Neil Patel, The Motley Fool
5 min read
In This Article:
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Macro headwinds are causing problems for Home Depot, but there are long-term industry tailwinds at play that should propel the business.
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Costco continues to report same-store sales growth, highlighting how valuable shoppers find its ability to sell high-quality goods at extremely low prices.
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One of these stocks is the better buy, but it might not be the better company.
It's likely that most consumers, at least in the U.S., have shopped at both a Home Depot (NYSE: HD) and a Costco (NASDAQ: COST) location at least once in their lives. The former is a leader in the home improvement space, while the latter excels at selling general merchandise. Combined, they generate hundreds of billions of dollars in annual revenue.
Shares of both businesses trade below their all-time high prices. But which of these top retail stocks is the better buy right now with $1,000?
Home Depot reported revenue of $39.9 billion in Q1 2025 (ended May 4), which exceeded Wall Street forecasts and represented a 9.4% year-over-year gain. However, investors shouldn't let the top-line figure take their attention away from the company's ongoing struggles.
High mortgage rates, coupled with an uncertain macro backdrop, don't bode well for Home Depot. Same-store sales (SSS) declined 0.3% in the fiscal 2025 first quarter. This follows a 1.8% drop in fiscal 2024 and a 3.2% fall in fiscal 2023. It makes sense that when households are worried about the economy, they will hesitate to spend on expensive home improvements.
There are reasons to be optimistic about the long term. The home improvement industry is massive, estimated to be worth $1 trillion. Home Depot commands just 16% market share. It should be able to win customers over from smaller stores that don't have the same inventory availability or omnichannel capabilities.
The leadership team calls out the trillions of dollars of untapped home equity that has been built up since the start of the pandemic. This should create pent-up demand for Home Depot should macro conditions ease up.
Homes in this country are also getting older. "The housing stock is aging, and 55% of homes are 40 years or older," CEO Ted Decker said on the Q1 2025 earnings call. "And we know that as homes get older, they require more maintenance and updates." This supports revenue growth for Home Depot in the future.
Costco shines bright when viewed next to Home Depot. The company continues to report positive SSS growth, showcasing the durable demand it experiences. Even in difficult economic times, consumers should flock to Costco to buy whatever they need at low prices and in bulk quantities.
