Home Depot (HD.US) Q2 conference call: Management says the “grab share in the headwind” strategy worked, and the three moats built “unreplicable” competitiveness
The Zhitong Finance App learned that Home Depot (HD.US) announced the results for the second quarter of the 2027 fiscal year ahead of the market on Tuesday. Both revenue and profit exceeded expectations. For the quarter ended August 18, the company recorded total sales of US$47.9 billion, up 5.7% year on year; comparable sales increased 1.7%. Thanks to the collaborative efforts of stores and digital platforms, 13 product divisions achieved positive growth, online sales recorded double-digit growth for the fifth consecutive quarter, and the professional customer business also performed well. The management reiterated the guideline of 0% to 2% year-round comparable sales growth, and is optimistic that the market share will continue to increase. It believes that the company will seize share with execution in the face of macroeconomic headwinds, and that strategic investment has entered a period of harvest.
Management believes that although the housing turnover rate is at a historically low level and demand for large-scale projects is under pressure, consumer participation in small maintenance projects continues, and the market has not deteriorated further. The company's second-quarter results exceeded expectations, with 13 categories and professional customer (Pro) businesses growing at the same time. Online sales grew in double digits for five consecutive quarters, proving that the “connected retail+store fulfillment” combo has paid off. Management specifically emphasized that the acquisition of market share did not depend on improvements in the external environment, but rather stemmed from continuous investment in store experience, supply chain acceleration (such as rapid national delivery), and a professional customer ecosystem — these investments are translating into higher customer satisfaction and stickiness.
On the cost side, management clearly stated that the $685 million tariff refund is a one-time market revenue. It has all been used to hedge against unplanned cost pressures such as fuel and commodities. The gross margin will remain stable throughout the year and will not drag down the 2027 base. Looking ahead to the second half of the year, management reiterated the guideline of 0% to 2% year-round comparable sales growth, believing that the range is still prudent and reasonable, and emphasized that organizational restructuring is aimed at improving agility and fueling the next stage of innovation. Overall, management is confident in its competitiveness and believes that the company is building a “physical+digital+professional service” moat that is difficult for peers to replicate, and has the ability to continue to expand its share in an uncertain environment.
The following is the Chinese translation of Home Depot's second quarter financial results conference call:
Executive speeches
Isabelle Yancey
Vice President of Investor Relations and Treasurer
Good morning everyone. Welcome to the Home Depot Q2 FY2026 results conference call. Joining us on the conference call today are Richard McPhail, Executive Vice President and Chief Financial Officer; Ann-Marie Campbell, Senior Executive Vice President; and Billy Bustek, Executive Vice President of Merchandise Sales.
After our pre-prepared presentations, the call will be open for questions. Questions will be limited to analysts and investors. [Operation Instructions] If we are unable to answer your questions during the call, please call the Investor Relations Department at (770) 384-2387.
Before I hand over the phone to Richard, allow me to remind everyone that today's press release and management statements at the meeting include forward-looking statements as defined by federal securities laws, including forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are risky and uncertain, and may cause actual results to differ materially from our expectations and predictions. These risks and uncertainties include, but are not limited to, factors set out in press releases and in our most recent annual report (Form 10-K) and other documents filed with the U.S. Securities and Exchange Commission.
Today's statement will also include certain non-GAAP financial measures, including but not limited to adjusted operating margins, adjusted diluted earnings per share, and return on invested capital. For reconciliation schedules between these and other non-GAAP measures and corresponding GAAP measures, please refer to the performance press release posted on our website.
Now I would like to give the floor to Richard.
Richard McPhail
Executive Vice President and Chief Financial Officer
Thanks Isabelle and good morning everyone. Before discussing the results, we would like to give a brief explanation about Ted's temporary leave due to health reasons announced last week. We wish Ted a speedy recovery and thank the many Home Depot partners for their support. We look forward to Ted's return in a few months, and we will keep you posted on any significant developments. An and I have an outstanding leadership team and dedicated board support. We will do our best to implement the company's strategy and win the market competition.
Next, let's take a look at this quarter's results. Sales for the second quarter were $47.9 billion, up 5.7% from the same period last year. Comparable store sales increased 1.7% over the same period last year, and comparable sales in the US market increased 1.3%. Second-quarter adjusted diluted earnings per share were $4.92, compared to $4.68 for the same period last year.
Second-quarter results surpassed our expectations, and teams performed well in a dynamic and changing environment. Customer participation in home improvement projects continued, and we saw a general increase in demand in various business sectors throughout the quarter. In the US market, both the northern and western regions recorded positive growth, while Mexico and Canada also achieved positive growth. While consumer uncertainty and housing affordability continue to weigh down the demand for large-scale home improvement projects, we remain focused on what we can control — advancing our core business and culture, creating a seamless connected experience, and winning the professional customer (Pro) market.
Next, I would like to ask Ann to speak.
