Home Depot ($HD) reported fiscal 2026 second-quarter results before the open on August 18 — 13 weeks ended August 2. Sales were $47,861M, up 5.7%, against roughly $47.27B expected. Adjusted diluted EPS was $4.92 against about $4.73 expected. Comparable sales rose 1.7% against an expectation nearer 0.7%. Full-year guidance was reaffirmed.
The stock opened at $336.78, traded as high as $344.54, and closed at $337.49, down 0.12%.
A beat on every visible line and the shares finished flat. The reason is on the gross-margin bridge, and management walked through it on the call.
The bridge
Home Depot received $730 million of IEEPA tariff refunds during the quarter, essentially all of it in the last days of June. $685 million of that applied to products already sold and therefore landed directly in cost of goods sold; the remaining $45 million sits in inventory and will release through the rest of the year.
CFO Richard McPhail gave the arithmetic himself:
"The $685 million reduction in COGS was about a 145 basis point gross impact to margin. … Those benefits offset increased costs that we have seen in our cost base of about 60 basis points. So you can think about the net benefit of refunds in our P&L being around 85 basis points. … We also had the mix impact of the GMS and Mingledorff's acquisitions have an impact of about 60 basis points. So net benefit of tariff of 85 basis points, mix impact of 60 basis points. So that gives you the year-over-year increase of about 25 basis points."
Written out:
| Gross margin bridge, 2Q FY26 | Basis points |
|---|---|
| IEEPA tariff refund ($685M in COGS) | +145 |
| Unplanned fuel, energy and input cost pressure | −60 |
| GMS / Mingledorff's acquisition mix | −60 |
| Reported year-over-year change | +25 |
Gross margin was 33.67% against 33.41%. Strip the refund line alone and it is 32.24% — down 117 basis points year over year. That figure was not our invention; an analyst put it to management on the call and asked whether Home Depot had in fact missed the consensus profitability forecast for the quarter once the refund is excluded.
What that is worth in EPS
The company did not publish an ex-refund earnings figure, so this is our derivation, not Home Depot's:
| Derived | 2Q FY26 |
|---|---|
| Refund in COGS | $685M |
| At the 24.53% effective tax rate, after tax | ~$517M |
| Diluted shares | 996M |
| Per share | ~$0.52 |
| Adjusted diluted EPS as reported | $4.92 |
| Adjusted diluted EPS less the refund | ~$4.40 |
Consensus was $4.73. On that arithmetic the quarter is a $0.33 miss rather than a $0.19 beat, and the whole distance between those two outcomes is a customs refund on tariffs Home Depot had already paid.
Management's counterargument is real and deserves stating. McPhail's position is that the refunds are not a windfall but an offset — the fuel, energy and input-cost pressure was genuine and did hit the P&L, and had the refunds not arrived the company would have covered the gap another way:
"Tariff refunds are a market-born benefit. They are not unique to The Home Depot. … We are using those benefits to offset costs."
"I am confident, and Billy is confident had we not had tariff refunds, we would have exceeded our expectations for the quarter regardless. It just came in a different form."
That is a claim about what Home Depot would have done, not about what the income statement says. Both readings are defensible. What is not in dispute is that a one-time cash recovery of $730 million, received in a single week of June, is the difference between a beat and a miss — and that it does not repeat.
McPhail was explicit about the shape from here: the benefit spans Q2 and Q3 only, fourth-quarter gross margin should land "right around flat" against last year, and there is no annual lap into fiscal 2027.
The comp came from price. Traffic went backwards.
| Retail metric | 2Q FY25 | 2Q FY26 |
|---|---|---|
| Comparable sales | +1.0% | +1.7% |
| Comparable sales, U.S. | — | +1.3% |
| Comparable customer transactions | (0.4%) | (1.0%) |
| Comparable average ticket | +1.4% | +2.8% |
| Customer transactions (M) | 446.8 | 443.2 |
| Average ticket | $90.01 | $92.50 |
Every point of the comp — and then some — came from average ticket up 2.8%, against transactions down 1.0%. In absolute terms Home Depot served 3.6 million fewer customer visits than a year ago and collected $2.49 more from each of them. That is the CFO's "smaller projects" framing seen from the other side: broad-based demand, fewer trips, bigger receipts.
The honest counterweight is the monthly cadence, which is the best thing in the release and got almost no coverage. Total-company comps ran +1.2% in May, +1.5% in June, +2.3% in July; U.S. comps +0.5%, +1.2%, +2.2%. The quarter accelerated through every month, and it exited at more than double the pace it entered. DA Davidson called these the best comps in several years, and on the trend that is fair.
Growth is bought as much as grown
Sales rose 5.7% while comps rose 1.7%. The four-point gap is SRS, GMS and Mingledorff's.
