Financial Trends -- 5/10

High-quality, cash-generative category leader stuck in a low-growth, margin-pressured phase. Revenue is stable (FY2025 +3.2%) and comps have inflected shallowly positive, but the positive comp is carried entirely by ticket -- transactions are still negative. Margins are compressing: GAAP operating margin fell from 15.2% (FY2021) to 12.7% (FY2025), and FY2026Q1 adjusted operating margin was 11.9%, down ~100 bps YoY on tariff/cost pressure. FCF is strongly positive but declining -- FY2025 ~$12.6B, down ~22% off the FY2023 peak. Share count is flat. Mandatory penalty applied: revenue growing while operating income declining. Weight: 25%

FY2025 Net Sales

$164.7B

src | +3.2% YoY | Stable

Comp Sales

+0.6%

FY26Q1 | Ticket-led, traffic -1.3%

GAAP Op Margin

12.7%

FY2025 | -250 bps over 5 yrs

Free Cash Flow

$12.6B

FY2025 | -22.5% YoY, below FY23 peak

Quarterly Metrics (last 8 quarters, calendar 24Q2 -> 26Q1)

Metric	24Q2	24Q3	24Q4	25Q1	25Q2	25Q3	25Q4	26Q1
Net sales ($M)	43,175	40,217	39,704	39,856	45,277	41,352	38,198	41,765
Net sales YoY	+0.6%	+6.6%*	+14.1%*	+9.4%	+4.9%	+2.8%	-3.8%†	+4.8%
Total comp (%)	-3.3	-1.3	+0.8	-0.3	+1.0	+0.2	+0.4	+0.6
Gross profit ($M)	14,416	13,425	13,034	13,459	15,125	13,815	12,466	13,781
Gross margin (%)	33.4	33.4	32.8	33.8	33.4	33.4	32.6	33.0
GAAP op income ($M)	6,534	5,418	4,495	5,133	6,555	5,353	3,849	4,981
GAAP op margin (%)	15.1	13.5	11.3	12.9	14.5	12.9	10.1	11.9
Adj diluted EPS ($)	4.67	3.78	3.13	3.56	4.68	3.74	2.72	3.43
FCF ($M, qtr)	4,690	3,415	3,570	3,519	3,726	3,112	2,289	5,188

*24Q3 (+6.6%) and 24Q4 (+14.1%) net-sales YoY are distorted by the SRS Distribution acquisition (closed Jun 2024) and the 53rd week in HD fiscal 2023. †25Q4 (-3.8%) reflects loss of that extra week. Comps are the cleaner organic signal. Quarterly FCF is operating cash flow less capex (Daloopa); 26Q1 FCF +47.4% YoY is flattered by working-capital timing -- the annual FCF trend (-22.5%) is the truth.

Stabilization, not reacceleration. Comp sales have inflected off the trough (comp-sales YoY improved from -2.8% in 24Q1 to +0.6% in 26Q1), but the inflection is shallow and demand is still transaction-negative (-1.3% in 26Q1). The positive comp is carried entirely by ticket (+2.2%) -- price/mix, not unit growth. Operating income is declining even as revenue grows.

Comp Decomposition -- Ticket vs. Transactions (%)

Metric	25Q1	25Q2	25Q3	25Q4	26Q1
Comp transactions	-0.5	-0.4	-1.6	-1.6	-1.3
Comp avg ticket	+0.3	+1.4	+1.8	+2.4	+2.2

The positive comp is entirely ticket, not traffic. Transactions have been negative for five straight quarters while ticket has climbed to +2.2%. Until traffic turns positive, the comp recovery is price/mix, not underlying unit demand -- and that hinges on a still-absent housing-turnover recovery.

Annual Financial Summary (FY ends late January; Daloopa "FY" = HD fiscal year)

Metric	FY2021	FY2022	FY2023	FY2024	FY2025
Net sales ($M)	151,157	157,403	152,669	159,514	164,683
Net sales YoY	—	+4.1%	-3.0%	+4.5%	+3.2%
Gross profit ($M)	50,832	52,778	50,960	53,308	54,865
Gross margin (%)	33.6	33.5	33.4	33.4	33.3
GAAP op income ($M)	23,040	24,039	21,689	21,526	20,890
GAAP op margin (%)	15.2	15.3	14.2	13.5	12.7
Free cash flow ($M)	14,005	11,496	17,946	16,325	12,646
FCF YoY	—	-17.9%	+56.1%	-9.0%	-22.5%
Diluted shares (M)	1,058	1,025	1,002	993	995
Total debt ($M)	40,086	43,193	44,111	53,383	55,772

