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    HD
    Earnings call· Aug 2025(Q2 FY26)

    HOME DEPOT, INC. HD

    Aug 19, 2025 Source

    Executive summary

    The Home Depot Q2 FY26 — Strong Momentum Continues with Strategic Acquisitions and Pro Ecosystem Growth

    The Home Depot delivered solid Q2 FY26 results, with continued momentum from the prior year's second half, driven by smaller home improvement projects and strong Pro ecosystem growth. Strategic acquisitions like SRS and the pending GMS deal are expanding market share and distribution capabilities, positioning the company for long-term success despite ongoing macroeconomic uncertainties and softer demand for large discretionary projects.

    Highlights

    5

    • Sales for the second quarter were $45.3 billion, up 4.9% from the same period last year.

    • Comp sales increased 1% overall, and 1.4% in the U.S., reflecting the strongest performance in over 2 years.

    • 12 of 16 merchandising departments posted positive comps, indicating broad-based strength.

    • Online sales leveraging digital platforms increased approximately 12% compared to the second quarter of last year.

    • The SRS acquisition exceeded expectations, driving market-leading growth and revenue synergies.

    Concerns

    5

    • Comp transactions decreased 0.4%, primarily due to a modest decrease in promotional activity in outdoor garden categories.

    • Operating margin for the second quarter was 14.5%, down from 15.1% in Q2 FY24.

    • Inventory turns were 4.6x, down from 4.9x last year, with merchandise inventories up $1.8 billion.

    • Return on invested capital was 27.2%, down from 31.9% in Q2 FY24.

    • Softer engagement continues in larger discretionary projects, where customers typically use financing, due to general economic uncertainty.

    Guidance & targets

    11
    CategoryTargetConfidence
    Total sales growth
    approximately positive 2.8%
    high materiality
    High
    Comp sales growth
    approximately positive 1%
    high materiality
    High
    Gross margin
    approximately 33.4%
    high materiality
    High
    Operating margin
    approximately 13%
    high materiality
    High
    Adjusted operating margin
    approximately 13.4%
    high materiality
    High
    Effective tax rate
    approximately 24.5%
    medium materiality
    High
    Net interest expense
    approximately $2.2 billion
    medium materiality
    High
    Diluted earnings per share decline (52 vs 53 weeks)
    approximately 3%
    high materiality
    High
    Adjusted diluted earnings per share decline (52 vs 53 weeks)
    approximately 2%
    high materiality
    High
    Adjusted diluted earnings per share (52-week basis)
    essentially flat
    high materiality
    High
    Capital expenditures
    approximately 2.5% of sales
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    U.S.
    U.S. comps were positive 1.4% for the quarter, with positive 0.3% in May, positive 0.5% in June, and positive 3.3% in July. Pro and DIY comp sales were positive and relatively in line.
    		—positive 1.4%——
    Canada
    Canada posted positive comps in local currency.
    		—positive comps——
    Mexico
    Mexico posted positive comps in local currency.
    		—positive comps——

    Operational metrics

    41
    Total sales
    $45.3 billionup 4.9%
    Q2 FY25

    Total sales for the second quarter.

    Comp sales
    1%YoY
    Q2 FY25

    Comp sales increased from the same period last year.

    Adjusted diluted EPS
    $4.68vs $4.67 Q2 FY24
    Q2 FY25

    Adjusted diluted earnings per share for the second quarter.

    Adjusted diluted EPS
    $4.67
    Q2 FY24

    Adjusted diluted earnings per share for the second quarter last year, used for comparison.

    Total company comps
    -0.3%
    May FY25

    Total company comps for May.

    Total company comps
    flat
    June FY25

    Total company comps for June.

    Total company comps
    3.1%
    July FY25

    Total company comps for July.

    U.S. comps
    0.3%
    May FY25

    U.S. comps for May.

    U.S. comps
    0.5%
    June FY25

    U.S. comps for June.

    U.S. comps
    3.3%
    July FY25

    U.S. comps for July.

    FX impact on total company comps
    -40
    Q2 FY25

    Foreign exchange rates negatively impacted total company comps.

    Gross margin
    33.4%slight increase
    Q2 FY25

    Gross margin for the second quarter, in line with expectations.

    Operating expense as percent of sales
    18.9%increased 65 bps
    Q2 FY25

    Operating expense as a percent of sales compared to Q2 FY24.

    Operating margin
    14.5%down from 15.1% Q2 FY24
    Q2 FY25

    Operating margin for the second quarter.

    Adjusted operating margin
    14.8%down from 15.3% Q2 FY24
    Q2 FY25

    Adjusted operating margin for the second quarter, excluding intangible asset amortization.

