Home Depot Q2 Earnings Beat Estimates as Sales & Ticket Rise

This Zacks Rank #3 (Hold) company’s shares have rallied 11.7% in the past three months compared with the industry’s 10.3% growth.

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HD's Comparable Sales Gain as Ticket Rises

U.S. comparable sales advanced 1.3% year over year in the fiscal second quarter. The gain came as customer spending per transaction increased, while comparable transaction volume remained below the prior-year level.

Total customer transactions were 443.2 million, down 0.8% year over year, while average ticket increased to $92.50 from $90.01. Management noted that demand was broad-based with customers continuing to engage in smaller projects.

Home Depot's Gross Profit Expands

Gross profit increased 6.5% year over year to $16.12 billion from $15.13 billion, supported by the higher sales. Cost of sales rose 5.3% to $31.75 billion, a slower pace than the increase in net sales, which aided the gross margin.

The gross margin expanded about 30 basis points (bps) to 33.7% from 33.4%, based on the reported sales and gross-profit figures. The spread between sales growth and cost-of-sales growth supported the year-over-year margin improvement. Our model predicted a 60-bps year-over-year decline in the gross margin to 32.8% for the fiscal second quarter.

HD's Operating Costs Rise Faster Than Sales

Selling, general and administrative (SG&A) expenses increased 8.5% year over year to $8.42 billion. Depreciation and amortization rose 5.7% to $852 million, while total operating expenses climbed 8.2% to $9.28 billion. Expense growth outpaced the pace of revenue expansion.

GAAP operating income increased 4.3% to $6.84 billion, but the operating margin slipped 20 bps to 14.3% from 14.5% in the year-ago quarter. Adjusted operating income rose 4.8% to $7.02 billion, while the adjusted operating margin edged down 10 bps to 14.7% from 14.8% in the year-ago quarter.

Our model predicted the SG&A expense rate to increase 20 bps year over year to 17.3%. We anticipated the adjusted operating income to drop 0.2% year over year and the operating margin to contract 70 bps to 14.1% for the fiscal second quarter.

Home Depot's Balance Sheet & Cash Flow

HD ended second-quarter fiscal 2026 with cash and cash equivalents of $2.09 billion, up from $1.39 billion at the start of fiscal 2026. Merchandise inventories were $26.85 billion, receivables were $6.96 billion and long-term debt, excluding current installments, stood at $43.95 billion. Stockholders' equity was $16.62 billion.

For the first six months of fiscal 2026, net cash provided by operating activities was $11.42 billion, up from $8.97 billion a year earlier. Working-capital changes contributed $570 million compared with a $1.82 billion use in the prior-year period. Capital expenditure totaled $1.72 billion, while payments for acquired businesses, net, were $1.33 billion.

Cash dividends totaled $4.64 billion for the first six months of fiscal 2026. The company also repaid $3.04 billion in long-term debt, contributing to $7.70 billion in net cash used in financing activities.

HD Reaffirms FY26 Outlook

Management reaffirmed its fiscal 2026 outlook, calling for total sales growth of 2.5-4.5% and comps growth of flat to 2%. The company also expects 15 new stores and capital expenditure of 2.5% of the total sales.

For fiscal 2026, Home Depot projects a gross margin of 33.1% and an operating margin of 12.4-12.6%, with an adjusted operating margin of 12.8-13%.

The company anticipates earnings per share to be flat to up 4% from $14.23 in the year-ago quarter. Meanwhile, adjusted earnings per share are also projected to be flat to up 4% from the $14.69 reported in the year-ago quarter.

The outlook also assumes an effective tax rate of 24.3% and net interest expenses of $2.3 billion. Guidance includes IEEPA tariff refunds, which are expected to partially offset unplanned fuel, energy and other product input costs. Adjusted earnings guidance excludes an expected after-tax impact of about 50 cents per share from acquired intangible asset amortization.

Key Picks in the Retail Space

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Dollar General Corporation DG is one of the largest discount retailers in the United States, selling low-priced merchandise, typically $10 or less. The company currently has a Zacks Rank of 2.

The Zacks Consensus Estimate for Dollar General’s current financial-year sales and EPS is expected to rise 3.9% and 7.6%, respectively, from the year-ago reported figures. DG delivered a trailing four-quarter earnings surprise of 21%, on average.

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