The Home Depot, Inc. Q2 FY2027 earnings call

• Core Business and Culture Investment

  • Continued investments in in-store experience, maintaining record on-shelf product availability, rolling out innovative new products, and deploying in-store technology to improve associate and customer experiences
  • Launched an updated in-store version of the Magic Apron app, which allows in-aisle store navigation, instant product location lookup, and project guidance; the tool now receives millions of user questions monthly with highly positive customer feedback
  • 100% of stores qualified for the Success Sharing hourly associate profit-sharing program based on first-half 2026 results, driven by strong associate engagement and customer service

• Interconnected Shopping and Delivery Improvements

  • Over 65% of in-stock parcel deliveries are now same-day or next-day; 55% of stocked big and bulky products are delivered within 2 days, with total U.S. delivery lead times reduced by approximately 45% over the past 18 months
  • Completed nationwide rollout of Express Delivery, which offers delivery of tens of thousands of products within 3 hours (most deliveries complete in under 1 hour) for a small flat fee
  • Updated the appliance delivery model to stock select assortments for next-day delivery, now covering nearly 60% of the U.S. population with positive sales lifts in launched markets

• Pro Segment Growth

  • Pro-focused investments in systems, product assortment, job-lot quantities, delivery, dedicated sales teams, and specialized services have driven sustained positive comp growth across all Pro cohorts
  • Expanded synergies between the core Home Depot store network and acquired SRS/GMS businesses: 90% of core stores have closed sales through the SRS-integrated QuoteCenter, enabling in-house fulfillment of larger Pro project purchases that were previously handled by third-party distributors
  • Gained exclusive big-box retail launch rights for USG's new ultralight tough gypsum panels and expanded the Pro-exclusive RUCO joint treatments product lineup to build Pro loyalty

• Merchandising and Product Innovation

  • Q2 2026 set a new all-time sales record for portable power tools, leveraging Home Depot's extensive competitive lineup of battery-powered platforms to gain market share
  • Strong performance in the storage category, led by the popular Milwaukee PACKOUT modular storage system for Pros
  • Demand remains concentrated in smaller repair and maintenance projects, while larger discretionary projects continue to face pressure from housing market headwinds

Total company Q2 2026 sales reached $47.9 billion, a 5.7% increase year-over-year. Total comparable (comp) sales grew 1.7%, with U.S. comp sales up 1.3% and international comps outperforming the U.S. average. SRS (acquired specialty distribution business) posted comp sales above the company average, with positive comps across all verticals. 13 of 16 total merchandising departments posted positive comps, including storage, electrical, hardware, power, plumbing, indoor garden, kitchen, paint, bath, outdoor garden, building materials, flooring and millwork. Digital/online comp sales increased 11% year-over-year, marking the fifth consecutive quarter of double-digit growth. Pro segment posted positive comp sales and outperformed the DIY segment; big-ticket transactions (over $1,000) were up 2.4% year-over-year. Comp average ticket increased 2.8%, while comp transactions decreased 1% year-over-year.

• Management reaffirmed its full fiscal 2026 guidance after Q2 results exceeded internal expectations
  • Full-year comp sales are projected to range from flat to 2% growth, with total company sales growth of 2.5% to 4.5% (including the contribution of 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
  • Full-year gross margin is forecast at 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 24.3%, and net interest expense is expected to total approximately $2.3 billion
  • Both reported and adjusted diluted earnings per share are projected to increase between flat and 4% compared to fiscal 2025
  • Full-year capital expenditures are expected to equal approximately 2.5% of total sales
  • The tariff refund benefit will be fully offset by incremental cost pressures by the end of the year, with Q4 2026 gross margin expected to be roughly flat year-over-year; no annual gross margin lap impact is expected for 2027

• Ongoing consumer uncertainty and low housing affordability continue to pressure demand for larger discretionary home improvement projects
  • Unplanned incremental cost pressures from elevated fuel, energy, and commodity product input costs (including resin and metals) have emerged above original full-year 2026 plans
  • Housing turnover remains at historically low levels, with no clear inflection point for improvement despite recent rate volatility
  • General macroeconomic and demand volatility persists in the current operating environment, with continued pressure on the broader home improvement sector tied to housing market conditions

Q: What is driving the gap between total company comp sales and U.S. comp sales, and what is the outlook for full-year back-half comps?

A: Around 25 basis points of the gap comes from foreign exchange benefits. The rest of the gap stems from stronger-than-U.S. comp performance from both the Canadian and Mexican international segments, plus above-average comp growth from the SRS acquisition. SRS is taking significant market share across all its verticals. While Q3 demand has been consistent with Q2 trends, macro volatility and housing market headwinds remain, so management retains the original full-year comp range as prudent guidance.

Q: Excluding the IEEPA tariff refund, what explains gross margin pressure in Q2, and what portions are temporary versus permanent?

A: Roughly half of the 120 basis points of gross margin pressure excluding refunds comes from incremental unplanned cost increases that the tariff refund offset. The other half comes from the mix impact of the GMS acquisition, which was not included in Q2 2025 results. Management notes that its long track record of stabilizing margins through volatile cost environments remains intact, and the refund was used to offset new cost pressures while maintaining customer value, so underlying performance still met expectations.

Q: What factors are driving the comp average ticket growth in Q2, and could sustained ticket growth push full-year results above guidance?

A: Ticket growth comes from a combination of mild same-SKU average unit retail inflation from prior cost changes, strength in large single-purchase ticket categories like portable power and patio products, intra-category consumer trade-ups, and seasonal mix that favors higher-ticket items in Q2. While the math of sustained ticket growth would push results above the current guidance range, macroeconomic demand volatility remains high, so management retains the prudent existing guidance range and will update outlook after Q3.

Q: What is the progress on cross-sell synergies across the Home Depot, SRS, and GMS ecosystem, and what is the build outlook for the full year?

A: The $400 million full-year expected synergy target includes cross-sell across the entire system, not just between SRS and GMS, focused on gaining greater wallet share from in-store Pros. 90% of core Home Depot stores have already closed QuoteCenter sales facilitated by SRS, and the SRS purchase card is being rolled out for use in core stores. Investments in Pro delivery, order management, and digital planning tools have driven higher customer satisfaction and sales growth, with steady traction to hit the full-year target.