⚠ Trade Credit Means Credit RiskModerate threat

Home Depot (HD) — threat to the moat

Home Depot's receivables grew 14.2% in a year its sales grew 3.2%, as it lends to contractors whose ability to pay depends on construction.

Selling to Pros on account changes the risk of the business. The 10-K says specialty trade and MRO customers, who have higher spend and longer-term relationships than a typical retail customer, increasingly use trade credit to finance their purchases1, and that their ability to pay is highly dependent on the economic strength of the industry in which they operate2.

Fiscal 2025 growth (%)14.2%Receivables3.2%Net salesHome Depot Form 10-K fiscal 2025; growth calculated
Credit growing four times as fast as sales.

The balance is growing. Receivables were $5,597 million at the end of fiscal 2025, up from $4,903 million3, a rise of 14.2% in a year when net sales grew 3.2%4.

A homeowner pays at the register. A contractor on account pays later, often only after his own customer has paid him. In a construction downturn those receivables become the company's problem.

The 10-K spells out the consequence. If these customers are unable to repay the trade credit, Home Depot bears the loss5, and demand for credit offerings, including trade credit, is listed among the factors that could affect results6. A retailer that never used to lend is now in the business of judging contractors' finances.

The number to watch is receivables growth against sales growth. If receivables keep rising at several times the rate of sales, Home Depot is buying Pro share with credit, and the losses will arrive with the next downturn.