    Adjusted operating margin
    15.3%
    Q2 FY24

    Adjusted operating margin for the second quarter of 2024, used for comparison.

    Pretax intangible asset amortization
    $139 million
    Q2 FY25

    Pretax intangible asset amortization in the quarter.

    Interest and other expense
    $550 millionincreased by $61 million
    Q2 FY25

    Interest and other expense for the second quarter, in line with expectations.

    Interest and other expense increase
    $61 million
    Q2 FY25

    Increase in interest and other expense compared to Q2 FY24.

    Effective tax rate
    24.2%down from 24.5% Q2 FY24
    Q2 FY25

    Effective tax rate for the second quarter.

    Diluted EPS
    $4.58down from $4.60 Q2 FY24
    Q2 FY25

    Diluted earnings per share for the second quarter.

    Store count
    2,353
    Q2 FY25 end

    Total store count at the end of the quarter.

    Merchandise inventories
    $24.8 billionup $1.8 billion
    Q2 FY25 end

    Merchandise inventories at the end of the quarter compared to Q2 FY24.

    Capital expenditures
    $915 million
    Q2 FY25

    Amount invested back into the business in the form of capital expenditures.

    Dividends paid
    $2.3 billion
    Q2 FY25

    Dividends paid to shareholders during the quarter.

    Return on invested capital
    27.2%down from 31.9% Q2 FY24
    TTM Q2 FY25

    Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months.

    U.S. comps
    0.9%
    H1 FY25

    U.S. comps for the first half of the fiscal year.

    FX headwind
    55
    H1 FY25

    Total company had a 55 basis point headwind from FX in the first half.

    FX tailwind
    25
    H2 FY25

    FX impact expected to flip to a tailwind in the second half.

    Home price appreciation
    50%
    since 2019

    Homeowners have seen strong home price appreciation.

    Tappable equity
    $11 trilliondouble 2019
    current

    Homeowners are sitting on significant tappable equity.

    Trade credit customers
    several thousand
    current

    Number of Pros with a trade credit account.

    Trade credit spend lift
    double-digit
    current

    Lift in spend across channels once Pros started using trade credit.

    SRS locations (post-GMS acquisition)
    more than 1,200
    future

    Network size after GMS acquisition, broadening distribution footprint.

    SRS sales operation associates (post-GMS acquisition)
    over 3,500
    future

    Sales operation size after GMS acquisition.

    SRS fleet (post-GMS acquisition)
    nearly 8,000
    future

    Fleet size after GMS acquisition, capable of tens of thousands of job site deliveries per day.

    SRS distribution branches (post-GMS acquisition)
    400additional to 800
    future

    GMS will add 400 nodes to SRS's existing 800, totaling 1,200.

    Home Depot stores
    2,000
    current

    Number of Home Depot stores, leveraged as part of the ecosystem.

    Online comp sales
    12%YoY
    Q2 FY25

    Sales leveraging digital platforms increased.

    Domestic product sourcing
    over 50%
    current

    Percentage of products sourced domestically, not subject to tariffs.

    Tariff rates
    significantly highervs May
    current

    Tariff rates on imported goods are higher.

    Industry KPIs

    9
    MetricValueDetails
    Sg a OPEX ratio18.9%%
    Comparable sales1%%
    Store count growth2,353stores
    Gross margin drivers33.4%%
    Pro vs diy performancepositive
    Share buyback capital return$2.3 billionUSD
    Inventory position markdown risk$24.8 billionUSD
    Same sku like for like inflation—
    Distribution supply chain cost economicsdouble-digit%

    Product announcements

    1
    ProductTypeDetails
    Halloween lineuplaunch

    Deals & partnerships

    2
    SRSAcquisition of a specialty trade distributor, enhancing the Pro ecosystem and providing cross-selling opportunities.

    The acquisition of SRS was completed just over a year ago and has been highly successful, contributing significantly to the Pro ecosystem.

    GMSPending acquisition of a leading distributor of specialty building products, including drywall, ceilings, and steel framing, complementary to SRS's business.

    The pending acquisition of GMS was announced in June. It will add a highly complementary adjacent vertical to SRS's business, with differentiated capabilities, product categories, and customer relationships, expanding the network to over 1,200 locations.

    Risks & headwinds

    5
    Softer engagement in larger discretionary projectsOngoing

    Not quantified, but noted as a continued trend.

    Mitigation: Focus on smaller home improvement projects and enhancing the Pro ecosystem; guidance does not assume recovery in larger projects.

    General economic uncertaintyOngoing

    Cited as the #1 reason for deferring large projects.

    Mitigation: Confident in ability to navigate the macroeconomic environment; optimistic about potential positive impacts from tax package and future rate cuts.