That shows up right through the statements. Goodwill is $22,899M against $19,619M a year ago; intangibles $10,482M against $8,770M. Acquired-intangible amortization rose 28% to $178M — which is exactly the line separating GAAP diluted EPS of $4.79 from the $4.92 everyone quoted. That gap is now 13 cents a quarter and widening from 11 cents a year ago; full-year guidance excludes roughly $0.50 of it.
And the acquisitions are visible below the gross line as well as in it. SG&A grew 8.5% against 5.7% sales growth, pushing operating expense to 19.4% of sales, up about 45 basis points. So gross margin rose 25 basis points and operating margin still fell 20, to 14.3%.
Cash was the genuinely good news
| $M | 2Q FY25 | 2Q FY26 (derived) |
|---|---|---|
| Operating cash flow | 4,643 | 5,390 |
| Capital expenditure | 917 | 880 |
| Free cash flow | 3,726 | 4,510 |
Free cash flow rose 21.0% on capex that actually fell, for a 9.42% FCF margin. Note the derivation: the release publishes six-month cash flows only, so the quarterly column is the half year less the first quarter — the only route available on release day.
On our Rule of 40 convention — revenue growth plus free-cash-flow margin — Home Depot scores 11.4 on a trailing-twelve-month basis: 2.5% growth plus an 8.93% FCF margin on $169.2B of TTM revenue. That is what a mature retailer looks like, and it is not a criticism. It is the reason the stock trades on comps and guidance rather than on either input.
Capital return remains entirely the dividend: $4,643M paid in the first half, against $3,040M of long-term debt repaid and no share repurchase line at all in financing activities. Home Depot is deleveraging and paying out, not buying back.
Guidance: reaffirmed, not raised
| Line | Fiscal 2026 guidance |
|---|---|
| Total sales growth | ~2.5% to 4.5% |
| Comparable sales growth | ~flat to 2.0% |
| Gross margin | ~33.1% |
| Operating margin | ~12.4% to 12.6% |
| Adjusted operating margin | ~12.8% to 13.0% |
| Diluted EPS growth | ~flat to +4.0% |
| Adjusted diluted EPS growth | ~flat to +4.0% |
| New stores | ~15 |
| SRS organic sales growth | mid-single-digit |
| New SRS branches | 40–50 |
| Capital expenditure | ~2.5% of sales |
Management said results "exceeded our expectations" and left the year alone. Half-year comps are already +1.2% against a full-year range of flat to +2.0%, and July exited at +2.3%. Guidance that is not raised after a quarter that beat, in the same release that says demand was broad-based, is the company telling you the second half carries the cost pressure the refunds have been absorbing.
Note too that the guidance itself "includes IEEPA tariff refunds." A retailer with customs litigation inside its full-year outlook is a genuinely new thing to have to model.
What to watch
- Third-quarter gross margin. The refund benefit spans Q2 and Q3 by the company's own account, with a timing shift between them. Q4 is guided to roughly flat. Q3 is where the offset either holds or does not.
- Whether transactions ever turn. Comps built on ticket work until the ticket stops rising. Comparable transactions were negative in this quarter and the last, and across both halves shown in the release.
- The GAAP-to-adjusted gap. Thirteen cents a quarter and growing with every tuck-in. If SRS and GMS keep compounding, adjusted EPS keeps describing less of the company.
- Lowe's, reporting this morning. Same housing market, no comparable acquisition programme, and no $685 million refund that we know of. It is the cleanest available control for how much of this quarter was Home Depot and how much was the cycle.
What we learned
- A beat on every visible line closed down 0.12%. Sales $47,861M against ~$47.27B, adjusted diluted EPS $4.92 against ~$4.73, comparable sales +1.7% against ~0.7%, full-year guidance reaffirmed — and the shares finished flat.
- A $730 million tariff refund is the quarter. $685M of it landed directly in cost of goods sold, worth 145 basis points of gross margin, with $45M still in inventory to release over the year.
- Strip the refund and gross margin fell 117 basis points. 32.24% against a reported 33.67%. That figure came from an analyst on the call, not from us — and management did not dispute the arithmetic.
- On our derivation the beat becomes a miss. $685M at the 24.53% effective tax rate across 996M diluted shares is about $0.52 a share, putting ex-refund EPS near $4.40 against a $4.73 consensus — a $0.33 miss rather than a $0.19 beat. Home Depot published no ex-refund figure; this is ours.
- Management's counterargument is an offset claim, and it is a real one. McPhail's position is that the refunds are "not unique to The Home Depot" and are covering genuine fuel, energy and input-cost pressure worth 60 basis points, alongside another 60 from GMS and Mingledorff's acquisition mix.
Figures are from Home Depot's second-quarter fiscal 2026 results, captured in full on the fiscal 2026 Q2 earnings page. Quotes are from the earnings call of August 18, 2026. Quarterly cash-flow figures are derived from the six-month statement less the first quarter; the ex-refund EPS calculation is ours and is not a company figure. The price is the August 18 close of $337.49.
