Home Depot reported Q2 fiscal 2026 this morning. Adjusted EPS $4.92, beating consensus $4.71 by $0.21—a 4.5% surprise. Revenue $47.86 billion, up 5.7%. Comp sales +1.7%, the best since fiscal Q3 2022. Stock rose 0.7%.
That is what the headline said. Here is what the footnotes said.
The Anatomy of 145 Basis Points
CFO McPhail disclosed that Home Depot received $730 million in tariff refunds during Q2. Of that, $685 million reduced cost of goods sold—applied to products already sold—adding 145 basis points to gross margin. The remaining $45 million sits in inventory, flowing through later.
Management then listed the offsets: ~60bp of incremental cost pressure (fuel, energy, resin, metals) and ~60bp of mix drag from the SRS Distribution acquisition. Net contribution: about 25bp of year-over-year margin improvement.
Run the arithmetic backward.
Without the tariff refund, Home Depot's gross margin compressed approximately 120 basis points year-over-year. The reported 25bp improvement is entirely a function of a one-time government payment. McPhail called the $730 million "the vast majority" of expected refunds. The tailwind is spent.
The Demand Signal
Before the print, the metric that mattered most was the split between average ticket and customer transactions. The thesis: if ticket rises while transactions fall, that is inflation masking demand destruction—fewer customers spending more per visit because prices are higher, not because demand is stronger.
Confirmed. Comp transactions declined 1.0%. Average ticket rose 2.8% to $92.50. The +1.7% comp sales headline is entirely ticket-driven. Total customer transactions fell to 443.2 million. Customers that came through the door bought more—because things cost more. But there were fewer of them.
In an environment where retail sales just printed -0.6% (the biggest decline since May 2025), existing home sales fell 1.7% to 4.06 million annualized, and mortgage rates sit above 6.5%, the transaction decline is the real demand signal. The ticket is noise.
Beat the Quarter, Didn't Raise
Home Depot maintained its fiscal 2026 guidance unchanged:
| Metric | FY2026 Guide | Change |
|---|---|---|
| Total sales growth | 2.5–4.5% | Maintained |
| Comp sales | Flat to +2.0% | Maintained |
| Gross margin | ~33.1% | Maintained |
| Adj operating margin | 12.8–13.0% | Maintained |
| EPS growth | Flat to +4.0% | Maintained |
They beat the quarter and did not raise. Interim leadership—Campbell and McPhail steering while CEO Decker is on medical leave since August 12—chose caution. Rational: Section 338 tariffs imposing 50% duties on Canadian goods take effect tomorrow. Lumber is carved out (already under Section 232), but hardware, fixtures, tools, and building materials from Canada face the full hit.
McPhail told analysts the tariff refunds will be "fully offset by unplanned cost pressures over the full year." The $685 million that made this quarter look good is already spoken for.
What the 0.7% Move Tells You
The options market implied a 4.3% move. HD delivered +0.7%. The reaction undershooting the implied move by 84% means the market read the same footnotes.
Pro outperformed DIY. Online comps rose 11%—fifth consecutive quarter of double-digit e-commerce growth. 13 of 16 departments posted positive comps. Real strengths. But they exist inside a quarter where the margin beat was a government refund check, and the comp sales beat was price, not volume.
This Week
Lowe's tomorrow morning. Same housing macro. Same tariff environment. Different mix—LOW skews DIY-heavy, the segment most exposed to consumer weakness. If HD's pro customers outperformed while DIY lagged, LOW's numbers should confirm the split.
Walmart Thursday. Different animal, same consumer. If WMT confirms trade-down behavior while HD confirms ticket-over-traffic, the picture coheres: the American consumer is spending because prices are higher, not because demand is stronger. That is the signal Warsh needs to see before September.
Sources: CNBC, Yahoo Finance, Stock Titan