    Rate environment impacting large projectsOngoing

    Giving customers pause on larger remodeling projects that typically require debt financing.

    Mitigation: Optimistic that lower interest rates (mortgage and HELOC) would help, but no crystal ball on timing or magnitude needed to unlock activity.

    Increased tariff rates on imported goodsOngoing

    Significantly higher today than in May.

    Mitigation: Over 50% of products sourced domestically; taking a portfolio approach to pricing to maintain value for customers; modest price movement expected in some categories.

    FX rates negatively impacting compsH1 FY25

    40 basis point headwind to total company comps in Q2 FY25; 55 basis point headwind in H1 FY25.

    Mitigation: At current FX rates, expected to flip to a 25 basis point tailwind in H2 FY25.

    What to watch in Q3 FY26

    5

    Trade credit in-store usage

    Later this year
    CurrentSeveral thousand Pros with trade credit accounts, double-digit lift in spend.
    TargetSeamless in-store usage for all Trade credit customers.

    Why it matters

    Successful integration of trade credit for in-store purchases is crucial for enhancing the Pro ecosystem and driving further spend from Pro customers.

    And later this year, we anticipate that all Trade credit customers will be able to seamlessly use Trade credit for in-store purchases.

    Q&A highlights

    8

    Was the July improvement due to weather or an underlying trend change? What are the drivers for the implied 50bps H2 comp improvement?

    July's strength was due to broader engagement across categories and favorable weather in the North. The company expects a slight uptick in U.S. comp to meet the full-year 1% guide, supported by continued momentum and a shift from FX headwind to tailwind in H2.

    “I feel great about underlying momentum in the business, helped by a little weather. And when you look at the back half of the year, just focus on the U.S., and Richard can go into some exchange rate differentials. But when you look at the U.S., we're looking at just a slight uptick in comp to have that 1% for the full year.”

    asked by Zachary Fadem · answered by Edward Decker

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Acquisitions and Pro Ecosystem Expansion

    The company highlighted the success of the SRS acquisition, completed just over a year ago, noting it exceeded expectations by driving market-leading growth and revenue synergies. The pending acquisition of GMS, a leading distributor of specialty building products, is expected to further expand SRS's distribution footprint to over 1,200 locations and enhance capabilities for Pros working on complex projects, offering a broader assortment of interior building products and additional fulfillment options. This strategy aims to consolidate activity for Pros, making their job easier by reducing the number of suppliers they manage.

    02

    Operational Efficiency and Faster Delivery

    Investments in technology and supply chain optimization have led to the fastest delivery speeds in company history for both same-day and next-day options. Machine learning models determine optimal delivery modes, resulting in a double-digit lift in spend from customers utilizing these faster options. Enhancements to the OFA app prioritize orders and enable batch picking, ensuring efficient and accurate fulfillment, which contributes to higher customer satisfaction.

    03

    Pro Ecosystem Maturation and Trade Credit

    Progress continues in maturing the Pro ecosystem, including expanded assortments, fulfillment options, sales teams, and trade credit capabilities. Several thousand Pros now use trade credit, showing a double-digit lift in their spend across channels. The company anticipates that all Trade credit customers will be able to seamlessly use Trade credit for in-store purchases later this year, further integrating Pro services across sales channels. Order management system improvements also enable better handling of Pro product deliveries throughout project lifecycles.

    04

    Merchandising Performance and Category Strength

    12 of 16 merchandising departments posted positive comps, marking the strongest broad-based performance in over two years. Strength was noted in Pro-heavy categories like dimensional lumber, concrete, and decking, as well as DIY seasonal products such as patio, grills, and live goods. Online sales leveraging digital platforms increased approximately 12%, driven by faster delivery speeds and improved search functionality.

    05

    Customer Engagement and Macroeconomic Environment

    The momentum from late 2024 continued into early 2025, with notable improvements in underlying demand during Q2, particularly in July. While smaller projects are thriving, larger discretionary projects remain soft due to general economic uncertainty, which is cited as the primary reason for deferral. Management's guidance does not assume a recovery in these larger projects or a turn in housing, but rather a continuation of the consistent momentum observed over the past four quarters.

    06

    Tariff Impact and Pricing Strategy

    The company acknowledges increased tariff rates on imported goods, which may lead to modest price movement in some categories, though over 50% of products are sourced domestically. Home Depot maintains an Every Day Low Price (EDLP) strategy and a portfolio approach to pricing, aiming for price leadership and value for customers. Promotional activity was modestly reduced in some outdoor garden categories, contributing to transaction comp noise but aligning with the overall pricing strategy.

    AI-generated summary of the company’s earnings call. Not investment advice.