The Home Depot, Inc. (HD) Earnings

Management highlights

### Core Business & Store Experience Investments - Maintains record-high on-shelf product availability, the foundational element of reliable customer service and order fulfillment for both in-store and digital channels. - Upgraded the Magic Apron in-store customer/associate tool to add store-specific context, enabling faster product location, project guidance, and personalized help; the tool now receives millions of questions monthly with strong positive customer feedback. - 100% of all stores qualified for the hourly associate success sharing/profit sharing program based on first half 2026 results, reflecting strong operational performance and associate engagement. ### Interconnected Customer Experience Expansion - Achieved over 65% same-day or next-day delivery for in-stock parcel products, and 55% of stocked big and bulky products are now delivered within two days, representing a 45% reduction in U.S. delivery lead times over the past 18 months that has driven higher customer conversion. - Launched 3-hour or less express delivery nationwide for tens of thousands of products, with most deliveries completed in under one hour for a small flat fee, catering to last-minute homeowner and pro project needs. - Updated the appliance delivery model to stock a select assortment of appliances for next-day delivery in select markets, which has delivered a measurable sales lift and will be expanded; next-day delivery coverage for key appliance SKUs is already available to nearly 60% of the U.S. population. - The Home Depot mobile app was the highest-growth digital surface, with ongoing user growth ahead of a planned back-half refresh, supporting broader digital engagement. ### Merchandising & Pro Growth Strategy - Record Q2 sales for portable power tools, supported by a broad lineup of battery platforms that has built a strong competitive advantage and driven ongoing market share gains. - Strong growth in storage categories, anchored by the popular Milwaukee Packout modular storage system for pros, which drives pro loyalty and retention. - Named exclusive big-box retail launch partner for USG's new ultralight tough gypsum panels, and expanding the existing pro-favorite Ruko Joint Treatments product line across all stores, cementing the company's leadership in pro-preferred building materials. - Integrated the acquired SRS and GMS businesses with the core Home Depot retail ecosystem: 90% of Home Depot stores have closed sales through SRS via the in-store QuoteCenter platform, enabling pros to access the full SRS/GMS product catalog within the Home Depot ecosystem, unlocking incremental cross-sell opportunities.

Guidance

- Management reaffirmed its full fiscal 2026 guidance, after Q2 2026 results exceeded internal expectations. - Full-year comparable sales are expected to range between flat and 2% growth, with total company sales growth of 2.5% to 4.5%, which includes the contribution from the GMS acquisition, new stores, and tuck-in acquisitions. - SRS is expected to deliver mid-single-digit organic sales growth for the full year. - The company plans to open approximately 15 new core stores and 40 to 50 new SRS branches in fiscal 2026. - Full-year gross margin is expected to be approximately 33.1%; operating margin is projected at 12.4% to 12.6%, with adjusted operating margin of 12.8% to 13%. - The effective tax rate is targeted at approximately 24.3%, and net interest expense is expected to be approximately $2.3 billion. - Both reported and adjusted diluted earnings per share are expected to increase between flat and 4% compared to fiscal 2025. - Capital expenditures for the full year are projected to be approximately 2.5% of total sales.

Segment performance

The Home Depot does not break out separate product segment financials with absolute revenue and contribution percentage. Across its 16 total merchandising departments, 13 posted positive comparable sales in Q2 2026, including storage, electrical, hardware, power, plumbing, Indoor Garden, Kitchen, Paint, Bath, Outdoor Garden, Building Materials, Flooring, and Millwork. Geographic segment performance: U.S. comparable sales increased 1.3% for the quarter; Canada and Mexico both posted positive comparable sales that outperformed the company-wide average, with Canada accelerating and Mexico continuing a strong growth run. Pro segment comparable sales were positive for the quarter and outperformed DIY, with strong performance across all pro cohorts and SRS (the acquired specialty distribution business) posting comparable sales above the company average, with positive comps across all verticals. Total company online comparable sales increased 11% year-over-year, marking the fifth consecutive quarter of double-digit digital sales growth.

