By Sabrina Escobar and Elsa Ohlen

Home Depot's full year outlook was worse than analysts expected, but there was still some good news for investors. The retailer's same-store sales turned positive for the first time in two years.

Fourth-quarter same-store sales rose 0.8% year over year, better than the consensus call which predicted a 1.5% decrease, according to FactSet. This increase breaks an eight-quarter streak of declines.

Quarterly sales came in at $39.7 billion, slightly above analysts' expectations of $39.2 billion. Adjusted earnings per share were $3.13, beating expectations of $3.04.

Home Depot shares were flat at $382.13 in premarket trading Tuesday, recovering from an earlier decline of as much as 2.3%. By Monday's close, shares had risen about 2% over the last 12 months, trailing the S&P 500, which gained 18% over the same period.

"We remained steadfast in our investments across our strategic initiatives to position ourselves for continued success, despite uncertain macroeconomic conditions and a higher interest rate environment that impacted home improvement demand," said CEO Edward Decker.

Home Depot's guidance was keeping a lid on the stock. For the current fiscal year, Home Depot guided for sales growth of 2.8% and same-store sales growth of 1%. The Street had penciled in 2.9% sales growth and a 1.7% increase in same-store sales.

Home Depot said it anticipates adjusted earnings per share to decline by 2% from $15.24 in fiscal 2024. Analysts had been expecting $15.65.

The company also announced a 2.2% dividend increase, bringing the annual dividend to $9.20 per share.

"Given recent trends, we believe that there is conservatism baked into HD's FY25 guidance," wrote Zhihan Ma, an analyst at Bernstein. Ma will be looking for clues from management over whether the momentum seen in the fourth quarter will continue through the rest of the fiscal year.

Analysts will also be looking for more signs to help settle a debate that has been raging among investors for the better part of the past two years: Is home improvement demand finally rebounding -- or will 2025 be another tough year for the sector?

Consumers tend to start remodeling projects just before selling a house or right after buying one. With mortgage rates at their highest point in years, many potential buyers have put off purchases. Toward the end of 2024, the outlook was cautiously optimistic: The Federal Reserve was on track to keep lowering interest rates, which analysts hoped would also decrease mortgage rates and kick-start the housing market.

The economic picture is looking markedly different in the early days of 2025. Given the recent spike in inflation, economists project the central bank will keep rates higher for longer. That could further delay the much-needed rebound in home sales and home renovations, more bearish analysts point out.

In past quarters, the retailers have opted to strike a cautious tone about the pace of recovery in home improvement in a bid to temper investor enthusiasm and set realistic expectations. Markets will be closely monitoring any changes to management's commentary this earnings season, hoping they take a more upbeat tenor.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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February 25, 2025 08:11 ET (13:11 GMT)

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