ANN-MARY CAMPBELL
Senior Executive Vice President
Thanks Richard and good morning everyone. Promoting our core business and culture is at the core of what we do every day to provide the best experience for our customers. To this end, we continue to invest in store experience construction. The team is focused on maintaining record shelf availability, introducing innovative products, and deploying technology in stores to enhance the customer experience. At the same time, we continue to invest in building the employee experience through technology-enabled tools, making it more convenient for employees to serve customers than ever before. We've seen increased employee engagement, increased customer satisfaction, and increased sales.
We are continuing to upgrade our “Magic Apron” (Magic Apron), which is a prime example of our momentum. In addition to the website, employees and customers can now use the app within the store channel to navigate more efficiently, find products within seconds, and consult on issues related to products and projects, so they can complete home improvement projects with greater confidence. Customer feedback has been very positive.
In terms of connected experiences, we have made progress on a number of initiatives, including delivery. We know that delivery speed is critical to customers. Currently, more than 65% of deliveries can be delivered same day or next day for in-stock packaged products, and we are continuing to speed up. In fact, this month we launched an “Express Delivery” (Express Delivery) service across the US, where tens of thousands of products can be delivered within 3 hours. In addition, we have optimized the delivery model for major appliances to better serve direct sales orders. We have selected appliances in stock in select markets, which can be delivered the next day. Sales in these markets have increased, and we will continue to expand related initiatives.
We have also had success in the professional customer market. The professional client business achieved positive growth during the quarter, with strong performance across all customer segments. This is due to our many investments in system capabilities, product portfolio, volume supply, distribution, sales team, and professional services. While there is still room for improvement, it is clear that we are serving our professional clients better than ever before, and this customer partnership forms a strong and lasting bond.
Finally, I'd like to thank all of our employees for their hard work this quarter. I'm happy to announce that, based on our performance in the first half of the year, 100% of our stores are eligible for “Success Sharing” (Success Sharing) — a profit sharing program for hourly employees. These results prove our commitment to the business and the dedication of our employees to customer service.
Next, I would like to give the floor to Billy.
Billy Bustek
Executive Vice President of Merchandise Sales
Thanks An and good morning everyone. First, I would also like to thank all of our employees, suppliers, and supply chain partners for their continued commitment to serving our customers and communities.
As Richard said, second-quarter results surpassed expectations, and customers continued to participate in minor repair and maintenance projects. In the second quarter, 13 of our 16 commodity divisions achieved positive growth, including storage, electrical, hardware, power tools, plumbing, indoor gardening, kitchen, paint, bathroom, outdoor gardening, building materials, flooring, and wood products.
In the second quarter, the average comparable customer unit price increased by 2.8%, and the comparable transaction volume decreased by 1%. Large-value transactions (i.e. single transactions over $1,000) increased 2.4% over the same period last year. We are pleased with the performance of the portable power tools and outdoor patio categories. However, larger consumer options are still under pressure. In the second quarter, the business performance of professional customers was superior to that of DIY (self-decoration) customers, achieving positive growth. On the DIY side, several spring-related categories showed strong performance, including fresh plants, mulches, soil, hard landscapes, storage, outdoor patios, and grills. In terms of professional customers, several categories with strong professional attributes stand out, such as portable power tools, patio boards, specifications, pipes and fittings, fasteners, hand tools, and concrete.
Let's also take a look at the company-wide online comparable sales. Sales achieved through digital platforms increased 11% over the same period last year. This is the fifth consecutive quarter of double-digit year-over-year growth, thanks to our continued investment in connected platforms. Providing the best connected experience is a key component of the company's strategy, and faster delivery speeds are gaining customer recognition and driving higher engagement.
As Ann mentioned, we've made substantial progress in terms of delivery speed. This development is not limited to packaged products. For large, bulky products, we have also greatly increased the delivery speed. Specifically, over the past 18 months, our delivery cycle in the US market has been shortened by about 45%, which has led to an increase in customer conversion rates. Currently, about 55% of the products in stock are bulky and bulky deliveries can be completed within 2 days. In the future, we will continue to optimize the omnichannel fulfillment capabilities of all assets to better serve customers and enhance the connected shopping experience.
In the second quarter, we focused on products and projects that resonate with our customers. We focus on innovating, expanding our product portfolio, and reducing shopping friction points to provide a competitive value proposition. For example, we continue to achieve great success in the power tools category. In fact, the second quarter set a quarterly record for portable power tool sales. As we mentioned before, with our rich product line of battery platforms, we have established a strong competitive advantage and continue to expand our market share in these categories.
Another strong performing category is storage. We continue to develop our strength by relying on our own brand system and expanded product line. As our largest national loyalty brand for professional customers, Milwaukee PACKOUT has the most versatile and durable modular storage system in the industry, covering a variety of solutions such as tool boxes, organizers, and shelves. These modular units provide professional customers with easy access to all tools on the job site and at home.
In the home appliance category, we recognize that the trend of direct sales purchases is growing in the current environment, so we continue to upgrade our supply chain capabilities to deliver products more easily and faster to customers. Thanks to our investment, we are now able to provide next-day delivery coverage for nearly 60% of our core SKU (Stock Keeping Unit) population. We are encouraged by the positive performance of these markets and will continue to expand our population coverage and number of SKUs throughout the year.
