ticket price, which rose to $90.39. This pattern suggests that while fewer customers may be walking through the doors, those who are shopping are spending more on average, possibly on larger projects or higher-value items.

Unpacking the Profit Pressure

While sales edged up, profitability faced a slight squeeze. Net earnings for the quarter came in at $3.60 billion, down from $3.65 billion in the prior-year period. The following flow diagram provides a visual breakdown of the company's quarterly revenue and expenses, illustrating how sales are converted into profit.

The primary source of pressure was not the cost of goods sold; gross margin remained stable at 33.4%. Instead, the challenge came from rising operating costs. Selling, General, and Administrative (SG&A) expenses climbed to $7.64 billion. As a percentage of sales, SG&A increased to 18.5% from 17.9% a year ago, indicating that these overhead costs grew faster than revenue. This ultimately compressed operating income and led to a small decline in diluted earnings per share to $3.62 from $3.67.

A Big Bet on the Professional Customer

Beyond the quarterly performance, the filing highlights a major strategic push. The cash flow statement reveals that Home Depot spent $5.25 billion on acquisitions during the first nine months of the fiscal year. A significant portion of this investment was directed toward the acquisition of GMS Inc., a leading distributor of wallboard, ceilings, and other specialty building materials for contractors.

This acquisition, which added $2.61 billion in goodwill to Home Depot's balance sheet, signals a clear intent to deepen its engagement with the professional ("Pro") market. By acquiring a key supplier like GMS, Home Depot strengthens its supply chain and enhances its product and service offerings for this crucial customer segment, which complements its traditional do-it-yourself (DIY) consumer base.

The Takeaway

Home Depot's third-quarter results depict a company skillfully managing a complex economic environment. It is driving revenue growth through higher average spending per customer while making significant acquisitions to capture a larger share of the professional market. The primary challenge remains the management of rising operational costs. The company's ability to successfully integrate its new businesses and control expenses will be critical for converting its strategic investments and sales growth into stronger bottom-line results moving forward.