Home Depot Beats on Comps, Profit; Housing Still Frozen

Home Depot reported a second quarter that beat Wall Street estimates across the board. Revenue rose 5.7% year over year to $47.86 billion, topping the $47.27 billion analysts expected. Earnings per share came in at $4.92, above the $4.73 consensus, according to LSEG. Same-store sales increased 1.7%, nearly double the 0.9% FactSet estimate and almost three times the first-quarter comps of 0.6%.

The stock rose modestly in a down market Tuesday. Shares are up more than 17% since hitting a 52-week low of $289 in May. The price-to-earnings multiple sits toward the lower end of its three-year range, and the dividend yield is roughly 2.75%.

Management credited the better-than-expected results to execution on things within its control. "Frozen housing conditions" are still a headwind, CFO Richard McPhail said on the earnings call. The company's push into serving professional contractors, along with faster delivery times, helped drive the comp beat. Merchandising chief Billy Bastek said 13 of 16 merchandising departments posted positive comps, including storage, electrical, hardware, power, plumbing, kitchen, paint, outdoor garden, building materials, flooring, and millwork. Big-ticket transactions over $1,000 rose 2.4%.

Same-store sales momentum built through the quarter. Overall comps rose 1.2% in May, 1.5% in June, and 2.3% in July. U.S. comps went from 0.5% in May to 1.2% in June to 2.2% in July. "Larger discretionary projects remain under pressure," Bastek said. "Pro posted positive comps and outperformed DIY."

The company's digital platform also showed strength. Online sales rose 11% year over year, the fifth straight quarter of double-digit growth. Delivery lead times are down about 45% in the U.S. over the past 18 months, which Bastek said is driving higher customer conversion.

Home Depot received about $685 million in tariff refunds during the quarter, more than 90% of what it filed for. The refunds stem from the Supreme Court's February ruling that the tariffs President Donald Trump imposed under the International Emergency Economic Powers Act were unconstitutional. McPhail said the benefit to full-year results will be muted, as the money will offset "unplanned and rising cost pressures." The refund reduced cost of goods sold in the quarter. Gross margin rose 27 basis points to 33.7%, the tariff refund contributed 85 basis points of that gain, masking a 60-basis-point decline from a shift in sales mix related to acquisitions.

Guidance for 2026 was reaffirmed. Home Depot expects sales growth of 2.5% to 4.5%, with a midpoint of 3.5%, slightly below the Street's $170.96 billion estimate. Same-store sales growth is expected to be flat to 2%, with a 1% midpoint that is a tick below the 1.1% FactSet estimate. Adjusted EPS growth of flat to 4% is expected, with a 2% midpoint of $14.98 per share, modestly above the $14.96 consensus.

The housing market remains the biggest variable. Renovation and new-home construction are the real drivers for Home Depot. Both rely on borrowing, and borrowing costs are tied to interest rates. Rates have stayed elevated, keeping the housing market stalled. McPhail called the environment "frozen." A sustained move lower in rates, perhaps triggered by a de-escalation in the Iran conflict and a reopening of the Strait of Hormuz, could provide the catalyst, the company's management said. "If that happens, and investors gain confidence that the peace and flow of oil will hold, then that should lead to lower bond yields and provide the setup needed to catalyze housing market activity," the CNBC Investing Club wrote.

Chairman and CEO Ted Decker remains on medical leave. McPhail said he expects Decker back "in a few months." Lead director Greg Brenneman, executive chairman of a private equity firm, will oversee the board in Decker's absence. McPhail and head of U.S. stores Ann-Marie Campbell are running day-to-day operations.

Home Depot plans to spend the tariff refund on cost pressures. The company's operating margin outlook of 12.8% to 13% is in line with estimates. The gross margin forecast of 33.1% also matches the consensus.

HD YTD performance: shares are nearly back to breakeven for the year. The stock page is here.