Additionally, we are expanding our company-wide collaboration with USG. Home Depot will be the exclusive launch partner for USG's latest innovative product — ultra-light and durable gypsum board — in the hypermarket retail channel, further strengthening our leading position as the preferred building materials retailer for professional customers. This product is the lightest and most durable half-inch sheet on the market.
We are also accelerating our collaboration with another key specialty customer's exclusive brand of RUCO joint treatment products. RUCO has earned us strong loyalty among professional customers for decades, and we are excited to further expand their product line within our stores.
As we look ahead to the third quarter, our product sales team will continue to be champions of customer value. This means continuing to provide a full range of first-class products, ensuring that stocks are sufficient and available whenever customers need them.
Next, I would like to ask Richard to continue his statement.
Richard McPhail
Executive Vice President and Chief Financial Officer
Thanks Billy. Next, I'll spend a few minutes explaining the financial situation for the quarter. Total sales for the second quarter were $47.9 billion, up $2.6 billion from the same period last year, or 5.7%. The company's comparable sales increased 1.7% in the second quarter, with growth of 1.2% in May, 1.5% in June, and 2.3% in July. Comparable sales in the US market increased by 1.3%, with growth of 0.5% in May, 1.2% in June, and 2.2% in July.
In the second quarter, we received International Emergency Economic Powers Act (IEEPA) tariff refunds, reducing sales costs by $685 million. Although the refund was received in the second quarter, it will be used to offset unplanned and rising cost pressures throughout the year.
The gross margin for the second quarter was 33.7%, up about 25 basis points from the same period last year. It mainly benefited from IEEPA tariff refunds, but was largely offset by incremental pressure related to fuel, energy and other product input costs and changes in category structure brought about by GMS acquisitions. Our underlying gross margin performance was in line with expectations.
In the second quarter, operating expenses accounted for 19.4% of sales, up about 45 basis points from the second quarter of 2025. Operating expense performance was in line with expectations. The operating margin for the second quarter was 14.3%, compared to 14.5% for the second quarter of 2025. The quarter's intangible assets were $178 million before amortization taxes. Excluding amortization of intangible assets for the current quarter, the adjusted operating margin for the second quarter was 14.7%, compared to 14.8% for the second quarter of 2025.
Interest and other expenses decreased by $26 million to $524 million in the second quarter. The effective tax rate for the second quarter was 24.5% and 24.2% for the second quarter of fiscal year 2025. Second-quarter diluted earnings per share were $4.79, and Q2 2025 was $4.58. Excluding amortization of intangible assets, second-quarter adjusted diluted earnings per share were $4.92, up 5.1% from the second quarter of 2025.
In the second quarter, we opened 3 new stores, bringing the total number of stores to 2,364. Product inventory at the end of the quarter was US$26.8 billion, up about US$2 billion from the second quarter of 2025; the inventory turnover ratio was 4.5 times, down from 4.6 times the same period last year.
In terms of capital allocation, we re-invested approximately $880 million in the business in the form of capital expenditure in the second quarter. Approximately $2.3 billion in dividends were paid to shareholders this quarter. The return on invested capital based on the average of long-term debt and equity at the beginning and end of the past 12 months was 24.8%, down from 27.2% in the second quarter of FY2025.
Next, let's talk about the 2026 earnings outlook. Second quarter results surpassed our expectations. We are encouraged by the potential demand in the business and reaffirm our FY 2026 results guidance. We expect to continue to expand our market share, and the comparable sales growth rate is expected to be between flat and 2%; the total sales growth rate is about 2.5% to 4.5%, reflecting the contribution of GMS acquisitions, new store openings, new branches and supplementary acquisitions.
Looking at the full year, we expect the SRS business to achieve medium single-digit organic sales growth. We plan to open around 15 new stores and 40 to 50 new SRS branches. The gross margin is expected to be around 33.1%. Additionally, we expect an operating margin of approximately 12.4% to 12.6%, and an adjusted operating margin of approximately 12.8% to 13%. The effective tax rate target is approximately 24.3%. Net interest expenses are expected to be around $2.3 billion. We expect both diluted earnings per share and adjusted diluted earnings per share to be about 4% higher than in FY2025.
We plan to continue investing in the business, with capital expenditure of approximately 2.5% of sales for the 2026 fiscal year. We believe that with our competitive advantage and continued investment, we will continue to expand our market share by providing the best home improvement experience.
Thank you all for participating in today's call. We are now ready to begin the Q&A session.
Q & A session
Charles Grom
Gordon Haskett Research Consultants
Billy, I'd like to ask you to comment on the breadth of category growth this quarter. You mentioned positive growth in 13 categories. Can you talk in depth about which business areas have performed the most, and what are the prospects for the second half of the year?
