Home Depot opened retail earnings week Tuesday morning with a quarter that looked, on the headline, like a clean beat. Second-quarter fiscal 2026 sales rose 5.7% to $47.9 billion, up $2.6 billion year over year. Comparable sales grew 1.7% and US comps 1.3%, against a consensus closer to 0.9%. Net earnings were $4.8 billion, or $4.79 a diluted share, versus $4.58 a year ago; adjusted EPS was $4.92 against roughly $4.71 expected. Shares ticked up about 1% before the open.
Then CFO Richard McPhail told analysts where a chunk of the margin came from. Home Depot booked $730 million in tariff refunds during the quarter. It ran $685 million of that straight through cost of goods sold and left the remaining $45 million sitting in inventory. The refund was worth roughly 145 basis points of gross margin — and McPhail said it represents “the vast majority” of what the company expects to receive.
That single sentence explains why the guidance did not move. Home Depot reaffirmed fiscal 2026: total sales up about 2.5% to 4.5%, comparable sales flat to up 2.0%, adjusted EPS flat to up 4.0% from last year’s $14.69. A company that just beat by 20 cents and is sitting on a nine-figure margin tailwind would normally take the year up. This one did not, and CNBC reported management describing “frozen housing market conditions” on the call.
Our take: Strip the refund and this is a low-single-digit comp business in a stalled housing market, holding the line on price. The refund is a one-off cash event being used to absorb fuel, energy and input costs that are not one-off. Reaffirming instead of raising is the honest read on that trade — and it is the number that tells you what management actually believes about the second half.
Traffic fell. Baskets did the work.
Underneath the comp, the mix is the interesting part. Comparable transactions fell 1.0% — fewer people walked in. Comparable average ticket rose 2.8% to $92.50. Big-ticket transactions above $1,000 rose 2.4%, and Pro sales outpaced DIY.
That is not a recovery pattern. It is what a market looks like when homeowners who cannot afford to move renovate the house they are stuck in, and when contractors keep working through a housing market that is not producing new starts. We covered the supply side of that same squeeze when builder confidence printed 35 with a record price-cut streak. Home Depot is the demand-side mirror: repair and maintenance holding up while the transaction market does not.
The comparison that lands Wednesday
Walmart, Target and Lowe’s all report this week. Lowe’s is the direct read — same category, same frozen housing backdrop, and it will have had the same IEEPA refund mechanics available to it. If Lowe’s comps land materially below 1.7% while its refund benefit is comparable, Home Depot’s Pro business is genuinely taking share. If they land close, the whole category just got the same accounting tailwind at the same time.
This is also the first full quarter reported under Home Depot’s split leadership structure, announced six days before the print.
What to watch
- The refund runway. McPhail said $730 million is the vast majority of what is expected. Q3 gross margin without a 145-basis-point assist is the real baseline.
- Transactions, not ticket. Comps built on a 2.8% ticket increase while traffic falls 1.0% are borrowed from pricing. Traffic turning positive is the signal that demand is back.
- Lowe’s comps and refund disclosure — the cleanest share-versus-category test available this week.
- Big-ticket above $1,000. Up 2.4% this quarter. That line is the leading indicator for whether large remodels are unfreezing.
- Whether guidance moves in November. Two beats and no raise would confirm management is banking the tailwind against costs it can see coming.
The beat is real. The reason it is not a raise is the more useful piece of information.