HD Q2 2027 Earnings Analysis
Q2 beat expectations with 1.7% comp growth; tariff refunds offset cost pressures, maintaining guidance.
Key Metrics
Key Takeaways
- Q2 results exceeded expectations with 1.7% comp growth driven by smaller repair projects and tech investments.
- $685M tariff refunds offset cost pressures; gross margin maintained at 33.7% despite supply chain headwinds.
- Pro segment positive; SRS acquisition driving cross-sell; 90% of stores closed sales through SRS in 12 months.
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Transcript
// Full episode scriptBETA FINCH — HOME DEPOT (HD) Q2 FISCAL 2026 EARNINGS BREAKDOWN
Welcome to Beta Finch, your AI-powered earnings breakdown. I'm Alex, joined as always by Jordan. Today we're digging into Home Depot's second quarter fiscal 2026 results, reported August 18th.
Good one to cover — there's a lot going on here beyond the headline numbers.
There is. But before we get into it, quick disclaimer: this podcast is AI-generated content for educational and entertainment purposes only. Nothing we discuss should be considered investment advice. Always do your own research and consult a qualified financial advisor before making any investment decisions.
Good to have that out of the way. So, Alex, where do we start?
Let's start with the top line. Home Depot posted $47.9 billion in sales for the quarter, up 5.7% year-over-year. Comp sales — that's sales at stores open at least a year — grew 1.7% company-wide, with U.S. comps up 1.3%. Adjusted diluted EPS came in at $4.92, versus $4.68 a year ago.
And importantly, management said results actually exceeded their own internal expectations. That's notable in this environment — housing turnover is sitting at historic lows, and big discretionary remodels are still under pressure. So beating expectations here is really a story about smaller projects.
Right, this was very much a "repair and maintenance" quarter. Think storage, electrical, hardware, plumbing — 13 of their 16 merchandising departments posted positive comps. Big, expensive kitchen and bath remodels? Still soft. But the bread-and-butter stuff is holding up well.
What stood out to me is the ticket versus transaction split. Average ticket was up 2.8%, but transactions were actually down 1%. So people are spending more per visit, but fewer people are walking through the door. Big-ticket purchases over $1,000 were up 2.4%, which tells you there's still some appetite for larger single-item purchases — think appliances, portable power tools — even if it's not full-blown renovation spending.
Speaking of portable power, Billy Bastek, their merchandising EVP, called Q2 a record-setting quarter for portable power tools. That's been a real bright spot along with patio and, interestingly, appliances — where they've built out next-day delivery to nearly 60% of the population.
Let's talk about the tariff piece, because this got a lot of analyst attention on the call. Home Depot received $730 million in IEEPA tariff refunds during the quarter, and $685 million of that flowed through to reduce cost of goods sold. That gave gross margin a roughly 145 basis point lift.
But — and this is the important nuance — that benefit was mostly offset by rising costs elsewhere. About 60 basis points of pressure from fuel, energy, and other input costs, plus another 60 basis points of margin dilution just from the mix effect of the GMS acquisition. Net-net, gross margin only rose about 25 basis points to 33.7%.
CFO Richard McPhail was pretty direct about this — he said even without the tariff refund, they'd have beaten expectations anyway, it just would've shown up differently. He's basically pre-empting the narrative that Home Depot "missed" underlying profitability and needed the refund to bail them out.
Which makes sense given how the stock commentary was framing it going into the call. Now, strategically, the two big themes this quarter were the Pro customer and interconnected retail — meaning online, delivery, in-store tech all working together.
The Pro business had a positive comp and actually outperformed DIY, which is a real accomplishment given how much of the housing market is frozen right now. A lot of that comes down to SRS Distribution and the GMS acquisition — those are the specialty distributors Home Depot has folded in to better serve professional contractors, roofers, and builders.
And they gave a great stat here — in the last 12 months, 90% of Home Depot stores have closed a sale through SRS's QuoteCenter marketplace. That's a real sign the integration is working, not just sitting on paper.
On the delivery side, this was a big announcement quarter. They launched Express Delivery nationwide — that's a flat-fee option getting products to customers in three hours or less, and management said most of those are actually arriving in under an hour already.
They also said 65% of in-stock parcel deliveries are now same-day or next-day, and for big and bulky items — appliances, building materials — 55% are delivered within two days. Delivery lead times overall are down about 45% over the last 18 months. That's a meaningful operational shift.
And don't sleep on Magic Apron — that's their AI shopping assistant, now available both online and in-store on associates' devices. They're getting millions of questions a month through it, and they're localizing it so it understands store-specific inventory.
Now, on guidance — Home Depot reaffirmed its full-year fiscal 2026 outlook. Comp sales guided flat to 2% growth, total sales growth of 2.5% to 4.5%, and adjusted operating margin of about 12.8% to 13%. EPS growth guided flat to 4%.
One thing McPhail flagged: expect gross margin to be roughly flat year-over-year by the fourth quarter, since the tariff refund benefit is really a Q2-and-Q3 dynamic that fades as the year goes on. So don't extrapolate this quarter's margin lift forward.
There was also a housekeeping note — Home Depot announced CEO Ted Decker is on a temporary medical leave of absence, with Richard McPhail and Ann-Marie Campbell stepping in to lead alongside the existing team. Management said they expect him back within a few months.
So stepping back — what does this all mean for someone watching the stock? The story here is Home Depot is gaining market share in a genuinely difficult housing environment. Small projects are propping things up while big remodels stay frozen, and the Pro and delivery investments seem to be the actual differentiators versus competitors.
The risk, obviously, is that this is a housing-and-rate-sensitive business, and management themselves said housing turnover has been at historic lows for four years with no clear inflection point yet. So a lot of the upside case depends on rates eventually coming down and turnover picking back up.
Before we wrap up — everything discussed is AI-generated analysis for educational purposes. Past performance doesn't guarantee future results. Please do your own due diligence.
Well said. So to close it out — Home Depot delivered a solid beat this quarter, leaning on Pro momentum, delivery speed, and smaller-project demand to offset a still-sluggish housing backdrop. The next real test comes in November with Q3 results, when we'll see whether that share-gain story continues into the back half.
We'll be back to break it down when it lands. Thanks for listening to Beta Finch.
Catch you next time.