Billy Bustek
Executive Vice President of Merchandise Sales
OK, thanks for the question Chuck. As I mentioned in my prepared statement, we have achieved positive growth in 13 of our 16 categories. If you look at our core business — electricity, plumbing, hardware, tools — both in-store and online, they have performed well. Online growth is strong. I mentioned positive double-digit growth, and these businesses have even surpassed the overall online growth rate. But what really matters is the parts category in the store. Specifically, out of our top 20 best-performing business categories, only 3 are seasonal businesses. As a result, we are very satisfied with the performance of the parts category in the store, which is the basis for broader growth, as we said in our prepared statement.
Charles Grom
Gordon Haskett Research Consultants
OK, great. Then Richard, about $685 million in tariff refunds. Can you explain how much of this is used for inventory that has already been transferred through the income statement and how much is used on the income statement for previous quarters? Also, are you expecting more refunds in the second half of the year? And in the face of this $685 million base effect next year, how should we view the impact on gross margin?
Richard McPhail
Executive Vice President and Chief Financial Officer
OK, thanks for asking. I'll provide some data to explain the tariff refund situation, then discuss the full year impact and next year's transition issues. We received $730 million in tariff refunds this quarter, all of which were paid around the end of June. These refunds account for the majority of the IEEPA tax refunds we expect to receive, and we expect to receive a small final payment (not significant amount) in the second half of the year. Of this $730 million, $685 million reduced sales costs by corresponding to sold products, and the remaining $45 million remained in inventory and would enter the income statement during the year along with inventory turnover.
So let's talk about the annual trend and its impact on next year's base. Regarding the specific impact on the current quarter: The direct impact of the $685 million sales cost reduction on gross margin was approximately 145 basis points. As we said in our prepared statement, these benefits were offset by an incremental cost increase of approximately 60 basis points on the cost side. Thus, it can be understood that the net return on the income statement from the customs refund is approximately 85 basis points.
Looking at gross margin data, we also have about 60 basis points of structural impact from GMS and MingleDorff's acquisitions. As a result, 85 basis points of net tariff revenue plus 60 basis points of structural influence achieved a gross margin increase of about 25 basis points compared with the same period last year.
Regarding the nature of refunds: Although refunds were received in the second quarter, we also faced unplanned pressures from fuel, energy, and other product input costs, which are expected to completely offset the benefits of tariff refunds throughout the year. Therefore, judging from the profit statement pattern, since all refunds are recorded when cash is received, you will see a certain income statement transfer between the second quarter and the third quarter.
Billy, maybe please talk about the current environment and our views on tariffs.
Billy Bustek
Executive Vice President of Merchandise Sales
Yes. Richard mentioned some input cost factors — incremental costs that were not planned at the beginning of the year. We do see incremental cost pressures associated with fuel, energy, and other product inputs (such as resins and metals in commodities), which were not included in our plans at the beginning of the year and are therefore incremental. Another point that may have been overlooked is that the tariffs themselves have undergone some unplanned changes. Section 101 expires in July — it was updated in February — and was replaced by Section 301 after it expired in July. These actually surpassed our predictions for 2026 at the beginning of the year.
So we are actively addressing these challenges. The procurement and supply chain teams are doing excellent work, but these are indeed incremental pressures not included in our 2026 outlook.
Richard McPhail
Executive Vice President and Chief Financial Officer
So, back to your question, Chuck, since we expect tariff refunds to be completely offset by the incremental cost pressure mentioned by Billy, we've reaffirmed our full year results guidance. So, while you may see some differences in the timing of next year's base effect at the quarterly level — we'll take you through that time — from an annual perspective, there should be no base effect as we enter 2027.
Scott Cicarelli
Truist Securities Research Division
Two questions. First, with regard to cost pressure comments, should we assume that the third and fourth quarters were 60 basis points of incremental pressure compared to the initial plan? Second, although the current rise in market interest rates is clearly unfavorable, according to your internal model, will high interest rates actually cause damage? Or is most of the damage already happening?
Richard McPhail
Executive Vice President and Chief Financial Officer
OK, thanks Scott. You should understand it this way — our opinion is that the tariff refund will mainly be used to offset second and third quarter costs. We expect gross margin levels for the fourth quarter to be roughly the same as the same period last year. So this is basically the second and third quarter dynamic, only slightly complicated by when the refund was received.
Regarding interest rates, I think — as we have said for the past few years, the housing turnover rate, as one of the economic indicators we are concerned about, has always been at a historically low level. As a percentage of the housing stock, it has never been this low. Historically, whenever the housing turnover rate hit a level of about 3%, it always rebounded relatively quickly. And we've seen housing turnover rates stay at these low levels for four years.
Therefore, I don't think the recent rise in interest rates has caused much fluctuation. We know that when interest rates drop step-wise, the housing market will begin to show some dynamism, but there is currently no sign of an inflection point.
Seth Siegman
Barclays Research Division
We also wish Ted a speedy recovery. I'd like to ask about the gap between company-wide comparable sales and US Depot comparable sales. Seems like this is the biggest gap in a few years. Can you talk more about why? Can the SRS business be viewed separately — has the business returned to positive growth? And how is the international business doing?
Richard McPhail
Executive Vice President and Chief Financial Officer
OK. First — we're happy to see — the gap between company-wide comparable sales and the US market first reflects exchange rate gains of around 25 basis points. But we also excelled in the international market and SRS business. An, please talk about the international market situation.