Risks & headwinds

- Persistent consumer uncertainty and low housing affordability continue to pressure demand for large, discretionary home improvement projects. - Unplanned incremental cost pressure from rising fuel, energy, and commodity input costs (including resin and metals) that were not included in the original 2026 fiscal plan. - Recent changes to U.S. tariff policy (the expiration and replacement of Section 101 tariffs) also created incremental unplanned cost increases. - Housing turnover remains at historically low levels, with no clear inflection point for improvement despite recent rate volatility, creating ongoing macro uncertainty for large project demand. - Broad market volatility in the macroeconomic and operating environment creates uncertainty for back-half performance.

Analyst Q&A

• Q: Billy was asked to highlight the strongest areas of the business and comment on back-half outlook after 13 of 16 merchandising departments posted positive comps. Richard was also asked to clarify how the $685M IEPA tariff refund flowed through the P&L, whether additional refunds are expected, and how the 2027 gross margin lap should be viewed. /

  A: Only 3 of the 20 top-performing businesses were seasonal, indicating broad-based strength across core in-store categories. Of the total $730M in refunds received in Q2, $685M reduced COGS for already sold inventory, with $45M remaining in inventory to hit the P&L later this year. Only an immaterial additional amount is expected in the back half. The full $685M Q2 benefit will be fully offset by unplanned incremental cost pressures over 2026, so there will be no material annual lap impact for 2027. The 145bps gross margin benefit from refunds offset 60bps of incremental costs and 60bps of acquisition mix impact, leading to a net 25bps year-over-year gross margin increase.

• Q: Analysts asked how to interpret the wide gap between total company comps and U.S. comps, what is driving this gap, and what the back-half comp trend looks like given guidance maintains a wide range. /

  A: The gap is driven by ~25bps of FX benefit plus much stronger than expected performance from Canada (which saw accelerating growth with positive transaction and unit comps) and Mexico (which continues a strong multi-quarter run), plus SRS posted comps above the company average, with positive comps across all verticals and strong market share gains. Q3 2026 demand has been consistent with Q2 trends, but given ongoing macro volatility, unplanned cost pressures, and frozen housing conditions, management maintains the original guidance range as appropriate, with extremes of the range becoming less likely as the year progresses.

• Q: How much of Q2's outperformance stems from Home Depot's market share gains versus broader consumer re-engagement in the home improvement category, and is there evidence demand has bottomed? /

  A: The broader home improvement market remains under significant pressure tied to housing, and all of Home Depot's outperformance comes from ongoing market share gains driven by its operational investments. Record on-shelf availability, digital innovations like Magic Apron (which now gets millions of monthly questions, with in-store context improvements) and the new nationwide 3-hour express delivery have all driven positive customer response. Digital sales grew 11%, with the app as the fastest-growing digital channel, confirming rising customer engagement with the interconnected experience.

• Q: What factors are driving comp average ticket growth, and could sustained ticket strength and slightly improving traffic push full-year comps above the top end of guidance? /

  A: Average ticket growth comes from three factors: residual same-skew price increases from prior cost inputs, stronger sales of larger single-ticket purchases like portable power and patio products, and customer trade-up within categories. While the math of sustained strength would push comps above guidance, management maintains the prudent existing guidance range given ongoing macro volatility, and will update the outlook after Q3.

• Q: How is cross-sell across Home Depot core, SRS, and GMS progressing, and how should we expect the $400M annual full-year cross-sell target to build through the second half? /

  A: The $400M full-year target includes cross-sell across the entire pro ecosystem, not just between SRS and GMS, built on integrating SRS into the in-store QuoteCenter platform. 90% of core stores have already closed SRS-facilitated sales, and investments in pro delivery tracking, B2B digital tools, and AI project planning have driven strong customer adoption and higher pro wallet share. Management reported steady progress toward the full-year target, with growing momentum as integration continues.