References
  1. ReportedThe 10-K says specialty trade and MRO customers, who have higher spend and longer-term relationships than a typical retail customer, increasingly use trade credit to finance their purchases, and that their ability to pay is highly dependent on the economic strength of the industry in which they operate.
    The Home Depot Form 10-K for fiscal 2025 (the 52 weeks ended 1 February 2026) - Item 1 business and Item 2 properties: stores, Pros, SRS, competition and supply chain. — Fiscal 2025 · publ. 18 March 2026 · source ↗
  2. ReportedThe 10-K says specialty trade and MRO customers, who have higher spend and longer-term relationships than a typical retail customer, increasingly use trade credit to finance their purchases, and that their ability to pay is highly dependent on the economic strength of the industry in which they operate.
    The Home Depot Form 10-K for fiscal 2025 (the 52 weeks ended 1 February 2026) - Item 1 business and Item 2 properties: stores, Pros, SRS, competition and supply chain. — Fiscal 2025 · publ. 18 March 2026 · source ↗
  3. ReportedReceivables were $5,597 million at the end of fiscal 2025, up from $4,903 million, a rise of 14.2% in a year when net sales grew 3.2%.
    The Home Depot Form 10-K for fiscal 2025 (the 52 weeks ended 1 February 2026) - Item 7 MD&A: segments, comparable sales, transactions, product lines, margins and ROIC. — Fiscal 2025 · publ. 18 March 2026 · source ↗
  4. Moat Explorer calcReceivables were $5,597 million at the end of fiscal 2025, up from $4,903 million, a rise of 14.2% in a year when net sales grew 3.2%.
    Moat Explorer calculation from The Home Depot's filings and market data ($ millions unless stated; fiscal years as Home Depot names them, fiscal 2025 = year to 1 February 2026). Segments: Primary net sales 151,966 / 152,669 - 1 = -0.5% (fiscal 2023 to 2025); Primary operating income 20,574 / 21,689 - 1 = -5.1%; Primary operating margin 21,689 / 152,669 = 14.2% (fiscal 2023), 21,313 / 153,108 = 13.9% (fiscal 2024), 20,574 / 151,966 = 13.5% (fiscal 2025); Other operating margin 213 / 6,406 = 3.3% (fiscal 2024), 316 / 12,717 = 2.5% (fiscal 2025); Other before intangible amortisation 316 + 398 = 714, 714 / 12,717 = 5.6%; Other share of net sales 12,717 / 164,683 = 7.7%; Other share of operating income 316 / 20,890 = 1.5%. Q2 fiscal 2026: Primary 42,806 / 42,157 - 1 = +1.5%, margin 6,592 / 42,806 = 15.4%; Other 5,055 / 3,120 - 1 = +62%, margin 247 / 5,055 = 4.9%; Q2 fiscal 2025 margins: Primary 6,354 / 42,157 = 15.1%, Other 201 / 3,120 = 6.4%; Q1 fiscal 2026 Primary 80,569 - 42,806 = 37,763 and 11,557 - 6,592 = 4,965, margin 13.1%; Other 9,057 - 5,055 = 4,002 and 263 - 247 = 16, margin 0.4%. Pro acquisitions 8,692 + 18,028 + 5,081 + about 1,100 = about 32,900 (HD Supply, SRS, GMS, Mingledorff's). Growth: net sales 164,683 - 159,514 = 5,169 in fiscal 2025 against about 6,300 contributed by acquisitions; fiscal 2025 over fiscal 2023 164,683 - 152,669 = 12,014, of which Other 12,717. Net sales fiscal 2017 to fiscal 2025 164,683 / 100,904 - 1 = +63%; stores 2,359 - 2,284 = 75, 75 / 2,284 = +3.3%. Traffic: transactions 1,601.5 / 1,500.8 - 1 = +6.7% (fiscal 2015 to 2025); 1,601.5 / 1,759.7 - 1 = -9.0% (fiscal 2021 to 2025); average ticket 90.56 / 58.77 - 1 = +54%. Net sales per store 164,683 / 2,359 is not meaningful because Other has no stores; Primary 151,966 / 2,359 = 64.4 per store. Margins: operating margin 21,689 / 152,669 = 14.2%, 21,526 / 159,514 = 13.5%, 20,890 / 164,683 = 12.7%; SG&A 30,702 / 28,748 - 1 = +6.8% against net sales +3.2%; Primary SG&A 28,885 / 27,822 - 1 = +3.8% against Primary net sales 151,966 / 153,108 - 1 = -0.7%; interest expense 2,412 / 1,943 - 1 = +24%; operating income / interest 20,890 / 2,412 = 8.7 times. Departments: Lighting 4,006 / 4,549 - 1 = -11.9%; Flooring 8,232 / 8,703 - 1 = -5.4%; Storage and Organization 5,054 / 4,881 - 1 = +3.5%; Appliances 13,987 / 164,683 = 8.5%. Classes fiscal 2025: 52,439 + 51,679 + 47,848 = 151,966 = Primary net sales. Net margin 14,156 / 164,683 = 8.6%; Lowe's 6.63 / 90.43 = 7.3%; Lowe's price to sales 106.20 / 90.43 = 1.17 against 1.73; Primary share 151,966 / 164,683 = 92.3%; cost of sales 164,683 - 54,865 = 109,818. Primary share Q2 fiscal 2026 42,806 / 47,861 = 89.4%; H1 net sales increase 89.6 - 85.1 = 4.5bn, GMS 2.8 / 4.5 = 62%; average ticket 89.31 / 90.36 - 1 = -1.2%; equity build 14,156 - 9,152 = 5,004; buyback authorization 11.66 / 292.52 = 4.0% of market value; depreciation and amortisation as a share of sales, Other 715 / 12,717 = 5.6%, Primary 3,344 / 151,966 = 2.2%. US share 152,170 / 164,683 = 92.4%. Mexico stores 2,359 - 2,035 - 182 = 142. Other share of net sales 6,406 / 159,514 = 4.0% (fiscal 2024), 5,055 / 47,861 = 10.6% (Q2 fiscal 2026). Sales per retail square foot 627.17 / 454.82 - 1 = +38% (fiscal 2019 to 2022), 599.92 / 627.17 - 1 = -4.3% (fiscal 2022 to 2024). Tariff refunds 685 / 47,861 = 1.4% of Q2 net sales; 685 / 16,115 = 4.3% of Q2 gross profit; refunds in inventory cost 730 - 685 = about 45. Receivables 5,597 / 4,903 - 1 = +14.2%. Capital: net debt 4,464 + 4,967 + 46,341 - 1,389 = 54,383 (1 February 2026); 316 + 4,582 + 48,485 - 1,659 = 51,724 (2 February 2025); 4,248 + 4,697 + 43,951 - 2,085 = 50,811 (2 August 2026); net debt / equity 54,383 / 12,813 = 4.2 times; goodwill and intangibles 22,344 + 10,329 = 32,673, 32,673 / 105,095 = 31.1% of total assets. Free cash flow 16,325 - 3,679 = 12,646 (fiscal 2025), 19,810 - 3,485 = 16,325 (fiscal 2024), 21,172 - 3,226 = 17,946 (fiscal 2023); dividends paid / free cash flow 9,152 / 12,646 = 72.4%; dividend per share / diluted EPS 9.20 / 14.23 = 64.7%; capex / net sales 3,679 / 164,683 = 2.2%. Average debt and equity 61,914 / 44,955 - 1 = +38%; SRS + GMS 18,028 + 5,081 = 23,109; interest expense 2,412 - 1,943 = 469; operating cash flow / dividends paid 16,325 / 9,152 = 1.8 times; free cash flow 12,646 / 17,946 - 1 = -30%; dividend per share 9.00 / 8.36 - 1 = +7.7%, 9.20 / 9.00 - 1 = +2.2%, 2.33 / 2.30 - 1 = +1.3%. Repurchases fiscal 2015-2023: 7,000 + 7,000 + 8,002 + 10,000 + 7,000 + 597 + 15,001 + 6,504 + 8,074 = 69,178; diluted shares 995 / 1,283 - 1 = -22%. H1 fiscal 2026 EPS 8.09 / 14.23 = 57%. Market: 292.52 / 14.26 = 20.5 times trailing earnings; 292.52 / 169.18 = 1.73 times sales; 292.52 / 433.37 - 1 = -32.5% from the end-2021 value; Lowe's 106.20 / 292.52 = 36%, 90.43 / 169.18 = 53% of revenue; dividend yield 9.32 / 293.20 = 3.2%; trailing diluted EPS 14.23 + 8.09 - (3.45 + 4.58) = 14.29; trailing net income 292.52 / 20.52 = about 14.26bn - segments, sales, traffic and margins. — Fiscal 2015-2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in The Home Depot's Forms 10-K and 10-Q, results releases and market data; operands shown in the source line.
  5. ReportedIf these customers are unable to repay the trade credit, Home Depot bears the loss, and demand for credit offerings, including trade credit, is listed among the factors that could affect results.
    The Home Depot Form 10-K for fiscal 2025 (the 52 weeks ended 1 February 2026) - Item 1 business and Item 2 properties: stores, Pros, SRS, competition and supply chain. — Fiscal 2025 · publ. 18 March 2026 · source ↗
  6. ReportedIf these customers are unable to repay the trade credit, Home Depot bears the loss, and demand for credit offerings, including trade credit, is listed among the factors that could affect results.
    The Home Depot Form 10-K for fiscal 2025 (the 52 weeks ended 1 February 2026) - Item 1 business and Item 2 properties: stores, Pros, SRS, competition and supply chain. — Fiscal 2025 · publ. 18 March 2026 · source ↗
Sources
Generated September 26, 2026