ANN-MARY CAMPBELL
Senior Executive Vice President
OK. Both Canada and Mexico performed better than the company's overall level, which is outstanding. I know we mentioned Canada last quarter, but it's very exciting to see Canada's accelerated growth. Canada's overall performance in the first half of the year was excellent — both this quarter and the first half achieved positive growth, and positive growth in trading volume and number of units, which is excellent. Mexico, on the other hand, has maintained a good momentum and continues to deliver excellent results. So this is not only the performance of the US market, but the performance of the entire company. Proud of the whole team — not only the US, Canada and Mexico are equally outstanding.
Richard McPhail
Executive Vice President and Chief Financial Officer
Exactly right. SRS's comparable sales this quarter were higher than the company's average, and all vertical sectors achieved positive growth, and appeared to be seizing a significant share of the market. We are very pleased with this acquisition and the cooperation of all parties.
Seth Siegman
Barclays Research Division
OK. Well, with regard to year-round comparable sales guidelines, I think this means that there is a fairly broad range of scenarios in the second half of the year. The median looked similar to the first half of the year but below the second quarter trend, although it was easier to compare the base in the second half. So what do you guys think of these scenes? What are the other components of comparable sales in the second half of the year?
Richard McPhail
Executive Vice President and Chief Financial Officer
OK. We were really encouraged by the team's performance this quarter, which surpassed expectations. The demand situation at the beginning of the third quarter was quite consistent with that of the second quarter. But we are aware of the current market environment — highly volatile. As Billy said, there is significant unplanned cost pressure on the market, and housing conditions are frozen. That's why we focus on what's manageable. We think the guidance range is still appropriate. Obviously, as the year progresses, the possibility of extreme situations in the range decreases, but we focus on doing what we can control.
Michael Russer
UBS Investment Banking Research Division
Everyone is trying to clarify how much Home Depot's performance in the second quarter reflected the company's own initiatives and unique factors, and how much reflected consumer re-participation in the home improvement market. Based on this, if you could analyze it in two simplified ways: First, our comparable sales accelerated by 110 basis points from the first to the second quarter — in simple terms, how much of this was due to accelerated market share growth, and how much was due to the moderate acceleration of the home improvement market itself from the first to the second quarter? Second, are you seeing evidence of consumer re-engagement — such as an increase in app downloads, an increase in bid room (bid room) inquiries, or an increase in the usage rate of “magic aprons” — which gives you some confidence that demand for home improvement has bottomed out and will improve?
Richard McPhail
Executive Vice President and Chief Financial Officer
Thanks Michael. Ann and Billy will explain the specific situation more vividly. But the core summary for this quarter was: Our team grabbed market share in a difficult environment. We are confident that the investments we have made place us in a unique position in the market. As we look at the broader market, all the data and the information we've heard from other market players suggests — the housing-related industry is still under tremendous pressure. So looking at our performance in this context, we are convinced that we are gaining market share. And it all starts at the store. Ann, please talk about what we're doing.
ANN-MARY CAMPBELL
Senior Executive Vice President
OK, thanks. Michael, we've seen very positive customer feedback on our initiatives — initiatives aimed at further empowering employees and providing excellent customer service. Frankly speaking, it's simple but important: starting with the right product on the market, the quantity and specifications must match the customer's needs. We have been increasing our shelf inventory rate, which is still at a record level.
Why is this so important to us? Because it's the foundation that drives excellent customer service. A high level of operational reliability is critical for our team, especially now that stores are playing a more important role in the delivery and fulfillment of connected experiences. However, in terms of connecting to digital assets, the key is to choose better and faster fulfillment, and to have the best products and brands that customers want. Billy and his team are very focused on driving innovation, and their ongoing efforts have been outstanding. Billy, innovation wins every day, your procurement team is excellent.
Billy Bustek
Executive Vice President of Merchandise Sales
Thanks for the affirmation. That's a great question, Michael. We often ask ourselves this question. We're probably scrutinizing ourselves more rigorously than anyone else. But there are a few different factors. Back to my prepared statement — we are very satisfied with the results, showing strong growth across all business lines. Of course, there are still pressures, particularly large-scale projects and optional consumer projects requiring financing, which is still an ongoing narrative in the business. But we just announced today that all stores across the US will launch Express Delivery (Express Delivery), and Ann mentioned it. There is also the delivery of the large, bulky products I mentioned earlier, and many of them are shipped from stores. The store staff and supply chain staff did an excellent job; we just did our best to satisfy our customers where they were, and it all started with the performance of the components in the store.
We are very excited about the results and the team's work, and salute the procurement team and collaboration with our supplier partners.
ANN-MARY CAMPBELL
Senior Executive Vice President
Michael, you mentioned the “magic apron,” and Jordan was there. I think this is a very important enabling tool in improving the employee and customer experience and eliminating friction. Jordan, the team received excellent feedback. Can you talk about the “magic apron” situation?
