Wall Street has high expectations heading into the first-quarter earnings report from Home Depot (HD 0.06%). The home improvement retailer has benefited from several positive trends in the past year, including soaring demand for do-it-yourself upgrade projects, rising prices for inputs like lumber, and a generally booming housing market.

But the industry leader has lost market share to rivals including Lowe's (LOW -0.59%) in recent quarters, which means investors will be closely watching for signs of a strengthening business. With that bigger picture in mind, let's look at a few metrics to follow when Home Depot announces its results on May 18.

Inside a home improvement store.

Image source: Getty Images.

Market share battle

Expectations could hardly be higher on the growth front. Home Depot added $6.5 billion, or 25%, to its sales base in the previous quarter, after all. And the housing market remained strong through early 2021. That's why investors are looking for growth of around 25% again in Q1.

That headline number might be skewed by surging prices for things like lumber, though, so Home Depot's comparable-store sales will be more useful to follow. The chain notched a 21% increase on that metric in fiscal 2020, compared to Lowe's 26% spike. The reports this week by both retailers will show whether the industry's second-largest player continued to close the operating gap between the two retailers in 2021.

Prices and profits

Home Depot's profitability remained unchallenged in the past year, with operating margin holding at about 14% compared to Lowe's 11%. The upcoming reports might show further tightening between the two companies, but overall margins should rise thanks to surging prices in many home improvement niches, especially lumber. It will be interesting to see how the chains handled these price surges, and whether they were able to pass along any savings to their customers.

HD Operating Margin (TTM) Chart

HD Operating Margin (TTM) data by YCharts

Home Depot executives said in February that operating margin should stay around 14%, and Lowe's is predicting another small step toward its goal of reaching 13% in time.

The outlook

The biggest factor influencing the stock this week will be management's updated outlook. CEO Craig Menear and his team said three months ago that sales might be flat after a record 2020 that saw Home Depot add $20 billion to its annual base. Executives didn't offer specifics, though, except to warn about volatility and major uncertainties around economic growth, consumer demand, and the path of the COVID-19 virus.

Heading into the peak spring selling season, and with several months of sales results already booked, Home Depot might be in a position to issue a more detailed forecast. Menear should comment on the strength of the housing market and key trends that support its business, including home prices, housing turnover, and wages.

Each of these factors look strong heading into Q2, and so it shouldn't be a surprise to investors if Home Depot hints at another year of growth in 2021 even after it added more sales to its base last year than it did in its first 20 years as a company.