Key trends

Revenue stable, low-growth: $151.2B (FY2021) to $164.7B (FY2025), a ~2.2% CAGR; FY2025 +3.2% but comps only +0.3% -- growth is M&A- and new-store-aided, not organic demand
Margins compressing: GAAP operating margin fell -250 bps over five years (15.2% to 12.7%), and -80 bps YoY FY2024→FY2025, on SRS/GMS mix dilution, tariff pressure, and negative-transaction deleverage
FCF positive but declining: FY2025 ~$12.6B, -22.5% YoY, well below the FY2023 ~$17.9B peak -- fails the growing-FCF quality gate
Share count flat, no dilution: diluted shares fell from 1,058M to 995M over five years; buybacks de-prioritized to fund SRS
Debt up on M&A: total debt rose from ~$40B to ~$55.8B, driven by the $18.25B SRS financing, but flat-to-down the last ~4 quarters

Segment / Product-Line Revenue (FY2025)

Line	FY2025 Net Sales	% of Total
Building materials (product)	$52,400M	31.8%
Décor (product)	$51,700M	31.4%
Hardlines (product)	$47,800M	29.0%
— Products total	$159,000M	96.6%
— Services	$5,650M	3.4%
US (geographic)	$152,200M	92.4%
International (Canada + Mexico)	$12,500M	7.6%
Total net sales	$164,683M	100%

Revenue is remarkably balanced across the three product lines (building materials, décor, hardlines each ~29-32%), and ~92% US / ~97% products. The Pro customer is now more than half of revenue; SRS Distribution adds Pro roofing/building-products distribution on top of the core big-box franchise.

Segment Revenue -- FY2026Q1 YoY (organic signal)

Metric	25Q1	26Q1	YoY
Net sales ($M)	39,856	41,765	+4.8%
Total comp (%)	-0.3	+0.6	+90 bps
Adj op margin (%)	12.9	11.9	-100 bps

Free Cash Flow -- Annual ($M)

Metric	FY2021	FY2022	FY2023	FY2024	FY2025
Operating CF	$16,571M	$14,615M	$21,172M	$19,810M	$16,325M
Capex	($2,566M)	($3,119M)	($3,226M)	($3,485M)	($3,679M)
Free Cash Flow	$14,005M	$11,496M	$17,946M	$16,325M	$12,646M
FCF margin (%)	9.3	7.3	11.8	10.2	7.7
FCF YoY	—	-17.9%	+56.1%	-9.0%	-22.5%

FCF is strongly positive but declining -- fails the growing-FCF gate. FY2025 FCF of ~$12.6B is -22.5% YoY and well below the FY2023 ~$17.9B peak, dragged by lower operating cash flow (net earnings down, working-capital swings) and steadily rising capex ($2.6B → $3.7B over five years). Two consecutive years of FCF decline is the reason the positive-and-growing-FCF quality gate returns NO.

Blemishes -- What Drives the Penalty

Issue	Detail	Penalty
Rev up, op income down	FY2025 net sales +3.2% while GAAP operating income fell -3.0% ($21,526M → $20,890M); same pattern FY2024. Mandatory penalty.	-1
Margin compression	GAAP op margin -250 bps over 5 yrs (15.2% → 12.7%); 26Q1 adj op margin 11.9%, -100 bps YoY on tariff/cost. Dragged base case to low end.	Base drag
FCF declining	FY2025 FCF -22.5% YoY, below FY2023 peak -- fails growing-FCF gate but FCF is positive, so no negative-FCF penalty.	Gate NO

Score Rationale

Score of 5/10 reflects a high-quality, cash-generative category leader stuck in a low-growth, margin-pressured phase that hinges on a still-absent housing-turnover recovery.

Base read = stable (~5/6):

Revenue stable (annual +3.2%, comps inflecting positive but transaction-negative)
Share count essentially flat (1,058M → 995M), no dilution
FCF strongly positive (~$12.6B FY2025) even as it declines

Dragged to the low end / penalized:

Clear margin compression -- GAAP operating margin 15.2% → 12.7% over five years, -80 bps YoY FY2024→FY2025; 26Q1 adj op margin 11.9%, -100 bps YoY on tariff/cost
Mandatory penalty (-1): revenue growing while operating income declining -- FY2025 net sales +3.2% while GAAP operating income fell -3.0%; same pattern FY2024
FCF declining ~22% off the FY2023 peak (fails the growing-FCF gate; no negative-FCF penalty since FCF stays positive)

Starting ~5/6 → -1 → Score = 5/10. Composite quality gate -- positiveGrowingFcf: NO (FCF positive but down two consecutive years).

Data sourced from Daloopa (company_id: 94). Fiscal year ends late January; Daloopa "FY2025" = fiscal year ended Feb 1, 2026. Market data FMP (2026-06-27). All financials in USD.