Jordan Brogey
Executive Vice President of Connected Retail
Of course you can. Michael, you mentioned online business — as Billy said, online growth was 11% this quarter, and both traffic and conversion rates increased. You mentioned the App, which is the fastest growing platform of all our digital channels, which is exciting. Moreover, this is still a good performance before we update our plans for the second half of the year.
We now receive millions of inquiries every month about “magic aprons,” and they continue to grow. It's a great tool for customers and we've had great feedback. An mentioned a more localized version of the “magic apron” this morning, which can understand the store scene and your location in the store—because if we know you're in this store, we can talk about this store's inventory first, so the nature of the problem and the effectiveness of the help would be better. We're very excited about the digital level of participation.
Richard McPhail
Executive Vice President and Chief Financial Officer
Jordan, since we talked about this, we made a lot of investments, and Billy also mentioned speedy delivery. Maybe you could talk about the news we posted this morning...
Jordan Brogey
Executive Vice President of Connected Retail
Yes. This morning we published a press release on Express Delivery (Express Delivery). Over the past few years, we have been building the fastest contract fulfillment capacity in the home improvement industry. This is a joint effort of procurement, stores, supply chain, and technical teams. We've talked about the “best location delivery” technology before, which integrates various assets to achieve fast delivery. As Billy said, 65% of in-stock packages can now be delivered same day or the next day, and 55% of bulky items can be delivered within 2 days.
What we announced this morning was Express Delivery — we've been testing in some markets for several months, and now we're officially rolling it out across the US. On homedepot.com, customers pay a small fixed fee to receive delivery within 3 hours. In fact, most deliveries can be completed within 1 hour. We will continue to shorten our commitment times over the next few months. We're excited about this — you might be a homeowner working in the yard and need an extra pack of grass seeds or fertilizer for quick delivery; you could also be a professional customer on the construction site who needs pipes or other products. We are very excited about the value this service brings to our customers based on a wider range of faster delivery.
Michael Russer
UBS Investment Banking Research Division
Thanks for all the thorough answers. My follow-up question is about gross margin. There were discussions in the market this morning that if tariff refunds are excluded, will Home Depot's profit forecast for the second quarter fall short of expectations? Well, Richard, it would be very helpful if you could take us to analyze what factors the 117 basis point gross margin pressure after excluding tariff refunds in the second quarter came from, and what was continuous and what was one-time.
Richard McPhail
Executive Vice President and Chief Financial Officer
OK. Michael, first I'd like to talk about our ability to consistently deliver results and keep gross margins stable — we'll come back to that later. Taking 2025 as an example, the cost environment we faced when entering 2025 was very different from what was expected. Excluding the structural impact of the acquisition, our gross margin actually fully met the planned target. In fact, over the past five years or so, Billy and his team have performed: we experienced unprecedented fluctuations in the cost environment, yet reached our goals year after year.
Tariff refunds allow us to offset incremental costs in the environment and enable us to maintain value in the market. Tariff refunds are market-level benefits and are not unique to Home Depot. Therefore, when there is revenue or pressure at the market level, we use these benefits to offset costs, and the market has also seen this, showing that product value was maintained this quarter under pressure in the cost environment.
Regarding the data you mentioned — I call it about 120 basis points of pressure. Of these, 60 basis points are incremental costs, which we offset through tariff refunds; the other 60 basis points are just structural effects of GMS and Mingledorff's acquisitions. We acquired GMS in September 2025, so this is just a base effect caused by GMS not being included in our books in the second quarter of last year. I'm confident — and Billy is — that even without a tariff refund, our results for the quarter will still exceed expectations; it's just a different pattern.
Kathryn McShane
Goldman Sachs Research Division
We want to focus on the customer unit price issue. We know this is one of your strongest comparable sales metrics, but it seems to be entirely driven by customer unit price. Can you talk about the structural dynamics within the customer unit price? How much of this comes from the same SKU's inflation (that is, the increase in product prices this quarter), and what other contributing factors?
Billy Bustek
Executive Vice President of Merchandise Sales
OK, thanks Kate for the question. There is indeed an increase in the average unit selling price (AUR) for the same SKU. As we mentioned in our previous call, this is related to some cost investment. At the same time, we have also seen some categories — such as refrigeration equipment, portable power tools, outdoor gardens, etc. — these are all high unit price items. They are not financial purchases, but large items purchased in a single purchase, which contributes significantly to the customer unit price. In addition, changes in the mix within the category — consumers upgrade purchases within the category — also have an impact. There are also seasonal factors, and more products such as lawn mowers were sold in the second quarter. But the most important thing is a single big purchase — as I mentioned, a transaction of over $2,500.
Kathryn McShane
Goldman Sachs Research Division
OK. A follow-up question is, I know you mentioned the extreme situation of the comparable sales range in your answers to the other questions, but if customer unit prices remain the same throughout the year and customer traffic improves slightly, will we be at the high end or even beyond the highest end of the range? What would that be like?
Billy Bustek
Executive Vice President of Merchandise Sales
Well, it's true, as you said, Kate, that's mathematically true. However, there is still a lot of volatility in the market, and as Richard mentioned, we think this is a prudent guideline. We'll be back at the end of the third quarter, when we have a more comprehensive outlook for the full year.
