Home Depot: Tariff Refunds Mask a Solid Core, But Digital and Pro Momentum Steal the Show
Q2 FY2026 results beat, fueled by a $685M IEEPA refund that offsets cost pressure, while faster delivery and AI tools like Magic Apron drive a fifth straight double-digit online comp.
HD · Earnings Call · 2026-08-18
A Tariff Refund With a Shrug
Home Depot's second quarter was a textbook case of a beat, a refund, and a shrug. Sales rose 5.7% to $47.9B, comps came in at +1.7%, and adjusted EPS of $4.92 grew 5.1%. But the market's focus was on the mechanics of a $685 million IEEPA tariff refund that reduced cost of goods sold. CFO Richard McPhail explained the optics: “The $685 million reduction in COGS was about 145 basis point gross impact to margin.” — Richard McPhail, Executive Vice President and Chief Financial Officer · 2026-08-18 That benefit was largely offset by ~60 basis points of incremental fuel, energy, and product input costs, leaving a net ~85 basis point tailwind—plus a 60 basis point drag from the GMS acquisition mix. The net result: gross margin expanded only 25 basis points to 33.7%. “We expect the tariff refunds to be fully offset by the incremental cost pressure… there shouldn't be a lap from an annual perspective when we head into 2027,” — Richard McPhail, Executive Vice President and Chief Financial Officer · 2026-08-18 McPhail added. tariff refund is a topic that has been building in global transcripts—it's top-10 in the latest global keyword list—and Home Depot's handling is a measured, repeatable playbook. Yet the real story isn't the refund; it's the underlying acceleration in digital and Pro.Digital and Delivery: The New Growth Engines
Home Depot's online comps grew 11%—the fifth consecutive double-digit quarter—with app traffic and conversion both up. The company is leaning into speed: 65% of in-stock parcel deliveries are same- or next-day, and this month it launched Express Delivery nationwide (3-hour delivery on tens of thousands of SKUs). Merchandising EVP Billy Bastek highlighted the breadth: “we saw 13 categories of our 16 positive comp, including storage, electrical, hardware, power, plumbing, indoor garden, kitchen, paint, bath, outdoor garden, building materials, flooring and millwork.” — William Bastek, Executive Vice President, Merchandising · 2026-08-18 The broadening is genuine—only 3 of the top 20 businesses were seasonal. On the technology front, the evolution of Magic Apron into a localized, in-store AI assistant is a quiet but powerful innovation. Ann-Marie Campbell noted: “we have seen greater associate engagement, better customer satisfaction scores and stronger sales.” — Ann-Marie Campbell, Senior Executive Vice President · 2026-08-18Pro Business and the Broader Market
The Pro business posted positive comps and outperformed DIY, with SRS comping above the company average. The cross-sell with GMS and the expanding Pro ecosystem are working. This is not a new theme—in the Q1 2026 call, management emphasized the ability to execute through any environment. “we've proven the ability to manage and take share through any environment,” — Richard McPhail, Chief Financial Officer · 2026-05-19 McPhail said then. What's changed is the empirical proof: 13 of 16 departments positive, Pro strength in portable power, decking, and concrete. The global trajectory shows delivery assets and complex purchase as rising themes across the sector, and Home Depot is clearly ahead of the curve.Bottom Line
Home Depot's Q2 was a quiet beat, but the machinery underneath—tariff refunds, delivery speed, AI tools, and Pro execution—is building a durable competitive moat. The stock is down 22% from its 2024 peak, and with gross margin at 33.0% (down 0.8pp YoY on a company-reported basis, but flat ex-GMS) and operating margin at 11.9% (down 1.0pp), the market is pricing in continued pressure. Yet management reaffirmed guidance for FY2026, implying the back half will see comps improve as comparisons ease. As Richard McPhail succinctly put it: “We are encouraged with the underlying demand we see in the business.” — Richard McPhail, Executive Vice President and Chief Financial Officer · 2026-08-18In a challenging housing environment, Home Depot continues to generate FCF of $5.0B (up 50% YoY) and returns capital via dividends. The real test will come when the tariff refunds lap and the core must stand alone. For now, the digital and Pro engines are gaining momentum—and that's the genuine story.Tariff refunds are a market-borne benefit, they're not unique to The Home Depot. And so you would expect when you see market-borne benefits or market-borne pressures, we are using those benefits to offset costs.