The Home Depot (NYSE: HD) reported second-quarter fiscal 2026 sales of $47.9 billion, representing a 5.7% increase from $45.3 billion in the same period of fiscal 2025. The Atlanta-based retailer logged net earnings of $4.8 billion, or $4.79 per diluted share, up from $4.6 billion and $4.58 per share respectively in the prior year quarter. Adjusted diluted earnings per share rose 5.1% to $4.92, beating the analyst consensus estimate of $4.73 by 4.02%. Quarterly sales of $47.861 billion also beat the consensus estimate of $47.271 billion by 1.25%. Home Depot shares rose 3.1% to trade at $347.83 on Wednesday following the release, reversing an initial decline of 0.40% to $336.53 on Tuesday.

On the earnings call, company executives disclosed that received IEEPA tariff refunds reduced cost of goods sold by $685 million in the quarter. One executive noted that the company received $730 million in total tariff refunds during the second quarter, tied to tariffs imposed under the International Emergency Economic Powers Act. This refund directly supported gross profit expansion, which grew 6.5% year-over-year to $16.1 billion, outpacing the 5.7% growth in net sales. CFO Richard McPhail clarified that the remaining $45 million of the refund remains in inventory and will hit the P&L as inventory turns through the remainder of the year.

Comparable sales for the quarter increased 1.7%, with U.S. comparable sales rising 1.3%. The growth was primarily driven by an increase in average ticket size rather than transaction volume. Customer transactions fell 1.0% to 443.2 million, while the average ticket rose 2.8% to $92.50 from $90.01 a year earlier. Chief Financial Officer Richard McPhail stated that results exceeded expectations due to broad-based demand across smaller home improvement projects. Senior Executive Vice President Ann-Marie Campbell credited the performance to business investments, customer service, and strong execution. Online comp sales increased 11%, marking the fifth consecutive quarter of double-digit growth.

Financial Performance

Gross profit expanded 6.5% year-over-year to $16.1 billion, aided by the $685 million reduction in cost of goods sold from tariff refunds. Cost of sales increased 5.3% to $31.7 billion. Operating income grew 4.3% to $6.8 billion (GAAP) or $6.839 billion as detailed in new filings, resulting in an operating margin of 14.3%, down slightly from 14.5% in the prior year quarter. Adjusted operating income rose 4.8% to $7.017 billion, while adjusted operating margin slipped to 14.7% from 14.8%. Selling, general, and administrative expenses rose 8.5% to $8.4 billion.

Interest expense remained relatively stable, increasing just 1.4% to $583 million. Net interest and other expense decreased 4.7% to $524 million, aided by higher interest income. The provision for income taxes rose 6.5% to $1.5 billion.

What the Numbers Show

A notable divergence exists between top-line growth and operational efficiency metrics. While gross profit grew at a faster rate (6.5%) than net sales (5.7%), indicating improved gross margins partly due to the $685 million in tariff refunds, operating income growth lagged significantly at 4.3%. This compression in operating margin (from 14.5% to 14.3%) was driven by selling, general, and administrative expenses growing at nearly double the rate of revenue (8.5% vs 5.7%).

KeyBanc Capital Markets analyst Bradley Thomas noted that excluding the tariff benefit, Home Depot’s gross margin would have contracted by 117 basis points year-on-year. Guggenheim Securities analyst Steven Forbes stated that although management’s reiterated full-year outlook includes the benefit of IEEPA tariff refunds, these funds are expected to only partially offset unplanned fuel, energy, and other product input costs. This implies that Home Depot’s operating model will not carry "any transient margin benefits" into 2027.

Analyst Reactions

Following the earnings announcement, several analysts revised their forecasts for Home Depot:

• RBC Capital analyst Steven Shemesh maintained the stock with a Sector Perform rating and lowered the price target from $343 to $342. Shemesh noted that while total company comp sales grew 1.7%, led entirely by an acceleration in ticket growth to 2.8%, the results would likely have been disappointing if not for lumber inflation and tariff refunds.
• Truist Securities analyst Scot Ciccarelli maintained the stock with a Buy rating and raised the price target from $369 to $373.
• Guggenheim Securities analyst Steven Forbes reaffirmed a Buy rating and price target of $425, noting that operating results broadly exceeded expectations with a topline beat of around 1.2%.
• JPMorgan analyst Christopher Horvers reiterated an Overweight rating and price target of $396, citing improving housing markets on the east and west coasts as reasons to believe sales growth could accelerate.
• KeyBanc Capital Markets analyst Bradley Thomas maintained a Sector Weight rating on the stock, noting that comps improved sequentially due to market share gains.

Fiscal 2026 Guidance

The company reaffirmed its full-year fiscal 2026 guidance, which includes expected IEEPA tariff refunds to partially offset unplanned fuel, energy, and product input costs. Key guidance points include:

• Total sales growth of approximately 2.5% to 4.5%
• Comparable sales growth of flat to 2.0%
• Gross margin of approximately 33.1%
• Operating margin of 12.4% to 12.6%
• Diluted earnings-per-share growth of flat to 4.0% from $14.23 in fiscal 2025

Additionally, Home Depot expects GAAP earnings of $14.23 to $14.80 per share, compared with the $14.48 analyst estimate. Adjusted earnings guidance of $14.69 to $15.28 per share brackets the $14.96 estimate. Sales guidance of $168.8 billion to $172.093 billion brackets the $170.958 billion estimate. The company continues to expect an adjusted operating margin of about 12.8% to 13%, excluding an estimated 40-basis-point impact from acquired intangible asset amortization. Adjusted earnings guidance also excludes an expected after-tax impact of about 50 cents per share. Home Depot also expects to open about 15 new stores and 40 to 50 new SRS branches.

Balance Sheet and Cash Flow

At the end of the second quarter, The Home Depot held $2.1 billion in cash and cash equivalents (specifically $2.085 billion), down from $2.8 billion at the end of fiscal 2025 but up from $1.4 billion at the start of the current fiscal year. Total assets stood at $109.4 billion, compared to $100.0 billion a year ago. Short-term debt increased to $4.2 billion (specifically $4.248 billion) from zero in the prior year period, while long-term debt decreased slightly to $44.0 billion (specifically $43.951 billion excluding current installments of $4.697 billion) from $45.9 billion.

Operating cash flow for the first half of fiscal 2026 was strong at $11.4 billion (specifically $11.422 billion), up significantly from $9.0 billion ($8.968 billion) in the prior year period. This robust cash generation supported capital expenditures of $1.7 billion (specifically $1.724 billion) and payments for businesses acquired of $1.3 billion. The company also returned $4.6 billion to shareholders through dividends during the six-month period.

Strategic Initiatives

Separately, Home Depot announced the nationwide rollout of Express Delivery. The service offers professional and do-it-yourself customers delivery in three hours or less for a small flat fee. It does not require a subscription or membership. Management highlighted the successful integration of acquisitions like SRS and GMS, contributing to cross-selling opportunities and market share gains, with an emphasis on serving Pro customers better. Pro posted positive comps in the quarter and outperformed DIY.

KeyBanc analyst Bradley B. Thomas has reiterated a Sector Weight rating on Home Depot (NYSE: HD).

The analyst maintained the existing rating, signalling no change in the firm’s investment view on the home improvement retailer.

Analyst Action

• Analyst: Bradley B. Thomas
• Firm: KeyBanc
• Rating Change: Reiterated Sector Weight