Christopher Hoffers
J.P. Morgan Research Division
Continuing questions about the potential needs of the business. The first half of the year always has a lot of weather effects. What do you think of the monthly performance of the second quarter — considering the weak start (probably affected by the weather), but the growth rate accelerated in July? What do you think of this question as we try to discern the right underlying trends? Also, with regard to the SRS business, I think SRS's comparable sales for the first half of the year were lower than the company average — negative in the first quarter and positive in the second quarter. Considering mid-single digit comparable sales expectations, will the gap between the US market and the company's comparable sales widen in the second half of the year as SRS's contribution to the overall situation becomes more positive?
Billy Bustek
Executive Vice President of Merchandise Sales
Chris, I'll answer the first part before I go back to SRS. Regarding the monthly rhythm and the weather factors you mentioned, only two very small factors actually contributed to this difference. In 2025, the United States will usually experience extreme heat for one week every year. It's that simple. In 2025, that week happened at the end of June, so it's included in our 5th period data. And in 2026, the quarter that just passed, extreme heat occurred in July. This point-in-time shift alone is enough to align the comparable sales between June and July.
Regarding May, it is clear that spring is largely driven by the North. However, in week 14 (that is, the first week of this quarter), the weather across the US was very bad. If only this week is excluded, the comparable sales performance in May is exactly the same as in June and July after excluding the influence of air conditioning. As a result, the performance was very stable throughout the quarter. And as I mentioned before, only 3 of the top 20 business categories for the entire quarter were seasonally related.
Richard McPhail
Executive Vice President and Chief Financial Officer
Regarding SRS, it is true that they have been accelerating during the year. In the second half of 2025, we experienced the least amount of storm activity in many years, and SRS was under pressure as a result. In fact, you can see from the data released by the market — Billy, do I remember that tile shipments fell 27% to 29% in the fourth quarter?
Billy Bustek
Executive Vice President of Merchandise Sales
Yes, that's right.
Richard McPhail
Executive Vice President and Chief Financial Officer
However, we are still in the early stages of the second half of the year, and we need to observe subsequent developments. We do expect SRS to achieve mid-single digit organic growth throughout the year. But I want to point out something important — not just SRS itself, but how all the elements come together. When it comes to professional customer business, it all starts at the store. As we consider SRS, may ask you to talk about the “QuoteCenter” (QuoteCenter) situation in the store.
ANN-MARY CAMPBELL
Senior Executive Vice President
Yes. We're excited about the value SRS brings and its enabling role in stores. As many of you know, the “Quotation Center” is one of our marketplaces. Historically, it has enabled stores to sell larger amounts of products through a network of third-party distributors. Now that we have SRS and GMS, our professional customers and sales teams can access SRS's full product catalog and are now able to complete sales within the “Home Depot Family”, which provides customers with a higher level of service capabilities than ever before.
There are some encouraging figures — “Quotation Center” sales generated through SRS have grown rapidly, and adoption has been excellent. Over the past 12 months, 90% of stores have completed a sale through SRS. When the store staff understood the full catalog and the capabilities brought by SRS, the entire team felt much more confident, and we were able to take advantage of the entire ecosystem.
Richard McPhail
Executive Vice President and Chief Financial Officer
So it really started in stores and then expanded to all components of the professional client business, particularly on SRS — we're getting significant incremental sales across all vertical sectors for home builders, commercial customers, and remodelers. Because as Ann pointed out, the combination of Home Depot and SRS's product catalog, plus GMS and HVAC — this expanded product catalog resonated with customers, and our professional customers told us that what we are building is unique and really appealing to them.
Christopher Hoffers
J.P. Morgan Research Division
A follow-up question is, regarding tariff developments in the second quarter and how they affect the second half of the year and 2027, did SG&A (sales, general and administrative expenses) shift to the second quarter in the second quarter — thus partially offsetting negative gross margin pressure in the third quarter? Then into 2027, the message is that the beginning of 2027 is clean, and we will continue to move forward based on current guidance. So is the message that if oil and energy prices stay at current levels, we will take steps — whether in terms of pricing or efficiency improvements — to eventually mitigate the impact so there won't be a gap on New Year's Eve?
Richard McPhail
Executive Vice President and Chief Financial Officer
Thanks Chris. Right, the most important point you've pointed out is that we've reiterated our guidelines, and the starting point for the end of the year is clean. Regarding second-quarter fees, we indicated at the beginning of the year that fees will fluctuate slightly during the year. We have FIFA marketing expenses — which, incidentally, ended up being a very successful marketing campaign for us. So I don't think the annual fluctuations in fees are significant; in the end, they will be in line with our expectations. But we're used to managing any cost environment, right, Billy?
Billy Bustek
Executive Vice President of Merchandise Sales
Yes. This has almost become the norm — compared to the situation in our history and 2025. I'm not sure all teams think this, but listen, we have a proven track record in managing inflationary and deflationary environments, we're confident in our ability to create value for our customers every day — and that's most important — and continue to improve the ability we're talking about today to keep working towards a seamless customer experience.
Zhihan Ma
Bernstein Institutional Services Research Division
Follow-up questions about customer unit prices. As you begin to compare the base of last year's tariff-driven price increases, it is clear that you are also facing ongoing cost pressure. What do you think of the average unit selling price (AUR) for the second half of the year? Is it necessary to reinvest the price?
Billy Bustek
Executive Vice President of Merchandise Sales
Yes, thanks Zhihan Ma. I think this is included in the second half of the year guidance Richard just mentioned. Therefore, we do not expect any changes to what we have already communicated.
Zhihan Ma
Bernstein Institutional Services Research Division
There's also a long-standing issue. You announced organizational changes a few weeks ago. Can you share the reasons for the adjustments and why you chose this point?
Richard McPhail
Executive Vice President and Chief Financial Officer
Yes. We're constantly evolving to better organize and align our strategies. These adjustments are part of our evolution and will enable us to work more efficiently, act more quickly, and innovate more quickly.
Zachary Fadham
Wells Fargo Securities Research Division
The first question is about cross-selling between SRS and GMS. You mentioned a target of $400 million for the whole year. My question is, how can this goal be gradually achieved during the year? How was the second quarter? What are the expectations for the second half of the year?
Richard McPhail
Executive Vice President and Chief Financial Officer
This is the amount we expect for the whole year. But importantly, this isn't limited to just between SRS and GMS. As Ann mentioned, cross-selling is what we expect to achieve across the entire system. In fact, you need to understand professional customer business this way — starting with the store and penetrating deep into the purchasing share of the store's professional customers. Ann, please talk about this...
ANN-MARY CAMPBELL
Senior Executive Vice President
I think that's the starting point — because the vast majority of our sales come from professional customers in our stores, we have to earn their recognition every day. We've been discussing over the past few years. We've not only improved the store's staffing model, but also provided professional customer service desks with tools and technology to truly enhance the experience of employees and the professional customers they serve. We know that by increasing our ability to win more complex purchases, we can expand our share with professional customers. We're seeing progress for those professional clients that use these capabilities.
So it's not just a matter of SRS or one link, but the entire ecosystem allows us to make a difference and drive growth momentum. I think this is very important because Mike and the team are continuing to advance these capabilities. Mike, can you add a few things you guys are working on?
Michael Rowe
Executive Vice President of Professional Client Business
OK. As Richard and Ann both mentioned, we continue to see steady progress and success in our professional client business, thanks to our investment in the professional client ecosystem. In particular, investments in order management and delivery capabilities have made significant progress. We achieved the highest punctuality and completeness rates for flatbed and box truck deliveries this quarter, as well as customer satisfaction scores, which fully proves this. These results stem from investments such as self-service on-site guidance mentioned by Ann, as well as investments to capture business hours for professional customers, and continued improvements in delivery tracking capabilities — all of which have increased visibility and transparency.
Additionally, our investment in B2B experiences is driving the excessive growth of professional clients' online businesses. This includes the increasing use of “project planning tools” to help us organize and manage deliveries for larger and more complex professional clients. We've also seen professional customers build a bill of materials and increase procurement through an AI-driven “bill of materials generator”. We continue to invest in search and B2B experiences, as well as app improvements to make them more responsive and agile. These capabilities allow us to win a larger share of professional clients' wallets.
Back to some of the specifics of your question, Zach - Ann talked about the successful experience of the “Quotation Center”. We have successfully cooperated with HD Supply in the past. Their customers use purchase cards in our stores, and we have also begun promoting SRS purchase cards for professional customers to use in our stores. As you pointed out, SRS itself is also using the GMS relationship when it comes to national-level production homebuilders — we've seen many success stories in this regard this year.
Richard McPhail
Executive Vice President and Chief Financial Officer
Well, thanks Mike, for summarizing this. Professional account teams have never been more collaborative. We've seen good momentum, we believe we're building something unique in the market, and our customers tell us it resonates with them. That is why we think this year has been a success so far.
Zachary Fadham
Wells Fargo Securities Research Division
Thanks so much for all the details. There's also a quick follow-up question — I don't want to get too bogged down in gross margin issues, but to clarify the connection between the second quarter and the second half of the year. We know that the revenue from tariff refunds gradually faded between the second quarter and the third quarter — the impact of the GMS structure of about 60 basis points will also subside. I'd like to know if these 60 basis points of fuel and freight are temporary, or will they go into an annual base like a freight contract and last longer?
Richard McPhail
Executive Vice President and Chief Financial Officer
You're mainly talking about incremental pressure at the market level — covering product input costs, fuel and energy, etc. But maybe to answer your specific question directly — since we've already answered a few questions about timing — the timing of refunds did generate point-in-time gains in gross margin, and you might see some degree of offset in the third quarter. The benefits were reflected in the second quarter, and we were able to use these economic benefits to offset costs, which was mainly due to developments in the second and third quarters. Again, by the fourth quarter, we expect gross margin to be roughly the same as the same period last year.